Professor Boratav: We are in the midst of a crisis brought on by a sickly, rotten system
Wealth inequality around the world is sharpening. While the number of the poor is increasing in Turkey, the situation of the poor is also worsening. New incentive programs to reverse the dynamics of globalization are being reinstated under the leadership of the United States. What is happening in the global and Turkish economy? Are we on the verge of a capitalist crisis? Would imposing more taxes on the rich be enough to solve the problems? What do the coming days hold?
We turn to one of Turkey's most important economists, Dr. Korkut Boratav, retired university professor for his answer to these questions.
Oxfam International published a report last week called “The Survival of the Richest,” which illustrated the extent of the income gap in the world. For example, 63 dollars of each $100 earned globally goes to 1% of the population, while the remaining 37 dollars are shared among the remaining 99 percent. What do we make of this situation, can we say that the world is divided into the uber-rich, the rich, and the poor?
The numbers given by Oxfam here do not point to income inequality, but rather to the polarization in the distribution of wealth (i.e., property). Income inequality cannot be polarized like this because there are hundreds of millions of people in our world who have “zero wealth,” that is, people who can continue their lives even though they are propertyless. Let us recall the typical position of workers in capitalist countries who have shelter by paying rent and who make a living only by selling their labor.
Let us briefly repeat what we know: If we define the concept of wealth as ownership of the means of production, we will also have identified the main determinant of income inequalities in the capitalist system. These inequalities are an innate part of the nature of capitalism. If private ownership of the means of production is abolished, then inequalities will result from the differentiation between labor incomes; types of skilled and unskilled labor (and the factors determining them) will gain importance, such as natural or institutional arrangements (such as the education system) that lead to quality differentiation.
“THE QUANTITATIVE INDICATORS RELEASED BY OXFAM BELONG TO THE TAIL END OF THIS FORTY-ODD-YEAR TRANSFORMATION”
What I have said so far emphasizes the inequalities inherent in capitalism as a system. The "degree of inequality" varies historically. Capitalism has also gone through periods when the aforementioned polarization has increased or contracted. Oxfam's findings belong to a time of increasing polarization, that is, the current period. This period begins around 1980. In my opinion, it began when a design aiming at the unlimited domination of the capital around the world began to dominate the economies of countries and international economic relations.
After some time, this transformation was also called neoliberalism. The quantitative indicators put forth by Oxfam belong to the tail end of this forty-odd-year transformation. It can be said that the measured wealth inequality has reached an exaggerated degree even in the history of capitalism. On the other hand, it is also necessary to remember a factor that compensates for this inequality and makes it “survivable”: Since capitalism has historically been a dynamic and growing economic system, growing inequality has allowed the income and consumption levels of the working classes to also rise in the long run; in this way, people stomached it.
This comprehensive design was created at the end of a roughly forty-year period following the Second World War, in which the inequalities and polarization stemming from the production relations of capitalism eased; it formed in response to it. This period, also known as the Golden Age of Capitalism, was realized by an inter-class compromise between the two basic elements of the system, labor and capital. This compromise rested on the working classes accepting the existence of capitalism as a system (defined in terms of basic modes of production and ownership) alongside the alleviations of the consequent income and wealth inequalities within a regulation known as the welfare state.
Let me put it another way: The main organizations of the Western working class abandoned the revolutionary (anti-capitalist) program they had adopted since the middle of the 19th century in favor of the gains achieved by the welfare state.
Neoliberalism dominated the developed center of capitalism, its periphery, also known as the "Southern geography,” and international economic relations. The quantitative distribution indicators reported by Oxfam are the present reflection of this transformation.
“TAX REFORMS ARE THE PRODUCT OF AN ATTEMPT TO CURB DANGEROUS TRENDS”
Higher taxes for the rich were on the agenda of both the Oxfam report and last week’s Davos Summit. Some rich people even published press releases asking, “Why don't governments tax us?” Could these calls for taxation really be a response to the system's narrowing, or are they a step towards saving the day and pacifying people’s reactions?
Capitalism was plunged into a severe financial and economic crisis in 2008-2009. The emerging "distribution and power" oriented phenomena and disorders were reminiscent of the Great Depression period of the 1930s which had triggered the Golden Age transformation.
