Turkey's lira crisis: 'economic war' sees Erdoğan look east for new allies

(This is a commentary I have recently published in the Conversation, an academic opinion platform run by a consortium of universities in various countries)


Emre Tarim, Lancaster University

Global markets are on edge once again, this time thanks to the Turkish lira. It crashed more than 15% against the US dollar, euro and pound sterling on August 10 and continued to fall when markets reopened after the weekend on August 13.

The latest trigger was Donald Trump’s announcement that he would double import tariffs on Turkish steel and aluminium. But the lira has been falling consistently over the past year as markets fear for the president’s increasing control over the economy.

With their mammoth depth and reach, global currency markets reflect big shifts to new economic and political realities. Sterling dropped by more than 10% when it became clear that the UK had voted to leave the EU in June 2016. Currency markets can also hasten these shifts, for example in 1992 when the UK crashed out of Europe’s fixed currency regime, the Exchange Rate Mechanism, after sustained runs on sterling in currency markets.

The lira crisis therefore – at the very least – reflects the political and economic turmoil taking place in Turkey. It could also play a key role in shifting the country from relying on the West to aid its economic development and turning east to Russia and China for growth and investment.

Crisis and contagion

The underlying economic cause for the crisis is simply a lack of confidence in Turkey’s economy. Inflation is spiralling (currently more than 15%), Turkish companies are saddled with foreign debt and the country has one of the world’s largest current account deficits in proportion to its economic output, heightening fears of a debt crisis.

As an open economy since the late 1980s, Turkey has attracted significant international capital flows. These flows, some of which are highly mobile and short term, also expose Turkey to sudden stops and reversals when international investors fear the worst. The recent history of globalisation in developing countries is full of such crises, including the 2000-01 Turkish banking and currency crisis. It was the aftermath of that crisis that brought Recep Tayyip Erdoğan and his AK party to power.

As of August 2018, Turkey has an external debt of US$406 billion, US$99 billion of which is short term. What worries foreign banks and markets is the exposure of some European banks, as direct investors in the Turkish banking sector. According to estimates, this amounts to more than US$138 billion.

           
           

              Turkish lira to the US dollar.
              xe.com
           
         

Should private Turkish debtors, who owe around 75% of Turkey’s external debt, fail to service their share as a result of the nosediving lira and creditors’ unwillingness to lend any more hard currency, the European financial system might have to absorb significant losses. This is similar to what happened during the Greek debt crisis.

Political decisions

None of these debt figures have emerged overnight. What transforms them into a currency and debt crisis is ultimately political. The presidential election in June gave Erdoğan unprecedented control over all branches of the state and he has made his intention to interfere with the economy clear.

Since the new presidential system came into effect, international investors have been trying to understand where Erdoğan would steer the Turkish economy. The signals so far, including Erdoğan’s appointment of his son-in-law as the minister in charge of the economy, suggest a new period of “Erdoğanomics”. This includes a mix of high government spending, politically repressed interest rates and runaway inflation. Such a heady mix has caused a surge in Turkey’s risk premium.

The worsening political relationship between Turkey and the US does not help. Over his 16-year rule, Erdoğan has rallied his supporters on a number of occasions against real and purported threats to his rule. He is once again  defiant against Western economic and political actors, whom he accuses of striving to destabilise Turkey under his rule, this time via the runs on the Turkish lira. 





This defiance seems to have consolidated Erdoğan’s domestic power, but given the country’s considerable economic reliance on Western banks and markets, the country is now more vulnerable than ever to a currency and debt crisis of its own making. Freeing Turkey from this difficult corner will be a feat. If and when Erdoğan achieves it, Turkey will probably have shifted a considerable part of its economic and political allegiances, from the West to the East, with both Russia and China potential future allies in what Erdoğan has called an “economic war”.

Emre Tarim, Lecturer in Behavioural Sciences, Lancaster University

This article was originally published on The Conversation. Read the original article.

