What about after Greece?

The debt crisis of Greece, which has been on agenda for a long time now, brought about many questions. The structure of European Union, first intervention by IMF and political crisis in the Union and splits in opinion began to cause many details that can cause new problems to emerge in the long run to go unnoticed. In fact these details which came to agenda include some points that can cause serious problems in the future which must not be missed in a period when monetary organizations planned with taking Greece in its focus are intense. Why?
1)While people are racking their brains for Greece, Ireland, Portugal, Italy, Spain and Iceland are faced with serious debt burdens. Portugal’s debt burden for the last quarter of the past year was 548 billion dollars. In addition, according to the last quarter total debt burdens declared by World Bank last year, Spain’s debt is 2.546 billion dollars, whereas Ireland’s debt is 2.321 billion dollars. In the midst of these debates, the debt burden of Greece, which is in grave need for IMF and European Union assistance, is 582 billion dollars. Iceland’s debt is approximately 136 billion dollars. Here one question comes to the minds. What if the economic problems that Spain and Italy have been struggling with so long break out and they become unable to pay so heavy debts? More importantly, in an environment when no one really knows whether the 45 billion dollars planned for Greece under the leadership of Germany will ensure at least relative stability for Greek economy, what will happen to Spain and Italy, which suffer from heavy debt burdens, get into crisis, which would not be a surprise at all? If such intense discussions are being held for Greece, the results of economic deadlocks that can be experienced in larger countries enables us to think about the future of European Union as well.
2)We can mention budget deficits as the second reason. When we look at the picture generally, we can claim the following based on the data that we possess. Last year budget deficit of Ireland was 14,3% of its GDP (23 billion Euros), whereas the deficit expected this year is 14,7%. Budget deficit in Greece quadrupled the 3% level, which is accepted as European Union limits, and became 13,6 of GDP (32,3 billion Euros) whereas this year the ratio is expected to decrease to 12%. Italy’s debt is 5,3% of its GDP (80,3 billion Euros), which is closer to EU’s requirements, and indicators of conducted analysis show that this year the ration will probably remain unchanged. Finally the budget deficits of Spain, Portugal and Iceland are 11,2 % (117,6 billion Euros), 9,4% (15 billion Euros) and 11,9% (1,09 billion Euros) of its GDP, respectively. Expectations for this year are 10.1%, 8% and 8.5% for these countries respectively. Generally viewed, there is a common opinion that the values expected for this year will go downwards, but the visible clear picture is that they are still very far from the EU’s budget limit reference point, which is 3 percent. We must not forget the possibility that these expectations, which were put forward during economic crisis periods, can begin to increase again with a small wave of shocks in global system. In this environment in which the economic problems Greece is suffering from have caused serious value-loss for Euro, one can easily forces the consequences that can arise from the smallest problems cause by other countries with serious budget deficits and huge debt burdens. But as far as we follow, at what stage are the plans directed to this? Actually the question is wrong; it should be “are there any such plans!!!”
3)Finally, the unemployment problem, which is seen as the major reason for the inability of markets to recover continues naturally under the same negativities, as in debt burden and budget deficit. According to February 2010 reports of OECD, Spain holds the record with 19%, followed by Ireland with 13.2% and Portugal by 10.3%. The unemployment rate of Greece, which is accused of having the biggest pile of problems in EU, has 10.2% unemployment rate. Iceland has the smallest figure with 7.8 percent. Naturally as long as the vacant seats of workforce in goods and services market, which is accepted as the major actor of economy, continues to exist, it will be inevitable that the lack of demand caused by unemployment becomes even worse in a potential economic deadlock that can occur. In a news in the media recently, German state said “we are working, you should work, too”, which is an expression of its unwillingness to give loans to Greece, makes us wonder how this will be possible under such debt burden, budget deficit and unemployment.

