As I stated in my previous column, countries such as Turkey should tackle problems including inflation, unemployment, current account deficits and structural economic problems with a new economic mindset as the neoliberal arguments are no longer working. At this juncture, I want to initiate a calm debate leaving all political concerns aside. In all crisis solution processes, economic policies are refreshed in accordance with new economic theories. When we say that the neoliberal theory must be questioned at this historical stage, some are troubled by it. Why can developing countries, including Turkey, not introduce an economic program similar to the New Deal, which was enacted by developed countries in the past? Let us have a brief look at history.
In the days following the 1929 crisis in the U.S., President Herbert C. Hoover thought that the crisis would be overcome through generic classical economic policies. As he believed that it was necessary to balance the budget, he increased taxes and limited investments; however, things went from bad to worse. The financial crash accompanied a high unemployment rate. As unemployment rose, Hoover wanted capital holders to dismiss employees and to be satisfied with less gross profit. As you can assume, this is the last thing a capitalist wants to hear. Unemployment continued to escalate. Meanwhile, John Maynard Keynes, a British economist from King's College, was working on "The General Theory of Employment, Interest and Money." In 1933, Hoover faced an overwhelming defeat in the elections and was succeeded by Franklin D. Roosevelt. The only thing that Roosevelt knew was that he would not repeat what Hoover had done.
Keynes published the General Theory in 1936 and the U.S. became the first country to adopt his theories. Keynesian economic policies were applied as of 1936 thanks to new laws and newly-established institutions. For example, the Tennessee Valley Authority (TVA) was a general planning law that regulated the financial system including banking. The Public Works Administration (PWA) was also one of the most important institutions that prevented unemployment between 1935 and 1942. In addition to these, the National Industrial Recovery Act (NIRA) - which determined the New Deal - infrastructural investments were launched to maintain the economy and to increase the profit rates in leading sectors. NIRA also laid down new labor market regulations that would allow competition in all sectors. Here is a paradoxical situation: on the one hand, the state provided employment by adjusting the economy and on the other hand it smoothed the way for open competition. Therefore, it is not possible to describe Keynes' notes and Roosevelt's New Deal policies only as statist policies. These policies, which were developed for renewal and getting out of a multifaceted crisis, did not only encapsulate the U.S. but also helped European economies recover. The New Deal played a major role in the reconstruction of Europe on its way to become a welfare state after World War II. In the post-war period, the U.S.'s New Deal almost reconstructed Europe.
Let us go back to the emerging economies. These economies, whether they have foreign trade deficits or not, transfer a great deal of funds to the West. For example there is China, which has a foreign trade surplus and finances the U.S., while other countries have foreign trade deficits and transfer a considerable amount of funds "outside" due to the high interest rates they face. Although this is a distorted and unsustainable situation, it is not a deceleration; it is rather the beginning of the post-New Deal for emerging economies. For developed countries, this is an economic decline that will lead to a great collapse.
China has worked to become a global power with its policies that have so far been developed in four main axes. It liberalized the central decision-making process and activated the control mechanism that regulated the trade. It also partially liberalized its currency as well as introducing very strong and useful foreign capital investment incentives. All of these measures came together with suppressed prices and a huge number of rural workers generated an enormous production potential. Here, China reached the end of the road and will enter a slowdown phase. It will have to make labor markets more flexible and push up the prices. It will also incite sectoral competition inside the country, and in line with this, it will change its specialization from "intensity in labor" into "intensity in knowledge."
At the moment, the capital turnover in the global economy is very slow. Here, I am not talking about financial capital, but coagulated surplus value that comes in the shape of fixed capital. In capitalist economies, coagulated fixed capital and the failure of the extended reproduction cycle are not matters that can be glossed over with palliative financial measures. This situation is applicable to developed countries at the moment. In this very phase of history, the emerging economies are building a new mode of existence. Therefore, this period cannot be described as deceleration, but rather a post-New Deal for the emerging economies.
Now keep calm and follow: capitalism is something temporary but it will survive for a while longer. The collapse of capitalism will come with new policies that are established by developing countries to distribute the income in a fairer way. Follow, and something good will happen.
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