How did we come to this?

20 years ago, financial liberalization seemed liked a ‘must’ to me, a set of measures deepening the markets, increasing savings therefore investments, promoting competition and fair trading in favour of society, ultimately enhancing economic growth and development. But today, I witness financial liberalization retrogressing every day, especially through financial institutions, its key intermediaries for the last 10 years.

The title of my PhD thesis I wrote in 1996 was ‘Financial Liberalization and Monetization’. The central argument of my thesis stated a set of measures to prevent oligopolistic hegemony from manipulating prices-in order to bring inflation under control-by integrating some elements, which have not yet been incorporated into financial markets, into the system and by ensuring financial deepening through monetization. In my thesis, I argued that the number of players would increase as market deepens. No one, neither individually nor collectively; would have enough power to influence and manipulate the markets when infinite number of buyers would meet with infinite number of sellers… Besides, different groups had different expectations; different interests and this wide range of expectations would help markets naturally, harmoniously reach a new point of balance where no extreme price movements take place.

Now, I notice that the markets today are neither ‘competitive’ nor ‘deep’ whereas in 1996, the year I wrote my thesis, I violently agreed that they were both of those things. In my 1996 thesis, I highlighted the success that the former Eastern Bloc countries had achieved by putting an end to Soviet dominance in order to start transition to multi-branch commercial banking. I honestly don’t know what we should call the West now but back in the day, the West was the great representative of modernism and the things the West said were crucial in terms of transitioning to a New World Order. That is the reason why my thesis strongly emphasized former Eastern Bloc countries’ transition to multi-branch commercial banking as well as their efforts to establish and develop capital markets. But today I realize that I have been hasty in forming and violently defending my argument. The fact that these countries, who had to introduce IMF- and World Bank-forced laws, remove restrictions so as to allow free movement of goods and capital, ran large current account deficits and were stuck in huge debt did not go unnoticed yet I must confess that we did not really care about it back then. Today we are seeing the negative outcomes of what happened in the past.

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Indeed, close ties between the IMF, World Bank and other financial institutions that dominate the world, have led to a roadmap defined as ‘modernization’ by countries like us: First, foreign trade regime and industrial policies of the country are turned into a platform where foreign capital can move freely, immediately followed by the liberalization of exchange rate regime. Serious adjustments in exchange rate are made prior to making inflation more stable, thus making it easier for foreign investors to buy more assets of that country using their own money. In the meantime, maybe on purpose, national investors are made more vulnerable. Then, the country starts facing impositions to implement legal regulations on social and economic life in order to create the most convenient platform for capital markets. Thus, foreign investor can become partners of national companies. Privatization process, on the other hand, continues at fast pace. Meanwhile, the Public Economic Enterprises (PEEs), which were once established to produce goods and services for the good of society, keep on degenerating until they are finally transferred to the private sector. The fact that the PEEs become a part of capital markets makes us talk about a so-called “deepening”. We even become happier thinking that competition is rising.

Unfortunately today, a ‘competitive market’ only means a market in which a large numbers of companies compete. However, we never question whether this number is enough to promote real competition nor we can find out whether these companies are taking mutual action in total agreement.

In conclusion, we failed at reaching the true aim and potential of liberalism. For further details on this matter, I invite you join me at a panel at Altınbaş University’s Gayrettepe Campus on November 28th, with Honorable Professors Mahfi Eğilmez and Işın Çelebi.

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