Wednesday, 7 December 2016

The Opponent Who Refuses To Do What It Is Told

          Has Turkish President Tayyip Erdoğan finally met his match? Does he now have an opponent he cannot intimidate, he cannot fire, he cannot shut down, and he cannot throw in jail? So far, the dreaded opponent foreign currency , also known as the U.S. Dollar, is resisting all his usual tactics.

            He has resorted to the familiar yelling, stamping his feet, blaming foreign interests, and threatening dire revenge. Oh, he can rant and rave about the ‘tyranny of the dollar’, but this particular opponent pays no attention. Just this year the Lira has lost about 18% of its value against the dollar.  Over the last three months it is the worst performing currency in the world against the US Dollar. The standard remedy for this is to increase interest rates to make the Lira more attractive.
 
The 'enemy' that refuses to be intimidated


Not a pretty picture. Red line is the TL vs the USD since September 2016

But Erdoğan refuses to allow that. The Central Bank is nominally independent. The bankers may know better, but like every other bureaucrat in Turkey they are powerless to counter the president’s wishes. He believes that high interest rates limit economic growth. What he fails to appreciate is that a disappearing currency does more damage to the Turkish economy than higher interest rates could ever do.

How bad is situation getting? “We’ve totally lost it,” despaired one former senior official. “We have no monetary policy. Where’s the Central Bank? Where’s the Ministry of Finance? Ultimately, he’s going to have to raise interest rates to stabilize the currency. But I’m getting really tired of seeing the same movie over and over again.”

Exchange bureaux are the busiest places in Turkey these days
A leading economist put it even more bluntly. “We have a current account deficit and have to roll over $170 billion of short term debt every year. Our only strength is being globally integrated in trade and finance. Right now, we have reasonably smooth access to foreign capital. If he wants to destroy that . . .”

Any one over the age of 50 in Turkey can easily finish that sentence. All they have to do is recall the horrible decade of the 1970s. In addition to rising political violence there was a shortage of foreign currency which led, among other things, to frequent power cuts and lack of fuel oil for heating. People remember wearing overcoats in their offices because there was no heat. There was no electricity to run elevators. A friend was working in a school where they resorted to burning hazel nut shells for warmth.

            All that changed in the 1980s with a new currency regime that allowed easy access to much needed foreign currency allowing the Turkish economy to grow rapidly. That access is now under serious threat. And that threat has very serious consequences for the Turkish economy. Why? Because every facet of the economy – from manufacturing, retail, tourism, agriculture, to energy has become tied to the hated foreign currency.

            Turkey has a strong manufacturing base, but almost all the equipment in those factories is imported. Raw material for much of Turkish industrial and retail sectors is imported. One company, for example, makes fine woollen fabric, much of it for export. Where does the raw wool come from? Australia and New Zealand. Every drop of oil, every cubic meter of natural gas, every ounce of petrochemicals is imported. Turkish officials boast of the export numbers. But the vast majority of those exports contains goods, like the wool, that were first imported.

           In recent years, Turkish companies have borrowed billions in foreign currency to fuel their growth. Why foreign currency? Because in a world of zero interest rates it was cheaper than borrowing in Turkish Lira. That was a good plan . . . as long as the Turkish Lira remained stable. Now, however, these companies are faced with the massive problem of finding much more Turkish Lira to buy the foreign exchange with which to repay those loans.

            The president now resorts to ‘jaw-boning’, lecturing everyone to change their carefully hoarded foreign currency into Turkish Lira. The only problem is that every time he does that the value of the TL sinks even further. Then he says he is negotiating with Russia, Iran and China to change their trade with Turkey from foreign currency into local currency. Tough to see this working out well. Russia, for example, depends on exports of its massive natural resources – all priced in US dollars by the way -- to get vital foreign currency. The Turkish Lira does not qualify as a one of those vital foreign currencies. Even if Russia did agree to accept Turkish Lira, the value of those Lira would be tied to the US Dollar for every payment. So what would be gained?