Private Property in Ancient Greece

First of all I want to state that in this article I wanted to present you with the historical development of the concept of “property” within a historical perspective instead of commenting to your valuable opinions. I feel that mentioning Ancient Greece, which constitutes an important part of the history of civilization, and the “concept of “property” which was introduced there, is important. Ancient Greece, which is accepted as the source of western civilization, has left many masterpieces to our age, be it in philosophy, mythology and politics. But an interesting point is that very limited opinions about economy have made their way to our age from Greek civilization. In addition, several though found their place in such branches as law, justice or politics. I think that when evaluating the concept of private property in ancient Greek history, we should mention two important thinkers. They are Plato and Aristotle. It is a reality that both thinkers left us very striking information about several disciplines. In particular the ideal state model of Plato and the Man and Society emphasised by Aristotle in his work “Politics” are the most important of them. Before examining the concept of private property for these thinkers, let us see what the “ideal state” concept is about for Plato, to start with. The point Plato emphasised and strongly dealt with was the way ideal state should be. According to Plato, the emergence of state can be explained by the fact that individuals living in the then city-states (polices) were not self-sufficient. If we explain it in Plato’s own words: “I think that state emerges from the needs of man. As we have many of them, many people are needed to meet those needs. One person finds a helper for one need and another finds another helper for another need. When all these partners and helpers come together the society called “state” emerges and every one exchanges something with another: one gives and the other takes, as each individual believes that change will be good for himself (Republic, Plato). Plato’s ideal state model is completed in three stages: the first stage is related to the meeting of basic needs of individuals. However, this opinion was criticized by many critics as the society would resemble a “society of pigs”, and Plato adds luxury goods and expenditures to his model and makes his though more complex; he adds their trade, exchange and other related activities. However, as the resources of the society are limited, this will not reach its goal either. In order to achieve this the city-state will try to fight with its neighbours and capture their wealth. Plato said: “all wars are fought for wealth.” (Phaedo Dialogue). In addition, he stated these opinions on war for not only a single police but also with the policy of making other city-states apply. And from here we reach the second stage of ideal state model. At this stage a military force which will conduct attacks is needed. Thus, a separate class other than the producer class is created, namely the “professional soldiers”. After this formation the third and last stage follows. According to Plato, the distinction between producer class and professional soldiers also calls for a distinction between governors and the governed. Here governors are professional soldiers and philosophers. The philosophers will occupy the highest ranks of the hierarchy. Adding the philosophers into the picture, Plato concludes his line of thought with this triple class concept. According to Plato, these three classes also show the three different and separate aspects of human mind; the producing, the fighting and the thinking aspects. Plato will reach the smooth justice concept from this distinction between three classes. In this ideal state system, justice will be realised without any problems by means of orderly and harmonious organization of the society. Plato also mentioned the concept of property in detail in this system in addition to the concept of state, as the way of ownership and distribution of property plays a critical role in the justice that is to be applied. Plato’s concept of property has a societal content. To be clearer, he claims that giving wealth, prosperity and resources to this or that person is not even close to the concept of justice. Individual cannot have any private right on the wealth which is created by the society. Plato was always cool towards the issues of money and trade so that the spirits and internal existences of individuals (governors) would not be contaminated and distorted in abstract terms. He also wanted to introduce the principle that the governed would be forced to live a life that is identical to the governors. But Plato did not display any opinion about the economic activity of the lower classes (the governed). His more important opinions are about the economic activities of higher classes. Plato argues that all kinds of private property would be abolished for the higher classes. Further, this requires not only the shared possession of goods, but also women and children. He thought that with this method the higher class would reach an entrenched unity and form a huge family. He also contends that inequality between men and women will also be eliminated by this manner. This is to say that when nucleus family vanishes, it will be possible to give to women the same education given to men, and jobs divided within societal structure will include women workers into the system. To sum up, Plato integrated city-state with the lives of individuals and stated that what is good and fine for one would be good and fine for the other, too. For Plato, state and individual are different images of the same thing, and both are for the realization and creation of the good and beautiful.

Another important thinker of the ancient Greek age is Aristotle. His opinions about economy are somewhat more comprehensive and their content is richer compared to his tutor, Plato. First of all, Aristotle is the first thinker who brought “analytical” opinion to economic thinking system and is accepted as an analytical economist. He voiced out the sentence that verifies this line of thinking as follows in his book titled “Politics”: “as in other branches of science, a phenomenon can be fragmented into simple elements that constructs it in political science”. If we remember that Aristotle handles economic issues within political problems, we can comprehend this expression in the same manner within economic analysis. As in other social branches, he preferred to take as basis determining the casualty relations in economic branch. When we examine the economic philosophy of Aristotle, we can summarise his leading opinions as follows:

He rejected to approach with a pragmatic view to the concept of happiness. Human happiness is in his mental activity.
Unlike sophists, he did not adopt the idea of societal contract.
In contrast to Plato, he strongly defends family and private property.
He does not totally reject the institution of slavery, and states that there is a natural inequality among people which comes from birth. Some obey and some dominate.
He did not interest himself in distribution of wealth.

