Today’s world gets defined by capitalism and globalization of markets. So, we get used to live with market economy: Stocks, commodity market, insurances, and so on. But, globalization of economic markets has a side effect: Financial crisis. We can easily see that since the beginnings of financial market, even early 16^th century. In fact, financial crises have occurred in different scenarios. Essentially, we can distinguish them as follows: Sovereign defaults, hyperinflation, exchange rate crisis, and banking crisis. First two types of financial crisis are related to value of money which is associated to real market. It means, production factors might trigger this type of financial crisis, they are not related to financial system. Third one is manly associated to monetary outflows within a country according to which sudden money flow may affect balance of payments and liquidity squeeze. In this scenario, it has to be an authority to take into control the situation against which country is facing. Last one is the most dangerous and contagious type of financial crisis. If depositors lost their trust to banking system, they started to withdrawn their assets, and this situation leads to total collapse of banking system. According to Lloyd B. Thomas, in a banking crisis, large-scale defaults on bank loans induced by unexpected changes in underlying economic conditions systematically reduce the capital or net worth of numerous bank because of the fact that the predominant assets of the typical banks are its loans while its main labilities are its debts in the form of customers’ deposits and other borrowed funds. It means banking system is based on the leases and credits.[1]That’s why, to mitigate the effects of banking crisis, every country had tried to establish an institution through which market economy would be regulated and find necessary liquids to provide customers’ demand to withdrawn their money. For example, after Glorious Revolution in 1668, Businesses flourished, but the public finances were weak and the system of money and credit was in disarray. The goldsmith bankers, who had begun to develop the basic principles of banks as deposit-takers and lenders, had been damaged by the lax financial management of the Stuart kings[2]. Therefore, Bank of England established, market has regulated and trust of depositors to banks have been guaranteed and depositors and investors could foresee economic conditions. Like United Kingdom, United States have witnessed same crisis between 1819-1907 because of the fragmented banking system and lack of a central institution. To find a solution the destabilized banking system, in 1913, with Wilson’s efforts to form a central bank, Federal Reserves established. That’s sure that there were and are many banking crisis in economic history, but we are going to focus on a specific crisis: Banking panic of 1907 which led to creation of Federal Reserves. We have chosen this case because of the fact that banking panic of 1907 had own specificity in terms of private actors which played important roles during crisis. In absence of a central authority, who had regulated markets, how American economy had been able to manage this banking crisis? To examine this crisis, we’re going first look at internal and external dynamics behind the bank runs. Second, we’re going to analyse why this crisis has erupted and which personalities had influenced to get the dynamics up to a financial crisis. Third, we’re going to probe J.P. Morgan’s influence on the solution to stop bank runs. Finally, we’re going to observe creation of Federal Reserves.

2. Dynamics Behind the Banking Panic of 1907

How did financial crisis begin? What prompted a panic? To answer these questions, we have to look at both internal and external dynamics which led to Banking Panic of 1907. First of all, we’re going to delve into internal dynamics. As we know, every country has own cultural consumption model which influences interest rates, velocity of money, and money demand. According to this fact, United States had own manner of consumption which was directly linked to interest rate in 1907 because of the fact that there was no central bank which regulates and stabilizes economy. So, we can easily contend that there were seasonal liquidity fluctuations before 1913. During the National Banking Era, the New York money market faced seasonal variations in interest rates and liquidity resulting from the transportation of crops from the interior of the United States to New York and then to Europe. The outflow of capital necessary to finance crop shipments from the Midwest to the East Coast in September or October usually left New York City money markets squeezed for cash. As a result, interest rates in New York City were prone to spike upward in autumn. Seasonal increases in economic activity were not matched by an increase in the money supply because existing financial structures tended to make the money supply “inelastic.”[3] According to M. Oliver M.W. Sprague, writing for National Monetary Commission in 1910,

This inelastic money supply has driven to liquidity squeeze[4].

Second problem was regulation of trust company before 1907. Regulatory institutions did not prevent risky behavior. Consequently, trust companies took excessive risks, and excessive risk taking ultimately led to a loss of confidence in trust companies.[5] In fact, this view is neither completely wrong nor completely true. Before 1907, trust companies were regulated by Department of Treasury, but there was no restriction about type of customers so that banks could calculate and predict depositors’ behavior against financial stumble. Today, banks are controlled by Central Banks and some credit rating index organized by Fitch, Standard&Poor’s, and Moody’s. During bank runs, it can be easily noticed that uptown residential trust companies, such as Knickerbocker Trust Company, had failed because of the fact that their customers were merely households, who were rich, but deposited small amounts and were so grumbling and very skittish. According to Bradley A. Hansen, number of deposits in downtown trust companies actually increased at seventeen trust companies[6]. As shown in the table 1, we can easily say that Mr. Hansen’s view is clearly true. On the one hand, the first three company were located in Manhattan, uptown residential of New York. As we can see, they lost lots of their deposits and they felt into insolvency. On the other hand, the last three trust company were oldest trust companies, and they made business with long-term investors, such as industrial credits. Fourth reason, I assume, the most important reason, is complexity of trusts in United States. Basically, the function of trust companies is the creation of safe basket in which you can put all your financial intermediaries to be managed by professional traders. As Alexander Dana Noyes said that trust companies had several forms: Downtown trust companies, uptown trust companies, life insurance trust companies, title trust companies, and niche market trust companies[7]. Because of this complexity in the structure of Trust companies, they didn’t come to a term to get over the financial crisis between October 1907 to February 1

908. In addition to this disagreement amid trust companies, it was really difficult to set up a policy through which Department of Treasury could get informed financial market.

We have analyzed internal dynamics, but it’s not enough to understand whole picture in Banking Panic of 1907, unless we don’t examine external dynamics which were truly affected financial market in United States. First, we have to peek into gold flows between 1905 and 1907. In those years, money could be printed if you got gold because of the gold standard model before Bretton-Woods system. As we can see above, gold exports and imports were radically downward in 1907. Hard lines signify gold outflows and soft lines signify acquired British sterling by United States banks and companies between 1870-1914. [8]

As we can see above, dramatic changes in terms of gold inflow shirked market. In general, United States import about $50 million dollar per year. But, finance bills were suspended during 1907, substantially constricting the system of arbitrage that minimized actual shipments of gold. In 1907, despite relatively high U.S. interest rates, the United States exported $30 million in gold to London during the summer. As a result, the New York money market was left with an uncharacteristically low volume of gold upon entering the fall season of cash tightness[9]. Second external factor is stock prices in global market. As we know, one of the main reason behind banking panic of 1907 was acute decline in copper prices in 1907. In fact, this slump in prices was not specifically in copper prices. Because of some conditions between 1900 and 1914, such as virtual increases through market operations, stock prices were overvalued. In 1907, economic bumble just blown and market could not adept itself as fast as commodities did. According to this graph, we can obviously observe this economic trend. As we seen below, between 1905-1907, stock prices in market have sharply up warded according to the stock beheld by American Telephone & telegraph. These can be easily explained by market operation as we said, such as short squeeze and corner the market.[10]

To sum up, both internal and external dynamics influenced on banking panic of 1907. Seasonal variation in interest rates affected banks reserves rates and their loans on call. And also, complex structure of Trust companies made difficult to come to a term to overpass this bank runs. In addition to these internal dynamics, external dynamics made unbalanced American economy through gold flows and stock prices which are directly linked to domestic and foreign investments. Nevertheless, we realized that if there was a central bank, which regulates market and control liquidities, Banking Panic of 1907 would not happened because of the fact that American banking system couldn’t find an extra resource to meet market’s needs in a short period. Therefore, we have to delve into nature of Banking Panic of 1907 to conceptualize what went wrong within this complex structure.

2. Nature of Banking Panic of 1907

In this part, we insist on the fact that banking panic has erupted around some personalities, and this led us to search on an inclusive observation. That’s why, we have to take into account both market dynamics and influential personalities who shaped the trend of banking panic of 1907. First, we are going to take a glance at the most important person, who manipulated stock market, F. Augustus Heinze. On 14 October 1907, Heinze had tried to corner the copper stock market, but he has failed. In fact, this attempt to corner couldn’t affect whole market. In contrary, Heinze’s complex relations amid bankers and brokers have enlarged the effects of crisis –we will analyze that in below-. In addition, as we mentioned, money market was already tight during 1907. These factors provoked banking crisis, which sparked one of the severe bank panics of the National Banking Era. Contemporary observers like Sprague believed that the close associations between bankers and brokers heightened depositors’ anxiety[11]. In this case, F. Augustus Heinze had close relations with C.F. Morse, who was a director of seven New York City banks and there of which he controlled completely. Heinze, his brothers, and C.F. Morse were eager to use their monetary influence on market. They bought immense number of shares in the struggling United Copper Company back in Montana. In this plan, they will increase the prices of the United Copper. If the scheme worked, they would put other shareholders in solvency and made them rich. But they hadn’t known that Amalgamated Copper Mining Company, the main adversary of F. Augustus Heinze, have already short positioned in copper stocks. When Amalgamated Copper Mining Company has started to sell its stocks, copper price suddenly declined.  Within two days, the price of United Copper decreased by more than 80 percent and the Heinze brothers suffered huge losses[12]. After this huge loss, Heinze strived to find a path to get rid of insolvency. As a solution, he decided to use his own bank, State Saving Banks of Butte, which was holding a large amount of collateral in forms of the shares of United Copper posted by those to whom the bank had granted loan.  Heinze started to call loans. As a result, the loans went bad and the bank was declared insolvent[13].  News about insolvency of State Saving Banks of Butte provoked a massive run on Mercantile National Bank in New York, recently acquired by Heinze, which had a correspondent relationship with the Butte bank. According to Sprague, the assets of Heinze’s banks totaled $71 million dollar, compared over to $2 billion dollar in all New York City banks and trusts[14]. It was huge amount of assets in 1907 because of the fact that according to Treasury Department’s new regulation for local and national banks, the reserve ratio was %26 of their assets. In addition to the attacking Heinze’s banks, depositors withdrew a large amount of funds from trusts and banks owned by Morse[15]. In this chaotic situation, New York Clearing House promised to give $10 million fund to aid former Heinze banks sufficient because no notable run occurred on the banks[16] in condition that Otto and Augustus Heinze would resigned from their missions. They accepted that, and bail-out package released. On Monday, October 21, Mercantile National resumed business with new management, and the run ceased. After a while, uptown residential trust companies realized that depositors’ trust to financial intermediaries has gone. In fact, this was the real danger on banking system because of the fact that in 1906 New York State instituted a requirement that trust companies maintain their reserves at 15 percent of deposits, but only 5 percent of deposits needed to be kept as currency in the vault[17]. Trust riskier assets have failed due to unpredictable market conditions. Besides, New York Clearinghouse signaled to depositors that the trusts were likely to become insolvent during economic and financial downturn[18]. Aftermath of this signal, depositors have withdrawn their liquidities and this action affected stock markets. Value of stock has been depreciated by large-scale liquidation of call loans. It could be shown as a cynical cycle around financial market. At this time, New York Clearing house found a new solution to break up tight monetary policy: Clearinghouse loan certificates. The loan certificates helped prevent the need for costly liquidation of bank assets, like call loans – short term demandable loans backed by stock or bond collateral- in order to satisfy cash withdrawal demands or unfavorable clearing balances[19]. In below, you can easily see that to what extent monetary market was tight. Also, it can be understood by predicting the possible consequences of liquidity squeeze if this temporary solution hasn’t found out.

