As often happens in these cases, the financial structure of the current Turkish crisis was quite simple initially: as is always the case during an electoral period, credit to businesses and families was “pumped” to such a point that, before the outbreak of the crisis, the Turkish inflation rate had already reached 16%.
Again during the campaign for the general election of June 24 last, President RecepTayyp Erdogan promised strong investment in infrastructure.
It is the usual, old theory of Napoleon III, quand le bâtimentva, tout va – but currently investment in infrastructure has a relatively low multiplier (1.9 on average) and is increasingly capital intensive rather than labour intensive.
Furthermore, the return on investment over time and the future average return, if any, become technically unpredictable.
Certainly the modern economic theory tells us that also higher infrastructure costs lead to net increases in sectors which are not directly dependent on infrastructure – such as the classic examples of the ferry cost and the restaurant owner’s profit on an island. Nevertheless the money borrowed for these operations is little or is such as to create short and relevant returns -and this can never happen.
President Erdogan’s electoral promises, however, were inevitable: according to the latest internal polls before June 24, 60% of the people who traditionally voted for AKP (Adaletve Kalkınma Partisi, the Justice and Development Party) were already loyal and stable, above all vis-à-vis the Party’s Leader. However, 30-40% of the old AKP voters were dissatisfied, to the point of calling their vote for President Erdogan into question, and 10-15% were fed up with the AKP and its Leader.
It would be the end if, God forbid, the United States sought President Erdogan’s economic destabilization to punish “the tyrant” – ideological nonsense in which it only believes – or if the European Union thought to destroy the “fascist” Erdogan to free the Turkish people, thus destabilizing a ‘huge and essential area for the European security. The uncontrolled migration would turn into an invasion and the direct contact between the EU strategic nothingness and the Middle East jihad would become lethal, but only for Europe.
During the campaign for the general elections of last June, President Erdogan had also promised public investment (and nowadays the globalized economy is such as not to allow to make promises on private investment, without funding State’s investment). He was faced with an unprecedented united front of the four opposition parties against the AKP, which did not augur well for the founder of the first Party in power.
Hence “international markets” need to become aware of it in time: without promises you can never win elections and without some electoral public spending there is no consensus. This holds true for both the West and the East. The Jordanian uprising of last spring is acase in point: nowadays springs are economic and destabilize a larger area than the purely political ones of 2011.
“Communication”, manipulative spin, and taking some extra erotic “liberties” are no longer enough to win elections – as still happens, but not for much longer, in some Western countries.
People want and will always want employment, security, infrastructure, wages and pensions, and above all stability.
The problem, which also applies to Italy, is that the current capital is post-national and pays taxes nowhere, while the average incomes have been falling for eleven years and cannot be further attacked by tax authorities.
Hence, since we cannot generate inflation – considering that the “markets” are only interested in it – we do no longer understand where we should find the resources, even limited, to give the masses what they have always asked from politicians since the times of Marcus Agrippa.
Hence there is also the Turkish leader’s electoral reference to the figure of Atatürk – that is strange even within a traditionally neo-Ottoman and Sunni project and narrative like the ones of President Erdogan’s Party – which would have been impossible years before. During the electoral campaign, President Erdogan also underlined the further Turkish engagement in Syria, another clearly nationalistic and even secular factor that no one would find in President Erdogan’s initial storytelling. Finally he also referred to the Turkish ties with the European Union.
Clearly the European Union currently becomes the natural strategic and economic counterpart, faced with the crisis with the United States, an old tension due to the presence of Fethüllah Gülen in the USA.
Gülen is a Turkish preacher and political scientist, allied with Erdogan until 2013, but since 1999 he has been living in the forests of Pennsylvania.
With his movement, namely Hizmit (“Service”), Fethullah Gülenis supposed to be the figure who traditionally inspired the strong penetration of the Turkish AKP bureaucracies’ into the intelligence services and Armed Forces, in particular, as well as the Turkish coup of July 15, 2016.
