Saturday, 22 October 2016

Economic Realities Begin To Hit Home

Forget the usual loud-mouthed bleating from Turkish President Tayyip Erdoğan about Turkey’s exclusion from the coalition fighting to retake the Iraqi city of Mosul from the sadistic Islamic State. Even if he is right, almost everyone outside Turkey has become sick and tired of his bombast about Iraq and several other topics. Simply put, other leaders and diplomats are no longer willing to separate the message from the messenger.

But the real news out of Turkey has nothing to with Erdoğan’s bruised amour-propre, coups and counter-coups. No, the real news as discussed recently by two well-known journalists is the widening fault line in Turkey’s economy.

In the most historic shopping mall of all, namely the Grand Bazaar in Istanbul, 600 shops have been closed because of an ‘unspoken’ economic crisis. Four decades ago such news toppled a shah in Iran.”
Hundreds of shops in the Grand Bazaar have closed

She notes that others from hairdressers, to landlords, to posh restaurants on the hills overlooking the Bosphorus are also suffering from a lack of customers.

A respected jeweller with shops in the Grand Bazaar and an up-market shopping center complained that “There are no Western tourists coming, no Western businessmen, no Japanese either. We are off the cruise calendar until 2018. The only shoppers here are Arabs that stay in the hotel and use the gift cards given by the hotel to buy clothing. There is no light at the end of the tunnel.”

In another column she quotes the founder of a menswear clothing line as saying that shopping-mall driven consumption has plunged drastically. In an attempt to ease the high consumer debt burden the government said debt could be restructured into 70 installments – albeit at high interest rates. But a young banker notes that such steps are not enough. “So many people have applied for debt restructuring because they know they will never be able to pay it even if it was 140 months,” a young banker said.

One tell-tale cause of this consumer distress is that the unemployment rate has reached double digits, and Özyurt notes that the unemployment rate among university-educated youth has risen to 13%.

Economist Güven Sak writes that at a time when the Turkish government is countering a myriad of real or perceived enemies it is making itself even more vulnerable to outside influence.

“Turkey’s domestic savings rate was around 14% for the latest year on record. It’s around 50% in China, 30% in Russia, 20 % in Poland and South Africa. So 14% is a low number, even for a developing country, and it is declining. We all know that living on other people’s money makes Turkey more vulnerable, yet we plan to go ahead with it.”

Sak continues by noting that Turkey’s growth rate has slowed and its current account deficit has increased. “The global financial crisis has made Turkey a more vulnerable country.”

“So is there any wonder why the Turkish Lira has been depreciating rapidly again this week? Forget about President Erdoğan’s Mosul remarks or the Moody’s downgrade for a minute. . . . Look at the high risk strategy of low growth and less savings. It is bad driving that is pulling the lira down.”

Sadly, none of this economic reality has so far penetrated Erdoğan’s virtual world dominated by foreign (read American, Israeli and European) conspiracies aimed at thwarting Turkey’s growth, grandiose regional dreams, and his long-standing desire to create a ‘Turkish style’ executive presidency – in other words one without any of the checks and balances that define a modern democracy. Finance Minister Mehmet Şimşek, a rare voice of economic rationality in the government, appears to have lost whatever small degree of influence he may have once had. His challenge now seems to be keeping a straight face when telling sceptical Western bankers that black is white.

Erdoğan and the ruling Justice and Development Party (AKP) have no serious domestic political opposition, and are pretty much free to make whatever changes they want in the country’s political structure regardless of any external pressure or criticism. The economy is a different matter. Ignoring financial realities and global volatility sooner rather than later will lead directly and quickly to economic pain for ordinary citizens.

Sunday, 16 October 2016

Don't Fear -- The Center Should Hold

Anyone outside the United States looking at the presidential election campaign has every right wonder just what the hell is going on. How can a country as indispensable as the United States seem to go so far off the rails with an election like this? How can anyone as manifestly unprepared as Donald Trump seriously contend for the top job in the world? Is Hillary Clinton really the She-Devil that Trump and his dwindling number of supporters claim? Good questions. But I would suggest that the fears are a bit over-hyped. The Center will hold.

