The end of a paradigm

Published 22.11.2017 00:26

Turkey has begun discussing NATO after the latest scandal. Undoubtedly, it is not questioning the NATO membership, but is talking about how serious NATO is for Turkey's security. Having one of the largest armies among the NATO members, Turkey will continue to discuss the NATO issue. However, this debate is not historically different from the current debate on the economy.

President Recep Tayyip Erdoğan points to a paradigm shift in all his speeches, expressing his comprehensive and political vision, politically formulated by the motto that "the world is bigger than five." This is aimed at emphasizing the need to change the political system, which is based on sovereignty of the West or developed countries established after World War II under U.S. leadership. In fact, this vision does not only concern politics, but includes a great transformation in favor of the oppressed in all spheres, starting with the economy. For instance, he attributes this fundamental political change to a fundamental economic paradigm shift that he expresses in inflation-interest rate debates. In fact, the emphasis that high interest rates are the direct consequence of inflation is not just about an economic and technical rationale. It goes beyond this, and in our view, it speaks of a very comprehensive economic transformation and historically coincides with the idea that "the world is bigger than five."

The current organization of the U.N. is the result of the international order established after World War II. The political and economic dominance of the five nations that make up the present U.N. Security Council and the covert leadership of the U.S. in the council is the product of the post-war consensus and sharing. However, this political "consensus" also corresponds to an economic hegemony, again under the U.S. leadership. This hegemony has been maintained with a multifaceted and very profound institutional, ideological, military, cultural and operational structure. Economically, the Bretton Woods monetary system, designed for the absolute economic sovereignty of the U.S. in the post-World War II era, made the dollar a medium of global exchange, and this system created its own institutions, such as the International Monetary Fund (IMF) and the World Bank, as its own ideology, namely "economics-based" economic doctrine, and its own operational areas, such as universities, media power and even "national" central banks.

Turkey met with the IMF in 1947. The story of Turkey after 1947 is essentially a story of a new colonization. This process, which started during the one-party regime, was maintained through coups and so-called "civilian" governments that paved the way for coups, and Turkey unconditionally implemented the IMF prescriptions. Again, Turkey became a member of NATO in 1952, the military leg of this paradigm. As a result, Turkey's political and economic order until the Erdoğan era included all institutional, ideological, political and economic parameters of the order established under the U.S. leadership after World War II. In fact, in this context, the IMF has managed Turkey economically, while NATO managed the country politically and militarily. When it comes to national security, we understand the organizations required by the NATO concept that were formed against the Soviet Union under the Cold War conditions, and when it comes to economic security, we understand the debt payment capacity of the country and the guarantee of this as required by the IMF prescriptions. In addition, to official institutions in the country, even nongovernmental organizations, political parties, trade unions and universities were structured in line with this paradigm.

When it comes to debates on inflation and interest rates, I would like to mention Paul Volcker, former U.S. Federal Reserve (Fed) chairman who can be considered the most outstanding Fed chairman after Alan Greenspan. The policies, practices and rules that were named after him entered the neoliberal economics literature. Let us take a brief look at what Volcker did.

During the 1980s, the world financial system encountered a major crisis that gave its first signals in 1973, but the problem had been eliminated with makeshift accumulations, such as petrodollars, until then. What was adopted as a last resort was to abandon statist practices and drive up the falling profit rates by transferring public capital accumulations to private monopolies on the cheap. Within this framework, neoliberal policies were introduced, first by Margaret Thatcher in the U.K. and then by Ronald Reagan in the U.S. The process, which followed an intense wave of privatization, was named "Thatcherism" in the U.K., while it was called "supply-side economics" in the U.S.

The same period experienced coups and fascist military processes in developing countries and regions, such as Turkey and Latin America. One of the leading actors of this dark period was Volcker, who was the first and the greatest practitioner of the economic deception, thinking that he would prevent inflation by hiking interest rates. In an attempt to increase the profits of U.S. monopolies, Volcker turned the control of money supply into the principal axis of monetary policy. So, the real interest rates changed for the positive for the first time in 1973 and he managed to push interest rates up to 17 percent, as the falling profit rates could merely be compensated with the financializing that would accompany the interest. Thanks to Volcker's tight monetary policies and rising interest rates, as well as the tax rates that were rapidly dropped by Reagan in favor of monopolies, the monopolistic system in the U.S. was given "the water of life" and crisis's cracks were smoothed over.

So, what happened next? Production fell sharply, while unemployment reached unprecedented levels for 10 years since 1945, constituting the main dynamic of the current crisis. The dollar rose in value and the U.S. had huge public deficits in various fields, including current accounts, savings and investments. However, these were financed with the demand for the U.S. dollar and bonds that were provided by the U.S. war industry. The more valuable dollar and higher interest rates meant more bloodshed for southerners and easterners. After all, Volcker failed to prevent inflation in the real sense and he planted the seeds of the deepest systemic crisis.

However, Volcker's theses and practices were absolutized by Milton Friedman's theories and were imposed on developing countries like Turkey. We know that this method does not work in an open economy, applying the floating exchange rate regime. In economies where inflation is predominantly supply-oriented, especially in countries where interest expenditures constitute the heaviest item of cost inflation, the central banks cannot control interest rates and inflation, and financial stability in a broader sense. On the contrary, they fuel the fire. This policy, of course, is also aimed at making the local currency valuable by targeting the exchange rate. This suffocates the production economy in the mid-term, moves the economy away from the production of goods that are the subject of international circulation and transforms it into a rent and outside source transferring and importing and debt rollover economy. The political aspect of this economic policy is the power of the political structures and political parties or the pro-coup soldiers who conduct politics for the interest of the global sovereign power.

Now, we are eliminating this impoverishing paradigm that made us slaves. In this respect, we have a bright future in terms of both politics and the economy.

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