Probably, the United States has always looked to the Western political scientist and sapiential preacher it hosts as a sort of threat to Turkey, a sword of Damocles enabling America to prompt an “Arab spring” in Turkey or even a “colour revolution” where needed.
Islamic esoteric sects, sapiential and secret networks, halfway between coup and Revelation, often connected with the most refined Western culture and politics, as well as relations between politics, intelligence and esotericism.
Nil sub sole novi: when Italy still counted for something, even the Grand Orient of Italy was the only cover chosen by the “Young Turks”, who organized their political and military action within the ranks of the Italian Lodges of Alexandria of Egypt, Istanbul and Thessaloniki.
However, let us revert to the economy: in spite of everything, the debt-GDP ratio – the obsession of the poor-quality economists so fashionable today – is very low in Turkey (a mere 28%).
However, Turkey currently records a high trade deficit of current accounts, which amounts to 6%. Hence the private debt has risen to over 50% of GDP, thus obviously putting the currency in difficulties.
In early July, all foreign investors expected a sharp rise in the Turkish Lira interest rates- and it was a “rational expectation”.
But obviously Erdogan, who is above all a politician, a leader who, like everyone else, seeks re-election – as the political scientists of the Rational Choice school of thought maintain – blocked the interest rates downwards, with a view to avoiding impacts on domestic consumption and on the cost of loans.
Apart from Erdogan’s direct and institutional-family influence on the Turkish Central Bank, the idea is that the interest rate growth is generated by high inflation – as maintained by the neoclassical economic theories currently fashionable everywhere. And if the opposite were true? Here the arrow of time is of great importance.
The impact was predictably negative: inflation rose very rapidly, considering that many goods and services came from abroad. Investors got scared and only at that juncture President Trump’s new duties materialized, just to top it all off.
Furthermore, Turkish companies have always been asking for money, especially abroad, to be considered reliable, given that – like all the recent dangerous economic success stories – the AKP-led Turkey has configured itself as an almost exclusively export-oriented country.
Einaudi’s economic wisdom would recommend a balance between the internal market and the external market dimension. Today, however, everyone superficially read the fashionable manuals, where equations seem to be written for theoretical cases, not for real economies.
Apart from President Trump’s duties, which kill a dead man– as we will see later on – the critical structure of the Turkish economy is made up of the following issues, which are all still on the table: a) the free fall of the Turkish Lira, the primary index of foreign investors’ sentiment; the Turkish currency that fell for twelve days in a row as against the dollar; the longest “fall” of the Turkish lira since 1999, the year when Gülen took refuge in the United States and the International Monetary Fund had to intervene with a bailout in dollars.
Considering that Turkey lives on many strong currency imports as against an export-regulated economy, which must be based on a weak currency to have the size necessary for reaching equilibrium and break even. Hence always keeping the Turkish currency artificially “weak”, a Weimarian inflation rapidly emerged.
- b) The financial burdens which, as always happens in these cases, have risen more than inflation, because investors are asking for a guarantee both to offset inflation and to be hedged against the collapse of the currency.
- c) As to the current accounts – another structural problem – it is still obvious that, under these conditions, Turkey must attract capital from abroad with very high rates of return – only to balance the economy and break even.
This triggers an imbalance that is resolved as in the case of a drug addict: much foreign capital marginally ever harder to repay, even only for the interest share.
Later, as in a well-known Dürer’s print, the scourge of the greater incidence of foreign debt materializes, just when buying “good” currency only with the Turkish Lira has a higher cost. Other scourges materialize such as the growth of non-performing loans and the complete Turkish dependence on foreign oil and gas, which are sold in dollars and, incidentally, are increasing their unit price.
As already seen, apart from the current situation, the structure of the Turkish economy is strictly export-oriented, with domestic imports that depend directly on the oil and natural gas prices.
The steadily increasing prices of oil and natural gas rapidly led to a Turkish trade balance deficit equal to 57 billion US dollars in the period between March 2017 and March 2018.