The core of Trump supporters, those angry white men who feel left out of the rapidly changing world and who subscribe to just about every conspiracy theory you can think of (the world is run by a Global Establishment out to screw ordinary people), is indeed loud and very angry. They have seen just about every other ethnic group in the U.S. pull ahead of them, and they are mad as hell. They make great TV with their inflammatory, end-of-the-world rhetoric, and their posturing as the modern version of Dirty Harry cleansing the world of low-life blacks, Hispanics, Asians, liberals, any and all immigrants, and – perhaps worst of all – college educated women.

I hate to admit it, but the United States has always had groups like this. Usually their rantings are left to the more remote parts of the country and the darker corners of the Web, but until now they have never had a megaphone quite like Donald Trump – perhaps the most unlikely champion of the down-trodden one could ever imagine. Trump is very good at Reality TV and whipping up crowds of already dissatisfied people, but that’s as far as it goes. Anyone listening for serious policy proposals will be very disappointed. Why bother with details, when you can drive the crowd into a self-righteous frenzy of hatred?

And he has the answers?? Does he even know the questions?

The only consolation I can offer is that the hard political, vote-getting influence of these groups is easily over-stated. Yes, they make good TV – much better than the usual boring stump speeches by most candidates -- but they have never been very good at translating all their rantings into votes on the national level. Unless the history of more than 200 years of electoral politics in the United States is about to be upended we will wake up on November 9 and find that the vast Center of collective common sense has held. We have had some very strange presidential candidates over the years -- hard core segregationists, hopelessly naïve socialists, or other attention seekers – who appeal to relatively narrow, but vocal groups. In the final count, however, they had no appeal to the broad mass of voters who are much smarter than anyone gives them credit for.

And what about Hillary Clinton? Is she Evil Incarnate portrayed by the more rabid Republicans? Or will she prove to be one of the more effective presidents? One thing is for sure. Just about everyone in the world has an opinion about her -- as you would expect of someone who has been in public life for more than 30 years.  That experience is both her strength and weakness. From the strength point of view, the United States government is a very intricate piece of equipment and at least she knows how it works without lengthy on-the-job training. The political weakness of that experience is that it identifies her closely with the status-quo that many people feel is failing to deal effectively with the nation’s challenges. The much-ballyhooed WikiLeaks releases have so far only shown a shrewd, intelligent, practical politician. Hardly the stuff of nightmares that the far-right crowd was hoping for.

Can she bridge the wide partisan gap?

I have never met the woman, but I respect the opinions of friends and acquaintances who have worked with her in the Senate and the State Department. One career State Department official told me he has never been in meetings with anyone as smart or well prepared as Hillary Clinton. “She’s unbelievable,” he said slightly awed. “She reads everything. And she expects you to have read everything as well.” Then he paused and added. “But she’s also the nicest boss I have ever had. She doesn’t suffer fools, but she wants to help you rather than demean you. She’s not on an ego trip at your expense.”

Perhaps her biggest challenge will be working with Republicans in Congress to address the real problems facing the country. Can she find a way to break down the thick partisan walls that make it so hard to find solutions? Will she be able to find a common ground with all the Republicans who fled from Donald Trump and voted for her? For example, the thousands who have lost their jobs due to factory relocations overseas deserve to have their problems addressed in a true bipartisan effort rather than see all solutions crushed under the weight of political ideology. If she can accomplish this she will go down as one of the great presidents. If she fails, that strong Center of common sense may start to erode.

Sunday, 7 August 2016

Bring The Olympic Games Home Permanently

Even before the noise and lights of the opening spectacle of the summer Olympic Games in Rio de Janeiro have died down many people are questioning whether the spiralling costs and ever expanding size of the games have dimmed their once lustrous reputation. The conclusion that more and more people seem to be reaching is that the once-fabled Olympic Games are no longer worth the cost and disruption. It is way past time for the International Olympic Committee to re-think the direction of the games.

