18 March,

Emerging economies and the new role of states

Analytical Wing

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We should have consumed some issues in the world economy and made a clean break from them. Certainly, those who bring such old, outmoded and used-up issues to the agenda today should be considered to have completely failed to understand where humanity is and where it's heading. We have to often bear in mind that a new era has started in the economy, that the functions of state, capital and entrepreneurs in this new era have been redefined and even the definition and content of all these concepts have been undergoing dramatic changes. Both Europe, - the eurozone as a whole - the U.S. and the U.K. have come to the end of the road that they began in the early 1980s.
Back then, a supply-oriented and fast-privatizing neoliberal understanding replaced "welfare state" practices in Europe and the consumption-encouraging public economy dependent on relative wage increases in the U.S. and the U.K. At the same time, this understanding attempted to uplift an upper economic integration that transcended nation-states and the relevant commercial-financial globalization. The upper economic integration, which transcended nation-states, was confined to a crisis-producing and mis-designed monetary union in the EU - which turned into a morbid state that also impeded the EU's political unity. The U.K., on the other hand, handed all of its production power to Asia with wrong and hasty privatizations. Britain is now segregating from the EU, announcing that the period of "liberal" economic and political integration has fizzled out. Nevertheless, it cannot handle the situation as it is too little too late.
The process that began with Ronald Reagan in the U.S. resulted in a big financial crisis, but before that, a terrific middle-class dissolution and wealth inequality had rocked the U.S. to its foundations. According to calculations by Larry Mishel of the Economic Policy Institute, 82 percent of the increase in wealth in the U.S. from 1983 to 2009 went to the top 5 percent, while the bottom 60 percent suffered a loss of 7.5 percent of total wealth growth. The U.S. is still far from permanent growth and steady increase in consumption. So, the question of the Federal Reserve's (Fed) interest rate hike is only a manipulative game.
Donald Trump's growing protectionism delusion both gives the signs of the new era and tells the despair that the U.S. has fallen into. Lately, Trump has announced that he would place tax on iron and steel imports, taking another step toward legitimizing protectionism in the world. Thus, the discourse of anti-protectionism and pure liberalism, which is the main theme of all the G20 summits, has been subverted. The countries that will be affected by the U.S.'s tax release, and particularly Turkey, are preparing to respond to the U.S. in alternative products. (For instance, Turkey is to do this in cotton.)
Now we are confronted with an inevitable fact: We have to readdress the issues of state, economy and globalization in this period. In a world where financialization and the digital economy have become so globalized and deepened, the statist and closed economies of the previous century will not certainly reappear. Or anyone with reason cannot argue for such a solution. The same is true for the neoliberal paradigm.
As far as monetary and fiscal policies go, clichés that skip the authenticity of national economies and that ignore local features have been outdated. The state's upper regulatory role is coming to the fore with a new and market-oriented economy approach that emphasizes technology efficiency, and the state-economy relationship is being redefined in this context. In this regard, Asian countries, starting from China and South Korea, have put forward the most advanced and concrete examples.
In these countries, the state has gone beyond its limits and laid the foundations of a new economy, leading to the Asia-based globalization of the new industrial revolution in particular. At this very conjuncture, Turkey is also redefining / should redefine the state-economy relationship. The cliché argument, "The state should not be involved in the economy, and the private sector should do everything," is not only an obsolete repetition, but it is also high-level ignorance that cannot read the present day.
Today, the state is involved and has to be involved in the economy. It regulates the economy, smooths the way of entrepreneurs, addresses monetary and fiscal policies as an issue of economy security and considers them as a means of national development.
Let us continue with a topical example: If banks transfer their resources to big monopolies by caring about their size without looking for collaterals, instead of transferring them to exporters and industrial enterprises, and if the related regulatory-supervisory institutions of the state just stick back and watch this, then the banking system and economy will fail in that country.
Today, there is a need for a new banking regulation all over the world. All current banking system regulations, including the Basel regulations in particular, have become a thing of the past.
Another issue I need to address is privatization. In this regard, the understanding suggesting "to privatize inefficient and technologically obsolete state institutions as a bloc in any case," has also become a thing of the past. For instance, it true that sugar factories in Turkey are inefficient and that sugar prices are exaggeratedly high accordingly. The inefficiency of these factories brings high prices - which leads to more efficient private monopolies to make profit, bringing a loss for the people. Also, starch-based sugar monopolies have higher unearned income in this way.
However, the solution is not to sell these structures to foreign monopolies in rote fashion. The state can turn them into efficient enterprises by consolidating them with a new perspective and can privatize them by presenting them to the nation, which is the real owner. In this way, they can be managed by the public sector with a market-oriented approach.
Today, the cause of monopolistic high interest rates that President Recep Tayyip Erdoğan voices in an insistent way and of the related economic problems, especially inflation and unemployment, is the fact that the banking system and the industry are far from the right and market-oriented public regulations.
As a result, we do not talk nonsense and adopt a populist approach while saying that the Turkish economy is local and national. Our approach is a realistic and is in line with current conditions and with the spirit of time we are in. In emerging economies, the state must make market-oriented public regulations that improve income distribution, make the banking system more robust and allow more efficient use of resources. In addition, these countries should respond rapidly to the protectionism measures of developed countries, especially of the U.S. In this context, monetary and fiscal policies should also be regulated taking into account unique local conditions. 

Daily Sabah

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