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Category: POLITICAL ECONOMY

  • The Crisis of Development and the Alternatives: Politics of the Commons and the Potentials – Ümit Akçay

    The Crisis of Development and the Alternatives: Politics of the Commons and the Potentials – Ümit Akçay

    In response to the economic and ecological crises which are becoming more and more frequent, more serious questions have emerged about hegemonic notions of development, which are based on the assumption that economic growth, namely the increase in commodity production, may continue forever. The discontent with the hegemonic development approach and the economic policies implemented in line with that approach has become all the more apparent following the global economic crisis which began in the USA in 2008 and has continued up to this date.

    On the other hand, we see that the fundamental problem of the social oppositions which emerged in many regions ranging from the Occupy Street movement in the USA to the social movements in Latin America, from the revolts in the Arab regions to the demonstrations against the austerity policies in Europe and the resistance at Gezi Parkı in Turkey is related to how to turn that social energy into a transformative capacity and to unite these movements around an alternative program. Within this context, it has become all the more important to leave the hegemonic development approach and to discuss alternative policies that aim at surpassing the capitalist social relations, which are the basis for this hegemonic approach.

     

     The “Invention” of Development

    The development of capitalist social relations marks the point in history in which the idea of moving economic growth beyond the limits of nature was brought to the fore. In that regard, capitalist development involves the assumption that economic growth may increase year by year in a linear fashion forever.

    On the other hand, the issue of development was brought to the agenda as the theory of capitalist development came to be used for the countries categorized as “under-developed” under the international economic-political conditions of the post-World War II era. Although focusing on economic growth, this idea of development was constructed in relation to such concepts as “modernization” and “progress” within the period in which it emerged and was based on the belief that the late capitalist countries would catch up with the early capitalist countries if the traditional economies were modernized and industrialized.

    Three fundamental dynamics have been influential in this process which may be called “the invention of development.” The first dynamic was the development of a social system alternative to and opponent of the capitalist system in the USSR and the emergence of the Cold War conjuncture in the post-world war II era. This era witnessed the escalation of the war between the two social systems that competed with each other to have controlling influence over large geographic areas.

    The second dynamic, which needs to be evaluated in relation to the first one, was the process of de-colonization which also started in the post-1945 period. In this process, the previously colonized countries established new nation-states and one of the most important agenda of the Cold War pertained to the question of whether these new nation-states would choose the capitalist or the socialist camp.[2] The third dynamic was the change in the hegemonic understanding of economy following the crisis in 1929. Accordingly, the neoclassical approach to economy, which argues that the freedom of markets would result in economic growth and ensure the effective distribution of resources, was replaced by the Keynesian approach, which suggests that state intervention may be utilized actively to solve the problems which cannot be solved with the free operation of the markets. The legitimation of the state intervention by the Keynesian approach laid the necessary intellectual ground for the emergence of development economics, which argues that systematic state intervention is needed in “under-developed” countries to direct them towards development.[3]

    The fundamental aim of the concept and practices of development that emerged as a result of these three dynamics was to ensure that the late capitalist countries ally with the Western countries and that their economies integrate into the capitalist system. In this context, the concept of development is an invention of the USA to a large extent.[4] However, to the extent that it represented a “common good,” the concept of development was also an important tool of social legitimacy for the political elites engaged in state-making practices in late capitalist countries. The development policies which were practiced in most of the late capitalist countries between the years 1945-1980 were able to be implemented through the three-partite program that evolved in the sphere of legitimacy opened up by Keynesianism. This program was comprised of systematic state intervention, industrialization strategy based on import substitution and development planning.

     

    Neoliberal Development

    The fundamental feature of the development policies implemented between the years 1945-1980 was the systematic state intervention and the creation of the necessary conditions for the accumulation of capital within the domestic market by means of a foreign trade policy based on import substitution. However, when the crisis of the industrialization strategy based on import substitution in late capitalist countries overlapped with the structural crisis caused by the tendency of the rate of profit to fall in the early capitalist countries in 1970s, the hegemonic approach to development underwent a change.

