Neoliberalism Archives - Politics Today https://politicstoday.org/tag/neoliberalism/ Sat, 11 Nov 2023 06:20:50 +0000 en-US hourly 1 https://wordpress.org/?v=6.4.8 The EU’s Two-Dimensional Thinking about Integration is Myopic: Interview with Hans Kundnani https://politicstoday.org/eu-integration-interview-hans-kundnani/ Sat, 11 Nov 2023 06:20:50 +0000 https://politicstoday.org/eu-integration-interview-hans-kundnani/

Eurowhiteness may come off as unpalatable to many pro-Europeans, but it raises valuable questions about the place of culture and race in the European project.

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n Eurowhiteness, Hans Kundnani, Associate Fellow in the Europe Programme at Chatham House, challenges a sanitized and linear history of the EU, prompting the reader to rethink Europe’s peaceful image against its imperial past. He goes on to tackle myopic assumptions about the European project throughout the book.

Kundnani argues that pro-Europeans, who cradled cosmopolitanism and renounced nationalism, have failed to perceive the reality of European regionalism. This provocative critique dissects both the civic and ethnic elements that shape European identity by highlighting Europe’s interaction with the “Other” and linking “Europeanness” and “whiteness.” 

Eurowhiteness may come off as unpalatable to many pro-Europeans, but it raises valuable questions against a backdrop of a rising far-right in Europe. Especially in the wake of the 2015 refugee crisis, the complex relationship between European identity and race demands urgent reflection.

Q. What are some of the myths that cause blind spots in understanding the European identity?

I would mention two in particular. The first is the idea that the EU is a cosmopolitan project. Cosmopolitanism usually has something to do with the whole world, and Europe is not the whole world. There’s a tendency by pro-Europeans and the EU to mistake Europe for the world. For example, when they talk about European integration, they sometimes seem to think that they’re talking about global integration, but they’re not.

Similarly, when they say “I’m a European or I’m a European citizen,” they seem to think they’re saying I’m a citizen of the world, but they’re not; They’re saying I’m a citizen of this particular region that has a very particular history and relationship with the rest of the world.

This is what I call in Eurowhiteness “the of myth of cosmopolitanism in Europe”, and related to that is the idea to think European integration is good for the whole of the world, but that may not necessarily be the case; It may be good for Europeans or may not be good for Europeans, arguably. But even if it is good for Europeans, it’s not clear if it’s good for the whole world.

The second myth would be that the EU is a peace project, and that is not entirely wrong. However, the way that pro-Europeans talk about it is sometimes simplistic; that after 1945 Europeans rejected war, and since then Europeans stand for peace. In reality, Europeans did not reject war in general in 1945. They only rejected war with each other.

In 1950 as the Schuman Declaration, which can be seen as the beginning of the idea of the EU as a peace project, is made by France’s then-foreign minister Robert Schumann, France is simultaneously fighting a brutal colonial war in Indochina.

Similarly, seven years later, when the Treaty of Rome is signed, France fought a brutal colonial war in Algeria. This demonstrates that Europeans are continuing to fight colonial wars until they’re defeated or exhausted.

Europeans like to think of themselves as being uniquely peaceful. The real story is more complicated, and in particular, as I say, to the extent that Europeans have rejected military force, it is military force within what has become the European Union, not even within Europe at large, that is being rejected.

Read: Superstates: Empires of the Twenty-First Century

Q. Has the EU’s focus shifted from peace to power?

I wouldn’t say it has shifted from being about peace to being about power. I think it was always about power as well as peace. In particular, it gets to what I was just saying about the idea of the EU as a peace project.

If you go back to the interwar period pan-European movement, which is the inspiration for the post-War European integration project, it is very clear that at that time already that the European integration project is about power and the perception of European decline accelerated by fighting one other.

The idea is: If we want to maintain our position in the world – and at that time this is a position of colonial domination- we have to stop fighting with each other. Not so that we can end European colonialism, but so that we can continue it. So in other words, European integration would take the competitive element out of European colonialism, allowing its practice collectively.

Part of the point of European integration in 1950s was for France and Belgium to consolidate their colonies in Central and West Africa at a time when they were no longer able to on their own. In particular, they needed an injection of West German capital.

The idea of geopolitical Europe goes back to the 1920s. It only seems new because pro-Europeans like to tell a story of Europe through the aforementioned myths. It only seems like a shift because we’ve forgotten the real history of how European integration began.

Q. Does the EU still export the European social model and the general welfare state?

Social market economy and the welfare state are no longer what the EU can to claim export anymore. It may have done once, but even in Central and Eastern Europe after the end of the Cold War we observe that this is not the case. In fact, the former communist countries in Central and Eastern Europe had much more generous welfare states when they were communist countries.

What happened as they joined the EU during the enlargement process is that those welfare states were dismantled as part of their transition to democracy. There are obviously lots of things that you can criticize about the communist systems in those countries, such as the lack of political freedom and so on, but they did have welfare states.

What has happened now is a further stage in which the EU is putting pressure on member states to dismantle the welfare state. For example, during the euro crisis, the austerity Germany imposed on Greece dismantled what was left of the Greek welfare state.

Read: The Resettlement of Refugees: A Test for European Values

Q. Your book suggests that civic ideas of Europe are being replaced by ethnic-cultural ones. What is the connection of the neoliberalization of Europe to identity politics?

What I try to show in the book is that there have always been both of the elements of civic and ethnic-cultural idea in the history of what I call European regionalism- which is similar to nationalism on a larger continental scale. I’m suggesting that we can think of the history of ideas of Europe in the way we think about the history of nations. Therefore, regionalism is like nationalism.

