Turkey in the Global Economy: Neoliberalism, Global Shift, and the Making of a Rising Power 9780228004578

Table of contents :
Cover
Turkey in the Global Economy
Title
Copyright
Contents
Acknowledgements
Map
Introduction
Part I Global shift and the world economy
1. An emerging market economy
2. The Turkish economy in the twentieth century
Part II The AKP 1: populist neoliberalism
3. Deep financial and economic crisis: Turkey prepares the ground for the AKP
4. The “golden age”: stable growth, fiscal discipline and “heaven” for foreign direct investment
5. Crisis at the global centre
Part III The AKP 2: authoritarian neoliberalism
6. The global financial crisis and Turkey’s response
7. Turkish foreign policy: the Arab Spring and the Syrian catastrophe
8. The Taksim Gezi protests and the authoritarian turn
9. The 2016 failed coup and crackdown
Part IV The crisis of global hegemony
10. The US–Turkey stand-off, trade wars and new partners
11. Turkey and uncertain predictions for the world economy
12. The Covid-19 pandemic
13. Towards a conclusion: some key trends
Notes
References
Index

Citation preview

Turkey in the Global Economy

Turkey in the Global Economy Neoliberalism, Global Shift, and the Making of a Rising Power

Bülent Gökay

McGill-Queen’s University Press Montreal & Kingston • Chicago

© 2021 by Bülent Gökay Published in 2021 by McGill-Queen’s University Press Published simultaneously outside North America by Agenda Publishing ISBN 978-0-2280-0411-0 (cloth) ISBN 978-0-2280-0412-7 (paper) ISBN 978-0-2280-0457-8 (ePDF) ISBN 978-0-2280-0458-5 (ePUB) Legal deposit first quarter 2021 Bibliothèque nationale du Québec Library and Archives Canada Cataloguing in Publication Title: Turkey in the global economy : neoliberalism, global shift, and the making of a rising power / Bülent Gökay. Names: Gökay, Bülent, author. Description: Includes bibliographical references and index. Identifiers: Canadiana (print) 20200353780 | Canadiana (ebook) 20200353942 | ISBN 9780228004110 (hardcover) | ISBN 9780228004127 (softcover) | ISBN 9780228004578 (ePDF) | ISBN 9780228004585 (ePUB) Subjects: LCSH: Turkey—Economic conditions—1960- | LCSH: Turkey—Politics and government—1980- | LCSH: Turkey—Economic policy. | LCSH: Turkey—Foreign economic relations. Classification: LCC HC492 .G65 2020 | DDC 330.9561—dc23 Typeset by Patty Rennie Printed and bound in the UK by TJ Books

Contents

Acknowledgements Map Introduction

vii ix 1

Part I

Global shift and the world economy

1. An emerging market economy

11

2. The Turkish economy in the twentieth century

29

Part II

The AKP 1: populist neoliberalism

3. Deep financial and economic crisis: Turkey prepares the ground for the AKP

53

4. The “golden age”: stable growth, fiscal discipline and “heaven” for foreign direct investment

61

5. Crisis at the global centre

67

Part III

The AKP 2: authoritarian neoliberalism

6. The global financial crisis and Turkey’s response

73

7. Turkish foreign policy: the Arab Spring and the Syrian catastrophe

85

8. The Taksim Gezi protests and the authoritarian turn 9. The 2016 failed coup and crackdown

95 107

Part IV The crisis of global hegemony 10. The US–Turkey stand-off, trade wars and new partners

115

11. Turkey and uncertain predictions for the world economy

137

12. The Covid-19 pandemic

147

13. Towards a conclusion: some key trends

157

Notes References Index

167 175 199

Acknowledgements

I have so many people to thank for supporting me to complete this book. Steven Gerrard, of Agenda Publishing, who was superb in his role as editor, from start to finish. My thanks and gratitude also to Bev Sykes, for her meticulous proof-reading of the text. I am grateful to the two anonymous reviewers for their careful reading of the manuscript and for their insightful suggestions and comments. To my students on the “Introduction to GPE” and “IR of Eurasia” classes – thanks for giving me the opportunity to discuss some of the ideas in our seminar sessions – I learned much from you. My colleagues inside and outside of the academic world continuously encouraged, supported and challenged me. I would especially like to thank Vassilis Fouskas, Ben Fowkes, Darrell Whitman, İsmail Büyükakan, Mümin Köseoğlu, Ali Rıza Aksoy and Mustafa Yaşacan. To my daughters, Ada, Leyla and Saira: I am forever grateful and thankful that I have been given the opportunity to be your father. You have made me better and more fulfilled than I could have ever imagined. I cannot begin to express my gratitude to Farzana, who is a rock and strength in my life, for your friendship, intellectual guidance, inspiration, warmth and generosity. I never thank you enough for being there for me unconditionally.

vii

Source: Shutterstock.

Introduction

Turkey, with gross domestic product (GDP) of $754,412 billion, GDP per capita income of $9,042, a population of 83.9 million and an average annual growth rate of 5 per cent for the past 17 years, is a significant middle-range power, currently the nineteenth largest economy in the world, and a central regional player in the global system (World Bank 2019; Turkstat 2020). The first decade of the twenty-first century highlighted Turkey’s rise as an emerging star in an unstable region that ran from the Balkans to the Middle East. Never colonized and straddling the continents of Europe and Asia, Turkey’s strategically important location and dynamic young population have meant that it has a major influence in its neighbourhood and beyond. Turkey’s location is important for its economic success and political prominence in the Middle East. Serving as a bridge between the European Union and the Middle East and wider Islamic world, Turkey is a major centre for commerce, finance and industry. It is a country that spans traditional North–South and East–West cultural divides, maintains a geographic focus on Africa and has increasingly central attention on post-Soviet states in the Caucasus and Central Asia. Turkey is not rich in fossil-based energy resources other than some high-sulphur and low-calorie coal, but it has significant levels of industry and a sizeable economy and is the only country in the region ranked among the top 20 economies of the world (World Bank 2009). Many of Turkey’s cities have been industrializing at a rapid rate and now participate in the global economy because of Turkey’s location and young population, which both promote business and trade. Turkey has experienced one of the fastest rates of urbanization of any country in the world. Four of the world’s ten fastest-growing cities are in Turkey. Despite serious adverse shocks since the 2008 global financial crisis and the tragic civil war in neighbouring Syria, Turkey has shown strong indications that its status as an emerging market economy will continue for the next ten years and beyond. Turkey is categorized as an “upper-middle-income” country by the World Bank because its per capita income is between $3,976 and $12,275 1

Turkey in the Global Economy

(Serajuddin & Hamadeh 2020). Turkey’s pace of income convergence has been one of the most outstanding of the past two decades. In a 2018 Organisation for Economic Co-operation and Development (OECD) report, it was noted that labour productivity in the country exceeded that of several other “catching-up” OECD economies (News.com.au 2019). According to a recent study that used International Monetary Fund (IMF) figures, Turkey will be the world’s thirteenth largest economy in 2026, outpacing several major economies such as Italy, Spain and Canada with a 1.45 per cent share in global GDP (Stratfor Worldview 2017). According to other predictions, Turkey is likely to be among the top ten largest economies by 2030, with the third fastest growth in the world: Visual Capitalist1 and Standard Chartered2 put Turkey’s economy at number five according to its GDP (PPP). Apart from the oil-rich Gulf States, Turkey is by far the wealthiest of the countries that emerged from the Ottoman Empire. Turkey’s economy grew continuously from 2002 to the 2008 global crisis, and per capita income (based on purchasing power parity) and gross national product (GNP) have reached $11,000 and $750 billion, respectively. According to a report by Goldman Sachs, by 2024, Turkey’s per capita income will climb to between $20,000 and $25,000 and Turkey’s per capita national income is expected to surpass $30,000 in 2033 and $40,000 in 2040, reaching the $60,000–65,000 level by 2050. According to the data compiled by Goldman Sachs, including the data in its world economic projection report, China is expected to become the world’s largest economy, with a nominal GDP of $70 trillion in 2050. It is predicted that the United States, India, Brazil, Russia, Indonesia, Mexico, the UK and Turkey will follow China in that order (Novron 2016). Table 0.1 Key socio-economic indicators Socio-economic indicator Total population

84,339,000

Annual population growth

1.5%

Population aged 15–24 years

13,116,000

Population aged 14 and younger

20,119,000

Rural population (% of total population)

26%

Fertility rate (births per woman)

2.1

Infant mortality rate (per 1,000 live births)

11

Life expectancy

76

Source: Unesco; http://uis.unesco.org/country/TR.

2

Introduction

A global holistic perspective The widespread failure to use a holistic perspective not only confines us to parochial views, but that these also seriously distort all regional, sectoral, and indeed temporal findings because they fail to fit these findings into the global scheme of things . . . The same procedure and narrow parochialism have been even more characteristic of the “exceptionalism and . . . exaggerated sense of uniqueness.” (Frank 1998: 51) This book is about the political economy of Turkey during the first two decades of the twenty-first century. I plan to focus on the period from the Turkish financial and economic crisis in 2000/01 to 2020, a year of great challenges both in the region and in the world. While the Turkish economy was experiencing significant growth during this period, major changes were being witnessed in the world economy, namely a shift in its hegemonic structures – a shift away from North America and Western Europe and towards the emerging economies of, primarily, Asia but also towards Latin America and Africa. The process of the decline of the “hub-and-spoke” system3 of global imperial governance that was built under the hegemony of the USA and bound together Europe, North America, and Japan and Australasia began in the late 1960s and early 1970s but became much more obvious during the 2000s and 2010s. The leading role of the US had first been eroded with the decline in gold stocks, competitive trade and US corporate profits in the face of fierce economic competition from West Germany and Japan during the Cold War, when both Europe and Japan experienced very high rates of growth in the 1970s. Later, from the 1990s, the hegemonic position of the US came to be seriously undermined by the rise of China, India and other emerging economies, including Turkey. This shift has been more visible since the beginning of the twenty-first century because China, India, Russia, Brazil, South Korea, Mexico, South Africa and Turkey are certainly on the move and power is undeniably flowing away from the West. In this volume, I shall analyse the dynamics that exist between Turkey’s domestic political economic transformation in the twenty-first century and its active involvement in its neighbourhood on the one hand; and, on the other, the impact that long-term global shifts and trends have had in terms of creating the right conditions for medium-sized regional powers, like Turkey, to increase their share and influence regionally and globally during the first two decades of the twenty-first century. In other words, this is an account of how Turkey fits into the global system as an emerging middle power. My analysis will be based on a holistic theoretical proposition about the changing structure of the global economy and the rising position of medium-sized emerging powers in this process. 3

Turkey in the Global Economy

My main premise here is that since the beginning of the 1990s, there has been a fundamental power shift to the Global East (China, India, Russia, Brazil and several other middle-range emerging powers, including South Africa, Turkey, Mexico and Indonesia). With the rapid rise of these emerging economies, the relative weight of the United States and Western European economies is plainly declining. As an integral part of this process, Turkey has emerged as an important regional and global middle power, fitting in within the subset that is just below the BRIC economies (Brazil, Russia, India and China). Therefore, it makes sense to look at Turkey’s political economy transformation within the context of the broader global political changes and systemic shifts of the past 20 years. That is why one central aim of this book is to examine the extent to which and the channels through which the global developments have affected the Turkish economy. After an impressive growth spurt, from 2002, Turkey was ranked among the top ten emerging economies in the world, alongside the BRIC countries. This period was dominated by one political party, the AKP (the Justice and Development Party), and its leader, Tayyip Erdoğan. Indeed, the crisis in 2000–01 was also the crisis that prepared the ground for the success of the AKP, which came to power following the November 2002 general elections. The AKP’s success and still continuing popularity from 2002 to the time of writing, 2020, are closely linked to the economic performance of the country during its time in power – the Turkish economy has, on average, grown significantly during this period. Turkey’s per capita income tripled during the decade that the AKP has been in power. Compared with the miserable state of the Turkish economy before the twenty-first century, this performance looks even more impressive. The AKP’s leaders seem to have successfully exploited this factor – Turkey’s economic rise during their period in power – to increase their regime’s popularity in successive elections after 2002. During this period, Turkey underwent multiple transitions, some more advanced than others. Because economic development involves improvement in different configurations across time, it does not necessarily consist of linear progress on a well-trodden path. Most importantly, any such economic progress requires a longer-term – maybe decades long – period of preparation, restructuring and development, which needs careful consideration and analysis of multiple factors. Several mainstream accounts considered that Turkey would sit alongside other big emerging market economies as early as the 1990s. Such projections were based on the population dynamics, growth potential and geographical capacities of these states and an identified major shift in the world economy that benefited several emerging economies – BRIC and others – including Turkey. Even in 1996, there was a reference in a major work to this economic trend (Chase, Hill & Kennedy 1996: 37). Thus, technically 4

Introduction

speaking, the AKP government cannot take all the credit for creating the conditions that led to the impressive growth of Turkey’s economy. The second central aim of this volume, therefore, is to consider the following question: to what extent can one connect this impressive growth of Turkey’s economy to the performance, decisions and policies of the AKP regime? Or can one simply say that the AKP government found itself in the right time and place and did not in fact create the conditions that led to the country’s impressive economic growth? There are many useful accounts of Turkey’s economic performance in this period; most of them are journal articles. Several books also look at various aspects of the Turkish economy during the AKP period. All these accounts provide useful data and some interesting analysis, and in particular I have benefited from the works of Öniş, Subaşat, Tansel and Yılmaz (Öniş 2003, 2006; Öniş & Yılmaz 2009; Öniş & Kutlay 2019; Subaşat 2014; Tansel 2019). One of the major weaknesses of many mainstream studies on this topic is that the majority of them tend to focus, for the most part, on internal political and economic developments and policy decisions and do not give enough credit to the impact of global movements and influences. They tend to ignore or underplay existing power structures and the hegemonic shifts and changes in the global economic system of which the Turkish economy has been an integral part. Most of the accounts do not see the economy of Turkey as an important part of the global system. Instead they look at the economy of Turkey in isolation and give limited credit to outside or global influences. Many studies concentrate on specific national policies and the level at which various governments’ reliance or failure to follow the advice given by international organizations, while ignoring the deeper structural forces that play a determining role in shaping the way the Turkish economy was being incorporated into the global system. For instance, a study published by the European Commission in 2009, written by Mihai Macovei, is a good example of this common tendency among authors writing on Turkey’s economy during this period. Nearly all of the troubles, crises and weaknesses of the economy in this period are explained almost exclusively by internal factors, such as “primarily the result of policies”, “inadequate macro-economic policies . . . weak institutional and regulatory environment”, “inward-oriented economic policies” or “lack of fiscal discipline” (Macovei 2009). Similarly, economist Mustafa Sönmez states that “the political regime based on the strong personality of Tayyip Erdoğan is the reason for the economic crisis in Turkey” (Sönmez 2018). In a similar way, institutionalist writers have put the emphasis on internal political dynamics; Acemoğlu and Robinson, for example, in their prize-winning book, Why Nations Fail (an interpretation of the rise of the global West/North), claim that domestic politics is at the root of economic development and growth 5

Turkey in the Global Economy

because “prosperity and poverty are determined by the incentives created by institutions, and . . . politics determines what institutions a nation has” (the title of the book’s third chapter) and that with the right institutions development and growth are assured (Acemoğlu & Robinson 2012; Acemoğlu & Üçer 2015). Ali Burak Güven, in a similar manner, claims that “in the current Turkish context institutional weaknesses . . . have come to directly undermine economic performance” (Güven 2016: 11). Despite a number of accounts on Turkey in the AKP era, Turkey’s transformation during the past 20 years has been under-theorized and empirically under-explored from a critical political economy perspective. There is an urgent need for a conceptual framework to come to terms with historically distinct processes of political-economy transformation in the emerging economies of the global South to define a multiplicity of divergent experiences. An understanding of the way in which the Turkish economy integrates into the global system is not possible unless the wider political-economy context is understood, and this requires a long-term historical perspective. As a historian of global politics, I am interested in connections, comparisons and long-term trends. The existence of or lack of institutions in many parts of the world, particularly in developing countries, has not been an exclusively domestic problem but the result of the global political economy in which the countries’ economies are located. They are embedded within the broader macro-structures of the global political economy as well as grounded in the prevailing geographical structures of the real world. The macro-structures of the global economy are the institutions, conventions and rules of the market system, which all exist within the hierarchical structure of the world’s inter-state system. During the past half-century or so, a “thickening web of multilateral agreements, global, and regional institutions and regimes, and trans-governmental policy networks and summits” (Held & McGrew 2007: 137) has emerged and has closely interlinked all such actors, national or transnational, through connections consisting of activities and throughflows of both material and non-material phenomena and turned them into circuits and networks. Geographically, during the past several decades the global economy has become increasingly multipolar; new centres of production have emerged in parts of what had been, historically, the periphery and semi-periphery of the world system. The existence and the quality of institutions are direct results of Turkey’s historically and geographically specific position in the international division of labour, global inter-state system. A deeper understanding of this process requires a wider and long-term historical perspective which provides a spectrum to reveal interconnections between local, regional and national factors and global forces that the Turkish economy is subjected to. This is particularly true for the relationship between those societies, 6

Introduction

such as Turkey, that are going through serious transformations as a result of their integration into the world system. This work aims to place Turkey’s transformation in this period in world-historical perspective and draws on the work of Andre Gunder Frank, Giovanni Arrighi and Peter Gowan. My perspective here is unashamedly globalist and comparative in the sense that “we need a global perspective to appreciate, understand, account for, explain – in a word, perceive” the rise of Turkey as an emerging economy in the twenty-first century. We live in a world in which understanding the current situation requires analysing the interrelationship between security, economy and politics. If these three aspects are not considered together, it would not be appropriate to analyse or fully understand the world; the analysis requires a globalist perspective. This globalist perspective is essential because “without looking at the global jigsaw puzzle map, we cannot find the rightful place or comprehend the real functional relations of any of its pieces” (Frank 1998: 4), which in this study is the economy of Turkey.

Turkey in the global economy Although my unit of analysis is Turkey over the past two decades, this is not isolated from the bigger unit, the world economy or the global economic system, of which Turkey’s economy is an integral part. Our starting point is the definition of the world economy, or the world system, which is provided by Immanuel Wallerstein in his seminal work World Systems Analysis: a world-economy . . . is a large geographic zone within which there is a division of labor and hence significant internal exchange of basic or essential goods as well as flows of capital and labor. A defining feature of a world-economy is that it is not bounded by a unitary political structure. Rather, there are many political units inside the world-economy, loosely tied together in our modern world system in an inter-state system. And a world-economy contains many cultures and groups – practicing many religions, speaking many languages, differing in their everyday patterns. This does not mean that they do not evolve some common cultural patterns, what we shall be calling a geo-culture. It does mean that neither political nor cultural homogeneity is to be expected or found in a world-economy . . . Since world economies lack the unifying cement of an overall political structure or a homogeneous culture, what holds them together is the efficacy of the division of labor. (Wallerstein 2004: 23)

7

Turkey in the Global Economy

The world-system approach is based on the distinction between core, semiperipheral and peripheral countries in terms of their different roles/positions in the international division of labour dominated by the capitalist world system. In other words, the world economy, or world system, has a hierarchical structure in which all national economies occupy different positions depending on their sizes and levels of development. The most powerful and largest economy (or group of economies) occupies the dominant position (core) and the weakest, least developed, economies occupy the least influential zone (periphery); the rest, that is, those that are quite developed and influential but are not as powerful as the economy or economies occupying the core position, are considered to be located in a middle zone (semi-periphery). There exists underlying structural interdependencies of the countries from the cores and peripheries in the world system. The driving underlying objective of the current world system is the endless accumulation of capital, wherever and however this accumulation may be achieved. Serious capital accumulation is only possible when one firm or a small group of firms has a quasi-monopoly of world-economy-wide production. Possessing such a quasi-monopoly depends on the active support of one or more states. Over time, however, all such quasi-monopolies are self-liquidating, since new producers (attracted by the very high level of profit) are able, in one way or another, to enter the market and reduce the degree of monopoly. Increased competition reduces sales prices and also the level of profit, and therefore the possibility of significant capital accumulation. In a similar way, being a hegemonic power in the world system involves achieving a quasi-monopoly of geopolitical power in which the state in question is able to impose its rules, its order, on the system as a whole in ways that favour the maximization of accumulation of capital for enterprises located within its borders. Reaching the position of being the hegemonic power is not easy and has only been truly achieved three times in the last 500 years of the modern world system – by the Dutch Republic in the mid-seventeenth century, by Great Britain in the mid-nineteenth century and by the United States in the mid-twentieth century. Over time, states improve their economic and then their political and military positions; they become less willing to accept the “leadership” of the erstwhile hegemonic power and challenge the position of the hegemon. As a result of this competition, the global system (or economy) experiences upheavals or movements, and the positions change, and the world system witnesses significant shifts in the positions, including those of core economies. Such global shift(s) not only affect the position of the core economies but also that of all other economies, small and large alike, which may define their new position in the global inter-state system. In the current era of globalization, economic relations are still deeply structured by basic power relations between core and periphery economies. At the 8

Introduction

same time, it is important to understand dynamics of the current shift in the power positions, and the emergence of new powers, emerging economies, and the rise of East Asia as a new core area in the international division of labour. In this book, I try to present the journey of the Turkish economy since the 2000/01 crisis with a strong emphasis on its changing position and role within the inter-state world system. My premise is that almost all turning points that one can identify during this 20-year period also correspond, almost exactly, to the important turning points and shifts in the global economic system. More than anything else, this study offers a global political economy analysis of the rise of Turkey as a medium-sized emerging economy and looks at its deepening integration into the world economic system through trade and capital flows. This deepening integration into the world system is one of the most important factors to consider when trying to understand this journey, and therefore it is the central skeleton of my analysis, an historically oriented analysis, because it is impossible to understand and account for what happened in Turkey without taking account of what happened in the global system during the same period. Turkey’s integration into the global economic system in this period means that ups and downs in the world economy are felt deeply in the Turkish economy. In this sense, this book contributes to the current debates on the historical trajectory of political-economic developments in Turkey, the deep political and economic issues faced by Turkey for the past two decades and the examination of the process of Turkey’s full integration into the global economy, by applying a “world-system” analysis (an antinomy of states and a single division of labour).

9

1.

An emerging market economy

“[O]ld geographies of production, distribution and consumption are continuously being disrupted and that new geographies are continuously being created. In that sense, the global economic map is always in a state of ‘becoming’; it is never finished. But the new does not simply obliterate the old. On the contrary, there are complex processes of path dependency at work. What already exists constitutes the preconditions on which the new develops.” – Peter Dicken (2007: 32) “We have had a couple of hundred bad years, but now we’re back.” – Clyde Prestowitz quotes a Chinese friend1

The global political economy During the period when the Turkish economy was being fully integrated into the world economy, the global system was experiencing one of its historic structural transformations when deep-seated movements and shifts of positions were affecting every single economy in the world. This is what soon came to be known as the global shift: a shift in the hegemonic structures of the world economy – a shift away from North America and Western Europe to the emerging economies of the Global South in Asia, Africa and South America. Drawing on comparative analyses, historians and political economists identify patterns and causes of hegemonic power decline, such as decreasing economic and technological resources relative to those of rising powers (Kennedy 1987; Grygiel 2006; Kupchan 2011). These studies inform contemporary theoretical debates on power transition from the powers in the Global North to the powers in the Global South, mainly based on the analyses of the economic rise of China, the growing assertiveness of Russia or the dynamism of India. 11

Turkey in the Global Economy

The definition of the global shift used in this book is based on Andre Gunder Frank’s 1998 thesis in Re-ORIENT: Global Political Economy in the Asian Age, which offers broad analytical tools that have proven their value in anticipating what is now increasingly acknowledged as a primary shift in the global system towards China and India as dominant emerging powers in the world. I shall first consider whether, and if so how and with what consequences, the global system in this period has been going through a major shift. I shall then look at the role and position of Turkey, as a medium-sized emerging economy, within this period of global shift. More than 50 years ago, Organski (1968) warned the United States and its Western allies that China would become the most serious threat to the US’s supremacy. Organski further suggested that an alternative power hierarchy, which may include other medium-sized regional powers, would emerge to challenge the declining dominant power of the US and its allies in the world system.2 Predicting the remarkable rise of China, Organski explained the dynamics of the potential power transition from the United States as a declining hegemon to the People’s Republic of China (PRC) as a rising challenger in the international system. He predicted that the rise of China through its internal development would be enormous, that the power of China ought to eventually become greater and that the Western powers would find that the most serious threat to their supremacy would come from China (Organski 1968: 361–71).3 Later, in 1987, at the conclusion of his widely popular study of the global system titled The Rise and Fall of the Great Powers, Paul Kennedy was probably the first observer to measure the actual beginnings of this global shift: “The task facing American statesmen over the next decades . . . is to recognize that broad trends are under way, and that there is a need to ‘manage’ affairs so that the relative erosion of the United States’ position takes place slowly and smoothly” (Kennedy 1987: 534). In chronicling the decline of the US as a global power, Kennedy compared measures of US economic health, such as its levels of industrialization and the growth of real GDP, against those of Europe, Russia and Japan. What he found was a power shift in the global system over the past 50 years that had been generated by underlying structural changes in the organization of its financial and trading systems. Many other authors have analysed the changing balance of global power architecture in a similar way (Mearsheimer 1990). Later still, one year after the 2008 global financial crisis, Kennedy described the current level of the global shift as follows: If one believes in the economists’ theory of “convergence” – that is, the coming closer together of the product and income of companies, regions and countries – then the conclusion is clear: as China, India, South Korea, 12

An emerging market economy

Brazil, Mexico and Indonesia all “catch up,” the American share of things will relatively shrink. Sooner or later – and this debate really is about “sooner” or “later,” not about “if ” – we are going to witness a major shift in the global balances of power. (Kennedy 2009) The rise and decline of powers has always occupied a significant part of the more historically minded considerations of international relations. According to the calculations of Danny Quah, the centre of economic gravity in the world economy shifted from a point in the Atlantic (between North America and Western Europe) in 1980 to a location in the south-eastern corner of the Mediterranean in 2008, a location just south of Izmir, Turkey. In 1 CE, China and India were the world’s largest economies. First, European industrialization and later the rise of America drew the world economy’s centre of gravity into the Atlantic. As China has regained economic leadership, the centre is now retracing its footsteps towards the East. Extrapolating growth in the 700 locations studied, Quah calculated that by mid-century, “the global economy’s centre of gravity will continue to shift east to lie between India and China”. By economic centre of gravity, Quah is referring to the average location of the planet’s economic activity measured by the GDP generated across nearly 700 identifiable locations on the earth’s surface (Quah 2011: 7). Throughout the modern history of international relations, there has been a recognizable pattern of the emergence of great power that is determined by structural material factors. The essential factor here is how economic growth creates uneven development, which is explained by David Landes: “Economic growth was now also economic struggle – struggle that served to separate the strong from the weak, to discourage some and toughen others, to favour the new . . . nations at the expense of the old. Optimism about the future of indefinite progress gave way to uncertainty and a sense of agony” (Landes 1969: 240). In this historical process of great power shifts, some states achieve power but others lose it. This “differential growth in the power of various states in the system causes a fundamental redistribution of power in the system”, writes Robert Gilpin (1981: 13). This analysis is directly related to the definition of global hegemony. The concept of hegemony here refers to global leadership by one power, be it a state or a “historical bloc” of particular powers, whereby the reproduction of dominance involves the enrolment of other, weaker, less powerful entities and is constituted by varying degrees of consensus, persuasion and, consequently, political legitimacy. Force is not completely absent within such hegemonic arrangements but it tends to be the exception rather than the rule with regard to the upholding of the hegemonic order. Global hegemony is a self-limiting, self-defeating and temporary condition 13

Turkey in the Global Economy

in international affairs. That is because hegemonic power has the responsibility of organizing the international system, supplying public goods and intervening when necessary, and these all increase the pressures on and cost for the hegemon. There always comes a point when the hegemon finds itself over-committed and unable to bear the cost of maintaining the system any further. The hegemon prioritizes domestic obligations over its international commitments or finds it more difficult to stick to its global responsibilities. Either way, hegemony declines and collapses on itself and emerging chaos reigns until another hegemonic state, or a group of states, rises up and restores order. When the hegemony of a major power or global superpower is at the declining phase, this affects the entire world order and leads to instability. This not only affects the field of economic power; such economic power shifts will “have a decisive impact on the military/territorial order” (Kennedy 1987: xxii). When a hegemonic power imposes its political and economic authority over a region, it does so in relation to its allies and its local protégés. Gramsci used the term “hegemony” in a very specific sense to signify that the dominant power leads the system in a direction that not only serves the dominant group’s interests but is also perceived by subordinate groups as serving a more general interest (Gramsci 1971: 106–20, 171). David Harvey’s use of the term is similar: “the particular mix of coercion and consent embedded in the exercise of political power” (Harvey 2005: 36). Peter Gowan’s theorization of American hegemonic leadership in the post-1945 era is probably the most detailed and coherent analysis. The US hegemony in the global system after 1945 depended on a system of regional alliances that gave the US the ability to directly influence and command the political strategies and security policies of the other main capitalist centres. This in turn led to the formation of an American protectorate system that covered the capitalist core, with a distinctive “hub-and-spokes” character that dictated that each protectorate’s primary military–political relationship had to be with the United States (Gowan 2003). According to many experts, the US is facing a decline that has been more noticeable since the end of the Cold War. Although the US still clearly represents the largest and strongest economic and military power in the world, it is nevertheless struggling with severe weaknesses resulting from low economic growth and the protracted decline of the processing industry, predominantly in the field of innovative technological products. The US’s loss of momentum has been going on for decades and has led to a decline in its driving economic strength. A decline in productive capacity and the ever-widening gap between productive accumulation and financial accumulation has led to recurring financial and economic crises in every corner of the Western world (Dicken 2007: 41–62; Arrighi 2007: 149–72). 14

An emerging market economy

In parallel to this decline in the overall weight and influence of the US in world economics and politics, the past three decades has witnessed the emergence of other economic powers that have pushed themselves to the top position, and as a result, the global power balance has been altered significantly, with a fundamental shift towards a kind of multipolar world system. New centres with global influence have emerged in South East Asia, in particular China and India. South East Asia has maintained speedy growth and technological advancement because intra-regional trade, investment, GDP and per capita income have continued to increase in times of general sluggishness in the global economy. Other medium-sized states, some of which are regional powers, have also increased their power and influence in the same period, such as Mexico, Turkey, South Korea and Indonesia, all of which as a group came to be called emerging powers. China, countries in Latin America and Turkey opened up their economies around the same time in the 1980s, followed by India and Eastern Europe a decade later. Figure 1.1 GDP growth (%) G20 countries, 2017 and 2018 9 8 7 6 5 4 3 2 1

2017

UK Fr an ce Ja pa n S. Af ric a Br az il S. Ar ab ia

US M ex Ge ico rm an y Ru ss ia

E Au U st ra lia

In In dia do ne si Tu a rk e Ca y na da S. Ko r e Ar ge a nt in a

Ch in a

0

2018

Figure Source:1.1 OECD (2017).