In the next few years, the reaction of the working classes rose and became widespread in both the West and some “Southern” countries; became widespread. In institutions such as the IMF and the World Bank, which built and maintain neoliberalism, or at places like the Davos Summit where capital owners gather, discourses and proposals to rectify or reset the system, whose excesses had been exposed, began. The wealthiest bosses of the capitalist world system signed agreements saying, “We are willing to pay high income taxes; We are even amenable to a wealth tax.” The conservative parties in which they were influential and which they sometimes led, mostly ignored these proposals.
The “quest for the Golden Age" after 1945 had the priority of "deactivating the specter of communism" that had expanded to one-third of the world's geography. At the end of the first decade of neoliberal transformations, these pursuits are out of question in Davos, as real socialisms in the USSR and Eastern Europe have faded into history. The current threat is the anti-globalization tendencies embodied by Trump in the USA and the ultra-nationalist anti-EU parties in Western Europe. The aforementioned tax reform calls reflect the search for options that can curb and mitigate these dangerous trends.
In addition to the Oxfam report, the Foundation for the Support of Women's Work (KEDV), together with Oxfam, released data on the income gap in Turkey. According to this, the wealth of 13 billionaires surpasses the cumulative wealth of 44 million people. Likewise, the wealth of the richest 1 percent is 1.5 times more than the total wealth of the 90 percent of the poorest. What does this situation tell us about the economic policy implemented in Turkey?
The numbers you mentioned are about the distribution of wealth in Turkey. As I mentioned above, it reflects a polarization that goes beyond the inequalities in income distribution statistics. I did not examine the findings of KEDV, but I can refer to the wealth distribution findings from a study published in 2015.
I am talking about the book titled The Condition of Labor in the Years of the AKP, which is the joint product of Independent Social Scientists, including myself. There, the 2000-2014 Turkey data from the World Wealth Distribution report of the Credit Suisse Research Institute are cited. The share of the "rich" group, which has the highest wealth, from the total wealth has followed this "polarization,” increasing by 16.1 points (38.1% → 54.3%) in these fourteen years.
“WORKING CLASSES HAVE ONLY BEEN ABLE TO INCREASE THEIR CONSUMPTION LEVELS THROUGH LOANS”
The same book also examined the course of the share of various social classes and strata in total net financial wealth in Turkey between the years 2003-2011 by using the data of TURKSTAT and the CBRT. (Net financial assets are defined by subtracting the debt load from the total of deposits, stocks, bonds, and similar financial assets.)
The wealth distribution calculated according to this definition distributed among social classes and strata shows that at the end of these eight years, the tide has turned against the blue-collar and unskilled working classes, small and medium landowner peasants, and the unemployed, who make up the overwhelming majority of the working classes in Turkey. More importantly, the net financial assets of these social strata bear negative (“negative”) values at the end of this period. In other words, the total debt burden of the Turkish laborers exceeded their financial assets. The phenomenon that led to this situation was financialization, which is a part of the neoliberal transformation: the working classes were able to increase their consumption levels only through debt.
Wealth distribution findings can also be combined with data on income distribution between classes for the 2003-2014 period of AKP rule. In this period, the shares of wage/salary payments and farmer incomes, which constitute the incomes of the two big working classes, in the national income decreased. On the other hand, the average consumption levels of these classes were able to exceed their incomes. This opportunity was realized thanks to the current account deficit/national income ratio hovering around 5 percent on average at that time.
In other words: Turkey also benefited from the revival/rise conjuncture in this period among international capital movements. However, it did not use routing options, such as controlling outsourcing inflows, as in some Asian economies. Instead, it handed over the process entirely to the neoliberal prescription, namely finance capital. The macro-economic result did not live up to the optimistic expectations: Net foreign resource inflows did not increase the rate of capital accumulation in national income, and thus the growth potential of the economy. On the contrary, it increased the share of private and public consumption expenditures. This is the “opium gift” that neoliberal financialization brings to the working classes of Turkey: Being able to keep the consumption pace above the income level by being dragged into the debt trap...
These developments are the extensions in Turkey of the neoliberal transformation that I discussed in the context of the world economy. The beginning of neoliberalism in Turkey is also 1980. A heavy distribution shock of ten years was partially compensated for in the 1990s. After the 2001 crisis, the first period of AKP rule (which is characterized by the features I have reviewed above) began.
To be continued.