Georgia was in a deep, deep hole in the 90s: we lost 76% of our GDP per capita and only returned to 1990 levels by 2020 or so. I wondered recently: but how deep was the hole not in terms of GDP, but in terms of all the investment we missed out on? After all, if you want capitalism you need to have at least some of what economists call fixed capital: machines to make things, buildings to put the machines in, roads to move the things on, and so on. And we very definitely weren’t investing money in that for a long, long time. Others did invest and surged ahead—Turkey, for example (including by buying machines from us at the price of scrap metal, but that’s for another story). We did not. But how bad was it?

Well, I crunched some numbers and I am here to tell you that our investment hole, between 1991 and 2014 (when we finally returned to 1990 investment levels) is $50bn deep. Or maybe $70bn, depending on how you count.

Here is the main chart:

Dark blue is what we actually invested in buildings (including residences), machines, infrastructure, software (not including land purchases, though, and not including depreciation, either). You’ll see that this was $4bn in 2015 dollars in 1990 (first year for which I have the data) and then investment just collapsed. Light blue is what we missed out on until we returned to 1990 levels of investment in 2014, very conservatively assuming for the purposes of this calculation that in 1991-2013 we just stayed at 1990 investment levels, did not grow them, and only adjusted for population change (first upwards because of all the refugees from Abkhazia and then downwards as everyone ran for the exits as fast as they could). In this scenario, the total missed investment was $37.2bn in 2015 money and $49.5bn in the money of 2025 (adjusted using the US GDP deflator difference between the two years because we are talking about dollar amounts).

If you don’t adjust for population change, it gets worse (obviously):

We catch up by 2016—26 years later—and the gap is $50.6bn in 2015 money and $67.3bn in 2025 money.

Now, it doesn’t mean that if we had kept investing we’d have $50-70bn more of fixed capital in our economy today. Things depreciate. Software depreciation is usually 3-5 years, and machinery is 5-7—so if we had spent the money on that back in 1994, it would have long been written off (even if the Soviet-era machines still working all over Georgia beg to differ). Infrastructure, though, typically depreciates over 25-30 years, and buildings take 30-40. And buildings and infrastructure together account, in Georgia’s case, for 50-60% of GFCF, while software, machinery, and “cultivated biological resources”—i.e. fruit trees or cattle that is also thought of as fixed capital, even though it moves and moos—are the remaining 40-50%. So a large chunk of our missing GFCF would still be with us today as part of our capital stock. Not to mention that we missed out, in the past, on a whole lot of fixed capital use—if you never bought a machine, you never used it and never consumed what it produced, even if the machine would have depreciated by now. Or if you never renovated a village house you live in, you then spent a couple of decades using an outhouse in the yard instead of an indoor toilet (which reality only started changing in the part of rural Georgia I’m familiar with in about 2022 or so).

Fifty or seventy billion is a lot of money never to have invested and never to have enjoyed the fruits of. But fine, that’s the past. Even though it’s the kind of past that is very important not to forget about (then again, is there any other kind?). The question is: are we, at least these days, doing somewhat better?

And the answer is: not really. Or rather: we are doing better, but we are not doing enough. We are investing 21% of our GDP, which is appropriate for a developed country like France or Germany, but not for a country in which a lot of villages still don’t have paved roads and 600 thousand people are out of work. Even if you remember that 3-4% of our GDP is probably IT tax haven stuff that has nothing to do with what’s going on here, the figure turns into 22%. Not much better. We should be investing way, way more to cover for the 25 lost years and to start properly catching up with the wealthy world. How much more? Well, let’s look at what others are doing.

Here are China, Japan, and Korea compared to us going back to 1960/1970.

Japan and Korea both were >35% in their heady growth years. You’ll see what Korea did: they were investing basically nothing in 1960, and then, after Park Chung-hee came to power in 1961, started investing like crazy. Japan had already been investing like crazy since the 1950s and only fell below 30% in the 1990s (though still investing more than we are even today). And China kept pushing and pushing and pushing, going up to almost 45% at some point, and is still at 40% these days, which is very high.1

Let’s go closer to home.

Turkey and Romania: way ahead of us. Notice Turkey doing a heavy investment push from 1986 onwards. Bulgaria is worse than us—investment collapsed post-2008 and never recovered—but then we don’t really want to be looking up to Bulgaria, where things are bad enough, governance-wise, that they are missing out on hundreds of millions of EU grants just because the government doesn’t feel like getting things in order.

Central Europe?

A little less dramatic, though Czechia has been high all along (especially in the catch-up years in the 1990s, together with Slovakia), and Serbia, too, started a major investment push after 2017 (which has led to a whole lot of reindustrialization and job creation in the heartland). Don’t ask me what’s happening in Poland: they are doing well, from what I understand, but apparently with much lower GFCF levels than is the norm.

And finally for our neighbors in the South Caucasus.

Well, no surprises. There were some spikes: Azerbaijan in 2003 (connected to the start of the construction of the BTC pipeline) and Armenia before 2008 (why, I don’t know—maybe just money generally flooding in pre-crisis). Other than those spikes though, we are all basket cases around here, and if there is one thing we should be learning from each other, it’s what not to do. We should, I think, be looking up to Czechia, with 26%, Turkey, with 31%, or Korea, with 30%. Which means we need to be investing at least another 5% of GDP and better 10% every year. Which is $2-4bn a year on top of around $8bn a year (in today’s money) that we already do invest.2

You may, at this point, say: but listen, we are a poor country, do we really have an extra $2-4bn a year lying around, given that our whole budget is $10bn or so? And my answer is: absolutely we do. And we could probably find more than that, too. I’ve run some numbers already, but I’m not done yet, so let me write about this a bit later.

In the meantime, if there something you take away from this I hope it is that:

1. We have missed out on tens of billions of investment in the last three decades; and

2. We better fix that, and fast.