Within this group, China, India and Russia, and to some extent Brazil, can be considered potential great powers, or power poles, whereas the other emerging economies can be seen as regional powers or second-ranking global powers. The massive economic achievement of China, India and certain other emerging economies has led to a debate about rising powers and a subsequent power 15

Turkey in the Global Economy

shift at the top of the international order. All available economic data highlight that today we live in a world of power transition, with the world’s economic landscape rapidly changing and a very different world emerging. Although the US is still the world’s leading economic power, its supremacy has been significantly reduced as other competitors, in particular China and India, have emerged. Writing in 2007, Peter Dicken, In these first years of the new millennium, the global economic map is vastly more complicated than that of only a few decades ago. Although there are clear elements of continuity, dramatic changes have occurred . . . there has been a substantial reconfiguration of the global economic map . . . Without doubt, then, the most important single global shift of recent times has been the emergence of East Asia – including the truly potential giant, China – as a dynamic growth region. (Dicken 2007: 68) Major shifts of hegemony between states occur infrequently and are rarely peaceful. The transfer of power from the West to the East has been gathering pace since the late 1990s, and Washington think tanks have been publishing thick white papers charting Asia’s (China’s in particular) rapid progress in microelectronics, nanotech and aerospace and printing gloomy scenarios about what this means for America’s global leadership. The American administration considers China to be a potential “strategic competitor” and has exerted enormous pressure on it since the early 1990s (US National Security Strategy 2015). China’s integration into the global economy began in the 1980s with its policy for special economic zones, which created four export processing zones offering tax exemption, cheap labour and land to multinational companies.4 As a result, capital flowed into China from all over the world and these economic zones acted as export platforms; provincial and local governments of China invested in such joint ventures with foreign investors. For more than three decades, China has marched to the banner of “reform and opening to the outside world” (China Daily 2007). Deng Xiaoping’s economic programme was regarded by many observers as a historical turning point of the twentieth century. At this stage, the policy of a US-dominated global system was one of “engagement”. With increased level of globalization and the entry of China to the World Trade Organization, engagement was intensified with the World Bank calling for privatization of state industry and the introduction of market prices in China. How ironic is it that now, three decades later, the USA increasingly regards a fast-expanding market economy in China as a serious threat to US global hegemony! For more than a century, the US has been the world’s biggest economy, accounting for over 24 per cent of the world’s GDP in 2016, according to figures 16

An emerging market economy

from the World Bank. The continuing uncertainty of the US economy and the decline of US technological leadership indicate that the time has come for the US to rethink its strategic economic options. Both the IMF and the World Bank now rate China as the world’s largest economy based on purchasing power parity (PPP), a measure that adjusts countries’ GDPs according to differences in prices (World Bank 2020b). James Kynge writes, “Chinese companies are widely recognized as world leaders, or as being at the cutting edge, in 5G telecoms equipment, high-speed rail, high-voltage transmission lines, renewables, new energy vehicles, digital payments, areas of artificial intelligence and other fields” (Kynge 2020). Macro Polo’s Global AI Talent Tracker identifies China as the country of origin for 29 per cent of the world’s top-tier AI researchers, as compared to 20 per cent from the US. It will not be too long before China’s economy surpasses the US’s by other measures too. The Centre for Economics and Business Research (CEBR) predicts it will happen in 2029 (CEBR 2015). If it does, then all this may dramatically change the context for dealing with global economic challenges. Figure 1.2 Where do top-tier AI researchers come from? Iran Israel 3% 3%

China

UK 4% Canada 5%

China 29%

India 8%

USA Europe Others India

Others 10%

Canada UK

Europe 18%

USA 20%

Iran Israel

Note: country affiliations are based on the country where the researcher received their undergraduate degree. Figure 1.2

Source: adapted from Macro Polo (2020).

Today, the Asia-Pacific region is the emerging command centre of the global economy. China has become the engine that is driving the recovery of other Asian economies from the setbacks of the stagnation of the 1990s. Japan, for 17

Turkey in the Global Economy

example, has become the largest beneficiary of China’s economic growth, and its leading economic indicators have improved as a result. Thanks to increased exports to China, Japan has finally emerged from a decade of economic crisis. By 2020, the US National Intelligence Council (NIC) predicted, China would be an economic powerhouse, vying with the United States for global supremacy. Mapping the Global Future: Report of the National Intelligence Council’s 2020 Project, one of the council’s key reports in December 2004 on the status of the world, stated that China’s economic growth, expanding military capabilities and large population would guarantee its success. “In the same way that commentators refer to the 1900s as the ‘American Century’, the 21st century may be seen as the time when . . . China . . . comes into its own”, the council wrote. The report commented that “the world of 2020 will differ markedly from the world of 2004, and in the intervening years the United States will face major international challenges that differ significantly from those we face today” (National Intelligence Council 2004). China is completing a historical cycle by becoming the biggest manufacturing economy again, “just as it was before the voyages of Christopher Columbus and Vasco da Gama. The world will have come full circle” (Allen 2011: 145). China is the most obvious power that is on the path to achieving economic superpower status, but it is not alone. India and other Asian states now boast growth rates that could outstrip those of major Western countries for decades to come. Owing to its one-child policy, China’s working-age population is set to decline early in the 2020s. The number of workers aged 16 to 59 plummeted by a record 4.87 million in 2015, down from the previous year’s fall of 3.71 million, according to China’s National Bureau of Statistics as cited by the Wall Street Journal (Wall Street Journal 2016). The working-age population has been in decline since 2012, with the number of people aged 16–59 predicted to be 830 million in 2030. The demographic is expected to decline sharply after this, by 7.6 million on average each year from 2030 to 2050, reported at the World Economic Forum (Myers 2016). Furthermore, the World Bank has reported that China’s working-age population could fall by more than 10 per cent by 2040, even with the end of the one-child policy (World Bank Group 2016). India has nearly 500 million people under the age of 19 and higher fertility rates than China. India is now starting to catch up with China and will eventually overtake it in the second half of the twenty-first century (CEBR 2015). By the middle of the twenty-first century, India is expected to have a population of 1.6 billion – and 220 million more workers than China. Of course, this could be a source of instability. But it could be a great advantage for growth if the government can provide the right education and basic training opportunities for India’s masses. The experience of the past two decades suggests more optimism than problems for India in the near future. 18

An emerging market economy

The postwar era witnessed economic miracles in Japan, South Korea and Taiwan. But none of them were populous enough to power worldwide growth or change the global game in a complete spectrum of industries. China and India, by contrast, possess the weight and dynamism to transform the twenty-first century global economy. The closest parallel to their emergence is the story of late nineteenth and early twentieth-century America: a rising, robust, energetic continental economy with an innovative, young, driven workforce that grabbed the lead in agriculture, clothing and the advanced technologies of the era, such as steam engines, the telegraph and electric lights. The second half of the nineteenth century had witnessed Europe’s position decline before the extraordinary might of the United States had begun. By 1913, the United States was already on the way to becoming a great power with an impressive economic advantage, 32 per cent of world manufacturing output, followed by Germany, with 14.8 per cent, and the declining British Empire with 13.6 per cent (Kennedy 1987: 201–202). But in a way, even America’s rise falls short in comparison to what is happening today. Never has the world seen the simultaneous, sustained take-offs of two countries that together account for one-third of the world’s population. India and China have become not only the world’s fastest-growing economies, but they are also heading to become the world’s greatest, outshining both Japan and the United States (Global Times 2017). Western business is not shifting research, design and production work to Asia just because Indian and Chinese brains are young, cheap and plentiful. In many cases, Asian engineers are better educated and they combine complex skills: mastery of the latest software tools, a knack for complex mathematical algorithms and fluency in new multimedia technologies. It is true that many Western companies went to India and China because of the low cost. But they are staying for the quality, and they are investing for the innovation. During the first decade after the industrialization drive started, it was the exports to Western markets which supported the Chinese economy, but that soon changed. The whole country, including many rural areas, started an astonishing process of urban development and redevelopment. Construction and urbanization played a significant role in China’s fast growth. What is driving China’s and South East Asia’s economies in general now is not demand from the West, but its own people, many of whom are becoming a fast-rising, home-grown consumer class. With unemployment low and wages rising, Asian consumers are turning out to buy. Gregory Fager, a director of the Institute of International Finance in Washington, says that demographics and economic development are helping to drive Asian consumer demand. Younger consumers are more inclined to spend than their elders, and Asian markets are getting younger and younger. China and India are the world’s largest and second largest consumer markets 19

Turkey in the Global Economy

respectively. More than half of India’s 1.1 billion people are younger than 25 (Financial Express 2006). According to the UN World Tourism Organization, China is currently the world’s largest and highest spending tourism market. In the first year of the new millennium, 10.5 million overseas trips were made by Chinese residents. In 2018, the figure was almost 150 million, an increase of 1,326 per cent (Smith 2019). China has the largest passenger car market in the world and has had the largest automotive manufacturing sector since 2009 (IATA 2016). Volkswagen is producing more cars in China than in Germany. China Mobile is the world’s largest mobile network operator with the world’s largest 4G network, with 1.44 million 4G base stations, and 481 million 4G subscribers, which represents 31 per cent of the total worldwide (Waring 2016). China is a dominant presence in the internet world: as of July 2017, there were 751 million internet-users in China; during the first half of the year there was a sharp increase of 19.92 million users. China’s internet penetration rate has reached 54.3 per cent, 1.1 percentage points higher than in 2016. The number of mobile-internet-users in China rose by 28.3 million to reach 724 million at the end of the first half of 2017; mobile-internet-users also accounted for 96.3 per cent of internet-users, up from 95.1 per cent at the end of 2016 (China Internet Watch 2017). As of July 2019, China was the largest market, with 21 per cent of the world’s internet-users, and India was in second place, with 12 per cent.5 The rapid growth of the Chinese internet market has turned the country into a promised land for many internet giants such as Yahoo, Google, MSN and eBay. The previous 2–30 years have witnessed 3 billion people entering into the global economy. From the past examples, we are accustomed to thinking of newcomers as countries that concentrate on doing unskilled, labour-intensive tasks. What is interesting about these 3 billion people is that although, on average, they are poor and most of them are unskilled, 10 per cent, 300 million of them, are highly skilled and very well educated and are ready to produce everything using the latest hi-tech methods.6 This 10 per cent still constitutes a very large number of people, as large as the US and larger than Japan and any European country, and they make a big and long-lasting impact on the global economy. They have already dramatically changed the way the world economy functions. In 1981, 88 per cent of China’s population lived in extreme poverty. According to the 2016 estimates, extreme poverty has declined to less than 1 per cent in China, which means that nearly a billion people have been lifted out of poverty in just four decades (Roser 2017). Over the same time period, the size of China’s economy increased from $202 billion to nearly $14.3 trillion today (Guardian 2016). Asia’s rise has just begun, and if the great regional powers can remain stable while improving their policies, consistent growth could continue for decades. In 20

An emerging market economy

the coming decades, how these Asian giants integrate fully with the world economy will largely shape the twenty-first-century global order. All these powerful trends may soon be followed by increasing concentration of geopolitical strength in Asia as well. “China and India’s sustained economic growth fuels their increasing geopolitical and military influence . . . The two rising powers broadly agree on matters relating to the international economic system, energy security, and the environment”, a January 2013 Carnegie paper asserts. In 2010, four of the top five economies in the world were still from the global West (the US, Japan, Germany and France); from the emerging world (China, India, Brazil and Russia) only China made the grade, being ranked second. By 2050, four of the top five economies will likely come from the emerging world and only the US will make the grade, ranking second, and its economy will be half the size of China’s. The 2008 financial crash made the managers of the developed economies realize that the “China challenge” is not something for the distant future – it is happening here and now. China has the world’s largest currency reserves; it is the largest exporter of the world; it is the largest producer of steel and has the biggest market for motor vehicles; it has recently become the largest trading partner of two other significant emerging economies, India and Brazil. Just as the twentieth century was the American century, the twenty-first is becoming the Asian century. This historic transformation underpinning this shift in economic power was well under way even before the start of the 2008 financial crisis, but the crisis is likely to go down as the moment in history that both revealed and accelerated the erosion of US-centred developed economies. The rise of the new emerging powers was not, and certainly will not be linear, mainly because of the major differences between countries and because of the exceedingly inconsistent internal situation in many of them. Not all emerging economies become emerging powers. Economic growth, the size of the population and the size of the country do not automatically necessitate regional, let alone global, leadership. The demands of the criteria are far higher: reliability, having the trust of neighbouring countries, having soft power capability and being able to provide public goods for the region and worldwide. The term “emerging power” is a rather multidimensional concept. Inevitably, some emerging countries will “score highly”, as it were, on some aspects and not others. The precise boundaries of the emerging power are therefore left intentionally fuzzy. Additionally, power is relational, which means that there are not just two but several actors, all aspiring to hegemony and competing with each other for it, and some do not always comply. The current hegemon, the US and its close allies, faced with economic decline and political passivity, are retreating from their global economic and political commitments. After decades of protracted decline, US hegemony, the 21

Turkey in the Global Economy

US-centred hub-and-spokes arrangement, is becoming a thing of the past in the face of the growth of emerging economies, above all that of China (Gowan 2001). The future of the world and its integrating global economy, it seems, will not be determined by the Euro-American powers. The Western world we have known is fast losing its superiority and is being substituted by a new international system that is partly shaped by the arrival of new actors, the emerging powers. This is underpinning the breakdown of the global economic order and the turn of the ruling elite in many countries to unconstrained economic and political nationalism. The West, collectively, noticeably does not have the means to back up its policies in the Middle East, in Africa, in Ukraine or in Southeast Asia. The new emerging powers, on the other hand, are aspiring to a new order of global politics, but they are not yet in a position to impose their will upon various regional and global conflicts in the world. Potentially, China, India, Brazil and perhaps Russia as a group could guarantee global security, energy supplies, etc. But it will be decades before they are anywhere near reaching great-power capabilities and have enough influence to play such a role. So far, the emerging powers have arisen as the new poles in an increasingly multipolar global system; in various regions they are hubs, but for the most part they lack real hegemonic power and the capacity for leadership. This is what Martin Wolf has called “the long and painful journey to world disorder” (Wolf 2017). The cause thereof is not only the relative weakness of the US and its Western allies but also the fact that the process of the global shift is still at an early stage, meaning that the transforming emerging powers have only partly been able to consistently operate globally and regionally. In other words, without common interests binding them, the global system’s “big players” are no longer operating harmoniously, at least not yet, and this is creating a power vacuum. Within this vacuum one thing is clear: changes are underway in the global state system that are shifting the distribution of power and restructuring the global economy. From a broad historical perspective, Turkey’s rise during this period may be understood, first and foremost, as the natural outcome of the end of the US global hegemony and the beginning of a new era of multipolar world order.

Emerging market economies From the late 1990s, Turkey has been considered to be part of a group of fast-rising economies, or “emerging powers”, or “emerging market economies”,7 that have been challenging the position of dominance of the old established powers that are dropping down the international pecking order. In this tectonic shift, China 22

An emerging market economy

and India, and perhaps others such as Brazil, Russia, Indonesia and South Africa, have the potential to render obsolete the old categories of East and West, North and South, aligned and non-aligned, and developed, underdeveloped and developing. Brazil, Russia, India, China and perhaps South Africa (so-called BRICS) are considered the most significant powers of this group of emerging stars. Mexico, Indonesia, South Korea and Turkey (so-called MIST) are viewed as next in line after the BRICS. Emerging powers, also known as emerging markets,8 are national economies that are transitioning from a closed- to an open-market system while investing in more productive capacity. They are moving away from their traditional economies that have relied on agriculture and the export of raw materials and are growing faster than other developing countries in the world. An emerging power has increased power beyond the borders of the state and possesses the capacity for regional and global influence. It typically has a relatively large population, covers a relatively large geographical area, and realizes, on average, a relatively high level of economic growth above regional and global levels, over a longer period. Although emerging powers are more developed than traditional countries, which depend on agricultural products or the importation of raw materials, they do not satisfy the standards of a developed economy. Although economic growth is much higher than in developed countries, they have much lower per capita income. Leaders of such countries typically seek to create a more dynamic and competitive economic power and a better quality of life for their people. These countries are rapidly industrializing and adopting a free market or mixed economy. The term “emerging economy”, or “emerging power”, is loosely defined, and countries of hugely different sizes and economic powers are often grouped together – many commentators, for example, put China and Tunisia in the same category. In short, although all of these new, rising powers can be described as emerging economies or powers, they are not all the same. There are vast differences both in size and in influence. In terms of their size, their impact on global economic affairs and their possible development projections, one can identify three distinct groups: (1) a top group of new super (economic) powers – China and India; (2) a second tier of larger emerging economies or powers – Brazil and Russia; and (3) a third tier of strong middle-sized regional powers – South Korea, Malaysia, Indonesia, Mexico, South Africa, Nigeria, the Philippines, Vietnam, and Turkey. Over the past two decades, the growing political and socio-economic power of middle-sized countries has obtained widespread attention (Buzan 2011). Middle-sized emerging powers have also started to play a major role as regional 23

Turkey in the Global Economy

powerhouses and independent actors in various arenas of global governance, including trade, intellectual property rights and aid, and Wall Street has identified middle-income countries as crucial targets for investment and borrowing. Middle-power activism transformed itself in the 2000s with the expansion of the G8 into the G20, recognizing that to be more effective and more legitimate, its membership had to include existing and emerging middle powers (Çolakoğlu 2016). A rapidly growing population and sustained economic growth are perhaps the most obvious distinguishing characteristics of the middle-sized emerging powers.9 The rise of the middle powers also has major implications for regional power dynamics. Emerging middle powers seek to consolidate their economic position and assert their influence in the international system. They predominantly do so through a regionally focused geo-economic and geopolitical strategy, which is organized around measures such as economic cooperation, systematic investment and development aid. For instance, Brazil sees the rest of Latin America as a strategic place for trade and the construction of political hegemony. Accordingly, Brazil is at the forefront of arrangements to liberalize trade in the region (e.g. MERCOSUR, a South American trade bloc) and has become heavily involved in regional investments in infrastructure. These measures are coupled with “soft power” initiatives to bolster social development in neighbouring countries and project ideological leadership in social policy-making. The group of countries identified as the BRIC successors – Indonesia, South Korea, Mexico, Malaysia, Nigeria, the Philippines, South Africa, Vietnam and Turkey – although they vary both geographically and economically, have features in common that are believed to highlight their high economic potential, for example, all have large and growing populations. Of these countries, Indonesia had the largest population as of January 2020, with 273.5 million people, and South Korea had the smallest, at 51.2 million. But all these countries have population growth rates above those of Western developed economies, indicating greater consumer market potential over the medium term. Large populations represent a wide potential pool of consumers for businesses to target, and high growth rates mean that this market will expand rapidly, providing proportionally more potential customers (Euromonitor 2008). Organski defines, in his “power transition theory”, the middle-power group in the global system as consisting of states that are able to exert influence on a regional, and to some degree global, scale. From the existing literature we can identify the following characteristics of middle-sized emerging economies:

• Lower-than-average per capita income, which provides an incentive for the next characteristic;

24

An emerging market economy

• Rapid economic growth. In 2018, the economic growth of most devel-

• •

•

oped countries, such as the United States, Germany and Japan, was less than 3 per cent. Growth in most of the emerging economies was 4 per cent or more. Some, like Vietnam, saw their economies grow by around 7 per cent. Rapid social change often made more volatile by natural disasters, external price shocks and domestic policy instability. Greater susceptibility to volatile currency swings, such as those involving the US dollar. They are also vulnerable to commodity price swings, such as those of oil or food, because they do not have enough power to influence these movements. Less mature capital markets than in the developed markets. However, growth requires a lot of investment capital. These markets do not have a solid record of accomplishment of foreign direct investment. It is often difficult to get information about companies listed on their stock markets. It may not be easy to sell debt, such as corporate bonds, on the secondary market. All these components raise the risk, but it also means that there are greater rewards for investors willing to do the ground-level research, which is why they attract investment. Higher-than-average return for investors can be achieved because many of these economies focus on an export-driven strategy. Many of them do not have enough demand at home, so they produce lower-cost consumer goods and commodities for developed markets. The companies that fuel this growth will profit more. This translates into higher stock prices for investors. It also means a higher return on bonds that cost more to cover the additional risk of emerging market companies. This quality makes emerging markets attractive to investors. Of course, not all emerging markets are good investments. They must also have little debt, a growing labour market and a government that is not corrupt (Mohan & Kapur 2015).

Some authors also make the distinction between “traditional” middle powers and emerging middle powers. Traditional middle powers are understood to be wealthy, stable and egalitarian social democracies, like Australia, Canada, Norway and Sweden. Emerging middle powers, however, are often states that only emerged as significant regional powers after the end of the Cold War, and their experiences with parliamentary democracy and balanced economic development are generally more recent, weaker, or inconsistent (Jordaan 2003: 165– 81; 2017: 395–412). However, as mentioned before, no two emerging economies are the same and some fit this general categorization and have all of the characteristics mentioned, whereas several have some of them, and others have none. 25

Turkey in the Global Economy

Turkey as a middle power Although Turkey is not a great power, it is considered by a majority of sources as an emerging middle power because it has a large and young population and it has considerable ability to act independently, to resist pressure from great powers and to exert substantial influence in regional matters (Dal 218). Turkey has significantly increased its presence in international politics over the past two decades and has sought to extend its global reach. Since the end of the Cold War, Turkish policy-makers have portrayed Turkey as an emerging middle power that is playing a pivotal role in shaping global politics in a fast-changing world order. With fast economic growth, rising populism at home and the Syrian civil war at its borders, Turkey and its relations with the rest of the world are more in need of analysis than ever before (Öniş & Kutlay 2016: 164–83). Indeed, the current situation of increasing rivalry between the rapidly rising China and the relatively declining United States provides opportunities for middle powers like Turkey, located at a strategically significant location, to increase their roles in their regions and beyond. William Hale argues that using the term “middle power”, or “emerging regional power”, is the most realistic way of conceptualizing Turkey’s international role in the post-Cold War era and to explain Turkish policies. He defines power as “the ability to oblige other states to take actions that they would not otherwise have taken and to resist pressure to do so from other states. This power depends on a mixture of the country’s military strength . . . and its economic resources and level of development” (Hale 2000: 1). Similarly, Zbigniew Brzezinski sees Turkey (like Ukraine, South Korea, Indonesia and Iran) as a state that is critical to big “geostrategic players”, such as the US and China, because the Turkish state has the capacity and the will to exercise power or influence beyond its borders to influence the global system geopolitically (Brzezinski 1997: 40–41, 84–6). Becoming a middle power and a regional leader has been seen by many Turkish authors and decision-makers as a natural step of progression in the post-Cold War era. For instance, Ahmet Davutoğlu (former foreign minister and prime minister of Turkey) described Turkey as a “pivotal state”, or “geopolitical pivot”10, emphasizing that Turkey can have a greater say in global governance because of its location, with access to both the Global North and the Global South (Davutoğlu 2008). Similarly, Meltem Müftüler and Müberra Yüksel write that “Turkey has the personnel, resources and entrepreneurial capacities to become an impressive mid-level power” and is ready to play an increased role in global affairs after the end of the Cold War (Müftüler & Yüksel 1997: 184–96). Turkey’s inclusion in MIKTA, a little-known multilateral and informal grouping of Mexico, Indonesia, Korea, Turkey and Australia also reinforces Turkey’s 26

An emerging market economy

emerging middle power status. This diverse partnership was launched in 2013 to punch above their individual weight in global affairs by combining their efforts. Faced with an unsettled world and increasing uncertainty about the intentions of the world’s most powerful nations, China and the United States, middle powers understandably want to increase their diplomatic room for manoeuvre, as well as escape the confines of a purely regional role. Despite Turkey’s strengths, according to some observers, Turkey is the most problematic member of MIKTA because of its mounting domestic governance crisis of recent years (Patrick 2018; Mo & Jongryn 2015). Writing in 1996 in Foreign Affairs, Paul Kennedy and two of his PhD students, Robert S. Chase and Emily B. Hill, described Turkey as a strategically significant country located “at a multifold crossroads between East and West, North and South, Christendom and Islam”, which enjoys “solid economic growth and middle-class prosperity” and “has the potential to influence countries thousands of miles from the Bosporus”. They go on to describe Turkey’s status as a pivotal state: The idea of a pivotal state – a hotspot that could not only determine the fate of its region but also affect international stability – has a distinguished pedigree reaching back to the British geographer Sir Halford Mackinder in the 1900s and earlier. The classic example of a pivotal state throughout the nineteenth century was Turkey, the epicentre of the so-called Eastern Question; because of Turkey’s strategic position, the disintegration of the Ottoman Empire posed a perennial problem for British and Russian policymakers. (Chase, Hill & Kennedy 1996) The significance and role of Turkey in the twenty-first century, therefore, cannot be assessed only by focusing on the country’s internal characteristics and economy. The development of Turkey as an economic and political power in this period must be analysed within the wider world economy and in relation to general patterns of change and the changing architecture of power in that complex configuration. Turkey, my unit of assessment, is an integral and increasingly more important part of this global complex. The rest of this book will examine how Turkey went from being a backward and underdeveloped country to become the medium-sized global power and significant regional one that it is today.

27

2.