The earliest ideas of Europe are predominantly ethnic-cultural. For example, in the medieval period, Europeanness is synonymous with Christianity. From the modern period onwards, you begin to get civic ideas of Europe. Then, in the post war period is when the EU came closest to evolving into a purely civic regionalism. Particularly, in the period from the 60s to the 90s-2000s, there was an idea of Europe centered on the social market economy, the welfare state and depoliticized mode of governance which European integration had produced.

I think what’s happened is that the social market economy and the welfare state have been hollowed out by neoliberalism in the EU. Meanwhile, there has been a backlash against the depoliticised mode of governance where the older civic idea of Europe is no longer persuasive in the same way it was before.

The way I understand neoliberalism is not just financialization, but it’s also the depoliticization of economic policy. In other words, it’s taking economic policy out of the space of democratic contestation. Although, to some extent, this has happened in the whole world in the last 30-40 years through things like the World Trade Organisation rules, the EU has taken it further through the creation of the single market, and also the Eurozone and the fiscal rules. Therefore, it’s very difficult now to pursue a left wing economic policy in the Eurozone because the fiscal rules don’t allow you to do it.

My argument is basically that when you take economic policy out of the space of democratic contestation and no longer have big fights between left and right about economic policy, your democratic politics shifts to cultural questions.

The point of democratic politics is to reconcile different interests and to have fights about questions where people in your society have different ideas or different interests. I think a healthy democratic politics is one where you do that about economic issues because there are real differences between the interests and different ideas as well.

What has happened now is that the center left parties and the center right parties converged in the center around neoliberal economic policy, which the EU has constitutionalized. Therefore, the way parties can differentiate themselves from each other now is around cultural questions.

In terms of what Europe says to the rest of the world, there was a time it would say it stood for the social market economy and the welfare state and now it says it stands for European civilisation.

A good example of this is the phrase “the European way of life,” which used to be used by French socialists, specifically, to refer to the social market economy and the welfare state and the idea of solidarity that it was meant to embody, saying “that’s what we in Europe stand for as opposed to the United States.”

Now when you look at the way that the phrase is used, it is in more civilizational terms. In the current European Commission, the Commission of Ursula Von Der Leyen since 2019, a European Commissioner for promoting the European way of life and his job is to keep migrants out, which makes it very explicit that migrants- only migrants from the South, not migrants from the east- are a threat to the European way of life. That is a very explicit expression of civilizationalism where the European way of life is defined in terms of culture and civilisation, not in terms of the social market economy and the welfare state.

Read: The Fear of Decline: Cultural Pessimism in Europe

Q. In your book you imply that the center right is increasingly mimicking the far right. Is there a pro-European version of the great replacement theory, if so, what is it?

There is an idea that the EU represents a European civilisation which is being increasingly threatened. This is basically a far right idea that has now been taken on by the center right in Europe.

For example, a couple of weeks ago, Eric Zemmour was doing a rally in the South of France with the young far right leader Marion Maréchal, and the slogan on the lectern at which he was speaking was ‘Defend our civilization.’  The way the far right is thinking about Europe is there’s a European civilisation that is threatened right now. The far right tends to talk about this in the context of migration. That is, it’s the migration of non-white and non-Christian people that is threatening European civilisation.

For example, Valérie Pécresse, the Republican candidate in the French Presidential election in 2022, was talking about white replacement theory or alluding to it in terms of migration. However, in addition, what the centre right tends to do is not talk so much about migration as a racial threat, but more in foreign policy terms as a threat to European civilisation. Macron has given speeches where he’s quite explicit about this.

In other words, international politics is a clash of civilizations, like how Samuel Huntington argues, and Europe is a distinct civilization. Moreover, for someone like Macron, the West is not one civilization, which is what Huntington thought but that Europe is a distinct civilisation, separate from the United States as well.

Where I see a connection with great replacement theory is that this is almost the international political equivalent of the great replacement theory. It’s not about migration but it’s that if Europe does not unite and defend itself, it will be also replaced by other civilizations. Macron has basically said that.

Q. What are some key takeaways from history regarding Europe’s interaction with those who it sees as the “Other”?

I try to show in Eurowhiteness that there’s a long history of defining Europe against various different “Others” at various different times and it’s constantly shifting. But roughly, I would say, in the medieval period when Europe is pretty much synonymous with Christianity, Jews are defined as the primary internal other and Muslims as the primary external other, excluding the divide between Western Christendom and Eastern Christendom.

Then, in the modern period, I try to show how there is a new complex modern idea of Europe, which is partly to do with the European enlightenment and the scientific revolution. It is a rationalist, secular idea of Europe rather than a religious one. At the same time, the idea of Europe also emerges in the context of the encounter of Europeans with the populations of Africa and Asia, and especially the Americas, and that’s the context in which the idea of whiteness emerges.

So, the modern idea of Europe is not just a rationalist one as opposed to a religious one, it’s also a more racialized idea of Europe that is closely connected to the idea of whiteness. What I think happens in that context is that non-white people around the world are the “Others” against which Europeans define themselves.

In the 20th century and particularly after World War I, you have the new idea of Europe as a geopolitical bloc, which I mentioned earlier. European civilisation or the European spirit, as they talked about it at that time, is being threatened by the United States on the one hand and the Soviet Union on the other hand. In that context, Russia and also the United States are respectively an “Other.” What I think we’re seeing today is a mixture of all of those “Others.”

Read: The Future of Far-Right Parties in Europe

Q. In the context of the current European enlargement talks, how does Eurowhiteness influence the accession process for Eastern European countries and Turkey?

Enlargement is back and it has very quickly become the central priority for the EU, including the question of how to reform the EU in order to get it ready for enlargement. But it is quite extraordinary that there’s all these discussions regarding enlargement and the topics surrounding it such as reform and the countries awaiting membership, namely Ukraine, Moldova, Georgia and even the Western Balkans, and Turkey has never been mentioned at all.

