Transcript Document

THE POLITICAL ECONOMY OF
INEQUALITY, REDISTRIBUTION AND
BOOM-BUST CYCLES IN TURKEY
Özlem Onaran, University of Greenwich
Cem Oyvat, University of Greenwich
Introduction
• Turkey’s growth regime led by speculative financial capital
inflows
• Regular boom and bust cycles
• 2009 global crisis affected Turkey more negatively than
others
• Declining share of labour, but redistribution within working
classes
Speculation-led growth regime
• Neoliberal shift from import-substituting industrialization
strategy to export-oriented growth model (1980)
• Capital account liberalization (1989)
• Two economic crises led by capital outflows (1994 and
2001)
• The election victory of the Justice and Development Party
(AKP) in 2002.
Speculation-led growth regime
• 7.2% average annual rate of growth in GDP during 2002•
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•
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2006
High capital inflows prompted by high real interest rates
and Turkey’s EU candidacy
Inflows of FDI led by privatization
The current account deficit/GDP had reached historically
high levels of 6.0% in 2006 and 5.8% in 2007.
Turkey became one of the most vulnerable- exchange
rate overvaluation, high external financing needs, and
their dependence on capital flows
The average annual growth of GDP per capita in
different country groups with respect to income level
1990-2002
2002-2013
2002-2007
2007-2009
2009-2013
Lower income
Lower-middle
income
All Countries Upper-middle
income
Higher
income
1.48
3.18
3.44
2.77
3.14
0.66
3.15
4.27
1.43
2.70
1.16
2.81
4.68
-1.39
2.73
1.70
0.82
1.94
-2.84
1.31
Lower income
Lower-middle
income
Upper-middle
income
Higher
income
1.10
3.08
2.98
2.79
3.42
0.88
2.93
3.93
1.10
2.67
1.47
2.81
4.78
-1.52
2.67
1.87
1.12
2.29
-2.42
1.49
1.44
3.54
5.49
-3.33
4.67
Countries
that are not
fuel
dependent
Turkey
Great Recession in 2008
• The speculation and finance-led growth model once again
proved to be economically unsustainable. With significant
decline in capital inflows in autumn 2008, the recession
started in the fourth quarter of 2008,
• GDP growth rate of 0.7% in 2008 and contraction of 4.8%
in 2009 - deeper than other major emerging economies
such as Argentina, Brazil, South Korea and Thailand
The average annual growth of GDP per capita in
different country groups with respect to income level
1990-2002
2002-2013
2002-2007
2007-2009
2009-2013
Lower income
Lower-middle
income
Upper-middle
income
1.48
3.18
3.44
2.77
3.14
0.66
3.15
4.27
1.43
2.70
1.16
2.81
4.68
-1.39
2.73
Higher income
1.70
0.82
1.94
-2.84
1.31
TURKEY
1.44
3.54
5.49
-3.33
4.67
Great Recession in 2008
• Decline in capital inflows
• Gross fixed capital formation by 6.2% in 2008 and 19% in
2009
• 1) Restricted availability of credits
6% gap between savings/GDP and investment/GDP ratios
• Domestic credits were very dependent on the foreign
finance.
• 2) High volatility in capital inflows generated uncertainty
• The real sector confidence index, which was 110.5 in
December 2007 declined to 58.5 in November 2008.
Great Recession in 2008
• 3) Turkey’s export revenues declined by 20% through
2007Q4-2008Q3.