The Turkish economy in the twentieth century

Independence to 1970s In the 1920s, less than 25 per cent of Turkey’s population lived in urban centres with more than 5,000 inhabitants. The industry inherited from the Ottoman Empire was extremely weak, almost non-existent. The proportion of those living in either rural or urban areas remained little changed until after the Second World War, but rapid urbanization has happened since then. The proportion of the population living in urban centres had increased to 44 per cent by 1980 and to 68 per cent by 2005. Rapid urbanization also meant large movements within the labour force. Agriculture’s share of total employment figures declined from about 80 per cent in 1913 to 34 per cent in 2005, whereas industry’s share rose from about 9 to 23 per cent during the same period, and that of services increased from 11 to 43 per cent. Before the late 1970s, Turkey was considered an agricultural powerhouse that could feed its own people without any agricultural imports, and even exported some agricultural surplus. Similarly, agriculture’s share of GDP declined from about 55 per cent in 1913 and 54 per cent in 1950 to 11 per cent in 2005. Industry’s share of GDP increased from about 13 per cent in 1913 to 26 per cent in 2005, and the share of services increased from 34 to 64 per cent during the same period. A decade of war beginning with the Balkan wars in 1912 had resulted in a dramatic 20 per cent decline in population and a more than 40 per cent decline in per capita income before the establishment of the Republic of Turkey in 1923. The gap between the high-income countries of Western Europe and the United States and the developing economies in the world widened considerably during the century before the First World War due to the rapid industrialization that took place in the countries in the former group. GDP per capita in the area within the present-day borders of Turkey was around $1,200 in 1913, less than 30 per cent of the level of GDP per capita in the high-income countries of Western Europe and the United States at that time. After two world wars and the Great Depression, per capita income in Turkey in 1950 was equal to approximately 29

Turkey in the Global Economy

one-quarter of the per capita income of the high-income countries. Since the 1950s, Turkey’s per capita income growth has been on a path of convergence with countries in the European periphery, despite the fact that Turkey’s path was disrupted by several economic and political crises. By 1980, the Turkish economy was producing a satisfactory amount of essential products such as steel and petrochemicals, but despite that, none of these sectors could compete in the global markets (Pamuk 2019). Since the beginning of the Republic in 1923, the key aim of the people who have governed Turkey has been “development”, and they have had a belief that development would be achieved through industrialization. The main aims of economic policy were decided at the Izmir Economic Conference in February 1923. Various proposals were adopted for the protection of the domestic industry through custom barriers and tax exemptions (Ökçün1971: 426). In the 1920s, the state sought to revive the economy by investing in key industries. Several laws passed between 1927 and 1929 provided generous incentives to those who wanted to invest in industrial production. Free state land and generous tax exemptions were provided, as well as a 30 per cent reduction in the rates for transportation on state railroads and shipping for these early industrialists. The private sector, however, was still not strong enough to respond to these incentives, so the state stepped in and invested in basic industries, such as steel, cement, sugar and basic machinery. Yunus Nadi, a renowned journalist and founder of the Cumhuriyet newspaper, expressed his disappointment about the poor state of industry in the country at the time, saying that “we still don’t know how to make a half-way decent cheese in this entire country” (in Ahmad 1995: 87, 90). For most of its republican history, Turkey followed a quasi-statist approach, with strict government controls over private sector participation, foreign trade and foreign direct investment. The state considered industrialization to be the necessary means for transforming the economy and society and established several state-owned factories in Anatolian towns. However, despite all these efforts, before the Second World War there remained hardly any industry and large segments of the population were still living in the countryside. After a brief experiment with agriculture-based growth in the 1950s, Turkey undertook import-substituting industrialization. Similar to many Latin American and Asian economies, which were also located on the periphery of the world system, the governments were trying to achieve industrialization and self-sustainability in order to diminish the dependency of the national economy on foreign resources. Various governments wanted to develop the national economy, establish a solid industrial framework, but lacked the financial resources to do so. For most of the twentieth century, the Turkish economy was heavily dependent on external sources for the financing of its development policies. After the 30

The Turkish economy in the twentieth century

Second World War, when the Cold War began between the West and the Soviet Union, the Turkish government tried to make use of the geostrategic location of the country for the security of the Western bloc so that it could obtain as much US aid and economic support as possible. At the beginning of the Cold War, Turkey emerged willingly to play a role as the US-led Western alliance’s “watchdog” in the Near East. Turkey received its first foreign aid in 1948 via the Marshall Plan and experienced its first contact with the International Monetary Fund (IMF) by the time the moratorium on nuclear testing began in 1958. The Marshall Plan provided grants to buy imports from the USA or dollar area, as well as other participant countries. The aid that came with the Marshall Plan did not really accelerate industrial development in Turkey. A large part of the financial aid to Turkey was allocated as military expenditure, to buy weaponry. The US allocated 30 per cent of its budget to defence expenditure during this period, whereas Turkey allocated more, between 35 and 40 per cent. Although the defence capacity of the country was strengthened, the civilian economy did not benefit in any significant way from Marshall Plan aid (Koç & Koç 2017: 83–121). In the short boom created by the Korean War, Turkey managed to sell growing volumes of metal ores and some of its traditional export items, but more importantly its grain. The Korean War had significantly increased the price of wheat in the world markets, and the area under cultivation in Turkey had increased more than 50 per cent thanks to the use of newly imported tractors. Because mechanization in agriculture was a priority, the Marshall Aid enabled the import of a large number of tractors between 1947 and 1952. However, this export boom came to an end from 1953, and over the next few years inflationary pressures intensified. After 1960, however, because of state-led development of urban areas and migration from rural to urban regions, the urban population increased significantly, and the agricultural capacity of the country declined continuously (Karpat 1976). All this mirrored many other developing nations’ experiences; former colonies and semi-colonies all followed a similar route, relying on outside financial help and technological assistance coming from Western developed economies until the 1970s. The global situation of the developed economies started to change towards the end of the 1960s, and with this the fortunes of the developing economies, like Turkey, because of their heavy dependence on them. The so-called economic miracles of the 1950s and 1960s (“the Golden Age of Capitalism”, as Eric Hobsbawm called it (1995: 285ff )), the high growth rates, technological innovation, social and geopolitical peace, and rapid development of US-led Western economies came to an end in the early 1970s. Japan and Germany, two countries producing hi-tech items via a large, low-wage labour supply, had imitated the US companies in one key industry after another and invaded the markets to challenge the US domination. When US manufacturers lost their competitive 31

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edge to German and Japanese manufacturers, they responded in various ways: by reducing their expenses, updating their plants and pricing their products below full cost. However, the most decisive US response to this competition was a drastic devaluation of the dollar relative to Japanese and German currencies. Since then, the ebb and flow of currency devaluations and revaluations have become key instruments of US governmental action in an increasingly competitive global marketplace. The US became more and more inflationist with regard to the value of the dollar. As the dollars accumulated in foreign banks, the actual value of the dollar sank against gold. Gold flowed progressively out of the US during this period: US gold stock dropped from over $20 billion in the early 1950s to less than $9 billion by 1970. Nervousness about this gold depletion was expressed in the early years of the Kennedy administration, but it did not become a crisis until the late 1960s and early 1970s when the US balance of trade became negative (Gökay & Whitman 2010: 164–90). In parallel with the decline in gold stocks and competitive trade, US corporate profits also began to decline in the face of competition from Germany and Japan. Because of these severe profitability issues in productive sectors at home, the US lost some of its power over global trade and finance. Collectively, these trends indicated the beginning of a long decline in the comparative dominance of the US economy. The late 1960s and early 1970s were particularly harsh times for US finance: the dollar was weakened further, which opened the door for other central banks to diversify and start keeping alternative currencies as a hedge against any steep decline in the value of the dollar. The French president, de Gaulle, witnessing the sharp decline of confidence in the US economy and currency, happily sold US dollars, eventually accumulating more gold than Fort Knox (Bandeira 2019: 328). The Bank of England joined the French in demanding gold for dollars, which accelerated a run on the dollar, provoking a currency crisis that lasted until the middle of 1971. At that point, bowing to a tripling of the US balance of trade deficit and an increasing outflow of capital, President Nixon announced a series of drastic changes in the world’s currency arrangements. In a dramatic televised address to the nation on 15 August 1971, Nixon declared an end to the Bretton Woods system’s fixed dollar–gold link, which meant that the US would no longer honour dollars for gold valued at a fixed rate and would only agree to a system of floating exchange rates, whereby each currency would be valued according to world demand (El-Gamal & Jaffe 2010: 4). In one stroke, the US president invalidated 25 years of currency agreements and introduced a prolonged period of currency instability (Fouskas & Gökay 2012: 65–8). The spectacular end of the convertibility of the dollar that was brought about by the US administration reinstated the economic autonomy of the US state. 32

The Turkish economy in the twentieth century

The US dollar, however, was no longer convertible into gold at a fixed price and entered into a process of prolonged decline. The devaluation led almost immediately to an explosion of global price inflation and a collapse of share values on equity markets, which in turn restored the US balance of trade. With this radical shift, the dollar became an irredeemable currency that was no longer defined or measured in terms of gold, and restraints on its printing were removed. From the early 1970s, the unspoken objective of all US administrations has been to slow down the decline of the US economy. First, a crisis was created by a significant loss of confidence in the dollar. As a result, the dollar was left “floated” in the international monetary market, which weakened its position as the hegemonic currency. After 1971, the US economy entered into a long period of instability. During this period there were several recessions, including a mini recession in 1971, a deeper and larger recession from 1973 to 1975, a period of hyperinflation from 1979 to 1980, a severe recession during 1981 and 1982, a real estate bubble and stock market panic in 1987, and a deep recession in 1992 and 1993. Nine of the 22 years from 1971 to 1993 were “economically troubled” and the years in between reflected uneasy transitions from one crisis to another. In all these recessions, the real damage was transferred to the dependent economies in the periphery of the world system. As a result, poor economies like Turkey experienced all such recessions, big and small, in a much harsher way than the core economies. Because of its still dominant position in the global economy, the US was able to export its economic problems to the other economies – shifting the burden of the crisis from itself to the rest. This was possible because other economies had, for the most part, tied their currencies to the US dollar. Thus, when the 1973–75 recession began, the US could shift its effects onto its partners, which then bore the greater burden as oil prices rose after 1974. Similarly, the hyperinflation of the late 1970s and the sharp global recession of 1981–82 became global crises as the Bretton Woods system struggled to recycle the dollars into for-profit investments. This led depositor banks in the advanced capitalist economies to look to less-developed countries for profits, because oil-exporting economies were unable to absorb the huge oil revenues that were generated in US dollars (Greider 1987). The tragic results of the crises of the 1970s and early 1980s were, once again, exacerbated by a failure of the US to exercise leadership within the global economic system. Rather than promoting sensible and long-term investments (whether in its own economy or in those of the developing world), the US chose to promote the purchase of US Treasury bonds, which would act as a subsidy for the US economy by keeping domestic interest rates low. The short-term benefits this solution provided, however, were more than offset by its long-term costs, as the US increasingly came to rely on foreign investors as the primary source 33

Turkey in the Global Economy

of finance for US investments (Kaiser & Ottaway 2002). This had the effect of artificially increasing prices through speculation, leading to an inflationary outburst that undermined the perceived value of the dollar, which caused a decline in demand for dollars and a corresponding upward spike in US interest rates. This in turn forced depositor banks to scramble to find new ways to invest the growing hoard of dollars, leading to further attempts to dump excess dollars in developing economies, which merely fed the inflationary spiral by adding a rapid increase in the price of basic commodities to the mix. Box 2.1 Import substitution industrialization (ISI) Import substitution industrialization is a development strategy focusing on promoting domestic production of previously imported goods to foster industrialization. ISI was pursued mainly from the 1930s through to the 1960s in Latin America, in particular in Brazil, Argentina and Mexico, and in some parts of Asia and Africa. The idea of import substitution is to initially close a country to imports to allow local firms in new “infant industries” room to grow; eventually, as the local firms grow strong enough in the protective environment, markets would be opened to competition. After local firms had had time to grow and develop, it would be expected that they would be mature enough to compete on an equal footing with foreign competition. Import substitution was popular in economies with a large domestic market that was the main driver of economic growth. Promoting local industries would provide several advantages for large economies: employment creation, import reduction and saving in foreign currency, which would reduce the pressure on foreign reserves. Furthermore, if the locally produced domestic goods were successful, the economy could even increase its exports. Hence, ISI can produce a “virtuous economic cycle” of an increase in employment, output, income, exports and foreign reserves and a decrease in imports, creating an overall improvement in the economy’s balance of trade and payments. To promote local industries, capital and investment are needed. In economies with a shortage of foreign reserves and in those that are unattractive to foreign investment, the alternative would be government subsidies. The first and second oil shocks of 1973 and 1979 forced many developing countries to abandon the state-led import substitution industrialization model and undertake far-reaching economic liberalization programmes (Adewale 2017: 138–58).

34

The Turkish economy in the twentieth century

In the face of the uncertainty in the world system from the late 1960s, various governments in Turkey chose to follow short-term populist statist policies. As was the case in many developing economies before the 1980s, the main economic development strategy was characterized by import substitution policies (see Box 2.1). Some industrialization happened as a result of the first five-year plan (1963– 67), but this state-led industrialization, that is, import-substituting development, soon resulted in crises and high inflation, especially during the late 1970s. The industrial growth rate had declined from 12 per cent between 1965 and 1969 to only 1.5 per cent in 1970 (Türkiye Milli Geliri 1978). This whole period was characterized by public investment programmes, which aimed at expanding the domestic production capacity in heavy manufacturing and capital goods. Foreign trade was under heavy protection via quantitative restrictions along with a fixed exchange rate regime that, on average, was overvalued given purchasing power parity. The import substitution policy relied heavily on imported raw materials. Turkey’s terms of trade worsened after the first oil shock in 1973/4, and this devaluation caused a huge burden on its balance of payments, which led to a sharp increase in short-term borrowing. The era of import substitution in Turkey ended in the late 1970s with a severe balance of payments crisis and hyperinflation. The peak of the crisis occurred in 1978, when gold and the convertible currency reserves of Turkey were at an all-time low and its repayment capacity was completely weakened (Unay 2003: 308). Hyperinflation and an increasing unemployment rate affected the social formation of society adversely. Various governments responded by implementing half-hearted and ineffective measures to try to overcome the crisis. The global situation, in particular the negative effects of the second oil shock in 1979, made things worse, and the Turkish economic crisis intensified further. In terms of Turkey’s financial sector, there has been a concerted attempt since the 1960s to improve and modernize it. Several special-purpose banks were established, such as the Tourism Bank (1962), the State Investment Bank (1964) and the Investment and Credit Bank (1964) to accelerate private sector investment. In the 1970s, only one commercial bank, a foreign capital bank, was given a licence. By the end of the 1970s, there were 11 capital groups with bank ownership in the country (Banks Association of Turkey 1979). Despite all these efforts, the Turkish economy in the 1970s suffered from an inefficient banking system and low-quality portfolio management. Banking and finance in Turkey revealed all the elements of an underdeveloped financial economy with negative real interest rates. In the second half of 1979, the Turkish economy suffered from the combined effect of serious foreign exchange and debt crises and the second oil crisis, and as a result, the inflation rate reached triple-digit figures. Turkey was able to meet 35

Turkey in the Global Economy

only about 5 per cent of its total oil needs in terms of production. Two-thirds of Turkey’s foreign currency earnings went to pay the oil bill (Zürcher 2017: 267). The industrial sector shrank by more than 5 per cent in both 1979 and 1980. Exports crumpled, and shortages of even the most basic goods became pervasive. The deterioration of the economic conditions led to widespread social unrest. Süleyman Demirel’s centre-right Justice Party (which came to power after the early elections of October 1979) appointed Turgut Özal as undersecretary to the prime ministry, and he had full power to initiate economic policies. He was a staunch believer in and supporter of economic liberalism and had experience at the World Bank in the 1970s; at the time of his appointment, he was working at Turkey’s State Planning Organization, the pinnacle of economic bureaucracy in Turkey at the time. On 24 January 1980, Özal announced an economic stabilization package, widely known as the “January 24 decisions”. The package, drafted by Özal in consultation with the IMF, indicated a real turning point in Turkey’s economic history and signalled that state-led industrialization would end once the planned development was carried out. The opening up of Turkey’s economy to global influences began with this package. Its long-term objectives involved an export-oriented trade and development strategy based on comparative advantage. The decisions announced on 24 January 1980 earnestly launched the Turkish economy’s liberalization of its financial system; the aim was to be incorporated into global financial markets. The package included a wide range of policy changes, from the liberalization of finance and exchange rate regimes to issues concerning foreign trade, including a 33 per cent devaluation of Turkish lira. The programme endorsed the realization of extensive transformations in the structure of the economy and the price structure in the market. The main difference between this programme and similar programmes attempted before is that this was a long-term economic development strategy aiming to deliver permanent and structural changes in the way Turkey’s economy was organized rather than aiming to realize some short-term objectives. In the international financial community, the launching of the 24 January 1980 stabilization programme was acknowledged as a real turning point in incorporating Turkey’s banking and finance sectors into the global finance networks. However, one can also identify the 24 January decisions as a turning point with serious potential risks because it made the Turkish economy wide open to the instabilities and risks of global financial markets and movements.

36

The Turkish economy in the twentieth century

Introduction of neoliberalism in 1980s Neoliberalism as a plan for reorganizing the economy first gained prominence in a few economies in the 1970s, essentially as a response to the declining rate of profit of industries and to the stagnation in the US economy. From the beginning of the 1970s, this neoliberal way of restructuring was extended through the multilateral agencies of the IMF and the World Bank to the rest of the world. The removal of trade barriers and government subsidies, the privatization of government enterprise and the vast expansion of the operations of global financial corporations as the enabling method for the penetration of multinationals into national economies are common features of neoliberal restructuring. However, the issues of “how coherent neoliberalism really is”, or “is there only one type of neoliberalism?”, are a matter of debate among researchers (see Box 2.2). Some argue that different styles and sequences of neoliberal experience exist in different world regions and at different times, that there is “religious as well as secular neoliberalism, neoliberalism of labour parties and of the far right, and neoliberalism of dictatorships as well as parliamentary neoliberalism” (Connell & Dados 2014). Keeping these different practices in mind, one can nevertheless say that neoliberalism, since the 1970s, became a new stage in the development of the global economy (Harvey 2005: 2). Neoliberal restructuring, export-oriented pro-growth policies with external borrowing, was introduced in Turkey in two cycles: the first with the 24 January 1980 economic liberalization package of Turgut Özal, and the second in 2001 as a response to the 2000–01 banking and currency crisis. Özal’s economic liberalization package directly involved close cooperation with the IMF, the World Bank and the WTO as the providers of massive financial loans for Turkey. As explained above, none of these efforts, these policy changes, happened in isolation or as a result of new thinking in Turkish policy-making circles. Massive financial loans accumulated in the international bank deposits thanks to the recently increased price of petrol. A surplus of petrodollars worth approximately $80 billion, earned by oil-rich Middle Eastern states, flooded global money markets. In other words, the supply of world money and access to credit expanded tremendously for those countries in deficit, enabling them to borrow indefinitely. As a result of the recycling of petrodollars, many developing economies in Latin America and Asia, including those state-socialist economies in Eastern Europe, started borrowing large amounts and more and more debts were rescheduled with increased interest rates, increasing the amount of debt massively. US banks and other financial institutions competed fiercely with one another in pushing money on countries that were in desperate need of credit. Turkey was not unique in also witnessing extreme market rationality, 37

Turkey in the Global Economy

Box 2.2 Neoliberalism Neoliberalism has become the dominant strand of global economics since the 1970s. Neoliberalism, inspired by the free market ideology of Milton Friedman (1912–2006), has been expanded globally by the United States and the key institutions of the IMF and the World Bank. Neoliberalism is in the first instance a theory of political economic practices that is based on the premise that human well-being can best be progressed by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets and free trade. It is focused on giving priority to the private sphere over the public sphere, and hence the role of the state in the sphere of the economy should be minimized and an institutional framework appropriate for such practices should be created and preserved. The state must also set up the military, defence, police and legal structures and functions that are required to secure private property rights and to guarantee, by force if necessary, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, transport or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks, the state should not engage in economic activities. State interventions in markets must be kept to a bare minimum because, according to neoliberal theory, the state cannot possibly possess enough information to second-guess market signals and because powerful interest groups will inevitably distort and bias state interventions for their own benefit.

complete dismantling of the public sector and full liberalization of goods and services, which are known as neoliberal structural adjustment programmes. Primarily, these were responses to the problems and changes in the global system, and many other countries implemented such programmes in the same decade; indeed, they were strongly encouraged or even enforced by the IMF and the World Bank. Towards the end of the 1970s, many developing economies were generally experiencing a levelling-off of growth and, as a response to this, privatizing their stagnating economies became the order of the day. In many countries, the immediate policy reaction to the economic downturn of the 1970s was to introduce strict instruments to stop wage increases and reduce government spending on social welfare. Many Latin American governments adopted 38

The Turkish economy in the twentieth century

neoliberal structural adjustment programmes (administered by the World Bank and the IMF in collaboration with their domestic elites) to avoid the total collapse of their highly indebted and inflated economies. Accordingly, they were forced to devalue their currencies, refinance their foreign debts, drastically trim down government expenditure and restructure their economies according to the terms set by international finance. As a result, conditions for the majority of people in these countries worsened very rapidly, and all these measures in turn incited widespread anti-IMF riots throughout Latin America.1 Supporters of neoliberalism chanted the mantra that everyone would benefit if the public sector were privatized, businesses deregulated and market mechanisms allowed to distribute wealth. The form of neoliberalism that took root first in the US during the 1970s and then in the UK during the 1980s emerged primarily as a discourse about the desirability, if not the necessity, of shifting power over policy-making away from governments. It quickly spread internationally through the central role that the US played in Bretton Woods’ institutions, the IMF and the World Bank, changing not only the ideology of these institutions but also the way that they functioned structurally. Thus, as the US role in the Bretton Woods system became more problematic, efforts to reform the system focused increasingly on crisis displacement strategies, and particularly “market-based” schemes, rather than on true structural reform. These contradictions were anticipated by critical political economists, such as Susan Strange, whose 1986 critique of global capitalism, Casino Capitalism, observes how a money merry-go-round of speculative investment had even then begun to spin the web of speculation that produced a series of crises.2 Similarly, David Harvey has argued from the beginning that neoliberalism was a doctrine that primarily benefited the wealthy, its adoption allowing the top 1 per cent in any society to capture a disproportionate share of whatever wealth was generated. According to Harvey, neoliberalism is an exercise in the redistribution and transfer of wealth. Harvey further emphasizes that neoliberalism is “a theory of political economic practices” rather than a “complete” political ideology. Harvey identifies anti-liberal autocrats such as Chinese leader Deng Xiaoping and Chilean dictator Augusto Pinochet as being among the political vanguard of neoliberalism. In fact, when neoliberal practice so far is examined, there does not seem to be any sort of clear-cut connection or even a correlation between a favourable assessment of neoliberal economic practices and a commitment to liberalism “proper”. Writers differ on whether neoliberalism is a political ideology, a set of policies, or a new form of economic governance (Panitch 2000: 5–20; O’Connor 2010: 691–715). In this book, I use the term neoliberalism as one phase in global capitalism’s long history (Gökay & Whitman 2010: 125–54). 39

Turkey in the Global Economy

By following these neoliberal policies, state revenues were diverted from the public sector and from the services used by working people into the purses of international creditors, the transnational corporations operating in the region and their local allies in countries’ own ruling elite. Combined with the effects of the debt crisis of the early 1970s, the effects of these policies drastically increased the number of people living in poverty. In other words, the primacy of capital in neoliberalism meant that crises would be resolved on the backs of the workers, with cuts to the welfare state and public services, even though it is not the poor who had caused them. In Latin America during the 1980s, the number of people living in poverty increased from 120 million in 1980 to 196 million in 1990 (Vilas 1996). Predictably, these policies were met by popular protest and widespread unrest, which was suppressed by state violence. In several countries, it was only possible to impose these harsh measures after the military intervened and established a dictatorship (Chile 1973, Argentina 1976, Bolivia 1980, Guatemala 1982). Neoliberalism was finally implemented in Latin America with the help of death squads and torture chambers. The same pattern was observed in Turkey. Eight months after the 24 January 1980 reform package was introduced, a military coup abolished the democratic process, closed all political parties and unions, and took full control on 12 September to prepare the ground for the speedy implementation of neoliberal reforms by suppressing all opposition. The coup was a response to the economic impasse and the political chaos that had resulted from the economic crisis. It was therefore military rule that paved the way for the requirements of this neoliberal economic policy package, and this was similar to the experience of Chile seven years earlier in the context of the heyday of the Washington Consensus (see Box 2.3). Box 2.3 Washington Consensus The “Washington Consensus” emerged in the early 1980s as a right-wing reaction that stressed the necessity of neoliberal ideology for economic development, with absolute commitment to the free market and the presumption of the state as a source of both inefficiency and corruption. The Washington Consensus comprised four elements: 1. The hegemony of modern neoclassical theory within development economics, which assumes that the market is efficient and the state is inefficient. It naturally follows from this assumption that the market rather than the state should address economic problems of development such as industrial growth, international 40

The Turkish economy in the twentieth century

competitiveness and employment creation. An unquestioning belief in neoclassical theory also leads to the assumption that capital mobility and the relentless advance of “globalization” is good for the world economy and all individual members of the world system. 2. During the pre-Washington Consensus era, it was generally believed that poor countries remained poor because of their lack of capital (machines, infrastructure and money) and that development is a process of systemic transformation through modernization and industrialization that is driven by domestic consumption and domestically financed capital accumulation. In contrast, those who drafted the Washington Consensus believed that countries remained poor because of misconceived state intervention, corruption, inefficiency and misguided economic incentives. According to the Washington Consensus, development is the inevitable outcome of a set of “appropriate” incentives and neoclassical economic policies, including fiscal restraint, privatization, the abolition of government intervention in prices, labour market “flexibility”, and trade, financial and capital account liberalization. 3. The emphasis of the Washington Consensus on the virtues of the market was supported by the theories of Hayek and the general equilibrium theory of mainstream economics. 4. Under the Washington Consensus, the World Bank set the agenda for the study of development, with the Bank and the IMF imposing standards of orthodoxy within development economics and enforcing the relevant policies through conditionalities imposed on poor countries facing balance of payments, fiscal or financial crises. Significantly, because of the Washington Consensus, states lost much of their capacity to select, implement and monitor distributive and welfare policies because of legislative changes, departmental reorganizations, salary reductions and large-scale redundancies (Fine & Saad-Filho 2011).