 There is a simple, admittedly radical, solution to the increasing problem of finding a city willing and able to host the sports spectacular. Stop the ridiculous, very expensive competition among cities that can hardly afford a decent water system let alone the Olympic Games. Return the games to their original location and make Athens the permanent site for future summer Olympic Games. Why not? The venues are already there from the 2004 games. The Greeks have demonstrated they know how to run a big event. The money has already been spent. The infrastructure is in place. And Greece could use the guaranteed injection of significant funds every four years. Think about it.
Was the cost worth it?
Rio may have seemed like a brilliant, well deserved choice when awarded the games back in 2009. But in recent years Brazil has not only been in a downward economic and political trend, but is beset with the dangerous zika virus. In short, Brazil currently has many higher priorities than the Olympic Games that are irrelevant to the vast majority of Brazilians.

            Just look at the growth of the modern games. In the 1964 Tokyo summer games there were 163 events in 19 sports with 5,151 athletes. This year in Rio there are 306 events in 42 sports with 11,192 athletes competing. And as for the costs … the Saïd Business School at Oxford University analysed 30 summer and winter games and concluded that none of the games came within initial budget. The study, contested as one might expect by the International Olympic Committee (IOC), also concluded nearly half the games exceeded their cost estimates by more than 100%.

            The study also noted that sports-related costs (venues and the athletes’ village) amounted to $6.8 billion for the 2008 summer Olympic Games in Beijing, $15 billion for the 2012 games in London, and dropping back to around $5 billion for the 2016 games. The sports-related costs for the 2014 Winter Olympic Games in Sochi, Russia came in at an eye-popping $21.9 billion. That number ballooned to about $50 billion, when related infrastructure costs are included.
Skiers and costs hit new highs in Sochi
What is clear is that by any measure the sky-rocketing costs of the games are deterring many cities from even placing a bid. Boston, for example, pulled out of the bidding for the 2024 summer games when it became clear that the taxpayers of the city would be responsible for the inevitable cost overruns. Hamburg also pulled out following a referendum showing that the population did not want the games. The new mayor of Rome said that city, already €13 billion in debt, simply cannot afford the spectacle. That leaves Los Angeles, Paris and Budapest as the remaining possibilities.

 Four of the six cities that bid for the 2022 Winter Olympic Games later withdrew those bids, leaving the IOC with the choice of Beijing or Alma Ata, Kazakhstan. Beijing was the ‘lucky’ winner.

Oslo, Norway was the preferred choice for the 2022 winter games but withdrew because of lack of public support and annoyance at some of the IOC’s ludicrous demands such as free liquor for IOC members and a cocktail party with the King of Norway. This was too much for the sensible, egalitarian Norwegians. Furthermore, with historically low unemployment and excellent existing infrastructure Oslo didn’t need the games to improve things.

                              The time has come to rein in the games and stop them from becoming the athletic equivalent of the over-the-top Eurovision contest. The athletes have trained very hard for several years. Their sacrifices and nobility of effort should not be overshadowed by the circus atmosphere of organizers' problems with financing, construction, idiotic demands by for special privileges by IOC members, doping scandals, or variable international politics. And the people of the host city should not be left with very expensive white elephants that only deteriorate over time.
Time to return the Games to their roots
            I say again, bring the games home – permanently. There are plenty of international athletic competitions – World Cup of football, World Cup of rugby, tennis tournaments, world championships in almost all sports – that can be moved around to satisfy the egos of various host countries. But there is only one summer Olympic Games. And those games and the athletes should have the dignity of a permanent home -- where it all started and where all the preparations are in place.

Thursday, 21 July 2016

What Comes Next -- Loyalty Oaths?

The real damage of last week’s abortive coup in Turkey is only now becoming apparent. Using the excuse of the coup, Turkish President Tayyip Erdoğan has moved to implement political and administrative changes he could not get through the normal political process. Key to this move is purging thousands of civil servants, educators, judges, army officers who just might hold an opinion he doesn’t like. Then he declares a state of emergency.