    The dramatic increase in the interest rates aimed at controlling the inflation in the USA triggered the debt crises in the Global South in the early years of 1980s. With the subsequent conditional structural adjustment credits issued by the IMF and the World Bank, the hegemonic approach to development was turned into a market-centered approach negating state intervention. The fundamental properties of this new model that can be called “neoliberal development” may be summarized by the policies of the Washington Consensus. To the extent that it is based on a critique of the previous conception of development, the neoliberal development approach claimed that the interventions to the operation of the market are the fundamental reason for the stagnation of the economic growth. The neoliberal development approach continued to be centered on economic growth and argued that economic growth is to be realized through strategies based on private property and the market rather than public initiatives such as state intervention.[5]

    The 1980s and 1990s were the years in which the neoliberal development policies were implemented in the Global South. The neoliberal approach to development was revised in 2000s when it could not provide the results it promised through the market-based de-regulation policies such as privatization, restricting public services, putting pressure on wages and the liberalization of foreign trade and capital movements. The post-Washington Consensus inspired by the institutionalist economics represents the revisions in neoliberal development. Accordingly, the markets may not be perfect; the state has a regulatory role to play especially with respect to such matters as asymmetric levels of information and externalities.[6] Therefore, pro-market state intervention and regulation was brought to the agenda for the sake of such reforms as developing autonomous regulatory institutions, ensuring the independence of the central bank and strengthening and protecting property rights.[7]

     

    The Crisis of Development

    The implementation of the neoliberal development approach, which is based on the belief that the freedom of the market may solve such problems as economic growth, unemployment, effective distribution of resources or economic crises has led to another wave of commodification in the post-1980 era. This new wave of commodification operated in two ways. The first one operated through the privatization of public enterprises while the second one involved the commercialization of the very logic of public enterprises and their inclusion in market relations. This new wave, called “accumulation by dispossession” by David Harvey[8], pursued an incremental progression well into the 2000s, which were the years in which policies of the post-Washington consensus revised by the institutionalist approach were implemented. Therefore, very little of what was promised to the late capitalist countries was delivered through the discourse and practices of development in the post-1945 era.[9]

    The recent developments in the market-centered approach to development have focused on micro strategies aimed at reducing poverty.[10] In this framework, it is argued that such practices as financial inclusion and its improvement would accelerate economic growth. It is not hard to guess that the financial inclusion policies proposed in the 2000s when personal indebtedness exploded worldwide will lead to further household indebtedness.[11] Therefore, in line with the financialization of economies worldwide, the market-based solutions developed in response to the crisis of development propose a framework which may be defined as “more of the same.”[12]

    The new developmentalist proposals emerged as an alternative to the limitations of the neoliberal argument for a development framework in which the state resumes a more active role by “returning to the origins”[13]  to implement selective industrial policies.[14]  However, the problem with this approach is that it positions the state as the guiding force of this type of development framework at a time when the relative autonomy of the state is increasingly restricted.[15]  The reason is that the state which they call back is not the same as the state of today. Now the state is not simply an active executor of neoliberal policies but is increasingly managed like a company itself.

    In short, the neoliberal and state-centered suggestions, despite being based on different theoretical frameworks and socio-political alliances, both take the capitalist development process for granted and therefore, have not been able to develop satisfying responses to the inequalities and crisis tendencies inherent to this process. This process points to the crisis of development itself. This means that there is an undeniably huge gap between what was promised to late capitalist countries with the invention of the concept of development in the post-1945 era and what has been realized up to this date.

     

    The Alternatives: Politics of the Commons and the Potentials

    Actually, the “crisis of development” is not a new issue. For instance, Escobar claimed in 1990s that the development approach of 1960s came to an end and this concept needed to be re-defined in line with the demands of the newly developing social movements.[16] The suggestion that Escobar made more than 20 years ago is still valid today. Within this framework, the increasing frequency of economic and ecological crises requires a re-evaluation of the thought and practices relating to development through a perspective which questions capitalism, the dominant mode of social organization, and aims at moving beyond it.[17]

    In this context, it is all the more important to think about a framework of social development which aims at surpassing commodity relations to move beyond the current crisis of development. In this framework, the politics of the commons, which is discussed more frequently in the recent period, carries crucial potentials.[18]

    The politics of the commons aims at founding a system of thought and practice which brings to the agenda models of commoning, production and management oriented towards surpassing the divisions between economics and politics or the public and the private. If we are to think within this framework, we need to elaborate on three fundamental columns on which we may build social development models aimed at surpassing commodity relations: democratization of economy, self-government and democratic planning.