Under Turgut Özal’s leading role, Turkey’s economy was one of the first in which the policy proposals of the Washington Consensus were put into practice. Turgut Özal was actively promoting Turkey as a location, almost a test case, for 41

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neoliberal joint ventures with foreign investors. After Özal’s 24 January package, Turkey was frequently singled out by the IMF and the World Bank in the mid-1980s as an example of successful adjustment that others in line must follow.3 In this way, neoliberalism replaced the previous strategy of state-supported industrialization and became the dominant development strategy for the Turkish economy. The economy and trade of the country was reoriented towards an expansion of export industries based on cheap labour and towards international trade by opening up the economy to international finance capital. The official justification for the neoliberal adjustment measures in Turkey was the publicly repeated aim of stopping fast-rising inflation, the accompanying misery among the country’s population and political chaos. In order to achieve this, the key objective was to fill in the foreign financing gap and to accomplish a more export-oriented and market-based economic system. On this basis, export subsidies were granted and exchange rates were allowed to depreciate in real terms to make Turkish exports more competitive to promote export-based growth. This was a strong move to overcome the weaknesses of the decades-long import substitution strategy by gearing the country towards a more outward-oriented economic development strategy. During the 1980s, there was a fast-track and multilayered reform and adjustment process in almost all sectors of the Turkish economy. The reform process included, first, the liberalization of the foreign trade regime and the financial sector, and later, in the late 1980s, the liberalization of capital accounts, as a result of which the whole pattern of the policy-making environment changed fundamentally. Once implemented, the reform package introduced export subsidies, put into practice heterodox policies concerning export incentives, led to a high level of devaluation, increased the cost or prices of public goods and services, and pushed interest rates up. For the political power behind such neoliberal policies, the expected result was not much different in Turkey from that in many other places that experienced similar neoliberal restructuring: such policies were a way of gaining legitimacy via economic growth, securing the support of the country’s economic elite and attracting economic and political support for the global hegemon, the USA. Socially, similar to in other countries where neoliberal measures had been introduced, the country was deeply divided concerning these developments, and widespread protests by trade unions and violent clashes took place in the streets of Turkey’s cities. It was this fractured political scene and poor economic performance that led to the 1980 military coup (Turkey’s third in 20 years). When the Turkish Armed Forces stepped in to restore political stability, all political parties, trade unions and other professional and youth organizations, including all student unions, were closed and all their leading activists were jailed. The constitution and parliament were abolished, and all unionists and thousands of 42

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activists were arrested and put in prison. All the collective agreements signed by that date by unions were cancelled and workers’ wages were frozen despite an inflation rate of 130 per cent. State-owned industries and services were speedily privatized, the currency was devalued and state expenditure for welfare, health and education was drastically reduced. These and many other measures, demanded by the IMF, the OECD and the World Bank, were considered essential to ensure the repayment of loans previously made to Turkey. Before the coup, attempts to impose such conditions had been rejected by the mass demonstrations and workers’ strikes. Trade unions had responded to the 24 January 1980 decisions by initiating large-scale strikes in almost all sectors; the range of trade unions involved ranged from the Metal Workers’ Union to the Textile Workers’ Union and from the Chemical Workers’ Union to the Pottery Workers’ Union. There had also been widespread protest movements across the country almost daily, participated in by many university students and members of professional bodies (Koç 2010: 43–74). But after the coup, the military dictatorship, led by General Kenan Evren, eliminated all possibility of protest by arresting tens of thousands of people who were then tortured. Hundreds were killed, or disabled, and the country was silenced; in other words, protest was smothered because of the imposition of harsh neoliberal measures dictated by the IMF and the World Bank. All of these undemocratic practices and harsh measures were tolerated by international finance, and there was even widespread praise for the generals in US and Western European circles (Broder 1980; Kilner 1980). US involvement in the coup is usually accepted, although it could never really be proven apart from some circumstantial factors, notably the visit to Washington by General Tahsin Şahinkaya, the chief of Turkey’s air force and a member of the military junta after the coup, for high-level talks nine days before the coup (Holmes 2014: 88). The years of military rule, 1980–83, saw the forceful continuation of the neoliberal reforms. General Evren, explained in 1991 how he saw the role of the coup with respect to the 24 January decisions: “If we had not intervened after the 24 January stabilization package, I have no doubt that none of the economic reform proposals could have been implemented. Only when we, the army, intervened and provided stability, the conditions became ready for the implementation of the programme” (Milliyet 1991). After the country’s return to a restricted parliamentary regime in 1983, Özal became prime minister, as the choice of the military, and continued his ambitious reform agenda with the help of an authoritarian constitution designed under military rule. The new ruling party was the Motherland Party, established by Özal himself, a collection of social groups, from small entrepreneurs to moderately sized traditionalist business groups and from nationalists to Islamists. This 43

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party was, in a general sense, the representation of a new rising bourgeoisie that was benefiting from the neoliberal restructuring and had a strong conservative Islamist appeal. Özal’s leadership of the Turkish economy proved quite effective in this decade in moving the country out of the crisis. He was successful in terms of dealing with the economy and finance and negotiating with international organizations, mainly because of his strength in economic matters and his experience in the World Bank, and he also managed to create broad-based public backing for his reform programme because of his Islamist roots. The foreign exchange regime in Turkey was liberalized in 1984 and the banks were allowed to accept foreign currency deposits from Turkish citizens, so they started to engage in foreign transactions. Finally, the Turkish lira was made fully convertible in foreign exchange markets via Decree 32, which removed all restrictions on overseas institutional and individual investment in securities.4 As a result, Turkey’s international reserves grew considerably. This was a very comprehensive programme of economic liberalization, probably the most comprehensive since the 24 January 1980 decisions. To comply with this decree, all restrictions on capital movements in and out of Turkey were removed, except for some quantitative limits that would be lifted later. The Turkish lira was made practically convertible and the Turkish capital account was fully opened.5 Between 1980 and 1989, under Özal’s continuous leadership, Turkey experienced a decisive and harsh political economic transition to neoliberalism, and import-substituting industrialization was gradually dismantled. Turkey had experimented with similar liberalization reforms prior to the 1980s; however, these were not strong or forceful enough and had been imposed by weak coalition governments, and thus were quite short-lived and ineffective. What started in 1980, first with the 24 January decisions and then the military coup on 12 September, was a forceful and continuous reform process that would radically rearrange the relationship between the state, the economy and society. Helped by this new course of action, Turkey regained the support and trust of international institutions of global finance and trade. The IMF Stand-By and World Bank adjustment loans were speedily agreed and given to the Turkish government in conjunction with the granting of additional debt relief measures. With the announcement of the new policies and the support of international finance, the integration of Turkey’s economy into the world economy had begun with full force. In this way, by 1990, the Turkish economy had become fully open to global movements and influences and was fully benefiting from globally available funds and investment, but since then it has also become subject to the shocks of the global economic system. In this process of Turkey’s transition to a neoliberal development model in the 1980s, Turgut Özal was by far the most critical figure. He was even considered 44

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the most influential political leader in Turkey since the time of Kemal Atatürk. At the beginning of this process, Turgut Özal explained what he was expecting to achieve: Our closed economy had to be opened and integrated with the world economy. The Turkish economy of the 1970s resembled to some extent the socialist economies of the East European countries. In fact, we were even lagging behind those countries. We had long queues, a black market, several exchange rates, enormous subsidies, etc. We had to establish a free market economy, . . . Our exports at the beginning of the last decade were a mere $2.2 billion. Our oil imports alone added up to $3.4 billion. Our economy was suffering from a chronic account deficit.6 In a way, one can say that by the end of the 1980s, the economic policies of the Washington Consensus were fully dominant in all sectors of the Turkish economy. Turkey was considered by all international institutions to be a lead reformist country with a strong adherence to the neoliberal policies of the Washington Consensus. Indeed, many authoritarian regimes in the Global South, such as Turkey in the 1980s or Chile in the 1970s, were better matched to the neoliberal agendas of the IMF and the World Bank than many democratic regimes during this process of global structural adjustment. All of these Washington-based institutions, the IMF, the World Bank, and the US Treasury, shared the view that the operation of the free market and the reduction of state involvement were crucial to development in the Global South. Proponents of the Washington Consensus genuinely believed that it was the combination of a market economy, openness to the world and macroeconomic discipline that would open the door to growth and development for underdeveloped countries (Williamson 2004). The shifting global context was significant again for Turkey’s incorporation into the global neoliberal framework, an important turning point. Turkey, like many other emerging powers, was using opportunities when developed economies were in decline, or “economically troubled”, and international capital was looking for new locations to invest in, to move its production. With its young and dynamic population and foreign-investment-friendly tax and financial regime, but most importantly its significantly low labour cost and lack of strong trade unions, Turkey appeared to be an ideal destination. The geographical location of Turkey – a Mediterranean country with a long and beautiful coastline – meant that its tourism sector expanded significantly from the 1990s. Many private companies, using low-interest credit from public banks, planned and organized low-cost and labour-intensive holiday packages for international tour operators. Apart from some short-term stoppages as a result of some regional and 45

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international events, this sector continued to grow consistently. According to the World Tourism Organization, in 2014, Turkey received 40 million tourists and ranked sixth in the world for tourist numbers; income from tourism provided $30 billion, approximately 3 per cent of the country’s GDP (UNWTO 2016). Socially, Özal tried to create a more harmonious atmosphere in which economic development could be achieved. Partly deviating from the Kemalist tradition, he introduced changes in Turkey’s ethnic policy. For instance, he initiated an open dialogue on the Kurdish issue in the early 1990s and started mentioning the Kurdish identity of his mother’s background. Until that time, even using the words “Kurds” or “Kurdish” in public was generally regarded as a taboo in Turkish society. However, in 1991, those draconian laws against the use of Kurdish language were partially loosened and speaking Kurdish, or singing Kurdish songs, in public was made “formally” legal. Özal stated that it would be in Turkey’s interests to gain the support of the Kurds at home and abroad, thus serving as a “bridge” not only between those people, but also between Turkey and its neighbouring countries (Cohen 1991). As a result of this policy, it was also expected that Özal would gain political support from the mass of Kurds in Turkey, who constitute nearly one-fifth of Turkey’s population of 54.8 million (in 1991) (Macrotrends 2020). It was also speculated that Özal had taken these moves with an eye to improving ties with the European Community.7

Customs union agreement with the EU Europe’s Common Market (or the European Economic Community) had been Turkey’s most important trading partner since an “association agreement”, known as the Ankara Agreement, was signed on 12 September 1963. The main aim of the Ankara agreement was to achieve “continuous improvement in living conditions in Turkey and in the European Economic Community through accelerated economic progress and the harmonious expansion of trade, and to reduce the disparity between the Turkish economy and . . . the Community” (Delegation of EU to Turkey 2020). Turkey submitted an application for full membership on 14 April 1987, and in 1993, customs union negotiations started between Turkey and the EU. The customs union between Turkey and the EU took effect on 1 January 1996. The customs union agreement with the EU constituted an important turning point for the Turkish economy in terms of accelerating the momentum of the trade liberalization process (European Commission 2016). At the Helsinki Summit in December 1999, the European Council granted Turkey “candidate country” status regarding EU membership, following the EU Commission’s 46

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recommendation in its second Regular Report on Turkey. The European Council adopted the EU–Turkey Accession Partnership on 8 March 2001, providing a road map for Turkey’s EU accession process, and on 19 March, the Turkish government adopted the National Programme for the Adoption of the Acquis (acquis means EU law), which reflected the Accession Partnership. Had Turkey become a member of the EU, it would have been the second largest EU country by population after Germany with the second largest representation in the European Parliament. The EU budget would have been dramatically reconfigured to meet Turkey’s substantial regional and infrastructure needs. Turkey’s membership bid never materialized, and 40 years later Turkey’s possible entry into the EU remains mired in controversy as some members have articulated fears that if accepted, Turkey will place considerable strain on the union. The creation of the customs union agreement with the EU was, however, still significant, which opened the door for increased trade between the two sides, and bilateral trade between the EU economies and Turkey has grown very strongly since 1996. Turkey became important in the EU as a trading partner and, in particular, as a destination for products manufactured in the EU – the share of EU exports going to Turkey rose to about 5 per cent. The share of EU imports from Turkey rose as well, to 3 per cent. Unlike the EU’s own Customs Union, the EU–Turkey customs union did not cover all aspects of trade. It covered trade in industrial goods but did not include agricultural products (except certain processed agricultural products), coal and steel products, or public procurement. The Turkish customs union covered mainly goods, but not services or finance. The customs union has since been a major instrument integrating the Turkish economy into the EU and global markets. It not only created opportunities for Turkish companies, but also, more importantly, offered powerful tools to reform the Turkish economy. The customs union agreement protects Turkish producers of industrial goods with tariffs from external competition to exactly the same extent as producers from the EU member states, but they face competition from duty-free imports of industrial goods from world-class panEuropean firms. Turkish producers, however, have duty-free market access to the European Economic Area, which has proved quite important in terms of increasing trade.8 Turkey deepened its trade and financial relations with EU member states via the customs union agreement. Together with some steps taken towards reform and liberalization in the 1980s, the customs union agreement was significant for economic growth. However, consistent growth was still not secure and the economy was plagued by recurrent crises. The economy experienced three economic crises in under ten years, in 1994, 2000 and 2001.

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Anatolian Tigers One aspect of economic activities in Turkey, which emerged in the late 1980s and early 1990s, was the rise of an informal private sector, mainly based on small-scale family enterprises and located in several inner Anatolian towns such as Gaziantep, Şanli Urfa, Konya, Kayseri,9 Çorum, Yozgat, Bursa, Kocaeli and Denizli. During this period, most Turkish exports gravitated towards labour-intensive manufacturing, which was heavily concentrated in these Anatolian cities that had craft traditions and small family-owned production units. The trade liberalization policies of the Özal period had a transforming and accelerating influence on the formation of the Anatolian capital, which was highly promoted and became visible after the 1980s. Labelled the “Anatolian Tigers”10 or “devout bourgeoisie”, the underlying features of these small but effective production units or enterprises are their self-reliance and their ability to establish themselves as significant exporters. The term Anatolian Tigers was inspired by the term “Asian Tigers”. During the 1970s, economies such as Hong Kong, Singapore, South Korea and Taiwan were called Asian Tigers because of their export-oriented competitive products, which started capturing an increasing share in the global marketplace (Turkun-Erendil 2000: 91–117). Described by the BBC as “a new form of Turkish Islam . . . , one which is pro-business and pro-free market, and it’s being called Islamic Calvinism”, these small to medium-sized firms turned several former sleepy trading towns into prosperous export-oriented manufacturing centres (Lodhi 2006). Distinguishing Turkey from some of the other developing countries of the same period was the dynamism of these fast-growing small family production units. These small, traditional Anatolian cities turned into boom towns in the last decade of the twentieth century and captured a significant portion of newly established export centres (World Bank 2015). The new class of entrepreneurial companies, such as Kayseri’s Boydak Holding, are challenging the once-unassailable export and investment dominance of İstanbul, the economic powerhouse of Turkey (ESI 2005). In this way, a new generation of businessmen, the Islamist nouveau riche, using religion to form connections with the political elite, emerged in Turkey. The financial source of the first wave of Anatolian Tigers was made up of the remittances sent by Turkish workers working in European countries, in particular Germany (Hoşgör 2011: 344–5). It is now more than four decades since the first group of Turkish workers arrived in Western European countries. The migration of Turkish workers, particularly to Germany, started in the early 1960s. Since then, over 3 million Turkish workers, and their dependants, seeking employment have migrated to about 30 countries. Given that Turkish migrants are not only in Europe but are also in the USA, Canada, Australia and other countries 48

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too, one can safely claim that some 6 per cent of Turkey’s population is abroad (İçduygu 2004: 88–99). To encourage migrants’ remittances, Turkish governments implemented several policies, such as special exchange rates for remittances, special interest rates for foreign currency accounts at the central bank, the Dresdner scheme11 and a programme that permits Turks residing abroad to shorten their compulsory military service by paying a fee in foreign currency. Moreover, since the late 1980s, returned migrants have had the right to buy consumer durables with foreign currencies at special duty-free shops during the first six months after their return. Flows of workers’ remittances to Turkey increased in particular during the 1990s, amounting to a significant proportion of Turkish imports. Turkish governments also tried to channel remittance savings into employment-generating activities. These remittances came partly via the Central Bank of the Republic of Turkey and two commercial banks, İş Bankası and Ziraat Bankası, and partly through companies with multiple shareholders, which constituted an important source in the 1980s for accumulating Anatolian capital.12 Some of this private money transfers was also conducted via informal channels. However, estimations of informal remittances are extremely hard to provide. It has been stated by researchers that the official figures probably underestimate the real size of the remittances because they fail to capture informal transactions. Workers’ savings, initially paid to finance various religious services back in Turkey, were collected in the 1990s and sent to Turkey to help pay for the setting up of private companies and for the building of an alternative economic power. Workers’ foreign exchange holdings were invested in real estate first and then expanded to other investment areas. As a result, several giant companies that had strong links with Islamic foundations, the media and the press grew rapidly in Anatolian towns. The main ones were Kombassan, Büyük Anadolu Holding, Yimpaş, Endüstri, Sayha, İttifak and Jet-Pa, all of which were founded primarily with the savings sent by Turkish workers living abroad.13 In relation to the increasing significance of these new actors, the “devout bourgeoisie”, in the rising export sector, interest-free banking was introduced by Decree No. 83/7506 of the Council of Ministers in 1983 to set up Special Finance Corporations and to let them engage in banking activities without any direct reference to “Islam” or any “religion-based terms”.14 Known as Islamic banks, interest-free financial instruments or participation banks, these financial institutions were introduced to the Turkish financial system in the early 1980s with the intention of providing interest-free banking products and services in the economy. The first of these kinds of banks was Albaraka Türk Special Finance House. In the same year, Faisal Finans Special Finance House, which later served as Family Finance Special Finance House, was set up. Other similar institutions soon joined them: Kuwait Turk in 1989, Anadolu Finans in 1995, İhlas Finance House 49

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in 1995 and Asya Finance House in 1996. Later, the establishment of state-owned participation banks gave impetus to the sector and caused an increase in the asset size of the participation banks.15 These “new style” banks served as an important medium to attract such savings and turning them into investments. Like many other developing countries, which shifted the priorities of their developmental policies from import substitution to export promotion in the 1980s and 1990s, Turkey in this period established free trade zones as instruments of export-led industrialization. This was similar to what had happened in China during the previous decade, with Deng Xiaoping established special economic zones for export-led manufacturing. The first two free trade zones in Turkey were founded in 1985 to promote export-oriented investment and production, accelerate foreign direct investment and technology access, direct enterprises towards export, and develop international trade. By the end of 2016, there were 19 free trade zones (FTZs) (see Figure 2.1), and 2,025 companies were active in these FTZs; 530 of them were foreign owned. The total trade volume of FTZs was $19 billion at the end of 2016. The most important trade partners of Turkey’s FTZs are the EU-28, other OECD countries, North Africa, the Middle East and the Commonwealth of Independent States (OECD 2017). Figure 2.1 Free trade zones in Turkey

Figure 2.1 Source: British Chamber of Commerce in Turkey; https://www.bcct.org.tr/news/ free-trade-zones-in-turkey-what-are-the-advantages/15658

Free zones are defined as fenced-in areas in which special regulatory treatment exists for the operating users in order to promote the export of goods and services. Free zones offer a more convenient and flexible business climate to increase trade volume and export for some industrial and commercial activities 50

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as compared with the other parts of country. In general, all kinds of activities can be performed in Turkish free zones such as: research and development (R&D), manufacturing, software, general trading, storing, packing, banking and insurance. Investors are free to construct their own premises, and zones have available office space or warehouses that can be rented on attractive terms. All fields of activities open to Turkish companies are also unrestricted to become joint ventures with foreign companies. One of the most extensive of these free zones was the one near İstanbul Atatürk Airport, around which entire neighbourhoods were populated by gigantic 10-storey factory complexes with different kinds of industrial production happening on each floor.

Crises in the economy in the 1990s In the decade of the 1990s, the Turkish economy was fully open to global competition. The combination of cheap foreign currency, the overvaluation of Turkish lira and high interest rates attracted foreign capital inflows. Most of this investment was, however, in the shape of short-term capital, and therefore by definition was rather speculative, volatile and erratic. The burden of high interest payments worsened fiscal balance, which was the main trigger for the 1994 crisis. As a result of this currency crisis, output fell 6 per cent (the highest level of annual output loss in the 71-year history of the Turkish Republic until then), inflation rose to three-digit levels, the central bank lost half of its reserves and the exchange rate (against the US dollar) depreciated by more than half in the first three months of the year (Celasun 1998). Turkey’s experience was not unique – several other countries had suffered similar currency-related crises in the 1990s. The Indian crisis of 1991 had its roots in balance of payment problems; Finnish and Swedish banking crises in the early 1990s had their origins in a massive credit expansion in the 1980s that was largely based on foreign debt, soaring stock and real estate prices that attracted frantic speculative activity and emerging financial bubbles; Mexico experienced a currency and banking crisis in 1994, which was caused by a significant devaluation of the peso; a financial crisis in Asia in 1997 started with the financial collapse of the Thai baht and soon spread to other South East Asian currencies and Japan; the 1998 Russian financial crisis resulted in the Russian government and the Russian central bank devaluing the rouble and defaulting on its debt; the 1998–99 Ecuadorian financial crisis resulted from a combined banking crisis, currency crisis and sovereign debt crisis; the Brazilian financial crisis of 1999 (the so-called samba effect) was essentially caused by the 1997 Asian financial crisis; Argentina’s great depression of 1998–2002 began after the Russian and 51

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Brazilian financial crises. Every single one of these financial crises had its origins in the local conditions of the country where they happened. However, what they all had in common was the global context and the highly interrelated global financial markets. There was an international economic slowdown and recession in the early 1990s. The recession, which lasted from July 1990 to March 1991, was the largest recession since that of the early 1980s and demonstrated the growing importance of interlinked global financial markets to the global hegemon, the US, and other members of the inter-state system of the world economy. Working people carried much of the burden of these crises. During the process of integrating the Turkish economy into neoliberal global networks, the labour costs were suppressed in Turkey so that exports were pumped and capital movements were kept under control. The bargaining power of labour significantly decreased, real wages fell down and the flexibility of the labour market increased. The rate of unemployment fluctuated between 6.5 and 8.5 per cent between 1988 and 2001 and increased sharply to 10 per cent after 2002. The same period witnessed a sharp decline in agricultural employment. Output and land productivity growth slowed since 1980, and there was a rapid movement of labour away from agriculture. However, this decline was not matched by a proportional increase in industrial employment. Employment figures show a significant increase, but this was not in the industrial labour force. Most of the increase was in marginalized and informal labour in the service sector (FESSUD 2012: 58–9). In terms of both economics and politics, the 1990s were Turkey’s lost decade. The economy contracted by 6 per cent in the crises of 1994 and 1999, and by 9 per cent in 2001. The rate of inflation was 80 per cent on average and state indebtedness reached 150 per cent of the GNP by 2001. Governments had to take out new loans with high interest to carry out their basic functions. For most of the decade, interest rates for such loans were above 20 per cent in real terms. Total external debt grew from 43 per cent of GNP in 1997 to 55 per cent in 1999, with the private sector mostly responsible for the increase (IMF 2005).

52

3.

Deep financial and economic crisis: Turkey prepares the ground for the AKP

It is fair to say that the economy of Turkey was successfully integrated into the world economic system by the end of the 1980s. However, as we have outlined in the previous chapter, this made the economy more susceptible to the fluctuations of the international financial markets. When the global economy started to experience some serious setbacks in the 1990s, with intense financialization (see Box 3.1) and the emergence of serious competition from the South East Asian economies’ manufacturing exports, Turkey’s economy faced productivity gaps, which were too big to compensate for by relying on speculative short-term capital alone. The country tried to overcome this limitation by borrowing more, which soon resulted in a fully-fledged financial crisis in February 2001. Eighteen months before this crisis hit the economy, a massive earthquake shattered the heart of Turkish industry – the provinces most affected accounted for 80 per cent of the country’s industrial production, including İstanbul, which generated one-third of Turkey’s gross national product (GNP). This massive earthquake intensified the fundamental volatilities of the economy in the summer of 1999. Economic losses caused by the devastating 45-second Marmara earthquake reached tens of billions of dollars at a time when the country’s finances were already in deep trouble. The earthquake killed around 17,000 people and made more than a quarter of a million homeless. It destroyed or severely damaged some 60,000 buildings and vital infrastructure in an area of some 30,000 km2. The total economic damage was estimated at between $3.1 and $6.5 billion by the World Bank, or between 2.4 and 5.1 per cent of Turkey’s GDP (World Bank 1999). The Turkish crisis of 2001 was not the result of any one particular factor. The impact of several international setbacks, such as the Mexican crisis in 1994, the Asian crisis in 1997 and the Russian crisis in 1998, together with this massive earthquake in 1999 pushed the Turkish economy into recession, and as a result Turkey experienced a very serious crisis in late 2000 and early 2001. This was the most severe crisis in the country’s history so far and was particularly 53

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far-reaching in terms of its consequences and its impact on output and employment. The crisis was worsened by the fragility in the banking sector, which had been caused by significant exposure to government debt. In the previous decade, the new banking legislation allowed the private banks to deal in global financial markets. Because the government continuously required its huge budget deficits to be financed, private banks were acting as intermediary agencies, borrowing heavily in the short term from abroad and lending the money to the government long term. In a sense, many banks were used as a kind of “second budget” to accommodate the political needs of the governments. In a way, this crisis was the tragic outcome of depending heavily, almost exclusively, on international finance. In particular, relying heavily on short-term speculative loans (“hot money”) and using them to patch the budget deficits generated an unregulated financial gamble, and high-risk behaviour – in the words of Susan Strange, “casino capitalism”.1 Box 3.1 Financialization Financialization refers to the increasing importance of finance, financial markets and financial institutions to the workings of the economy. One of the first authors to use the term was Giovanni Arrighi in his The Long Twentieth Century (1994). Financialization reflects a growing asymmetry between production and circulation because financialization is a process whereby financial markets, financial institutions and financial elites gain greater influence over economic policy and economic outcomes. Its principal impacts are: (1) to elevate the significance of the financial sector relative to the real sector; (2) transfer income from the real sector to the financial sector; and (3) increase income inequality and contribute to wage stagnation. Financialization is the main characteristic of the neoliberal era and has produced a transformation in the financial sector, non-financial sector and the everyday lives of households. Thereby, financial operations have developed significantly through securitization, derivatives and future contracts. The impact of these developments on the non-financial sector impact and on households has been increasing debt levels (Lapavitsas 2009; World Bank 2007).

The fact that the 2000–01 crisis had a huge negative impact on output and employment was considered a wake-up call for the country’s economy, which led to pressure for a full-scale neoliberal restructuring with a major emphasis on regulatory reform. The IMF and the World Bank played a central role in this, 54

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in particular in deciding how to reform the domestic financial sector and how to open up Turkey to foreign direct investment, both of which were considered essential if it was to come out of the crisis. This was also the beginning of a new phase in Turkey’s experiment with neoliberalism, which had started in 1980 (see Chapter 2) but had never been fully implemented. Now, with the new and more drastic set of measures, in particular in the field of regulatory reform, and a new emphasis on export-led growth, the economy of the country came much more into line with the directives of the IMF and the World Bank – in short, with the principle elements of the Washington Consensus. The logic of the Washington Consensus (see Box 2.3) constituted the predominant line of thinking when the reform agenda was introduced and implemented in Turkey in response to the 2000–01 crisis. Kemal Derviş, a former World Bank vice president and former head of the United Nations Development Programme, was invited to Turkey in early 2001 and appointed as the minister of state responsible for the economy by the then prime minister, Bülent Ecevit; he was instructed to design a new economic recovery programme and secure the support of international organizations. Derviş initiated a “transition to strong economy” programme with the goal of institutionally separating “the economy from the political” (Yalman, Marois & Güngen 2019: 135–61). Derviş’s “strong economy” programme with its “strict fiscal discipline” was a major step in Turkey’s encounter with strong neoliberal regulations and in its economy adopting intense “regulatory neoliberalism”. The banking system was completely reformed, and the independence of the central bank was secured by law. The energy, telecommunications and civil aviation sectors were deregulated. Following the 2001 crisis, the country’s economy erupted out of a two-decades-long modest experimentation with neoliberalism and consolidated, once and for all, the state’s neoliberal transformation with a proper legislative framework. During the same period, far-reaching neoliberal restructuring, with strong support from the IMF and the World Bank, was being implemented in several other economies in the Global South, including in Turkey’s immediate neighbourhood. The era after the 2001 crisis in Turkey was characterized by the country’s deepening integration into the global neoliberal network through trade and capital flows, but this neoliberal restructuring was implemented relatively lightly in Turkey compared with other economies in the MENA region and the Balkans. In most countries, there was very fast privatization, fast-growing unemployment, in particular youth unemployment, falling real wages and the accumulation of wealth in the hands’ of those countries’ top ruling elite, but these effects did not happen in Turkey to the same extent as in other countries. For instance, in Egypt, the implementation of harsh neoliberal measures resulted in a large section of the country’s population dropping below the poverty line.2 55

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The crisis of 2000–01 had some very significant political consequences too. One of the major consequences was the rapid erosion in credibility of the governing coalition parties. In the November 2002 elections, the AKP (Justice and Development Party), a party established just a year before, won the elections with an overwhelming majority. The former governing parties all recorded less than 10 per cent of the national threshold and were no longer represented in the National Assembly.3 Turkey’s voters turned out in vast numbers to vote for a new political party with firm Islamic roots. The period of full neoliberalism since the 2001 crisis, was managed by this new party. During this period, neoliberal financial and economic measures were pushed consistently, and the fiscal imbalance was generally kept under control (Subaşat 2014: 157).

