Political Economy In Turkey. State-led to State Partner

Transcription

1 Political Economy In Turkey State-led to State Partner

2 ETATISM AND STATE-LED DEVELOPMENT. Of the Arrows of Ataturk: Etatism requires the developmentalist state (devletçilik) As part of Kemalism, Etatism is not simply a strategy of stateled development, it is also part ideology. Although that was primarily devised as a response to local and international conditions of the 1930s Assets and trade rights either owned by minorities or bound into capitulations.

3 ETATISM Etatism is a form of economic nationalism -Accumulation is state-led -There is a corporatist model of the state organizing production It is related to a number of economic, and political-economic theories. Modernization, Structuralism, Marxian theories (dependency, world systems) 1 ttatism, followed fairly consistently in Turkey since the 1920s, might be described as " pragmatic socialism." It denotes " a situation in which the State takes an active and permanent part in economic affairs," but " is not in any way the same as... Collectivism or Communism " as it is not associated with attempts at nationalising existing private enterprise but with stepping in promptly where private enterprise has failed to take the initiative in vital segments of economic activity. See [14]. 306

4 ETATISM IS A MIX OF Etatism "is a system peculiar to Turkey, which has evolved from the principle of the private activity of the individual, but places on the state responsibility for the national economy... to do quickly things, which have not been done throughout centuries in the Turkish Motherland by individual or private activity. It is also system different from liberalism. By definition a heterodox practice, it is not orthodox free-market or liberal, economics. It is certainly not Marxism either. It is closer to Keynsian economics than socialism. Turkey s early post-war period is very similar to conditions faced by other postcolonial societies.

5 ETATISM IS A MIX OF By definition a heterodox practice. Neither orthodox liberal economics with sole reliance on markets and private contracts, or socialism with state control of productive resources. Modernization theory. Stages of Growth 5 stages: traditional, preconditions, take-off, drive to maturity, consumer society. Keynsian liberalism with participation of the state. Structuralism Economic observations focused on the problems of capital accumulation and investment facing less-developed countries. Primary goods producers face declining terms of trade (their exports are less valuable than manufactured imports.) Changes in terms of trade undermine currency stability and investment.

6 WHAT IS STATE-LED Modernization focuses on primary accumulation of capital. Asserts that there are bottlenecks, or short-comings to laissez-faire economics in a developing world context. capital accumulation, human capital, and infrastructure. The state must create conditions for accumulation, investment and education. Either the state provides these directly, or enables investment through insurance or guarantees.

7 STRUCTURALISM Terms of trade result in the frequent disturbance of economy and increasing export of labour value. Terms of trade decline for primary goods prevents domestic accumulation of capital/savings. Without investment, no improved productivity. Reliance on single commodity or class of goods undermines stable growth. States must lead diversification of the economy. Periods of interruption of trade give indication of policy recommendation.

8 STRUCTURALISM Economic disruptions permit change weaken conservative forces. Strong state policies, Tariffs against manufactured goods to reduce consumption and accumulate surplus domestically. Infant industry policies/ ISI Agriculture reform, Change land tenure for efficient mid-size production, release peasants to be labor in efficient sectors. Education and Infrastructure. Remove bottlenecks to production invest in education.

9 STRUCTURALISM: POLICY RECOMMENDATIONS Create trade blocs of similar development level states Some (Prebisch) access to financial markets, and import of technology and capital goods as needed. Efficient ag, and tariffs help facilitate this Some- Permit import replacing FDI. Value added at home, learning by doing, technology gains. Some potential for transformation in position in system, and possible reconnection, or at least regionally efficient production.

10 KEYNESIAN / STATE LED Targets Unemployment first. Focus on full resource employment. State takes lead role in off-setting business cycle State invests (counter-cyclicly) in infrastructure and human capital

11 KEYNESIAN LIBERALISM Statist Disregards notion of an invisible hand driven optimal equilibrium Finds multiple potential equilibria High growth Low growth/recession equilibrium. Counter-cyclical investment by state to stimulate or replace private savings.

12 KEYNESIAN LIBERALISM State intervention and regulation needed. Depression capital was not experiencing profits, not saving and not investing. drop in interest rates to stimulate investment doesn t work alone. depression equilibrium from insufficient demand, absent savings. Stopped money flow

13 KEYNESIAN LIBERALISM Keynsian policies Deficit spending to achieve resource utilization. Drop in interest rates to stimulate investment must concert with Gov t spending to fire investment Transfer taxes to spending classes from saving classes. Gov t demand can charge money circulation, increase velocity, w/o driving inflation until full-employment. Multiplier effect.