Is he really going to accept TL for his precious natural gas?? Not too likely.
            He does have some ‘nuclear’ options that would certainly stop the Lira’s slide. But they would also stop everything else. About 50% of the deposit accounts in Turkey are in foreign currency. He could force conversion of those accounts into TL. Drastic and very, very painful for average Turkish citizens.

            He could also institute some sort of capital controls, limiting the movement of currency into and out of Turkey. Disastrous for Turkish companies who rely on free movement of currency to run their businesses. And what about those foreigners who invested hard currency in Turkey?  Can’t imagine them being very happy receiving bags of Turkish Lira when they sell out.

            Before inflicting ‘nuclear’ options on the long suffering Turkish public the president might want to share just where he and his ministers store their wealth. But no one should hold his breath for that bit of transparency.


            These steps are unlikely. But if the currency continues to weaken and his rants about ‘evil foreign manipulation’ and the ‘interest rate lobby’ fail to stem the tide there is, unfortunately, no telling what the president will resort to.

Saturday, 3 December 2016

The Joys Of Enforced Immobility

I have been more or less house-bound for the last two months while recuperating from an operation to repair a torn Achilles tendon. The operation itself only takes about 45 minutes, but the recuperation is long and tedious – filled with sharp warnings from the doctor about slipping and winding up back on his table. “It’s not that I don’t want to see you again, but . . .” Time outside has been necessarily limited because of the difficulty of manoeuvring first with a plaster cast and then with a cumbersome ‘walking’ boot and crutches. Just as well, because one doesn’t want to incur the wrath of one’s surgeon by tripping on London’s uneven sidewalks and tearing the tendon again. The thought of an acid “I told you so” was enough to keep me indoors.

            Your wife meanwhile picks up the slack by doing all the normal chores of shopping, cooking, washing, house cleaning, etc. plus sorting out all the bits of equipment that seem to accompany this recuperation and doing all the fetching and carrying I used to do. All you can do is smile sheepishly and make sure you've booked two tickets to the finest hotels in Paris once the whole process is over.


This would do very nicely, thank you
The period started with the best of wholesome intentions. The ‘Great Novel’ was going to get finished. That lasted about a day-and-a-half. Putting aside notes for the novel, the next great idea was to improve my French. First, listen to various French programs on-line. Next, hire a French teacher to come once a week. Alas, this is continuing, but the mysteries of French irregular verbs still confound me. As for the accent? Well, very polite Frenchmen nod their heads as if following every word before turning to a friend asking if they understood just what I was trying to say.

OK, so out come the Great Books on topics I should have read in university many years ago. Time to catch up. Then there are on online lectures. I eagerly sign up for one or two of those only to find that the professor giving these particular lectures was a high-school classmate of my daughter. How to feel simultaneously old and dumb. That’s OK. On to the books. Mary Beard’s entertaining history of ancient Rome, SPQR, a new book on Byzantium and Philip Mansel’s book on the sad fate of Aleppo. Then a real door stop called Moscow 1937. Actually, much more interesting than the name implies. All well and good, but after a couple of hours of Cicero’s problems, the innumerable plots and counter-plots of Byzantium, or Stalin’s endless purges my mind starts to turn to tapioca.
 
With the best of intentions . . .
Time for a little light entertainment. So, we crank up the Kindle and order a long list of international murder and mayhem books that pass for entertainment. That’s fine, but after a while the plots sort of meld into each other and it’s easy to lose track of just who is good or bad, or who is being targeted by yet another dysfunctional super assassin. They’re also a bit like Chinese food. You finish them quickly and are still hungry.

My next cunning plan to pass the time was to tackle that long list of ‘useful’ DIY tasks that every home has. What better time than during my enforced immobility?To be polite, my DIY skills were somewhat lacking when I had two good legs, and probably hadn’t improved with the cast and crutches. Nonetheless, we soldier on.  Fortunately, after a few abject failures, a very clever and skilled Slovenian plumber/electrician was able to repair the damage.
 