    Democracy is used as a concept restricted to the political sphere in the hegemonic approach to development. This construction of democracy assumes that people who are citizens of a country are free as political subjects and are equal before the law. However, when we transfer this concept of democracy restricted to the political sphere, to the economic sphere, we see that the only freedom we have is the “freedom” of private property. That is the root of the problem. When the inequalities established in the economic sphere are not addressed, the political equalities become nothing but hollow concepts. Therefore, the alternative perspective to social development which needs to be developed has to go beyond this apparent division between the economy and politics and to see the economic sphere itself as a site which needs to be democratized.

    When we approach the issue with this framework, we could see that the hegemonic development approach has always had a technocratic content. In this context, the fundamental problem with the hegemonic development perspective is that it prioritizes increasing capital accumulation to the extent that it is based on economic growth. It is inevitable that the accumulation of capital within the capitalist mode of production will increase social inequalities and the economy will continue being a fundamental site in which social inequalities are instituted. Therefore, democratization of the economy is one of the essential components of a politics of the commons aimed at surpassing commodity relations. Accordingly, real democracy may only be instituted if political equality and freedoms are supported by economic ones.[19]

    When we approach the process of democratization of economy more concretely, we have on our agenda the issue of supporting and developing public enterprises which would surpass private property relations, the basis of inequalities in the economic sphere. However, this does not simply mean calling back the state as is the case in new developmentalist approaches. The politics of the commons must simply argue for communization rather than nationalization. The reason is that profit–driven enterprises subjected to market relations would have limited social benefit even if they are owned by the state. Therefore, when the public enterprises are supported, they need to ensure that workers participate in the management of the enterprises in which they work and that they are inspected by the workers themselves together with the expert institutions. Therefore, the perspective favoring the democratization of economy argues for communization instead of nationalization and thus, emphasizes the need for the development of common mechanisms of production, management and inspection.[20]

    Based on this argument, we may approach the second component of the politics of commons, which is the issue of self-government. The units of self-government, which are possibly the principal components for the democratization of economy, are also potentially the principal components of a social development project aimed at surpassing commodity relations. The concept of self-government is commonly used in relation to the political sphere. However, the institutions of self-government may also function as the fundamental mechanisms which could enable the workers to have the right to speak and participate in decision making processes both within a production process based on use-value and in the management process in general. These institutionalizations may be possible through cooperatives in agricultural sector, communized production units in industrial sector and common credit unions in finance sector.[21]

    Finally, the mechanism of democratic planning will be the complementary component of the politics of the commons by serving both the democratization of the economy and the coordination of units of self-government. As is known, the hegemonic theory and practice of development are not unrelated to the debates on planning. Despite having been discredited by the neoliberal development approach,[22]  development planning was a commonly used method, especially between the years 1945 and 1980. The new developmentalist approaches proposed as an alternative to the neoliberal development today bring the issue of development planning to the agenda. However, the fundamental problem with both the previous practices and the new proposals is that they argue for an economic planning by taking private property and the capitalist system for granted. In that case, various tools such as guaranteeing profit or tax reductions and subsidies were used to steer the investment of profit-driven private companies towards desired sites. However, in this structure, no sanction is applied to the capitalists if they do not act in line with the priorities of the plan. The plans prepared following these practices became shelved technocratic documents and since there was no sanction at stake, these documents were also used as a tool in canalizing social resources to the companies to support the accumulation of private capital.[23]

    The planning initiatives which take the capitalist system for granted constitute one of the fundamental contradictions of the theory and practice of development. However, the failure of the development plans does not mean that the mechanism of economic planning is to be abandoned. There is no proof to suggest that the free operation of the market system may have any positive results in the face of the ecological and economic crises which have become more frequent. In addition, economic planning has become all the more possible at the current level of technological development. Therefore, democratic planning is indispensable for the coordination and development of common initiatives feeding on the participatory mechanisms of self-government units and aiming at surpassing commodity relations.

     

    The Kernel of Post-Capitalist Social Relations: The Commons

    The experiences of development up to this date have led to the inclusion of the late capitalist countries in the capitalist system. The result of the grand capitalist development caused by these experiences has been the further aggravation of contradictions: unemployment and idle capacity, the homeless and residential oversupply, liquidity excess in financial markets and millions of people who are indebted more and more each day. Many needs that cannot be met and over-accumulation exist simultaneously and side by side. In this framework, to the extent that they were based on the capitalist development, the hegemonic theory and practices of development could not produce effective solutions either to “catch up with” the early capitalist countries or to reduce the existing social and economic inequalities. Therefore, it is time to move beyond the hegemonic development framework which is based on commodity relations and capitalist accumulation and to seriously think about the possible alternatives. Even though it needs to be developed further, the politics of the commons that I tried to outline above carries an important potential within this context.

