Why was Georgia the Richest Soviet Republic? Cold War DOCUMENTARY
Georgia is a country best known for rolling hills and mountain ranges, its nouveau riche resorts on the Black Sea, and its food and wine, which are all delicious. Georgia is also a growing tourist destination with a largely Western-leaning population. Remarkably similar to the Soviet period, in fact. The Georgian SSR was a popular destination for Soviet vacationers owing to its sub-tropical climate, and the benefits this afforded the republic contributed to some of the highest general living standards in the USSR. But it also quickly became
a pronounced hub of rampant corruption and gangsterism. So, how did this come to be, and how were such disparities possible in a communist empire where citizens were supposed to be equals? Did corruption help or hinder Georgia’s success? I’m your host David and today, we are going to look at the economy of the Georgian SSR. This is…the Cold War. For some people, gaming is a hobby, while for others, it’s a way of life, but we can all agree that War Thunder has something for all gamers! War Thunder is great because it lets me play the game I want to…Do I want to engage in a realistic tactical PvP battle? Or maybe a fast, action packed game? I get to choose! This is possible through the various immersion levels offered by War Thunder, made to suit any play style. And the historian in me loves the choice of over 2000 tanks, planes, helicopters and ships, spanning over 100 years of history from the 1920s to the present, which I can choose to take into dynamic, combined-arms PvP battles. Find out why my favourite is the B-2,9 with its ability to devastate an enemy base! Thanks to the incredible detail, even down to individual vehicle components and in 4K, War Thunder offers a highly immersive combat experience that I know you’ll love. You can play War Thunder FOR FREE on XBox, Playstation or
PC just by using our link in the description and, if you are a new or returning player that hasn’t played in the last six months, our link lets you claim a Large Bonus Pack! This lets you claim multiple Premium vehicles, Premium Account, an exclusive 3D vehicle decorator and much more but is only available for a limited time so click that link now! See you on the battlefield! The Georgian SSR was created in 1921 amid the throes of the Russian Civil War. It was one of the earliest republics to join the Soviet Union, officially incorporated as part of the short-lived Transcaucasian SFSR, together with the Armenian and Azerbaijani SSRs on March 12, 1922. Though the Transcaucasian SFSR would be disbanded in 1936 and Georgia would become a constituent republic in its own right from that point on, it nevertheless remained under the centralised, totalitarian control which characterised Josef Stalin’s tenure across the whole of the USSR. Stalin was born in the Georgian town of Gori in 1878 and his Georgian heritage did mean that the republic enjoyed a degree of privilege as early as the 1930s. Indeed, the now disputed region of Abkhazia, which at the time was designated an autonomous SSR within the Georgian SSR, was Stalin’s favoured holiday destination. He had a special dacha compound built on the
shores of Lake Ritsa, for example, and the now largely abandoned resort town of Tskaltubo near Kutaisi in the Georgian SSR was built-up in lavish fashion from 1926 onwards so that the Soviet elite and privileged workers could take advantage of the surrounding nature environment. Even throughout the destruction of the Great Patriotic War, Georgia remained a relatively tranquil and untouched place. German forces never reached Georgia despite their attempt to seize the oil fields in Baku to the east. In Georgia, a sense that Stalin had contributed to the defeat of fascism undergirded a pervasive sense of pride among many of his ethnic compatriots.
The fact that Stalin’s right hand man and leader of the NKVD, Lavrentiy Beria, was also an ethnic Georgian only strengthened this sentiment. It is important to note, of course, that at this time Georgians were largely unaware of the scope of Stalin’s and Beria’s crimes, like most Soviet citizens before the period of destalinisation under Nikita Khrushchev in the late 1950s. But it would still be accurate to suggest that the cult of personality surrounding Stalin was particularly strong in his home republic. Perhaps ironically though, it was precisely Stalin’s death in 1953 that would lay the foundations for the Georgian economy to truly boom in the subsequent decades. Indeed, Khrushchev’s infamous “Secret Speech” at the Twentieth Party Congress on February 25, 1956, in which he denounced Stalin’s personality cult and set in motion the processes of destalinisation, was met with widespread anger among Georgian communist politicians and the wider public. According to historian Donald Rayfield, this is because they felt that Stalin and Beria, and by extension all ethnic Georgians, had effectively been indicted by Khrushchev as bearing responsibility for all the suffering in the USSR.