Weapons of mass destruction
Oh well, there’s always daytime television. Settling back in a comfortable chair armed with the remote control and a cup of tea I start to graze through the daytime TV offerings. Not an enlightening exercise. I used to think that nothing in this world could equal the utter wasteland of American daytime TV. I was hoping that in the UK, where they are always trying to set cultural examples for the colonials, things might be a little better. Wrong, very wrong. Nothing but mindless game shows, equally mindless talk shows and idiotic, so-called ‘celebrity’ shows, programs about people looking for real estate in unlikely locations, and re-runs of programs that should have been declared dead a very long time ago. 
The Sahara desert has more life
Do British TV stations have nothing better on offer than yet another re-run of WW II with the likes of Dam Busters, Battle of Britain, and other epics revealing British valour and genius against the evil Nazis? The war ended more than 70 years ago. Surely there is something more timely on offer. Forget the war, how about endless re-runs of ancient detective shows like Columbo, Miss Marple or the same cowboy shows over and over again. John Wayne is OK. But morning, noon, and night?  Time to move on. Then there’s the always reliable BBC 4 that mercifully stays off the air until early evening. Then you’re bound to be riveted by worthy shows detailing things like the sex life of the anchovy. This is enough to drive anyone back to Stalin’s Moscow. By the way, it’s not just British TV that is fixated with World War II. Shelves in book shops groan with books on the Hitler period, but you will look in vain for anything about post-war Germany, the transformation from pariah to powerhouse.


The ultimate remedy 
After all this, plus the exercises one is supposed to do plus the slimmed down menu your wife has diligently prepared you’re completely knackered by the end of the day. Then you drift off to sleep with sweet dreams of Jimmy Buffet’s Cheeseburger in Paradise.




Wednesday, 30 November 2016

Ghosts From The Past Have Much To Teach Us

The growing number of leaders around the world wanting to turn their countries into stagnant ponds filled with frightened xenophobes should take a careful look at two of the two of the longest-lived empires the world has ever seen. They would learn that one of the main reasons for the 1,600-year collective longevity of the Byzantine and Ottoman empires in what was then, as now, a very troubled part of the world was their willingness to incorporate outsiders into the very fabric of the empire.

Unlike today’s leaders they saw the value, the necessity, of bringing fresh ideas, different experiences into the empire. Not for them the narrow-minded fear of ‘Johnny foreigner.’

The Byzantine Empire lasted about 1,000 years from the mid-4th century AD to the mid-15th century. During that time, it was surrounded by threats on all sides such as Persians, Avars, Russians, Bulgars, Latins, Visogoths, Arabs, Mongols, Turkic tribes, and finally the Ottoman Turks. The Byzantines are too easily dismissed in much of today’s history books as effete, unreliable, and more obsessed with bloody palace intrigue than true statesmanship. That simplistic characterization obscures their ability to adjust to rapidly changing circumstances. The 1,000-year run didn’t happen by chance alone.

Byzantine Emperors Justinian and Constantine presenting Haghia Sophia and city to the Virgin Mary

When strong enough, resort to military measures. When weaker, resort to diplomacy and what we call today ‘soft power.’ Compared to much of the rest of the region the Byzantine Empire, more particularly the glories of Constantinople, was so splendid that many foreigner rulers were gladly co-opted into that splendour and, in some cases, the Orthodox faith. The period was highlighted by strategic inter-marriages, alliances, financial tribute, trading privileges and much more. Jonathan Harris put it very nicely in his recent book The Lost World of Byzantium.

Thus if Byzantium has one outstanding legacy it is not perhaps Orthodox Christianity or its preservation of classical Greek literature. Rather it is the lesson that the strength of a society lies in its ability to adapt and incorporate outsiders in even the most adverse circumstances.”