    Finally, I would like to conclude this essay with a warning in relation to a crucial matter. With the market-centered neoliberal development model developed after the 1980s, public initiatives and social commons such as education, health, pension, access to water or social security were dissolved to a large extent. However, we need to underline the fact that integration with market relations does not have to result in the dissolution of the commons.[24]  In other words, the social commons which carry the potential kernels of post-capitalist social relations,[25]  the practices of commoning aiming at the realization of these potentials and commoning as a mode of organization need to be constantly constituted and re-constituted. Within this framework, the existence of the social commons may not produce a post-capitalist alternative on its own if they are not supported by the democratization of the economy, self-government and democratic planning.

     

    References

    [2] Akçay, Ü. (2007) Kapitalizmi Planlamak: Türkiye’de Planlama ve DPT’nin Dönüşümü, Istanbul: Sav Yayınları.

    [3] Türkay, M. (2009) Sermaye Birikimi, Kalkınma, Azgelişmişlik, Istanbul: Sav Yayınları.

    [4] Trak, A. (1984) “Gelişme İktisadının Gelişmesi: Kurucular”, Yapıt, 5: 50–61.

    [5] Antonio, J.R. (2013) “Plundering the Commons: the Growth Imperative in Neoliberal Times”, The Sociological Review, (61,2):18–42.

    [6] Fine, B. (2005) “Beyond the Developmental State: Towards a Political Economy of Development”, in Beyond Market-Driven Development, Editors: C. Lapavitsas and M Noguchi, London and New York: Routledge, 17-33.

    [7] Rodrik, D. (2006) “Goodbye Washington Consensus, Hello Washington Confusion? A Review of the World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform.” Journal of Economic Literature, 44(4): 973-987.

    [8] Harvey, D. (2004) “The ‘New’ Imperialism: Accumulation by Dispossession”, Socialist Register 40: 63-87.

    [9] Akçay, Ü, Ergin, I. and Hassoy, H. (2011) “Kalkınma”nın Bilançosu: Eleştirel Bir Değerlendirme”, İktisat Dergisi, 519-520.

    [10] Akbulut, B., Madra, Y. M. and Adaman, F. (forthcoming, 2015) “The Decimation and Displacement of Development Economics,” Development and Change.

    [11] Karaçimen, E. (2015) Türkiye’de Finansallaşma: Borç Kıskacında Emek, Istanbul: Sav Yayınları.

    [12] Akçay, Ü. and Güngen, A.R. (2014) Finansallaşma, Borç Krizi ve Çöküş: Küresel Kapitalizmin Geleceği, Ankara: Notabene Yayınları.

    [13] Nixon, F. (2006) “Rethinking the Political Economy of Development: Back to Basics and Beyond”, Journal of International Development, 18: 967-981.

    [14] Grugel, J and Riggirozzi, P (2012) Post-neoliberalism in Latin America: Rebuilding and Reclaiming the State after Crisis”, Development and Change (43-1): 1–21.

    [15] Akçay, Ü, (2013) “Sermayenin Uluslararasılaşması ve Devletin Dönüşümü”, Praksis, 30-31: 11-39.

    [16] Escobar, A. (1992) “Imagining a Post-Development Era? Critical Thought, Development and Social Movements”, Social Text, 31: 20-56.

    [17] Hollender, R. (2015) “Post-Growth in the Global South: The Emergence of Alternatives to Development in Latin America”, Socialism and Democracy, (29-1): 73-101.

    [18] Fırat, B. Ö. and Genç, F (2014) “Strateji Tartışmasına Katkı: Müşterekler Politikasının Güncelliği”, Müşterekler, access: http://goo.gl/9hCl90.

    [19] Akçay, Ü (2014) “Ekonomik Demokrasi ama Nasıl? Özyönetim, Katılım ve Demokratik Planlamanın Güncelliği”, Demokratik Modernite, 11, access:https://goo.gl/yOma3F.

    [20] Akçay, Ü. and Azizoğlu, B. (2014) “Kamulaştırma mı? Kamusallaştırma mı?”, Başlangıç, Erişim: http://goo.gl/8WRe9I.