I was watching a discussion online that the German Council on Foreign Relations (DGAP), a foreign policy think tank, was having- a 90-minute long discussion about exactly these questions and Turkey was never mentioned. Nobody thought to even bring it up. This is an answer to your question of how eurowhiteness plays into the EU enlargement.

It’s apparent that this time is very different from the “big bang” enlargement in the 2000s. Enlargement is now thought about in a much more civilizational way. Ukraine is in and Turkey is out.

When it comes to the Western Balkans the situation is complex, given not just their histories but also the different populations that they have.

The way I’ve described it in the book is that there’s a contrast between Europe’s borders to the east and Europe’s borders to the South. Europe enlarges to the East, but not to the South. And I think for Turkey and the Western Balkan countries, located in South East of Europe, they’re geographically somewhat in the middle, and so, it gets quite complicated.

I think we can see quite clearly how that plays out with Turkey in the way that I just described, which has largely to do with the fact that even if it’s a secular country, it’s seen as a Muslim country. The countries of the Western Balkans are even more complicated in that respect, because additionally there is the Russia factor, which is also to some extent an “Other.” In short, for the Western Balkans, I think, it’s gonna be a long, complicated process.

Read: Brexit and Re-discussing European Democracy

Q. How could the EU stop thinking in terms of less integration or more integration, which is a criticism you make in your book?

That question goes way beyond my book and is something I thought for a long time about, which is that so many of these discussions about European integration, especially as they take place in Brussels and among pro Europeans, are entirely through the prism of “do we have more integration or less integration.”

It’s a very linear way of thinking and the assumption is: more integration is good, disintegration is bad. Therefore, Brexit is bad, obviously. Whereas, I’ve always thought, long before I came to write this book, “well, maybe some integration is bad and some disintegration is good?”

In terms of what I mentioned earlier on the depoliticization of economic policy, if you constitutionalize right wing economic preferences, then from a left perspective that’s bad European integration.

I think fundamentally what the problem with the EU is around democracy, and in particular, the way in which it depoliticizes economic policy. So, I think the crucial question for the EU is not, “Do you have more Europe or less Europe? Do you integrate or do you disintegrate?” It’s how you deepen democracy in Europe, period. Therefore, the key question about policy should be: “Is it making Europe more democratic or not?”

Q. As a person who formerly identified as a pro-European, would you like to share your story of how your perception of the EU changed?

I think part of my perceptions of and interest in some of these questions has to do with my own background. I was born and grew up in Britain, which has a famously semi-detached relationship with Europe. On top of that, I have two parents who are immigrants to Britain. My father was Indian and my mother was Dutch. So in other words, I have one parent from a EU member state, which in some ways I think made me feel more European than a lot of Brits who just have two British parents, and one from a country outside of Europe. I felt a certain sense of being European, but not quite.

It started with looking at Europe from a slightly peripheral perspective, and then emerged when I was working at the European Council on Foreign Relations (ECFR), a pro-European foreign policy think tank, from about 2009 to 2015. When I first started working there, I was kind of a pro-European and I thought I understood the EU. In retrospect, I didn’t.

It was while I worked there that I learned more about the EU and I began to conclude that a lot of what I thought I knew about it, especially about its history, was actually myth created by the EU about itself. For example, the story I told you earlier about the colonial history has been completely written out of the story that pro-Europeans tell about themselves. My former colleagues at ECFR have no clue about any of this history until I tell them- and these are people who are experts on the EU.

I wrote an essay in the New Statesman, a British magazine, two years ago which Eurowhiteness expands upon. What inspired me write the book was the reactions to this essay. My former boss at the ECFR, Mark Leonard, wrote a response to the essay claiming that the EU is a post-colonial project.  At ECFR, they didn’t know this is the real history; which shows, as I say, how successful the EU is in mythologizing itself.

The more conversations I have about the book and I realize that a lot of what I write in the book is much clearer to people outside of Europe than it is to people within Europe. For example, if I say that Europeanness has something to do with whiteness, I think, to most people outside of Europe it is kind of obvious, but it’s horrifying to a lot of people within Europe. They’re outraged when you even try to connect the two things.

Hence, the title of the book angers a lot of people. A part of the reason I insisted on that title was exactly to say that there is a connection between Europeanness and whiteness, and I want us to talk about it. Most people don’t want to do that, at least within the pro-European bubble in Europe.

Q. Do you think that the EU is still on a civilizing mission?

A Polish academic, Jan Zielonka, who was at Oxford for many years, has an analysis of the civilizing mission of the EU in Central and Eastern Europe as part of the enlargement process, which he calls a ‘post-modern civilizing mission’, and I think he’s absolutely right.

But I remember, for example, having that discussion with my former boss at the ECFR when I was working on Eurowhiteness a couple of years ago, and he said that when pro-Europeans refer to a civilizing mission, it’s ironically. Well, it’s not. It’s an actual civilizing mission.

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]]> Fiscally Prudent and Monetarily Strict: Is This What Good Governance Means? https://politicstoday.org/fiscally-prudent-and-monetarily-strict-is-this-what-good-governance-means/ Thu, 19 Jul 2018 22:56:33 +0000 https://politicstoday.org/fiscally-prudent-and-monetarily-strict-is-this-what-good-governance-means/

Ironically, this is the same era in which the rhetoric that central banks around the world gained their “independence” has become widespread. What happened actually was central banks have become dependent on the financial industry, as they were dependent on states in the Bretton Woods era.

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The world economy has been witnessing a rapid transformation for the last four decades together with staggeringly growing influence of financial industry under the current economic and financial system, a.k.a. neoliberalism, which will definitely give way to another system sooner or later.