There is virtually no propensity for domestic savings (whereas the high rate of domestic savings is exactly what is rescuing and will rescue Italy) and therefore the Turkish dependence on foreign loans has become chronic. This dependence feeds on the low value of the Turkish lira, which is however the main problem when debt must be repaid.
The foreign debt incurred in 2018 already amounts to 240 billion US dollars.
Obviously, under these conditions, the Turkish companies operating abroad do not repatriate their profits, which remain in the most profitable markets, while the solvency of Turkish banks is exacerbating.
Finally, however, the Turkish Central Bank reacted according to the too little too late classic rule, when the lira reached 4.9290 as against the dollar, thus restricting – only at that juncture – the monetary base and finally increasing interest rates.
Hence who is bearing the brunt of the crisis in Turkey? All the many people who have taken on debts in dollars or euros, but workers are certainly not better off.
Indirect taxation on employees’ incomes now accounts for 65% of their total salaries. Obviously unemployment (and hence the “cost of the politics”) increases and finally Turkish exports will also be devalued for a period covering at least the difference between the pre-crisis levels and those of the point in which markets will declare that the great Turkish inflation is over – inflation they have triggered off by taking advantage of Turkey’s mistakes.
Inflation resulting from the forced repayment of foreign debt, which was politically excessive. A precisely Weimarian structure.
The so-called Vision 2023, which Erdogan had made public in 2011, the year of the “Arab Springs”, will be probably put to an end.
Is it possible that after the stalemate in the Syrian crisis now won by Assad and Putin, the era of “Arab springs” has come, induced by the economic crisis rather than by the “democratic rebellions”, usually managed by the Muslim Brotherhood or by some fundamentalist group, with the agreement of the major Western democracies?
The Turkish crisis as if it were a sort of Egyptian, but only financial Tahrir Square, is a hypothesis not to be ruled out.
According to Erdogan’ statements, Vision 2023 aimed at a strong growth of average incomes and at an average per capita GDP of at least 25,000 US dollars, thus enabling Turkey to rank 10th in the world economy, to triple exports up to 500 billion dollars and create ten “global” Turkish brands (a good idea, which would apply also to Italy). Finally, the idea was to solve the long-standing issue of EU membership.
The Association Agreement between the EU and Turkey was signed in 1964.
The Final Stage of said agreement concerned a complete customs agreement between Turkey and the European Union. Later, in 1999, the “pre-accession policy” came, which imposed, inter alia, the constitutional change of relations between the Armed Forces and the political system, thus ensuring the rapid Islamization of the country. Was it a blind or silly strategy? We do not know the answer to this question.
In 2004 the EU still urged to open negotiations with Turkey – negotiations which are still underway. In 2016, a few days before the coup of July 15, there was a Declaration which “reaffirmed the commitment to implement the action plan as defined on November 29, 2015”, while the Parties agreed that the accession process should be “revitalized”.
Just lip service, as the opponents of the Soviet regime used to say, when they read the CPSU’s official statements.
Reverting to the economy, even the now unlikely Turkish plan for 2023 becomes possible only if a strong and long growth is recorded, or if we seriously increase – first and foremost – domestic savings. Investment and not consumption induced by strong currency regions must be generated, while the dependence of the Turkish lira on foreign capital must be reduced.
The shift between the dollar and the euro would be possible in Turkey, considering that now 70% of Foreign Direct Investment in the country comes from the EU, which is also a sort of legal, sociological and humanitarian minuet.
This will be possible if the Turkish economy is partially dedollarized and investment comes from areas such as the EU, in particular, as well as from the Russian Federation and its friends of the Shanghai Cooperation Organization (SCO), and hence from China.
However, for the NATO’s second Armed Force, this means a radical change of strategic planning.
