The neo-liberal trend, the Washington Consensus, and market failure - 2

According to the Washington Consensus, which forms the basis of neo-liberal economic policies, financial globalization will bring the desired economic growth and, as a result, indirectly reduce poverty. These policies correspond periodically to the administrations of Reagan in the US, Thatcher in the UK, Kohl in Germany, and Özal in Turkey.

Policies implemented at the global level within the framework of the Washington Consensus have made underdeveloped countries particularly more fragile and have significantly increased the number of economic crises experienced in mostly developing and, to a lesser extent, developed countries.

The approach of the Bretton Woods institutions—the IMF, the World Bank, and the World Trade Organization—as defenders of neo-liberal policies, which "views poverty only as a monetary phenomenon and suggests that economic growth should be achieved through liberal, market-friendly policies to eradicate poverty, and that the poor will also benefit from this growth," has also failed.

Neo-liberal economic policies have neither been able to prevent economic stagnation and financial crises in the countries where they were applied, nor have they achieved stability, development, and growth, or reduced relative poverty.

TRANSFORMATION IN THE TURKISH ECONOMY AND ECONOMIC CRISES WITHIN THE FRAMEWORK OF THE WASHINGTON CONSENSUS

In line with financial liberalization, many countries around the world have implemented practices that reduce restrictions and controls on international goods and capital movements.

In Turkey, the financial liberalization process, which began on January 24, 1980, continued with the complete liberalization of all types of capital movements in 1989.

While high-volume hot money inflows are seen as positive in terms of both financing current account and budget deficits and contributing to economic growth, they also increase the fragility of economies. This is because hot money movements, which are highly sensitive to internal and external shocks, tend to stop suddenly or leave the country, causing serious macroeconomic instabilities that can lead to economic crises or even a sudden stop of the economy.

We can say that a growth strategy based primarily on exports was followed in Turkey during the 1980-1999 period, while a riskier growth strategy based on international financial resources has been followed from 1999 to the present.

In addition to the existing political risks in the country, the Turkish economy has become fragile due to the economic policies implemented, primarily the current account deficit problem and the risks in its financing methods, external factors, and the freedom of short-term capital inflows and outflows.

A common feature of the economic crises Turkey has experienced during its structural transformation process is that large-scale short-term capital inflows in the pre-crisis period are replaced by large-scale capital outflows during crisis periods, which leads to economic contraction and deepens the crises.

The liberalization of capital and the globalization of economic relations have made countries more fragile and more quickly affected by economic crises as a result of the easier spread of such crises. A parallel economic transformation has taken place in Turkey with the liberalization of goods, services, foreign exchange, capital, and labor markets.

While the Turkish economy has become more open to the outside world on one hand, it has taken on a more fragile structure that is more easily affected by the external environment, especially due to foreign trade and external financing channels, on the other.

Turkey, which has become more sensitive and open to global developments, has seen its transformation process, which it started in 1980, interrupted several times due to both economic crises stemming from external factors (1997/1998 and 2008) and crises stemming from its own internal dynamics (in 1994 and 2000/2001), as a result of inadequate and incorrect economic policies.

To Be Continued…