New York Clearinghouse’s new solution gave a breath to financial market because of the fact that New York Clearinghouse was legally prohibited from printing currency, and it was unable to sell or buy bonds in quantitates comparable to modern open market operations; therefore, they could not serve as legal reserves[20]. This solution was a temporary movement to get some time to get thing right. Eventually, domino effect had kept its pace, and banking crisis of 1907 have completely surrounded American financial market until mid-1908. In addition to financial market, New York City was also in debt. Short-term obligations of New York City were coming to due and the city had no funds with which to pay them. All these conditions which had occurred in New York City, might influence other financial market in the United States. At this point, a savior came the stage. In next part, we’re going to find out how this panic was handled and which actors have played central role.

Taken Actions to stop bank runs in 1907: J.P. Morgan and Big Six

As we have already mentioned, precautions taken by New York Clearing House and Treasury Department couldn’t cease to banking panic. Treasury Secretary Cortelyou said:

“By the consensus of opinion, Morgan was regarded as the leading spirit among businessmen who joined themselves together to meet the emergency… He was generally looked for to guidance and leadership”

From that point, we are going to look at one important person which led other bankers to point out an emergency plan: J.P. Morgan. Just before talking what he has accomplished during banking panic, we are eager to explain his background and his personality. John Pierpont Morgan was born into a distinguished New England family on April 17, 1837, in Hartford, Connecticut. One of his maternal relatives, James Pierpont was founder of Yale University; his paternal grandfather was a founder of the Aetna Insurance Company; and his father, Junius Spencer Morgan (1813-90) was a partner in a London-based merchant banking form. After graduated from high school, Morgan studied in Europe, and learnt French and German[21]. After all, he became founder of famous bank, J.P. Morgan. We have to explain his family and his educational background because of the fact that he used very well his social network to get over financial crisis. He was talent to connect the dots amid New York banks and trust companies. He saved country once during the 1895 gold crisis.

He bought U.S. Treasury bonds in exchange of gold because of the fact that U.S. government was in solvency due to lack of liquidity. He was regarded as greedy banker among politicians. This caricature explains us J.P. Morgan’s public image. American society said that Morgan has monopolistic idea to govern United States. In addition to his effort to save America, William McKinley was elected as the president of the United States of America in 1897. From that point, American people said that J.P. Morgan was the real president of the United States. This drawing show us how American society sees J.P. Morgan during the period of William McKinley.  In fact, it is quite logic to emphasize that Morgan was prominent leader among bankers, but hatred figure among civilian in American society because of the fact that they believe J.P. Morgan seized all power, even he hasn’t been elected by public opinion. In case of banking panic of 1907, there were some dilemmas during the crisis. For example, Morgan refused to aid Knickerbocker Trust company on 22 October 1907, and after that, New York Times announced this decision. After a day, panic in financial market augmented. Bank runs up warded. At that time, Morgan had not tendency to help financial situation. At the background, this was a vengeance of J.P. Morgan because of the fact that Theodore Roosevelt cancelled Morgan’s initiative, called Northern Securities in 1901.

Roosevelt thinks that J.P. Morgan has already controlled %60 of American steel and %75 of American railway production. If Pierpont Morgan control also securities, no one would stop Morgan to reign in United States. But, two days later on 25 October 1907, New York Times announced that Morgan will organize support for Trust Company of America[22]. Morgan’s sudden turn in his earlier decision had a reason: Roosevelt sent him 25 million dollars to cease panic in financial market.[23] And also, Roosevelt guaranteed that the seal over Northern Securities will be taken off. At the same time, New York Clearing House announced loan certificates through which velocity of money and money supply would be increased. These precautions were implied. In this case, a decision, which was really important in public opinion, was carrying the money in by vault Wall Street. Depositor saw that, and they though that governance of finance was safe and sound. As a result, at the beginning of December, panic have almost ended. However, these precautions were temporary due to the fact that board of finance haven’t aimed to fix structural problems such as depositors’ character in uptown residential trust companies. As a consequence, big bank runs in other trust companies, such as Lincoln Trust Companies, got flamed. Now, it was the time that Morgan really got in the business. But, there was a crucial question: Why and how a private banker wants to resolve a financial crisis? Why he will take the responsibility? On the one hand, other bankers were suspicious about J.P. Morgan because of the fact that as we saw in earlier stage of this financial crisis, Morgan’s decisions were unpredictable. He refused to aid Knickerbocker, and after two days he organized a support to Trust Company of America. The bankers thought that Morgan might take into account his private interest instead of public good. On the other hand, J.P. Morgan was the only person, who could stop this bank run and who has 68 million dollars in 1908[24].  In fact, this part of crisis was more complex and much more interesting to understand the role of J. Pierpont Morgan. This part is much more about Moore&Schley Brokerage House which has around 100 million dollar assets[25]. In addition to this strong financial look, structure of these assets was so risky because of the fact that more than %50 of these assets was associated to iron and steel companies. Other important issue about Moore&Schley was the fact that if it failed, it would rock the stock market and might bring down according to J.P. Morgan[26]. In fact, all the quarrel was blown up by a single news about iron and steel production. November 2, New York Times have written that iron and steel companies will show declining performance in 1908, and that will lead to insolvency in the companies with which they have the economic ties. As we said, J.P. Morgan has %60 of American steel industry and ¾ of railway industry; that’s why, bailing out of Moore&Schley was vital for J.P. Morgan. Therefore, at this night, he arranged two meetings in his Library. Benjamin Strong of the Bankers Trust, Edward King of Union Trust, and heads of several other companies were summoned for a talk in the West Room[27]. Morgan said that if they won’t save Moore&Schley, Trust of America will fail and which will influence entire trust market. To thwart this massive failure, Morgan demanded extra 25 million dollars. In another room, East Room, Morgan had assembled Baker, Stillman, and other bank presidents, who were soon joined by Frick and Judge Garry representing the finance committee of U.S. Steel[28]. Morgan asked his plan about buying T.C.&I. (the Tennessee Coal and Iron Company) stock which has strong relations with Moore&Schley, and this buying was necessary to bail out whole brokerage market. For this, Morgan wanted extra 18 million dollars. These two bold decisions have to be made before Exchange market opening, it means before Monday. Morgan said that and left the office. While two groups debated their perspective but allied problems, Morgan locked the doors and went to his private room to play Solitaire. Debates took about 4 hours and early hours of dawn, Morgan entered the room and asked what is the final decision about bailing out Moore&Schely and T.C.&I. They agreed about Moore&Schley, but not about T.C.&I. Morgan said that is unacceptable because of the fact that they have strong economic lies, such as loans and shares. After that, Ben Strong went to Washington D.C. to negotiate with Roosevelt to buy T.C.&I.’s shares. At the night of November 3, these two committee have met again to say their financial decision. Stillman, Baker, and Grant Schley were in the West Room. They waited Morgan to push him to reach a consensus among head of trust companies and banks. At this time, the Rockefellers attended the meeting and were eager to come to term with these guys. Henry Frick, proposed direct loan to Moore&Schley because of the antitrust prosecution of U.S. Steel if they failed to consult with the White House[29]. Frick was clever. If Morgan operates a full-scale takeover, Morgan could be accused to set up steel cartel to determine steel prices. Everyone in the West Room was nervous to wait President’s decision. Suddenly, the telephone rang at 9.55. Theodore Roosevelt agreed not to take any action to oppose the purchase of the T.C.&I. stock by United States Steel. Immediately, bankers released this news to Wall Street by declaring that there is no more threat to bankrupt any company. For the first time in weeks, banks, trust companies, and brokers felt almost secure[30]. As a result, Morgan’s ruthless exercise of centralized control had done successfully. The force sale of T.C.&I. stock for around 50 million dollars would ultimately enrich the steel trust tenfold, without comforting investors ruined by the failure of the Knickerbocker and several small banks[31]. Next day, November 5, the New York Times published articles that painted Morgan as the hero of the 1907 Panic, “Old Man” who looked out or American’s financial system[32]. Also, At the 139^th Chamber of Commerce of the State of New York Annual dinner, Senator Spooner named Morgan the “uncrowned king” of financiers[33]. To sum up, we can easily say that Morgan’s role is too similar to central bank. He made contact with other actors in finance market and tried to find a common point among them. Also, he bought T.C.&I. as central banks bails out the firms which are insolvency. Morgan’s act during the panic showed that United States need a central bank which regulate the market with judiciary rules, not like a private investor such as John Pierpont Morgan.

Creation of Federal Reserves

In the spring of 1908, US Congress have promulgated Aldrich-Vreeland Act according which National Monetary Commission established. Its mission was investigating the causes for periodic banking panic, almost every 10 years. Senator Nelson Aldrich, chairman of National Monetary Commission, departed for Europe to analyze how Bank of England and Banque de France work in times of crises. When he returned to United States, he held a secret conference of top banking authorities in November 1910, in Georgia. The final report of the National Monetary Commission was submitted in early 1911. But unfortunately, Congress couldn’t propose a new central bank due to the debates about juridical limitation and scale of relations among real sector and finance market. The main debate was division of power over decision-making in the proposed central bank between the government and the private sector, between rural and urban interests, and among bankers, nonbank business, and rest of society. The final draft represented an acute balance these competing interests.[34] On December 22, 1913, Congress passed the Federal Reserve Act. President Woodrow Wilson signed the legislation the same day. After more than 135 years in existence, the United States now had a permanent central bank. Thanks to banking panic of 1907 and to John Pierpont Morgan’s efforts, the United States understood the importance of an institution which regulates competing interests among financial actors and learnt how to balance them via a central authority. Also, there will be no more need to temporary solution such as New York Cleaning House certificate loans to increase money supply to get rid of liquidity squeeze.

Conclusion

The Banking Panic of 1907 has a unique stance in economic history. A private investor played as central banks to bring down the fever of stock market. To comprehend what happened in 1907, we looked at, first, the preconditions of the crisis which was manipulated by both internal and external drivers. In absence of central banks, these signals couldn’t be evaluated in the United States, and it led to disastrous panic in trusts and stocks. Second, we examined the nature of crisis by regarding some data from U.S. Treasury. We witnessed that corner the market attempts couldn’t be intervened by an institution through which other investors could foresee the conditions and trust the stability of market in time of fluctuant transactions in market. Also, we observed another important role of central banks, which is augmenting money supply to get over a squeeze because of the reserve ratio and immediate withdrawal demand coming from depositor under which liquidity problem is immense to handle. Third, we treated a person, John Pierpont Morgan, who assumed himself as a bridge to get communicate other financial actors. As we saw, many meetings were organized by Morgan to find a consensus among the bankers and head of trust companies. Under normal circumstances, this duty belongs to central banks. Nevertheless, the United States had no central bank to take responsibility. Also, we witnessed Morgan’s attitude to handle this crisis: Both he kept in mind his private interests and emotions, such as vengeance to Roosevelt and gain in steel market, and he took into account national interests during the 1907 Panic. This experience showed also us the necessity of impersonal establishment which has no private interest and sentiments about actors. At the end, we touched briefly the creation of Federal Reserve which says us the fact that the United States took lesson from the banking panic of 1907. As a final thought, I can say that John Pierpont Morgan’s performance to deal this crisis was an enormous success story. However, we couldn’t leave all these powers to a man. That’s why, this case shows us the importance of institutions in the governance of national economy.