One should note that the previous system, namely Bretton Woods, had lasted only three decades, and the neoliberal system still lingers on, though showing real signs of strains. For example, the current system needs constantly growing economies, however the 2008-09 global financial crisis pointed out that this would be more and more difficult for the world economy to achieve under the “current” economic and financial system, or paradigm.

However, we live in the here and now and have to cope with all the “intricacies” of neoliberalism. First and foremost, with the rapid financialization of the world economy, countries around the world have become much more susceptible to the caprices of global finance. We witnessed hundreds of financial crises in the last four decades, unlike the Bretton Woods era, in which only a few of them occurred. Moreover, most countries in the world have seen their ability to pursue an independent monetary policy and fiscal policy to erode significantly.

Ironically, this is the same era in which the rhetoric that central banks around the world gained their “independence” has become widespread. What happened actually was central banks have become dependent on the financial industry, as they were dependent on states in the Bretton Woods era. There is nothing as real independence and it is very clear that for central banks being dependent on the state is much more democratic than the other way around. However, one has to take into account the sheer power of global finance and the “rules” of the current system when talking about monetary policy. A country can freely and happily pursue looser monetary policy than other countries when international capital flows are restricted. For example, this was what France did for a long time in the Bretton Woods era, when her neighbor West Germany had been implementing stricter monetary policy.

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Moreover, fiscal policy in the current system is much more critical than in the previous system. A country who is pursuing a somewhat loose fiscal policy could be punished intensely and with a mind-boggling rapidity by “financial markets.” Even a rumor that this country will spend beyond her means and that “there is now a possibility” that the financial situation of the country will deteriorate could trigger some kind of a “panic” in the financial markets. So, in the new system not only central banks, but also most countries have been “tamed” to a great extent.

It should be underscored that for a government being fiscally responsible is a good trait. However, the line between being fiscally disciplined and profligate is significantly blurred and apparently it is “up to” the financial markets to decide which country falls which side of that line through various and numerous “country reports” of credit rating agencies, IMF and the like.

All in all, we need to understand clearly what neoliberalism has to offer and dictate us, and what choices we have in the current system. One should note that “good” governance does not mean being as much fiscally prudent or monetarily strict as possible, i.e. to the extent that financial markets are totally satisfied with the “governance” of the country. In the end, one should remember that the nature of the relationship between financial industry and real industry/households is conflict of interests. This is a redistribution game afterall.

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]]> The Quest for Financial Stability in a Financialized World https://politicstoday.org/the-quest-for-financial-stability-in-a-financialized-world/ Fri, 03 Nov 2017 07:43:18 +0000 https://politicstoday.org/the-quest-for-financial-stability-in-a-financialized-world/

Although financial stability in today’s extremely financialized world is not easy to achieve, there are important – yet not exhaustive - tools such as wealth funds, capital controls and use of local currencies in order to lessen the negative effects emanating from unfettered financial markets in an era of financial supremacy.

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The Bretton Woods system, which had been in place for about thirty years after WWII, was a system of financial stability. Under this system, exchange rates were fixed, interest rates were capped and international capital flows were highly restricted. While industrialized countries were protected from foreign trade by various implicit foreign trade walls such as anti-dumping duties and voluntary export restraints, high tariff walls and trade quotas were also in place for industrializing countries such as Turkey.

With the collapse of this system and the rise of neoliberalism in the 1980s, the rules of the game changed almost altogether. Exchange rates were left to float freely, caps on interest rates were removed altogether and restrictions on international capital movements were discarded almost entirely. This period also witnessed the rise of the internet and much more powerful computers, which made possible financial transactions unimaginably faster and easier and expanded the outreach and influence of the financial system to cover almost all the globe.

This two dimensional “radical” transformation was accompanied by financial deregulation or absence of it altogether, which spearheaded by the U.S., though quite the opposite –more regulation- was badly needed. Hence, the financial industry unleashed. In the end, financial transformation along with financial deregulation made the world much more unsafe in financial terms.

On the other hand, developing countries were trying to industrialize through import-substitution policies in the old Bretton Woods system. With the rise of neoliberalism, policy-makers in industrialized countries and officials of global institutions such as the IMF and World Bank began to preach free-market gospel forcefully. The usual development prescription was the almost total elimination of trade barriers and liberalization of the financial system altogether. Industrializing countries were told that rather than an import-substitution, an export-oriented growth strategy was the right way in leading to prosperity. In the end, restrictions on trade have been discarded to a significant extent, albeit selectively and porously in favor of industrialized countries.

In the end, industrializing countries found themselves in a rather delicate position in the neoliberal era: they became much more connected to the global economy and trade, and they needed international capital in order to both industrialize and secure economic and financial stability. In order to achieve these goals, a firmly established financial infrastructure should have been in place. However, as is well known, this was not the case. In the end, the number of financial crises in the neoliberal era skyrocketed.

Equally important was that financial speculation and instability of different sorts and magnitudes have become the norm, not just for industrializing countries, but for industrialized countries as well. Hence, in the neoliberal era, the relationship between countries and financial markets transformed significantly to the advantage of the latter. Having been under constant threat of financial turmoil and instability, state power over financial markets diminished to a great extent and the power of financial markets over states increased steeply. Prominent IR (International Relations) scholar Susan Strange makes the same point in her famous book The Retreat of The State (1996) and says that “where states were once the masters of markets, now it is the markets which, on many crucial issues, are the masters over the governments of states.”

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Faced with this “financial challenge” and endured financial crises and/or instabilities, governments around the world mostly gave in as Susan Strange expresses, because containing this financial problem required a concerted effort on part of governments around the world and no single country could overcome this challenge alone. In other words, in order to be able to decrease financial risk to acceptable levels in which “states are masters over markets,” the world needs to leave the neoliberal system behind and enter a new era, similar to the Bretton Woods system, at least in financial terms.

