The challenge is this: raising interest rates will tend to drive up the exchange rate of the currency. However, it will also tend to slow down the domestic economy by pushing up the costs of credit and borrowing. For this reason, Turkish Prime Minister Recep Tayyip Erdogan had been reluctant to do so prior to this year's local and Presidential election, given the well-documented relationship between the state of the national economy and election results (see this for a lot of citations).
The increasing globalization of many states over the past 30 years has led to a different concern. As states have become more reliant on international investment to finance and sustain development, they have put their own economies--and hence their economic policies--at the mercy of impersonal global markets. The concern this raises is whether democracy is diminished (over even sustainable) under such conditions. The problem is like this: if a leader would like to pursue a certain economic policy, and s/he was elected with majority support to do so, but global market forces "demand" the opposite policy, then the leader must either defy the will of his/her electorate or risk market punishment. This possibility led economist Dani Rodrik to suggest that there is a "political trilemma" between national sovereignty, globalization, and democratic politics. Under this trilemma, we can have two of the three, but not all three simultaneously and all the time.
Elections under Globalization?
Drawing on this logic, scholars of elections have debated how these function in a global economy. This has been an interesting debate, because several possible results have been suggested.
To review: the standard argument of economic voting is that electorates reward and punish incumbent governments for their management of the national economy. When times are good, incumbents win re-election. When the economy is bad, voters "throw the bums out" of office.
But what if voters know that they live in a globalized economy? Two problems emerge:
- National leaders have to balance the desires of their citizens with the demands of impersonal global market forces.
- Stuff happens. A global financial crisis, or other economic developments elsewhere (such as the Fed's tapering) may cause economic repercussions in your country that your own economic policies cannot prevent.
Government Constraint Hypothesis
Best associated with the work of Tim Hellwig and co-authors (gated), this argument suggests that economic voting will end. Because voters understand that their leaders cannot do very much to influence economic conditions in their country, they will choose to base their vote on factors other than the economy. This would suggest the end of economic voting, and we should less evidence of a correspondence between the state of the economy and election results as countries become more globalized.
Best expressed by Mark Kayser and Michael Peress, this hypothesis argues that globalization actually provides opportunities for voters to improve their assessments of economic performance. In short, the argument goes like this: global economic trends affect all economies, so relative over- or under-performance compared to similar national economies tells voters that their own government is doing a better or worse job of managing the economy. In other words, if your economy is growing 2% per year, but your neighbor's economy is growing 3% a year, then your government must be doing a bad job and you should vote them out of office.
There are various ways to arrive at the hypothesis that globalization does not change economic voting. One might be simply that voters are generally too unsophisticated to figure out that their governments have lost the capacity to manage the economy under globalization. This would fit with the work of Larry Bartels, who has argued that voters are generally pretty short-sighted and unsophisticated when it comes to holding governments accountable in a book and series of papers with Chris Achen. (Note: I have a chapter in a book manuscript under review that argues this point with regards to the Global Financial Crisis. Hellwig and Kayser/Peress also have chapters in that book).
(Another possibility, suggested by Andrew Healy and Gabriel Lenz, is that myopic news reporting of economic performance leads voters to focus on recent events).
Evaluating Turkey's Elections?
So what can the upcoming Turkish elections tell us about all of this? One might be tempted to feel sympathy for the governing Justice and Development Party (AKP), seeing that higher interest rates may slow down the Turkish economy. However, it's important to remember that the AKP benefited in 2007 and 2011 from a fast-growing economy--one that was aided by a conducive environment for developing economies like Turkey (Rodrik makes the point here that Turkey's growth record from 2002-12 was unremarkable by the standards of similar economies).
In my previous post, I set up a (very) simple model of economic voting, which shows a reasonably strong correspondence between the state of Turkey's economy and the AKP share of the vote. Based on current economic predictions (as of a few days ago, anyway), the model would predict the AKP to receive about 43% of the vote in the March local elections. The model indicates that each 1 percentage point in real GDP growth raises the incumbent's vote share by 0.84 percentage points, suggesting a strong relationship.
All of this suggests that Turkish voters are neither discounting nor benchmarking the economic record of the Erdogan government. I think this makes sense. It may not, strictly speaking, be due to a lack of voter sophistication or information. Rather, it may owe to heavy doses of motivated reasoning among partisans of various stripes. AKP supporters will credit the government for good times and rationalize bad times to factors beyond its control (or conspiracies involving a global "interest rate lobby"), and vice versa. The relatively smaller group of unattached voters turns out in practice to include many who are less interested in, and thus knowledgeable about, politics. Precisely the sort of voters who are unlikely to engage in discounting or benchmarking.
So it will be interesting to see how voters respond to the economic environment in these upcoming elections. (It will be interesting to see how the economy is by the time of these elections!). Do they punish the AKP for a slowdown, if in fact one happens? Or do they let the Erdogan government off easy due to the fact the pressure on the Turkish Lira is due, in part, to the US Fed's "taper"? Whatever happens, this will tell us a little bit more about how voters respond to economic changes in an open economy.