A new government – a new beginning for Turkey? On 3 November 2002, Turkey broke sensationally with its political old guard. The former governing parties all failed to enter the parliament, the Turkish National Assembly, and a new political party, the Justice and Development Party (AKP) gained 34 per cent of the vote. The failure to reach the required 10 per cent threshold duly disqualified all but one of the other parties and left the AKP with 60 per cent of the seats. The party was led by Recep Tayyip Erdoğan, a popular mayor of İstanbul from 1994 to 1998. Its roots lie in two former Islamic parties, the Welfare Party and the Virtue Party, both banned by Turkey’s secular establishment. The elections threw up several fundamental questions. Would Turkey become a more Islamic country? What was behind the election victory? Why did the traditional parties fail? How would the election results affect Turkey’s relations with Europe? In general, the election results revived a more significant and deep-rooted question in the Western world: can liberal democracy exist in an Islamic country? In the republican period, leaders of the Islamic movement, tarikat (religious order) sheikhs and professional men of religion lost their status and official power as a result of secular reforms, and their various attempts to revolt were severely crushed by the authorities in the 1920s and 1930s. Islamic groups generally stayed underground during the one-party regime between 1923 and 1946. From the late 1940s, political parties started to make deals with religious groups with the intention of gaining their votes in the elections, and several concessions on religious schools and education were granted. With the transition to a multi-party system in 1946, Islamic groups formed covert and overt alliances with the ruling Democratic Party (DP), 1950–60. This was the first period during which the secularist policies of the state were softened to allow some moderate Islamist4 56

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groups to operate legally within a centre-right party. With the establishment of the National Order Party (NOP) in 1970 by Necmettin Erbakan, Islamists for the first time had an autonomous party organization through which they could campaign for their agenda. Following the 1980 military coup, the coup leaders suppressed all expressions of leftist politics and fully endorsed the American Cold War policy of encouraging moderate Islamism in the world as a buffer against the Soviet-inspired socialist and left movements.5 In the mid-1980s, with the aim of making Turkey Washington’s “beacon of democracy in the Muslim world” (New York Times, 18 August 2018), the Özal government’s encouraging response to Islamic activism and political liberalization opened up new opportunities for Islamist groups, the activities of which resulted in the Welfare Party’s election victory and its becoming a coalition partner in 1997. From the mid-1980s, Islamist parties steadily increased their share of vote.6 This political process was accompanied by a social and economic transformation that eventually prepared the ground for the victory of the AKP. The centre – made up of civil servants, soldiers, bureaucrats, intellectuals and state-protected industrialists-employers – started to break up in the 1970s, assuming new social and cultural characteristics. The main reason for this was the fast-growing and persistent movement from the periphery towards the centre. Some of those social groups that once made up the periphery started to gain more and more socio-economic mobility and moved to the cities in large numbers. These made up an important section of the young and dynamic middle class. Many of them had become effective social and economic actors through their business activities and entrepreneurship. This new and important group of people brought their provincial identity and more traditional values and demands with them into the centre. As these people placed more importance on religion and Islamic practice, they wanted to express their religious identity more openly, and hence some of these demands, which differentiated them from the more urban and secular old business elite, found a place in the centre. This tension between the new urban middle class, whose members originally sprang from the provincial towns, and the old established secular urban elite is one of the key factors that led to the rise of and increased support for the Islamist political parties. In the 2002 elections, three other significant groups joined this new middle class and became the basis for the AKP’s historic election success. The first group was the large university student population and those who were waiting to go to university; they had become seriously frustrated by the inability of the established centre-right and centre-left parties to provide solutions to Turkey’s long-standing social and economic problems. The second group was made up of members of the unskilled, young, urban sub-proletariat, who had increased in number because of migration and high levels of unemployment. The third group contained some of the 57

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state-employed workers, who had been affected by falling real wages and high inflation, particularly since the early 1990s. The last two groups had been hardest hit by the economic crisis. One of the most dynamic changes in Turkish society in this period was the transformation of the attitude of the Islamic masses towards the idea of Europe. Until the late 1990s, they did not have a high regard for membership of the EU and had a deep suspicion of Europeans. There was a fundamental fear that they would lose their religious and national identity if Turkey joined the European club. The allegations against Europeans were changing from allegations that they had secret designs to dissolve Turkey to allegations that they were following a hidden Zionist agenda against the Islamic world in general. These were mostly the Islamic elite’s ideas that contributed to shaping Muslim perceptions of Europe and the West in general. When Özal first applied for membership in 1987, both the Islamic and the nationalist parties and groups were strongly against it. However, several developments paved the way for a change from this negative approach towards the EU. One breakthrough development was the success of Turkish migrant workers’ adaptation to the local conditions in different countries of Europe. It was obvious that Turkish workers were keeping their own identity while living in another culture. In some cases, owing to tightening control over Islamic activities in Turkey, some European countries were considered preferable in terms of Turkish people being able to practise their religious faith freely. Another ongoing process was the enlargement of economic space. In the 1990s, the policies oriented towards greater liberalization and a shift to export-oriented industrialization led to the emergence of new, dynamic, exportoriented industrialists on small and medium scales, especially in traditionally conservative Anatolian cities. These new industrialists, however, developed out of establishment venues and created an alternative economy by widening the well-established boundaries and challenging the rationale of the Turkish economy. These were the main beneficiaries of this export expansion that was largely geared towards European countries and have constituted the main group that wants further economic integration with Europe. Growing Anatolian capital was the backbone of the AKP’s economic and electoral support. This transformation provided clear evidence of the gap between elite segments of the Islamic movements and their followers. What brought the AKP to the fore in the 2002 elections was its ability to grasp the changing realities of Turkish society and the rest of the world. Older leaders of political Islam in Turkey proved themselves incapable of understanding this shift and tried to explain their lost popularity with obscure international conspiracy approaches, and this explains their total failure to convince the electorate to support them in the elections. 58

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Among the more specific reasons for the AKP’s election victory, there was first and foremost the failure of the governing parties and also of the opposition party, the Social Democratic Party (CHP), which proved once again to be nothing more than a selective “regime guard”. Since its establishment, the AKP had developed its political position on the basis of two distinct approaches. It expressed the widely shared demand for religious freedom according to the European model of the relationship between state and religion. In this way, it brought the issue of religious freedom to the centre of the political debate not as a religious issue alone but alongside wider aspects of freedom of opinion, democracy and human rights. In doing so, it adopted a clear pro-EU stance. In a general sense, a wide range of groups that had previously found themselves on the periphery, including Islamist and Kurdish groups, came to see the EU candidacy process as the only secure way of winning support for greater rights and freedoms, the rule of law and democracy, which were all depicted in the Copenhagen criteria.7 Towards the end of the 1990s, a powerful consensus emerged, and the polls around that time showed that almost 80 per cent of Turkish people wanted to be within the EU. By the late 1990s, the EU had acquired a major presence in Turkey: EU parliamentarians regularly visited Turkey, funded projects and collaborated with civil society organizations (Öniş & Umut Türem 2001: 94–120). A significant reason for the AKP’s success was its fundamental criticism of the mainstream parties’ role in and failure regarding the country’s economic and social crisis. The predominant issue throughout the election campaign was the dire state of the Turkish economy. The 2001 economic crisis in Turkey had set the record for the country’s worst recession and the deepest decline in economic growth since the Second World War. The Turkish lira was devalued by nearly 50 per cent, devastating the savings and incomes of, by some estimates, 95 per cent of the population (Morris 2001). The AKP presented itself as having a more friendly and flexible view towards the Western financial institutions, being ready to do business with global finance and willing to auction off strategic public assets to international capital. In its campaign, the party focused on the significant responsibility that the centre parties, right as well as left, had to accept for taking the country to economic ruin and deepening social imbalances. There were many corruption scandals in the 1980s and 1990s, although few were proved by the courts. Turkey ranked 64th out of 102 countries in the Transparency International Corruption Perceptions Index for 2002 (Transparency International 2002). During the election campaign, the AKP focused on corruption, the economic crisis, the country’s indebtedness and social injustice. The party, which had grown out of popular Islamist support, won despite all 59

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the intense campaigns presenting it as a threat to the secular regime. The AKP was described by its founders not as a religious party but as a party in which religious people feel at home. One way of looking at this is to attribute this result to the fact that people were very angry with the failure and arrogance of the established parties and to say that the election result was an expression of the growing discontent with the country’s corrupt political elite. There was certainly an element of truth in this. Turkey had experienced a worsening economic crisis during the previous 18 months. Two million workers lost their jobs and the value of the Turkish currency halved again against the US dollar. Still, it would be wrong to reduce the AKP’s success to just an expression of people’s anger and disappointment with the centre parties. It was important that new and young people established the AKP with idealism; although these people were new, they were not completely unknown and therefore did not pose a threat in the way that the unknown normally would. Most of the founders of the AKP came from the “National View” (Milli Görüş) movement and were in the Welfare Party. Their leader, Erdoğan, as noted already, had served successfully as the mayor of İstanbul. They adopted a democratic attitude that was quite convincing because they had been faced in the recent past with a lot of anti-democratic oppression and injustice themselves.8 The AKP was consistent in its position concerning its respect for traditional moral values; however, it wanted Turkey to join the EU rather than shut itself out of the Western world. The party did not represent a militant religious response to secularism in general but rather a European human rights perspective against the authoritarian aspects of the secular system in Turkey. It did not express any desire to establish a religious regime based on Shari’a law; instead it wished to establish basic human rights to allow people to freely express their beliefs – religious, political or ethnic. This was what most of Turkey’s population had wanted for decades: to exercise their faith freely and quietly. After the troubled years of the 1970s, and later the Welfare Party’s confrontational government in 1996, an important and dynamic section of the Islamist movement seemed to have learned an important lesson from the past: in a democracy, moderation is more effective than either extremism or confrontation. The AKP, at this important juncture, was the product of this important lesson.

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The “golden age”: stable growth, fiscal discipline and “heaven” for foreign direct investment

After the turbulence and volatility of the 1990s and the beginning of the 2000s, the period between 2002 and mid-2007 witnessed significantly high and relatively stable growth in the Turkish economy. The AKP’s solution to the ongoing economic problems was entirely in line with the IMF-backed reform package devised by Kemal Derviş, the economy chief of the preceding coalition government. The AKP took the necessary measures to reinstate the faith of the country’s long list of creditors by pledging allegiance to a programme approved by major international financial institutions. Several macroeconomic reforms introduced by Derviş as a response to the 2001 crisis were important in this respect. Public finances and the government’s budget deficit were kept under control as a result of Derviş’s reforms. The role of the Central Bank of the Republic of Turkey and the Banking Regulation and Supervisory Authority was increased and they were allowed to operate more independently of the government. Several revisions of banking laws strengthened the regulatory and supervisory framework to bring the practice of Turkish banks closer to international standards, in particular to European best practices. The capital requirement for Turkish banks was set at 12 per cent, which was even higher than the minimum requirement decided by Basel III, the international regulatory framework for banks,1 in order to minimize financial risks. At the end of 2001, the government injected $22 billion into the market through the Savings Deposit Insurance Fund to enhance the capital structure of state banks. Also, government securities held by private Turkish banks were exchanged for dollar-denominated bonds to help banks cover their negative foreign exchange positions. Once in power, the AKP government stuck with these reforms and pursued policies that were directly in line with the 2001 reform agenda, which came to be known as “regulatory neoliberalism”. The AKP government adopted a strong reformist orientation, which fitted the requirements of the mainstream neoliberal reform agenda. A strong economic performance was helped by a favourable global 61

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liquidity environment that enabled Turkey to attract large inflows of short-term and long-term foreign capital in the first part of the 2000s. Turkey’s growth in this period was ranked the third highest in the world, after China and India. Indeed, other emerging economies experienced a similarly high-growth environment during this period. In many other emerging economies, this high level of growth continued almost until the outbreak of the 2008 global financial crisis. One of the most important aspects of this period’s growth was that it was inflation-free growth. For the first time since the 1970s, inflation was reduced to single-digit levels in Turkey, which was a very important factor for the AKP’s popularity, and as a result the party increased its electoral support in subsequent elections. Wider segments of middle- and lower-income groups, in particular, started voting for the party. The ruling AKP was quite fortunate in this respect because this was not directly the result of any of its policies. There was simply a very favourable global liquidity environment in the first part of the 2000s that helped the Turkish economy to attract large inflows of low-interest foreign capital. The corporate sector borrowing from international markets became a major characteristic of the global integration of the Turkish economy. Lower international interest rates in developed economies along with excess global liquidity conditions reduced the cost of external financing both for the Turkish state and for corporations (Ergüneş 2009). The beginning of the AKP government corresponded with the rise and establishment of the small and medium-sized entrepreneurial companies from Central Anatolia (the “Anatolian Tigers”; see Chapter 2) that became a key part of Turkey’s export-oriented bourgeoisie-owned business sector. These often had conservative and strongly Muslim ownership. Such broadening of both the geographical and the social basis of entrepreneurship contributed to the robust economic performance in this period. This process did not happen overnight, of course. As shown earlier, the policies of Turgut Özal, which were oriented towards greater liberalization and a shift to export-oriented industrialization, had earlier led to the emergence of these new, dynamic, export-oriented industrialists especially in the traditionally conservative central Anatolian cities.2 After the AKP came to power, members of the wider Islamist movements in Turkey considered that there was nothing contradictory in their full participation by creating “Islamic visibilities” in both the public and the economic spheres during the process of neoliberal restructuring.3 Detailed research in this area is lacking, so more in-depth analysis would be needed to flesh out some of the general points mentioned here. GDP per capita improved significantly in this period, from $3,492 in 2002 to $10,067 in 2010. With large increases in government spending on health and education, the living standards of lower-income families increased significantly 62

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and the rate of poverty decreased from 27 per cent in 2002 to 18 per cent in 2009 (Turkstat 2018). Similar to previous periods, this “golden age” of the Turkish economy, did not happen in isolation but was directly linked to the existing context of the global political economy. Luckily for the AKP government, 2001 to 2007 was a period when there was plenty of capital that global investors were willing to invest in growing developing economies, generally with low interest rates. The generally favourable global conditions that involved easily available foreign capital were conditioned to maintain contractionary policies in order to secure “investor confidence” and “international creditworthiness” in that the consistently reforming agenda of the AKP government was successful. The growth in the Turkish economy, and in many other middle-sized emerging economies in this period, was mainly driven by this massive inflow of foreign finance capital that in turn was attracted by the high rates of interest offered domestically, which were higher than those in the financial markets in developed economies. Cheaper foreign exchange costs during this period led to an import boom in both consumption and investment in Turkey. The key point here was maintaining reasonably high interest rates for the purpose of attracting speculative foreign capital from the international financial markets. The main mechanism, therefore, was the higher rates of interest prevailing in the Turkish asset markets that attracted plenty of such short-term finance capital, and in return, the relative abundance of foreign exchange in domestic finance led to the overvaluation of the Turkish lira. During this period, the Turkish economy succeeded in attracting a total of $87 billion of “hot money” as well as $30 billion of foreign direct investments, most of which were in the form of mergers and acquisitions of domestic firms and the purchase of land and real estate by foreigners. Rapid rates of growth were, however, accompanied by high rates of unemployment and low participation rates, simply because not all of this money had gone to productive sectors of the economy. An increasing amount was invested in the financial markets for further speculation. This period witnessed an increase in the rate of total unemployment, which was still above 10 per cent after the 2001 crisis, and despite the already observed rapid expansion of the economy, it did not come down to its pre-crisis levels (Yeldan 2008). For some observers, the party’s victory in the July 2007 elections was an earlier, but perhaps less explicit, crossing point for the AKP’s “authoritarian turn” (Tansel 2018: 197–217; Acemoğlu & Ucer 2015). However, this was not a widely held view, at least not specifically in 2007. It looked impressive when the AKP won a victory of historic consequence in these elections despite concerted pressure from the military and its hard-line allies. It was a difficult year for the country. A series of assassinations happened in the early part of the year, including 63

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the murder of Hrant Dink, a prominent Turkish-Armenian journalist, in January. Dink, the editor of AGOS, the only Armenian newspaper in Turkey, had dared to suggest that Sabiha Gökçen, Atatürk’s adopted daughter and the first woman war pilot of the Turkish Republic and a leading figure in the early republican period, might be an Armenian orphan. This claim was considered an insult against the “pure Turkish blood” of Sabiha Gökçen (White 2010: 215–36) and prompted a series of court cases against Dink, where he was tried under the notorious Article 301 of the Turkish Penal Code with “denigrating Turkishness”, an official accusation of insulting Turkish blood. The trials took place in the midst of a lynching campaign led by an ultranationalist media and were frequented by fascist gangs attempting to attack him and his supporters. This intense campaign of hate against Armenians continued for over three years, with Dink shot dead outside his newspaper’s office in İstanbul, on 19 January 2007 (Kalkan 2004). In April 2007, Yaşar Büyükanıt, the chief of the general staff, posted an e-memorandum on the Turkish Armed Forces official website saying, “The problem that emerged in the presidential election process is focused on arguments over secularism. Turkish Armed Forces are concerned about the recent situation . . . the Turkish Armed Forces are . . . absolute defender of secularism.” Just after this, a series of secular mass demonstrations took place against the government around the slogan of “Çankaya4 is secular and will remain secular” (Ural 2012: 727–31). Erdoğan responded by calling snap elections, in which the AKP substantially increased its share of the vote, from 34.3 per cent (2002) to 46.6 per cent (2007). The 22 July vote was a powerful and conclusive response to the pressures of the military establishment by the ruling AKP that had managed to transform itself into the dominant party at Turkey’s political centre. Immediately after the election, Erdoğan called for a referendum on changing the presidential election process. His proposal received strong support from the electorate and in the October 2007 referendum, 68.95 per cent voted in favour of reform along the lines drafted by the AKP. It was not only the actual economic achievements of the party but also the way its economic performance was perceived by the wider population that played an important role in the AKP’s election success: a high level of sustainable growth – one of the highest in the world – the curtailing of inflation and lower interest rates had boosted business and consumer confidence and opened new vistas to Turkey’s middle class. Lower and more predictable inflation rates aided investments and home buying. After the election results were announced, Erdoğan said: “We will press ahead with reforms and the economic development that we have been following so far” (Euractiv 2007). Furthermore, the army’s reaction, in the form of the e-memorandum, sparked a new era in military–civilian 64

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relations in Turkish politics – people chose to support the civilian rule over the army in large numbers. Turkey’s growth performance not only created a new middle class – which enjoyed the largest gains of household after-tax income – but also, according to the OECD, “reduced income inequality considerably”. Turkey’s Gini coefficient (where 0 and 1 correspond to complete income equality and inequality respectively) decreased from 0.403 in 2006 to 0.38 in 2010.5 Furthermore, although the income of the richest 10 per cent in Turkey was about 18 times that of the poorest 10 per cent in 2005, this ratio had narrowed continuously to 14 times by 2009. Similarly, the proportion of people below the poverty line fell during this period from 20.5 per cent in 2005 to 18.1 per cent in 2009 and the rate of child poverty declined from one-third of children in 2006 to one-quarter in 2010 (World Bank data; OECD 2011; Deliveli 2013). By looking at this economic performance and how the social consequences of this progress were reflected in the lower-income groups in Turkey, one may say that this was unlike the economic process that was occurring in many other examples of neoliberal restructuring in the Global South (Tuğal 2011; Bedirhanoğlu & Yalman 2010). In many other countries, in Latin America for instance, almost all of the working population witnessed their real income levels go down while the economy grew as a result of neoliberal restructuring. This brings us to the issue of variations of neoliberalism. Although all neoliberal projects have similar commonalities, such as deregulation, privatization and economic liberalization, different conditions in different geographies have produced diverse and geographically specific hybrid regional neoliberalisms across time. Andrew Gamble writes: Neoliberalism is chameleon-like in its ability to take many forms and incorporate many different forms of liberalism. It also operates successfully on several levels. It is a set of doctrines, some of them developed at a high level of abstraction. It is also a set of policy tools. Most important of all, it is expressed as a form of common sense derived from the lived experience citizens have of being buyers and sellers and market agents. These experiences are associated with certain forms of individualism, autonomy and self-reliance and the notion of equal rights. The ability of neoliberalism to appear progressive and to be offering opportunity and choice has been very important to its success, and it has become implemented in the lives of most citizens in a more complete way than ever before. (Gamble 2019) It would be wrong to suggest that neoliberalism meant that there were no longer any choices or differences between regimes. Neoliberalism has produced 65

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variations across different regional economies over time because it is a process based on a continuous negotiation between all stakeholders. The more powerful the state the greater those choices and trade-offs prove to be. This was definitely the case for Turkey in this first five years of the AKP government. Turkey’s neoliberal experience was very much a state-led project representing the mobilization of state power in the extension and reproduction of market rule. Although as a result of this neoliberal project a range of redistribution provisions were eliminated, the state managed to provide other social measures through economic growth, jobs and services, such as health, education and housing provisions for the poor. An extensive range of social assistance programmes was used as a substitute for social welfare. Poverty rates declined, the middle class got bigger and income inequality contracted as a result of both wage growth and employment expansion. According to public opinion polls, the AKP received the majority of its votes from the poorest sections of society. Yet there is no question that the dominant economic policy of the AKP in its first five years in power was neoliberal. The AKP’s neoliberal restructuring was, however, practised through a limited but effective welfare regime. In other words, the state complemented neoliberal privatization and flexible labour policies with partial welfarism.6 This neoliberal governance differed somewhat from the more authoritarian and strict versions pioneered by most of the Latin American dictatorships and later imposed in the Middle East and North Africa in the late 1990s.7 Probably one of the most extreme, if not the most extreme, was the type of neoliberal regime imposed upon the Iraqi people following the 2003 invasion of the country by the US-led forces. The Anglo-American regime of occupation sought to transform Iraq’s economic system from a state enterprise-based system to a private enterprise-based one virtually overnight, which caused tremendous discontent to Iraqis who lost their jobs and witnessed their industries being sold off to Western corporations. US corporations were encouraged to view Iraq as an economic free zone, a corporate bargain hunt. During the first year of the occupation, US corporations obtained more than 80 per cent of all major projects commissioned by the invasion authority and Iraqi firms received a mere 2 per cent of the value of all contracts (Lafer 2006: 324; Whyte 2007: 3). The brand of neoliberalism that was put in place in Turkey in this period can be called populist neoliberalism (or “neoliberalism with a human face”), which, however, required the continuation of strong economic growth. As long as the cake continued to grow, the regime was able, and willing, to share some portions of it with Turkey’s working masses (Cizre & Yeldan 2005: 387–408).

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Crisis at the global centre

The first indications of a serious crisis appeared in December 2007 and January 2008. On 15 January, news of a sharp drop in the profits of the Citigroup bank led to a sharp fall on the New York Stock Exchange. On 21 January, a spectacular fall in share prices occurred in all major world markets, followed by a series of collapses. Several American and European banks declared massive losses in their 2007 end of year results. Later months of the year witnessed the bankruptcy of Lehman Brothers, a 158-year-old investment bank, the takeover of the stockbroking firm and investment bank Merrill Lynch, and the move by Goldman Sachs and Morgan Stanley to seek banking status in order to receive protection from bankruptcy. During the same weeks, the remaining four investment banks on Wall Street all went under in one way or another. To stop further collapse and to ward off total economic catastrophe, the US government made its most dramatic interventions in financial markets since the 1930s. Only the infusion of hundreds of billions of dollars into the US banking system, coinciding with equally colossal interventions in Europe, staved off an entire crash of the world’s financial markets. The collapse of financial markets was soon being matched by the decline of the real economy. The world appeared to be heading for a period of inevitable economic stagnation or recession (a period of negative economic growth). Advanced economies experienced their sharpest contraction of the postwar period. Although emerging and developing economies were more resilient than in previous global downturns, they also suffered setbacks. In China growth slowed to 9.6 per cent, down from 14.2 per cent, and in India it fell to 3 per cent, down from 7.6 per cent (World Bank 2019b). It is not often that the world is faced with financial and economic turmoil so severe that the IMF calls it “the largest financial crisis in the US since the Great Depression”.1 Among the experts there was a consensus that the immediate cause of the crisis lay in the US sub-prime mortgage lending market.2 Since the start of the 1990s, a large number of people, previously considered to be bad credit risks, 67

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were offered mortgages. Because house prices were rising and it seemed likely that they would continue to do so, it was anticipated that if people could not keep up with their mortgage payments their houses could be repossessed and sold at a generous profit. Indeed, it was such lending practices that pushed the very rises in the house prices it relied upon. The greater and easier availability of mortgage funding led to greater demand for housing. The sharp and consistent rise in house prices served to reinforce speculation, and this rise made the home-owners feel rich even though in reality this was not the case. The result was a consumption boom that had sustained the economy in recent years. American consumers felt confident that since the value of their house was continuously rising, they could spend more than what they earned; this spending culture was reinforced by a strong campaign by the banks. When the US government dismantled its own Depression-era restraint on speculative investments by banks – the Glass-Steagall Act – and replaced it with the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999, it effectively introduced casino capitalism on a world scale. Once introduced, casino capitalism rippled through the global economy, promoting massive concentrations and exchanges of capital among global speculators, the transfer of speculative funds to international banks and other financial institutions, and the development of an array of new speculative investment tools to generate quick and easy profits. The origins of sub-prime lending are commonly attributed to the dismantling of Depression-era government regulation of the banking industry, because it opened the door to investment banks to enter and eventually dominate the real estate markets. Giovanni Arrighi wrote in 2003 that expansion of such financial speculations to that extent was clear evidence of the decline of the hegemonic powers in the global system, in the sense that hegemonic powers succeed each other as their prowess in production and trade declines while the sphere of finance grows. Financialization, Arrighi commented, thus represented the “autumn” in the cyclical trajectory of the hegemonic power, the USA (Arrighi 2003: 11–14, 47–8). In late 2007, economic growth slowed in America, and that ignited a sharp increase in the number of mortgage-holders who could not afford to pay their mortgages with the then current level of interest rates, and in the end there was a growing number of repossessions. Meanwhile, investors who bought these mortgages through a range of schemes known as mortgage-backed securities found out that the value of what they owned was sharply dropping (Cooke 2008). As a result, house prices fell sharply, and mortgage-lenders discovered that they could not make enough from selling off roughly one million repossessed homes to pay back what they themselves had borrowed.3 Therefore, the investment banks, which had been so willing to lend money to mortgage-lenders, just as suddenly 68

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realized that they were facing huge losses – tens of billions of dollars. For some, the losses represented by various toxic securities simply diminished their reserves and brought them down (Gowan 2013). As a result of all these factors, financial institutions right across the global economic system became afraid to lend to each other in case they discovered that they could not get their money back. Many banks stopped lending to one another, and lending practically stopped everywhere, which gave rise to the “credit crunch” (a sudden reduction in the availability of liquidity in the financial markets). When the causes of the crisis were discussed, most of the debate centred on the need for regulation. Some commentators looked a little deeper. Martin Wolf said, “I now fear that the combination of the fragility of the financial system with the huge rewards it generates for insiders will destroy something even more important – the political legitimacy of the market economy itself – across the globe.” The same point was expressed by Angel Gurria, Secretary-General of the OECD: “the market system is in crisis” (Gurria 2008). “What we are seeing right now looks like a very slow train wreck” was the view of James Boughton, the historian of the International Monetary Fund and assistant director of the Policy Development and Review Department of the IMF (Debusmann 2008). Alan Greenspan, a former boss of the Federal Reserve, called it the crisis that happens “once in a century” (CNN Money 2008). Owing to the highly complex, geographically extensive and transnational nature of production and trading networks, a crisis in one part of the system inevitably and directly affects the other parts. Furthermore, the size and strength of the US economy have made it the main determinant of the pace of expansion of the world economy as a whole. From the US the crisis did spread to the rest of the world, which witnessed the first synchronized world recession since 1974. In a way, the crisis was an expression of the structural changes happening in the world economy regarding the architecture of power, that is, the relative decline of the Western economies in the face of rising emerging economies, within the global system over the past 30 years. The 2008 crisis signified clearly the beginning of a new epoch in history in which some of the old structures have given way when new, powerful actors have developed to radically affect the global structures of power and hegemony. The 2008 crisis accelerated the momentum of the global shift of power, weakening the established centres of the Global North and empowering further the new centres of power in the Global South. This was acknowledged even by one of the high priests of global capital, Credit Suisse, in their 2019 Global Wealth Report: “the global financial crisis marks a turning point in the history of wealth creation – the year in which the influence of the ‘old world’ wanes and the ‘new world’ takes over as the engine 69

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of global advancement. A new regime is now in place and looks set to continue.” (Credit Suisse 2019: 20).

Turkey and the 2008 global crisis The global crisis of 2008 affected all emerging economies whether they were neoliberal or not, but not all to the same degree. Asian economies proved relatively resilient, but those in Latin America fared worse. Central and Eastern Europe suffered the biggest losses. The Turkish economy was not spared either; the tightening of external credit caused a severe decline in foreign investment and a sharp decline in export demand. The impressive “golden age” of the Turkish economy was already being negatively affected in 2007; growth was slowing down, mainly because of sluggish domestic demand, even before the economy was hit by the 2008 global financial crisis and economic downturn. The root cause of the declining domestic consumption was global volatility from mid-2007 and increases in interest rates made by the central bank. In addition, 2007 was an election year4 and the government’s spending spree contributed to the budget deficit (Migdalovitz 2007). After growing on average at 7.5 per cent between 2002 and 2006, Turkey’s GDP growth was down to 3.7 per cent in the second quarter of 2007 to the third quarter of 2008. This sharp decline in growth was even more striking in monthly industrial production figures. The slowdown was also particularly noticeable in private investment, and to a lesser extent in private consumption, mainly due to the stopping of available credit in 2007 and later the panic created by the global crisis in 2008 (Uygur 2010). Once the global crisis hit the world economy in 2008, Turkey and Mexico, among the emerging economies, experienced the sharpest declines in the rate of economic growth. Turkey recorded the third largest output loss in 2009 among a group of nine comparable countries classed as emerging economies, outperforming only Russia and Mexico. Turkey suffered negative growth and sharply rising unemployment immediately after the 2008 crisis. The annual unemployment average climbed sharply from 9.9 per cent in 2008 to 17.4 per cent in 2009. Most of this unemployment was in small and medium-sized enterprises, affecting the unskilled and semi-skilled workforce. As mentioned before, the problems in the Turkish economy started to emerge before the 2008 crisis: GDP growth started to slow down and declined markedly in mid-2007 from an average of 7.2 per cent between 2002 and 2006 to 4.7 per cent during the second quarter of 2007 and to 0.8 per cent in the third quarter of 2008 when the global crisis reached Turkey.5 70

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The global crisis did not cause the same level of damage to all emerging economies, and indeed some emerging powers improved the strength of their economy and standing in the global ranking as a result of the crisis. China, for instance, showed some ability to absorb the initial shock mainly because of its deliberately limited integration into the global economic system, particularly in terms of financial markets. Chinese policy-makers had always been very cautious to carefully manage their financial sector’s integration into global financial networks. Impressive growth of China’s economy since the 1980s had been achieved by way of tight controls over the country’s capital accounts and restrictions on foreign investors’ access to the country’s financial markets. This had protected its banking sector from the risk of contagion once the global financial crisis hit the world in 2008. In this way, China has demonstrated its ability to benefit from its controlled incorporation into the globalized world economy and at the same time to provide some protection to its economy against the uncontrollable forces of global financial markets. The Turkish economy, on the other hand, had gone through an intense financialization process during the previous two decades, which was dependent on the unprecedented capital inflows leading to economic growth based on production for the export market. After the 2001 crisis, the Turkish economy had displayed its strongest economic performance, yet this was at the expense of full integration into neoliberal global structures, including opening up Turkey’s financial market to global finance networks. Until 2007, capital flows to the Turkish economy reached unexpectedly high levels. This high level of financialization led, on the one hand, to a sharp increase in the debt of the country, both the state’s and the public’s, and on the other, to moving a larger than normal part of all available funds to the area of financial speculation. This level of financialization was not unique to the Turkish economy; this was one of the key characteristic processes of global neoliberalism in the twenty-first century and the essential underlying reason for the global financial crisis. When the crisis hit the US economy in 2008, as a result of the initial breakdown in the sub-prime mortgage sector, almost all other banks and finance institutions in the world were affected because of the high degree of interconnectedness of the global financial networks and operations. The banking system in Turkey, however, proved to be more robust than some other counties’ banking structures, mainly because several measures of protection and controls against excessive risk-taking had already been introduced after the 2001 crisis in order to reinforce the solidity of Turkey’s banks. Turkey’s banks were generally well regulated and supervised after 2002, and the system did not carry any significant toxic assets. Two laws introduced before the 2008 crisis were effective in this respect: the Bank Cards and Credit Cards Law 71

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(1 March 2006) and the Law Amending the Laws Related to the Housing Finance System (6 March 2007) had provided additional controls on credit card limits and extra securities for mortgage-lenders. Thus, the Turkish banks had already become increasingly risk-averse and tightened their lending practices in the years before the global financial crisis hit the world economy. These quite far-reaching measures explain why the banks remained resilient and the financial structures in Turkey did not crash as they did in many other and more advanced economies. In fact, the profitability of Turkey’s banks increased in 2008 and 2009. Turkey was one of the few economies whose credit rating improved during the crisis (Yürükoğlu & Atasoy 2010: 388).