Bibliography

Bank of England, History of the Bank of England, retrieved from http://www.bankofengland.co.uk/about/Pages/history/default.aspx on 12 October 2017

Bullock, C. (1919). The History of our Foreign Trade Balance from 1789 to 1914. The Review of Economics and Statistics, 1(3), 216-233

Friedman, M. & Anna Jacobson Schwartz (1963). A Monetary History of the United States 1867-1960. Princeton, New Jersey: Princeton University Press, p888

Global Financial Data, American Telephone & Telegraph, retrieved from https://www.globalfinancialdata.com/databases/Graphs/ATT.png on 13 October 2017

Goodhart, C. (1969). The New York Market and Finance of Trade, 1900-1913. Cambridge, Massachusetts: Harvard University Press, 248

Hansen, B. (2014). A Failure of Regulation? Reinterpreting the Panic of 1907. Business History Review, 88(3), 545-569

Jackson, S. (1984). J.P. Morgan: The Rise and Fall of a Banker. London; Melbourne: Heinemann, 332

Moen, J. & Ellis Tallman. (1990) Lessons from the Panic of 1907. Economic Review of Federal Reserve Bank of Atlanta, 3, 2-13

Moen, J. & Ellis Tallman (1992). The bank panic of 1907: the role of trust companies. The Journal of economic History, 52(3), 611-630

Noyes, A. (2017). Forty Years of American Finance: A Short Financial History of the Government and People of the United States since Civil War 1865-1907. London: Forgotten Books, p446

Peeler, K.J. (2010). The rise and fall of J. Pierpont Morgan: the shift in John Pierpont Morgan’s public image from the bailout of Moore&Schley Brokerage House in 1907 to Pujo Hearings in 1913 (Working Paper). Retrieved from Harvard University website on 16 October 2017 : https://sites.fas.harvard.edu/~histecon/crisis-next/1907/docs/Peeler-Rise_and_Fall.pdf

Sprague, O.M.W. (1908). The American crisis of 1907. The Economic Journal of Federal Reserve Bank of Atlanta, 18(71), 353-372

Thomas, Lloyd B. (2013). The financial crisis and Federal Reserve policy. New York, NY: Palgrave Macmillan, 269

[1]Thomas, Lloyd B. The Financial Crises and Federal Reserve Policy, p11.

[2] http://www.bankofengland.co.uk/about/Pages/history/default.aspx

[3] Lessons from the Panic of 1907

[4] The American Crisis of 1907

[5] The Role of Trust Companies, Jon Moen and Ellis W. Tallman

[6] A failure of Regulation? Reinterpreting the Panic of 1907

[7] Alexander Dana Noyes, Forty Years of American Finance: A Short Financial History of the Government and People of the United States since Civil War, 1865-1907 (New York, 1909), p370

[8] History of our Foreign Trade Balance from 1789 to 1914.

[9] Lessons from the Panic of 1907

[10] https://www.globalfinancialdata.com/databases/Graphs/ATT.png

[11] Lessons from the Panic of 1907

[12] Financial Crisis and Federal Reserve Policy, p39

[13] Friedman, Milton and Anna I. Schwarz. A Monetary History of United States: 1867-1960. Princeton, N.J: Princeton University Press, 1963.

[14] Sprague

[15] Financial Crisis and Federal Reserve Policy, p40

[16] Lessons from the Panic of 1907

[17]Goodhart, C. The New York Money Market and Finance of Trade, 1900-1913.

[18] Lessons from the Panic of 1907

[19] Tallman, E and Jon Moen. Liquidity creation without a central bank: Clearing house loan certificates in the banking panic of 1907, p1

[20] Ibid, p2

[21] History, http://www.history.com/topics/john-pierpont-morgan

[22] FED Boston

[23] https://www.youtube.com/watch?v=vyV_RNh_Aow

[24] Ibid

[25] J.P. Morgan: Rise and Fall of a Banker, p270

[26] Ibid, p272

[27] Ibid, p273

[28] Ibid, p273

[29] Ibid, p274

[30] Ibid, p275

[31] Ibid

[32] Peeler, K.J. The rise and fall of J. Pierpont Morgan: the shift in John Pierpont Morgan’s public image from the bailout of Moore&Schley Brokerage House in 1907 to Pujo Hearings in 1913, p5

[33] Ibid, p6

[34] The Financial Crisis and Federal Reserve Policy, p41-42

1.1 History of the UN

Wilson stated that world peace could be achieved and maintained by the international institution established by states. (Sandikli & Kaya, 2014: 137) For this purpose, the League of Nations was established after the First World War but the outbreak of the Second World War indicated that the League of Nations had failed in for protecting international peace and security. (Baehr, 2001:887) Therefore, The United Nations was established in 1945 by the states that won the Second World War instead of the League of Nations. The UN today consisting of 193 member countries. (United Nations, 2018)

The main goal of the United Nations preserves world peace. (Agir & Aksu, 2017:45) The UN aims to ensure peace and international security as well as fundamental human rights, gender equality, and economic and social welfare of all peoples, according to its charter. Unlike the League of Nations, The UN has sanction power such as socio-economic and military measures. (Mgboji,2006:860 cited by Birdisli, 2010:173).

1.2 The Organs of the UN

According to Article 7 of the Charter of the United Nations, the UN has six principal organs: the General Assembly; the Security Council; the Economic and Social Council (ECOSOC); the Trusteeship Council; the International Court of Justice; and the Secretariat.

1.2.1 General Assembly

The General Assembly is the main deliberative, policymaking, and representative organ of the UN. All Member States of the UN (193) are represented in the General Assembly. The full UN membership meets in the General Assembly, every year, in September. Decisions on important questions, such as those on peace and security, admission of new members, and budgetary matters, require a two-thirds majority of the General Assembly. Decisions on other questions are by the simple majority. The General Assembly, each year, elects a General Assembly President to serve a one-year term of office. (United Nations, 2018)

According to the Charter of the United Nations, the duties of the General Assembly:

• The General Assembly considers and approves the budget of the Organization. It considers and approves any financial and budgetary arrangements with specialized agencies referred to in Article 57 and examines the administrative budgets of such specialized agencies to make recommendations to the agencies concerned.
• It may consider the general principles of co-operation in the maintenance of international peace and security, including the principles governing disarmament and the regulation of armaments, and may make recommendations with regard to such principles to the Members or the Security Council or both.
• It promotes international co-operation in the political field and encouraging the progressive development of international law and its codification.
• It promotes international co-operation in the economic, social, cultural, educational, and health fields, and assisting in the realization of human rights and fundamental freedoms for all without distinction as to race, sex, language, or religion.
• The General Assembly approves the international trusteeship for areas not designated as strategic.
• The General Assembly may call the attention of the Security Council to situations which are likely to endanger international peace and security.
• The Secretary-General, with the consent of the Security Council, shall notify the General Assembly at each session of any matters relative to the maintenance of international peace and security which are being dealt with by the Security Council and shall similarly notify the General Assembly, or the Members of the United Nations if the General Assembly is not in session, immediately the Security Council ceases to deal with such matters.
• It may recommend measures for the peaceful adjustment of any situation, regardless of origin, which it deems likely to impair the general welfare or friendly relations among nations.
• The General Assembly receives and considers annual and special reports from the Security Council and other organs.
• It elects the non-permanent members of the Security Council, the members of the Economic and Social Council, and the members of the Trusteeship Council.
• It approves new Members to the United Nations, suspends the rights and privileges of membership, expulses members.

1.2.2 Security Council

Although the Security Council is the most authoritative organ of the UN in the protection of international peace and security, It significantly works on the protection of human rights, today. (Ozer, 2016:211) The Security Council is the executive organ of the United Nations. (Agir; Aksu, 2017:45) The Security Council consists of fifteen Members of the United Nations. The Republic of China, France, the Russian Federation, the United Kingdom of Great, and the United States of America are permanent members of the Security Council. The General Assembly elects ten other Members of the United Nations to be non-permanent members of the Security Council. (Karluk, 2014:153)

The non-permanent members of the Security Council are elected for a term of two years. A retiring member isn’t eligible for immediate re-election. Decisions of the Security Council are made by an affirmative vote of nine members including the concurring votes of the permanent members, but the state which causes the dispute cant vote in the related decision. (Article 27)

According to Article 24, to ensure prompt and effective action by the United Nations, its Members confer on the Security Council primary responsibility for the maintenance of international peace and security and agree that in carrying out its duties under this responsibility the Security Council acts on their behalf.

If the Security Council determines the existence of any threat to the peace, breach of the peace, or act of aggression, it makes the recommendations, or decide the measures, to protect peace and security. (Aral, 2013:9)

However, the veto right given to 5 permanent members caused to lose the function of the Security Council. The main reason for this situation has been that the 5 permanent member states have been divided into 2 blocks and have had different opinions about world policy since the Cold War era.

1.2.3 Secretariat

The Secretariat comprises the Secretary-General and the international UN staff members who carry out the day-to-day work of the UN as mandated by the General Assembly and the Organization’s other principal organs. The Secretary-General is the chief administrative officer of the UN, appointed by the General Assembly on the recommendation of the Security Council for a five-year. A person may be elected a maximum of 2 times as The Secretary-General. (The United Nations, 2018)

1.2.4 Economic and Social Council

According to Articles 61 and 62 of the Charter of the United Nations, The Economic and Social Council consists of fifty-four Members of the United Nations elected by the General Assembly. The Economic and Social Council may make studies and reports regarding international economic, social, cultural, educational, health, and related matters and may make recommendations regarding any such matters to the General Assembly to the Members of the United Nations, or may call international conferences on matters falling within its competence. It may make recommendations for the purpose of promoting respect for, and observance of, human rights and fundamental freedoms for all.

1.2.5 International Court of Justice

The International Court of Justice is the judicial organ of the United Nations. Each Member of the United Nations is obligated to comply with the decision of the International Court of Justice in any case to which it is a party. The Court consists of 15 judges. Judges are elected by the General Assembly and the Security Council, for nine years. Only one judge can be present for one state in court. The International Court of Justice is in Lahey, a city of the Netherlands. (Birdisli, 2010:175)

1.2.6 Trusteeship Council

The purpose of the establishment of the Trusteeship Council improves the economic, social, and political conditions of the colonies and makes them self-governing in the process. Because almost all colonial nations have become independent, the Trusteeship Council has lost its function. (Aral, 2013:10)

Bibliography

AGIR O.; AKSU Z.; (2017), Evaluation Of United Nations Policies for Syria Crisis, ASSAM International Refereed Journal,  Volume 4, Issue 9.

ARAL B.; (2013), Birlesmis Milletler ve Uluslararasi Esitsizlik, Seta Analiz, Issue 72.

BAEHR P.; (2001), “The United Nations”, Encyclopedia of Government And Politics, Vol. 2, (Editor: M. E. Hawkesworth, Maurice Kogan), p. 887.

BIRDISLI, F.; (2013), Preventives Ability of the United Nation (UN) about International Problems,  The Journal of International Social Research, 3/11

KARLUK, R.; (2014), Kuresellesen Dunyada Uluslararasi Kuruluslar, Istanbul, Beta.

OZER KIZILSUMER D.; (2016), Protection Of Human Rights in The Organizational Structure of the United Nations, The Dokuz Eylul University Faculty of Business Journal, Volume 17, Issue 2, p. 205-234

SANDIKLI, A. ve KAYA, E., (2014). Uluslararasi Iliskiler Teorileri ve Baris, Online Link: https://www.academia.edu/3549621/Uluslararasi_iliskiler_teorileri_ve_baris, Accessed Date: 30.09.2020.