As mentioned at the beginning of this article, it will be useful to discuss Aristotle’s ideas about men and society first before we discuss his ideas about private property; we also should state that we have to look Plato’s ideal state through the eyes of Aristotle. In order to understand why Aristotle accepted private property, we have to comprehend the principles of his philosophy and ideas of men and society. First of all, Aristotle rejects the distinctions emphasised between body and soul. Thus, he also rejects the distinction between soul and body, which was claimed to exist by Greek thinkers before Plato, like Pythagoras, and that soul is an immortal element that is found in every living thing. Secondly, he rejected Herakleitos’ (a previous thinker) idea that the core of universe is “change” (dialectic) based on the opinion that science cannot be based on dialectic. According to him, science is based on our power of defining the existing things around us, and is developed through induction. The core of things do not change, they remain the same until forever. There is no such thing as “movement” in core. Thirdly, according to Aristotle, the distinction between men and other beings is explained by reason which exists in men. Men is both a societal and political animal. Departing from this point, Aristotle says that the science of men has to be examined in three separate branches: as an individual, as a family and as a site. Ethics is the science of individual science; home economy is the science of family; and politics is the science of site. A second interpretation of Aristotle emerges when he explains in his opinion the ideal state concept developed by Plato. His understanding of state resembles Plato’s philosophy of state from many aspects. Citizens are divided into two, as governors and the governed. Limited commercial activity was allowed in ideal state. He did not reject slavery and accepted it as an institution of ideal state. The reason is that some people are created as slaves from birth. He presented only one difference about slavery, which is the suggestion that, different from its traditional definition, slavery should be applied to non-Greeks. Under the light of this information, we can know look at Aristotle’s ideas about private property. Aristotle distinguishes private property from societal property and explains his defence and necessity of private property as follows:

Private property is more productive compared to societal property and ensures growth, progress and development.
The more intense private property is, the more probable warfare is, as everyone usually claims that he works more but is given less.
Private property gives its owner pleasure.
History of humanity proves that private property is usually accepted.
Societal property includes force, but in private property people are benevolent and generous.

As can be understood from these items, in contrast to Plato, Aristotle defended private property. He stated that the concept of societal property is not true and disagrees with Plato in certain aspects. For example, the principle that governors will not have any personal property. Aristotle begins his critics of Plato, his mentor, by objecting his idea of the absolute unity of the state, as this idea is wrong in three respects: diversity (not a state having a number of citizens, but consisting of people with diverse ideas and skills), reciprocity (individuals trading for goods and services with equal values between themselves), and self-sufficiency (a state being sufficient for itself and being able to make sure that they live their wishes and desires in welfare and prosperity). For Aristotle, these three principles have to operate simultaneously and in harmony. But Plato’s concept of absolute unity of state is totally against the principle of self-sufficiency. Departing from this point, Aristotle explains that desiring an idea of unity is not true and examines the principle of shared property for governors that Plato deems necessary for ensuring this unity. As a result, he takes on to compare private property and collective/shared property, and claims that private property is superior based on the five judgements listed above. These five judgements are progress, peace, pleasure, experience and benevolence. Thus, Aristotle defends in items that private property is necessity and useful and that this should not be limited. According to him, limitations should be imposed on population with respect to private property. The lack of such limitations is the real reason for poverty. In addition, the only inequality that causes societal unrest is not economic inequality. The inequality between positions and prestige is also important. Finally, Aristotle claims that the important thing is the purpose for which property in ethical terms, not the self or size of property. He states that needs of men are limited but wishes of men are unlimited. After giving this information I have come to the end of my article. As I stated at the beginning of the article, our sources related to the ideas of ancient Greeks about economics are limited. In addition, we can find many ideas related to economy in such areas as politics, justice and law. However, despite everything, we have to contend that most of the basic concepts of mainstream economics today can be found in the narrations of these thinkers.