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The global financial crisis and Turkey’s response

The global crisis initially inflicted a serious blow on the Turkish economy. Although the banking and financial sector proved quite robust, the real economy was significantly impacted. There was a sharp reduction in Turkish trade. A lack of global demand was the most important factor that adversely affected Turkey’s exports. Those from the automotive and durable goods sectors were the most severly hit. External demand contracted rapidly, and the growth of the Turkish economy, which had been based on export-led production, was abruptly stalled. In the first quarter of 2009, the Turkish economy declined to −14.3 per cent, the sharpest quarterly decline of the past three decades, and to −7 per cent in the second quarter. On top of such sharp GDP contraction, unemployment increased steeply in the second half of 2008 and the country’s economy recorded the highest unemployment levels, 16.1 per cent and 15.8 per cent in February and March 2009 respectively. Turkey’s high economic growth in the period after 2002 was mainly based on Turkish exports of manufactured goods, especially cars and electrical appliances (see Chapter 4). From 1996, when a customs union agreement became effective with the EU, more than 50 per cent of Turkish exports were destined for European Union member states. After the outbreak of the global crisis, and with the decline in EU demand, Turkey’s exports decreased by 25 per cent in 2009 (Kalkan, Dündar & Dinççağ 2010: 1). As a response to this sharp fall in EU demand, Turkish companies and business associations increased their efforts to counterbalance the shrinking demand in the EU and marketed their products in other areas, mainly Africa and Middle East, and exports to both areas gradually increased significantly between 2008 and 2009. Several measures introduced by the government to boost the financing of exports were quite effective. Between November 2008 and September 2009, just like many other central banks in the world, the Central Bank of Turkey cut its interest rates (11 times), and the borrowing rate was reduced from 16.75 per cent to 7.25 per cent (Uygur 2010: 29). Tax reductions were launched from 73

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mid-March to mid-June 2009 to encourage sales of motor vehicles, white goods and furniture. An Asset Peace Law was initiated, according to which there was a tax amnesty for all unrecorded assets, and tax exemptions were announced for incomes earned abroad. Further corporate and income tax reductions and a loan guarantee scheme were introduced. VAT reduction from 18 per cent to 8 per cent was introduced for sales of new houses with an area of over 150m2. Furthermore, subsidies for energy costs and exemptions for income taxes and social security premiums were introduced in mid-2008 (Acar, Kitson & Bridle 2015). After 2008, Turkish exporters started to use the cash-in-advance payment method more intensively, which allowed the exporter to eliminate credit risk or the risk of non-payment since the payment is received prior to the transfer of goods. The whole economy was still suffering from the financial constraints, but some of the measures introduced by the government to improve export financing were helpful too, and there was a variety of credit, insurance and guarantee programmes (Türkcan 2015). In September 2009, a major reform of Turkey’s pharmaceutical expenditure and price policy was introduced. A “global budget” was established which capped public pharmaceutical expenditure for the 2010–12 period, as a result of which the country’s economy saved an estimated 20 billion Turkish lira in public pharmaceutical expenditure over three years. The lion’s share of this was achieved by introducing stricter price controls that reduced the profit margins of pharmaceutical producers and distributors. This decision saved money for the government and it was very popular among the electorate since it reduced the prices of a wide range of medicines. The AKP government’s decision to secure low prices for medicines was a direct result of the electoral interests of the AKP leadership regarding maintaining access to public health care services. The party leadership was fully aware of the fact that health policy was a significant vote-winner for the party during the early part of the 2000s, in particular because many of their supporters were poorer and many were employed in the informal economy, many of whom had previously been excluded from Turkey’s corporatist welfare system (Dorlach 2016: 58). The policy responses and the monetary and fiscal stimulus measures that were introduced by the Turkish government to counteract the effects of the global crisis were comparatively minor in the emerging economies group, but Turkey remained reluctant to ask the IMF, de facto lender of last resort, for assistance. From March 2009, there was some improvement in business confidence. The slightly more favourable global liquidity and rising capital inflows were the main factors leading to the Turkish economy managing to bounce back strongly, registering significant growth in 2010 and 2011, 9.2 per cent and 8.8 per cent 74

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respectively. Production and employment had returned to their pre-crisis levels by 2010 (Arat & Pamuk 2019). Sustained job creation outside agriculture, which accelerated in the 2010s, improved well-being, notably in less-developed regions. The workforces that benefited most were those with a low level of education and previously inactive women. Material living conditions started to improve again. However, some important well-being inequalities still continued between socio-economic groups, genders and regions, mainly because of large gaps in the education, skills and earning capacity of individuals but also because of substantial differences in the quality of the infrastructure and the productivity of firms in a deeply fragmented business sector. Government spending rose considerably, and a series of new consumption, investment and employment incentives was granted. The government also scaled up loan guarantees, which were now among the highest in the OECD as a share of GDP (OECD 2018). From 2010, Turkish GDP per capita continued to catch up with that of the more advanced OECD economies. One of the key measures that the Turkish government implemented to deal with the crisis was improving Turkey’s trade balance towards the Global South/ East. With the decline in European demand after the 2008 crisis, Turkey’s exporters put all their efforts into shifting to more dynamic markets in Asia, Russia, North Africa and the Middle East. Because oil and gas have always constituted Turkey’s largest import items, the government tried to reduce dependency on imported energy by firstly, increasing its efforts to set up nuclear power plants, and secondly, using the country’s strategic location as an energy hub between the oil and gas rich regions of the Middle East, the Caucasus and Central Asia to further develop links with two oil-rich countries in its neighbourhood – Iran and Russia. As a result of its economic expansion, Turkey’s oil consumption grew for most of the 2000s, peaking at 690,000 barrels per day (bbl/d) in 2007. In 2009, after the global crisis hit the Turkish economy, Turkey’s consumption totalled 580,000 bbl/d, its lowest level since 1994. Turkey imported about 90 per cent of its total energy consumption in 2009. The majority of Turkey’s oil imports originate in Russia, which became the country’s top supplier in 2007, surpassing Iran for the first time. Additional oil imports originated in Saudi Arabia, Libya, Iraq and Syria (Energy Information Administration 2011). After the 2008 crisis, Turkey’s Energy Ministry announced new targets for the construction and expansion of nuclear power. It planned to facilitate the construction of at least 20 nuclear reactors across the country by 2030 in an effort to reduce Turkey’s heavy dependence on oil and natural gas imports. At the time of writing, 2020, Turkey does not have any nuclear power plants but is in the planning phases of three plants that are expected to be completed over the next ten 75

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years; the first one is expected to come online in 2023 followed by three more by 2030. Early in 2006, the province of the port city of Sinop on the Black Sea coast was chosen to host a commercial nuclear power plant. The plant is expected to have a generating capacity of up to 4,000 MW. In November 2007, a new law titled Construction and Operation of Nuclear Power Plants and the Sale of Energy Generated by those Plants (of their electricity) was passed by parliament and subsequently approved by the president, which provided for the Turkish Atomic Energy Authority (TAEK) to set the criteria for building and operating the plants. The Turkish Electricity Trade & Contract Corporation (TETAS) would then buy all the power under 15-year contracts. The bill also provided for public institutions to build the plants if other offers were not satisfactory. In May 2008, a civil nuclear cooperation agreement with the USA entered into force, in June 2010 a nuclear cooperation agreement with South Korea was signed, and in April 2012, two such agreements with China were signed (Nuclear Power in Turkey 2018). Turkey has been playing an increasingly important role in the transit of oil supplies from Russia, the Caspian region, and the Middle East to Europe, with the Turkish government deriving significant revenues from the transit fees. Growing volumes of Russian and Caspian oil are being sent by tanker via the Bosporus Straits to Western markets. Approximately 2.9 million bbl/d flowed through Bosporus in 2009, 2.5 million bbl/d of which was crude oil. Oil shipments sent through the Turkish Straits decreased from over 3.4 million bbl/d at their peak in 2004 to 2.6 million bbl/d in 2006 as Russia shifted crude oil exports towards the Baltic ports. Traffic through the Straits increased again as Azerbaijan’s and Kazakhstan’s crude production and exports rose. Additionally, a terminal on Turkey’s Mediterranean coast at Ceyhan allowed the country to export oil from northern Iraq via a pipeline from Kirkuk and from Azerbaijan via the BakuTbilisi-Ceyhan pipeline. The Kirkuk–Ceyhan pipeline is Turkey’s largest oil pipeline (by capacity) and serves as a transport pipeline for Iraqi oil. It is approximately 965 kilometres long and has a capacity of 1.65 million bbl/d. However, frequent attacks on the pipeline’s Iraq section regularly resulted in operation disruptions during the long conflict within the country following the 2003 Iraq War. After four quarters of recession in 2008, Turkey’s GDP growth increased after the first quarter of 2009. This was mainly because of the recovery in private consumption and exports. The Turkish economy strongly rebounded, producing China-like growth of 8.8 per cent in 2010 and 9.2 per cent in 2011. In response to these figures, Erdoğan, the prime minister, boasted that “[i]n growth, we passed China and Argentina, we became No. 1 in the world” (Champion & Parkinson 2011). With this impressive growth came a rise in the purchasing power of the population, which strengthened their belief that the country’s economy was continuing to improve, and all this contributed to the AKP’s popularity. 76

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From the Iran–Brazil–Turkey deal to the Israeli raid of Mavi Marmara A tripartite nuclear-fuel agreement was signed in Tehran on 17 May 2010 between Iran, Turkey and Brazil. This fuel-swap deal, agreed with Tehran, provided for the transfer of part of the uranium enriched at Iranian laboratories – initially to Turkey, then to France and Russia – so that it could be processed for peaceful (specifically medical) purposes. The material would subsequently be returned to Iran. The three signatories indicated that the International Atomic Energy Agency (IAEA) – to which Iran formally submitted the deal on 24 May – would verify this cycle of transfer and return (Guardian, 17 May 2010). The agreement between Iran, Brazil and Turkey, the Tehran Declaration of May 2010, did not resolve all the tensions surrounding Iran, but it was widely considered a watershed in the configuration of a new multipolar world order and in terms of significantly increased power and influence of Turkey and Brazil. Two weeks after the Iran nuclear deal, Israel sparked an outcry across the world and across Turkey when the Mavi Marmara, a Turkish ship accompanying eight other vessels carrying 10,000 tonnes of medical aid, housing material and other humanitarian supplies, was attacked by Israeli forces on 31 May. The flotilla, aiming to break the Israeli siege of Gaza, was attacked in international waters, 65 km off the Palestinian coastal enclave. Israeli marines stormed aboard from dinghies and rappelled down from helicopters. More than ten people were killed, all Turkish and one with Turkish–American dual citizenship. An Israeli government spokesperson said that the Israeli commandos had come under fire from people on board the flotilla, whom he branded as “violent extremists”. Turkey’s prime minister, Erdoğan, said that the flotilla was carefully inspected before departure and that there was no one on board “other than civilian volunteers”, including Israeli citizens. Thousands of Turkish protesters tried to storm the Israeli consulate in İstanbul soon after the news of the operation broke (Al Jazeera News 2010). The way the Turkish government and people reacted to this incident was another indication of Turkey’s foreign policy position growing increasingly independent of the West.

Swinging the pendulum away from the European Union Unlike in the first period of its government, 2002–07, the AKP did not perceive relations with the West, and in particular the EU, as a mutually exclusive partnership. The official Turkish foreign policy line was that Turkey could have good relations with its neighbours, with the wider global network of countries, and with the European Union. The Turkish political elite also understood that 77

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the Anglo-Saxon and European worlds are the weak links in the post-Cold War global scheme of things, which sees Eastern and Southern Eurasian powers dominating the continent and the globe in the foreseeable future. This power shift to the East has guided the new Turkish foreign policy of Erdoğan and Davutoğlu and it is generally in tune with the visionary policy of Özal in the 1980s, but with less concern for EU relations and more emphasis on Eurasian links. Some observers have defined the post-Helsinki period, from the end of 2005 onwards, as the period when the Europeanization drive lost momentum for Turkey, which witnessed “a certain loss of enthusiasm and commitment on the part of the government” (Öniş & Yılmaz 2009: 13). This changing policy towards Europe found its reflection in Turkish public opinion, where there was a striking drop in support for Turkey’s membership of the EU, from 74 per cent in 2002 to less than 50 per cent by 20071 (H. Yılmaz 2008). The belief that EU membership would be a “good thing” was less popular in Turkey than in Romania (62 per cent) or Bulgaria (53 per cent) and just a little higher than in Croatia (34 per cent). Öniş and Yılmaz explain that this loss of enthusiasm and declining public support for EU membership was caused by the government’s changing position, loss of enthusiasm and “media misrepresentation” (2009: 14). Similarly, Müftüler-Bac puts the blame on “the decreasing Turkish commitment to the political reforms: that is the decline in both the credibility and the desirability of the EU’s accession process” (Müftüler-Bac 2016). Daron Acemoğlu and Murat Üçer also agree with this line of thought and claim that after 2007, “the reforms initiated by the IMF and the World Bank gradually came to be reversed, with Turkey’s recentlyinstitutionalized rule-based policy framework increasingly shifting back toward discretion”. The reason for this loss of enthusiasm for EU membership and a clear eastward shift cannot be explained by looking at the domestic dynamics alone; the global context was probably more important in this changing stance. On the one hand, ambiguous signals and controversial declarations from Europe made a negative impact on the credibility of the EU’s conditionality, amplifying the arguments of Eurosceptics. The opposition of some European circles to the possibility of Turkey’s membership on the grounds that Turkey lacked “Europeanness” amplified the reluctance of Eurosceptics in Turkey. More and more voices in some leading EU countries were saying that Turkey would never be accepted as a member regardless of whether it fulfilled all the political and economic criteria (Jenkins 2008). In particular, the shift in the Franco-German position, in which the conservative right politicized Turkish accession in the election campaigns of 2005 and 2007 respectively, was important in alienating Turkish public opinion. However, although the EU’s ambivalent stance towards Turkey was a factor in the loss of enthusiasm for membership in Turkey, the real reason should be searched 78

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for in the shifting dynamics and declining power of the EU in world politics and economics, which was the direct result of “a deeper and more structural transformation in the global political economy with major redistributive consequences” (Öniş & Kutlay 2019). One cannot understand the real roots of the slowing down of Turkey’s accession negotiations without looking at the significant decline of capacity and the overall image of the EU, which became more and more evident from late 2005. From 1995 to 2005, the EU was considered one of the major global actors with a solid currency and increasing economic vitality. With the Maastricht (1993) and Amsterdam (1998) treaties, and by deepening and widening at full speed, the EU had symbolized an increasingly united and dynamic bloc. It was doubling in size from 12 states to more than two dozen. Western Europe was one of the world’s most prosperous and stable regions. Central and Eastern Europe too was rapidly coming out of its politically repressive and economically backward past. All this, however, started changing from late 2005. The Euroscepticism could be seen in the rejection of the Constitutional Treaty, in the 2005 referenda in France and the Netherlands, in the rejection of the Lisbon Treaty, in the 2008 Irish referendum, and in the opt-out of the new fiscal pact by the UK and the Czech Republic. In May 2005, the economic sentiment indicator (ESI) fell by 0.7 points in the EU and by 0.4 points in the euro area, continuing its almost uninterrupted decline since October 2004.2 There is no doubt that Europe has been experiencing its first geopolitical decline since the fall of the Roman Empire; one can even talk about an existential challenge to the Union just after the Brexit referendum result – the exit of one of its core members. The declining power of Europe had become obvious soon after 2005 – even to Europeans, Europe was no longer the centre of the world, and London and Paris no longer dominated world markets through the imposition of economic dependence and financial centres. The reduced size of the single market relative to that of far more swiftly growing emerging economies, especially China and India, has seriously weakened the EU’s bargaining power. Furthermore, the global financial crisis of 2007–08 led to a sharp downturn in economic activity and caused a recession that badly affected all parts of the European Union. The plight of the eurozone was considerable. All this has made the EU a less attractive model for other regions to emulate, thus harming Europe’s soft power capacity as well. This dramatic shift – the EU’s reduced power in the post-2005 era – taking place in the world economy was probably the single most important factor shaping Turkey’s relations with Europe: an exceptionally favourable international economic context was replaced by a far less forgiving global economic environment after the 2007–08 global financial crisis.

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The Shanghai Cooperative Organisation versus the European Union Global economic reality prompted Turkey and even some members of the EU to disentangle themselves from the politically dysfunctional and economically disadvantageous relationship within the EU and to look east to the emerging economic powerhouses of the Shanghai Cooperation Organisation (SCO). The SCO is an intergovernmental mutual-security organization that was founded in 2001 in Shanghai by the leaders of China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan (see Table 6.1). Table 6.1 Shanghai Cooperative Organisation Members

Observer states

Dialogue partners

Guest attendances

China

Afghanistan

Armenia

ASEAN

Kazakhstan

Belarus

Azerbaijan

CIS

Kyrgyzstan

Iran

Cambodia

Turkmenistan

Russia

Mongolia

Nepal

UN

Tajikistan

Sri Lanka

Uzbekistan

Turkey

India Pakistan

Turkey signed trade agreements and bilateral pacts with the northern powers, in particular Russia, moving more to the east after 2008, both economically and politically. During this period, Russia became Turkey’s second most important trade partner following Germany. Furthermore, millions of Russian citizens visited Turkey each year and many Turkish companies set up businesses in Russia. As clear recognition of their improved relationship, in 2010 Turkey and Russia removed the visa restrictions between the two countries for stays of up to 30 days. Turkey’s relations with China improved too, not as much as those with Russia, but still in a significant way. In 2012, China became Turkey’s third most important trading partner. During the same year in June, Turkey was accepted as a “dialogue partner” at the Beijing Summit of the SCO. Although this decision did not completely satisfy the Turkish government, which apparently preferred the status of an observer, it still had a profound meaning, as Turkey became the first NATO member state to enjoy such a privileged institutional relationship with the SCO. A Turkish general visited Beijing in 2009 and signed an agreement with 80

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the Chinese government that included the organization of joint military exercises and a deepening of defence industry cooperation. As a result of this, in 2010 several Chinese aircraft took part in Turkey’s annual military training. It was the first time that a NATO country had conducted a joint exercise with the People’s Liberation Army Air Force (Shichor 2014). In a televised interview in January 2013, Tayyip Erdoğan announced that membership of the SCO could become an alternative to Turkey’s stalled EU accession process: The EU wants to forget about us, but hesitates, and cannot really forget. But if it said what it truly feels, we would be only relieved. Instead of wasting our time, it should be open and explain, so that we can go about our business. You sit and talk with them, but they can’t really speak convincingly. When things go so poorly, you inevitably, as the prime minister of 75 million people, seek other paths. That’s why I recently said to Mr [Vladimir] Putin: “Take us into the Shanghai Five; do it, and we will say farewell to the EU, leave it altogether. Why all this stalling?” (Baydar 2013) In light of the increasing trade links and diplomatic and political associations, it was obvious that in the second decade of the twenty-first century, the Turkish state was associating more and more with the Russia–China axis in terms of both political economy and security.

June 2011: the third electoral victory of the AKP and the end of the tutelary regime The elections in Turkey on 12 June 2011 produced yet another landslide victory for the incumbent Justice and Development Party, the AKP, which won 49.9 per cent of the votes and 326 seats in parliament. Turkish voters once again voted for political and economic continuity and rewarded the ruling AKP, and its leader Erdoğan, for prosperity and better socio-economic services, particularly with respect to health care and affordable housing. It was only the second time in the history of modern Turkey that a political party had won three consecutive elections, and the first time it had done so by increasing its vote each time (in 2002, the AKP received 34.28 per cent of the vote in 2002 and in 2007, 46.58 per cent). The main opposition, the Republican Peoples’ Party (CHP), received only 25.9 per cent of the votes and 135 seats. The main reason for this electoral success was the growth of the country’s economy that had been achieved just before the 2011 general election. Between 81

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2008 and 2011, the AKP consolidated its gains. Despite the political turbulence, Turkey weathered the global financial crisis of 2008 with much less damage than many other countries. After a 5 per cent contraction in 2009, growth rebounded during 2010 and 2011 to a near 9 per cent per annum pace that was fuelled by massive monetary and fiscal stimulus. The policy rate of the Central Bank of Turkey was reduced by over 10 percentage points and the real interest rate declined to zero-to-negative territory compared with the pre-crisis 7–8 per cent levels. After a brief recession, the economy continued with double-digit growth rates in 2009. By 2011, approaching the June 2011 elections, inflation remained under control and the unemployment rate was at a record low. Compared with its anaemic Western counterparts, the Turkish economy had expanded by 8.9 per cent in 2010, reflecting nearly a decade of strong growth since the AKP had assumed control in 2002. This compared favourably with high-flying emerging economies such as India; Turkey had been diversifying its economic relations in recent years, developing important trade and investment links with many more countries beyond its immediate neighbourhood. Among the G-20 countries, only China had grown at this pace. By all accounts, since 2002, Turkish industry had made a quantum leap: Turkey was Europe’s leading maker of buses, its third largest commercial-vehicle producer and the world’s seventh largest ship exporter. Four-fifths of all household appliances sold in EU countries, such as the UK and Spain were Turkish-made. Worldwide, Turkey’s exports of refrigerators, washing machines and dishwashers were booming. In the first half of 2011, the Turkish economy had a 13 per cent growth rate, surpassing even China. This sustained economic boom provided Turkish citizenry with a sense of confidence both at home and abroad, in particular towards their Muslim neighbours. The performance of the Turkish government increased the country’s profile in the Middle East too. A survey found Erdoğan wildly popular in the region, well ahead of the nearest contenders, Ahmadinejad of Iran and Hezbollah’s leader, Hasan Nasrallah. The AKP’s election manifesto was tightly centred on the solid economic achievement enjoyed by all sections of society and the increased popularity of the country in the Islamic world. Turkey’s per capita income had almost tripled during Erdoğan’s tenure and Turkey’s total trade with Middle Eastern and Asian countries had increased almost tenfold in volume, so it was not hard to see why the AKP captured 49.9 per cent of all votes and a majority of seats in parliament and once again was able to rule without having to form a coalition government.3 Soon after the elections of June 2011, the AKP government consolidated the supremacy of the civilian rule over the military too – a first since the creation of the modern state. With its confidence heightened by its landslide victory in the elections, the government pushed the entire senior command of the army, 82

The global financial crisis and Turkey’s response

including the chief of the general staff, to resign in July 2011 over a disagreement about staff promotions and the prosecution of several senior military officers. There had been a history of tension between the generally secular and Kemalist officers and the governing Islamist AKP, with the two sides engaged in a war of words for the past three years over allegations that parts of the military had been plotting a coup against the government. Investigations into those allegations, known as the “Sledgehammer” investigation about the Ergenekon (Turkish deep state), revealed that the conspiracy appeared to be the root cause of the resignations, with the senior military wanting to go ahead with scheduled annual promotions for some of the officers implicated in the conspiracy and the AKP government refusing to agree (BBC News, July 2011). Since the seizure of 31 individuals, including some top senior members of the army and some staunch secularist academics and journalists, in a police raid in January 2008, accused of being members of the Turkish “deep state”, the story of a secret contra-guerrilla organization and its operations had set Turkey abuzz with rumour and speculation. Similar arrests continued almost monthly, and by late 2011 several hundreds more had been taken to the court accused of being members of a conspiracy to change the democratic regime in Turkey. The background of the deep state in Turkey goes back to the beginning of the Cold War. During the 1950s, the US was concerned that the Soviet Union, through the activities of the local communist parties, would conquer the world. The CIA and the Pentagon came up with a plan to establish secret resistance groups within various countries that would fight back against the predicted communist takeover. These groups were called “stay-behind” organizations, little cells of paramilitary units that would take on the communists behind enemy lines. To coordinate all these clandestine groups, a super-NATO organization, the Allied Coordination Committee (ACC) was set up under the control of the CIA in all NATO countries and headquartered in Brussels. Secret meetings were held annually in which delegates from all the member countries took part. The official purpose of the organization was to organize “local resistance movements in enemy-held territory, evacuating shot-down pilots and sabotaging the supply lines and production centres of the occupation forces with explosives” (Ganser 2005: 1–2). The organization had at its disposal special funds and weapons depots and was not answerable for its activities under the laws of the individual member states. The United States funded these stay-behind groups for decades, despite there being no communist takeover in any of these countries. However, some of these groups eventually did take up arms against left-wing dissidents and members of the local communist and socialist parties in their own countries. Probably one of the most powerful and deep-rooted of these covert action groups was set up in Turkey, immediately after Turkey’s membership of NATO began in 1952. 83

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After the dissolution of the Soviet Union in 1991, such deep-state organizations in all other countries disbanded, but the one in Turkey remained active and was involved in many murders, disappearances and unexplained deaths of opposition politicians, investigative journalists, academics, officials, businessmen, and human rights and other activists of various kinds throughout the 1990s (Unver 2009). It was the continuation of the same Turkish deep state, but centred within the senior ranks of the army, that was accused by the government of plotting to change the regime. The move to replace many key senior positions in the army by the AKP regime in 2011 symbolized the end of the tutelary regime in Turkey. By early 2012, half of all Turkish admirals and one out of ten generals on active duty were in jail for plotting against the government. It was a paradigm shift for a country that had undergone three military coups and continual military interference in the political process for almost a century. The AKP regime, now with increasing confidence and independence, was holding more power in its hands than ever before while facing fewer institutional checks and balances.

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7.

