The Misusage of Free Market Economy and Turkey Example. Dr. Hasan Bulent Kantarci, Dr. Ridvan Karacan, Kocaeli University, TURKEY

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1 5th Annual ICGB2013 July 5-6, 2013 ISSN: The Misusage of Free Market Economy and Turkey Example Dr. Hasan Bulent Kantarci, Dr. Ridvan Karacan, Kocaeli University, TURKEY Abstract In this study, the abuse of the free market economy was emphasized by sellers. The inequality in the income distribution increasing day by day was discussed in the context of free market economy. That some gain more profit than others has been regarded as usual in the free market economy. Yet the protection and the supervisionof those with low-incomes by the government is a necessity of being o social state. The state has the duty of managing and supervising over markets. The aim here is to attract attention to those misperceiving the freedom in economic system as excess profit and putting it into practice that way. Against them that the state should interfere especially at those goods with the elasticity of the demand was discussed.that legal regulations on informing the consumers should be applied when that condition is not available was also undertaken. Examples in construction and banking sectors were given. Keywords: free market economy, income distribution, comfort, Turkey Introduction Nowadays, the free market economy has been applied in almost every country. The foundation of free market economy was laid mainly via classical economics. It was known to have started after Adam Smith s slogan of Let them do, let them pass. By the globalisation

2 5 th Annual ICGB2013 July 5-6, 2013 ISSN: trend that made capitals to be transferred among countries after 1980s, it has clinched itself. Off the given slogan could be easily inferred that the reason it had appeared was to confer benefit on capital owners rather than to comfort public.this system has been being utilized against the consumers lately in the world and especially in Turkey.The entreprenurs acting under an excess profit have gotten the better of the developing communication system and they have been able to decrease theelasticity of the demand of some comparingly luxurious goods through the advertising and marketing.consequently, those consumers in need of the marketed goods have had to pay high prices. In this way, the rich people get richer while the poor people get poorer. The Definition and the Rise of Free Market Economy Market economy and monetary systems have been a part of human civilization for thousands of years. However, the economical production amount that had been developing quite slowly, started to increase rapidly beginning in the 17th. century Europe. There have been scientists that have searched the reasons of this sharp change not in economic model formulas but in cultural, moral and phsychological causes. The declaration of human rights in French Revolution and U.S.constitution together with the freedom definition of the individuals extended thinking and action were recorded as the infrastructure of the above mentioned economical system in social agreements. Especially after the socio-political incidents occurred last century, this model has become the sole pattern of economical acts in many parts of the world (Gencer, 2011). The market economy is a social system in which cooperation and private property take place. In this system, the individual mainly works for himself while working for social interests (Mises, 2011).The most clear feature here is that personal interests comes before social benefits. In this way, business venture and freedom of choice appears.and in this

3 5 th Annual ICGB2013 July 5-6, 2013 ISSN: market of business venture and freedom of choice take place lots of sellers and buyers. This, then,provides the price of goods and services to come out freely and competitively. The important point here is not to seal theingress-egressof the sellers and the buyers. To arrange the legal and associational frame involved is the duty of the state. Besides, the fact that the market mechanism supplies the individualsthe opportunity of higher levels of welfare and better living standards in developed countries also affects the people in those countries where the market economy has not evolved much yet. In these countries, the idea offering that wealth and welfare could just be attainable through the market economy has been spreading.thence, and it can be said that a significant amount of social willingness and social support aboutthe establishment and/or development of the market economy exist (Altay, 2001). The Phenomenon of the Capitalist System, Globalization and Profit It is possible to claim that liberalisation or deregulation is a concept based on the workings of the free market and found its meaning in the classic economic thinking. After years of the Second World War and the world economic crisis in 1929, the public intervention policies in solving the economic problemscould not be adapted withthe global policies of the 1980s and with the emergence of thatthe problems could not be solved by current policies, the functioning of the free market and liberalism were seen as a way out (Anderson, 1998). Developing countries while usually tryingto make current political systems more democratic, adopt the free market economy working compatible with this current political system. In 1990s, along with the market economy has given birth to many great difficulties also has allowed many great opportunities. Here the event should not be taken in terms of just