14 HETERODOX ECONOMICS Institutionalists Path dependency State-led Some elements of critical theory Strong dose of Keynes Sometimes called Post-Keynsian Veblen, Galbraith, Viner, and ECLA school

15 ETERODOX POLICIES Development of strong technocratic ability Capital Controls State-led investment (strategic trade) Sometimes fixed exchange rate as inflation anchor two exchange rate policy border taxes until VAT or similar system can be achieved. State industrial participation.

16 ORTHODOX/NEOCLASSICAL VS. HETERODOX ECONOMIC POLICY No single heterodoxy Heterodox Policies are a combination of orthodox and critical policies Often state-led policies, derived from one of Structural or Post- Keynesian traditions. Fixed exchange rates as inflation anchor interest rate controls export/import barriers discriminatory, or selective capital policy (encourage cool long-term investments, discourage hot money) support and subsidy of important sectors, especially capital intensive primary sectors mining, energy, transportation.

17 ASSUMPTIONS BEHIND PURE THEORIES OF TRADE Costless Transactions Full Resource Employment Pareto distribution (side-payments to losers.) Similar Technology Constant Returns to Scale Similar tastes Costless Factor Movements (labor capital.)

18 RELAXING ASSUMPTIONS OF PURE THEORY OF TRADE Acquired Comparative Advantage: Means Comparative advantage is not just Given by Factor Endowments Economies of Scale Similar technologies Regulatory, or enforcement advantage Institutional Advantage Imperfect Competition

19 RELAXING ASSUMPTIONS: ACQUIRED COMPARATIVE ADVANTAGE Acquired Comparative Advantage Economies of Scale more efficient production for larger scale (capital intensive operations) Explains trade between similarly endowed countries. Is a central idea of gains from trade. Thought to be complementary to H-O and gains from trade. However, achievement of competitive scale for value-added sectors leads to some policy prescriptions Strategic Trade policies: Infant Industry Arguments subsidies Tariffs NTB

20 RELAXING ASSUMPTIONS: ACQUIRED COMPARATIVE ADVANTAGE AND INCREASING RETURNS Welfare loss to Tariffs or NTBs thought to be offset by public good of infant industry support ISI= Import substitution industrialization Import substitution industrialization also argued to create local economy of scale, and eventually knowledge to manufacture high value goods. Brazil and airplanes, automobiles Quotas Increasing Returns to Scale can create monopoly firms in single nation markets.

21 DIFFERENT TECHNOLOGIES Different technologies can alter efficiency, or change factor intensity of production. Advances in technology provide monopoly-like profits to leading firms. Substitution of labor for capital and vis-versa Elasticity of substitution: How easily labor can substitute for capital The costs of production may vary based on worker productivity. Human capital- multiplies the relative endowment effect of labor. More productivity per unit input.

22 RELAXING ASSUMPTIONS: IMPERFECT COMPETITION Monopoly result of Economies of Scale, first mover advantages Distorts incentives for new investment and prevents start-ups Territorial Monopolies, and Intra-firm transfers Different reasons for firm structures. Intra-firm transfers account for 57% of OECD trade in 1987 With differentiated products, or embedded with technology and proprietary information, or even movement within firms may not reflect real prices and costs.

23 INSTITUTIONAL ADVANTAGE/ DISADVANTAGE Policy intention or failures create externalities that can provide false factor price advantage. Low regulatory ability Low regulation Labor repression Capital subsidy. Externalization of public bads separate the transmission of all factor costs in the price of a good. Public Bads are things like pollution, disease, anomie. Differential enforcement or lack of enforcement causes market to displace costs to host (of production) economy. Trade may transmit pressures (factor price equalization) to likewise subsidize industrial production.

24 PROBLEMS WITH STATE-LED DEVELOPMENT Trade barriers lead to rent-seeking behavior by domestic actors Industrialists want barriers to competition up despite effects to other sectors. State-owned Enterprises hide unemployment inefficient but keep workers off the streets. SOE can be used for patronage. SOE can be used to undercut political rivals. SOE privatization can be used to profit cronies. State-directed lending see above. domestic borrowing by state, plus guarantee on deposits= money making machine

25 PROBLEMS WITH STATE-LED DEVELOPMENT State control of major economic actors and resources means there is more to fight over. Parties and their proxies or clients have incentive. winner take-all attitudes. State must have balance of autonomy and embeddedness Expertise is difficult to maintain independent of firms.