The Charter of the United Nations:

https://www.un.org/en/sections/un-charter/introductory-note/index.html

Online Links:

http://www.un.org/en/sections/about-un/overview/ 14.10.2018

http://www.un.org/en/ga/ 14.10.2018

The Karez System in the Xinjiang Uyghur Autonomous Region of China (East Turkestan) was built approximately 2000-2500 years ago.¹ The name of Karez given by Uyghurs to water channel systems. In Iran, these systems are known as Qanat or Kariz, and in northern Africa as Fuqara. Similar systems are known from more than 34 countries in the world.²

The Karez Wells system was recognized as one of three major ancient engineering projects, along with the Great Wall and the Beijing-Hangzhou Grand Canal.  The People’s Republic of China restored the channels for tourism in 2005. The channels have been recognized by UNESCO as World Heritage Sites in 2008.³  

Besides tourism, the channels still active and transport water to the region for agriculture. According to Ayse Suberker, (TRT Turk TV, presenter of Uyghur Karez Channels Documentary) 1784 channels have been identified and 614 of these channels are still active. In a year, 301 million cubic meters of water is transported from the mountains to the city. The source of the transported water by the Karez System is the snow that melts in the Xinjiang Tianshan Mountain. The channels’ length is 500 kilometers. The waters transported by the channels cross the 60 km desert and reach the city of Turpan. Turpan has a warm climate. Therefore, the channels were built 100 meters below the ground to prevent water evaporation.⁴

According to Camille Jetzer, today 545 channels are active but 200 of them are working properly. Uyghurs believe that the channels are named after the owner of the channels and they say that the first names of channels are known.⁵ Nowadays, the question of who built the channels is disputed by the Uyghur Turks and Chinese. The construct date indicates that the Karez system was built by the Turks or the Chinese.

According to Jetzer’s study, Karez channels directly impressed the Uyghurs’ songs, poems, and lifestyles and they became part of the national identity of Uyghurs.⁶ The thesis supporting that the Chinese built the Karez system reference a claim that the Turks’ didn’t have an architectural knowledge to build it. Ibn-i Fadlan cited a story about the city built by Turks in his travel book.⁷

Ali Ibn Sahl Rabban Al Tabari⁸:

The most beautiful city established in the world is in one of the Turk’s state. There was a bogland in the state. The Turk’s Khan had the direction of the river changed. By order of the Khan, the workers dug a widely foundation (40 cubits⁹ approximately 30 meters),  then  they built two walls by using brick and lime. The width of each wall was 10 cubits and there was a distance of 20 cubits between the two walls. When the walls reached the ground level they filled the gap between the walls with sand and mud. After the walls rose 50 cubits, they established the city and built palace and houses. They surrounded the city with a ditch and gave water to the ditch. Not long after, around a year, the bogland became as a huge forest. After the city established, the Khan lived in the city with his family and brought the state treasury. This is the most beautiful city established in the world. 

As a result, there is no information about the city, which Tabari mentions, or when the city was founded. As Tabari lived in Tabaristan, where Turks founded states throughout history (It is located in Northern Iran, nowadays.), what he told could be the truth.

On the other hand, there is no other structure similar to the Turpan Karez Channels in China. Therefore, the possibility that the Turpan Karez water channels were built by the Turks is more likely than the possibility that they were built by the Chinese.

References

[1] Chunliang Cui, Shalamu Abudu, Zhuping Sheng, Donghai Guan, The Karez System in China’s Xinjiang Region, Online Link: https://www.mei.edu/publications/karez-system-chinas-xinjiang-region#_ftn1, Accessed Date: 20.09.2020
[2] Abudu S., Sheng Z., King J.P., Ahn SR. (2019) A Karez System’s Dilemma: A Cultural Heritage on a Shelf or Still a Viable Technique for Water Resiliency in Arid Regions. In: Yang L., Bork HR., Fang X., Mischke S. (eds) Socio-Environmental Dynamics along the Historical Silk Road. Springer, Cham.
[3] Unesco, Online Link: http://whc.unesco.org/en/tentativelists/5347/ Accessed Date: 21.05.2017
[4] Ayse Suberker, Trt Turk Tv, Uyghur Karez Channels Documentary, Online Link: https://www.youtube.com/watch?v=G5H1-u5Sx8o, Accessed Date: 22.05.2017
[5] Camille Jetzer, Water at the Boundaries Conserving the Karez in Turpan, Northwest China, Oxford, 2015, page 20-26
[6] Camille Jetzer, same study, page 41
[7] Ibn Fadlan, Ibn-i Fadlan Seyahatnamesi, page 51,  (The book was translated English by Paul Nunde as the name of “Ibn Fadlan and the Land of Darkness: Arab Travellers in the Far North”)
[8] Tabari is the physician of the Khalifa el-Mutevekkil. He was Jewish before he accepted Islam. Firdevs el-Hikme is the famous work of him. He died around 860 years.
[9] Cubit: It is a unit of length used by Turks in the past.
[10] Image 2: https://link.springer.com/chapter/10.1007/978-3-030-00728-7_22#citeas

It is known that Turks have a warrior character throughout history. Accepting the religion of Islam didn’t change their character. The studies about Turks show that they used the elements of nature in their battles. In this study, I examine the Turks’ Military Strategies related to nature in history.

Using “Yada Stone” for Rain or Snow

The Turks having lived in past believed that the Tengri (God) gave to Turks a magical stone called the “Yada Stone”. When the shaman wanted to rain, snow, and storm using the Yada Stone, it occurred. Turkish shaman and the Turkish commanders had Yada stone, all the time. In Islamic sources, this magical stone called “Rain stone” and “Cada stone”.¹  Abdulkadir İnan claims that this stone was used in wars. The events that will be based on these claims are mentioned in the Evliya Celebi’s travel book and Ibni Fadlan’s travel book. Mahmud al-Kashgari who described this stone as magic claimed that it is possible to get rain or snow by using this magic.²

Mahmud al-Kashgari cited his observation about the Yada Stone in his book of Compendium of the Turkic Dialects ( Dīwān Lughāt al-Turk).

Mahmud al-Kashgari:

“Yada stone is a well-known thing in Turks. I saw it with my eyes in the Yagma Country. There was a fire there. It was summer. They used the Yada Stone and put out the fire by snow by God’s permission.”³

According to many witnesses (authors or travelers), Turks used this stone in wars. Nowadays, there are some traditions related to Yada Stone in some parts of Turkey where people need rain for agriculture.⁴

Wolf Trap Tactic

This tactic is also referred to as the Crescent Tactic and the Turan Tactic. It is called the wolf trap tactic because it was similar to the hunting tactic of wolves. In the wolf trap tactic, the army is divided into three parts. Firstly, central forces attack the enemy. After a while, the center troops withdraw from the enemy as if they are running away so that enemy comes to trap and are surrounded by troops who are located left and right. The most important battles in which the tactic is used successfully are the Battle of Manzikert and Battle of Mohács.⁵

Using Elephants as a Weapon in Wars

For the first time in the Turks’ history, Emir Timur used elephants as a weapon in the battle against Indians.

Timur used the elephants as a weapon after he saw them in Indian troops during the war in 1397-1398. Even using the elephants in war belongs to originally the Indians, Timur used them more successfully than the Indians. When Timur’s troops faced the elephants in the Indian Army, it was withdrawn as soldiers and horses were afraid of them. Timur made iron forks shaped triangular and threw them on the way of elephants at night. After that, in the morning, he orders his troops to retreat. The enemy soldiers pursued them until the area where iron forks are thrown. The elephants retreated when iron forks pricked their feet and while they were retreating, they trampled down Indian troops. Timur won the battle against the Indians by using their elephants.⁶

Another battle in India, Timur got a lot of reeds to beat the elephants. After Timur’s troops burn the reeds, they threw them to elephants when the elephants came near them. Thanks to retreated elephants, Timur won the war.⁷

Emir Timur used 32 armored elephants in the Battle of Ankara against the Ottoman after he learned how to use elephants in battle. The elephants roled a major in Timur’s victory. Thus, Timur added a new strategy to the Turks’ military strategies.⁸ 

As a result, the study shows that Turks used the elements of nature in their battles throughout history and they won many battles thanks to the strategies.

References

[1] Abdulkadir Inan, Eski Turk Dini Tarihi, p. 161-163
[2] Jean-Paul Roux, Eski Turk Mitolojisi, p. 136
[3] Bayram Erdogan, Sorularla Türk Mitolojisi, Istanbul, 2007, p.174
[4] Sadettin Gomec, Shamanism And Old Turkish Religion, Pamukkale University Journal of Education, v.4, p.47
[5] Milliyet, Online Link: http://www.milliyet.com.tr/turklerin-tarih-boyunca-kullandigi-5-savas-taktigi-mola-311/?Sayfa=4, Accessed Date: 22.05.2017
[6] Musa Samil Yuksel, Tamerlane’s Description According to Arab Historians, Bilig, v.31, p.93
[7] Musa Samil Yuksel, p.93.
[8] J. Darby, The History of Timur-Bec: Known by the Name of Tamerlane the Great, Emperor of the Moguls and Tartars: Being a Historical Journal of His Conquests in Asia and Europe, V 2, p.251, 1723
[9] Image 2, Timurid war elephant armor, located in Royal Armouries Museum, Leeds, UK (Photography courtesy of http://trueartisangsty.blogspot.com)

In the belief of Tengri, the shaman acts as a religious man, but in different sources, these people are engaged in witchcraft. The most important object required to perform the ritual is the drum. The Altai and the Saha’s call these drum as “the Tungur.” (“Tungur” means tambourine and shaman drum.) The drum has been used by the Turks since the earliest periods of history. Chinese archives also indicate that the shaman drums have been used by Turks since the earliest periods of history. [1]

The shaman drum mainly is made of beech and cedar tree. In the same way, the inner stem of the drum is made of beech and cedar tree, too. The trees are used for shaman drums because they are considered sacred by the Turks. Moreover, the skin forming the surface of the drum can not be chosen randomly. Researchers state that the skin of deer or mountain goat is mostly used. After the drum is made, pictures with symbolic meaning are made on the surface of the drum. [2]

The surface of the drum reflects the cosmic universe. The drum is divided by horizontal and vertical lines. In addition, the horizontal and vertical lines can point to four main directions (North, South, West, East). The horizontal line divides the world into two more parts: the sky and the earth. [3]

I explained the meaning of the symbols on the shaman drum which consists of the main cosmos of Turkish mythology.

1. It establishes the connection between the earth and the sky and it divides the earth into two main parts as well as divides the earth into four parts. In some of the shaman drums which are found in archaeological excavations were observed that the World Tree was used instead of these lines.
2. Steel or rattle entered between earth and sky.
3. “Ucmag”- Ucmag means the heaven where believers’ soul goes by flying.
4. The hell where Erlik Khan has ruled.
5. The sky is composed of 17 floors. Shaman only comes through sacrifice and a soul. Horses are the most important sacrificial animal in the belief of  Tengri. It is also believed that horses will bring souls to the skies.
6. In the Turks, birds are sacred. It is also referred to as living beings who can connect between the sky and the earth. These are the soul birds that help shaman.
7. The deer are sacred creatures in the belief in the Tengri. One of the most important sacrificial animals of the shamans to bring the shaman in the sky.
8. If 3 lines are under the tree, they are the symbol of a mountain; if they are near the sky, they are the symbol of a rainbow.
9. The number of people can be 6, 7, 8, 9. These are the souls that help the shaman. If there are seven people in the figure, these are the daughters of Tengri. (Tengri’s name is Mr. Ulgen in the belief of Tengri.) The people in the figure help to bring the shaman to the sky.
10. The sky in which Mr. Ulgen lives. The moon, the sun, and the stars located there, too.

