As around the world, the 1990s were a dark period in Turkey. Political and economic crises and unsolved political murders took place then. The elected government was toppled in a military coup process on Feb. 28, 1997. Turkey should remember the 1990s when the foundations of current events were laid.
Developed countries started to export their crises to developing countries in the form of financial crises in the early 1990s. Many countries in the Pacific Asia, Latin America and Eurasia came to experience debt crises under the name of financial crises. Developing countries, which cycled their debts by being moved away from industry with traditional International Monetary Fund (IMF) prescriptions until then, were no longer able to benefit from the capital flows that had been declining since the 1980s as before. The rapidly shrinking global markets were just able to provide competition opportunities with cheaper labor forces and products. High devaluations and tight monetary and fiscal policies imposed by the IMF to overcome inflation were no longer useful.
Local currencies and wages had already fallen to their lowest levels, as a result of which many economies started to face financial crises one after another, just like the Mexican wave. Liberal and neoliberal economic policies, which are based on false assumptions and have nothing to do with the current realities, failed one more time. However, developed countries, particularly the U.S. and EU, did not take a lesson from this, even failing to see that the crisis was quickly coming to them. Moreover, civil war and coup scenarios were introduced to design governments in developing countries racked with crises.
The same was true for Turkey, where the 1994 crisis and the following Feb. 28 coup redesigned the economy. What former Prime Minister Necmettin Erbakan, the addressee of the coup then, wanted to do in the economy could make some people's blood run cold even today.
Erbakan wanted to take strategic steps to bring a fundamental change to the economy in 1996, thinking that Turkey should carry out an industrial revolution, to which it had been late, without resorting to heavy labor exploitation, unlike the West. To this end, the state should assume a guiding and regulating role apart from the one the West imposed on it. This perspective was being addressed in Turkish politics by Recep Tayyip Erdoğan and his cronies in those days. On the other hand, Erbakan argued that state economic enterprises should be freed from debts and high interest rates, suggesting that public banks should not only work for profit, but also for supporting employment and production. He also proposed that interest rates and debts facing state economic enterprises should be reduced through a pool system, these enterprises should pioneer the price mechanism in the market through terms of productivity and the private sector should be reconstructed as a result of this regulation. Depending on all this, Turkey's overseas resources, such as immigrant remittances, should be brought and the state's borrowing requirement should be reduced in order to ensure that interest rates are below industrial profit rates. Also, the Central Bank of the Republic of Turkey (CRBT) should not be foreign dependent and be committed to Turkey's national interests, highlighting central bank independence in this sense. Turkey should establish its own heavy industry and defense industry, which required cooperation with all underdeveloped countries from the Muslim world and elsewhere, especially with the developing eight, also known as the D8, consisting of Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan and Turkey. The Feb. 28 process targeted this economic transformation.
Erdoğan deepened this understanding and tried to make it prevail, especially after relations with the IMF were cut off in 2008. In a sense, he defended the interests of the Turkish economy instead of the economic targets of the perpetrators of the Feb. 28 coup and strove to implement them. During the Erdoğan era, Turkey's growth has occurred inclusively by supporting small and medium-sized enterprises, especially in Anatolia, and improving income distribution.
However, despite Erdoğan, the perpetrators and masterminds of the Feb. 28 coup have always overshadowed the Turkish economy. Today, all structural problems such as inflation, unemployment, the current account deficit and high interest rates are the result of this malevolence. This understanding dragged developed countries on a global scale to crises during the 1990s. Today, countries such as Turkey can provide stable and high growth without creating inflation. They can build a competitive economy and production and export-oriented economy, rather than debt and an import-oriented one.
For instance, there is the idea that we have to choose between inflation and growth. Turkey will create inflation and current account deficit in high growth rates. Then, our priority is not growth, but inflation. This is both false and reflects the continuation of the economic understanding of the 1990s.
What the supporters of neoliberalism uphold while fighting inflation are cautions based on monetary quantity theory and the assumption that the economy is in a perfect competitive environment. These cautions have been falsified and they do not fit the current facts. Full employment is not possible without perfect competition. The country moves away from potential output (leading to a rise in the output gap), profits start to decline, but monopoly profits increase. Here, the relationship between monetary expansion and prices is now broken. At this stage, inflation is production-based and is the result of a monopolistic market, especially in countries with high labor force and production potential. High monopolistic production costs, including interest rates, are the main cause of inflation. In other words, as Erdoğan says, high interest rates are the cause of inflation or inflation is the direct function of (monopolistic) high production costs, including interest rates.
At this point, no matter how tight the monetary policies it applies are, the central bank cannot reduce inflation, but increases it instead. This is because the economy does not have perfect competition or full employment. The relationship between the money supply and the general level of prices is severed. In other words, both quantity theory and Friedmanian monetarism are invalid.
What needs to be done here is to boost the production-friendly economy, take steps to ensure perfect competition between small and medium-sized enterprises, introduce anti-monopoly regulations quickly and ensure sectoral competition. Thus, growth and anti-inflation policies would not contradict each other. In this way, for instance, there will not be a pro-Feb. 28 perspective that considers the Credit Guarantee Fund (CGF) credits as the reason for inflation. Today, growth and fighting inflation do not tell of economic policies that contradict each other, but tell quite the opposite. Developing countries will not experience the crisis of the 1990s again. However, to this end, they should abandon the falsified economic policies that dragged them into crises and leave them to history.
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