Searching for the futures of consumption

On the 6th of May, 2017, Lancaster University in the northwest of England, where I have been working as a lecturer in the Department of Marketing since September 2016, held a Community Day for the city of Lancaster community. The premise behind this event was to showcase to the public in an interactive way what the University is doing in research, teaching and community engagement. There were several dozen activities, such as making of custard rockets, 3D printing, theatre plays, and robo-car racing.

Some high chemistry during Lancaster Community Day (By Lancaster University)

I, Ronika Chakrabarti, Stefanos Mouzas, Anuja Pradhan, and Mohammed Chaded from the Department of Marketing designed and led our concept of Marketing Pavilion to showcase to the public what Marketing is and what the Department has been doing in research, teaching and public engagement. To be honest, this whole effort helped me understand Marketing better as an academic discipline and see Marketing's close connections with social science and human science disciplines such as Sociology and Psychology.

Marketing Pavilion Flyer (By Emre Tarim)

One of the activities at the Pavilion was what I called a "search" - namely, a group of people coming together in a total horizontal way (no hierarchies or status distinctions- e.g., researcher, student, member of public) and discussing a topic and searching its future with a view to taking action for that future.

I learned this method when I was working as a consultant at Arama Search Company, Istanbul, Turkey in 2012 and 2013. This company is founded by Oguz Baburoglu who is an internationally renowned action researcher. Having learned some aspects of the craft under Oguz's wings, I thought it would be interesting to apply this method during the Community Day.

At the end, we had an hour-long search for the futures of consumption, and we concluded with the necessity of universal design principles for best practices in production and consumption. Below is a step by step account of how we searched for the futures of consumption and came up with this conclusion.

Our search session aimed at exploring what we understand from consumption, and how we see its future and how we would like to see its futures. Our aim was therefore two-fold- namely, elaborating the consumption related trends that we see and experience, and articulating the futures of consumption that we as a community would like to see

Our search method consisted of simply asking questions and writing down answers on whiteboards and flip charts with a view to collectively identifying commonalities in our answers, and collectively moving on to the next question and theme on the basis of those commonalities.

Emre and Stefanos recording the ideas on whiteboards (by Anuja Pradhan)

We started with the question – What is consumption? This surely created a good number of answers in the form of key words that came to our minds. In the process, we also realized that we were dwelling more on the negative aspects of consumption, and some of us reminded the positives of consumption, such as the scientific advances, that made our lives safer, healthier and longer. As we were reaching saturation in our definitions - key words, we turned our attention to changing forms of ownership in consumption in digital age, and the often overlooked materiality of consumption (e.g., production, transport etc.), including the waste it generates

Discussing the definitions of consumption (by Anuja Pradhan) 

Consumption: Definitions – Key words 

Buying 

Need for something, satisfying needs
Convenience
Desire
Entertainment
Resources
Supply and demand
Fashion (in trends, modes of consumption)
Ethics
Advertising
Tiredness (caused by information/product overload, never ending “needs”)
Scientific advances and positive outcomes generated with consumption
Senses of consumption (simplicity vs sophistication)
Ownership (consumption access and sharing)
Addiction
Finite resources - End of consumption?
Materiality of consumption – Waste

Some of the definitions recorded on whiteboards and flipcharts (by Emre Tarim) 

Commonalities : Towards Themes

Themes emerging (by Anuja Pradhan) 

Having listed all the key words, we then searched for commonalities among these definitions and came up with the following four themes:

• Materiality
• Information
• Consumer needs vs. Consumer wants
• Consumption, Wealth and Prosperity

Futures of Consumption?

Continuing with the positive outcomes of consumption and how to sustain them in the future, we decided to focus on the last theme- namely, Consumption, Wealth and Prosperity. Our question was how consumption, despite all the negatives (e.g., waste, addiction, inequality, etc.) it generates can generate wealth and prosperity for all , not the few (no political slogan intended here!). After this decision on our collective focus, we searched for ways in which consumption can achieve this.

