Privatisation and Tax Reform – Lessons from Georgia and Poland

Abstract

A number of Eastern European countries have implemented tax and privatisation policies that have led to robust growth and improved economic governance. There is much less evidence of countries effectively dismantling or weakening existing, entrenched oligarchic structures as part of this process. Oligarchy is understood here as a system of governance in which a small, informal, economically powerful group dominates political decision-making. Business-state relations in oligarchic societies are characterised by personalisation, secrecy, and frequent illegality. The experiences of Georgia, Poland, and Estonia stand out as countries that have either instituted a relatively healthy business-state relationship (Poland and Estonia) or that have managed to curb corruption and foster a competitive capitalist economy (Georgia). This report draws mainly on the experience of Georgia and Poland . It identifies privatisation and tax reforms that have produced economic outcomes that can reasonably be judged to enhance growth and (to a significantly lesser extent) weaken entrenched state-business networks. However, these reforms have almost always been part of a larger program of economic and political restructuring, making it difficult to establish whether specific policies led to the desired outcome or if they interacted with a range of other processes in doing so.