    [21] Akçay, Ü. and Azizoğlu, B. (2015) “Devletleştirme, Kamusallaştırma, Müşterekleştirme: Somut Ütopik Uğraklar Üzerine Düşünmek”, Başlangıç, 3; Güngen, A.R. (2014) “Kamusallaştırma ve Olanaklar”, Başlangıç, 21.12.2014, access: http://goo.gl/MLAz4s.

    [22] Öztürk, Ö. (2014) ”Piyasa Ekonomisinin Sonuna Doğru”, İktisat Dergisi, 539: 45-57.

    [23] Chibber, V. (2003) Locked in Place: State-Building and Late Industrialization in India, Princeton: Princeton University Press.

    [24] Vaccaro, I; Zanotti, L.C. and Sepez, J (2009) “Commons and Markets: Opportunities for Development of Local Sustainability” Environmental Politics, 18(4): 522–538.

    [25] Caffentzis, G and Federici, S. (2014) “Commons Against and Beyond Capitalism”, Community Development Journal, 49(1): 92-105.

     

    This article previously appeared at Perspectives, Issue: 13, Link: http://tr.boell.org/de/node/2671

  • The Global Crisis in 2015 and the Turkish Economy – Ümit Akçay

    The Global Crisis in 2015 and the Turkish Economy – Ümit Akçay

    Approaches seeking the causes of the 2008 crisis in certain structural dynamics are mostly sought out within the scope of the Marxist tradition. Accordingly, the crisis resulting from the downward trend in profits by 1970s triggered significant amendments both in state-society relations and political economy paradigm. The political package that began to be called neoliberalism was designed to restore profitability of companies. The package basically aimed at undermining the economic, political and social power of the labor movement and trade unions. Flexibility and internationalization of the organization of production accompanied this program aspiring to weaken the labor movement and narrowing down its organizational capacities. The transformation of the state and the rise of a new right-wing politics marked the political direction of the era.

    During the implementation phase of the neoliberal package, two tendencies developed in central countries: financialization and deindustrialization. Financialization referred to rapid boom in profits of companies in the finance sector, first in the USA and then in other central countries when compared to companies in industry sector. In fact, it could be seen that such companies were present in both the finance and production sectors instead of tending to be in a single sector. Nevertheless, the share of finance in overall profit of companies active in both sectors gradually increased.2

    The second critical development was the intensification of competition among traditional production bases.3 Japanese and German companies aggressively entered sectors like automotive and electronics that had thus far been under unquestionable dominance of the USA. As a result of the increasing international competition, companies based in the USA started to shift their production to countries with cheap labor costs and strong infrastructure so as to reduce costs. Therefore, increasing competition and financialization, alongside with deindustrialization turned into an advancing dynamic for central countries.

    It is possible to see the effects of these changes at both in the structural and institutional level. The most significant development at the institutional level was the world-wide liberalization of capital movements and the gradual removal of existing financial regulations. This institutional transformation was buttressed by the belief that once intervention by external elements like trade unions and states ceased, the markets would automatically reach a balance and stabilize themselves within a steadily growing economy.4

    This belief In the fact that automatically operating markets would yield the best results for the entire society was strongest in the USA. The financial sector in the country, which was the strongest and the most powerful around the world, and the support towards consumption based on credit expansion (indebtedness) were also significant factors in the propagation of this belief. Credit expansion became a state policy because it not only triggered economic expansion but because it could also easily be converted into political support leading to the gradual removal of regulations limiting its expansion. Deregulation moves gradually implemented in the 1980s and 1990s were crowned with the removal of Glass-Steagall law in 1999.5 The New Financial Architecture (NFA) constituted by the end of 1990s was based on this.

    Essentially, NFA aimed at including the poor within the financial system.6 This financial incorporation was predominantly realized through the housing sector. Financial innovation and securitization mechanisms also had a significant role in the formation of the NFA. Debts with different terms and magnitudes were collected in a single pool and redistributed through these mechanisms, while corresponding new securities were launched. This process was accelerated through the establishment of a shadow banking system alongside the official banking system and functioning outside the regulations binding the first. One of the significant components of the NFA was credit evaluation institutions. What led asset-backed securities to be purchased by major actors, especially pension funds and institutional investors, was the assurance that they were to be trusted. The last column of the NFA was insurance companies. Insurance companies developed new derivative products to function as assurance in case assets evaluated by credit evaluation institutions went bankrupt. Thusly, a system developed in which it was practically believed that there was no risk of bankruptcy.