References

[1] Sadettin Gomec,  Shamanism and Old Turkish Religion, Pamukkale University Journal of Education, v.4, p.43
[2] Yasar Coruhlu, Turk Mitolojisinin Ana Hatlari, p.96
[3] Yasar Coruhlu, Turk Mitolojisinin Ana Hatlari, p.99
[4] Image 1 Online Link:  http://www.dailymail.co.uk/news/article-2751139/Summoning-spirits-ancestors-Shamans-world-gather-Siberia-ceremony-timed-coincide-cosmic-cycles.html
[5] Image 2 Metin OZ, 

]]> https://www.academicnetwork.net/digitalization-of-diplomacy.html Sat, 02 Jan 2021 16:57:25 +0000 https://www.academicnetwork.net/?p=2003 In the international system, there have been several incidents that affected the system from time to time such as the collapse of the Berlin Wall, the end of the cold war, the destruction of the twin towers located in the United States of America by the terror attacks in 2001 and Arap Spring. These incidents […]]]>

In the international system, there have been several incidents that affected the system from time to time such as the collapse of the Berlin Wall, the end of the cold war, the destruction of the twin towers located in the United States of America by the terror attacks in 2001 and Arap Spring. These incidents are called “systemic earthquakes” in Ahmet Davutoğlu’s book Systemic Earthquake and the Struggle For World Order. The first earthquake is a geopolitical earthquake that occurred when the Soviet Union and Warsaw Pact collapsed in 1991, geopolitical shifts occurred throughout Euro-Asia. The second earthquake is a security earthquake that occurred with twins’ towers collapsed as a result of terror attacks in 2001. The psychology of the world has shifted from democracy to security and the concept of international law has been interpreted based on national security concerns after the 9/11 attacks. Geopolitical and security shifts have deteriorated with the global economic crisis which occurred in 2008. The economic crisis has created political issues in many countries. The other earthquake is Arap spring which emerged in 2011¹.

Many nation-states had faced structural problems after the Arap Spring occurred. The institutions of the states have collapsed and territorial control of the states has changed. In that sense, several authorities have emerged in the same country. All of these earthquakes have brought new accumulation to international order. However, many of the incidents were limited by certain regions or sectors. But recently, the Covid-19 pandemic has affected all of the world rather than regions or sectors. It has become a new earthquake on the world’s system. All the states on earth have started to decide to implement restrictions to prevent the spread of Covid-19. One of the most important restrictions has become to stop human mobility. That means is diplomatic activities have started to reduce. But at the same time, technological ways have begun to be used to sustain diplomatic relations among states, international organizations, non-governmental organizations, or institutions. For example, the Ambassadors conference which is held by the ministry of foreign affairs of Turkey every year, due to the covid-19 pandemic, this year’s conference was held in a hybrid format; the ambassadors abroad attending online².

In that sense, technological accumulation has broken out. All the people have begun to work at home by technology because of a pandemic. In that sense, states, and people have started to use more technology to interact with each other than before. So, technology has started to determine the flow of history.

Political scientist Francis Fukuyama has claimed that “Victory of Liberalism and West” with his book The End of History and the Last Man which was published after the cold war era. But the history has started to flow much faster than before because of technological advances. Because the technological developments have been seen in the last thirty years, have not been seen in any period of history. Because even small states have started to take an important role in diplomatic activities thanks to technology. In that sense, the implementation of diplomacy has started to take a new shape on digitalization. Therefore, the concept of digital diplomacy has emerged.

Digital diplomacy is the transfer of diplomatic activities to the digital platform such as holding diplomatic negotiations and making agreements using some digital platforms such as zoom meetings. Especially, the most important reason why preferring the digital way is cheaper than other ways. That means is diplomats need to get training on how to conduct the meetings and represent their state on digital platforms. Because there is no rule of the book on this situation. Even though there is no rule of the book on digital diplomacy, the United States of America has opened a virtual embassy in Iran for Iranian people to get information directly from US Government about U.S. policy and American values and culture.³ But at the same time, the virtual embassy can be used as a propaganda tool. On the other hand, the people whose states have no diplomatic ties can communicate with each other. Thanks to digital platforms, the communication speed of individuals has exceeded the speed of diplomatic communication of states.

REFERENCES
• Davutoğlu, Ahmet, Sistemik Deprem ve Dunya Duzeni, Istanbul, Kure Yayınlari, 2020
• 12th Ambassadors Conference, 9-10 November 2020, http://www.mfa.gov.tr/onikincibuyukelciler-konferansi-10-11-2020.en.mfa
• Why Virtual Embassy? https://ir.usembassy.gov/tehran/

 Introduction

The aftermath of 1980, the proclamation of neoliberal theory by Ronal Reagan and Margaret Thatcher, capital and service flux were accelerated and thanks to that, new actors in the international arena have appeared. The most significant factor in this recent trend in international politics is China. By its significant efforts in economics, China became a gravity center in Extreme Asia thanks to its economic influence. In addition to this economic influence, it strived to extend its political influence in Africa. What gets our attraction in its bias, rivalry between France, its power based on colonial heritage, and China. In the latter process, this rivalry evolved into an advantageous partnership. To examine this evolution, we have to first look at French-African relations from the colonial period to contemporary interactions. Second, we will delve into Sino African rapprochement from the 1960s. And finally, we will compare French and Chinese cooperation in Africa.

French-African Relations

To treat Africa in a proper way, we have to first analyze France’s positioning in cultural and economic order in African states.

French Presence in Africa as cultural power and Bourdieu’s approach

In this part, we will start by delving into cultural order in African states. But, how can we apply a cultural approach into politics? To do that, we will refer to what Bourdieu suggested about production of inequality. According to Bourdieu, education is a sole source of how the dominant group is relatively superior to dominated groups. During the Industrial Revolution, the bourgeoisie became more visible and powerful and was a part of power in Occident. To preserve its position on power, it has invented a new set of tool, such as education to differentiate itself within other social groups. It means, bourgeoisie invented its “habitus”.  Thus, only the graduates from prominent universities or some groups which completed designated formations had the right to hold power. Bourdieu’s approach find itself in a proper position in Africa case because of the fact that France’s mainstay was formed by cultural dimension. According to UN rapport, the number of the daily newspaper in Africa which are published in French is 114[1]. By the framework of this, Africa foresees the world in the eyes of France. Also, amid the most qualified universities in Africa, 58 of them use French as an academic language[2]. It means, Africa discovers the world through French education model. That’s why most of the African leaders in the decolonization period were influenced by the political thoughts in France. For example, Félix HOUPHOUET-BOIGNY, Ahmed Ben BELLA, Patrice LUMUMBA and Aimé Cesaire shaped continent’s future by French education model and political thoughts. The period which these leaders lived in was a substantial moment for the peak of Existentialism and Constructivism in France. The works published during the decolonization period constructed cornerstones in African political organization. For instance, Jean-Paul Sartre’s and Foucault’s works were influential on African leaders’ opinion. On the one hand, this tendency in the formation of the political environment. On the other hand, elite cadres resembled in African countries. In addition to this formation manner, as Pierre Bourdieu said that, the production of inequality has been prioritized in governance just like the French governance system. France got signed “accords de défense” just before it had left its colonies. At the same time, as Bourdieu insisted, France implemented “governor habitus” to local elites. By doing this, France gained both political power at the macro level and linguistic advantageousness at micro level through which it can remain active in the region.

France as an economic power and Immanuel Wallerstein’s “center-periphery” approach

In this part, we will observe France’s economic power which is one of the elements amid France’s soft power. To evaluate it, we will take into account Immanuel Wallerstein’s theory. According to him, there are two types of country in the international scene: Countries at center and countries at periphery. Second type countries adopted a production model in accordance with the needs of first type countries. At this model, first type countries always gain comparative benefits because of the fact that first one can focus on the production of goods with high added value. These products cannot be understood not only materials but also a human resource. If we examine Africa by this understanding, France had economic control over the countries which were its colonies just before the decolonization process, until the 1960s. In addition, France enhanced its political view with the EU’s support through development aids to African countries. Therefore, France can disguise its national interests by claiming that its policy doesn’t reflect France’s intentions, it reflects the EU’s aims. Meanwhile, France performed a good image thanks to cognitive differentiation in the region. France is no longer a colonialist power in Africa. At this point, the most important factor is education because of the fact that qualified persons could facilitate inter-state trade. For this reason, France had embraced efficient and pro-active policies in higher education. For instance, African students in French universities were 110.936 in 2006. The most interesting part of this data is 28.000 African students who studied in France rest in France to continue their career. When we look at recent data, we can easily see what this policy is so gainful to France’s foreign policy. In 2016, 134.000 African students came to French universities[3]. From this point, we can assume that France formed high-class elites as well as upper-middle-class in order to benefit economic and social profits by subjugating them through French culture. As Wallerstein mentioned, de facto, France is the first type country in Africa, especially in Western Africa. In addition to France’s position, African countries profiled in this trade model according to symbiotic relations and liberalist theory, as well.

Sino-African Relations

In the first section, we have analyzed French-African relations. Here, we will probe into Chinese foreign policy approach in Africa due to the fact that China is always an actor, albeit its influence. To understand China’s position in Africa, we will first dig out Chinese foreign policy from  the decolonization process to 2001. Second, we will examine China’s economic influence in Africa. Finally, we will try to find out why China cares about Africa in a strategic manner.

From Decolonization process to 2001: Chinese Foreign Policy

In this part, we are eager to observe Chinese foreign policy approach between the 1960s and 2001. First, as we know, China was a country which had been torn apart by World War’s effects in domestic life. Nevertheless, China has aided African countries by underscoring the “principle of Pingdeng”[4]. For example, China was the first state who recognized Algeria as a sovereign State, except Arab states. In addition to the principle of Pingdeng, another principle which affects China’s foreign policy is “essence of Ren” that can be explained by Confucius. Confucius once said, “A benevolent person loves people”. This principal indicates Chinese medical cooperation with developing countries during the Cold War. For instance, in January 1963, China was the first to express its willingness to provide medical assistance to Algeria. Also, China played a central role for the African liberation movement during the Bandung Conference in 1955. To do that, China endeavoured to increase its soft power. Another example is quite significant to show China’s policy. In 1972, Benin could stand thanks to Chinese diplomatic support. In this case, we have to highlight China’s other intention, otherwise, it could seem like an angel. Besides China’s efforts to save Benin régime, China established a cigarette factory[5]. So, we can easily say that China has also economic drivers to invest or to support African people during the Cold War.  As Brautigam notes, of the major Chinese agriculture investments in Africa between 1987 and 2003, half of them were former Chinese aid projects. These examples are quite important to interpret Chinese action because of the fact that China’s world view is more different than the Western one. China makes forbearingly its policy as an Eastern country. For example, whereas Washington consensus is based on conditionality, Beijing consensus doesn’t stipulate any condition at the first place. Instead, China gradually releases its aids to convince other State[6]. Based upon this example, we can submit that China’s foreign policy is based on two factors, one of them is quite earlier, the second one is the “new era” notion: Economy and Strategy

China as economic power: Mutual partnership

In this part, we will address China’s effectiveness in Africa as an economic power. As we have already mentioned, China gained economics benefits through diplomatic ways in Africa, such as a cigarette factory in Benin. But, after China’s economic boom, China gave credits to extend its influence over the region. These credits can be explained as follow: 60 billion dollars as humanitarian aid, 5 billion dollars as value-free credits, and 35 billion dollars as low-interest credits[7]. These credits are non-conditional in accordance with “Sense of Shu”. Thanks to that, China gained economics profits through its aid policy. First, China lessened its energy dependence.