Turkish foreign policy: the Arab Spring and the Syrian catastrophe

So-called “Arab Spring” events, which began in Tunisia in 2011 and soon afterwards spread to other MENA countries, provided a serious challenge for Turkey, not only in terms of foreign relations but also, and especially, with respect to Turkey’s economic relations with the region. Before the protest movements affected the MENA countries in 2011 and 2012, Turkey’s relations with the countries of the region were based on the general principles of mutual gain through economic interdependence and close neighbourly ties based on close historical and cultural links, in particular Muslim solidarity. This policy, designed by the AKP’s foreign minister Ahmet Davutoğlu, formerly a professor of international relations, was presented as a soft power and mutual economic benefit-based policy, popularized as designed to produce “zero problems with neighbours”. This active policy was essentially based on Turkey’s increasingly strong economic interests in the region. Turkey’s total trade with Middle Eastern countries had increased from $4.4 billion in 2002 to $26 billion in 2010.1 Davutoğlu ’s foreign policy and regional and international relations strategy, in particular towards Middle Eastern countries, stood in sharp contrast with that of its immediate past. This active foreign policy was a departure from the country’s much more cautious foreign policy which had existed for most of the republican period – the shift was from a diplomacy that was largely passive and one-dimensional to one that was dynamic and multidimensional. The basic principles that had guided Turkey’s foreign policy since the founding of the republic in 1923 were caution and pragmatism. Lessons that had been learned from the way in which the Ottoman Empire had ended after the First World War convinced the leaders of the young Turkish republic to be cautious – believing that very little was to be gained and much to lose from entering into the unfriendly and unpredictable conflicts in Turkey’s immediate neighbourhood. For most of the period until the late 2000s, Turkish foreign policy was almost always cautious and merely reactionary in response to the events happening within its surrounding 85

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region, and from the end of the Second World War onwards it strictly followed the lead of the US and NATO. From around 2009, however, Turkish foreign policy appears to have undergone an important transformation, putting Turkey on the map of nations as a more influential actor. Most of the credit for this change towards a more active, even proactive, foreign policy, has been given to Davutoğlu, Turkey’s foreign minister from 2009 to 2014 and President Erdoğan’s prime minister from 2014 to 2016. Davutoğlu had previously served as chief advisor to both the prime minister and the foreign minister since the AKP came to power in 2002. Economic relations, based on the “zero problems with neighbours” policy, was the centrepiece of Davutoğlu’s foreign policy agenda and the approach was widely welcomed in the region since Turkey was a fast-growing industrialized economy and was willing to invest in and trade with all its neighbours. Ankara first developed relations with the Syrian government at the level of a strategic partnership. Closer economic and political ties with Iran and Russia were also being cultivated. Davutoğlu’s long-term aim to make Turkey a central player in world politics within a stable regional atmosphere and a pluralist international order These ideas were developed by Davutoğlu during the 1990s, and were outlined in his book Strategic Depth: Turkey’s Place in the World (original title Stratejik Derinlik: Türkiye’nin Uluslararası Konumu) (Davutoğlu 2000) (see Box 7.1). Although Davutoğlu’s foreign policy doctrine is often labelled as “neo-Ottomanism”, the use of this term is rather misleading. Ottomanism was a nineteenth-century political movement that emerged as a response to the decline of the empire and aimed to create a civic Ottoman identity overarching ethnic, linguistic and religious identities. The term “neo-Ottomanism” briefly returned to characterize the foreign policy ambitions of Turgut Özal in the late 1980s. Although there was an increased interest in the other ethnic groups in the Middle East during the era of Davutoğlu, the rest of his vision had nothing to do with “Ottomanism”, old or new. Graham Fuller describes Davutoğlu’s vision as “perhaps the most systematic, substantial and comprehensive vision of Turkey’s strategic position yet written . . . Davutoğlu’s vision is at once independent, nationalistic, Islamic, pan-Turkist, global and Western” (Fuller 2004: 59). Davutoğlu’s “grand strategy” stressed that Turkey was distinctively fortunate because of its location in geopolitical areas of influence and its historical legacy as the heir to the Ottoman Empire. In this work, Davutoğlu clearly affirms that Ankara, because of its geographical position and its past greatness as an empire, may be able to reclaim its place in international relations. In order to reach this goal, Ankara should promote its identity as a great power and develop an independent foreign policy that is decoupled from the bond with the West that characterized the choices made in the previous decades. Strategic Depth calls for active engagement with all regional systems in Turkey’s neighbourhood 86

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– the Balkans, the Middle East, the Caucasus and Central Asia. His formulation of principles and mechanisms of foreign policy meant that he was recognized as a man of vision in shaping Turkey’s foreign affairs. Although Davutoğlu managed to pronounce the new more active foreign policy and sharply increased confidence in foreign affairs more explicitly and analytically in detail, probably because of his academic background, the change in Turkey’s foreign relations had started long before Davutoğlu appeared in the picture, even before the AKP government’s initial electoral success in 2002. Indeed, building regional influences of the type to which Davutoğlu aspired was a long process that had been taking place gradually and incrementally over decades, and was not an immediate result of Davutoğlu’s so-called new vision and hyperactive diplomacy. Box 7.1 Strategic-depth doctrine of Turkish foreign policy After the elections in 2002, which put the AKP in power, Davutoğlu developed five fundamental principles for Turkey’s foreign policy: (1) the necessity of establishing a balance between security and democratic freedom within the internal policy; (2) peaceful foreign relations with neighbouring countries – popularized as the “zero problems with Turkey’s neighbours” policy; (3) the adoption of a proactive diplomacy to allow Turkey to become a mediating actor in international conflicts and disputes; (4) the importance of a multidimensional foreign policy; and (5) involving Turkey in all global issues, thereby allowing it to become part of what he called “rhythmic diplomacy” (ritmik diplomasi). Davutoğlu described this multidimensional foreign policy in an interview with the Turkish Daily News on 15 September 2001: Geographical depth is a part of historical depth. For instance, Turkey is not just any old Mediterranean country. One important characteristic that distinguishes Turkey from say Romania or Greece is that Turkey is at the same time a Middle Eastern and a Caucasian country. Unlike Germany, Turkey is as much a European country as it is an Asian country. Indeed, Turkey is as much a Black Sea country as it is a Mediterranean one. This geographical depth places Turkey right at the centre of many geopolitical influences. On the basis of this understanding, Davutoğlu rejected the perception of Turkey as a bridge between Islam and the West, as this would relegate 87

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Turkey to being an instrument for the promotion of the strategic interests of other countries. Instead, Davutoğlu maintained that Turkey enjoys multiple regional identities and thus has the capability as well as the responsibility to follow an integrated and multidimensional foreign policy. The unique combination of our history and geography brings with it a sense of responsibility. To contribute actively towards conflict resolution and international peace and security in all these areas is a call of duty arising from the depths of a multidimensional history for Turkey. (Davutoğlu 2009: 12)

One can identify certain building blocks put in place under Turgut Özal’s leadership from 1983 to 1993, and also when İsmail Cem was the country’s foreign minister between 1997 and 2002. But the most important factor in making all this new activism and increased confidence possible was a significantly changed regional and global environment (see Chapter 1). The end of the 1980s not only witnessed the end of the Cold War but also the early indications of wealth and power “shifting from the West to the rising economies of the East” (Nye 2013). In political economic terms, this shift from a unipolar US dollar-based system to a multipolar system of a “basket of currencies”2 used in global trade was explained in the pages of Foreign Affairs as follows: “The dramatic growth of Brazil, China, and India – and the emergence of middle-tier economies such as Indonesia and Turkey – is transforming the geopolitical landscape and testing the institutional foundation of the post-World War II liberal order” (Patrick 2010). All this showed that there were more models of, and roads to, development than the model represented by the postwar Western system. The economic performance of the BRIC and MIKT countries was a clear indication that the Western developed economies were declining and that the world was changing rapidly. It was no longer up to a handful of countries in the northern hemisphere to decide what the world would look like. The emerging countries were not and still are not, however, by any means an undifferentiated mass. There were and still are huge differences between them and these differences shape not only the pace of their progress but also the way they locate themselves in the global map regarding various conflicts. Turkey’s economic growth, as we have seen, was extraordinary between 2002 and 2008 by historic standards. As the economies of Europe and the US contracted as a result of the 2007–08 global financial crisis, Turkey’s economy rebounded in 88

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2009 and expanded to nearby markets. This increased economic strength made a more active and dynamic foreign policy possible, not only the ideas developed by Davutoğlu but more so the changing balance of power in the world. It seemed that the second decade of the twenty-first century was the right time to follow an activist foreign policy in the Middle East, in particular because the impact of the 2008 global crisis had reduced the dependence of the Turkish economy on Western, mainly EU, markets and had forced them to look beyond the West to seek new trade avenues in the Middle East, Africa and South East Asia. The ideas and aspirations concerning playing a more important role in the region and beyond had been written about and discussed in Turkish policy-making circles since the mid-1990s, but these could be turned into actual foreign policy decisions only when the economic conditions and political confidence improved. During the first eight years of the AKP regime, significant trade and investment linkages characterized Turkey’s foreign relations with all its neighbouring countries, and these enabled Turkey to deploy its soft power resources much more effectively. Therefore, it should be recalled that the course of Turkish foreign policy followed the growth of Turkey’s economy and its increasing role and space in the world map. The way in which the policymakers responded to this also started long before Davutoğlu. Even under the AKP regime, it was Erdoğan and Abdullah Gul, two dominant leaders after 2002, who first shared some responsibility for steering Turkey into the new waters of a more active foreign policy and diplomacy. An early turning point in Turkey’s foreign affairs came in 2003 when the Turkish parliament refused to allow the US to use Turkish territory to stage an invasion of Iraq (Filkins 2003). In retrospect, this opting out of the invasion of Iraq came to constitute a moment of transformation for Turkey in the sense that the country could and would make its own decisions based on its close links with the neighbouring powers rather than following US-led Western policies, which had been the case since the country joined NATO. With this decision, Turkey demonstrated to its neighbours and the world, and even to itself, that it could and would think and act for itself when it came to foreign policy, that the hierarchical alliances of the Cold War period were over and that the US should no longer take Turkey’s collaboration for granted. But the significance of this step should not be exaggerated; it should not be interpreted as a complete U-turn towards an independent foreign policy and away from Western security arrangements. Even during the Iraq War, the Turkish government allowed the Incirlik Air Base in the south of Turkey to be used by American combat aircraft for bombing missions. During the initial years of the AKP government, Turkey had some success in bolstering its position as a significant regional power by contributing to peace and stability in the region. Visa-free travel was agreed with Syria, Libya, Jordan 89

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and Lebanon, and free trade zones in the Middle East were being negotiated. Turkey encouraged peace talks between Syria and Israel. All of these activities generated considerable interest and increased Turkey’s standing in the Middle East. Turkey also played, or attempted to play, a constructive role as a peacemaker in the Balkans and the Caucasus, bringing Bosnia and Serbia together and taking some steps towards normalizing relations with Armenia. In a more ambitious and symbolically important way, Turkey’s collaboration with Brazil, in May 2010, to persuade Iran to accept an arrangement for the storage of a large portion of Iran’s enriched uranium in Turkey, thus providing a practical, peaceful and more sensible alternative to the sanctions and hawkishness of the US and Israeli position against Iran. The Turkish leadership even did its best to restore normality to Turkish–Israeli relations. All this resulted in substantial Turkish investment and tens of thousands of Turkish citizens moving to neighbouring countries to work.

The Arab Spring On 17 December 2010, a 26-year-old Tunisian man named Mohammed Bouaziz poured petrol over himself and set his own body alight in front of the office of the regional governor. This incident happened after the police had smashed his fruit cart – his only means of survival despite the MBA he had been awarded by an elite university. In the aftermath of this incident, life was turned upside down in Tunisia and the fire that Bouaziz had lit burned until it engulfed the entire country from town to town. He died from his injuries after three weeks in hospital, triggering protests that led to the downfall of President Zine al-Abidine Ben Ali. Soon protests spread to Egypt, Yemen, Libya and other parts of Arabic North Africa, the Middle East and some Gulf States. Bouaziz’s plight echoed the hapless fate of many thousands of young Tunisians, Egyptians, Libyans and other unemployed youth in North Africa who had been seduced by the promises of higher education yet were frustrated and thwarted by the visionless, unproductive, corrupt power elites of Western-friendly regimes. The uprisings arose from a complex mix of economic problems involving a sharp rise in food prices and high youth unemployment together with a widespread hatred of autocratic and corrupt regimes. All these factors combined in different ways across various countries, leading to strong popular anger. Of course, we cannot deny that people in one country drew inspiration and strength from the mass protest movements in others. The partial successes in Tunisia and Egypt detonated similar movements elsewhere, but they did so only in countries with a similar historical legacy – the same sharp socio-economic polarities between rentier rulers and marginal street 90

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labour. What was less adequately reported was that all these countries in the MENA region had experienced an intense economic transformation, imposed by the IMF and the World Bank, during the previous decade, which had led them away from the state-controlled command economy model of “Arab socialism” of the 1960s and 1970s and towards market-dominated neoliberal capitalism in the 1990s. Through the guidance and assistance of the IMF and the World Bank, the MENA region pursued neoliberal economic policies (entrepreneurial freedom, strong property rights, free markets, free trade and strict control of the unions) that led to significant income inequalities and a concentration of wealth among the small political elite and its cronies. Thus, the Arab Spring uprisings took place within conditions of sharply increased poverty, very high youth unemployment and lack of opportunities for young people, which explains the large number of young people participating in the street demonstrations during the Arab Spring events (Gökay 2012). Erdoğan and Davutoğlu were initially optimistic about the Arab Spring events and thought that they would create better conditions in the region for Turkey to expand its trade and investment and establish close links with the emerging structures. The expectation was that the protest movements would change the autocratic regimes quite quickly and open the region up to close neighbourly collaboration that would be mutually beneficial for Turkey and the MENA countries themselves. At first, they saw no need for Turkey’s active involvement when the protests against the regimes continued and were against any outside involvement, opposing UN sanctions on the Gaddafi regime in Libya and rejecting calls for NATO operations in support of the anti-regime forces. Erdoğan, then Turkey’s prime minister, said that it would be absurd, unthinkable and useless to intervene in Libya and that doing so would have dangerous consequences; he believed that the Libyan people should decide the fate of their own country. But then Turkey’s foreign policy towards Libya did a complete U-turn. Turkey approved the NATO operations, with some reservations, and called for Gaddafi’s resignation. Five Turkish navy ships and a submarine were dispatched to help enforce the arms embargo against Gaddafi’s regime, and the Turkish parliament even approved sending troops if necessary. One reason suggested for this reversal of position, albeit reluctant, was the 30,000 Turkish citizens living and/or working in Libya. In the pro-government press it was also explained as “Turkey wants NATO to command the Libya mission in order to be able to limit allied operations against the country’s infrastructure and avoid the casualties among Muslim civilians that it fears could result from bombing raids” (Daily Sabah 2011). After Gaddafi was captured and killed and a temporary authority was put in place with the direct help of NATO, Erdoğan visited Tripoli; he attended Friday prayers at Tripoli’s Martyr Square, met the chairman 91

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of the Libyan National Traditional Council and congratulated the Libyan people for bringing the age of tyranny and dictatorship to an end (Al-Jazeera 2011). The entire oil-rich country was, however, mired in chaos soon after, with rival authorities and a multitude of militias vying for control. The Libyan fiasco for Turkey’s foreign policy, however, was short-lived even if no less traumatic for the Libyan people (Head 2011). The situation in Syria proved much more complicated and difficult for Ankara to handle. Turkey’s Syria policy would become an unmitigated disaster, and Davutoğlu’s strategic depth would become a great strategic muddle. When Erdoğan quite aggressively took sides with the opposition forces against the Assad government, the Turkish authorities provided the so-called rebels in Syria with an unchecked and poorly overseen support base in Turkey. It provided space for the mobilization of armed men, mainly from hard-core Islamic groups, to cross the border to attack Syrian soldiers and civilians, and backed the establishment of the Free Syrian Army and the so-called Syrian National Council. In this way, Turkey had effectively become a side in the bloody civil war in Syria (Lowe 2015: 40–43). As long as the rebels could count on the unconditional support of Ankara, as well as Saudi Arabia and Qatar, they could keep fighting a war that had become increasingly brutal. In reality, the gap between the so-called moderate Syrian opposition and Islamist extremism was much more limited than presented by Turkey’s, and American, policymakers (BBC News 2012; Reuters 2012). As a whole, the Syrian crisis exposed weaknesses in Davutoğlu’s, and Erdoğan’s, initial presentations of Turkey as a significant regional power pursuing peace and stability. What some called the “new turn” in Turkish foreign policy in the Middle East simply corresponded to joining a Sunni axis with Qatar and Saudi Arabia as opposed to the Shiite bloc led by Iran. In 2011, Davutoğlu had famously declared that Assad would fall in a matter of weeks. Nine years later, at the time of writing, and Assad has almost regained control in most of Syria’s territories. In Syria, Turkey became a prisoner of its enmity towards the Assad regime (Gökay 2015: 44–9) which put the credibility of the regime’s foreign policy, in particular that of Davutoğlu, under serious strain (Kirişçi 2016). Of all Syria’s neighbours, Turkey has the biggest stake in the outcome of the Syrian civil war, and Turkey’s involvement in the conflict and its foreign policy have had direct and indirect economic consequences. After the civil war broke out in 2011, Turkey adopted an “open-door policy” towards Syrians fleeing the conflict, granting them “temporary protection” status. It was a significant expense to provide humanitarian assistance and support for refugees, maintain border security and spend money on the military, and the deterioration of trade as a result of ongoing fighting in Syria imposed further pressure on the Turkish economy (International Crisis Group 2014: 2). 92

Turkish foreign policy: the Arab Spring and the Syrian catastrophe Figure 7.1 Major host countries for refugees, 2019 (in millions) 4 3.5 3 2.5 2 1.5 1 0.5

Ba ng la de sh

Ir an

Su da n

an y Ge rm

Le ba no n

Ug an da

an Pa ki st

Co lo m bi a

Jo rd an

Tu rk ey

0

in millions

Source: UNHCR Global Trends Report.

Before the Syrian civil war, Turkey’s Disaster and Emergency Management Authority (AFAD) spent around $395 million annually (633 million Turkish liras in 2010 using an exchange rate of 1.6 US dollars to 1 Turkish lira). After the start of the civil war, this spending increased by over 75 per cent to $1.5 billion in 2011, and $1.7 billion in 2012 as a direct result of the conflict (Akmehmet 2015). As Figure 7.1 shows Turkey hosts the largest refugee population in the world (UNHCR 2017: 17). As of April 2014, the Turkish government had spent more than $2.5 billion hosting Syrian refugees, with Turkish civil society organizations spending an additional estimated half a billion. The United States has provided $1.7 billion in humanitarian assistance to all Syrian refugees; the European Union, including the EU Commission and individual member states, has given around $3.6 billion (European Commission 2014). According to the 2019 Annual Program issued by the president’s office, the amount of Turkey’s humanitarian aid qualifying as official development assistance rose to $7.3 billion in 2017 from $5.9 billion in 2016 (T.C. Cumhurbaşkanlığı 2018). As the number of refugees grew, so too widespread racism and xenophobia against Syrian refugees increased in Turkey. Turkish nationalism, like other nationalisms, has many different forms which have evolved over time and been influenced by internal and external conditions. Racism is not new in Turkey, and supremacy-oriented ethnic and racist ideas have been an integral part of Turkish nationalism from the beginning of the nation-building project in the early twentieth century. Turkish nationalism originated and was shaped by racist discourses borrowed mainly from European texts of the 1920s and 1930s. The 93

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problem of racism, however, didn’t end in the 1920s or 1930s, but continued to evolve without serious challenges or revision and has become a key part of official Turkish identity. As it became embedded in the institutional framework of the Turkish state, it remained more or less the same, and the ugly face of Turkish racism has always been just below the surface waiting to be ignited by a crisis or political manipulation. In contemporary Turkey, every Turkish child grows up memorizing Mustafa Kemal Atatürk’s 1927 address to the youth, which says “the strength you need is already imbedded in your noble blood”. Atatürk’s words, “how happy the one who says he is a Türk”, “one language, one people, one flag”, and other similar slogans still inscribed on plaques and pedestals across the country, particularly prevalent in the Kurdish East and Southeast (Atatürk 1927). All primary and secondary schools still teach a “Turkish” history that begins with the Huns of Central Asia, which gives an exclusively ethnic, not civic, sense of Turkey as a nation. And nationalist demagogues still speak of “pure Turks”, which clearly excludes Kurds and all non-Muslims, and which more recently has been used against (Muslim) Arabs as the number of Syrian refugees in Turkey increases.3 Turkey was initially praised for its open-door policy towards Syrian refugees and its humanitarian work in its camps. However, it was soon sharply criticized for failing to offer basic services and protection to the huge numbers that lived outside the camps – 2.25 million in 2015, compared to only about 235,000 refugees living in the 22 state-run camps with another 515,000 registered as urban refugees (TRT Türk 2015). Insults and open and covert racism against the Syrians are in evidence in the newspapers and on social media and everyday racism against Syrians is common and widespread, including horrific attacks against refugees by racist mobs (CNN Türk 2015). But sadly, millions of ordinary Turkish citizens, who are not part of such fascist gangs, have been bystanders offering little, if any, protection to their Syrian neighbours trying to survive increasingly in ever more desperate conditions. Racist attacks against Syrians receive almost no condemnation from officials or the public, and with language barriers, poverty, and lack of clarity and advice about their legal rights, these refugees are too often mistreated and exploited. Apart from the lack of a clear legal status and full access to rights, this lack of compassion in Turkish society is an important reason why Syrian refugees want to leave Turkey risking their lives in the process (Haber sol 2015). Turkish people laud themselves for their sense of hospitality and generosity, but such long-standing claims are now being tested by their treatment of Syrian refugees.

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The Taksim Gezi protests and the authoritarian turn

“If the Earth were a single state, İstanbul would be its capital.” – Napoleon Bonaparte is alleged to have said (Schultz 2015) Over 600 years ago, the eminent Islamic scholar Ibn Khaldun who is considered as the true founding Father of modern sociology, celebrated the transformational nature of cities and their contribution to the advancement of civilization: “The level of a civilization can be estimated by the size and growth of its cities, an inevitable consequence of the development of human society” (Ibn Khaldun, AlMuqaddimah 1377). By that measure, Turkey has done amazingly well. Today, Turkey is among the most urbanized countries in Europe. In comparison to European countries, the average size of its large urban zones is over 1.1 million inhabitants, nearly twice the EU average and greater than any other country in Europe. Among comparable countries, only South Korea managed a faster rate of urban growth in the years, 1950 to 2013. But more than any other city, it is İstanbul, home to 16 million people, that dominates the urban landscape, accounting for more than 20 per cent of Turkey’s urban population (World Bank 2015: 9–10). A series of nationwide protests in May and June 2013 signify one of the most significant moments in the AKP rule in Turkey. The protests began on 27 May 2013 as a small campaign against the government’s redevelopment plans for Gezi Park in Taksim Square in central İstanbul. Since its beginnings in 2002, the AKP regime has been unique in Turkish history, in terms of its economic and political use of the construction sector. It chose construction as the locomotive of its high expectations, that is, to create an active process of development and a lively domestic market. The rapidly rising housing complexes, skyscrapers, giant malls, wide boulevards and the construction of fast motorways, airports, tunnels and metros meant job opportunities for a significant section of the population. In 2004, there were one million people working in the construction sector; this number had reached 2.2 million by 2014. Moreover, all of these projects were 95

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considered accomplishments that would be perceived by the electorate as clear signs of economic growth and hence the success of the regime (Sönmez 2015). The initial aim of those who gathered in Taksim Square was to stop developers from building a massive Ottoman-style shopping-centre complex that was to be housed in a replica of a military barracks building demolished 60 years earlier. The main objection of the protestors was that the building of the shopping centre would result in the destruction of much of Gezi Park, one of the last green spots in central İstanbul, Europe’s biggest city and the business capital of Turkey. There are many shopping malls in İstanbul, at least one in every neighbourhood, but only very few public green spaces left. However, the character of the protests changed when the Turkish police attacked demonstrators with considerable force, and what had started out as an environmental protest quickly turned into a nationwide political demonstration against the policies of Prime Minister Erdoğan and his government and the brutality of his police force. The protest rapidly gained support from a cross section of society in İstanbul and other urban centres, leading to what was arguably the largest wave of protests in recent Turkish history. An estimated 3.5 million people took part in the protests over the course of the following few weeks. The protests were generally led and dominated by university students and young urban professionals, and although they expressed a wide range of demands, including wider access to resources and freedom of expression, a new kind of urban living remained at the centre of the events. Many mainstream accounts of the protests reference the Arab Spring events in other countries. Other accounts place the Taksim Gezi Park protests in the same category as the “Occupy” Wall Street and other anti-austerity protests that took place in the US and Europe – particularly since 2010 – against large-scale public spending cuts and rising unemployment rates, especially for the young population in these countries. In this book, I draw on British geographer David Harvey’s concept of the “right to the city”1 and argue that the protests were sparked by processes of neoliberal urbanization and so cannot be categorized as Turkey’s “Spring”. But distinctions also need to be made between the Taksim Gezi protests and the demonstrations that have taken place in countries such as Spain, Portugal and Greece, because Turkey’s economic and political situation differs markedly from these crisis-ridden contexts. In his book Rebel Cities, Harvey attempts to integrate his theory of urbanization into the “general laws of motion” of capital to provide a framework for analysing the current crisis of capitalism and the development of neoliberal trends in the world. In Harvey’s analysis, urbanization is both the product of and the driving force behind the absorption of “surplus product” in the process of capital accumulation. For Harvey, “to claim the right to the city . . . is to claim some kind 96

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of shaping power over the process of urbanization, over the ways in which our cities are made and re-made and so in a fundamental and radical way” (Harvey 2012: 5). Harvey seeks to root the term in the concrete reality of class struggle, claiming that the right to the city does not “arise primarily out of various intellectual fascinations and fads . . . It primarily rises up from the streets, out from the neighbourhoods, as a cry for help and sustenance by oppressed peoples in desperate times” (Harvey 2012: xiii). For Harvey, “[u]rbanization . . . has played a crucial role in the absorption of capital surpluses, at ever increasing geographical scales, but at the price of burgeoning processes of creative destruction that have dispossessed the masses of any right to the city whatsoever” (Harvey 2012: 22). It is no coincidence that the demonstrations started and were concentrated in İstanbul, the largest and most developed urban centre in Turkey. By all means, İstanbul is economically the most important city in Turkey. Its GDP is higher than that of countries such as Greece, Portugal, Iraq and Kuwait. According to 2017 GDP figures, almost a third of all Turkish economic activity takes place in this city. Moreover, half of Turkey’s tax revenues are collected in İstanbul despite the city’s population corresponding to only around one-fifth of the total population. Globally, İstanbul is a unique example of contemporary urban development, with wide-scale urban transformation and regeneration projects in place. It was in the early1980s, soon after the military coup, that the city witnessed the beginning of the neoliberal transformation and the celebration of property rights, which was in line with transformations that had occurred in other metropolitan centres since the 1960s, such as in New York, London and Madrid. In the twenty-first century, metropolitan cities have central significance in the system of global capitalist surplus production. Harvey writes, [I]t is the metropolis that now constitutes a vast common produced by the collective labour expended on and in the city. The right to use that common must surely then be accorded to all those who have had a part in producing it. This is, of course, the basis for the claim to the right to the city on the part of the collective labourers who have made it. The struggle for the right to the city is against the powers of capital that ruthlessly feed upon and extract rents from the common life that others have produced.2 In this sense, the Taksim Gezi protests share common ground with a great many diverse social movements focusing on the urban question in the global economy, from those in India and Brazil to those in China, Spain, Argentina and the US.3 Just a few months before the Taksim Gezi protests started, Harvey spoke about the urban origins of social movements and referred to İstanbul’s rapid urbanization, asking “What do we see in İstanbul? Cranes, everywhere” (Spiegel 97

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Online 2013). According to Harvey, urbanization is a channel through which surplus capital flows to build or rebuild cities for those who can afford it. In his contribution to the analysis of the contemporary capitalist production process, such urban regeneration is a powerful and essential process that in return defines what contemporary cities are about, as well as determining who can afford to live in these redesigned urban spaces and who cannot. The cities also happen to be the quintessential places where the contestation of neoliberal urbanization may take place in various forms and at various levels of intensity. On the basis of this analysis, Harvey highlights the importance of challenging the state and addresses the ever-changing ideal of the city and the social groups that sustain and contest it. This was exactly what had been happening in Turkey during the previous three to five years in particular: Erdoğan’s government had engineered a boom, mainly in real estate expansion and grandiose government projects, through ultra-low interest rates and public spending. Most of the foreign investment that had come to the country was used to finance this property boom. Even manufacturing conglomerates such as Eczacıbaşı and Zorlu built huge shopping malls rather than investing in their core business. The AKP government put this property boom at the centre of its economic policies after the 2008 crisis – nothing must stand in its way, including trees. It is reasonable to suggest that prior to 2013 during its 11-year-long rule, the AKP favoured the new bourgeoisie, that is, the extended middle and upper-middle classes, rather than the vast majority of the working people. The formations of inequality were very varied and involved elements of ethnic, regional, religious and rural/urban divisions. Although large segments of the population benefited from the robust economic growth, the benefits were not evenly distributed across the country. Wealth and infrastructure were concentrated unevenly among the geographical regions, creating cleavages between eastern and western parts of Turkey. Indeed, this differentiation in terms of wealth and opportunities between the eastern and western parts of the country, and between the rural and urban areas in general, had been systemic and structural for most of the history of Turkish Republic. In dealing with such a deep-rooted and long-standing problem, the AKP government attempted to extent the benefits of the economic growth to broad segments of society through social policies and inclusive development models, which helped to reduce poverty and educational and health-related inequalities to some extent, and this was the main reason for the AKP’s continuing support from large segments of society. Such mega-projects, like the one planned for Taksim Gezi Park, can be considered to serve the dual role of enriching a loyal business elite while also providing job and development opportunities for the local economy and showing the population that the government was transforming the country into a truly global centre of power. 98

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Alongside managing a growing economy, Erdoğan’s government had effectively dealt with the coup leaders from Turkey’s recent troubled past (one in three generals was in prison) and it was also under Erdoğan’s leadership that significant steps were taken to calm the decades-long violent conflict with the country’s significant Kurdish minority (Aljazeera Studies 2013). However, these successes must have fuelled Erdoğan’s sense of his own importance in Turkey’s impressive rise, because he seemed to believe that he was invincible. His excessive use of the state apparatus to establish his power base led to accusations that he was governing the country in the same autocratic style for which he had bitterly criticized the secular generals. After 11 years and three terms in power, the result was the emergence of an increasingly authoritarian and religiously inspired neoliberal system (see Box 8.1). The support for the AKP was based on a cleverly crafted hegemonic apparatus. This had been quite evident since 2011, with the start of violent repression of public protests, the jailing of journalists on suspicion of conspiring with terrorists, pressure being put on newspaper owners to sack critical journalists, and the updating of the anti-terrorism laws of the military regime of the 1980s (Gökay 2012a). Box 8.1 Authoritarian neoliberalism Authoritarian neoliberalism does not represent a wholesale break from mainstream neoliberal practices, yet it is qualitatively distinct because of the way in which neoliberalism’s authoritarian tendencies – such as the increasingly punitive nature of penal and criminal policy – are at the conceptual parameters of authoritarian neoliberalism. Authoritarian neoliberalism is a mode of governance that operates on twin principles: (1) establishing a disciplinary statecraft that closes off key decisionmaking processes to popular pressures, public input and non-partisan auditing mechanisms, particularly with a view to protecting the process of capital accumulation; and (2) deploying the coercive, legal and administrative state apparatuses to marginalize any opposition and dissident social groups (Bruff & Tansel 2019: 233–44). Under authoritarian neoliberalism, dominant groups are less interested in neutralizing resistance and dissent via concessions and forms of compromise that maintain their hegemony, favouring instead the explicit exclusion and marginalization of subordinate social groups through the constitutionally and legally engineered self-disempowerment of nominally democratic institutions, governments, parliaments and security apparatus. The intensification and interaction of crisis-tendencies of different kinds in different phases and 99

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changing forms of resistance leads to an increasingly authoritarian statist form of neoliberal regime which is characterized by a state of permanent austerity that requires increased surveillance and policing to maintain it.