    The NFA was based on newly developed risk management techniques; alongside with financial innovation and securitization.7 Accordingly, fragmenting risks pertaining to a single financial institution so as to make each piece purchasable by other elements in the financial sector became an important application of new risk management technics. However, this was also the basis of the “systemic risk” laying the grounds for the demise of NFA itself.  Lastly, another feature making the establishment of the NFA possible was the interest rate that had been kept low in the 2000s until the eruption of the crisis. At the beginning of 2000s, when FED rapidly dropped the interest rates to overcome a recession and get over the economic tremor caused by September 11, the ground was laid for the NFA, which had been formed in the 1990s, to blossom.

    It did not take too long for the original US crisis to reach Europe, as the NFA had already gained international propagation in 1990s. However, with the increasing international financial integration, a problem occurring at one point in the system easily spread to other points. Firstly, European banks having invested in the USA and European companies directing institutional investments as pension funds were affected by the deflating financial system. Nevertheless, states intervened to prevent these companies trigger an overall deflation of the financial system and their debts were undertaken by the states as public debts. When the crisis reached Europe, its scale expanded and company bankruptcies started to give way to state bankruptcies. Iceland was first, but Greece was the one to take the lead in the European crisis.

     

    Intensification of the global crisis and the turning point in 2014

    By 2014, with the countries defined as “rising markets” having fallen into the grip of the crisis, the geographical expansion period of the crisis that had debuted in 2008 was finalized. 2014 was also the year when signals towards the intensification of the global crisis were also amplified. The most significant indicator of the intensification of the global crisis was the slowdown of the economic expansion trend in significant world-wide production bases. The economic growth of China that had continued since 2010 was slowing down and it was clear by 2014 that his slowdown would continue. Similarly, economic growth in Germany, another significant production base, has been continually decreasing since 2010.8 2014 saw economic growth in Europe and Japan almost reach the level of recession. In addition, the economic growth rate declined in developing countries. Apart from the decline in the growth rate, two more developments marked 2014. The first is the finalization of the quantitative expansion policy of FED going hand in hand with the moderate recovery in the USA, while the second is the acute drop in oil prices.

     

    FED decisions

    With the moderate recovery of the US economy and unemployment returning to pre-crisis rates, the FED took steps towards gradually finalizing the quantitative expansion programs during 2014. One of the main features of the recovery of the US markets was the further flexibilization of labor markets, which were already very flexible. Consequently, wealthy people benefited from the economic revitalization attained, while workers could not compensate for real salary losses. The decline of the unemployment rate was among the most important indicators of the growing economic activity. Nevertheless, this decline was accompanied by the drop of participation in the labor market.

    The most significant feature of the growth in the USA is the fact that it is based on an increase in credit. Similar to the beginning of the 2000s, low interest rates were warning signs for the NFA , which has become even stronger in overcoming the crisis; credit expansion, meaning increased indebtedness, became the main feature of the economic recovery in the USA. However, further flexibilization of labor markets or growth based on indebtedness does not mean anything for indicators such as the unemployment rate or economic growth calculating qualitative trends. Having operated according to such indicators, the FED gradually finalized its quantitative expansion program as of 2008 and announced that it could initiate an interest rate hike in 2015.

    Developments after the FED announcement in January 2014 can shed light on the second half of 2015, when the FED Is expected to implement an interest rate hike. The FED had announced that it would start declining its asset purchases realized within the scope of quantitative expansion strategy by 10 million dollars as of January 2014. As a result of this announcement, a significant amount of money flowed from countries like Turkey, Brazil, India and the Republic of South Africa and international funds entered US markets. Although this process played out differently in each country, the common trend was the simultaneous rise in inflation and interest rates, resulting in a major blow to economic growth.

