Shaky emerging economies in view of the global financial crisis: The Turkish economy after three decades of liberal reforms

Download full paper

Please cite the paper as:
“Faruk ÜLGEN, (2013), Shaky emerging economies in view of the global financial crisis: The Turkish economy after three decades of liberal reforms, World Economics Association (WEA) Conferences, No. 4 2013, Neoliberalism in Turkey: A Balance Sheet of Three Decades, 28th October to 16th December 2013”



In the wake of the global change of a new accumulation regime in major capitalist economies, the opening up and liberalisation process of emerging economies from the 1980s has provoked great expectations that resulted in recurrent disappointing crises. Studied as a stylized fact, the Turkish experience leads us to assess the role of liberalised macroeconomic environment, unsuitable economic policies and hesitant and weak regulatory mechanisms as the main sources of perverse sequencing in the reform area. The paper shows that the Turkish crises since the 1980s arose from bad macroeconomic policies, which implemented the neo-liberal shock therapy model and triggered boom-and-bust cycles. After three decades of liberal reforms, the Turkish economy remains still subject to structural downturns. The economic recovery is not guaranteed by a hasty liberalisation. It requires consistent policies which should frame economic agents’ forms of behaviour in order to induce a sustainable macroeconomic development.

2 responses

  • Korkut Erturk says:

    Joan Robinson has famously once had said, “the only thing worse than being exploited for a worker is not to be exploited.” Likewise, in the neoliberal era the only thing that was worse than being a magnet for volatile capital flows was not being able to attract them at all. As we all know, financial liberalization was an important part of what emerging economies had to do to attract foreign capital. These countries had to win the approval and confidence of international financial markets. That often meant making themselves dependent on international financial flows from outside by shrinking their policy autonomy. Thus, all the bad macroeconomic policies and the hasty financial liberalization Faruk Ulgen faults had their logic. They were arguably the only “commitment device” available to emerging economies to lower their country risk for foreign investors. The more vulnerable they made themselves the safer they were to invest in.
    Many of Ulgen’s criticisms are indeed hard not to agree with. Yes, financial liberalization made Turkey vulnerable to volatile capital flows and erratic boom and bust cycles. Yes, the result was all kinds of economic imbalances and social dislocations with serious long term deleterious effects that will no doubt leave permanent scars. But, aren’t they more criticisms of the global neoliberal accumulation regime countries like Turkey faced but had little power to change than the Turkish policy makers? In other words, don’t we need to determine the right scales for evaluation first by discussing what could have been the counterfactual? Is there really such a thing as non-hasty financial liberalization? And, also, who are our points of reference? What countries do we know of that managed the potential pitfalls of financial liberalization “right” and escaped the boom and bust cycles of the neoliberal growth regime?

  • Değer Eryar says:

    Faruk Ülgen provides us with a rich account of recent macroeconomic dynamics of Turkey as a case study of emerging markets’ similar problems associated with hasty financial liberalization.

    In conclusion section, there is a brief discussion of policy choices as to how to curb the degree of instability and fragility experienced in emerging markets arising out of financial liberalization. As someone looking from a similar perspective, I agree with Dr. Ülgen on the insufficiency of market-friendly macro prudential policies as the main policy option without becoming a part of more holistic pro-active development strategies.

    However, I also believe that sometimes similar development strategies such as the idea of directing financial resources to strategic sectors in order to generate job growth along with higher-value added goods, seem to be taken for granted as feasible policy options by analyzing state-market and/or financial-real sector relationships as dichotomies rather than different aspects of the same capitalist accumulation process.

    When discussing the feasibility of pro-active development strategies in recent economic history, South Korea comes to the foreground as one of the most successful examples. On the one hand, one of the most essential dynamics of that experience was the capability of the Korean state to control the main financial resources and use them as a crucial instrument to direct private sector’s investment toward strategic sectors. On the other hand, as soon as Korean conglomerates gained their economic autonomy and became major players in world markets, they forced the state to embrace financial liberalization policies that deprived the state of its main control mechanism for strategic prioritization in Korean economy.

    Why should we expect a sudden change in the interest of non-financial private sector in Turkey toward long-term, employment-generating and efficiency-enhancing investments as long as they can survive by keeping their position in the global value chain through low-cost competition or by relying on short-term gains in financial markets? Or, how would the state in Turkey impose priorities such as employment generation upon private sector without having any control over the incentives of the private sector through the control of financial resources in the first place? I hope that the discussion of these and other related questions would contribute to the construction of practical development policies.