4 5 th Annual ICGB2013 July 5-6, 2013 ISSN: a country. The need for a planned attempt have occurred to switch from a situation where almost all aspects of the economy controlled by the State is to a situation where preference oriented decisions appearvia markets. Especially after the Second World War, as a result of the acceleration of the application process of economic policies in the market economy system, the free market economy has become a basic element of the economic structure and of the strategies because of the state power of imposing and collecting taxes. From the beginning of the 1980s,it has has joined the liberalization adventure in developing countries and in many developing countries started customization, market economy, financial liberalization process of acceleration in the integration with the world. Together with all these developments, the process of the countries getting close to each other have accelerated (Aslan & Bozkurt, 2012). Economic Systems and The Levels of Prosperity Economic freedom may be defined as a part of the freedoms. This also refers to the financial autonomy of individuals. In this way, the individual can control his/her own labor and ownership. In other words, s/he decides on production, consumption and distribution himsel/herself. (Beach & Kane, 2008). Not all the economic-political systems share the same opinions about whether to leave the individuals on their preference while in any economic act is true. Also, the proposed solution of economic systems and their diagnosis of the problems differ. Authoritarian statist systems claim thatwhen individuals move on their own it is a compromise to security or harmful in "social" terms; theybelieve that it would be more appropriate if an upper central authoritydecides what to do and how to. Market systems, on the other hand, regardfreedom as a core value and to bring restrictions on economic activities of the individuals that are inherently free is wrong. In practice it is unlikely to come across

5 5 th Annual ICGB2013 July 5-6, 2013 ISSN: one hundred percent pure forms of these systems. Especially after the dissolution of the Socialist bloc, the blunt pursuers of the Socialist system seem to have vanished. in the world (Acar, 2010). In short, the capitalist system and market economies won the race in the cold war era and as a result, the era of globalization has started. Thus, globalization has presented the capitalism to the world, which consists of market economy, democracy and this socioeconomic order of law state, as a model. After the draw of socialism, that the liberalism, with the help of the globalization, has remained as a sovereign doctrine in the world has influenced the welfare states as well. Welfare States, in the new world order that is largely based on the competition, felt the need to minimize and shape up. Consequently, privatization became a popular application all over the world, and states needed to revise their tasks. As no opponent seems to exist in sight and remaining solely as an economic system, capitalism almost made itself legitimate. Since there are no more legitimacy problems facing the system, the care for social justice problems increasingly weakened and this situation,not surprisingly, led to the emergence of insecurity, poverty and inequality in many countries again (Ozdemir, 2009). Globalization and the Increase in the Profit Motive of the Capital and Turkey Example According to MaxWeber, the economic actions in the capitalist system,are based on profit expectations of according. That the ultimate goal of the production activities of entrepreneurs is profit oriented might be described as the traditional character of the capitalist system (Weber, 2005). The desire for profit and earnings have been in every age and society. However, the combination of rational working with discipline and the quest for profit emerged once throughout the history, in the West. This combination is the "modern

6 5 th Annual ICGB2013 July 5-6, 2013 ISSN: enterprise" aiming to gain maximum profit through a bureaucratic organisation.weber's capitalism is based on Modern Industrial (Torun, 2002). The basic element determining and directing the boundaries and the nature of globalization today is western sourced capitalism. Capitalism is the name of the market system,born in the west with the logic of Let them do, let them pass. together with the enlightenment, modernization and industrialization periods after the middle ages,and then made headway with external both internal exploitation towards other countries, seemingly free but in fact deliberately organized with a completely rational mounting. In this context, capitalism is based on the accumulation of capital, the production that would demonstrate the highest efficiency of the work units, consumption and market factors. Capitalist mindset has brought rational thinking. But the emergence of rational thought is thousands of years before capitalism. What capitalism did was to give rational thinking a new breakthrough and to ti direct it into a certain orientation. In this respect, the organised capitalist market system materialised even the spiritual and unmeasurable values for the purpose of "profit" and thus has changed the nature of humanitarian relations. On the basis of capitalism take place being dominant throughout the world with desire and strategy to make it a single market within the dependency relationships. And this is the interchange point of globalization of capitalism (Ersoy 2008). With the globalization, capitalist countries provide their own capitals renew itself and tend tospread. Today globalization means the development, spreading and the deepening of capitalism. In other words, globalization is an economic and social strategy to overcome crisis in which the world capitalism struggles as a result of the process of the law of declining profits (Durusoy, 2009).Looking upon globalization from the perspective of the political economy, it might be expressed with the process of development of capitalism. The

