It was the line that, predictably, got a huge cheer from the packed room at the Adam Smith Institute. “I don’t trust any government,” said the President. “Not even my own.”
No, it wasn’t President Obama, unfortunately. The man with such low esteem of all things governmental was in fact Mikhael Saakashvilli, the President of Georgia, the post-Soviet republic on the Black Sea. Saakashvilli wrested his country from Russian domination in the bloodless ‘Rose Revolution’ of 2003, and has no faith at all in the benefits of a big state. He famously fired all the country’s police officers, reckoning correctly that they were part of the problem, rather than the solution — corrupt and much keener on protecting their own interests rather than the public’s.
The President was in London as part of a tour of European capitals to promote his pet project — the Liberty act, a draft constitutional law on liberty and opportunity which he proposed to the Georgian parliament on October 6 last year. The Act would lock into the constitution many of the principles enshrined in the Rose Revolution itself, and which contributed to the astonishing turnaround of Georgia’s economy, with growth rates of 9-12% before the world financial crisis (and even though the crunch gave everyone a knock, Georgia’s growth stayed positive right through).
The Liberty Act rests on four pillars: fiscal responsibility, freedom from bureaucratic interference, choice in social services, and returning power to the people. All would become constitutional obligations on future governments.
Under the fiscal responsibility rules, budget expenditure would be capped at 30% of GDP. (Saakashvilli’s audience in London could never remember it being so low here in Britain. Right now the government is heading to take over 50% of the nation’s income.) The deficit, annual borrowing, would be capped at 3% of GDP (again, in Britain, this year’s borrowing is nudging five times that). And the national debt would be capped at 60% of GDP (in five years’ time it will be 100% in Britain).
There would also be no room for fiddling the figures. In my new book The Alternative Manifesto I figure that the British government’s real liabilities are six times what actually appears on the books. The bulk of it is hidden off the balance sheet. There are huge potential liabilities, for example, from Britain’s chain-letter public pension system, and another huge unfunded liability for the generous index-linked pensions of Members of Parliament and public employees. In Georgia, by contrast, the Liberty Act would impose strict limits on off-balance sheet funds.
On the bureaucracy point, the Liberty Act would put a limit on the number of activities that need government licenses. In the Soviet era, you almost needed a license to get out of bed, and of course there was a lot of corruption in issuing them. The law would also ban the creation of new regulatory bodies. Price controls would be ended: even interest rates would be set by the market. The government would not be allowed to own banks (Britain’s government took a controlling stake in two after the financial crash), and there would be no controls on capital movements or currency rates.
But this constitutional revolution is not limited to creating economic liberty alone. The Liberty Act would entrench the idea that social programmes such as healthcare, education, and welfare) should be delivered through vouchers and cash benefits, rather than the state owning and running schools and hospitals. That means that government support can be focused on the individuals who actually need it, giving them the same market power as everyone else, and providing everyone with the benefits of choice and competition instead of services being dominated by unresponsive state monopolies.
Lastly, the Liberty Act would return power to the people, specifying no new taxes or increase in tax rates unless there is positive approval from a nationwide referendum.
It takes a brave leader to introduce a law that would bind the power and discretion of their own government. But the Liberty Act would put severe limits on the power of the executive branch, and ensure that government as a whole remains small in size and limited in scope.
But it is thinking like this that, since 2004, has made Georgia stand out as a great place for foreign investment. It may not have the AAA rating of the big, established economies. But to many entrepreneurs, it already seems a much more agreeable place to invest than in debt-ridden, spendthrift, over-regulated, over-taxed countries like Britain and America. Others, of course, still see the risks — that the ideas of the Rose Revolution could be overturned, as they have been in other East European republics like Ukraine. The purpose of the Liberty Act is to make these principles — prudent budgeting, a non-interfering bureaucracy, freedom of choice and limited government — irreversible.
Don’t you wish you had a constitution like that? I certainly do.