For China, Turkey should stop supporting the Turkmen jihadists of Xinjiang – something which, however, it is doing ever less. It should also seriously favour Russian operations in Syria, with the guarantee of the territorial non-continuity of the future Kurdish Rojava between Northern Syria and the Anatolian territory – but currently the Kurds fight together with the Syrians in Idlib. Finally, for the future Turkey, it should buy oil and natural gas in roubles and renminbi from China and Russia, with “branded” investment to enter the Central Asian and Far East markets.
A clear link between economic reconstruction and strategic repositioning, a new vision of the Atlantic Pact to the East, which would find itself bare vis-à-vis the Persian Gulf and deprived of areas enabling it to control the Russian Federation to the South.
A fundamental defeat of NATO, faced with the increase of US duties for Turkish goods. Pure madness.
Currently, however, Erdogan has also other certainties. He knows that we need to rely ever less on the Sunni Arab world (even if Vision 2023 seems to be almost similar to the one – bearing almost the same name – drafted by the Saudi Prince, Mohammad bin Salman), considering that Saudi Arabia has other things to think about and is already welcome in the world of high public debt held by foreign investors.
Erdogan is still convinced that Russia remains an unreliable and – in any case, considering the size of its economy – unable to support Turkey, which is floundering in a crisis. He is also convinced that China has other strategic priorities in the Mediterranean and that Africa, where Erdogan invested significantly, is still a tiny market.
There would also be the EU 18th-century-style minuet, but we do not see a way out between a declaration of intent and the other.
Hence is this game worth the risk of President Trump’s increase in duties?
Let us analyse the situation. Pending the Turkish lira crisis, President Trump stated that the US import duties on the Turkish steel would increase by 50% and those on aluminium by 20%.
There is also the usual issue of Gülen in the tension between the USA and Turkey, as well as the new tension regarding the detention in Ankara of a North American Protestant pastor, Andrew Branson, accused by the Turkish Police and intelligence services of espionage in favour of the Kurds.
Considering the US intelligence services’ long tradition of use of their religious sects, this charge may be plausible.
Besides President Trump’s unpredictable tariff geoeconomics, there is also the FED’s action.
Since the 2008 Lehman crisis, the Federal Reserve has been buying and stabilizing with derivatives the sovereign and major banks’ bonds and securities issued or deposited in a phase on the verge of bankruptcy.
In 2017, however, the FED decided to “normalize” the budgets, thus leaving to the markets the already acquired securities of sovereign or non-sovereign entities, still in danger but stabilized and hence having a higher price. It sells them at a low price, but it earns more.
The FED’s portfolio of such bonds and securities is supposed to decrease by 315 billion US dollars in 2018 and by additional 437 billion US dollars in 2019.
A mass of paper that will revive short-term investment and markets’ “hit-and-run” transactions and operations.
Hence there are obvious effects prolonging the general crisis and the high absorption of capital by entities such as FED – capital that could instead be used for the economic recovery of the current peripheral areas of the world market.
What about the effects on the euro? There will be many effects, considering the presence of European economies in Turkey.
Hence a strong and stable pressure of the dollar on the euro cannot be ruled out, which will have geopolitical effects that are easy to predict.
The time needed to recover from the Turkish crisis will be measured as against the time needed for the Turkish domestic savings to recover and on the basis of the possible shift of the Turkish debt between the US currency and the currency of the EU, which is only partially a payer of last resort.
When Turkey has more money, there will be another inflationary squeeze caused by the leaders’ often inevitable political choices. And the carousel will start again.
A ride that is structurally ready, especially for the EU Southern economies.
Germany’s position on the Turkish crisis, which is fully strategic and obsessed with the migration issue, makes us lean towards this equation.
Germany will help Turkey, but with a view to opposing the USA (which will soon attack the German trade surplus with the “markets”) and, in any case, by severely restricting the Turkish exporting area, which shall anyway adapt to the German “value chains”.