Resources:

1)History of Economics, Prof. Dr. Vural Fuat Savaş
2)History of Philosophy, Ahmet Cevizci
3)Encyclopaedia of Philosophy, Ahmet Cevizci
4)Dictionary of Economics, Erhan Arda
5)Politics, Aristotle
6)State, Plato
7)http://www.demokratikgençlikhareketi.org

1 Phenomenon: Relation Between Exchange Rate and Inflation; 2 Deadlock: Economic Stability and Exports

Balance of payments is a record of the economic relations of a country with other countries, and shows the monetary value of the economic relations of that country with other countries in a given period. As known, balance of payments consists of 4 major parts: current accounts, capital and financial accounts, reserve movements and net error minus. When we look at the balance of payments picture in Turkey we can see that there are huge deficits in current accounts. Balance of goods (balance of trade), which is one element of current accounts, is one of the most important reasons that trigger this deficit. The latest data which make this chronic deficit in Turkey even more serious were provided by TÜİK and Undersecretariat of Customs for July 2010. Hurting enough, Turkey is faced with a growing foreign trade deficit whose consequences can be disastrous. The skyrocketing imports in the first 7 months have turned trade deficit upside down. When compared with 2009, foreign trade deficit increased from 18.436 million $ to 34.918 million $. This represents some 89% increase. But how is this deficit being financed? The answer is clear: with hot money, which is the only way of closing current deficit. As of end of August, some 100 billion $ of hot money entered Turkey. This creates an image that the deficit is being closed but actually it represents an even worse deadlock. So much so that, hot money leaves USA and EU, which are the focus of second-trough fears, and creates a huge transaction volume in developing countries such as Turkey (which is not endangered by budget deficit and public debt stocks); thus, intense hot money pours down on our country. The contradiction is that as hot money comes exchange rate goes down and this drags the country to importation. Right at this point, exporters ran out of their patience. Exchange rate, which gained value due to hot money, destroys exporters. The latest calls made by Turkish Assembly of Exporters (TIM) stated that National Bank should resort to devaluation at once and take up polices in order to cheapen foreign currency. But what are its consequences? Devaluation can be made (we can see its examples in Turkish history), but it is not that easy. In developing economies such as Turkey, the relation between currency and inflation has a vital importance. First of all, changes in exchange rate have strong influence on prices. When exchange rate increases (in national money) general level of prices tends to increase; on the contrary, when currency decreases, general level of prices tend to decrease. In addition, as indicated above, Turkey is a country which is dependent on the import of every kind of goods, from investment goods to consumption goods and semi-finished goods. Therefore if National Bank agrees with the demands of exporters, first of all, the prices of imported consumption goods will be negatively affected, and important increase will also be witnessed in production costs. At the same time, the second problem that can be caused by value-loss of exchange rate through Central Bank is that current debt stocks will increase very heavily in terms of TL. In order to cover this increase, National Bank will resort to increase money supply. But what will be the side effect of this surplus liquidity on markets? Of course an increase in inflation and as a result shrinking for fixed income earners, decrease in demand, lower consumption and adrift to recession…lastly, the third problem is an increase in budget deficit. The government will make more consumption and cover the loss of value of TL caused by the increase in exchange rate, which will in turn cause a more serious instability. In addition to these three envisaged probabilities; one of the reasons for TL to be excessively strong is the high interest rates, as they mean high real return for foreigners. Hot money flows into our country so as to obtain this return. As a result TL gains value due to an abundance of foreign currency. This is the thesis. The demands of exporters is either the decreasing of interest rates by National Bank or preventing hot money entrance by such tools as Tobin tax and thus ensure that TL loses value, and increase gains on exports. One wishes that we had such a strong economy that allowed us to do that. But under current conditions preventing capital flows into our country would be suicidal for growth (!) and stability (!). But it will not be long before they escape, as the second trough scenarios can come true. We will of course wait and see. This is the situation; foreign investments, hot money flows, huge current deficits, problems of debt burden and budget deficits, imported inputs…Turkish economy is on the verge of a cliff and unstable under the false image of stability. The measures taken against employment in order to decrease inflation a few years ago are now being taken in order to decrease the level of current deficit which is a function of hot money. I think that these discussions will continue for some time more. But one point shows that in future indicators, export figures will be too much lower than import figures for a long time due to the policies applied and the situation will become catastrophic when potential hot money escape becomes a reality.