Nevertheless, there are certain measures that states can take in an effort to mitigate market supremacy to an extent within the boundaries of the neoliberal system. With the lesson learned from financial crises, states around the world understood that they needed much more foreign reserves –particularly U.S. dollar denominated- to withstand financial attacks and speculations. Today, it is not uncommon that countries boast about how much foreign reserves they have accumulated in their coffers. For example, Turkish foreign exchange reserves have risen from around 20 billion to over 100 billion U.S. dollars just within a decade and stands at over 110 billion U.S. dollars as of 2017.

However, apart from using foreign exchange reserves as a cushion against financial speculations and financial attacks, there are at least three additional tools to be exploited by governments, which do not necessitate coordination among them or a new paradigm such as Bretton Woods. First, sovereign wealth funds could be used as a counter-measure and an indirect preemptive tool against financial attacks and speculations with foreign exchange portfolios at their disposal. As a case in point, the Turkish Wealth Fund (TWF) was formed in August 2016 and its portfolio value reached 160 billion U.S. dollars within just 6 months after its inception. In this regard, the Turkish government could exploit the vast financial sources at TWF’s disposal directly or indirectly.

Second, while the free movement of international capital became a norm in the neoliberal period, in the wake of the burst of the global financial crisis in 2007-08, an increasing number of scholars around the world began to question the merits of this. Even the IMF, which has traditionally been the ardent supporter and enforcer of laissez faire capitalism, began to defend some sort of capital control for financial stability reasons. In this regard, capital controls of sorts could be implemented as a direct preemptive tool to decrease volatility in financial markets and narrow the space in which financial attacks and speculations could be realized.

Third, states can make bilateral agreements on using their own currencies when trading with each other in order to alleviate exchange rate risks and their vulnerability to the U.S. dollar or Euro. While this option has important merits in terms of financial stability, its implementation is not easy for obvious political reasons. However, this idea can be exploited to a significant extent and there are some initial steps towards this end, for instance between Turkey and Russia.

All in all, although financial stability in today’s extremely financialized world is not easy to achieve, there are important – yet not exhaustive – tools such as wealth funds, capital controls and use of local currencies in order to lessen the negative effects emanating from unfettered financial markets in an era of financial supremacy.

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]]> Minimum Wage, Employment and Inflation https://politicstoday.org/minimum-wage-employment-and-inflation/ Thu, 16 Jun 2016 12:06:45 +0000 https://politicstoday.org/minimum-wage-employment-and-inflation/

In numerous countries, minimum wage increases have not resulted in lower employment or higher inflation. In this sense, the Turkish experience is totally in compliance with the global case.

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Minimum wage has always been a hotly debated topic in both academia and media, for obvious reasons. While the welfare level of millions of workers depends almost entirely on the level of the minimum wage, a minimum wage level not consistent with the realities of the economy can have detrimental effects on both the employment level and economic potential. However, while today almost no one opposes the existence of minimum wage, mainstream economists, who are heavily influenced by neoliberalism, have a remarkably unfavorable view of the minimum wage due to the fact that they tend to oppose any intervention outside of the market economy, in principle. Therefore, a minimum wage as low as possible is preferable to any higher level on the grounds that they believe that it is not legislature bodies but unfettered free markets that should decide wage levels.

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Today, mainstream economists, who are heavily influenced by neoliberalism, have a remarkably unfavorable view of the minimum wage.

However, mainstream economists fail to see one major obstacle in the determination of fair wages, particularly for less educated people: the increasingly exacerbating power asymmetry between firms and employees. While trade union power has dwindled tremendously for over three decades in the neoliberal era in most countries across the globe, on the other hand, the power of the big and mostly international and/or multinational firms in any industry has continued to grow to the disadvantage of other local and medium-sized firms; hence, the emergence of the colossal power of near-monopolies and giant oligopolies that we see today.

For example, in 1992, the cumulative assets of the five biggest banks accounted for only some 12 percent of the total assets of the banking industry in the US. This share reached 20 percent in 2002 and a shocking 36 percent in the run-up to the global financial crisis of 2008-09. As the main culprits of the crisis, these so-called too-big-to-fail banks kept growing in the wake of the crisis, reaching close to an incredible 50 percent, let alone facing the consequences of their misdeeds. On the other hand, trade union density weakened dramatically from around 34 percent to only 17 percent for OECD countries from 1980 to 2014, with an almost seamless downward trend. These curious developments amounted to the rapid diminution of the bargaining power of employees in favor of employers, or big firms. This is why, among other reasons, global income inequality has risen to unprecedented levels today. Therefore, a fair minimum wage is now more necessary than ever.

The opponents of minimum wage raise concerns regarding its alleged detrimental effects on the real economy, such as decreasing employment rate due to higher costs to the employer and increasing inflation rate due to higher consumer demand. However, this stance does not withstand empirical scrutiny. Numerous studies have been devoted to the effects of minimum wage increases on the employment level and the inflation rate. Yet, these studies consistently indicate that a higher minimum wage does not have any discernible impact on either employment levels or inflation rates across time periods and countries.

After the November 1 election victory in 2015, the AK Party government declared that it would raise the minimum wage by a staggering 30 percent, as promised before the election. Subsequently, the minimum wage increased from 1000 to 1300 TL in January 2016 in Turkey. While this increase was hailed as a very good development for the poor, some opposed it on the grounds that it would increase both the unemployment rate and the inflation rate, reflecting neoliberal thinking and textbook economics.

The real economy in Turkey seems not to have been affected negatively at all by the minimum wage increase.