Future Economy: Micro-Manufacturing & Micro-Exports
Recovery now forces economies to emerge as dynamic entrepreneurial landscapes; today, the massively displaced working citizenry of the world may not return to old jobs, but with little help slowly shifting towards entrepreneurial startups as new frontiers to create economic independence and increased local grassroots prosperity. Today, the latest global influences of trendy entrepreneurialism optimizing available options like high quality “Micro-Manufacturing” and high value added “Micro-Exporting” now common discussions on the main streets of the world. Although, this is not an easy task, but still very doable for so many and promises local uplifts. Smart nations are awakening to such bold notions and entrepreneurial driven agencies mandated to foster local economies are using virtual events to rise up with global rhythm and rich contents.
Therefore, the blueprints and new models of today on upskilling SME exporters and reskilling for better-designed manufacturing, nation-by-nation and city-by-city are mobilization ready ideas to optimize abandoned talents. Nevertheless, such upskilling and reskilling of masses demands already skilled leadership of most of the gatekeepers of local economic development venues.
Furthermore, global competitiveness has raised the bar and now only high quality value added goods and services traded for the wide-open world. The conveyer belts of technology and zoomerang culture of virtual connectivity flourishes platform economies. Missing are the advanced skills, complex problem solving and most importantly national mobilization of entrepreneurialism on digital platforms of upskilling to foster innovative excellence and exportability. SME and Startups must advance on global thinking, optimize access, and maximize image and quality superiority to reach the farthest markets with deeper pockets.
This is not an easy task. Methodical progressions needed. Study how Pentiana Project tabled advanced thinking on such trends during the last decade. Export Promotion Agencies, Chambers of Commerce, Trade Associations and most SME and midsize economic developments bodies all called for bold and open debates. For fast track results, follow the trail of silence and help thought leadership to engage in bold and open debates and give them guidance to overcome their fears of transformation.
Small enterprises must now open to new world of 200 nations and 10,000 cites
Micro-Exporters: Upskilling Startups to think like global exporters; the pandemic recoveries across the world coping with a billion displaced all have now critical needs of both upskilling and reskilling. Upskilling is the process of learning new skills to achieve new thinking. Reskilling is the process of learning new skills to achieve new performances. What is exporting, how to start at micro-levels and how to expand globally with technology are new challenges and promising options.
Micro-Manufacturers: Reskilling Startups to think like smart manufacturers; the real goals for startups to enlarge and base thinking on reskilling for “real value creation” becomes mandatory. How to start by thinking better, design quality with creative global age strategies and advance? Advanced Manufacturing Clusters in various nations will greatly help, but understanding of global-age expansion of value offerings with fine production is a new art and commercialization to 200 nations a new science.
The future of economies, The arrival of Virtual leadership and Zoomerang culture is a gift from pandemic recovery, although at infancy, the sector will not only grow but also alter global commerce for good. Once successful the traditional advertising and marketing models dying, direct access live interaction is now far superior to mass-mailing and social media screaming. The zoomerang impact of global thought leadership now forcing institutions to become armchair Keynote speakers and Panelists to deliberate wisdom from the comfort of their homes round the clock events has arrived.
The Difficult Questions: Nation-by-nation,when 50% of frontline teams need ‘upskilling’ often 50% of the back-up teams need ‘reskilling’ so how do you open discussions leading to workable and productive programs? Each stage challenges competency levels and each stage offers options to up-skill for better performances. Talent gaps need fast track closing and global-age skills need widening. New flat hierarchical models provide wide-open career paths and higher performance rewards in post pandemic recovery phases. When executed properly such exercises match new skills and talents with the right targeted challenges of the business models and market conditions. The ultimate objective of “extreme value creation” in any enterprise must eliminate the practices of ‘extreme value manipulations”.