The ‘cleansing’ was so swift and so thorough that very few people doubt these lists had been prepared long before the coup attempt. Now the state of emergency will give him unprecedented and unchecked powers to transform the country any way he likes. It would not be surprising if a new condition of military or civil service employment is swearing an oath of loyalty to Tayyip Erdoğan.

Could it get this bad in Turkey?
While the political damage is bad enough, the real long-term damage is to the country’s educational system. Erdoğan simply is not comfortable around very well educated, well-travelled people – people who tend to ask awkward questions. Thousands of teachers have been fired, university rectors forced to resign, and anyone identified as an ‘academic’ – formerly a title of some pride – has been banned from leaving the country. Erdoğan considers universities as breeding grounds for opposition to his grand ideas of a reformed Turkey. The only problem is that his vision of reform doesn’t include things like dissent, innovation, creativity, or – God forbid – smoking and drinking. Oh, and by the way, in Erdoğan’s Turkey, each bride would produce at least three children.

He gave lip service to the idea of more universities and then failed to staff them or staffed them mainly with his henchmen whose idea of a ‘proper’ student was someone who kept his mouth shut and did what he was told. A vice-rector of one of these new universities was quoted as saying how much more he preferred the company of illiterate peasants to his educated colleagues.

Turkey used to have a university system that proudly stood out in the region. Universities like the Middle East Technical University, the private Koç and Sabancı universities, Bosphorus University and others were centres of real scholarship. Now their very independence, the independence without which real scholarship and research do not exist, is under threat. Erdoğan cannot stand dissent or free thinking in any form. And can you think of any self-respecting university where dissent and free thinking are not critical parts of the entire process? He has yet to grasp the fact that some pretty good ideas emerge from just such messy dissent.

Erdoğan doesn’t care much about cultural creativity because such creativity is by definition messy and rebellious. One gets the impression that he and his followers much prefer the traditional sound of the Janissary band to the rebellious and defiant notes of Beethoven’s 5th Symphony.

But Erdoğan should care a great deal about economic creativity and innovation – without which the country will remain buried in the Third Division. His loud chorus of supporters loves the statistics that Turkey is so much better off now than when the ruling party took power in 2002. True enough, but completely irrelevant. When the ruling Justice and Development Party took over the country was in a deep depression with a ruined financial system. By comparison, anything would look good. But the main reason for the improvement is that the government’s economic team followed the International Monetary Fund’s recovery prescription to the letter. By about 2010, Erdoğan got tired of those constraints and thought he could run things better. Big mistake.

The current trend is not healthy. Inflation is creeping back up, the currency is depreciating rapidly, unemployment is up, investment is down, growth has slowed, and the private sector is heavily indebted in foreign currency. Not a recipe for strong performance.

But more than the raw numbers, the very structure of the economy should concern any serious official. The Turkish economy is filled with yesterday’s businesses -- businesses like construction, cement, bottling, simple metal bashing, or assembly of someone else’s products. None of these produce much value added. Turkey has a strong food processing industry, but take a look at the equipment all those companies use. You will have a very hard time finding any part that is Made in Turkey.

Where is the innovation? Where is the investment? Where are the new, ground-breaking industries – industries that didn’t exist a few years ago and will lead the way into the future? Part of the answer is that Turkish businessmen tend to prefer construction – with a fairly definite payoff – to the potential, if unsure, rewards of investing in innovation.

Beyond investment, such innovation requires the very messy, creative, free-thinking environment that Erdoğan hates. Can you imagine that icon of free thinking, Steve Jobs, flourishing in an environment where dissent and free speech are crushed? Or just imagine Einstein with his radical theory of how the world really works flourishing in the oppressive Turkish environment.

Turkey does not lack for brilliant, talented people. But it is very hard to see them sticking around in such a stifling cultural, academic and economic environment. It is much easier to see that brilliance and talent flourishing in other countries.

Sunday, 17 July 2016

Coups Are The Wrong Solution To Turkey's Woes

It will be a long time, maybe never, before the real story of the attempted coup in Turkey emerges. What we don’t know far exceeds what we do know. The only thing that is clear at the moment is that the one person to benefit from this farce is President Tayyip Erdoğan. Even if the coup had succeeded it was the exact opposite of what Turkey needs.