     

    Oil prices

    The second important event that has marked the turn of the global crisis in 2014 is the abrupt fall in oil prices. Oil prices declined by around 50 percent from July to August 2014. The IMF announced that this decline in oil prices could contribute to global economic growth by 0.3 to 0.7 and claimed that it was “good news” that might accelerate the overall economic revitalization of world markets.9 However, this fall in oil prices, if it is an indicator of the deterioration of the global crisis, can only be read as “bad news,” contrary to what the IMF claims. Additionally, although the decline in oil prices is positive for countries importing oil, this might have other implications. For instance, as in the case of the USA, when the loss of energy companies become so great as to complicate the financial system, an unexpected panic could be set off. These signals have already started to be seen at the beginning of January 2015.10

    What is more intriguing about oil prices is that there is no decline in demand parallel to this decline in demand. To be more precise, we can see deepening global crisis refelected in the decreased demand for oil. OPEC countries were expected to reduce their oil production in response to shrinking demand. Nevertheless, contrary to expectations, no decision was taken in the meeting held last October regarding a possible reduction in oil supply. Oil production in Russia and Iraq even reached historical levels.11

    In line with the above data, we need to see the decline in oil prices as not merely an economic activity, but a result of different strategies adopted by various actors. When it comes to the strategies of the actors, the first thing that comes to mind and that which is mostly discussed is that the USA lowers oil prices as part of an initiative developed to penalize countries it sees as a threat.12 Although this approach seems to be appropriate when we consider its possible consequences, it is difficult to assume that the policies adopted by the USA alone would cause such a significant movement. The fact that Saudi Arabia, one of the significant actors of the process, is in a position to sustain its profits even with significantly lower prices shows that the decline in oil prices would not have the same impact for all oil producing countries.

     

    Local crises of 2014

    Lastly, it is noteworthy to indicate that economies in four countries had tremors with various dimensions in 2014. By the end of June 2014, panic erupted with the bankruptcy of the fourth biggest bank in the Bulgarian financial system, which could only be stopped by 2.3 billion Euros of support from the European Commission. Although the technocrats in Brussels claimed that the situation in Bulgaria was an “isolated” event, concerns about a possible crisis were raised due to the fundamental structure of the financial system.13 At a time when the tremor in Bulgaria was still reverberating, stock exchange operations of the biggest bank in Portugal were halted and the central bank was obliged to intervene. What is odd in this situation is that the banking system and the economy in general in Portugal have been de facto under the control of IMF programs since 2011. The crisis in Portugal clearly reveals the fact that austerity policies implemented around Europe had failed by 2014.14

    In August 2014, when the debt restructuring negotiations of the Argentinian government with hedge fund managers yielded no tangible results, the government declared that it could not pay a part of its debt.15 Lastly, capital movements resulting in a sharp drop in the value of the Russian ruble in December 2014 were signs that the Russian economy was in great distress. For a country covering half of its public expenditure and one-third of its exports through oil and gas sales, the biggest cause of the economic turmoil was undoubtedly the fall in oil prices. Investments on the side of the Western world due to the distress in Ukraine had already started to pressure Russia. However, in an atmosphere when the economic growth substantially slowed down, the decline in oil prices contributed to expectations towards a shrinking economy and capital outflows further deteriorated the situation.16

     

    Problems to be resolved in 2015

    Considering the estimates of international institutions regarding 2015, it can be foreseen that the main trends visible at the turn of 2014 will continue–meaning that the adverse impacts of the deepening global crisis will continue. Despite the statement of the Central Bank of the EU that all available means would be mobilized to resolve the crisis,17 2015 does not look very promising for European markets that are already at the edge of deflation and recession. Moreover, the victory of Syriza, the radical leftist party with anti-austerity policies, might cause a new rupture in the course of the crisis in Europe.18

    In addition to European markets being at the edge of economic recession due to austerity policies formulated by the ruling parties led by the German capital, news from China also reveal the fact that 2015 will not be that brilliant. China, whose steady growth came to a halt in 2007 and which entered a gradual decline in 2010, expects around 7 percent economic growth in 2015.19 Estimates regarding Japan are similar to those of Europe. Lastly, contrary to other geographies, the USA is expected to sustain its economic growth. However, this does not mean that adverse impacts of 2008 crisis have been completely resolved. As pointed above, the biggest risk for the US economy is whether the NFA operating through low interest rates would adapt to increasing interest rates.

    A gradual slowdown in the economic growth of countries has been obliged to increase interest rates following international outflow of funds marked in 2014. Hence, what has happened in January 2014 indicates what might be the results of a possible decision on the side of the FED to increase interest rates in 2015. The most significant impact is that funds seeking high income to increase their global value will start to return to the USA and the economic growth will thusly further decline in countries witnessing cash outflow. Consequently, events that have taken place in 2014 point towards areas that will be particularly affected by the crisis, especially towards the second half of 2015.