Relation between Current Deficit – Budget Deficit and Two Different Comments

To summarize it shortly, current accounts, which is one of the sub-titles of balance of payments, is the value obtained by adding investment revenues current transfers (interest, rant and commercial revenues) to the difference between exports and imports of goods and services of a country. Budget balance is budget revenues aimed in public budget within the framework of economic targets planned for economic stability, growth and employment in the same year (mostly composed of taxes, T) being equal to the aimed government expenditures (G). Moving from that point on, for both of them respectively current deficit indicates a negative value for balance of goods and net investment revenues; budget deficit means that government revenues are lower than government expenditures. Usually in macroeconomics it is accepted that these two processes are in a relation of mutual causality with each other. When we look at the history of economics, this phenomenon is analysed by two different opinions. On one hand, Keynesian approach (which accepts the twin deficits relation), and on the other hand Ricardoan equality hypothesis approach (which rejects twin deficits relation). Before examining these approaches in detail, it is very important to show moving from national income the relation between balances of trade, budget and savings and from there to reach the general table between current balance and budget balance so that we can understand these two different interpretations.

(1)GDP = C + I + G + NX = C + S + T

first, inputs and outputs of gross national product will be equal.

(2)I + G + X = S + T + M

departing from the second indicator, we can show this relation between budget deficit and trade deficit as follows:


(3)(X-M) = (S-I) + (T-G) in other words we can define this as GB = SB + BB

GB (balance of goods) shows the current accounts deficits indicating the difference between exports and import of goods and services, SB (savings balance) shows the difference between savings and investments of private sector and finally BB (budget balance) shows the difference between planned government revenues and expenditures. Under the light of these explanations, we can now look at the opinions about twin deficit phenomenon. According to Keynesian view, if public expenditures of a country with flexible exchange rate and free capital movement increase, national savings decreases. The reduction of national savings is a warning for government authorities to increase interest rates. The increase of interest rates whets the appetite of foreign investments (the most typical example is hot money) and creates an abundance of foreign currency in the country and causes national money to gain value. Naturally the national money which is now stronger compared to foreign currencies distorts the balance of goods, which is an element of current accounts balance to the disadvantage of exports and current accounts deficits begin to form due to the serious trade deficits. As a result, depending on the increase of government expenditures, budget deficit has a negative impact on current accounts balance and creates the phenomenon of twin deficit. On the other hand, there is Ricardoan equality hypothesis which rejects twin deficit phenomenon. According to this view, due to tax reductions in balance of budget, budget deficit does not create an impact on the current accounts balance. If it is accepted that government expenditures are fixed and there is no possibility of borrowing, the reduction in tax rates does not affect level of savings. People increase their private savings due to reduced tax burden. Due to tax reductions private savings will be affected equal to the decreased public expenditures; therefore national savings level will remain unchanged and current accounts balance will not be affected. Thus, according to Ricardoan equality hypothesis, the phenomenon of twin deficits is not acceptable.

Resources:

1)Ahmet AY - Zeynep KARAÇOR - Mehmet MUCUK - Savaş ERDOĞAN – THE RELATION BETWEEN BUDGET DEFICIT AND CURRENT ACCOUNTS DEFICIT: THE CASE OF TURKEY (1992-2003)

2)Prof.Dr. Tümay Ertek – INTRODUCTION TO MACROECONOMICS

Imaginary Growth, Virtual Employment, Hurting Budget

In the midst of stock exchange records, increases in bank deposit rates, the 2nd period GDP data were declared. For some time the data coming from both real sector and financial sector made it evident that the growth would be in a positive direction when compared with 2009. But most economists did not expect 10.3% growth rate. Naturally it was now a religious duty for the high-position authorities to make the most fun of this situation. But, if you wish, let us question what kind of a growth this is. First of all, 2010 June data are still lower than the pre-crisis national income level of June 2008. Secondly, there is no improvement in the distribution of national wealth. On the contrary, societal welfare level has been pulled even lower, which is caused by the institutional increase in population between two years. Thirdly, real wages are rather law and employment figures are either at the same level or lower than 2008 values, excluding the increases in sector. Lastly, there is a virtual increase in employment data. According to the latest declared data, unemployment is 10.5%. However, we must also consider seasonal effects. As the case every year, there is absolute increase in employment between June and October every year. However, it is a well-known fact that decrease will start afterwards. When the effect of hot money entrance on growth is taken into consideration, it is clear and obvious that an increase in employment is not possible. In addition, when it is considered that real employment level is still at 17-18% level, it can be clearly seen that employment increases are far behind growth. For example, although the annual growth in construction industry is 25%, increase in employment is 10%. Manufacturing industry and commercial sector also present a similar picture in which employment increase is far below growth. Interestingly the case for agriculture is exactly the opposite. It indicates that annual growth was 0,6% whereas employment increase is 7,6%. This table which makes its viewers smile does not reflect the truth. In agriculture, which has experienced almost no growth, employment increased by 1 million (!) But how can this happen? TÜİK must provide an explanation. Anyway, there is also budget deficit decrease compared to the previous year. The deficit of the first 8 months of this year was 14 billion TLs, and the deficit of the previous year for the same 8 months period was 31 billion TLs, which represent 54% decrease. Here it is useful to examine tax revenues, as increase in VAT and excise duties is 52%, which naturally shrank the budget deficit. Workers, retirees, civil servants and employees with fixed income are those who have been hurt. The situation is clear and obvious. Unfair distribution of wealth, population increase, decrease of real wages, high level of unemployment...No need for more words.

