'Deconstructing and Moderating the Functioning and Consequences of Political Manipulation of the Economy in Turkey'

Abstract

While PBC studies on Western European democracies and the USA have been extensive, the same is not true for developing countries. This applies to Turkey as well, which have been subject to only a handful number of studies, which have rendered satisfactory evidence for the presence of politically manufactured business cycles in fiscal and monetary policy instruments and outcomes in Turkey. It is true, with the available empirical evidence and daily observation of real life, that political manipulation of the economy is present everywhere. However, the way it functions may be different from one economy to the other. This paper, therefore, aims to take the analysis further by employing an interdisciplinary approach to investigate the nature, distinguishing characteristics, and mechanisms through which political manipulation of the economy, by the use of public funds, are exercised in Turkey. In other words, this study deconstructs the functioning of political business cycles (PBC) and monetary cycles (PMC) in the case of Turkey and identifies the country specific differences in the way political manipulation of economy is exercised. In addition, since political and monetary business cycles represent deviations in the economy are costly. This study, therefore, aims to identify areas where the costs of such manipulations arise in Turkey. Lastly, policy recommendations through which the functioning and costs of political manipulation of the economy can be moderated are presented. Consequently, the analysis renders support for the micro-level policies pursued by governments to surf on the election cycles, which is based on providing personal gains to attract votes including use of individual, group and region specific micro-policies, use of state economic enterprises, and use of off-budget funds. This does not imply that macroeconomic policies are not manipulated. On the contrary, the natural consequences of the micro-level policies are macroeconomy related, the result of which is the manipulation of macroeconomic variables. This study finds that political manipulation of the economy have resulted in disequilibrium in the economy by creating crisis and delaying stabilisation in the economy for the personal gains of the politicians. It is demonstrated that such costs in particular can be seen in public finances, inflation, budget deficits and domestic and external debts as well as in currency and financial crises. Despite such manipulations political parties have not been successful to come back into government, which reinforces the welfare or social costs of such manipulations. This study, therefore, suggests that serious reforms should be undertaken to prevent or moderate crisis and delayed stabilisation in economy due to political manipulation, which should include increased independence of central bank (CBI), economic and institutional reforms, continuous privatisation, enhancing the effectiveness of the operations of the international financial and other organisations, deepening democracy through civil society and constitutional provisions to enhance transparency and accountability. It is suggested that CBI and effectiveness of international financial institutions have already contributed to moderating the impact of PBCs in Turkey.