The world faced two major events, one towards the end of the 1970s, and the other in the early 1980s, which respectively are “real interest rate” and “privatization”.
As I frequently mentioned in my previous reports, by 1973, more and more people were arguing that real interest rate did not help increase savings and investments, eventually leading many countries to liberalise interest rates. The impact of this move on savings cannot obviously be tracked based only on money growing in the bank with deposit multiplier. Those who wanted to invest their money in different financial instruments in order to protect their savings against the depreciation of national currency started to put their money in banks thanks to positive real interest rate, letting banks to rapidly increase their credit volume.
On the other hand, the winds of privatization were already blowing all over the world under Margaret THATCHER in the early 1980s. The public enterprises that gave up looking for merit and productivity neither in personnel nor investments due to political preferences had being sold to the private sector, one by one.
Bot real interest rate and privatization were both very important steps towards achieving “financial liberalisation”. But, not being so fond of such high level of liberalism, the governments kept interfering with market economy on so many occasions. On the other hand, inventing “private monopolies” to replace public monopoly, people like Carlos Slim started to heave up their anchors using the privatization winds that emerged under THATCHER, REAGAN and ÖZAL. While that real interest rate-mania was helping companies and people make excessive amounts of money, privatizations had caused unjust enrichment. In the meantime, public sector was continuing to grow using funds from real interest based bonds/bills as well as from the privatization or public offering of enterprises.
But things did not end there. Banks and Financial Institutions started to act as intermediaries for governments that were going into debt almost consistently. The damage was already done when banks and financial institutions remembered their actual responsibilities. The 2001 financial crisis in Turkey and the 2008 financial crisis in the United States are both good examples of this situation. These two catastrophic events made people finally understand that they had to build a great wall between the Investment Banking and the Commercial Banking.
But it was just a little bit too late. Privatization and real interest rate practices deviated from their original purpose, and public-owned enterprises started to cause negative impacts on markets, not to mention savings gap. Therefore, real interest rates and privatization have both become questionable notions today.
I don’t think it would be a good idea to question the philosophy behind the real interest rate and privatizations because neither of them was properly implemented and they were both corrupted. Today, we are discussing the negative real interest rates and nationalization again because of the coronavirus threat. We are the way we are today because of a system that doesn’t allow “free competition” in any way, a system where the politics and diplomacy have huge influence on market activities. Neither privatizations nor real interest rate shall be blamed for this because we were never been able to meet the market requirements of either practices.
A process where regulatory authorities impose price ceilings on sectors, public enterprises compete unfairly with private sectors and where governments that are constantly in debt try to seize private savings through loans and taxes cannot exactly be considered “free market”. The things that will happen from now on would bring a brand new economic approach where the central government will have a say and intervene if necessary instead of allowing market abuse and manipulation.
“System might change again….”
I do strongly believe that there will be fundamental changes to the operation of state politics and the state’s organisational structure throughout the world. But, if we are to implement a particular doctrine or a system, it should be implemented properly. I think we all know what happened when we tried to use liberalism as a slave to capitalism and public sector.
Millions of people became richer and wealthier under this regime. But, the situation we are going through right now shows us that we need a system that can treat everyone equally. Still, we have no other motivation than “money” to make us want to do better. Money or wealth should not be a reason for our laziness to improve our humanity, our attitude towards living beings, and our desire for discovering new things.
On the 7th anniversary of my father, Prof. Dr. Erdoğan ALKİN’s death, I remember our humanist conversations we used to have when we were at home together. Some of these conversations were particularly focused on this very subject of “New World Order”. I really miss talking to him.