Two More Blows In a Row to Exports and Exporters

The impact on foreign trade with regional countries of Customs Union agreement signed between European Union and Turkey in 1995 still continues with the same intention. With this agreement the autonomy granted to imports caused gradual growth of the foreign deficits in trade. In addition, even the devaluations could not improve the shaking limitations brought on exports, the problem of foreign deficit became chronic and current deficit problem became more serious. One must remember that in a situation where Turkey’s growth was mostly provided by current deficit, the Customs Union agreement made the problem even deeper. Under these conditions another blow was dealt by the news that EU was preparing free trade agreement with Mexico and then South Korea nowadays. Free trade agreements that EU is concluding or trying to conclude with third countries began to pose a huge threat to Turkish economy in the long run. South Korea and EU, which have connections with Turkey in textiles, whiteware and automotive industries, will gian advantage with this agreement. Three important details display this phenomenon crystal clear. First of all, South Korea will be able to make its exports to EU tax-free. Secondly, as Turkey has signed Customs Union agreement, the importation of South Korean goods will be free. Lastly, European goods will enter South Korea without any taxes but Turkish goods will be subjected to taxation when entering South Korea. In addition, signing free trade agreements with Russia and India following South Korea is also on the agenda. When the import-expanding impact of these agreements, which will shrink exports indirectly, are taken into consideration, more serious foreign deficit problems are awaiting for Turkey. In addition, another blow was dealt at the conference held by National bank on monetary policies in Turkey. Exporters, who constantly repeat the negative impact of strong TL on exports, saw during the conference that their expectations for intervening to foreign currency rate would be shattered. Those exporters who envisaged that increasing reserves would weaken the value of TL and encourage competition could not find what they expected. Then where is the problem? Why is the value which used to be given to exports is not given now? I think that the answers to such questions can be given by looking at money entrances/dependency. Unfortunately Turkey is a country with low level of foreign direct investments, which attracts hot money with high interest rates, and which funds its investment, production and growth from these sources. The source of exchange rate is understood by means of the pressure of incoming hot money on TL. If monetary policy makes a 180 degree turn and intervenes in the exchange rate in favour of exports, the hot money will escape and national economy will come to a deadlock. I think that under this hot money dependency situation the only thing to say is that exporters will continue to have more blows dealt.

Asian Style Accumulation Model and Turkey

According to the employment statistics prepared by Turkish Statistics Institution (TÜİK) on June 2010, unemployment rate decreased from 13,5% in the same period last year to 10,5%. According to these data, the number of employed persons increased by 2,324 million since January 2010. After 2nd period GDP rates, these figures caused double-delight among the public. 10,3% growth and 2,5% decrease in unemployment. When we get down to the characteristics of these figures, it can be seen that the situation is a complete disaster for the definition of welfare state and the working class. This is due to the Asian style accumulation model applications that Turkey is being dragged into and is willing to embrace. First of all we can understand this thesis based on the content of parallelism between growth and employment. In other words, the content of Asian style accumulation model, which is also labelled as Asianisation, is characterised with cheap labour and high working hours. Asianisation creates surplus value in production process by a means of a kind of exploitation which requires minimization of costs of employees consolidated its existence in Turkey by the latest growth and employment figures. Although most of it is based on base effect, 10.3% growth and 2.5 increase in employment shows how informalized, unqualified, and disintegrated are these labour markets in this Asianisation environment. In addition, another data can be seen in employment and informal employment reports. Similarly, when we examine employment increases under four headings, namely agriculture, industry, construction and service, according to the indicators compiled from workforce data, agriculture stands out as another example of Asianisation. That is, some 1,120 million of the 2,324 million increase in employment was witnessed in agriculture; this means that 50% of the increase is in agriculture. However, the most important point is in informal employment data. The formal employment in agriculture was 1,2 million between January and June, whereas informal ratio covers 1,045 million of this amount. This means that 87% is informal. To put it more openly, these people are employed without enjoying any kind of social security. This is a good example of how a typical Asian style accumulation model and cheap labour is created. For the sake of producing “surplus value”, exploitation without boundaries is declared by TÜİK as employment data; and public is happy and proud of this increase, which is presented as one of the proofs that the crisis is over; I am lost for words. These data cannot be ornaments; they can only be the proof of how the cost of getting out of the crisis is being funded by workers. The neoliberal process, which began after January 24th decisions, opened the gates for the formation of an Asian style cheap labour army with its economic prescriptions and practices. In addition, an order has been created in which the budget share of education investments decreases, people work for hours for a piece of bread, social security is disintegrated in favour of costs, and huge gaps are created in income distribution, and this process still continues.

