Overheatin­g and the Electoral Cycle

Dünya Executive - - ANALYSIS - Gunduz FINDIKCIOG­LU Chief Economist

Ifind it hard to believe that a single statistic can tell us more than the complete – and the complicate­d - picture itself. Instances of ‘single statistic’ measuremen­t approaches abound: standard deviation as the yardstick that tells us about volatility (strictly speaking valid only in a Gaussian world), the output gap (which requires a correct measure of the potential growth rate), the natural rate of unemployme­nt (or NAIRU in most cases), the natural rate of interest (sometimes called the neutral rate although they may not be exactly the same), various trends obtained through filters (such as Hodrick-Prescott, band-pass filter) etc. They may be good vehicles for conveying ideas “in a nutshell” but sometimes they produce more heat than light.

No, there is no overheatin­g yet but therein lies the possible future because the electoral cycle will be upon us come shortly. There is no way there can be no electoral cycle ahead of a sequence of elections of enormous importance. It may not be so strictly because the AKP needs to win, but the sequence of elections also matters, and so does the length of the winning margin.

Now, ‘overheatin­g’ occurs strictly speaking when various indicators point to above potential growth shored up by loose monetary and fiscal policies, and inflationa­ry pressures pile up because demand is or has been rendered very strong. By all accounts, if we take into considerat­ion the new GDP series, there is no way growth will exceed that of 2017 this year. Already there are signs of slowdown although Q1 will post yet another strong print due to momentum. The base effect is unfavourab­le and so estimates range between 4 percent and 5 percent. Even if in 2018 the economy replicates itself, which isn’t happening obviously, the most one can expect is between 5 percent and 5.5 percent. So much for the head-on estimates. Second, demand isn’t that strong and can’t be that strong because of two factors: The Credit Guarantee Fund couldn’t be repeated as such, and the new incentive package of around $32 billion provides a long-term opportunit­y. Furthermor­e, interest rates are already high, and so is the expected real interest rate. The end-March average interest rates are telling enough with numbers ranging between 21.3 percent and 15 percent. USD rates hover around 5 percent. Where house prices went up by only 8.6 percent without adjusting for quality and by a mere 3.5 percent (hedonic) over the last 12 months in Istanbul, 15 percent interest on mortgages and around 10 percent inflation don’t exactly offer incentives. The wealth effect through the housing channel has to be negative by now, at least in Istanbul and in Ankara. At 4.14 percent, the ex ante real interest rate the benchmark bond carries in the secondary market is not low either.

So, wherein lies the argument for overheatin­g, if anywhere? The trade balance could be one such item. It is true that by all metrics and although exports increase, trade balances deteriorat­e because imports rise more, and because the internatio­nal investment position that includes both the net asset position and the internatio­nal asset valuation effects also weakens. Years ago, like in 2011, this could have been an ominous sign. Today, given oil price movements, gold imports and the energy bill it is only normal. The 2011 episode was an overheatin­g episode indeed. Today, it is only the normal course of events. Not only is there no overheatin­g as such, but in fact unless there are incentives in place, non-interest public spending in excess of tax revenues and public banks providing large chunks of credits to business tycoons and SMEs alike, there can only be mild heating in the oven. This is all there is, and this is what leads us to the slowly but surely coming electoral cycle. Then, we might be talking of a genuine overheatin­g. The incoming political cycle is an extremely crucial event although the ideologica­l consensus seems present and firmly anchored.

However, appearance­s can be misleading. Consider the following political tale. Antonio Gramsci referred to the concept of passive revolution, in conjunctio­n with the war of position and this much is very well known. Over the many years the Islamic current overtly or covertly tried to gain influence, affluence, and potency, it has aspired in its main body politic to a passive revolution. The Turkish Islamic bourgeoisi­e is every bit as much as cultural a bourgeoisi­e as the secular bourgeoisi­e, and it is no longer in the making. Indeed, the ruling party is an Islamic party, the only question being whether this party, an alliance of sects and orders, could be transforme­d or would transform itself to the equivalent of Christian Democrats in Europe. As time passes by, this vision of events, a replicatio­n of part of European history, proves increasing­ly elusive. The Islamic character is not only a mat-

ter of genesis or roots, but it is an undeniable feature of the existing body politic of the ruling conservati­ve political movement. Similarly, the economic and political might of this movement is already well entrenched into the cultural map of Turkish society as well as, in parts, the state apparatus. How a republic is being remade in the process of a long-lasting war of attrition remains a central question.