            The Byzantine Empire finally and totally collapsed one spring day in 1453 when the Ottoman Turks succeeded where so many others had failed and breached the formidable walls that had protected Constantinople since the 5th century. The Byzantine Empire may have disappeared as a political and military entity, but the early Ottoman leaders were smart enough to maintain the essential characteristics of religious tolerance and using talent wherever they found it. Far from being frightened by religious or ethnic diversity these Moslem leaders valued the strength that diversity gave the Empire.

            In a new book, Aleppo, The Rise and Fall of Syria’s Great Merchant City, Philip Mansel recounts some advice that Suleyman the Magnificent gave to his council that was considering expelling Jews from the province in the mid-16th century.

“The more sorts of nations I have in my dominion under me as Turks, Moors, Grecians, etc. the greater the authority they bring to my kingdoms and make them more famous. And that nothing may fall off from my greatness, I think it convenient that all that have been together long hitherto, may be kept and tolerated so still for the future.”
 
Suleyman, perhaps the greatest of the Ottoman sultans
            The Jews stayed put in Aleppo and continued to contribute to Suleyman’s greatness. It is no coincidence that the ultimate decline of the Ottoman Empire was hastened when its rulers ignored Suleyman’s advice on the value of diversity. The greatest of Ottoman sultans must be looking on modern Turkey with great despair as the current rulers do their best to eradicate all traces of that tolerance and diversity.

            But Turkey is far from being alone in its headlong retreat from those two values. One need only to look at some of the countries in the European Union where walls and barbed wire have replaced Welcome signs. And then there’s Donald Trump in the United States. He not only has pledged to build a gigantic wall along the Mexican border but to expel more than 10 million immigrants now living in the U.S. The famous Statue of Liberty must be blushing at the thought of that happening.


            The shameful immigration ‘debate’ in Britain is so far a debate without any facts or even a real discussion. The anti-immigrant rantings of UKIP and many Tory members of parliament are taken at face value without a shred of proof that foreigners – specifically those from the European Union -- are taking over the country. The actual, official, numbers on immigration into Britain tell quite a different story – one that demonstrates clearly that crust-less watercress sandwiches and tea are not about to be replaced by kielbasa and vodka. But bringing this reality into the debate would require an act of statesmanship and political courage – two qualities completely lacking in the entire Brexit discussion up to now. Those two long-gone empires have a great deal to teach modern politicians.

Tuesday, 29 November 2016

Are The Walls Starting To Shake?

That loudest sound n Ankara these days is the shattering intrusion of hard reality into Turkish President Tayyip Erdoğan’s pretentious dream palace. After a long run of success, the wheel is beginning to turn. The economy, once the strong pillar of support for President Tayyip Erdoğan, is showing major cracks. Domestic tranquility has evaporated with the failed coup, the heavy-handed response of an extended state of emergency, and the near civil war with the Kurdish guerrilla group PKK. Once proud boasts of foreign policy success have turned into mindless military adventures and wild claims to overturn the treaty that created modern Turkey from the ruins of the Ottoman Empire almost 100 years ago.
 
'If only we could go back to those glory days.'
Erdoğan used to boast proudly about the strong Turkish economy with its high growth, solid currency, and rising foreign investment. No more. Those days are long gone. Growth is sputtering and the government steadily reduces growth expectations. Hotel vacancies, shuttered holiday resort areas, and empty shopping centers are glaring testimony to the collapse of the once-vibrant tourism industry. Unemployment has leapt up to 11%, and once-gushing foreign direct investment is now just a trickle.

The most obvious indicator of economic malaise in Turkey has always been the hyper-sensitive currency. It is easy for the average citizen to express his unhappiness with the general state of affairs by rapidly selling Turkish Lira and buying foreign currency – usually US dollars. Turkish corporations also move rapidly to dump TL and buy foreign currency to meet their high foreign currency debt obligations. So far this year the value of the Turkish Lira has eroded more than 18% to a record low vs. the USD of 3.44 as citizens and companies scramble to protect themselves against the country’s increasing political and economic instability.