This graph explains that China’s petroleum need has sharply increased. As a known fact, China is growing %10 per year. In this situation, China requires new resources areas around the world. In fact, even if this graph shows China’s need, why China especially focused on Africa? Energy policy of the United States responds to the question. As we know, ExxonMobil has Iraq and Syria petroleum since 2003. Another petroleum giant, British Petroleum had occupied and settled in oil-rich countries in the Middle East. According to BP’s annual booklet in 2016, the company operates North Africa, Oman, Yemen and Egypt[8]. In addition to that, as we know, the United States got pressure on Georgia, especially in petroleum. Due to these reasons, China has to focus on East and West Africa to meet its energy needs. For instance, China National Petroleum Company made %7,7 of Chad’s petroleum extraction in the first quarter of 2009[9]. Also, according to Yu Zheng, The China Petroleum and Chemical Corporation (Sinopec) acquired majority ownership of several oil blocks and formed a joint venture with Sonangol, Angola’s national oil company. These active decisions in Africa show us the fact that China is keen to reinforce its presence in the energy sector in Africa. Another example is China’s infrastructure investments in Africa. At this case, China Road and Bridge Company (CRBC) is a pioneer of China’s activeness. For instance, CRBC started to build railways between Nairobi and Naivasha. This investment was about 1,5 billion dollars. So, China has special ambitions to affect African countries.

III. China’s New “Heartland”: Africa

In this part, we will finally analyze China’s strategic gains in Africa. To understand China’s strategic trajectory, we have to overlook “GO” game. In a go game, the most important aim is to contain the enemy’s predictable movements. In comparison to the chest, you don’t destroy your enemy, or not aim one chess piece. When we comprehend this logic, we can find out why Africa is so important for China. To make sense of this game’s approach in politics, we will use Halford John Mackinder and Zbigniew Brzezinski’s approaches. According to Mackinder, we have to hold terrestrial influence in a region, we can have total control. In addition to this perspective, Brzezinski suggests that if a country wants to be a superpower, it has to take control of middle area in accordance with its strategic previsions. He adds that the United States won the Cold War because of the fact that Europe was its middle area in its strategic projections. As for China, Africa is the middle area through which it can apply its policy over the world due to the fact that Africa’s geopolitical position in contemporary politics is central stand, such as its demographic power, geographic location, and natural resources. On the one hand, the Middle East has been occupied by the United States and two ancient colonial powers, the United Kingdom and France. On the other hand, Africa is an intersection point of maritime roads. For example, if you take control in Africa, you can easily take control of Red Sea and road which goes along to the South China Sea. Likewise, China tries to be sea power, as Alfred Mahan suggested. Yet, the United States is far away powerful than China. According to the Ministry of Defense of Pakistan, China has only 2 aircraft careers whereas the United States has 12 aircraft careers. By this framework, coastal African countries have vital importance for China. For instance, while the civil war was keeping up in Sierra Leone, China bought the Bintumani Hotel in the center of Sierra Leone. This action approves the fact that Africa is the main pillar in China’s strategy. In addition to that, Xi Jinping said emphasized that they are fate companion with Africa during his speech on 4 December 2015. To sum up, Africa is a strategic postpone for China and that’s why China’s investments in Africa is increasing both economically and diplomatically.

 Rivalry to Partnership: Sino-French Relations in Africa

Till now, we have separately analyzed France and China’s foreign policy approaches in Africa. In this part, we will overlook their bilateral relations in the region. To comprehend this, we treat the subject under 3 parts: First, we will look at the period between 2001-2008. Second, we will delve into the 2008 Great Crisis and its effects in their policies. Finally, we examine after the 2012 period which can be identified as China’s lead in free trade.

 The Rivalry emerged after 2001: China and France in Africa

In this part, we will take into account their firs interactions in Africa. France is an important actor since XIX. century, firs colonization period. But, we have witnessed China’s aggressive involvement after 2001, its membership to WTO. From this date, we saw an active competition between ancient colonizers, France and the United Kingdom, and China. Of course, there were some signs of competition like the case of Algeria in 1958 and Benin in 1960 in which China was the first country that recognized them as a sovereign State. These two examples prove that China was an active actor in the region, but not an aggressive actor. As for France, it was ancient colonizer, yet it was influential at the political organization in the new States after the decolonization process, as we have already underscored in the first section. For instance, the founder father of Cote d’Ivoire, Félix Houphouët-Boigny have completed its education at Ecole normale William Ponty. In fact, we can’t see a real confrontation in Africa between China and France in a political manner. We can say that France and the United Kingdom was dominant in Africa until 2001. In the case of France, the “accords de défense” were strong proofs of what we claimed. By these treaties, even if France had retreated from these countries, such as the French army, France could preserve its military presence. For instance, France has active military bases in Djibouti, Cote d’Ivoire, United Arab Emirates, Gabon, and Senegal. By this framework, we can easily say that what we witnessed in the region, is parallel to what Mao suggested as “Three World Theory”. By this framework, China could overthrow France and the United Kingdom by the help of autochthone people in Africa. To sum up, until 2001, France and the United Kingdom were hegemon in Africa whereas China tried to be active by the same occasions.

2008 Great Crisis: China’s emergence as an economic giant and France in recession

In the second part, we will observe the effects of the 2008 Great Crisis on China and France’s foreign policy in Africa. In 2008, the economic crisis happened in the United States and it hit Europe because of the leverage effect in the banking system. That’s why most the European States went into the downswing. And, France was intensively affected by this crisis. In this period, France suspended its active African policy because of the economic recession. In addition to that, France had used its military power to adjust its balance of payment. For instance, the French army intervened the conflicts in Eritrea and the Gulf of Aden[10]. What is important here, is the improve in France’s balance of payment. France’s balance of payment after the interventions are shown below:

When we look at this graph, we will see an important increase after France’s intervention in Djibouti (10 October 2008). At this point, we can assert that France gained economic profits from this intervention. Normally, its balance of payment had to be affected negatively.

As for China, China won after the 2008 Great Crisis. When we look at the graph right-hand side, we will see a constant increase in China’s foreign exchange reserves. In 2007, China’s reserves were 2,5 trillion dollars. In 2008, it reached 2 trillion dollars. In 2009, when the world suffers from an economic downswing, China added 200 million dollars in its vault. That explains us the importance increase in China’s economic power which influences policies in Africa.

When we look at data from the World Bank, we can see an immense increase in favour of Chinese evolvement in Africa.

As we observe here, 2008 Great Crisis was positively affected in China. China gained economic influence in the region. As a result, China’s investments have augmented, even in 2008. In contrast, France strived to operate in Africa by consulting on its ancient hegemony.

III. After 2012, Liberal China and Reconciliatory France: Premise of Partnership

In this part, we will finally examine the transformation of rivalry between France and Chine to the mutual partnership. In this period, both China and France have needed a partnership. As for China, there were no economic and financial constraints, but there was some protest against China’s policy because of the fact that trade shares were in favour of China. As we look at the graph, we can easily see this proof. According to the IMF’s Africa Department, trade balance between China and Africa is shown as below.

After 2013, we see important fluctuations in the trade balance in favour of China.  Because of that, autochthone countries commenced seeing China as a new colonizer. This attitude explains to us why China is contested in Kenya, Mali and Sudan. For example, according to CNN, people prefer France rather than China in Tunisia, Benin, Mauritius, and Burkina Faso. Another example occurred during the Libyan Civil War in 2011. China couldn’t rescue its citizens and asked France to help him. In addition, China has no banking system in Africa. Of course, China Development Bank does some intermediary transactions, but it has no money transfer system in Africa. At this point, French banks have a comparative advantage. According to Global Finance, Société Générale is a powerful actor in the African banking system. Also, cooperation with France may be beneficial for both France and China according to He Wenping[11]. These examples show that France’s soft power is still influential in Africa. That’s why China seeks a partnership with France. In this case, France also seeks a partnership with China[12]. For instance, French company Peugeot and Chinese company Don Feng agreed on a new partnership in 2014. In addition, the Sino-French Partnership Conference held in Paris, in 2017 in order to ameliorate economic and political collaboration in Africa. Besides all these positive efforts, France is also suspicious about China’s new military base in Djibouti and China’s new fortification in Sierra Leone. Still, as a result, we can say that both China and France are in way of partnership in Africa.

Conclusion

As we mentioned at the beginning, France is still one of the most important actors in the region. France’s influence is based on cultural heritage from XIX. century. To enhance its cultural influence, France has adopted an active policy on education in Africa. In Western Africa, French is officially the most common language. And thanks to that, autochthone societies have sympathy to the French model. At the same time, African ruling elites have completed their educations through French model thanks to French government scholars. These elites organized the political system of their counties through French political thought. Therefore, both trade and bureaucracy were organized in accordance with the French system. Thanks to these facts, France gains comparative advantages in the region. As for China, it extended its political power by applying aggressive politics through its economic power after 2001. This policy was important for China because of the fact that China had to meet its energy need in order to sustain its economic growth. After China’s involvement in Africa, the rivalry between France and China has emerged in 2001. Aftermath of the 2008 Great Crisis, China became dominant in the African economy and tried to diminished France’s political power through aid policies. But, in the end, China’s advantage in trade balance provoked contestations in Africa. Thus, China has stepped back and sought to find a new partner in order to facilitate its involvement in Africa. After 2012, China endeavors to establish a new partnership with France which was gradually improving its economic situation after the 2008 Great Crisis. Thanks to this policy, both China and France gained and are benefitting mutual profits. As a result, the rivalry between them evolved into a mutual partnership.

Bibliography

An, J. Mao Zedong’s “Three Worlds” Theory: Political Considerations and Value for the Times, Social Sciences in China, Vol.34, No.1, 2013, p.35-57

Anshan, L. “Cultural Heritage and China’s Africa Policy” China and the European Union in Africa: Partners or Competitors? London: Routledge, 2011

Bassan, M. Coopérations tripartites: France – Chine – Afrique, Available on 7 December 2017, https://www.pairault.fr/sinaf/index.php/component/content/article?id=782

Brautigam, D. The dragon’s gift: the real story of China in Africa. Oxford: University of Oxford Press, 2009

Dubertrand, M. Pour les étudiants africains, la France n’est plus une destination évidente, Avalaible on 19 October 2017, http://www.lemonde.fr/afrique/article/2016/11/11/pour-les-etudiants-africains-la-france-n-est-plus-une-destination-evidente_5029763_3212.html

Dreyfus, M. Enseignement/apprentissage du français en Afrique: bilan et évolutions en 40 années de recherches, Revue française de linguistique appliquée Vol. 11, No.1 (2006), p.73-84,

François Godement ve John Fox, A power audit of EU-China relations, London: European Council on Foreign Relations, 2009

Fourt, O. 1960-2010, 50 ans d’interventions militaires françaises en Afrique, Available on 25 October 2017, http://www.rfi.fr/afrique/20100714-1960-2010-50-ans-interventions-militaires-francaises-afrique

Frans-Paul van der Putten, John Seaman, Mikko Huotari, Alice Ekman and Miguel Otero-Iglesias, Europe and China’s New Silk Roads, p. 21-23, Available on 13 Nisan 2017, http://www.iai.it/sites/default/files/2016_etnc_report.pdf

Le Monde, Les relations commerciales Chine-Afrique en 4 chiffres, Available on 3 October 2017, http://www.lemonde.fr/economie/article/2015/12/04/les-relations-commerciales-chine-afrique-en-quatre-chiffres_4824548_3234.html

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Niquet, V. La stratégie africaine de la Chine, Politique étrangère. Vol. Summer, No.2, p. 361-374, Available on 14 October 2017, URL : http://www.cairn.info/revue-politique-etrangere-2006-2-page-361.htm

[1] [1] Nations Unies, Toute la Presse Francophone, Available on 15 October 2017, http://www.un.org/depts/OHRM/sds/lcp/French/pressefranco.html

[2] Martin Dreyfus, Enseignement/apprentissage du français en Afrique : bilan et évolutions en 40 années de recherches, Revue française de linguistique appliquée Vol. 11, No.1 (2006), s.73-84, Available on 19 October 2017, http://www.cairn.info/revue-francaise-de-linguistique-appliquee-2006-1-page-73.htm.