This anger manifested itself in the form of protests and riots. On March 5, 1956, only days after Khrushchev had delivered his not-exactly-a-secret speech and on the third anniversary of Stalin’s death, several students laid flowers on the embankment of the soon to be demolished statue of Stalin that overlooked the Georgian capital of Tbilisi. Shortly after, as many as 10,000 people protested what they considered an “act of colonial oppression” in the words of Donald Rayfield. Protests also broke out elsewhere in the Georgian SSR with
two thousand people demonstrating on the streets of Sukhumi in the Abkhaz ASSR, twenty five hundred in Kutaisi, and a thousand in Batumi. The Politburo was so shocked by the reaction that Red Army and KGB troops were sent into Tbilisi to suppress the unrest, resulting in approximately one hundred and fifty deaths. Though the violence against the perceived Russification died down relatively quickly following the Politburo’s intervention, the demonstrations did have lingering political effects which can be linked quite directly to the economic success Georgia experienced in the 1960s and ‘70s. This included the establishment of several secret nationalist groups. For example, Zviad Gamsakhurdia, the son of well-known Georgian writer Konstantine Gamsakhurdia, revived the Gorgasliani society with Merab Kostava which had initially been set up in 1953 to defend Beria’s legacy. But it was just secret societies…more overt expressions of Georgian nationalism were also openly permitted. In 1958, Stalin’s statue
was replaced with the Kartlis Deda, the Mother of Georgia, a monument which still looks over Tbilisi today. These developments ultimately underpinned and reflected just how spooked the Politburo had been by the Georgians’ nationalist-fuelled reaction to destalinisation. In this context, the Moscow authorities granted Vasil Mzhavadnadze, the First Secretary of the Georgian SSR from September 1953 onwards, a relative degree of de-facto autonomy within the Soviet empire in the interest of maintaining order. OK, so, by the late 1950s the Georgian SSR had carved out a special political status for itself on top of the privilege it enjoyed as a top Soviet tourist region. But, we told you at the start of the episode that it was going to be about economics! So to best explore how these developments link to the economics, we first need to explore the industries on which Georgia’s economy was based. Tourism was obviously important, but what did Georgia provide for the USSR in an empire that placed so much emphasis on agricultural output and heavy industry? Well, according to statistics from The Caucasus: An Introduction by expert Tom De Waal, just one tenth of overall trade in the Caucasus was conducted within the region itself, with the rest going to other republics. Georgia was
crucial to this export-based trade principally because its sub-tropical climate enabled it to produce things that other Soviet republics could not. Specifically, the small republic of Georgia was alone responsible for the production of 95% of the tea in the Soviet Union and 90% of its citrus fruit production. Flowers, tobacco, and of course wine were some other major exports. With more than 1/3 of Georgia’s then population of approximately 4 million engaged in agriculture, it is quite clear that this was crucial. And that other Soviet hallmark, heavy industry? Well, according to official statistics in the 1970s, heavy industry was responsible for 2/3 of the Georgian SSR’s gross output and had grown five-fold since the early 1950s. But, looking at official Communist Party statistics doesn’t at all indicate that these sectors made Georgia anywhere near the richest republic in the USSR. In fact, nearly the opposite is true. In terms of national income, Georgia was in 7th place behind Russia,
Ukraine, Belarus, Uzbekistan, Kazakhstan, and Lithuania through the 1970s and ‘80s. In per capita terms, one might expect Georgia’s overall performance to improve given its comparatively small population. But here, Georgia performed even worse: in 1970, Georgia was in 11th place, making it one of the poorest republics on paper. Yet, paradoxically, a New York Times
report from 1971 stated that: “nowadays fashion and affluence walk the streets of the capital of Soviet Georgia in droves of wet-look coats or brightly coloured slacks for women, rarities in most of the Soviet Union.” Meanwhile, the rate of private savings in Georgia was approximately double the rate of the average elsewhere in the USSR, and rates of private car and home ownership were also comfortably the highest. So this begs the question: where did the perception of Soviet Georgian affluence come from, and why did official Soviet statistics not reflect this? Well, the simple answer is that the Georgian SSR was probably richer than the rest of the republics in real terms, just unofficially. This is where the political developments we mentioned earlier come into play. Because Mzhavadnadze was given a blank cheque by Moscow to govern Georgia mostly as he liked provided he remained within an ostensibly socialist framework, centralised economic monitoring practices were relatively weak in the Georgian SSR. The result was the emergence
of a quasi-capitalist, underground economy. This is generally referred to as a “shadow economy,” or perhaps known better as the black market. In practice, this meant that well-connected individuals and party officials who ran state-owned factories, in other words, any party member or enterprise manager, stole state property to produce unofficial goods which could then be sold on the black market for a hefty profit. To give you a better idea of how this worked, a