While it is relatively early to have a definitive result, the real economy in Turkey seems not to have been affected negatively at all by the minimum wage increase. Actually, the inflation rate has decreased tremendously by 37 percent from 9.58 to 6.57 percent in just three months due to the rapid decrease of food prices. In the previous month, May, the inflation rate barely changed and stood at 6.58 percent. In addition, the non-farm unemployment rate, too, actually declined in the wake of the minimum wage increase, from 12.2 to 11.5 percent, and the non-farm employment figure rose by some 370.000 from 21,6 to 21,97 million in just three months. Moreover, in the first quarter of this year, household final consumption expenditures increased by 6.9 percent year-on-year, the highest increase in the last 18 quarters, contributing significantly to the quarterly economic growth rate of 4.8 percent, thanks to the minimum wage increase, to a great extent.

Actually, this is not the first time the AK Party government has increased the minimum wage tremendously. A similar increase happened in 2004 with a 24 percent increase in real terms in just one year. In addition, moderate increases also took place, since social policy has always been a top priority for the AK Party government. Prior to the recent 30 percent increase in the minimum wage, between 2002 and 2015, the minimum wage had already increased by two-thirds in real terms – with the last increase, the overall increase will be over 90 percent in real terms between 2002 and 2016. Yet, neither the inflation rate nor the employment level were affected negatively by the stunning increase in the minimum wage in 2004.

Ironically, the inflation rate declined to one digit figures after 34 years in 2004, which is the same year the minimum wage increased by a significant 24 percent. Moreover, the inflation rate stayed at a very low level compared to previous decades from then on, as the minimum wage kept on increasing in real terms. The employment level also was a similar story. While the Turkish economy grew by around 57 percent between 2005 and 2015, Turkish non-farm employment rose by some 52 percent, from around 14 to over 21 million people, despite the country having endured the global financial crisis in 2008-09 and its aftermath with a rather weak global economy and consumer demand after 2012.

All in all, the case against minimum wage is rather unwarranted.

All in all, the case against minimum wage is rather unwarranted. In numerous countries, minimum wage increases have not resulted in lower employment levels or higher inflation rates in any discernible way, time and again. In this sense, the Turkish experience is totally in compliance with the global case. Despite dramatic increases in the minimum wage in 2004 and 2016 and also annual incremental increases in the 2000s, no negative impact on either the inflation rate or the employment level has been felt in the Turkish economy. In this way, the Turkish government has been able to increase the welfare level of millions of people and their families significantly and decrease income inequality markedly, without hurting and even empowering the real economy to a considerable extent.

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]]> Economic Governance and Central Banking after the Crisis: Between Strategic Planning and Liberalism https://politicstoday.org/economic-governance-and-central-banking-after-the-crisis-between-strategic-planning-and-liberalism/ Mon, 07 Mar 2016 12:48:58 +0000 https://politicstoday.org/economic-governance-and-central-banking-after-the-crisis-between-strategic-planning-and-liberalism/

It would be a grave mistake to perceive attempts at “neo-planning in central banking” as exceptional aberrations from the neoliberal orthodoxy that should be abandoned at the first possible opportunity.

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Retrospectively speaking, it would not be a gross exaggeration to state that the “long twentieth century” witnessed profound developments that radically shattered trust in global capitalism as a stable system of resource allocation, as well as the capacity of the interstate system to provide it with a robust administrative framework. Systemic shocks illustrated by the First and the Second World Wars, the Wall Street Crash, the Great Depression, the ascendancy of socialism and fascism in Europe, and the inception of the decolonization leading to the emergence of the Third World triggered a radical questioning of the conventional propositions of mainstream economic liberalism.

Meanwhile, the neo-Keynesian consensus provided the ideational basis for macroeconomic policy making in the post-war global order, justifying the presumption that nation states have the natural right and responsibility to get actively involved in economic processes to promote economic growth, wider development and employment. These trends encouraged some authors to conclude that “the shadow of Keynes” (Preston 1996: 154, Toye 1987: 25) kept hanging over the mainstream approaches to macroeconomic management and development thinking throughout the golden age of post-war era.

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The global institutional framework created by the Bretton Woods regime substantially facilitated the consolidation of a mentality of “strategic planning” by allowing national policy makers to promote growth and employment through proactive macroeconomic policies and financial regimes characterized by various national controls.

From another angle, the global institutional framework created by the Bretton Woods regime substantially facilitated the consolidation of a mentality of “strategic planning” by allowing national policy makers to promote growth and employment through proactive macroeconomic policies and financial regimes characterized by various national controls. In this context, structural restrictions on international capital movements were tolerated to enable national authorities to determine domestic interest rates, fix the exchange rates and pursue national developmental objectives through appropriate taxation and public spending policies in relative isolation from international pressures. Thus, strategic economic planning to coordinate developmental efforts quickly became conventional wisdom both in Western Europe (i.e. France, Scandinavia) and the bulk of the developing world (i.e. Japan, South Korea, India) striving to realize structural transformation projects through import-substitution-industrialization. The taken-for-granted presuppositions of development economics as it evolved over the course of the post-war era under these conditions were: “the goal of development is economic growth; the agent of development is the state, and the chief means of development are macroeconomic policy instruments” (Leys 1996: 7).

In this context, Albert Hirschman made a crucial contribution to the literature on proactive planning by suggesting that “the perception of investment opportunities” and their transformation into actual investments, rather than the actual scarcity of capital, have been the missing ingredients of industrialization in the ‘late late’ developers of the Third World. He argued that the state was perfectly placed to provide private capital with ‘disequilibrating’ incentives that would alter prevalent balances in the markets and encourage induced decision-making in line with long-term developmental objectives (1958: 42).

Likewise, Alexander Gerschenkron (1962) formulated an elaborate analytical framework of late industrialization which focused on the critical role of strategically-coordinated industrial finance in the speedy creation of modern production technologies in late developing countries. By referring to fierce competition with the industrialized world and the widespread inability of local entrepreneurs to sponsor massive catching-up projects, he depicted the state as a potential “investment banker” that could provide incentives and financial resources for productive investments, and closely monitor their employment for industrial transformation.