Perhaps the most unnerving thing for ordinary Turks is that the government has absolutely no answers to the growing economic problems. All people hear are platitudes about the ‘underlying’ strength of the economy or the even more frightening “There’s no need to worry. We’ve got things in hand.”  Rather than create real, long-lasting solutions to these mounting problems Erdoğan’s usual response is to look for someone to blame – the perfidious West, the so-called ‘interest rate lobby’, or would-be coup plotters. When that doesn’t work, he could well throw one of his own ministers under the bus for ‘failing to do his duty’ The most likely candidate is the hapless Mehmet Şimşek, the Deputy Prime Minister responsible for macroeconomic affairs, whose voice of relative economic reason is becoming increasingly isolated.
 
Mehmet Şimşek: 'What, me worry?'
Citizens are also unnerved by widening social/political divisions within the country as Erdoğan crushes any and all opposition with a draconian state of emergency following the failed coup attempt last summer. Jails are filling up with journalists, editors, opposition politicians, or anyone else deemed insufficiently loyal to Erdoğan. On top of this, people are frightened of bomb attacks carried out by a diverse foreign and domestic collection of the government’s enemies.

Foreign policy dreams of playing a key role in the region and acting as a trusted mediator between Europe and the Middle East have turned into a nightmare of clumsy military adventures, crumbling alliances, and weakening ties with its crucial economic partners in Europe.

The Turkish army blundered into Syria in a thinly disguised effort to keep Kurds from establishing an autonomous zone along Turkey’s southern border. The government acted surprised when the Syrian regime reacted violently and attacked the Turkish forces. The Turkish government was ‘shocked and horrified’ that anyone would dare to attack its forces. One wonders what they expected when marching into another country. Erdoğan is beside himself with impotent fury that the anti-ISIS coalition won’t let his forces join the fight for Mosul. His response is to mutter dark threats about tearing up old treaties and re-capturing what is ‘rightly’ Turkish – i.e. oil-rich northern Iraq. Good luck with that one.
 
OK, we're in Syria. Now what do we do?
Relations with the European Union have hit a new low as the European Parliament voted to suspend the on-again-off-again membership negotiations with Turkey. Erdoğan was predictably furious at this reaction to his repressive moves at home. “We don’t need you anyway!! We can turn to our good friends in the Shanghai Five.” For those of you not familiar with the Shanghai Five, it is a loose coalition of autocracies including Russia, China and Central Asian states not known for its concerns about human rights.
 
At least no lectures about democracy in this meeting
This might work if it were not for a few glaring problems with his new best friends. Russia backs the Syrian regime that just killed some Turkish soldiers. How do you spin that to the Turkish public? China, for its part, suppresses the Moslem minority Uighurs – a Turkish tribe no less – in the western province of Xinjiang. Also, a tough one for the staunch supporter of Moslem identity to spin to his overwhelmingly Moslem supporters. Furthermore, it’s difficult to see any Shanghai Five members willing or, more importantly, able to support Turkey’s teetering economic structure.



None of this is to say that Erdoğan’s iron grip over Turkish domestic politics is weakening any time soon. His total control of the media severely limits what the public sees and hears. And his never-ending, ear-shattering rhetoric about the ‘glory days’ of the Ottoman Empire continues to resonate with a large part of his voter base. But sooner or later hard reality will break down the walls protecting Erdoğan-world.

Thursday, 10 November 2016

The Center Cracked

I am resigning effective immediately my post as election forecaster. My only consolation is that I am far from alone in predicting a Hillary Clinton victory. The media will be filled with instant analyses of the meaning of Donald Trump’s victory, but I caution that it will take some time to determine the real causes of this unexpected victory. Was it a one-off, or does it signal something much deeper in American society? Don't forget that Hillary Clinton won the popular vote. So we should be careful about making sweeping conclusions about major upheavals in American society as a whole.