1983 research article by Gerald Mars and Yochanan Altman provides an insightful example. Based on stories from informants behind the Iron Curtain, they found that one biscuit factory in Georgia with 500 employees produced four biscuits for illegal sale on the side for every ten biscuits it produced to meet state targets, sold legally on the official state-controlled market. This research revealed similar examples from various industries all over Georgia. From Moscow’s point of view, then, they were satisfied: even if state property was being stolen, they turned a blind eye because production targets were being met and Georgia remained politically stable. But
Georgians were even happier: they were free to benefit from the subsidies and goods the state provided while simultaneously making some extra rubles for themselves, all for minimal risk. The fact that the more exotic goods Georgia produced, like fruits, vegetables, and wine were difficult to trace made black market trade even easier. Georgians were quick to identify the lucrative opportunities that party membership and high-ranking positions could provide. The Georgian SSR thus ended up with the highest per capita party membership of any republic in the USSR despite being a reluctant member of the union, by all accounts. Indeed, by 1982, 826 out of every 100,000 Georgians were card-carrying Communist Party members. Though this does not
sound significant, for comparison the number was 774 in Russia and 706 in Belarus but more starkly, in Turkmenistan and Tajikistan the numbers were just 320 and 268 respectively. In such a small republic, then, Georgia’s party membership was disproportionate in both per capita and real terms. But even ordinary, non-Party members took advantage of Georgia’s unique position within the USSR. In 1971, it was estimated that private plots of land, a relative
rarity in the Soviet Union, accounted for 40% of Georgia’s overall agricultural output despite the collectivisation of the overwhelming majority of its farmland. The result was that many Georgian farmers’ incomes were up to 10 times higher than those of farmers in the other republics. Perhaps most notably, these developments gave rise to a series of corrupt businessmen in the ‘60s and ‘70s who were intertwined with Georgian politics at the very highest level. Otari Laszishvili was one such businessman. First Secretary Mzhavadnadze acted as his krysha, meaning “roof” in Russian, a colloquial expression for protection, and tolerated Laszishvili’s shadow business empire in exchange for personal favours and bribes. According to Mark Galeotti, it was said that Laszishvili “had bath taps made of gold at a time when ordinary Soviet citizens could wait years for new fittings, and that he would fly to Moscow to watch the Dinamo Tbilisi football team, wagering thousands of roubles on a game.” So much for the equality of communism, right? Another
figure to emerge was the writer and businessman Jaba Ioesliani, who lay low until the late 1980s but quickly emerged as a well-connected, powerful, and very wealthy nationalist leader, just as the USSR collapsed. Such individuals were known as the vory v zakone, or thieves in law, during Soviet times, and many remain powerful figures in post-Soviet countries even today. We should point out though that the development of a shadow economy was by no means unique to the Georgian SSR. High-ranking party officials were corrupt largely across the board. Take the
Uzbek Cotton scandal uncovered during the late Brezhnev era, for example, in which over 4,000 individuals were eventually found guilty of corruption offences committed under the rule of First Secretary of the Uzbek SSR Sharof Rashidov. Alena Ledeneva’s research has also highlighted the pervasiveness of blat among ordinary Soviet citizens. This is not to be confused with the Russian word blyat which means something very different.. In essence, the concept of blat refers to the informal connections and networks people relied upon to access rare goods or services that were otherwise unavailable in the inefficient planned economy of the Brezhnev era.
But even if corrupt and informal economic practices were an open secret across the USSR, there are some well-researched cultural factors endogenous to the Caucasus that meant that they were especially widespread in the region. Of course, the fact that Georgia, alongside Armenia and Azerbaijan, were all fairly autonomous from Moscow given their strong and potentially threatening sense of national identity that predated the Soviet Union mattered greatly. Equally though, the values of kinship and honour that underpinned family and social ties were vital. According to Gerald Mars and Yochanan Altman, “if trust
is important to the second economy, networks – particularly those based on the family – are its backbone. In a highly personalised society, where a person is measured on his honour – and on the honour of his closest associates – the body of people to whom he can personally relate and through whom he can extend relations with others who might latently provide significant becomes an individual’s major resource.” In short, the personalised and informal ties which enabled illegal trade networks to thrive were already well-established tenets of Georgian social life. Informal economic practices thus went on largely unhindered as people worked together to dodge the state’s already weak enforcement practices. Of course, the scale of informality in Georgia did not go wholly unnoticed by the central authorities. On February 22, 1972, the Twenty-Fifth Party Congress denounced Mzhavadnadze’s government for its corruption and he was swiftly removed as First Secretary of the Georgian SSR. His replacement,
Eduard Shevardnadze, the same man who would later go on to become Mikhail Gorbachev’s Minister of Foreign Affairs in 1985, was appointed as his replacement in July later that year. Shevardnadze quickly sought to establish himself as a fighter of corruption. Estimates suggest that by 1977 alone 25,000 people had been arrested on corruption charges, including numerous party officials. He also dramatically improved the official economic statistics of the Georgian SSR in line with Politburo expectations. By this point though, Georgia’s shadow economy was so entrenched and endemic that Shevardnadze simply could not get rid of it in its entirety. In the early 1980s, for instance, researchers still estimated that 25% of Georgia’s gross national product came from its shadow economy. Shevardnadze was equally reluctant to place the Georgian SSR further under Moscow’s thumb, which possibly could have improved the official situation. Indeed,
