Tuesday, 2 May 2017

Where’s Turkey headed?

The results of the April 16 referendum called by Turkish President Recep Tayyip Erdoğan prompted a deluge of analyses in the Western media which, for the most part, painted him as ‘the great loser’. In Greece, the results were described as a ‘Pyrrhic victory’ which some analysts proclaimed the start of Turkey’s strategic decline.

But the Istanbul stock exchange’s reaction was quite different as it continued its climb of the last two months. The Turkish lira was equally unperturbed. Turkish business, in contrast to international analysts, seemed satisfied by the result; Erdoğan’s acceptance by this sector is the secret to his dominance.

The new dominant classes

It may sound funny today, but after the Justice and Development Party’s (AKP) first victory in 2002, Erdoğan had been hailed as the radical politician who would smash the Kemalist establishment and usher in democracy. Western analysts fantasised about the Turkey’s ‘good’ Islam as a counterweight to Iran and parts of the Arab world. But the reality was always quite different. Turkey’s political Islam was never democratic nor, of course, anti-capitalist or anti-imperialist. Its emergence marked what we could call the ‘autocracy of the free market’. Contrary to what most people think, there is no inherent contradiction between free market capitalism and political authoritarianism. AKP’s rise buried once and for all the Kemalist economy with its strong public sector and extensive web of social control. The new Turkish capitalism would have more open markets alongside broader state authority.

AKP’s political triumph was supported by the economic and social rise of new business classes from the heart of Anatolia. There was a plethora of small and medium-sized manufacturing enterprises read to exploit the cheap and plentiful labour with an eye to both the domestic market and exports. These enterprises sought selective protections for the domestic market, access to credit, and political stability. Erdoğan offered this amply, while sharing their social conservativism and religiosity. Central Anatolia was the backbone of AKP, as the referendum results showed.

For Turkey’s traditional business classes, exemplified by the Koc and Sabanci groups, things were different. Creatures of the Kemalist establishment, they sought to protect their dominance of the private banking sector and preserve their access to international markets. The Anatolian upstarts were a threat. Erdoğan succeeded in creating a seam along which the big groups retained their leadership yet the others could rise. This framework had already been put in place after the crisis of 2001: quick restructuring and expansion of the banks, opening of the markets (with a strong state presence in key areas), emphasis on exports, and, chiefly, cheap wages and a large labour force. In short, a win for all.

Turkey’s economic transformation

The Turkish economy has been transformed completely in the last fifteen years. Putting aside the global economic crisis of 2007-2009, it recorded fast growth without the intense fluctuations of previous decades. GDP neared USD 850 billion, with a combined economy in which the secondary sector comprises about 30 per cent and the primary sector comprises roughly 8 per cent. Turkey is now a developed industrial capitalist country.

The comparison to Greece is stark, especially in the wake of the deep Greek crisis. Greece’s GDP today is about one-fourth of Turkey’s, with the secondary sector comprising less than 15 per cent and the primary sector around 4 per cent. Turkish industrial production, manufacturing, construction, and agricultural are almost ten times Greece’s. There is no greater proof than these figures of the tragically misguided choices made by the Greek bourgeoisie since 1981, with its cowering attachment to an imaginary EU ‘hard core’ and European monetary union (EMU).

The weight of this growth, of course, fell on the shoulders of the Turkish working class. Real wages have risen very slowly, there is persistent unemployment which currently hovers around 10 per cent, and income inequalities are wide. But at the same time, millions of satisfactorily-enumerated jobs were created, especially in the cities, and absolute poverty was reduced drastically. Importantly, also, AKP created, albeit in stages, a welfare framework in health, pensions, and education. This is the material base of support for Erdoğan.


None of this negates the deep problems currently facing the Turkish economy, most notably, a productivity growth rate that is too slow to support exports’ competitiveness. Productivity is especially low in small and medium-sized businesses that rely on cheap labour and cannot follow the technological advances adopted by Turkey’s big capital. A temporary solution had been found with the lira’s gradual devaluation—that is, by doing exactly what Greece cannot within EMU. Nonetheless, Turkish industry’s long-term survival demands that it moves up in the international value-added rankings, and this means ‘reforms at the expense of labour, small and medium-sized businesses.

At the same time, Turkey has a high rate of consumer spending to GDP, which requires large amount of bank credit given that wages are not rising at the same pace. For the first time in its history, Turkey is facing problems such as dwindling savings and overextended households. Real estate, commercial and residential, is also experiencing a bubble. Combined with weak productivity, the result is an increase in imports and a huge trade deficit. The country is thus being supported by mass foreign capital injections. There is a very real danger of a sudden and deep crisis in external transactions.

In short, Turkey’s industrial capitalism was consolidated under Erdoğan through the creation of a framework within which old and new businesses classes coexisted despite huge contradictions that create a shaky social foundation. Turkish capital now demands new ‘structural reforms’ as Mehmet Şimşek, Turkey’s deputy prime minister and former finance minister, never tires of repeating.

The limits of authoritarianism

This is the backdrop for Erdoğan’s authoritarianism, which didn’t just suddenly emerge but has been evolving slowly through the corrosion of justice, education, and, of course, the military. AKP sought from the outset to take control of the state so it could reshape society in a conservative mould by favouring business. Islam and a powerful blend of nationalism were the ropes for binding the working class to Turkish capitalism’s reconstruction.

The failed coup attempt in July 2016 was not a Kemalist rear-guard action as many analysts imagined. It was a ‘settling of accounts’ between pro-Islamic factions battling for control of the state apparatus and Erdoğan milked it dry. The referendum, however, did not solve his problems but may have indeed added new ones. The result may have been marginally ‘yes’ but the ‘no’ vote was very strong in Kurdish areas, along the Aegean coast, and in the three major cities—Istanbul, Ankara, and Izmir. AKP has definitely lost the Kurds. It has also lost the middle class and large segments of wage labour in urban areas. Furthermore, the Turkish opposition for the first time has shown an ability to unite and defend the Turkish people’s democratic gains. There are indications that a truly democratic current is forming in the country. It's possible that the present form of Islamic free-market authoritarianism has reached its limits. If we add Erdoğan’s failures at the international level—tensions with the US and the EU, military involvement in Syria with no prospects for success, deterioration of its relationships with Israel and Arab states, a precarious alignment with Russia—then it’s evident that the Turkish president has a tough equation to solve. Turkey will not be stabilised soon even without the eruption of an economic crisis in the next two years.

As for Greece, it needs to display a measured stance. It would be a mistake to overestimate the scale of a possible upheaval in Turkey while also underestimating the Turkish economy’s transformation over the last fifteen years. Fantasied geopolitical games with the US and Israel are a recipe for disaster, especially given Greece’s weakened state as a result of the economic recession. Greece can only emerge a loser if it allows itself to be used in this regards.