First Three Steps: In order to mobilize a startups revolution along with a small medium business economy, start by identifying 1000 to 10,000 high enterprises anxious to grow for national global markets. To quadruple exportability, select a small leadership team, from local trade Associations, Economic Development Bodies and Chambers of Commerce responsive to calls of upskilling and reskilling as critical steps. Suggest roundtable discussions to reach local, national or global audiences to spread the message. Explore such superior level debates to mobilize local businesses. Most importantly, such mobilizations are not new funding dependent they are deployment hungry and execution starved. Futurism is workless, uplifting mental powers towards better value-added production of goods and services will save economies. Optimize zoomerang culture and use virtual events to raise the bar on thought leadership. The world is moving fast and best to join the pace.
The rest is easy
Portugal’s crisis management: “Economic patriotism” should not be tied to ideological beliefs
The economic policy of the Hungarian government has provoked fierce criticism in the last decade, as it deviated from the neoliberal mainstream and followed a patriotic path, putting Hungarian interests in the foreground. While many link this style of political economy to the conservative position of the Orbán-government, in Portugal, a left-wing administration followed a similarly patriotic line to overcome the symptoms of the Eurozone crisis, showcasing that economic patriotism is not tied to ideologies, but is merely responsible thinking.
The catastrophic path of austerity
According to the theory of austerity, the government by implying austerity measures, “puts its finances in order”, hence the state does not become indebted and consequently investors’ confidence in the economy returns. However, if we think about what we really mean by austerity (tax increases, wage cuts, budget constraints, etc.), even the theory itself sounds counterproductive. Not surprisingly, this theoretical counter productivity has been demonstrated in practice in several cases.
One of the best examples is the case of Portugal, which along with Greece and other Southern-European nations was probably hit the hardest by the financial crunch. While all of the “GIPS” (Greece, Italy, Portugal, Spain) entered a steer recession, Portugal somehow managed to overcome it more successfully than its regional peers, but before that, it felt the bitter taste of neoliberal structural reforms.
Although the case of Portugal was not as traumatic as the ones of its Southern-European counterparts, in order to keep its debt under control, stabilize its banks and introduce “growth-friendly” reforms, Lisbon negotiated a € 78 billion bailout package in 2011, in exchange for a rigid austerity program aimed at the 2011-2014 period, orchestrated by the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB), the infamous “Troika”.
The neoliberal recipe did not differ much from that of Greece, and the then ruling Passos Coelho conservative government faithfully followed the structural reforms demanded by the “group of three”: working hours increased, number of bank holidays fell, holiday bonuses were abolished, wages and pensions have also been cut by 20 per cent, while public spending on health and education was drastically cut, and due to escalating privatizations, public assets have also been sold off quickly.
Despite the fact that by 2014 the country’s budget deficit as a share of the GDP had fallen to 4.5 per cent from the staggering11.2 per cent recorded in 2011 and the current account showed a surplus – as domestic demand fell apart, forcing companies to export –Portugal was still on the brink of social and economic collapse.
Public debt soared to more than 130 per cent of the GDP, tens of thousands of businesses went bankrupt, unemployment rose to 17 per cent and skyrocketed to 40 per cent amongst the youth. As a result, many talented Portuguese fled abroad, with an estimated 150,000 nationals emigrating in a single year.
The post-2015 turnaround
Things only began to change in 2015, when the Portuguese elected Anotnio Costa as Prime Minister, who was the mayor of Lisbon under the years of the crunch. Shortly after his election, Merkel encouraged the center-left politician to follow the neoliberal prescription proposed by the “Troika”, while her Finance Minister, Wolfgang Schäuble, underlined that Portugal would make a “serious mistake” if it decided not to follow the neoliberal doctrine and would eventually be forced to negotiate another rescue package.
Not being intimidated by such “threats”, Costa ditched austerity without hesitation, restored working hours, cut taxes and raised the minimum wage by 20 percent in the course of just two years. Obviously, his unpopular position made him crush with Brussels, as his government allowed the budget deficit to reach 4.4 per cent, compared to the agreed 2.7 per cent target. However, in May 2016, the Commission granted Costa another year to comply, and since then Portugal has consistently exceeded its deficit targets.