            Well-armed with a full magazine of self-righteous, theatrical anger he now has the perfect excuse to eliminate anyone who might conceivably oppose him in purges that would make Joseph Stalin blush. Erdoğan loudly proclaimed that he is protecting his version of ‘democracy’ which probably doesn’t vary much from what the military would have imposed.

            The conspiracy theorists in Turkey are having a field day with such claims as ‘This is nothing more than Erdoğan’s Reichstag fire– a reference to the 1933 burning of the German parliament building, started by the Nazis but blamed on some hapless Dutch communist, that presented Adolf Hitler with the perfect excuse to move against all his opponents. It seems a little far-fetched to say that Erdoğan was actively behind the attempted coup, but it is not inconceivable that he had some prior intelligence about such a move and that he  knew it would fail. He was not slow to take advantage of this golden opportunity to grab the small bit of power that still eluded him.

The coup that turned into deadly farce
            It is the sheer incompetence of the plotters that generates some questions. The Turkish army is fairly skilled in coups, but apparently the plotters missed the course called Coup Making 101. The first step in any successful coup is to arrest the civilian leadership as was done in 1960 and 1980. This was not done. As soon as I heard that Erdoğan was making public statements I knew the whole thing was over. The effect Erdoğan’s broadcast was the same as Hitler announcing he was alive after the assassination attempt on July 20, 1944. Anyone even thinking of joining the plotters had a sudden change of heart and did absolutely nothing. It is fair to say the same thing happened in Turkey. Who knows what would have happened if the plotters had been marginally more efficient?

            In a final tragi-comic step a group of eight plotters swiped a helicopter and flew to Greece to ask for political asylum. This is just what Greece needs. The Greek authorities must be groaning and asking why, oh why, couldn’t they have just flown a few minutes more and landed in Bulgaria. As of Sunday night the helicopter has been returned, but there has been no decision announced on the men.

This is not a problem the Greeks need
            As far as Erdoğan is concerned the real culprit is clear – his one-time ally Fetullah Gülen who now lives on a farm in Pennsylvania in the United States. Erdoğan has long accused Gülen of setting up a ‘parallel’ state structure in Turkey to challenge Erdoğan’s government. According to Erdoğan, the tentacles of the Gülen organization reach deep into the military, judiciary, police and administrative institutions of Turkey – all the organizations now being ‘cleansed’ by the thousands. In addition, I would not be surprised to see him build up a strong para-military force answerable only to him to counter any future discontent with the military ranks.

            But the real victims in this idiocy that cost too many lives are not the plotters who deserve every punishment they get, but the long-suffering people of Turkey. Yes, Tayyip Erdoğan is a typical autocrat who has absolutely no regard for individual freedoms or respect for the incredible diversity of Turkey. But the solution is never going to be replacing one autocrat with another – the army. Too many of Erdoğan’s opponents think there is only a binary choice in Turkey -- an oppressive, Islamic Erdoğan or an oppressive, secular army. They are missing the point.

            Perhaps Erdoğan’s biggest fault in his long period in power is to strengthen the already dominant tendency in Turkey to revere the ‘strong man’ the ‘man on a white horse’ who can solve all the country’s problems with the stroke of a pen. Instead of building up and strengthening governing institutions like the judiciary, the central bank, the security services or police he made them subservient to his will. Consequently, very few people, if any, have the least bit of faith in the institutions that define a modern political entity. No one in any political or administrative position wants to make a decision without consulting the ‘reis’ – the chief to see which way he is leaning.

            Many of Erdoğan’s opponents fall into this same trap. Instead of the hard, time consuming process of building an alternative political movement stressing process and institution-building they, too, look for a simple answer – a charismatic hero to challenge Erdoğan. This latest farce of a so-called coup attempt only shows that that simply isn’t going to happen. Far from removing what they perceived as a ‘threat’ to Turkey the coup plotters only succeeded in strengthening Tayyip Erdoğan’s iron control of the country.