7 5 th Annual ICGB2013 July 5-6, 2013 ISSN: development process of capitalism has been continuously in the efforts for the accumulation of capital. Capitalist powers have always been in the effort to increase profit opportunities up to this time. So the search for more profit and market have continuously made it necessary to access to modern technology and expand the use of these technologies. With this need, the capitalist powers have continuously supported the globalization phenomenon in order to open out from the centre towards outside and to become more integrated into the environment. Within the framework of these supports, they have benefited from international institutions and organizations that were created via economic and political cooperation. That the spreading the of capitalist economy conditions throughout the world and the strengthening the free market economy arrangements in countries serves for the purpose of capitalist powers to have more profit. Hence the capitalism keeps iselfs with the existence and the development via globalization phenomenon. In this sense, globalization phenomenon is an emerging product of the process of worldwide spread of market economy conditions (Selen, 2002). The foundations of the new world order that we call globalization were founded by the IMF, the World Bank and the U.S. Treasury and were spreaded by the efforts of the IMF and the World Bank. The basic principles of The World Bank, the IMF and the U.S. Treasury that were being discussed as a result of the widespread emergence of consensus crisis among can be defined as follows: Budget discipline and tax reform, Liberalization, Customization, Removal of controls on the Markets (deregulation) (Ozer, 2009). Undoubtedly the most important basic principle here removing the controls on the Markets. Although the literature says "In free market economy, supply and demand

8 5 th Annual ICGB2013 July 5-6, 2013 ISSN: determine the prices.", the prices of goods with low value, particularly in terms of demand elasticity are determined by the manufacturers preferences rather than the demandants. The manufacturers taking advantage of the circumstances might extremely raise the prices of their products to earn much more profit. In such circumstances, neither consumer nor the state authority might be able to interrogate the profit-cost inquiry. Because the answer is hidden in the name of the system; "free market economy", therefore, neither states nor consumers have the right for questioning the cost of sold goods and gained profit level. One of the features of the full competition market is that consumers receive the full knowledge of the product they bought. This is the most natural right of the consumer. In this context, the consumer needs to know the cost of the product that s/he has purchased. Because the consumer will even out when the marginal utility is equal to the the marginal cost. Although the goods purchased benefit to the consumer, the cost is a few times of this benefit. And this does not mesh the consumer welfare in terms of micro economy. There are two important cases caused by this situation; The first one is that only individuals with high levels of revenue can consume these goods sold in high prices. Those who cannot purchase remain disadvantaged in this situation. The latter case is that the excessive profits increase the level of income of the manufacturer wrongly in one hand, while, on the other hand, negatively influencing the consumer's budget. And this increases the inequality in the distribution of income between community. So the rich get richer day by day while the poor and middle-class get poorer by the day. The construction industry is one of the most commonly seen sectors of this issue. As it is known, accommodation is one of the most basic needs of human beings. Hence the need for housing is a need with low demand elasticity. Although there are many houses on the

9 5 th Annual ICGB2013 July 5-6, 2013 ISSN: market, the lack of appreciable price differences in regional point of view eliminates this diversity for the consumer. The related example follows According to the communique published in the official gazette of the Ministry of Environment and Urban in the year 2012, the profit of the contractor with the construction overhead (up to four times-four times included -without lift and central heating) was calculated as the unit cost of building as sqm 475,00 TL (Official Gazette, 2012). According to these data, about a 100 m2 housing unit cost is 47,700 TL in 2012 figures. Hence, even in the most normal regions, from a house sold at least 100,000 TL the manufacturer earns over 100% of profits. On the other hand, the consumer must find 100,000 TL to buy the house s/he wants. For consumers who want to use home loan at 0.89 interest face a monthly payment of 120 months back pay, approximately 1360 TL. per month. The consumer will have to pay the total TL to the bank at the end of the 120 months (Ziraat Bank, 2012). Thus, the manufacturer gains a profit of 100% while from the same individual, the bank also earns 63% of profit. Therefore, an average revenue earner or a fixed-income earner family in these conditions of Turkey has t waiver other basic needs while performing debt pay back. The manufacturer and the bank, on the other hand, will get richer with their excess profit taking their extreme level of prosperity higher. Thus, significant differences between individuals in terms of the distribution of income will occur in society. Another sector with excessive profit in Turkey is the banking sector. That the world's largest banks open branches in Turkey is considered as the indicative of this. Apart from the high interest rates, especially under the name of fees and commissions, ill-gotten gains are derived from customers. There are fees and commissions with very small even without the costs, which are mostly profit. Astronomical commissions in comparison with their costs are demanded such as, file costs, operating costs, credit card fees.