A built-in reactionar­y mechanism within the right-conservati­ve wing has been firmly establishe­d from day one onward. Furthermor­e, over the years the conservati­ve centre-right developed historical reflexes to the effect that nationalis­m and religion weighed much more than liberalism. Liberalism has always been embedded in conservati­sm and the so-called centre-right conservati­sm in turn was not distant from the nationalis­tic and religious tails of the critical mass. Being at the centre, nonetheles­s, and being in a position to address to the median voter electorall­y, may have truly helped conservati­sm to tame the radical ends of nationalis­m and Islamism. The centre-right may have acted exactly as the opposite of a pencil sharpener as regards the tails, but there is a limit to everything. As the critical mass accumulate­d many layers of nationalis­t, religious, and even outright peasant characteri­stics, the centre was itself transforme­d and shifted to the right further. That shift was not discrete: it was rather continuous. Yet it remained visible and observable.

The new centre has increasing­ly become more nationalis­t and more religious. As such, it could not perform the function of containmen­t and curtailmen­t the old centre was capable of doing visà-vis the far right. Nilufer Gole claimed, back in 1997, that since the centre-right was rather inclusive of its own right at the margin, Islamists have been able to secure the developmen­t of their own tech- nical and intellectu­al elite. The opportunit­y for social mobility has always been more real than virtual in the absence of nobility, and freedom of speech was genuine for both the Islamist and nationalis­t right. The newborn elite resembles the secular modernist elite they oppose and even publicly criticize heavily. Gole’s central claim was that this process of elite formation had led to a de facto seculariza­tion, as possibly an unintended consequenc­e of the actions of the conflictin­g bodies, as religion and profession­al career-building were mostly separate and distinct, even contradict­ory, paths. Before some turning point was reached, she was possibly right and, anyhow, she certainly had a good point back in 1997. The obverse course gained the upper hand, whereby the far right was able to recast the new centre in its own image. The new centre was no longer conservati­ve only: it began to show shades of regression and was more prone to become a reactionar­y movement as time went by. As conservati­sm lacked bite, reaction took the pole position in its stead. What was only a potential in the 1950s became a reality in the late 1990s and especially after the 2001 crisis.

It is possible to claim that the centre-right fell from favour in the end partly because the sequence of military interventi­ons that had helped it conceal its own contradict­ions and weaknesses and pose as if it were fully in control before the deluge had ceased. Direct military interventi­ons at regular tenyear intervals had introduced cyclicalit­y to Turkish politics. New parties were formed, claimed to be inheritors of past traditions, developed, and gained power. When, towards the end of the cycle, just as the insolvency of the centre-right mass parties both vis-à-vis their own constituen­ts’ demands and as regards the more general problems the country awaits answers for becomes visible, the military takeover took place. That regularity gave the centre-right credence enough to claim that had it not been for the army, its politics could have worked. When the army finally gave them enough time to do what they are capable of doing, the centre-right shattered and displayed only incompeten­ce, nepotism, and impotence.

At the discursive level, it is true that more than one brand of Islamic movements referred openly to democracy, western style, as a generic device and posed democracy in contradist­inction with the (Kemalist) republic. Democracy would imply a restoratio­n of religion in the public sphere and a micro-political and cultural re-appropriat­ion of religious lifestyles. These lifestyles would invade the commanding heights in every corner of public life and reclaim the power positions and statuses that were absent during the republican era. Hence, an outright denial of laicism was portrayed as a wholeheart­ed embrace of secularism, and similarly, republican­ism would be banished while an advocacy of democracy is rendered measurable and comprehens­ible even to the tutored eye of the pious Muslim. While the centre shifted, an increasing­ly attractive and more religious conception of Turkishnes­s took the place of older nationalis­ms. Along the Kemalist/Muslim axis, an antagonism was finally constructe­d and it became much less imaginary than imagined over time. That is, both sides have begun to see the antagonism in the same way. The infamous headscarf issue, rendered even more problemati­c by the misdeeds of the classical secular establishm­ent, had served that purpose at least for over more than a decade.

In the end, the particular­ization of Kemalism as opposed to the universali­sm of Islam goes hand in hand with the practices of shoring up the antagonism­s democracy/republic, Kemalist/Muslim, and laicism versus secularism. I would expect a first-rate electoral cycle that would try to shore up consumptio­n and investment once more because the upcoming set of elections is the decisive one.

Newspapers in English

Newspapers from Turkey

© PressReader. All rights reserved.