Tourism also largely assisted the post-15 recovery, to which the government placed great emphasis, so that in 2017 the number of visitors rose to a record high, reaching 12.7 million. Concurrently, Portugal has significantly improved the international reputation of its businesses and products, which contributed to increasing the country’s export revenues and attracting foreign investment.
Furthermore, Costa has raised social spending and at the same time planned to invest state revenues in transport, environmental infrastructure and energy, initiatives that could be extremely beneficial, as they would not only significantly improve the country’s sustainability, but also boost job creation, something that yet again indicates how important public investment is to an economy.
Additionally, Portugal has become an undervalued tech-hub, with plenty of start-ups offering good employment opportunities in addition to fostering innovation. The government with several initiatives, seeks to create a business-friendly ecosystem for them, under which they can thrive and boost the economy to the largest extent. It is thus not surprising, that Portugal has been the fastest growing country in Europe when it comes to the number of programmers.
Finally, one of the Costa’s top priorities, has been to lure back emigrated Portuguese who moved abroad during the crisis. To this end, tax cuts are offered to Portuguese citizens who choose to return home.
In a sum, since Costa stepped into office, Portugal has undergone a rapid recovery: economic growth has returned, unemployment has fallen radically, the public debt was also set on a downgrading path, while the budget remained well-balanced despite the increased spending, with Costa himself explaining that “sound public accounts are compatible with social cohesion”. Even Schäuble acknowledged Portugal’scrisis management, by actually calling Mário Centeno – the finance minister of the Costa government – the “Cristiano Ronaldo” of finance ministers.
Of course, not everything is bright and wonderful, as the country has emerged from a large crisis, the effects of which cannot be eliminated in just a few years. Public debt is still amongst the highest in the EU and several other challenges lie ahead for the South-European nation, especially by taking into consideration that the world economy just entered yet another crisis.
Furthermore, according to many, it was not Costa who led the recovery, but Portugal passively benefited from a strong recovery in Europe, falling oil prices, an explosion in tourism and a sharp drop in debt repayment costs. Indeed, it has to be taken into account that Portugal entered the recession in a relatively better position than many of its spatial counterparts and the relatively high quality of its domestic institutional infrastructure and policy-adaptation capacity aided the previous government to efficiently complete the memorandum of understanding (MoU) as early as 2015. Nevertheless, this is not a sufficient reason to discredit the post-2015 government’s efforts and justify the harsh austerity measures implied by the Troika. Taking into account that austerity never really provided decent results, it becomes evident that Costa’s policies were quite effective.
Economic patriotism should not be connected to ideologies
While in the case of Hungary and Poland “economic patriotism” has been fiercely criticized despite its prosperous results, this spite tendency has been an outcome of strong politicization in economic policy analysis. Even though the political context is verily important, it is also crucial to interpret economic policy independently, in order to take away valuable lessons and identify mistakes. Political bias is not a fortunate thing, as it is absolute and nullifies debate and hence development.
The case of Portugal is a perfect example, as it provides sound evidence, that a patriotic economic policy can be exercised by governments from all across the political spectrum and that the notion should not be connected to political and ideological beliefs. The left-wing Costa-government with its policy-making demonstrated that a solution always exists and that requires a brave, strong and decisive government, that pursues its own plan in the interests of the ‘patrie’, regardless of its positioning.
The Question Of Prosperity
Galloping economic woes, prejudice, injustice, poverty, low literacy rate, gender disparity and women rights, deteriorating health system, corruption, nepotism, terrorism, political instability, insecure property rights, looming energy crisis and various other similar hindrances constrain any state or country to be retrograded. Here questions arise that how do these obstacles take place? How do they affect the prosperity of any country? No history, geography, or culture spawns them. Simply the answer is institutions that a country possesses.