26 PERIODS OF STATE-LED DEVELOPMENT? The creation of State planning office to coordinate development State Planning develops initial 5-year plans 1932 creation of the first state-commercial bank/ holding companies. Etibank (mining), Sumerbank (textiles and manufacturing) Agriculture Bank was also created (Ziraat Bank) creation of first share-holder private commercial bank İŞ Bank (shares held mostly by Ataturk and other CHP leaders, Celal Bayer was director.) First two five year plans , the second (interrupted by WWII)

27 PERIODS OF STATE-LED DEVELOPMENT New five-year plans were suspended during DP reign. They resumed in 1960s after the Coup and re-assertion of etatism. Despite free-market rhetoric, and aspect of DP-- no privatizations occurred, and public investment increased substantially. Government investment drove inflation and overvaluation (from borrowing) at the same time, undermining international competitiveness. Tariff barriers and quotas protected domestic industry TUSIAD, MUSIAD. TUSIAD is the former official business association. MUSIAD is the independent (read non-secularist) business association.

28 PERIODS OF STATE-LED DEVELOPMENT Period of Marked by Growth in Agriculture Growth in Manufacturing Export boom due to Korea war Export boom due to European recovery. Creation of Turkish Industrial and Development Bank loans and insurance for private investment. S.O.Es established in Machinery, Chemicals, Meat and Fish processing, Cement, Nitrogen (fertilizer and explosives), Petroleum Processing, Coal mining, Paper, and Iron Devaluation, weakened purchasing power for imports.

29 PERIODS OF STATE-LED DEVELOPMENT : The new Constitution stipulated the resumption of planned development. Re-asserted Etatism. Resumption of Five-year plans st Five-year plan (of the Second Republic) New directly controlled S.O.E.s Increased wealth taxes Increased import tariffs Anticipated Aid of 3.5% of GNP. Only received 1.8% Failure to assess industrial needs completely private-sector investment diverged from intended areas bad weather undermined agricultural targets

30 PERIODS OF STATE-LED DEVELOPMENT Public and Private Investment TABLE V Gross Investment (As proportions of G.N.P.) (1) (2) (3) Date. Total Public Private investment. investment. investment *9 10* * * * * *1 8* *3 6* * * * *0 : 1, from State First Five-Year

31 PERIODS OF STATE-LED DEVELOPMENT Second Five-Year Plan The basic objective of the mixed economy system is to accelerate development by mobilizing all the resources and potential of the country through the framework of a better distribution of resources among economic and social activities. - The mixed economy system will be employed as a tool capable of ensuring an equitable and balanced development in the efforts towards improving the welfare of the Turkish nation. - Although the second plan is imperative for the public sector, it serves as a guide and support and it helps individuals explore and develop their enterprising potential. - The rules of the mixed economy system will be clearly defined and the drawbacks of the existing system will be quickly removed.

32 PERIODS OF STATE-LED DEVELOPMENT 2nd 5-year Plan The rules of the mixed economy - The static and dynamic efficacy of the economy will be achieved mainly through the market mechanism. In other words, economic decisions will be made on the basis of free market prices. - In fields, where the public and private sectors carry out productive activities side-byside, the government will ensure equality and treatment. - The government will ensure price stability and minimize the deficiencies of the price mechanism through indirect means such as tax, credit, money and foreign trade policies, and it will prevent the creation of monopolistic tendencies and the effective distribution of private sector resources in fields to help the development of the economy. - In particular, the state will undertake infrastructural investments, which accelerate the overall development of private sector industry and growth.

33 PERIODS OF STATE-LED DEVELOPMENT Third Five Year Development Plan ( ) also focused on the importance of government' s active role for economic development, The Great Oil Shock of Crude oil prices went up sharply and this became the major source of inflation in many industrialized and developing countries. Following an Interim Plan for Fourth Five Year Development Plan was introduced, failed to prevent economic problems such as; a very severe foreign exchange bootleneck, a high inflation rate, growing unemployment, resulting new devaluation of the Turkish currency. IMF Assistance sought. Ozal Plan initiated(finance Minister) In this period, economic problems doubled with high political turmoil and deterioration, Turkey underwent a major political and social crises. Government failed to cope with growing labor strike and urban terrorism.

34 PERIODS OF STATE-LED DEVELOPMENT 2001: Still 37 S.O.E holding companies 250 affiliated subsidiaries. 70,000 employee or 25% of industrial employment. privatization continued apace after 2001 crisis. Role in 1999 and 2001 crisis duty-losses of S.O.E. 33% of Public Sector Borrowing Requirement. How