    It remains to be seen in 2015 whether China would consider repeating its recovery package offer to Russia to other countries as well.20 This offer was indeed not a simple foreign exchange swap; it was a move capable of substituting the functions of IMF, which is the ultimate lending authority in the world.21 China had a similar arrangement with countries like Argentina and Venezuela. In the case that Russia, a country rich in energy resources, overcomes its economic distress with the help of China, the share of world economy not governed by the dollar would expand, while at the same, the tokens of an alternative financial system to Bretton Woods established as of 1945 under the leadership of the USA would gain more ground.22 It is not realistic to anticipate that the US hegemony will recede in 2015, but signals from China show that the cracks in the US hegemony will be slightly enlarged.

     

    Turkish economy in 2015: AKP still fortunate!

    Following the record-breaking growth figures in the Turkish economy due to foreign capital flow in the aftermath of 2008 crisis, the growth trend started to stall as of 2012. The program adopted after the crisis was based on the construction and energy sectors aiming at making more expansive use of the opportunities of the inner market. The macro-economic framework making this program possible was based on cutting interest rates. Credit expansion achieved through declining interest rates was the motor of economic expansion after the crisis.

    Nevertheless, this policy was dogged by two problems. It was possible to reduce interest rates in times of abundant capital flow due to the expansion policy of the FED adopted to resolve the crisis, but the increasing credit expansion caused by low interest rates threatened the financial stability in return. Macro-prudential measures were implemented to overcome this risk, aspiring to take retarding measures in regard to cash flow so as to restrain the increasing current deficit and shrink credit expansion. However, the indirect result of macro-prudential measures was the slowdown of economic expansion.

    The second fundamental problem is that declining interest rates are substantially dependent on the fall of borrowing costs in the international finance system, i.e. FED’s quantitative expansion policy. Therefore, as of May 2013 witnessing a change in FED policy, it has become exceedingly difficult for the CBT to keep interests low. Indeed, the necessary intervention of the CBT in January 2014 showed that insisting on keeping the interest rates low in times of capital outflows would cause a rapid appreciation of foreign currency. By September 2014, the January decisions of the CBT regarding foreign exchange rate were underwhelmed, followed by a lower growth and higher unemployment rate.

    The main problem of economic administration in 2015 is that the borrowing cost in international markets will not be as cheap as in previous years. However, this problem is not unique to Turkey. The meaning of the FED’s crisis resolution strategy for countries like Turkey is, in the worst scenario, a transfer of the crisis to these countries and, in the best scenario, the onset of a low growth period. Circles close to the government are planning to balance this adverse pressure via the decline in oil prices and quantitative expansion announced by the European Central Bank.

    With respect to the general elections to be held in June 2015, it can be predicted that the economic administration is easing off until the elections due to various reasons. First, the closest OPEC meeting to resolve the excess supply obviously contributing to the fall in oil prices is in June 2015. Second, signals pointing to the face that the FED will not rush to increase interest rates are getting stronger. Contrary to the last meeting, it is expected in the June OPEC meeting that oil production will be reduced. If the estimates are well grounded, this might coincide with the FED decision to increase interest rates. In that case, it might be more difficult to sustain economic growth for oil importing countries like Brazil, Turkey or South African Republic. However, it is noteworthy to keep in mind that these two developments will occur in the second half 2015, after the general elections in June.

    Another advantage of the economy administration in terms of the general elections is the expectation of a possible fall in inflation in the first half of 2015 due to both oil prices and base effect. This might give the government a chance to reduce the interest rate before the elections. This will in return rapidly trigger credit expansion and the growth in the construction sector and prevent economy from becoming a problematic area for the government.

    Nevertheless, what is common to all these aforementioned factors that might ease the hand of the economy administration until the elections is that neither of them is under the control of the government. To be more precise, the fact that the economy seems to be manageable in the first six months is not the result of a successful economic policy. It is only made possible through external factors as oil prices, FED decisions, quantitative expansion in Europe and base effect. Hence, the government might be fortunate once more, at least in terms of economic administration, in the forthcoming elections. However, it would not be a surprise to see that the Turkish economy will once more be economically troubled as of the second half of 2015.

     

    References

    1. For the details of these three leveled analysis see: Ümit Akçay and Ali Rıza Güngen, Finansallaşma, Borç Krizi ve Çöküş: Küresel Kapitalizmin Geleceği, 2014, Ankara: Notabene Publishing House.

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    This article previously appeared at Perspectives, Issue: 11, pp. 9-15, Link: http://tr.boell.org/de/node/2207