Institutions ramify into two types: inclusive and extractive. Inclusive political institutions make power broadly distributed in country or state and constrain its arbitrary exercise. Such political institutions also make it harder for others to usurp rights and undermine the cornerstone of inclusive institutions, which create inclusive economic institutions that feature secure property rights, an unbiased system of law, and a provision of public services that provide a level playing field in which people can exchange and contract; it also permits the entry of new businesses and allow people to choose their career. On the contrary, extractive political institutions accord clout in hands of few narrow elite and they have few constrains to exert their clout and engineer extractive economic institutions that can specifically benefit few people of the ruling elite or few people in the country.
Inclusive institutions are proportional to the prosperity and social and economic development. Multifarious countries in the world are great examples of this. Taking North and South Korea; both countries garnered their sovereignty in same year 1945, but they adopted different ways to govern the countries. North Korea under the stewardship of Kim Il-sung established dictatorship by 1947, and rolled out a rigid form of centrally planned economy as part of the so-called Juche system; private property was outlawed, markets were banned, and freedoms were curtailed not only in marketplace but also in every sphere of North Korea’s lives- besides those who used to be part of the very small ruling elite around Kim Il-sung and later his son and his successor Kim Jong-Il. Contrariwise, South Korea was led and its preliminary politico-economic institutions were orchestrated by the Harvard and Princeton-educated. Staunchly anticommunist Rhee and his successor General Park Chung-Hee secured their places in history as authoritarian presidents, but both governed a market economy where private property was recognised. After 1961, Park effectively taken measures that caused the state behind rapid economic growth; he established inclusive institutions which encouraged investment and trade. South Korean politicians prioritised to invest in most crucial segment of advancement that is education. South Korean companies were quick to take advantage of educated population; the policies encouraged investment and industrialisation, exports and the transfer of technology. South Korea quickly became a “Miracle Economy” and one of the most rapidly growing nations of the world. Just in fifty years there was conspicuous distinction between both countries not because of their culture, geography, or history but only due to institutions both countries had adopted.
Moreover, another model to gauge role of institutions in prosperity is comparison of Nogales of US and Mexico. US Nogales earn handsome annual income; they are highly educated; they possess up to the mark health system with high life expectancy by global standards; they are facilitated with better infrastructure, low crime rate, privilege to vote and safety of life. By contrast, the Mexican Nogales earn one-third of annual income of US Nogales; they have low literacy rate, high rate of infant mortality; they have roads in bad condition, law and order in worse condition, high crime rate and corruption. Here also the institutions formed by the Nogales of both countries are main reason for the differences in economic prosperity on the two sides of the border.
Similarly, Pakistan tackles with issues of institutions. Mostly, pro-colonial countries are predominantly inheritors of unco extractive politico-economic institutions, and colonialism is perhaps germane to Pakistan’s tailoring of institutions. Regretfully, Pakistan is inherited with colossally extractive institutions at birth. The new elite, comprising civilian-military complex and handful aristocrats, has managed to prolong colonial-era institutional legacy, which has led Pakistan to political instability, consequently, political instability begot inadequacy of incentives which are proportional to retro gradation of the country.
Additionally, a recent research of Economic Freedom of the World (WEF) by Fraser Institute depicts that the countries with inclusive institutions and most economic freedom are more developed and prosperous than the least economic free countries; countries were divided into four groups. Comparing most free quartile and least free quartile of the countries, the research portrayed that most free quartile earns even nine times more than least free quartile; most free quartile has two times more political and civil rights than least free quartile; most free quartile owes three times less gender disparity than least free quartile; life expectancy tops at 79. 40 years in most free quartile, whereas number stands at 65.20 in least free quartile. To conclude this, the economic freedom is sine quo non for any country to be prosperous, and economic freedom comes from inclusive institutions. Unfortunately, Pakistan has managed to get place in least free quartile.
In a nutshell, the institutions play pivotal role in prosperity and advancement, and are game changer for any country. Thereby, our current government should focus on institutions rather than other issues, so that Pakistan can shine among the world’s better economies. For accomplishing this highly necessary task government should take conducive measures right now.
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