• Heavily reliance on the EU-28 countries (56.6% of total
exports in 2007)
• A part of exports shifted to Middle Eastern, Asian and
African countries
• 4) The imports of goods and services also declined by
4.1% in 2008 and 14.3% in 2009
Policy response
• Very limited during the first months of the Great
Recession
• The consumption expenditures of government increased
only by 1.7% in 2008, and the primary budget balance
declined mildly from 4.2% in 2007 to 3.5% in 2008
• Very weak compared to the fiscal stimulus in Argentina,
Brazil, Russia and South Korea that constituted around 56% of their GDPs in 2008
Policy response
• December 2008 – Eximbank export rediscount credit pool
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widened, eligibility criteria eased
January 2009 – A public subsidy program supporting parttime employment
March 2009 - Tax cuts on real estate, vehicles and many
consumer goods
June 2009 – Sectoral-regional investment subsidies
through tax cuts, cheap credits and social security
premium reductions
Overall, the consumption expenditures of government by
7.8% in 2009
Policy response
• Delayed response of the Central Bank of the Republic of
Turkey (CBRT) – emphasis on inflation targeting
• CBRT increased its policy rate from 15.25% in May 2008
to 16.75% in June 2008, and maintained it until November
2008
• Starting from late 2008, CBRT reduced the policy rate
from 16.75% in November 2008 to 6.25% in October 2009
• Started to drain its reserves by selling 15 billion USD until
the second half of 2009.
Post 2009 period
• A few macroprudential measures- a gradual increase in
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reserve requirements, restrictions on consumer loans,
and the introduction of credit-growth caps.
Very limited compared to Brazil, India and Indonesia
(Erten and Ocampo, 2014)
Continued to be highly dependent on speculative financial
capital inflows
Financial sector grew significantly faster than the industry
sector
Share of imports in GDP increased from 25% to 29%.
(85% is imports of intermediate and capital goods)
Total income earned in financial and insurance services and
information-communication and industry sectors as a share of
GDP (1998-2013, %)
35
30
25
20
Total income in
financial and
insurance
services/GDP
15
10
5
0
Total income in
information,
communication
and industry
sectors/GDP
Real wages during the boom-bust cycles
and the Great Recession
140
130
120
110
100
90
80
70
60
50
40
Inequality during the boom-bust cycles
and the Great Recession
• Wage share:
• Declined during the recovery (2010-11), and the recovery
since 2012 has been dismal
• Overall, as of 2013 the wage share is 37.1%
• Still dramatically lower than the wage share at its peak in
1991 (66.2%), lower compared to 2000 (48%).
• Nevertheless,
• Gini coefficient did not increase (2002-2013)
Gini coefficient (2002-2013)
Urban
Rural
Total
2002
0.440
0.420
0.440
2003
0.420
0.410
0.420
2004
0.390
0.420
0.400
2005
0.380
0.370
0.380
2006
0.415
0.406
0.428
2007
0.394
0.375
0.406
2008
0.395
0.378
0.405
2009
0.405
0.380
0.415
2010
0.389
0.379
0.402
2011
0.394
0.385
0.404
2012
0.391
0.377
0.402
2013
0.392
0.365
0.400
Gini coefficient (2002-2013)
• Data problems - Between 60-67% of total income in
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Turkey cannot be captured by surveys
ALSO
A redistribution of income towards the poorer since 2002.
The source of this redistribution was the income losses of
the organized blue collar and white-collar/professional
working people rather than taxes on corporate profits and
the rich:
1) The share of revenues from transfer in total income
significantly increased from 17.5% in 2002 to 22.2% in
2013
2) Increasing minimum wages
3) Reduction in the share of informal activities
The changing structure of Turkey’s
capitalist class?
35
30
25
Value added
share in the
largest 500
enterprises(%)
20
15
Value added
share in total
industry(%)
10
5
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
The shares of 38 of the 50 private enterprises which had highest
revenues in 2002 in value added (%)
Unemployment during the boom-bust
cycles and the Great Recession
18
16
14
12
10
8
6
4
2
0
Total
Urban non-agricultural
Informal employment as a survival
strategy
60.0
50.0
40.0
Total informal
employment (%)
30.0
20.0
10.0
0.0
Non-agricultural
informal
employment (%)
Conclusion
• Growth dependent on financial capital flows
• Important risk for the sustainability of growth
• Did not reverse adverse trends in employment and
wages.
• For sustainable growth:
• Egalitarian industrial restructuring
• A combination of industrial and trade policy
• An alternative macroeconomic policy framework
• New global institutions to provide the proper conditions for
such policies.