Over the course of the 1960s and the 1970s the protagonists of the structuralist approach to macroeconomic management who were prevalent around World Bank circles maintained that economic structures and markets in less developed societies were “less perfect” than their counterparts in the industrialized north (Chenery, 1974; Myrdal, 1957; Rosenstein-Rodan 1943, 1957; Prebisch, 1950; Singer, 1950; Tinbergen, 1958). Accordingly, since these markets were not efficient enough in allocating goods and services; strong, rational and interventionist state apparatuses were required to help, support, and “stand in” for the market to promote higher economic growth and more equitable distribution (Colclough 2000: 2). Although these approaches principally focused on non-western contexts in their policy prescriptions, the interventionist zeal in their fundamental prognoses contributed to the maintenance of the theme of pro-activism and strategic planning in macroeconomic management in the Western world.

A parallel reflection of the dialectical history of paradigmatic shifts in macroeconomic policy making depicted above that Ilene Grabel called “productive incoherence” (2013: 563) could also be discerned in the historical trajectory of central banking. Following the global instability in the aftermath of the First World War I and fluctuations created by the Great Depression, there were intense debates concerning the main parameters of policy making and the proper function of central banking in macroeconomic policy.

Meanwhile, the liberal financial orthodoxy in Europe and the US was pushing for the restoration of the Gold Standard at par with prewar rates, while Keynes and accompanying experts warned about the potentially destructive consequences of such an approach. Instead, they stressed the need for an alternative macroeconomic paradigm based upon more intensive public guidance and coordination of investment decisions. In this new paradigm, central banks were to focus more on the objectives of increasing aggregate demand and employment with a developmental mentality by utilizing strategic capital controls, rather than focusing on the protection of the national gold stocks and stability of domestic prices.

This vision represented an alternative paradigm on the management of macroeconomic policy and within that the proper roles of the central banks and fiscal authorities as the chief governing institutions of the financial realm. It was a paradigm which assigned a much stronger developmental role to the financial institutions, including the central banks, as crucial investment bankers holding the pulse of national investment decisions, compared to the rather limited laissez-faire vision associated with the control of inflation and preservation of price stability. (Kindleberger, 1986).

Following the acute destruction of the Second World War and the urgency of post-war reconstruction, the developmental vision of both central banking and wider macroeconomic policy necessarily became the norm in both the developed and the developing world as suggested above. In this context, crucial success stories from the developing world such as South Korea, Taiwan, Brazil, India, and China all followed various forms of this proactive paradigm that gave the responsibility of “strategic planning” to public authorities and central banks.

 Following the global instability in the aftermath of the First World War I and fluctuations created by the Great Depression, there were intense debates concerning the main parameters of policy making and the proper function of central banking in macroeconomic policy.

However, along with the material shocks and changes in the balances of power in the world economy, the tide started to turn in the late 1970s against those approaches that endorsed various forms of state interventionism to induce structural transformation. So much so that the early 1980s witnessed a spectacular upsurge of the neoliberal paradigm in economics, political economy and development studies, principally advocating individualism, market liberalism and state contraction. The neoliberal counter-revolutionaries not only argued against specific interventionist strategies such as import-substitution industrialization and financial repression, but also strived to create an entirely new political economy the organizing principle of which was the notion that the state cannot play an effective developmental role except in the areas of law and order and physical infrastructure (Colclough and Manor, 2000; Preston, 2000).

The rise of neoliberalism and the Washington Consensus in development policy embodied by IMF / World Bank packages stimulated the ongoing turn against developmental central banking. Consequently, “inflation targeting” and “inflation targeting lite” gradually became the dominant priorities in central banking (Epstein and Yeldan, 2009) and there emerged a one-sided academic environment in which it became almost impossible to challenge this quasi-orthodoxy.

In more general terms, the pioneers of neoliberalism were radical and revisionist in terms of their diagnoses concerning the causes of development problems, as well as their proposed solutions which stressed the primacy of economic growth at the expense of employment creation, poverty alleviation and distributional measures among macro-economic policy objectives.

In policy terms, they identified pervasive and excessive government intervention as the main reason for slow economic progress. It was claimed that development was blocked across developing countries by inflated public sectors, distorting economic controls and overemphasis on capital formation (Bauer, 1984: 27). Therefore, the universal policy proposal was to pursue a systematic programme of decreasing state involvement in the economy through privatization, reduced public spending, elimination of exchange rate controls and the like, and letting the impersonal forces of the markets determine prices. Their weighing of the relative costs of economic interventionism (i.e. rent-seeking, price distortions) versus market imperfections (i.e. imperfect competition, monopolies, poor infrastructure) led to the conclusion that imperfect markets were preferable to imperfect states in settling matters of resource allocation (Lal 1983: 106).

In its policy implications, the neoliberal counter-revolution has reversed the priorities identified by Schumpeter (1970: 415, cited in Cammack, 2000: 163) with reference to the post-war political economy: state-managed stabilization policies to prevent economic recession were replaced by internationally managed policies of restructuring under the aegis of the IMF and the World Bank; redistributive taxation aimed at greater income equality was abandoned in favor of fiscal reform that rewards entrepreneurship and accentuates real inequality; all kinds of price regulations have been dropped; public control over financial and labour markets were systematically minimized and social security legislation has been restructured to promote rather than balance market forces.