[3] [3] Myriam Dubertrand, “Pour les étudiants africains, la France n’est plus une destination évidente”,Available on 19 October 2017, http://www.lemonde.fr/afrique/article/2016/11/11/pour-les-etudiants-africains-la-france-n-est-plus-une-destination-evidente_5029763_3212.html

[4]Anshan,L. “Cultural Heritage and China’s Africa Policy” China and the European Union in Africa: Partners Or Competitors? ,London: Routledge, 2011

[5] Valérie Niquet, La stratégie africaine de la Chine, Politique étrangère Vol. Summer, Number 2, p. 361-374, Avaible on 24 October 2017, URL : http://www.cairn.info/revue-politique-etrangere-2006-2-page-361.htm

[6] François Godement and John Fox, A power audit of EU-China relations, (London: European Council on Foreign Relations, 2009

[7] [7] Les relations commerciales Chine-Afrique en 4 chiffres, Available on 30 October 2017, http://www.lemonde.fr/economie/article/2015/12/04/les-relations-commerciales-chine-afrique-en-quatre-chiffres_4824548_3234.html

[8] BP Annual Booklet 2016

[9] [9] Deborah Brautigam, The dragon’s gift: the real story of China in Africa (Oxford: University of Oxford Press, 2009)

• [10] Fourt, O. 1960-2010, 50 ans d’interventions militaires françaises en Afrique, Avaliable on 25 October 2017, http://www.rfi.fr/afrique/20100714-1960-2010-50-ans-interventions-militaires-francaises-afrique

[11] Bassan, M. Coopérations tripartites: France – Chine – Afrique, Avaliable on 7 Novembre 2017, https://www.pairault.fr/sinaf/index.php/component/content/article?id=782

[12] Frans-Paul van der Putten, John Seaman, Mikko Huotari, Alice Ekman ve Miguel Otero-Iglesias, Europe and China’s New Silk Roads, s. 21-23, Available on 13 Novembre 2017, http://www.iai.it/sites/default/files/2016_etnc_report.pdf

]]> https://www.academicnetwork.net/role-of-imf-in-2001-financial-crises.html Tue, 20 Oct 2020 10:06:48 +0000 https://www.academicnetwork.net/?p=1887 Introduction  Argentina’s most severe economic crisis, the 2001 economic crisis, was one of the punchlines in the course of neoliberalism that we observed during the structural reconfiguration process in the 1990s through which national economies were forced to open up their economies and to integrate themselves into the global economy. In a similar way, Turkish […]]]>

Introduction 

Argentina’s most severe economic crisis, the 2001 economic crisis, was one of the punchlines in the course of neoliberalism that we observed during the structural reconfiguration process in the 1990s through which national economies were forced to open up their economies and to integrate themselves into the global economy. In a similar way, Turkish experience, precisely a series of economic crises from 1994 to 2001, coincided with Argentinean crisis and underscored the vulnerability or inappropriateness of what is called ‘Washington Census’ that favours four principles to reach a level of economic readiness to grow efficiently in a way that every economy will gain more or less in accordance with its material capacity.

In both cases, those economies were announced as a successful remark of to what extent the IMF could guide an economy and of how the IMF acted in line with its initial aim which was and is to assure a robust and stable international economy in which every state is part of the global economy. Starting from the outbreak of economic crises in both Argentina and Turkey, the development model which was favoured and suggested by the IMF, World Bank and the U.S. Treasury, was at the centre of huge critics regarding its limits and its implication in developing economies. Besides, as a part of Washington Consensus, these crises put in question the role of the IMF and its effectiveness during those crises which were simply considered as a prolongation of emerging market crashes, namely the 1995 Tequila Crisis as well as the 1997 Asian financial crisis and the 1998 Russian ruble crisis. (Demiroglu and Karagoz 2016) One should claim that emerging markets are located in the semi-periphery of global economy and that’s why, what was observed at the end of 20^th century and in the early 2000s is a sort of reshuffling of international economy by which the U.S. victory against Soviet Russia could be translated into diffusion of market-oriented economy in a horizontal manner. At that point, this paper’s main priority is to underpin the limits of neoliberal model and to investigate why these two different economies ended up with a financial crisis even if the external factors that they encountered were diametrically different. By doing that, the IMF and its recommendations will be held under a microscope.

Argentinean and Turkish Development Paths in the 20^th century 

Argentina and Turkey were enlisted among rural economies in the wake of Second World War, and both countries were eager to quickly industrialise as other rural economies, such as Brazil and South Africa.(Önis 2006) Yet, neither of them could not properly catch up developed economies in the following three decades.

In fact, Argentina was, at the beginning of 1930s, one of the fifth richest economies in the world thanks to rapid increase in food prices. However, it couldn’t benefit from its capital to invest in the manufacturing industry and kept relying on its agriculture.(Blustein 2006) In contrast, Turkey was, to be franc, devastated in the aftermath of the First World War, and channelled its energy towards building its infrastructure rather than ramping up its competitiveness. So much so that, every government that came to power put an emphasis on highways. For instance, the total length of highways was increased from 44.000 km to 62.000 km in 1945 and 1957, respectively. (Oral and Aydin 2018) Given that, one should claim that Turkey put all its energy to complete its highways network. However, things have changed. From the mid-1950s, both Argentina and Turkey adopted the import-substitution system and dedicated themselves to build up a self-sufficient economy. At that time, their initial aim was to protect their infant industries and to accumulate enough know-how to so that core countries, such as the United States and the EEC, exploited their raw materials. For instance, it is noteworthy that Turkey was the biggest exporter of chrome and ore minerals to the EEC until the end of 1970. (Doğan 2015)

By all accounts, one could say that it was, at that time, a common way to enhance domestic productivity and thus, it is logical that Argentina and Turkey employed protectionist regulations. However, this policy changed income distribution in both countries, and it entailed a series of coup d’état between 1960 and 1980. First, Turkish military forces (TSK) made a coup d’état to dismiss the Menderes government and to reconfigure the Turkish economy under the excuse of ‘clientelism’. Following this putsch, Turkey experienced two other coup d’états, precisely in 1971 and 1980, by which the structure of Turkish economy was redesigned. Same happened in Argentina. Juan Péron, socialist and authoritarian politicians, got withdrawn from the government under the guise of keeping ‘Argentina on track’, which was defined by the United States.(Sheinin 2006) Indeed, democracy matters for every country but what was happening behind the scenes is the tension between outward-oriented entrepreneurs along with huge landowners and inward-oriented industrialists in both countries. At the end, former group won out over latter one until the beginning of 1980s.

It is interesting that both Argentina and Turkey passed democracy in the similar period. Argentina experienced a transition phase from military junta to democracy in 1983 under a presidential system. After turbulent years, Carlos Menem, the shining boy in neoliberal milieu with support of the Peronist group, has won the first democratic election in 1987. Similarly, democratic elections were held in Turkey after three years of military committee’s rule. Turgut Ozal, young and dynamic politician educated in the U.S. and fervent believer of neoliberalism, was elected in November 1983. It is perplexing to notice that both Menem and Ozal promised to implement what the IMF would suggest for the development of their national economies. At that point, their challenges and solutions were mainly common. First, they had to curb government deficit and attract foreign capital inflow so that both Argentina and Turkey were in difficulty to finance their balance of payment.(Bambaci, Saront and Tommasi 2002; Yalman, Marois and Güngen 2019) Second, Menem and Ozal preferred to privatise state-owned companies because international creditors had lost their confidence to lend money for Argentina and Turkey. For instance, the Carlos Menem government privatised 90% of public companies operating in infrastructure, mining, telecommunication and transportation.(Önis 2006) By opening these companies up to the stock market, Argentina and Turkey found enough capital to kick-start the economic transformation phase, which was stipulated by the IMF for further aid packages. Third, both the Argentinean and Turkish economies were financially closed economies for foreign investors in a way that current accounts were strictly regulated, and capital inflow/outflow was restricted to a certain degree. After Menem and Ozal, current accounts were partially liberalised and rules regarding capital inflow were loosened in line with the IMF’s advice on deregulation and financial liberalisation. For example, Turkey established the General Directorate of Money Market and Fund Management and promulgated a new law concerning full convertibility and government’s assurance on foreign capital in 1989 thanks to which the volume of foreign current accounts rose by 30% in 1989.(Evrensel 2004) As you can see on the left-hand side, Argentinean and Turkish bonds incrementally increased after financial deregulation. (IMF 2000) Last, Argentina and Turkey had chronic hyperinflation problems for over 20 years. For instance, the consumer price index in Turkey rose from 19.5% to 101.4% in 1970 and 1980, respectively.(FRED 2020a) Same as Turkey, even if there is no available data for consumer price index in Argentina, one-to-one surveys demonstrate how Argentinean people suffered from high prices during the military junta regime. That’s why, Menem and Ozal applied specific exchange rate regimes. Argentina adopted a dollar-pegged exchange rate in 1990 after Domingo Cavallo was appointed as the Prime Minister and state minister responsible for Economic Affairs. Meanwhile Turkey applied a crawling peg exchange rate regime which permits the Central Bank of Republic of Turkey to intervene from time to time and to keep the value of Turkish lira under control.

Contrary to their similarities, Argentina and Turkey had three distinct features. First, the Argentinian insurance system is well established and covers labour rights compared to Turkish one. The Argentinian social security system was a pay-as-you-go (PAYG) type of social security which protects labourers in case you’re still employed.(Blustein 2006) As for Turkey, social security is protected by the Constitution of Turkey in Article 60 according to which even if you’re unemployed, you are able to enjoy basic health services.(Elveren 2008) It’s important to highlight this difference because labours in Turkey did not manifest as much as Argentinean labours during the crisis period. That’s why, social unrest was limited in Turkey thanks to which public confidence could be quickly restored as opposed to Argentina.