10 5 th Annual ICGB2013 July 5-6, 2013 ISSN: In 2012, the banks in Turkey gained excessive profits in comparing to the banks in other advanced countries. While the economic growth of Turkey remains below expectations, although their principal task is to finance real sector, that Turkish banks obtain excessive profits highlights this fact. In September 2011, the banks ' interest income was % 178while the figure in September 2012 was % 183. Banking services under the title of non-interest income and commissions were 12,600 Million TL in September of 2011, while it was Million TL in September 2012 (of BBDK, 2012). Conclusion Surely, the free market economy is more advantageous in terms of personal prosperity than the economic systems before. However, these degrees of freedom have been used maliciously by the owners of capital recently. Capital owners exploiting this system to sell goods and services produced by excessive profit increases the income inequalities in Turkey and in the world. Of course, it is not possible to provide equality of the distribution of income. That someone gains more revenue than others in the economic order is utterly normal. But here the main point is to observe the rights and interests of others. Although the prices are high and therefore extreme profits are gained, wih the logic of Produced goods and services always have buyers. means ignoring the other segments of the society. So the people in true need might be the aggrieved party. For example, those in need of home cannot buy home and those in need of cash cannot take loan from the banks. In this context, the state should perform a number of regulations such as, protecting the benefits of those in true need and determining of profit rates on goods of demand elasticity in markets in terms of the rise in the level of welfare. This is a necessity of being a social state. If this is not possible, then at least the political authority should perform legal regulations to

11 5 th Annual ICGB2013 July 5-6, 2013 ISSN: inform consumers about the cost, profit and quality issues based on the policy suggesting that in full competitive market, the consumers should be informed about the goods and services they have bought. References Acar, M., (2010). Serbest Ticaret, Ekonomik Ozgurlukler ve Refah, bilig, Bahar / Sayi 53 Altay A, (2001). Piyasa Ekonomisine Geçis Surecinde Kamu Maliyesi Sorunlari Ve Çozum Onerileri, Manas Universitesi Sosyal Bilimler Dergisi, No:2. Arslan, I,.& Bozkurt, C., (2012). Kuresel Ekonomik Kriz ve Kapitalizm, Beach, W.,& Kane, T., (2008). Methodology: Measuringthe 10 EconomicFreedoms, 2008 Index of Economic FreedomThe Heritage Foundation, Washington DC. Durusoy, S., (2009). Kriz Sonrasi Kuresel Kapitalizmin Geleceği, Alternatif Politika, Cilt. 1, Sayi. 3. Ertuna, O. (2009). Krizden Alinacak Dersler Yeni Bir Firsat mi?, MUFAD Dergisi, Sayi:43. Ersoy, E., (2008). Tarihsel Kapitalizmden Guncel Kapitalizme Kuresellesme, Doğu Anadolu Bolgesi Arastirmalari, Cilt:7, Sayi:1. Gencer., M. (2011). Serbest Piyasa, Ekonomik Gelisme, ve Ozgur Internet'in Ayrılmazlıgı. inet-tr11 XVI Turkiye'de İnternet Konferansi, Ege Universitesi, Izmir. Mises, L. (1998). Human Action: A Treatise on Economics, TheScholar s Edition, Auburn Alabama: Ludwig von Mises Institute. Ozgen, F.B., (1998). Globallesme Surecinde Turkiye de Finans Piyasalarinin Gelisimi, Ege Maliye Bolumleri Arastirma Gorevlileri Sempozyumu, Dokuz Eylul Universitesi Yayini, Kasim, Izmir. Ozdemir, S., (2009). Kuresellesmenin Sosyal Politikalar ve Refah Devletleri Uzerindeki Etkileri, Dosya Sosyal Politikalar, MUSIAD. Selen, U., (2002). Kuresellesme ve Devlet Etkilesimi, Osmangazi Universitesi Sosyal Bilimler Dergisi, Cilt: 3 Sayi:2. Torun, I., (2002).Kapitalizmin Zorunlu Sarti Protestan Ahlak, C.U. Iktisadi ve Idari Bilimler Dergisi, Cilt 3, Sayi 2. Weber, M., (2005). The Protestant ethic and the spirit of Capitalism, Translated by Talcott ParsonsWith an introduction by Anthony Giddens, This edition published in the Taylor & Francis e-library, London and New York. Resmî Gazete, (2012). Teblig, Sayi: 28277, 28 Nisan BBDK Faiz orani, (2012). bilgilere T.C. Ziraat Bankasi web sitesinden ulasilmistir. BDDK. Turk Bankacilik Sektoru (2012). Genel Gorunum Sayi: 2012/4.