he managed to enshrine the official status of the Georgian language in Georgia’s constitution in 1978, providing further evidence that Georgian politicians were unwilling to compromise on the relative autonomy and national expression that they had become accustomed to. Georgia’s shadow economy therefore continued to boom secretly throughout the 70s and 80s. So much in fact that by 1989 over 50% of Georgia’s urban housing stock was in private hands. But these good times would not last. In 1987, Gorbachev passed the Law on Enterprises as part of his perestroika reforms. The 1987 law stipulated that state enterprises could determine output levels based on consumer demand: they still had to fulfil state orders, but they could do what they wanted with any remaining surplus. Then, in 1988, Gorbachev passed the Law on Cooperatives,
which legalised some private activity in the economy. The problems these laws created are extremely complex and multi-faceted, but broadly speaking they can be boiled down to two major issues. First, the state continued to provide the raw materials for production, but because the 1987 law effectively devolved production targets to the individual republics, the state destroyed its capacity to monitor whether those centralised production targets were actually being met. Second, and more fatefully, the state continued to artificially
subsidise the price of goods but simultaneously legalised sales on the free market with the 1988 law. Prices on the free market were thus much higher than those on the state-controlled one, and therefore obviously more profitable. The outcome was that, rather than fulfil their obligations to the state, which the centre could no longer monitor, enterprise managers simply started selling state-owned resources and goods on the free market. The continuation of subsidies on the official market meant that these sales tended to be either on the black market or overseas, magnifying the huge shortages of goods that marked the USSR in the late Gorbachev period.
Remember the example of the biscuit factory in Georgia, where for every ten biscuits produced for the state another four were produced for the black market? Well now, the biscuit factory didn’t even have to make the ten biscuits for the state. And, to make matters worse, this was now possible in almost every single republic, industry, factory and farm in the USSR. It is not difficult then to see how this situation became totally unsustainable very quickly. Though the dynamics unleashed by Gorbachev’s perestroika reforms had been taking place in Georgia for decades, the fact of the matter is that the main reason the informal, shadow economy was profitable for many Georgians is because of the macroeconomic stability of the official economy. In the late 1980s, however, as previously state-owned goods and the means of production became concentrated in fewer and fewer hands, enterprise managers, party members, and the thieves in law mostly, ordinary Georgians who had benefited from the shadow economy in the past were now left without their piece of the pie. Thus, the private savings and property that
they had built up during the preceding decades were wiped out incredibly quickly as the value of the ruble collapsed and inflation skyrocketed. By the time Gorbachev announced the dissolution of the USSR in December, 1991, the Georgian economy was in ruins, just like those of the other former republics. Matters were made worse when the first President of Georgia, Zviad Gamsakhurdia, the same Gamsakhurdia who had revived the Gorgasliani society in 1956, faced a two year civil war as Abkhazia and South Ossetia sought independence from Georgia. The figures who had made their fortunes in the Soviet shadow economy and then the collapse did not miss the opportunity to form their own power bases amid the fighting. Jaba Ioseliani, one of the thieves in law we mentioned earlier, led the Mkhedrioni militia which played a key role in the violence of the Abkhaz war. Another, Tengiz Kitovani, led the National Guard of Georgia.
When Eduard Shevardnadze returned as the President of Georgia in 1995, he ended up appointing Kitovani as his Defence Minister. This was highly emblematic of how Shevardnadze’s governance of independent Georgia was based on pacts and political alliances with former key figures in the Georgian SSR’s shadow economy. Much like how Mzhavadnadze had provided protection for such figures in Soviet times, Shevardnadze’s government was therefore characterised by similarly shady dealings. Shevardnadze’s extremely corrupt regime would eventually be overthrown in the peaceful and popular Rose Revolution of 2003, giving rise to the controversial figure Mikheil Saakashvili who’s hard-line anti-corruption stance to some extent represented Georgia’s first attempt to truly eradicate the legacies of the corrupt shadow economy that had emerged under Soviet rule. Overall, there is lots to learn about the Soviet Union through the lens of both the Georgian economy and the republic more broadly. Georgia’s case not only complicates the idea that the USSR
was a totalitarian monolith, but also shows that these differences resulted in surprising economic disparities which perhaps foreshadowed those that would ultimately lead to the final demise of the Soviet governance model. Even more notable is the stubbornness of the legacies Georgia’s shadow economy created. These legacies have clearly affected crucial developments since Georgia’s independence, and remain key challenges in Georgian politics to this day.
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