What will change more, Trump or Washington?
            The one thing, perhaps the only thing, we can say for sure at this point is that Trump’s victory demonstrates just how deeply unpopular on a personal level Hillary Clinton is with a large number of voters. She doesn’t deserve this opprobrium, but no one said politics is fair. She just didn’t resonate with voters the same way Obama can. His particular electoral genius is being able to combine the calm, reasoning – almost philosophical – approach to governing with a genuine human touch. Can you imagine Hillary Clinton leading a gospel choir in the deeply moving Amazing Grace during a memorial service for people slain inside a black church in yet another senseless shooting? I can't.

             Is Trump’s victory a crushing statement against the so-called privileged, cocooned elite that has -- allegedly -- constantly denigrated working class America and followed economic policies stripping the Rust Belt of its old-line manufacturing jobs? Too simple. For one thing, unemployment in America is at its lowest level in more than a decade, and wages are going up. Another point is that the Rust Belt began losing those old manufacturing jobs decades ago. For example, my hometown in Vermont lost its machine tool business in the 1950s and 1960s.  Also, if this election was a mass cry against the much-maligned establishment why is Obama’s personal popularity at an all-time high? Unlike recent presidents he will leave office with his flag flying high and proudly. And the one good note of this horrible campaign was the performance of Michelle Obama.

            I accept the fact that thousands of voters are furious that no one was thrown in jail or even severely punished after the sub-prime crisis destroyed homes and livelihoods. It is even more infuriating when those deemed responsible for the crisis were rewarded with ever higher bonuses. But this can’t be the main reason for Clinton’s defeat. That same anger existed in 2012 when Obama was easily re-elected and carried several states that then – as now – suffered from the erosion of traditional jobs.

            Neither candidate seriously addressed the issue of the Rust Belt job losses or the real impact of globalization on American workers. I think a little honesty would have gone a long way. I remember very well when Bill Clinton was addressing workers in Portsmouth, N.H. during the 1992 primary. The workforce of Portsmouth was devastated by the loss of Navy-related jobs. Bill stood in front of a hostile crowd and simply, honestly, admitted that those jobs weren’t coming back. The challenge, he continued, was to find a way to support their income while re-training them for new types of employment. You could almost see the relief and grudging acceptance on the faces of the audience that someone was at last treating them honestly – like grown-ups. Bill Clinton, like Obama, had the crucial ability to empathize with people and soften the harsh reality of what they faced. Incidentally, we returned to Portsmouth last summer and found that it has come a long way from those dark days of the early 1990s. Once down-trodden communities can, and do, rejuvenate.

            No matter what Trump says, no one is going to turn the clock back on globalization. Let’s assume he succeeds in erecting high tariff barriers blocking imports from Mexico or China. Instead of establishing manufacturing plants overseas those companies in places like Michigan, Ohio or Indiana could simply shut down because they are no longer profitable. How does that help anyone? There is nothing, absolutely nothing, he or anyone can do to change the reality of higher costs in the United States putting great pressure on manufacturing business already operating on low margins. Are Wal-Mart customers going to be happy paying much higher prices just to buy goods manufactured in the United States? I doubt it.
Wal-Mart customers won't easily give up these low prices
            Thousands of American companies have found that the solution is to move up the food chain, creating and using high technology that cannot be easily replicated overseas. Basic low-margin manufacturing is nice, but high tech design and engineering is much, much better. Just ask the American oil service companies that dominate the industry world-wide. Also, traditional trade figures ignore another critical area of American dominance – the service industries of finance and insurance. Throw those into the mix and the total trade balance picture changes dramatically.

            I have a friend who is rubbing his hands in glee with the image of Trump riding into Washington and ‘cleaning the swamp.’ I hate to disappoint him, but Washington is a very seductive place with a well-earned reputation of swallowing would-be swamp cleaners. Rather than challenge the so-called establishment he so vociferously denounced Trump could well wind up as a charter member. If this happens, thousands of those who cheered for him on election day could be sadly disappointed.


Trump, a person with no known convictions one way or another, could also have serious problems with a Congress filled with many people in his own party who don’t trust him. Much too early to tell just how this will unfold, but I suspect the Republic will survive even a Donald Trump.

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.