Archive for July 4th, 2013

The reasons for Turkey’s protests

July 4, 2013

Three Turkey born economists reflect on what is going on:

  • Dani Rodrik – Why democracy is unlikely to come back post protests..
  • Daron Acemoglu — Similar to Rodrik’s question and also compares Turkey protests to Brazil’s..
  • T Sabri Oncu of CAFRAL, RBI – The reasons behind protests are neo-liberal growth model followed by the political system in Turkey.

Did I read that right? Blaming neo-liberal growth model for Turkey’s protests! Interesting times surely. Oncu goes on to say (One can’t miss the similarities with India’s growth model):

The AKPhas not presided over an economic miracle. Its austerity-based economic model has been nothing but the neo-liberal speculation and finance-led growth model of development that has been around since the early days of Margaret Thatcher and Ronald Reagan, and is familiar to Indians. Through its economic policies, the AKPhas been imposing its neo-liberal agenda by increasingly commercialising public services, creating areas of rent for large corporations, and eroding the living standards and security of a significant part of the working people. 

The AKPgrowth model depends on cheap labour, speculative financial capital inflows and a high trade deficit. The share of industrial production is decreasing, and the country is becoming increasingly dependent on imports of intermediate and capital goods as well as energy. Agricultural production is weak, and meat production is virtually non-existent that even the well-liked Turkish kebabs are now grilled with meat imported from such faraway places as Argentina.

It is usually argued that the AKPsignificantly raised the national income and the prosperity of the Turkish population. This statement is correct only in the averages. Although there are minor improvements that can quickly reverse if the AKPeconomic miracle collapses, the income distribution is still skewed. And, the rich tail of income distribution is so fat that it can easily be called obese. If the Gini coefficient is any measure of income equality, India beats Turkey by far, .34 to .40 in 2010 respectively and the lower the Gini coefficient, the lower the income inequality. 4

It is also argued that the AKPpushed reforms that made housing, education, and healthcare more accessible. True, the construction sector constitutes about 6% of the annual gross domestic product (GDP) equalling the share of the manufacturing sector and many cities around the country look like huge construction sites. Many of the new apartment buildings in gated communities with security guards are beyond the reach of the majority of working people, and many of those new apartments are sold on easy credit. The Housing Development Administration’s buildings are of a low quality and are usually made available to AKPsupporters. A new shopping mall or another commercial building gets started almost every other day, and many shops in the new shopping malls sit empty with a slowdown in consumption. Debates have been going on about the possibility of a US-or Spain-like credit-fuelled real estate bubble in Turkey, with proponents of the AKPdenying the possibility.5

As for the increased access to education, a new private university pops up almost every other month, taking the quality of higher education further down and increasing the debt burden of families who want to provide their kids with a university education. Most graduates of these universities are not able to find well-paying jobs and the unemployment rate among the youth is above 20%. Further, healthcare is available to anyone who can pay for it, except that a majority of the hospitals are now private, the care they provide is expensive, and the quality of affordable care at the state hospitals is going down due to cost cutting and the increased work load of doctors, nurses and other personnel.

As I said, much like India..


The AKPeconomic miracle of the past decade stands on two pillars. First, on fuelling consumption through excessive credit. The driving force behind the country’s recent economic growth has been nothing but a spectacular rate of credit expansion, which reached 30% for households and 40% for businesses in 2011. Second, on rent extraction through privatisation of the commons from land to public enterprises, and spaces and buildings to natural resources. Indeed, Gezi Park that triggered the ongoing rebellion is the latest example of attempted privatisation of the commons.

Neither of these strategies is sustainable. Further, not only are households in significant debt, with a debt to disposable income ratio of about 45% in 2011, but also the corporate sector.6 Although the AKPtakes pride in having paid the last instalment of its debt to the International Monetary Fund (IMF), Turkey has borrowed increasingly more in the international financial market during its reign, shifting the foreign debt burden from the public to the private sector.

While the total foreign debt stock of Turkey in 2002 was $130 billion with 67% owed by the public sector, the foreign debt stock in 2012 was $337 billion with 67% owed by the private sector. In addition, while only 13% of the total foreign debt stock was short term in 2002, the short-term debt constituted 30% of the total foreign debt stock in 2012. More importantly, 88% of the short-term debt belonged to the private sector, and 66% of it belonged to the private financial sector in 2012.

This effectively turned the Turkish private sector into a shadow bank, which borrows short term in rollover debt markets, leverages significantly, and invests in long-term and illiquid assets, making Turkish corporations in general, and Turkish private banks in particular, vulnerable to currency shocks that may lead to collective bankruptcies. The AKPeconomic miracle recalls the experiences of Mexico in 1994 and Argentina in 2000, where surging external debt produced short-lived bubbles of prosperity, followed by currency devaluations, and deep slumps.7 No wonder Prime Minister Erdogan is worried about an imagined “interest rate lobby”.

Fascinating stuff.

One does not know where to look really. Turkey was seen as a successful growth model not very long ago. It is now falling apart. Though Prof. Rodrik had forewarned in 2009 itself that it will not sustain.



Does religious identity of India’s state legislators influence development outcomes?

July 4, 2013

An interesting paper by Sonia Bhalotra, Guilhem Cassan, Irma Clots-Figueras and Lakshmi Iyer.

One usually thinks the state legislators generally tend to favor their own religion people and much of the development programs are designed (explicitly and implicitly) to serve one’s own community. After all it is the same community which elected the legislator. This paper says it is not really the case. They study the development outcomes based on religion of state developers and say muslims do a better job compared to non-muslim identities. Moreover, the outcomes are felt across communities and not just limited to muslims:


%d bloggers like this: