Academic journal article Atlantic Economic Journal

The Political Foundations of Economic Crises and the Economic Foundations of Political Crises; the Intermingling Relationship: Turkish Case 1950-2002

Academic journal article Atlantic Economic Journal

The Political Foundations of Economic Crises and the Economic Foundations of Political Crises; the Intermingling Relationship: Turkish Case 1950-2002

Article excerpt

Introduction

Political crises have economic foundations as well as the political implications of economic crises. Hence, crises cannot be conceived as simple or uniform phenomena. They are complex and intermingled with each other. The economic foundations of political crises have been discussed in many academic studies, especially with respect to the deterioration of macroeconomic balances. Nevertheless, these studies have generally been undertaken by political scientists. Yet the political implications of economic crises have seldom been analyzed by economists. The purpose of this study is thus to observe those political and social implications of economic crises alongside the economic foundations of political crises or climax.

The Political Foundations of Economic Crises and Their Consequences

The most prominent study in this area was held by Nelson (1990), in which the rate of population growth, the share of urban population, the entity of agricultural population, life expectancy, infant mortality, and the proportion of secondary education was conducted as main determinants of policy prescription. Another notable study has been held by Dornbusch and Edwards (1991) on the relationship between populism and macroeconomic policies with respect to the Peru and Chile experiences. They show that macroeconomic populism is an economic approach that emphasizes growth and income distribution but de-emphasizes inflation and deficit finance, external constraints, and the reaction of economic agents to aggressive non-market policies. Yet, eventually such policies inevitably cause foreign exchange constraints and extreme inflation that enforce programmes of violent real wage-cuts that also ends in massive political instability, coups and violence. Recently financial crises have been analyzed with respect to political factors as public governance, the relationship between bureaucracy and the business world. Feng (2003) has engaged in a theoretical and empirical examination of the three features of countries' political life: political freedom, which involves democratic institution; political stability, which is related to the likelihood of the survival of the government; and policy certainty, which concerns the shift of policies vis-a-vis the degree of income equality. His main result is that democracy has no effect on these variables that are found to be associated with growth, but rather is a contributor to political stability, human capital formation, income equality, economic freedom and etc.

Weyland (1996) has looked at the unexpected affinity between neo-populism and neo-liberalism that emerged in the 1980s under President Menem of Argentina, President Collor in Brazil and President Fujimori in Peru. He has observed that unlike classical populists like Peron during 1960s and 1970s in Argentina, who attracted political support from the urban workers and provincial middle class, neo-populism during the last two decades attracted political support from, alongside the preceding social groups, the urban informal sector and the rural poor, which had been politically uncommitted. According to Weyland, it is democratic politics that stimulated the revival of populism, yet economic constraints appeared to have condemned it to death. While democracy paved the way for populism, the economic crises exacerbated by populist leaders could have threatened democracy itself.

By referring to the Asian crises, Haggard (2000) has argued that domestic political factors such as crony capitalism, weak leadership, or autocratic governments have played an important role in the outset of financial crises. By focusing on two example countries, namely Thailand and Korea, Haggard has defended that the institutional arrangements of these two countries had rendered them vulnerable to public policy. In Thailand, for example, those peculiar and chronic problems that were rooted in the parliamentary system had generated weak coalition governments and non-cohesive political parties. …

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