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Democratization of Capital

“You cannot escape the responsibility of tomorrow by escaping today.”
Abraham Lincoln

In today’s world only those societies that can allocate their resources to highest value added areas will have growing economies. This can only be achieved by making sure that the financial markets are free and competitive. Attaining real competitiveness in financial markets, in its turn, will depend on depoliticizing these markets and on preventing concentration.

The concentration of economic and political power in the hands of a limited number of persons and institutions result in the flow of resources to these persons and institutions as well as their close circles. Consequently, inadequate investments are made in the development of innovative and creative thinking that is key for social progress and development.

“The democratization of capital” means the allocation of resources to the highest value added areas and not an equal distribution of resources regardless of value creation potential. Therefore, as a society, we have to question how we allocate our limited resources. Should these allocation decisions be made to preserve political power and already accumulated capital or should we seek new ideas and projects to that will improve nations overall wealth creation potential. Milken Institute’s “Capital Accessibility Index” developed to assess the chances of new ideas and projects to get financing can be a useful guide. This index is computed by an evaluation of the general economic picture, the banking sector, financial markets, the attitude of international capital, and the assessments of rating agencies on a per country basis.

Milken Institute
Capital Accessibility Index (2000)

1. USA 5.4
5. UK 5.3
12. Almanya 4.8
24. Güney Kore 4.5
50. Yunanistan 4.0
60. Brezilya 3.7
66. TÜRKİYE 3.6
80. Rusya 2.7

There is significant room for improvement for the democratizaton of capital in our country. The details of the study enumerate the factors that pull Turkey’s ranking down: High inflation, the shallowness of the banking sector, the weight of the state (politics) in financial markets, the inadequate corporate governance, the low level of foreign direct investment, and our credit rating.

Our task then is well defined. We must not deviate from the stabilization program and implement banking reform. On the other hand we must enhance corporate governance and explain the potential of our country to international financial markets. The most important task, however, is for those who control capital in our country to accept the need for diverting resources away from those who are close to power holders or those who have already established collateral, towards creativity and those who develop new projects.

For improving our democracy and economy we have to democratize our capital markets.