Ideas flowing on futures of consumption (by Anuja Pradhan) 

Here are the points and questions raised:

• Inclusion, Inclusive consumption 
• Is consumption becoming more inclusive or exclusive ? (e.g., How can we make sense of foodbanks, something as an inclusion or exclusion move? Is it something positive – “allowing people to continue consuming”, or negative- “justifying and/or concealing policies and inequalities that condemn people to food banks?”) 
• Which unit and level of consumption should we focus on when we think of inclusion and exclusion? (E.g., individual, family, citywide, nationwide) 
• What is the purpose of the consumption item? (Our consumption needs, are they active or latent? ) 

As we continued with the inclusion and inclusive consumption search, we came up with the following question: How can we make products and consumption more inclusive?

We also realized that this also touched on the materiality of consumption- namely, design, production, and so on. We therefore focussed on what kind of products (designs) we need to bring about the futures that we would like to see consumption generate. 

Products (Designs)

Product design principles ? (By Anuja Pradhan) 

• Multifaceted in purpose (e.g., Meeting individual consumption and societal needs at the same time)
• Built to last, given the finite environmental resources? What about wealth and prosperity from continuous production? A need for balance between sustainable production and sustained prosperity 

We then decided to write down some design principles for future products:

• Add-ons (Making products multifaceted in purpose) 
• Sustainable (Durability, ecology, transparency [e.g., plastic microbeads in personal hygiene products and campaigns to ban them ], intergenerational responsibility) 

The Future of Consumer Activism

Having discussed these, we realized that we as consumers have a great role to play in shaping product designs and  in morphing products, producers and markets towards the inclusive futures that we desire. This brought us to the matter of consumer activism. Here are some of the themes that arose from our discussion on the future of consumer activism

• What does a durable/sustainable product look like? (E.g., a cleaning mop lasting 10 years?) 
• How can we communicate our product design desires to producers? 
• Digital democracy [enabling us to work with producers?] 

Futures of consumption (By Anuja Pradhan) 

We then discussed aspects that are closer to us consumers in consumption and consumer activism such as vulnerabilities, emotions, traditions, and how we can come up with best practices among ourselves and producers.

• Minimizing vulnerability (as consumers)? 
• Best practices in ? (Cost and affordability and price, waste and sustainability, institutions [existing practices vs how to institutionalize rare but best practices]) 
• Guilt [associated with consumption, production, waste] 
• Consumer protection- What should be its scope? 
• Mobilizing emotions [associated with consumption/issues] 
• Family traditions [in consumption] vs Change (What is the unit of change in behaviour [individual vs. family?]) 

Future Actions and Challenges

Points about future actions 

and challenges (By Anuja Pradhan)

We then considered necessary steps in bringing about changes for the futures we desired. In doing so, we also acknowledged the contradictory nature of issues in consumer activism, e.g., Lack of information vs. Information overload; Yes, mobilization but how?; Have information but what is next?; Institutions vs. How to institutionalize the new design needs for a different future. Here are the points we recorded on flipcharts

• Seeking information to inform people (but information overload too, is this necessarily a bad thing?) 
• Mobilization [of consumers and other stakeholders but how?] 
• Crowdsourcing [information and other resources necessary for mobilization in a digital age?] 
• Institutions (redesigning e.g., family, corporations, market, the state] But can all expectations be included? 

Universal Design Principles

Result of an hour-long search? (By Emre Tarim) 

Having discussed for an hour the meanings and futures of consumption, we wrapped up the search brainstorm with two practical outcomes or challenges that we consumers can pursue for a future of consumption that generates inclusive and sustainable wealth and prosperity:

1. Universal (consumption and product) design principles for best practices [towards inclusive and sustainable wealth and prosperity]
2. [Answering the following questions] 
1. How will [these principles] look like ?
2. Who will do [formulate] [these principles]?

We felt that these questions should be answered by searches like the one we had during the Community Day at the Marketing Pavilion. The issue of consumption is too important to be left only to producers.

Many thanks to all participants at the Marketing Pavilion