'Great Transformation' again

Published 08.11.2017 01:03
Updated 08.11.2017 01:04

Last week marked the 131st birthday of Karl Polanyi, who wrote the book "The Great Transformation" in 1944. This book deals with the major subversion which started with the first industrial revolution in Europe and the U.K. and determined the 19th and 20th centuries. In this book, Polanyi presents quite new and striking arguments about the "great transformation." We are now confronted with a great transformation, and this subversion, of course, requires new arguments too.

The great transformation that is now taking place around the world, especially in Eurasia, is undoubtedly bringing about an enormous subversion in the political and economic spheres as before, driven by technological revolutions. However, it basically and qualitatively differs from the previous "great transformation," which was based on the fossil fuel energy that was driven by the previous industrial revolution and left its mark on the first half of the 20th century.

It was also based on the Soviet's iron and steel and electricity production and productivity, the U.S.'s dollar and militarism, and Europe's fascism. And this difference is also based on a systemic change that will determine the next story of mankind.

This new story is that the West, which declared its economic and political sovereignty during the first industrial revolution, is losing its sovereignty with the new great revolution that has been led by the new industrial revolution. And a new wave starting from Asia is establishing a new balance between the East and the West. All the current plans and related operations of Germany in continental Europe, and of the U.K. and the U.S. on the other side, are being built on the aim of protecting their future power and avoiding Western sovereignty.

This is precisely what is taking place in the Gulf region, the hub of petro-dollar sovereignty based on the fuel fossil economy, and what has begun in Saudi Arabia. Those who first created Daesh in the Middle East have now come to use terrorist structures like the PKK and the People's Protection Units (YPG) as useful apparatuses. Those who realize that they will not be able to control the change in the whole region with the so-called Arab Spring have returned to coups and civil war chaos starting with Egypt.

What is happening in the Gulf today is the continuation of the process that started with Abdel Fattah el-Sisi's coup in Egypt. Of course, Dec. 17 and Dec. 25 processes and the July 15 coup attempt in Turkey and anti-Turkish racism in Europe, coupled with Islamophobia, are all an inseparable part of this strategy.

The Turkey-Iran-Brazil agreement, led by Turkey in 2010, brought international control to Iran's nuclear program. This agreement was the first sign that Iran would open up to the world and that regional balances would change rapidly. A constant enemy is needed to sustain the petro-dollar system in the Middle East and the Gulf region. The integration of Iran into the system would spoil this game. As a matter of fact, President Recep Tayyip Erdoğan is the only leader who is still in power among the leaders who signed this agreement. Former Brazilian president Lula da Silva and his successor Dilma Rousseff were overthrown with incomprehensible conspiracies. They were accused of "corruption."

The Dec. 17 and Dec. 25 operations in Turkey were directly masterminded by the Gülenist Terror Group (FETÖ), the perpetrator of the July 15 coup attempt. Now, a new U.S.-based operation is being carried out against the Turkish economy and the Turkish banking system through FETÖ's false documents that it used in these operations. In other words, Dec. 17 and Dec. 25 and July 15 processes are being continued in this way.

Each week we encounter new "news" based on speculative texts leaked from the so-called indictment. This is an attempt to create uneasiness and unpredictability in the Turkish market through such news, which is not based on any concrete documents, but entirely on interpretation. However, the effect of such nonmarket efforts is limited and temporary in countries like Turkey that are fully outward oriented and have a floating exchange rate regime. So, it is a futile effort to create artificial volatility in the foreign exchange market, which is not deep in Turkey.

There are two important points to note: First, Turkey is no longer a country in the 2001 crisis and is implementing a floating exchange rate regime. And compared to the past, the Central Bank of the Republic of Turkey (CRBT) has much more power and independence to use its instruments more effectively and to develop new instruments.

Secondly, the exchange rate in economies like Turkey, which are fully outward oriented, is shaped in line with foreign trade dynamics and capital inflows and outflows. The course of foreign trade in the medium term is determined by the internal and external price equilibrium. The most important builder of this equilibrium is the price of the Turkish lira against reserve currencies. This price emerges at the end of the day as a direct function of foreign trade and capital inflows and outflows in a floating exchange rate regime. Therefore, the CBRT does not intervene to target the exchange rate during temporary increases and decreases.

Those who argue that the CBRT should increase interest rates depending on exchange rate volatility today forget that the central bank should not have a currency target in the floating exchange rate regime. The expected inflation in Turkey will fall to single-digit figures for the first quarter of 2018. The findings and targets in the CBRT's latest inflation report are realistic and there is not a big problem with the current account deficit. In this case, speculation based solely on the exchange rate has no significance for the Turkish economy.

In this case, the CBRT should only use instruments to prevent speculation and unnecessary foreign exchange demand. No one should worry looking at speculative currency attacks in Turkey. After a reasonable period of time, you will see that we will reach an exchange rate level that is in harmony with foreign trade dynamics and general macroeconomic data and balance.

I would like to note that despite all these attacks and developments, Turkey has achieved a high and sustainable growth momentum in 2017, and that it will continue to do so with new pro-production reforms and institutions in 2018. Turkey will be the only stable and investable country in its region to catch up with the new industrial revolution. I must also add that our institutions and their outdated economic policy understanding, which are panicked in the face of the games of economic hitmen, and think that they have no choice other than succumbing to them, are becoming a thing of the past.

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