Hot money is the core of the thing

The developments witnessed in economy during this past week show us very clearly the importance of how money for Turkey. In this article I want to present you the developments on exchange rate starting from the meeting held by Prime Minister with journalists and media directors. First of all, I think that one of the discourses that was most heavily emphasised after the meeting was the prime minister’s statement “strong Lira is my personal cause”. It is not difficult to imagine the reactions of exporters to this attitude who claim that they lost competition in international markets due to strong TL. Then, early in the week, exporters met with Prime Minister only to return empty-handed. Nevertheless, I think that the most important advice they received is the advice on interest decreases, as we are one of the countries with highest interest rates. But this does not seem possible due to our dependence on hot money. The slight adjustments made in short term for decreasing interest rates cannot go beyond being facile. In addition, there are some other options for increasing competition such as decrease in input costs and special tax reduction. But how effective are they? This point is disputable as, first of all, in an environment of dependence on imported semi-finished goods and raw materials, input cost can decrease only by making TL stronger, but such a practice is absolutely detrimental to competition. Let’s come to special tax reductions. The application of this proposal will cause more deficit in the balance of payment of the government and will be possible by making the employees pay for the resulting price or decreasing real wages. This, in turn, will make demand even lower, which is already low, interrupt short-term investment, and bring about a decrease in interest rates. This will inevitably have an impact on hot money, which is the main channel of growth and cause it to escape abroad. These pressures and complaints of exporters show their impact on the monetary policy of National Bank. At this point it is disputable whether National Bank is an independent actor. This week two policies applied by National Bank give us proof that the bank cannot resist to pressures. But at this point another question comes to my mind: do the monetary policy tools employed by national are useful for exporters? Let us look at two developments in order to be able to answer this question. First, on September 29th National bank increased its reserves, which was the long-term demand of exporters, who had stated that the foreign currency that would be withdrawn from the market with reserve increases would pull the foreign currency higher and increase their competitive power. Since August 3rd, it is buying 80 million dollars in 40 million dollar + 40 million dollar option. National bank increased these purchases to 100 million dollars and it can come face to face with a very serious problem. The bank keeps part of its purchases in its safe whereas the remaining is evaluated abroad. The problem is that interest rates abroad are at the level of 3% maximum. But what is the interest rate for purchasing foreign currency at home? 7%. You can calculate its cost and impact on prices. A second development is the increases in required reserve ratios. (I want to state that Chairman of BDDK (Banking Organization and Supervision Board), Tevfik Bilgin, learned these increases from newspapers). Required reserve ratios in TLs were raised from 5% to 5,5% and Required reserve ratios in foreign currency were raised from 10% to 11 percent. In one sense, these increases seem to have been made with the idea that “banks made too much profit during crisis, let us transfer some of the pressure onto them”, and it seem that they will cause some 1 billion dollars reduction in profits. This monetary consolidation operation, which was a surprise, means that 2,1 billion TLs an d 1,5 billion dollars will be withdrawn from the market. In addition, another surprise decision was total elimination of the 5% interest which was paid for Required reserve ratios in TLs (remember that Fed applied this, too.) This is a point that deserves attention as this application seems to have been made for the exporters and will decrease foreign exchange rate; however, it will cause an increase in the interest rates on the contrary, as banks will calculate their losses through interest rates; the first signals were given by directors of Garanti and Akbank. But what is the result of these increases in interest rates? More hot money flow. Another detail: on October 2nd, it was announced that banks were allowed to issue bonds in TLs. It can be seen that all roads lead to hot money. Unfortunately growth depends on it. Its current costs are: 1) In seven months, direct foreign capital investments declines by 35% compared to the same period of the previous year. 2) between January and August, foreign trade deficit increased by 79% compared to the same period of the previous year. 3) current deficit is also increasing. In such an environment, many things which seem to be for the sake of exporters, actually serve to low exchange rate-high interest rate and hot money entrance. TL becomes stronger, imports are being stimulated, and exporters are always losing.

