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Variegated debtfarism and state intervention

by Ali Rıza Güngen on December 8, 2016

debtfareProgress in Political Economy has made a wonderful job in compiling reviews and critiques of Susanne Soederberg’s great book Debtfare States and the Poverty Industry: Money, Discipline and the Surplus Population. After the introductory summary by the author herselfCemal Burak Tansel then highlighted the major contribution of the book as an historical materialist reading of one particular element of neoliberal governance enabling the readers to grasp the strategic state responses and material crystallizations of credit-led accumulation. Subsequently, Gareth Bryant gave the hint of implementing the perspective for analysing the Australian public policy. Finally the Past & Present Reading Group conveyed ten questions on debtfare states, opening space for Soederberg to locate the analysis of debtfare states within the genre of critical political economy studies and the wider context of a Marxian analysis of the constellations of contemporary capitalism. Soederberg responded with ten answers on debtfare states in detail further explaining the intermingling of her contribution.

What I would like to do in this blog post is rather to build on the dialogue to indicate that critical social scientists should follow the “launching pad” that Soederberg’s study provides for future analyses of debtfarism in different national contexts. As the Turkish translation of Debtfare States will be published in a few of weeks, I have felt the urge to bring the Turkish path for the subordination of not only the surplus population but also larger segments of society to credit mechanisms to the attention of those who are interested in the workings of debtfarism.

Debtfarism à la Turca

Debtfarism, though one element in neoliberal governance alongside others, has occupied the public debate – or what’s left of it under Turkish authoritarianism – in many instances in the last decade. After the 2001 financial crisis, still the biggest in the country’s history, the new Justice and Development Party relied on the boost provided by capital inflows up until 2007-08. The time period served also as an incubator for the reorganisation of the banking sector and its orientation towards household consumption. Strengthened by the restructuring of public commercial banks as well as the foreign direct investments into the banking sector, the commercial banks compensated their declining losses from the government debt papers (a lucrative investment throughout the 1990s) with targeting household consumption. There was almost no increase in the real minimum wage between 2004 and 2013. The modest rise in social transfers and stagnating real wages paved the ground for the credit card and consumer credit boom. The mentality and discourse of including households into the financial system gained ground before the global financial crisis hit the Turkish economy.

Partly because of the occupation of the financial markets with government bonds in the neoliberal transition and the late development of market finance, the major players in the Turkish financial system, i.e. the commercial banks, operate in a milieu with its own characteristics. For example, the microcredit sector is still to a great extent organised by the state and its interlocutors (such as a conservative vakif – Turkish Foundation for Waste Reduction – in collaboration with the Grameen Bank) and remain non-commercialised. The mechanisms for securitisation of household debt was further developed only after 2007-08 and through a new campaign coordinated by the Capital Market Board from 2012 onwards. Securitisation of future revenues from households is still negligible in Turkey, though it seems the picture may rapidly change in a few years. Turkish debtfarism, therefore, rested on the credit dependency of households, constructed in the aftermath of the 2001 crisis and deepened during the credit rush of 2010-2011. Hence, instead of the new forms of fictitious capital based on securitised debt or the ultimate forms of fictitious value such as the government bond, what Marx called the money-form of revenue (Soederbeg uses it synonymously with the concept of consumer credit, i.e. another type of credit money set for increases in the amount of money through interest payments and fees) was dominant in the workings of Turkish debtfarism.

Credit and financial inclusion

Enter the official strategy launched by the Turkish state for financial inclusion in 2014, so that this variegation takes an interesting turn. The strategy for financial inclusion pushed many branches of the state and already dynamic ministries such as the Ministry of Education to assume a more active role for removing the barriers in front of households to access to the formal financial system. Given the credit rush of 2010-11 and the deteriorating current account deficit thanks to the consumer demand for imported goods encouraged by credit opportunities, the policy makers took many measures in 2010-13 to drag credit expansion. This background put its stamp on the official discourse as well as the wording of the official strategy. Calls for responsible use of credit and increasing financial awareness accompanied the new campaigns for the increased use of financial services.

No matter the differences between “the democratisation of credit” in capitalist financial centres of the North and “the financial inclusion” of the countries of the global South, there remains always a tension resulting from the features of credit money. As mentioned by Soederberg (à la Harvey), the bill of exchange has to return to its origin for redemption and state intervention is of key importance to keep the debtor in the lending game while restoring the lender’s power. By means of directives regulating credit relations and through various mechanisms for the maintenance of the unequal relations between the borrower and the lender, state intervention remains critical for maintaining debtfarism.

In the latest phase of the international financial crisis (2014-?) that was increasingly characterised by capital outflows from the middle-income countries of the global South, the Turkish economy sits on a plateau of lower rates of growth (GDP growth was 3 and 4 percent in 2014 and 2015 respectively though it skyrocketed to 9.2 in 2010 and 8.8 in 2011). The official campaign for financial inclusion goes on with pushing the state branches to monitor levels of household debt more closely. A couple of months ago, policy makers enabled the restructuring of the consumer credit debts and reorganised the instalments through credit cards, making it easier to borrow or rollover debt. This was a pre-emptive measure following the bloody coup attempt of the 15th of July and the strengthened expectations for a FED interest rate hike in late 2016 or early 2017. Turkish debtfarism pushed the state to intervene, against the background of dropping rates of growth and soaring unemployment, to extend the maturity of consumer debt and credit card debt. At the same time, the state is not immune from the enhanced pressure of Turkish finance capital, which had increasingly seen an opportunity for credit-led accumulation in financial inclusion previously and pushed the policy makers to make it compulsory for working people to become members of private pension funds that will commence from early 2017.

Contradictions and alternatives

In Turkey as elsewhere, state intervention has built-in contradictions, since pushing the working classes to “benefit” from financial services, while they suffer from real wage squeezes means an increase in the debt of households. Slowing down credit expansion implies slowing growth: a curse for the current Islamist government. Extending credit opportunities, on the contrary, not only creates overindebted households but also results in a surging current account deficit because of the production processes and the corporate linkages in Turkey. You cannot have your cake and eat it at the same time.

Debtfarism works on many levels and in different contexts. Lack of commercial microcredit or a deepened financial system relative to the capitalist centres of the North does not diminish the importance of credit money. The debate around interest rates and household debt in Turkey can even provide leverage for the discourse of the Islamist politicians lamenting the self-interest seeking financial actors and commercial banks. The context pushes the state to get involved further in the reorganisation and management of the power relations between the financial institutions and the working people. It becomes the debt of critical political economists (an addition to the material debt they accumulate) not only to investigate the forms of state intervention for managing the tensions arising therefrom, but also to search for alternatives to overcome credit dependency.

Ali Rıza Güngen

Ali Rıza Güngen is a researcher in international political economy. He received the Young Social Scientist award from the Turkish Social Sciences Association in 2013. He is the co-author of the 2014 book Financialization, debt crisis and collapse (in Turkish) and coedited the special issue of Praksis journal on indebtedness in Turkey (2015). His research currently focuses on sovereign debt management, state restructuring and financial inclusion.

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