Following the early shock of the neoliberal upsurge, a series of detailed interdisciplinary analyses regarding the development trajectories of the NICs paved the way for the formation of a modern comparative institutional stream in the study of macroeconomic management and development. Aiming to stand aside from the stereotypes and preconceived dichotomies which characterized some strands of both neoliberalism and its structuralist predecessor, the novelty of the contemporary comparative institutional genre stemmed from the significance assigned to local institutions and values in facilitating socioeconomic development and to the synergy of state and society in the realization of common developmental objectives.[1]

Accumulated experience gathered especially from a variety of developing country contexts confirmed that successful and sustainable socioeconomic transformation in the wake of economic globalization requires a fundamental “recomposition” of state capacity, rather than the indiscriminate contraction that the neoliberal policies impose. The main reason was that the new global competitive game required a high degree of “stateness” (Evans 1997) rather than an eclipse of national authority, because of the increasingly sophisticated role that the political authorities must play at the intersection of global forces and their domestic political economy.

Indeed, multidimensional processes of globalization create quantitative and qualitative changes in the organization of the global economy, and this necessitates a redefinition of the socio-economic roles and major policy priorities of state institutions involved in financial and macroeconomic management in a world of increasing complexity, interconnectedness and volatility.

In the midst of the complex web of constraints and opportunities presented by contemporary globalization, traditional developmental regimes based on state-led crash-industrialization programs are no longer viable. However, as Weiss (1998: 184) suggests, despite the constraining impact of international economic conditions, governments are by no means irrelevant or immobilized, because the internationalization of capital does not only restrict certain policy choices, but it expands others and creates brand new ones as well.

Adoption of a mentality of strategic planning by state institutions dealing with macroeconomic management including the central banks and financial authorities is a crucial case in point. The key to fostering international competitiveness without making massive sacrifices in the form of human capital, physical environment and social justice is a strategic policy mentality on the part of the state that fine-tunes entrepreneurial activity in line with the logic of global competition and promote public-private cooperation.

Developmental Central Banking: The Post-Crisis Era

Many central banks in late industrializing economies played an important role in accommodating the development-oriented policies of their governments by keeping effective real interest rates very low, and even negative. Central banks also coordinated strategic capital controls that relatively insulated domestic markets from the vagaries of international financial markets by restricting hot money flows that could lead to overvalued exchange rates and financial crises.

As the ‘dialectical history’ of macroeconomic policy making and development displays, major economic crises and systemic shocks occasionally trigger adoption of various developmental finance methods to confront imminent investment challenges. But the strong political backing that neoliberalism enjoys among corporate and policy making circles ensures that neoliberal policy prescriptions assigning minimal role for state agencies and in the meantime, for central banks, are quickly restored.

A quick glance to the evolution of macroeconomic policy paradigm over the course of the twentieth century reveals that assigning extensive developmental roles to central banks and related financial institutions have been the dominant approach. In that respect, the neoliberal interregnum in the last decades pretty that restricts the role of central banking to the control of inflation and price stability represents an exception rather than the rule.

Indeed, in her seminal book, The Rise of ‘the Rest’, Alice Amsden suggested that medium and long-term investment financing, often supported by central banking mechanisms, were key in stimulating the newly industrializing developing countries in the second half of the twentieth century (Amsden, 2001). The mobilization and allocation of medium-term and long-term financial instruments for critical industrial and infrastructural investments was made possible by the strategic initiatives of public financial agencies. The bulk of the “developmental states” in East Asia and elsewhere employed a development bank as the public authorities’ main agent for financing investments aimed at industrial-technological upgrading.

In certain cases, the whole banking sectors were mobilized to channel direct long-term and concessionary credits to targeted industries, and thereby acting as a “surrogate development bank” (ibid., p. 129).  Many central banks in late industrializing economies played an important role in accommodating the development-oriented policies of their governments by keeping effective real interest rates very low, and even negative. Central banks also coordinated strategic capital controls that relatively insulated domestic markets from the vagaries of international financial markets by restricting hot money flows that could lead to overvalued exchange rates and financial crises.

In the first decade of the new millennium prior to the global financial crisis, the neoliberal approach to central banking had already become the dominant orthodoxy to central bank policy on a global scale. The prevailing neoliberal ideology invariably stressed that the only legitimate task for central banks is to control inflation, a priority which often contradicts with broader macroeconomic goals such as employment creation, financial stability or economic growth.

Bernanke et. al. (1999) described the major tenets of this approach as formal independence of the central banks; adoption of an agenda of inflation fighting (including ‘inflation targeting’) at the expense of other macroeconomic goals; and the use of indirect methods, such as short-term interest rates, as exclusive tools of monetary policy, as opposed to more direct methods such as credit allocation.

However, especially in the aftermath of the global economic crisis in 2007-08 it became crystal clear that national economies which displayed strong exit performances from the crisis such as Argentina, Bangladesh, China and India were equipped with central banks that were using a broad array of tools to manage their economies for developmental purposes. The cost of inflation-focused neoliberal monetary regimes in developing countries has been to divert the attention of some of the most highly trained economists and policymakers away from the main tasks that their predecessors in central banking used to focus on: fostering socio-economic development; facilitating employment creation; contributing to faster growth and improving productivity.

In this context, the post-crisis environment witnessed the realization of new experiments in central banking in many countries, including those sincerely dedicated to the old neoliberal orthodoxy, i.e., the European Central Bank, the Bank of England, and (the less orthodox) Federal Reserve. The rising mentality of “neo-planning” in the era of open economies and financial globalization is more focused on planning household consumption and savings, as well as strategic ways in which national savings could be directed towards more productive investments. Therefore, the central banks especially in developing countries should no longer follow the lead of the major central banks in the industrialized world and IMF without questioning, but they should rather explore ways of developmental policy making through careful experimentation.

The unorthodox tactics of central banking that surfaced in many emerging powers over the course of the global crisis should be recognized as experiments in more developmental policy making and shall be continously improved for long-term adoption. It would be a grave mistake to perceive attempts at “neo-planning in central banking” as exceptional aberrations from the neoliberal orthodoxy that should be abandoned at the first possible opportunity.

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