Record High Growth, But How?

One of the most important developments currently has been the IMF setting its growth estimate for Turkey at a record high level. In its World Economic Review report, IMF revised its growth figures, which was declared as 5,2% previously, to 7,8 percent. The reality of this estimation, which was made mostly based on the base effect after 2009 when the crisis showed its impact most seriously can be found to be accurate. This means that Turkey can realise 7,8 percent growth at the end of 2010. However, in addition to the base effect, we must also display another potential which underlies this growth. Peripheral (developing) countries, which were seen as safe ports where the impact of the crisis was less heavily felt compared to central (developed) countries during the crisis, became the destination of hot money flows. Therefore, based on this fact, developing countries whose growth rates are higher compared to central countries, are in an effort to shape their futures around this framework and take the easy way out to growth. Here, the growth estimation envisaged by IMF for Turkey is based on the volume of such hot money entrance. In addition we must very well examine the damages and impact of this phenomenon to the future of the country and its internal dynamics. First of all, we claimed that the increase of Turkey’s growth rates depend on the hot money entrance and accumulation in the country. Hot money investors who make high incomes due to high interest rates flow to peripheral countries like Turkey, which are in need of growth. Hot money, which had a positive impact in stock market and capital markets but which, on the other hand, causes unstable growth, opens the gates for more investment by raising the credit scores of countries whose financial markets attract investment. (Note: detailed examination will show that the advantage of credit note increase for peripheral countries is not direct capital increase but mostly in the form of portfolio investment (hot money)). These developments which lack a sound foundation, and which cannot even be labelled as “progress”, on the other hand carves local production and endangers the future of national industry. The industrialist, who cannot increase production, tries to survive by price adjustments, downsizing or sometimes wage reductions. This situation is also harmful for domestic demand, and it has the potential of causing inevitable problems in the long run. Hot money flows which disintegrate, informalize and cheapens labour force, makes the labourer even poorer, who is already poor, and causes more unfairness in distribution of wealth and divergence from the notion of welfare state. Secondly, exchange rate advantages allow for and whet the appetite for hot money flows. Of course the hot money entering the country cheapens foreign currencies; in addition to that, the main reason why National Bank of Turkey does not intervene in favour of foreign trade is the impact of these flows on growth. Increases in facile daily purchases with the purpose of making foreign currencies more expensive show that these policies have actually increased hot money entrances, as such investments showed the strength of National Bank and how positive it views the markets. But, on the other hand, this situation does not direct the foreign trade balance of the country in any positive way and has the potential to end up in a deadlock; it will cause the exports to lose its competitive power completely and problems in balance of payments (especially current deficit). (The parallel relation between current deficit and growth, which is still valid for peripheral countries, can be displayed in Turkey in a crystal clear manner). Thirdly, thinking must be done on the fact that the growth estimations made by IMF decreased the value of Japanese currency during the most violent period of exchange rate wars and was presented at a time when some central countries, including USA, declared that they would allow monetary relaxation. This is because Fed, having declared that it would print more money, will increase its the impact/advantage on exchange rate with the new dollars and balance this deficit in internal demand and production by this means. It is clear that behind this development which is a proof that the value of dollar will reduce even more there lies the fact that Turkey is one of the main countries of how money that wants to benefit from short-term exchange rate advantages. Hot money does not miss a dual opportunity of low exchange rate-high interest rate; and it will naturally lead Turkey to a record-high growth by the end of the year. One should not be surprised at this record (imaginary) growth. But here is the central question: what then?? In an environment where direct capital investments decreased 35% compared to the previous year, the disaster to which potential money escapes will drag the country and its damages on the people will be at a level beyond imagination. An economic policy that reduces growth to hot money will make richer who make profits out of this process and increase unfairness. Pity for the labourers who are the architects of production.