Second, as we mentioned earlier, Turkey and Argentina adopted different FX regimes. Argentina’s one-to-one dollar-pegged FX regime was not sustainable unless Argentine economy was dollarized. (Takagi and International Monetary Fund 2004) As the Central Bank is no longer capable to independently print paper money and enlarge money supply in case of either an immediate payment crisis or an exogenous shock resulting from a fluctuation in the international market just as seen in the Tequila Crisis, Argentina has lost control of its economic policy. As for Turkey, Central Bank was fully operational. For instance, Central Bank deflated money supply as a response to 5 April 1994 from 16.06 billion lira to 10.09 billion liras in February 1994 and April 1994, respectively.(CEIC 2020)

Last, Turkey significantly differed from Argentina thanks to its institutional capacity. Ziya Onis argues that Turkey geared up its legal and regulatory framework for fully functional market economy after it signed 1963 Ankara Agreement where the EEC underlined its support to Turkey for harmonisation of its institutions.(Önis 2006) When it comes to Argentina, Onis further claims that Menem’s arrival to the rule immediately changed the economic and political scene and because of that, Argentina was exposed to a shock therapy. Based on that, Argentina have not found a chance to digest what is proposed by the IMF. Onis’s argument is rock solid given the pre-crisis conditions in both Argentina and Turkey because the 2001 economic crisis damaged the Argentine economy so much harder than Turkish economy given the recovery duration. Argentina’s GDP reached the pre-crisis level after seven years ($284.2 and $287.5 billion in 2000 and 2007, respectively). (FRED 2020c) Compared to Argentina, Turkish economy recovered very quickly and attained same GDP level after one and half years ($272.9 and $311.8 billion in 2000 and 2003, respectively).(FRED 2020d)

Given these differences, we can claim that Turkey and Argentina got into a financial crisis in the same period, yet Turkey caught up very quickly in comparison to Argentina thanks to its resilience and its financial elasticity.

Post-crisis Dynamics in Argentina and Turkey 

Economic crisis is, as always, a double-sided coin. Either a crisis lays the basis for new opportunities or it can lead to a vicious cycle where the wheels of the economy are stuck in a mud and cannot escape from it. In fact, what is seen during the Turkish and Argentinean experiences was exactly the same. The former was able to boost its economy by swallowing the bitter pill and the latter resisted what has been suggested after the crisis hit. Hereby, it presents us with a unique display to compare these two economies.

To start with, it is important to underscore types and origins of both crises. First, the Argentine crisis resulted from government inability to service its debt. It means that the Argentinean government borrowed a huge sum of money from foreign creditors to the degree that tax revenues and public spending cuts could not meet the amount of loans. In this case, the Argentinean government decided to leave Convertibility Plan adopted in 1991, and it expanded money supply. However, it was not enough to get away from insolvency. At that point, government increased budget cuts and froze bank accounts. Argentina’s debt rose from $49.5 billion to $152.2 billion in 2001 and 2002, respectively. (CEIC 2020) Public debt skyrocket signifies that the government’s actions not only didn’t solve the problem, but also triggered a bank run and capital flight. Besides, unemployment rose tremendously as a result of financial collapse. According to Gustava Bacarrezza and Luis Soria, Argentinian unemployment rate rose from 15% to 25% in 2001. Yet, they argue that if informal sector is added to unemployment, it is striking that unemployment rose from 13% to 52% in 2001. (Canavire-Bacarreza and Lima 2009) This drastic increase in unemployment entailed a social turmoil in Argentina and halted all activities until 2003 when the government announced new social aid package covering both rural and urban workers. Besides, labour unions in Argentina was part of collective bargaining. It means that if a labour association quits negotiations, that workplace is immediately stopped. During the December 2001 crisis, Kristina Hill displays to what extent work activities were halted and triggered an impasse between workers and entrepreneurs.(Hille 2015) In comparison to Argentina, Turkish crisis was basically an internal debt service problem stemming from government issued bonds which were used as the main mechanism to curb the public deficit. Due to its nature, Turkey’s public debt slightly rose from $51.6 billion to $76.07 billion in 2000 and 2001, respectively. Along with a smooth increase in public debt, Turkey encountered a mild unemployment problem. Unemployment rate rose from 6,5% to 8,4% in 2001. Another important factor that alleviated the damage of unemployment was strong social solidarity. According to Hasan Comert and Erinc Yeldan, informal social networks, such as neighbourliness, worked a lot to compensate the losses of unemployed workers. For this reason, there has not been any turmoil between 2000 and 2002 in Turkey. (Comert and Yeldan 2018)

It’s noteworthy to take a look at the domestic political environment both in Argentina and in Turkey. As a result of a profound economic crisis, Argentine politics run off the rails. From December 2001 to January 2002, Argentina had 5 presidents. At the end, political parties unanimously appointed Eduardo Duhalde as the acting president. Five presidents in a month displays to what extent Argentine politics was destabilised. When it comes to Turkey, the coalition government was dismissed after the February 2001 economic crisis. Until the election of November 2002, a group of technocrats consisting of former IMF and World Bank staffs ruled the country and prepared an action plan according to which Turkish economy started to give positive signals about the future. IMF Article IV reports indicated that Turkey is in a recovery path and economic governance is deemed sound in the hand of Kemal Dervis. (International Monetary Fund 2002) Along with technocrats, the rise of new political party consisted of both liberal and Islam-oriented political figures, AKP, won the majority in November 2002 and formed a government that gave confidence to foreign investors and the IMF. Last, the EU played an important role as a reliable anchor through which AKP found enough opportunity space to manoeuvre political reforms in the following years. For example, new legislation expanding Banking Regulation and Supervision Agency’s competence was adopted just after the 2001 crisis. In addition, Turkey became a part of BASEIL-II Agreement by which Turkish banking system gained resilience to external shocks.(Yalman, Marois and Güngen 2019) Along with improvements in the banking system, Turkey as a member of the Customs Union, could attract the European investors coupled with the U.S. support due to the Iraq War during which Turkey’s geopolitical importance outweighed its structural risks stemmed from the lack of effective monitoring in the Turkish financial market as well as  chronic corruption issue and questionable rule of law. Both the government’s willingness and harsh application of the IMF’s suggestions in Turkey coupled with the EU’s role as a last resort paved the way for Turkey to launch a series of reform programs and apply them in a secure and committed manner.(International Monetary Fund 2002) In comparison to Turkey’s performance, Argentina refused to pay its debt and announced sovereign default. Following that period, the IMF offered a debt relief programme providing a long payment scheme. However, Argentina refuted to pay 24% of total debt and contested the IMF’s offer and unilaterally proposed a new debt relief programme. (Hornbeck 2011) That’s why, economic crisis in Argentina was prolonged until the end of 2006.

III- The role of the IMF in the Argentinean and Turkish experiences

IMF policies during both Argentinean and Turkish economic crises were broadly criticised by Argentinean and Turkish economists as well as scholars and former policymakers. In fact, most of the critics regarding the role of the IMF consists of three big flaws.

First, The IMF’s Article IV, Sec.3(b) indicates that every country has a right to determine its exchange rate regime. In fact, what is seen in both crises was that the IMF actively engaged in the choice of exchange rate regime. In Argentina, Paul Blustein clearly displays how the IMF crystallised and fragilized the Argentine economy by insisting on dollar-peg. The IMF pushed forward the duration of Credibility Plan which was deteriorated balance of payment although it seemed reluctant to imply at first place. (Blustein 2006) Below, the table presents economic dislocation in Argentina considering real GDP growth, real effective exchange rate and the amount of imported goods and services along with division between general and central government’s overall balance. (Takagi and International Monetary Fund 2004)

At that point, what is appropriate to urge the Argentine government to discipline its fiscal system in a short time period. In Turkish case, the IMF has done the exact opposite of what was implied in Argentina. Although Turkey was going to on the edge of a bankruptcy, the IMF ignored huge imbalances in macroeconomic indicators due to Turkey’s accession negotiation to the EU. Onis makes criticism on the IMF’s attitude in the Turkish experience and explains that the IMF tried to buy time to strengthen the Turkish banking system by ignoring Banking regulation which allows opening a bank branch with almost zero capital. He further claims that the IMF’s exit strategy was inadequate and pious in a sense that 15% margin in crawling peg regime is futile considering Turkey’s economic magnitude with almost $280 billion at that time. (Önis 2006)

Second, IMF’s strict constraints on primary fiscal accounts weighted the burden on taxpayers that triggered economic slowdown and political turmoil in both countries. Below, the table conveys to what extent tax revenue became an important component of GDP in Argentina and Turkey.

Table I.II Total GDP and Tax-to-GDP ratio in Argentina and Turkey

Source: OECD Stats & Federal Reserve Banks of St. Luis & Instituto Nacional de Estadistica y Cencos Republica Argentina (OECD 2020; FRED 2020b; INDEC 2020)

Last, the IMF’s biggest mistake was that it didn’t provide an ownership for both programs. It means that the IMF turned its back to Turkey and Argentina in case of a failure by claiming that all fault belongs to national governments, not to IMF policies. For instance, Paul Blustein argues that the IMF blindly gave additional funds to Argentina ignoring moral hazards of foreign investors.(Blustein 2006) It is applicable to Turkish case where governments investments blown up because beneficiaries were not strictly monitored. Finally, the IMF did not care about countries preparedness to such extent liberalisation and which is why, both Argentina and Turkey ended up with a severe economic crisis.

Conclusion

            Argentina and Turkey have followed similar development paths in the 20^th century. Both countries invested, first, in an agriculture-intense economic model during which they focused on exports of raw materials. Later, they strived to leapfrog by adopting import-substitution model which gave the way for incessant public deficit problem. In that regard, Argentina and Turkey called for the IMF’s support to finance their debt. In return, the IMF imposed several conditions to transform their economies and converting its import-substituted economy into export-oriented one. In the 1980s, Turkey started to differ from Argentina by implementing neoliberal policies. When it comes to the 1990s, Argentina eagerly and rapidly adopted financial liberalisation, privatisation and deregulation. To that point, Turkey has already applied these three pillars of Washington Consensus with a robust institutional background. Yet, political instability in the Turkish political life slow downed the pace of economic reforms, necessary regulations for opening the Turkish economy up to the global economy remained incomplete, even obsolete given the Turkish banks’ malpractices during the 1990s.

            As a consequence of both malpractices in both Argentinian and Turkish domestic policies fuelled with the IMF’s blindness in terms of monitoring and controlling mechanisms, an economic crisis hit both Argentina and Turkey in the beginning of 21^th century. What differs two cases is basically countries’ readiness to resilient against external shocks. On the one hand, Argentina succumbed in high level of corruption as well as improper exchange rate regime and complexity in allocation of administrative competencies. On the other hand, Turkey encountered a relatively low level of corruption being relevant at the highest ranks of Turkish politics as well as fragile banking system and consumption-oriented growth model. Due to their structural differences, the Turkish economy rapidly recovered in comparison to the Argentinean one. However, even if Turkey reacted well in a way that unemployment and inflation issues were delicately handled, the model itself is highly criticised by both scholars and the IMF, itself. These crises put an end to IMF policies dictating limitless and unrestrained neoliberal policies over developing economies. In this respect, these crises revealed to the degree institutional capacity and good governance are important in the path of development in a sense that the amount of foreign capital doesn’t solely constitute a ‘big push’ in terms of economic growth.

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]]> https://www.academicnetwork.net/climate-change-and-systems-thinking-fritjof-capra.html Sun, 04 Oct 2020 10:19:20 +0000 https://www.academicnetwork.net/?p=1871 (The interview with Fritjof Capra conducted by Dr. Wayne Visser, Senior Associate, Cambridge Programme for Sustainability Leadership about Climate Change and Systems Thinking.)]]>

(The interview with Fritjof Capra conducted by Dr. Wayne Visser, Senior Associate, Cambridge Programme for Sustainability Leadership about Climate Change and Systems Thinking.)

(The interview with Fritjof Capra conducted by Dr. Wayne Visser, Senior Associate, Cambridge Programme for Sustainability Leadership about Holism, Living Systems, and Leonardo da Vinci.)