All of the above-mentioned developments are symptomatic of an administration that has spent too long in power and become too confident about its capacity to remain there. Therefore, perhaps the growing dissatisfaction in Turkey with the AKP regime and the increasing dissatisfaction of the people – which found its most powerful expression in the Taksim Gezi Park protest – boiled down to a style of ruling and in particular to the style of a leader who was increasingly intolerant of dissent. At the same time as his regime was providing material improvement in the lives of large sections of Turkey’s population, Erdoğan’s leadership was becoming more openly reckless and autocratic. Although Erdoğan and the AKP were showing clear signs of becoming increasingly undemocratic, this does not justify the categorization of the protests in Turkey as part of an “Arab Spring”. Despite the obvious “Tahrir feel” of Taksim, one can see that there were several substantial differences between the Taksim protests in 2013 and the Arab Spring events. To begin with, Egypt’s Mubarak was an unelected dictator, whereas Erdoğan is an elected prime minister. More importantly, the Arab uprisings were mass events preceded by massive economic crises, whereas the protest movement in Turkey was mainly an urban protest movement, with mostly young, educated people – students and professionals from well-off families – defending issues relating to their urban lifestyle, their quality of life, future opportunities and the freedom of expression.4 It would be more appropriate to make comparisons between the demonstrations in Turkey and the protests in Brazil, which had started just a couple of weeks after the protests in Taksim. The Brazilian urban unrest began in early June 2013 against a proposed 7 per cent rise in public transport fares but spiralled into a host of other concerns about public services more generally. The protestors were also demonstrating against the stadium building for the 2014 World Cup on the grounds of displacement and wasting public resources. One might even include the student protests in Chile in 2011 here for comparison.5 Despite their significant differences, in particular in terms of the reactions of the Turkish and Brazilian authorities, both Turkish and Brazilian protesters seemed to come from similar class backgrounds and age groups, and they were making similar demands of democracy in similarly innovative ways. One placard in Sao Paulo read “Peace is over, Turkey is here” (RT 2013; Business Insider 2013). The political economic conditions in both countries present a similar picture: neither 100

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experienced an economic crisis in 2013. In both, but in Brazil particularly, there were strong anti-poverty state programmes led by popular parties. In Brazil, a popular left party was in political power, and in Turkey a populist centre-right party, inspired by Islamic values and riding on a neoliberal economy, was in the driving seat. There are several other comparisons that one can make between Turkey and Brazil (and Chile too): both were dynamic medium-sized regional powers exerting increasingly considerable and independent influence in regional and global affairs and were often cited as models of economic growth. Brazil was and still is the B of the BRICS and the largest economy in the western hemisphere after the US. Turkey was and continues to be at a critical junction of Europe and the Middle East and a key geopolitical player in the Balkans, Central Asia and the Middle East. Although the immediate, explicit issues that led to the protests were not exactly the same, both were similarly urban and similarly “a right to the city” type. In Sao Paulo, protests against an increase in public transport fares came together to demand free bus fares under the slogan “Copa pra quem?” (“Whose cup?”), and tens of thousands of young Brazilians took to the streets.6 And although the governments were not at all alike – Turkey having a long-serving popular leader heading a conservative Islamist party and Brazil with a relatively new president, Dilma Rousseff, a former leftist guerrilla who had been imprisoned and tortured in the 1970s during the military dictatorship, heading a leftist popular movement – there was a very important similarity: they were both representative democracies. Not only that – each country had a powerful military that had been recently involved in the nation’s politics. But by 2013, both countries had managed to put their armies in the barracks, and therefore their democracies were considered quite stable. Indeed, their recent economic progress, their investment in health, education and other public services, the fairly widespread improvement of their citizens’ living standards, and their reasonably stable democratic processes, meant that both countries were often cited as examples of previously underdeveloped countries that had been able to overcome their troubled political pasts. In this sense, there was no Turkey Spring, just as there was no Brazilian Spring. Turkey and Brazil were not Tunisia, Egypt or Libya. Democratically elected governments in Turkey and Brazil were far more resilient and their leaders far more popular and secure in their power than the North African dictators who had been swept away by the events of 2011. Despite his increasingly authoritarian policies, even after these massive demonstrations in 2013, Turkey’s Erdoğan still remained immensely popular among the country’s poor and deeply religious majority. However, as can be seen in many “democratic” countries, elected leaders often come to have an inflated sense of knowing better than their citizens what is 101

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best for their citizens, and they have a tendency to favour prestigious infrastructure projects over what affects most peoples’ daily lives. This is exactly what was at stake in Turkey and Brazil in 2013. So, in one sense, in both countries, participatory democracy was forcefully diluted among an orgy of neoliberal megaprojects that generated dubious profits for a small elite in their respective countries. In the Turkish case, this occurred via the ruling AKP’s collusion with powerful business interests in the so-called redevelopment of İstanbul. In the Brazilian case, it revolved around the use of massive public funds for the “for-profit” hosting of the World Cup and the Olympics.7 This is a common feature of contemporary neoliberal economies in the context of so-called urban redevelopment and cultural investment in and around many modern metropolitan centres. It is typically justified by an economic argument that land, rent and speculation are more important to capitalism than straightforward production. As Harvey notes, Much of the corruption that attaches to urban politics relates to how public investments are allocated to produce something that looks like a common but which promotes gains in private asset values for privileged property owners. The distinction between urban public goods and urban commons is both fluid and dangerously porous. How often are development projects subsidized by the state in the name of the common interest when the true beneficiaries are a few landholders, financiers, and developers? (Harvey 2012: 78) The events in Turkey and Brazil in 2013 illustrated how the authorities responded to the crowd when their “grand” projects of neoliberal restructuring were challenged by their citizens, many of whom may have voted for the ruling parties. No representative democracy is fully democratic, and the Turkish, Brazilian (and Chilean) rulers were not unique in not fully representing the demands of their populations. In the UK, which is often considered one of the best examples of Western parliamentary democracy, just over 17 years ago, in February and March 2003, Tony Blair’s Labour government ignored huge demonstrations against the prospect of war in Iraq. These were some of the largest demonstrations in the history of the country. However, Blair and his government pressed on with a disastrous war policy against Iraq. Surveys at the time (March 2003) showed that 55 per cent of Britons supported the London marchers. Protests elsewhere against the war in Iraq, such as the estimated 3 million people who protested on the streets of Rome in what was considered to be the largest anti-war rally ever, were similarly ignored and had little impact on the decisions of the Blair government in the UK, and the Bush government in the US. 102

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Western governments’ refusal to listen to the anti-war protesters was a powerful illustration of the limits of parliamentary democracy. If we try to make a connection between the economic success stories of Turkey, Brazil and Chile and the protest movements of 2013, the first observation would be about how a strong cycle of economic enrichment over the past ten years had changed the public’s expectations of its politicians. Since Turkish, Chilean and Brazilian regimes had achieved sustained growth and employment, delivering on growth and employment was no longer enough to satisfy the majority of their populations. Citizens increasingly hold their leaders responsible for improving the quality of public services, expanding the boundaries of participatory democracy and listening to their concerns closely. One can therefore consider the protests in Chile, Turkey and Brazil as a symptom of radically shifting demands, driven mostly by these emerging powerhouses’ economic success in the past decade. These were democratic protest movements in societies experiencing rapid social change where the public’s demand for better services and more democracy at local as well as national level were growing at a faster pace than their governments’ ability to provide these things. Despite the multiplication of slogans and emerging chaos concerning the aims of the protesters, it needs to be reiterated that the protests of both Turkey’s and Brazil’s urban youth were first and foremost a response to the ruling regimes’ grandiose neoliberal projects of urban transformation,8 to their gentrifying schemes that aimed to create expensive malls, skyscrapers and giant stadiums. However, it is also important to take note that at the forefront of the resistance to this neoliberal assault was the educated urban youth. Young people’s role in the protest movements came as a surprise to many analysts, because young people had been identified as apolitical and individualistic for decades. During the protest movements in the summer of 2013, urban youths proved that they cared about how the current policies of their governments were affecting their life, their urban space, their country and their fellow citizens, and that they were willing to protest resiliently. Within neoliberal narratives, youth are mostly defined as a consumer market, a drain on the economy, or stand for trouble . . . Young people increasingly have become subject to an oppressive disciplinary machine that teaches them to define citizenship through the exchange practices of the market and to follow orders and toe the line in the face of oppressive forms of authority. They are caught in a society in which almost every aspect of their lives is shaped by the dual forces of the market and a growing police state. The message is clear: Buy/sell/or be punished. (Giroux 2013) 103

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These pessimistic words belong to the US social critic Henry Giroux. Much like the protesters in Turkey, many of the demonstrators in Brazil attended good universities, or had jobs, were well educated, and were mainly drawn from the country’s growing middle classes, which government figures show increased by some 40 million within just a decade amid a commodities-driven economic boom. Unlike countries such as Greece and Spain, where weak economies have brought the unemployed out onto the streets, the real long-term origins of the discontent in Brazil and Turkey were created by strong economic growth (Faiola & Moura 2013). As standards of living have increased in general, so have people’s expectations about better services and wider participation in decision-making. The Brazilian and Turkish youths were not protesting because they wanted to overthrow a dictator or because they were angry about mass unemployment. They were upset, and rightly so, about the priorities of their governments for their cities and the manner in which these priorities were being pursued – without sufficient consultation. They demanded the right to participate in the planning and distribution of their country’s resources. In both countries, people demanded to be heard and to be involved, and the right to determine their own futures. They were no longer prepared to be talked down to by the government (Surowiecki 2013). The protests can in a general sense be read as the articulation by those involved of what a fair and just world might be like. Turkish and Brazilian youth, rejecting the neoliberal notion that democracy and markets are the same, not only addressed some of the current injustices while reclaiming their urban space, but they also began to produce new ideas using a new and very imaginative political language. The unrest sparked by the Taksim protests created one of the biggest challenges to Erdoğan’s 11-year run in office. More dissatisfaction emerged about Erdoğan’s ruling style after the Taksim Gezi protests; one focus of this was the mining explosion that occurred in the city of Soma in May 2014, taking the lives of 301 workers. This was one of the worst mining accidents in the history of the Turkish Republic. Again, how he responded to the disaster, with a combination of defiance and fatalism, prompted further protests. When asked by the press about where the responsibility lay for such a tragic loss of life, he responded by referring to many other mining disasters around the world, quoting death tolls recorded mainly in mid-nineteenth and early twentieth-century England as well as a few from the 1950s and 1960s in China and Japan. Erdoğan’s apparent indifference to the plight of the miners and their families provoked renewed outrage and a fresh set of disturbances among the residents of Soma and other towns after he publicly downplayed the accident (Buğra 2017: 185–202). Arriving fresh on the back of a corruption scandal, the mining disaster offered a potential platform for widening the net of the predominantly young, urban and well-educated participants 104

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in the Gezi movement, but these protests remained relatively low profile compared with the events of the summer of 2013. After the Taksim Gezi protests of 2013, Erdoğan not only remained in power, but his party achieved an overwhelming victory in the local elections in March 2014, furthering Erdoğan’s chances of running for president in August. In fact, his victory in the 2014 presidential elections (winning 51.8 per cent of the vote, i.e. more than 21 million voters) did not constitute a surprise and provided him an open field to create a presidentialist regime in the country. Erdoğan continued to alienate the secular urban youth by introducing new curbs on the sale of alcohol and on internet use. Since the 2013 Taksim protests, there was a clear determination to use brutal force to police urban demonstrations, which attracted extensive criticism from wide sections of the population. Erdoğan, however, still maintained a large following in the immediate years after 2013, especially among poorer and more religious voters of the Anatolian towns and the countryside. The reason for this lies in the significant economic growth that had coincided with the AKP rule in the preceding 12 years and the appeal to traditionalist religious values that the AKP seems to have secured. This was a period marked by the AKP’s third electoral victory and the intensification of its subsequent attacks on rights and freedoms, as demonstrated by the Gezi Park protests. Following the Gezi protests in 2013 and the rupture with its one-time ally Fethullah Gülen, however, the government had become increasingly impatient and authoritarian in response to its political opponents and critics. In contrast to the earlier two terms in office (2002–07 and 2007–11), the 2011–13 period can be considered a watershed. After this period, the terms of the debate shifted from unpacking the mechanisms of the party’s self-proclaimed “conservative democracy” to charting its “authoritarian turn” (Özbudun 2009: 543–57; Somer 2016: 481–583). In terms of the regime’s popularity, it was obvious that as long as the economy performed reasonably well, the AKP could manage to secure its strong support and quell the impetus of the Gezi movement. The people generally tolerated a more repressive state in return for the provision of basic services and goods and some employment. The Taksim Gezi protests, however, showed that the relationship between the economic and social development of a country and the democratization of its political system is considerably complex yet interrelated. To many observers of the Turkish state and economy, it became clear after 2013 that there was a fragile but essential link between being a strong and growing economic power and establishing a stable democratic system in the long run. In 2013, Turkey was still a rising economic power: its internationally competitive companies were turning the youthful nation into an entrepreneurial hub and tapping its recently discovered cash-rich export markets in the Caucasus, Central Asia and the Middle East while attracting significant levels of investment 105

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in return. But there were increasing voices within Turkey and beyond saying that economic success was not necessarily a guarantee of stable and democratic progress and that Turkey would become a real global power and a country at peace with the majority of its citizens only when its economic progress was matched by a strong, stable and functioning democratic system.

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9.

The 2016 failed coup and crackdown

If the 2013 Taksim Gezi protests were a turning point for the regime’s relations with its urban population, what happened three years later on the night of 15/16 July almost became a breaking point for the survival of the regime. On that night, a section of the Turkish military, calling themselves the Peace at Home Council (Yurtta Sulh Konseyi), attempted to take power from the government of Recep Tayyip Erdoğan and the AKP via a coordinated operation in several major cities. Although all indications suggest that they came very close to their objective, they were ultimately defeated. Turkish fighter jets dropped bombs on their own parliament building, and the head of the joint chiefs of staff, Hulusi Akar, was kidnapped by his own security detail. For several hours, it looked as if the Turkish Republic was going to encounter the fourth shattering military coup in its 93-year history. While rockets slammed into the Grand National Assembly building in Ankara, plotters tried to detain the president as he holidayed in a resort on the Aegean. But he had left and the coup was thwarted by civilians and soldiers loyal to him. Erdoğan was evacuated to İstanbul, and the phone call from his plane urging people on to the street was the decisive moment in defeating the coup attempt (Lowen 2016). When the fateful night was over, when the coup-plotters were finally defeated, more than 250 people had been killed and 2,194 injured (Filkins 2016). The Turkish government pointed the finger at the Turkish dissident, Fethullah Gülen for the failed coup attempt. Gülen, a cleric, businessman and cult leader who had lived in self-imposed exile in the United States since 1999,1 was, and continues to be, the leader of a pervasive and influential Islamist movement known as “Hizmet” (Service), which owns foundations, associations, media organizations, universities and schools in Turkey and many other countries. During the first decade of AKP rule, Gülen was a close ally of Erdoğan, and during the AKP’s struggle to end the military’s influence in Turkish politics, Gülen’s movement played a major role as the strong arm of the government. Throughout this period, the AKP–Gülen alliance turned into their direct staffing of many 107

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public positions. The AKP and Gülenists shared an interest in finding a place for Islam in public life. With the knowledge and direct support of Erdoğan, many people in the bureaucracy were removed without due process and replaced with Gülenists. Turkish officials claimed that the coup attempt was prompted by a government investigation into Gülenists’ illegal actions and the impending arrest of key Gülenists. Fethullah Gülen, on the other hand, has always denied any role in the failed coup and even alleged that Erdoğan orchestrated it himself “to complete his personal dictatorship”, a claim that Erdoğan, his party and Turkish intelligence agencies have vehemently denied. Many in pro-government media in Turkey remained captive to the official explanation of the AKP government and pointed to the followers of Gülen as the main culprits behind the coup. In fact, they claimed that the coup did not even originate in Turkey and that the plotters were being directed from Pennsylvania. In this way, the AKP were able to present the events of the night of 15/16 July as a fight between a small secretive clique within the army that was planned and led by an elusive religious leader living in the United States and a democratically elected government defended on the street by its people. Some Turkish officials even hinted that foreign powers, the US in particular but also Europe, had plotted to overthrow the Turkish government and pro-government newspapers published articles to support that rhetoric (Soylu 2016; BBC Turkish 2016). Some speculated whether Erdoğan may have allowed the coup attempt or even somehow planned it. They asked whether the coup was really “a gift from God” or whether it was Erdoğan’s gift to himself (Rubin 2017). According to this group of commentators, the president knew what was going to happen and let it go ahead as a pretext for creating one-man rule. They suggested that Erdoğan’s people let some of the events unfold in a controlled way as a pretext for the ensuing crackdown, and even began drafting papers beforehand that they would later use in trials against Erdoğan’s political opponents (Gültaşlı & Rettman 2018). Other commentators, including some from European intelligence agencies, claimed that it was quite unlikely that Gülen had the abilities needed to organize this plot, even if some individual Gülenists may have been involved in the attempted coup. According to this group of commentators, the coup was a badly organized event that brought together a wide-ranging, temporary and quickly improvised coalition that consisted of members of the Gülen movement, some hard-line secular nationalist officers, and many opportunist officers who were expecting to be on the winning side, as well as some who were simply caught up in events on the day and could not say no to their superiors. It was simply anti-Erdoğan sentiment that brought all these elements together (Tanis 2016). More than three years after the attempted coup, many questions still remain 108

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unanswered about how it was organized and who was behind it. To the time of writing, 2020, no conclusive evidence has been presented to support the simple morality tale presented by the government that characterizes the coup as people defending its democracy on the street against a foreign-supported conspiracy trying to establish a military dictatorship.2 There is plenty of evidence, however, to support the assessment that during that night, and even before, the country witnessed two despotic forces facing each other for top position and the one led by Erdoğan won, and that this episode was the culmination of a long drawn-out civil war between two sides of the same religiously motivated Sunni conservative ruling elite (Tas 2018: 395–402). Whereas the failure of the coup attempt on 15 July rescued the elected government of Turkey, it does not signify that democracy was the winner. Once it secured the defeat of the coup-plotters, Erdoğan’s side, redolent of what happened in Germany after the Reichstag fire in 1933,3 used this incident as a pretext to eliminate almost all remnants of opposition, real or potential, throwing away all commitment to democratic formalities. Erdoğan described the coup attempt as a “gift from God”, in the sense that it had provided the AKP regime with an invaluable opportunity to strike a major blow against all those who were critical of its government and to further centralize power in his hands (Dolan & Solaker 2016). In response to the failed coup attempt, the government declared a state of emergency on 21 July, which it extended three times in 90-day intervals.4 The government immediately began mass arrests and the prosecution of over 100,000 people, detention of over 40,000 individuals and one of the largest purges of public employees that has happened anywhere in the world. More than 150,000 public employees were sacked from their posts in a matter of days, including soldiers, police officers, judges, prosecutors, doctors, teachers and university lecturers. Approximately a quarter of all judges and prosecutors, at least 5,000 academics and more than 33,000 teachers were removed from their posts. Every university dean in Turkey was forced to resign without being told who would replace them or whether they would be allowed to reapply for their jobs. Even Turkish Airlines, the co-sponsor of European football’s 2016 contest, sacked 211 employees for wrongdoing, including having links to the movement supposedly behind the failed coup. There were also many dismissals in the private sector, but precise numbers are unknown. At least 50,000 people were arrested pending trial from July 2016, and many of them were still in prison in 2020. Many human rights activists, lawyers and journalists were also put behind bars simply for criticizing the government’s heavy-handed attitude. Amnesty International claimed that it had “credible evidence” of “severe beatings and torture, including rape” of post-coup detainees (Amnesty International 2016). The government used emergency powers to close down many independent media: more than 109

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100 broadcasting, newspaper, magazine and other media companies were shut down, and at least 60 journalists and media workers were detained. The assets of more than 1,100 companies (amounting to nearly $11 billion) were seized as part of the crackdown and held in the Savings Deposit Insurance Fund. Owners of the companies were either put in prison or escaped abroad (Turkey Purge 2019; Morris 2018). Erdoğan emerged from this episode much stronger than ever. Having solidified his power, he and his party were set up to rule, with nearly absolute authority, for as long as they wanted. Even before the coup attempt, there were clear indications that Erdoğan’s government was moving in that direction, where all credible opposition would be eliminated one way or another, but the coup attempt had made that possible much more quickly. Freud used the description “narcissism of small difference” to explain that in a relationship there can be a need to find, and even exaggerate, minor differences in order to preserve a feeling of separateness and self. In other words, one’s social (and political) identity often lies in a small difference, and this difference is asserted against what is in common in order to achieve a superficial sense of one’s own uniqueness. When it is difficult to tell the members of two groups apart, violence is inserted to create identity boundaries between them. This description “narcissism of small difference” is useful to understanding the conflict between the AKP leadership and the Gülen movement. Despite the intensity of the clash, which turned bloody during and after the coup attempt, it is very difficult to see any significant principal differences between Turkey’s two prominent Islamic social forces on either ideological or political grounds. Both groups are pro-Islamic and in favour of faith-based communities worldwide, and both share a common belief in the free market economy and private entrepreneurship, cherishing upward socio-economic mobility and other aspects of the neoliberal economy model. They both use the same Sunni Anatolian conservative frame of reference for almost all social and cultural issues, and both have far-reaching global ambitions. More importantly, the bulk of their supporters emanate from the same group of people: the lower and middle classes in Anatolia, who have emerged as the real winners of the neoliberal restructuring in Turkish economy since 2001. Considering all these similarities together, it appears that the conflict between the AKP government and the Gülen movement stemmed from a power struggle in the commanding heights of the establishment and was not necessarily fuelled by different political, economic and ideological interests. The mutually beneficial relationship between the two actors worked well until around 2010, but after that Erdoğan’s side started to perceive that alliance a threat to the AKP government’s total hegemony, triggering a need for the government to recreate the rhetoric of 110

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“us vs them”. During this period, the AKP regime transformed the Gülen movement’s image step by step from being a friendly faith-based social movement and its closest ally to being a “parallel structure” (state within a state) and after 2016 to being a foreign-supported and dangerous terrorist organization. Therefore, it was wrong to present this, as many in the mainstream media did, as a major conflict of principals. What was at stake were positions of power in the state structure that were needed to safeguard certain key political and economic interests. This was a competition for power and control over the governance structures, including the Turkish military and bureaucracy, between two ideologically and socially similar forces. As a result of this fight, one group of elites was being displaced by another across the country – a large amount of property changed hands, new cadres were being groomed for the civil service, positions in the universities were emptied and “new” and more loyal people were appointed to positions. The AKP leadership also demonized the Gülen movement for its increasing intimacy with the United States, fuelling an anti-Western, anti-Israel and nationalist populism, which was very popular among the wider population in Turkey, especially among the traditional AKP supporters in the Anatolian towns and villages. The reactionary nature of events after the coup attempt of 15 July were evident immediately. The state of emergency gave the government and the president such extensive powers that it was difficult to imagine any method of open and legal opposition to the AKP government in the foreseeable future. The following year, Erdoğan’s plan to install an executive presidency was accepted amid suspected vote fraud in a referendum on 16 April 2017.5 Supporters of the “No” campaign faced several undue limitations on their freedom to campaign, many suffered physical attacks and a large number of “No” campaigners were arrested. Some “No” campaigners faced difficulties when trying to rent premises for events or had their events cancelled by the authorities or venue proprietors, often at short notice. International observers from the Organization for Security and Co-operation in Europe (OSCE) stated that the constitutional referendum took place in an uneven playing field and that the two sides did not have equal opportunities to campaign. Voters were not provided with impartial information about key aspects of the reform, and civil society organizations were not able to participate. Under the state of emergency put in place after the July failed coup, fundamental freedoms essential to a genuinely democratic process were curtailed and the dismissal or detention of thousands of citizens negatively affected the political environment. One side’s dominance in the coverage and restrictions on the media reduced voters’ access to a plurality of views (OSCE 2017). 111

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The reform package accepted via the referendum contained 18 amendments, which proposed significant changes to Turkey’s parliamentary system, including the abolishment of the office of prime minister, the relocation of some of parliament’s key oversight functions to an executive presidency, an increase in the number of seats in the parliament to 600, and the empowerment of the president to appoint some top-level positions in the judiciary. The European Commission stated that the amendments would result in a system in which the separation of powers and the independence of the judiciary would not be assured, thus introducing a “presidential regime which lacks the necessary checks and balances required to safeguard against becoming an authoritarian one”.6 Three years after the attempted coup, in July 2019, Turkey’s Ministry of Justice figures stated that 69,259 people were still on trial and 155,560 people were still under criminal investigation on terrorism charges in cases linked to the Gülen movement. Of those, 29,487 were held in prison either on remand or following conviction. In addition, an estimated 8,500 people, including elected politicians and journalists, are being held in prison on remand or following conviction for alleged links with the PKK (Kurdistan Workers’ Party) at the time of writing, and many more on trial. Severe restrictions on the right to assembly followed provincial governors being granted extra powers in July 2018 to restrict movement and assemblies in their provinces by citing vague public order and security concerns. This has disproportionately affected demonstrations in or concerning the mainly Kurdish regions and assemblies by other minority groups, in particular lesbian, gay, bisexual or transgender (LGBT) groups throughout the country. A rise in allegations of torture, ill-treatment and cruel and inhuman or degrading treatment in police custody and prison since the attempted coup has set back Turkey’s earlier progress in this area. Those targeted include Kurds, leftists and alleged followers of Fethullah Gülen. Prosecutors do not conduct meaningful investigations into such allegations and there is a pervasive culture of impunity for members of the security forces and any public officials implicated. The European Committee for the Prevention of Torture (CPT) has conducted two visits to detention areas in Turkey since the coup attempt, one in May 2019, but the Turkish government has not given permission for reports from either visit to be published. There were abductions of six men in February 2019 and one in August of the same year in circumstances that amount to possible enforced disappearances by state agents, with six resurfacing in police custody months later and then being remanded to pre-trial detention but restricted from seeing lawyers sent by their families. The Turkish authorities continued to seek the extradition of alleged Gülen supporters, many of them teachers, from different countries around the world. Countries that complied with Turkey’s 112

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requests bypassed legal procedures and judicial review. Those illegally extradited in this way were detained and prosecuted on their return to Turkey (Human Rights Watch 2020).

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10.

The US–Turkey stand-off, trade wars and new partners

“If they have I-Phone, there is Samsung on the other side.” — Tayyip Erdoğan, Financial Times, 14 August 2018 The most serious economic pressure came exactly two years after the failed coup from more than 3,700 kilometres away from Turkey – from the USA. The Turkish economy was thrust into a full-blown currency crisis when in August 2018 the US president, Donald Trump, raised tariffs on Turkey’s steel and aluminium exports to the US, resulting in the country’s most serious economic crisis since the AKP had come to power 16 years before. Even the 2008 global financial crisis and economic downturn had not caused this level of decline in Turkey’s economy. The Turkish lira lost more than 40 per cent of its value in the first two weeks of August. The pretext for Trump’s punishing attack on Turkey was the continued detention of the US Presbyterian missionary Andrew Brunson, who was arrested in October 2016 on charges of espionage and accused of involvement in the attempted coup of July that same year. There was, however, a background to these economic problems; they were not simply the result of Trump’s tariffs. Within a year after the 2013 Taksim Gezi protest movements, the Turkish economy had begun to display some serious problems. In 2014, many members of the country’s economic and financial team leading key institutions were replaced with political loyalists with little or no experience. Government intervention in several major banks risked an impact on the entire financial sector. The government’s haphazard audits and its pestering of local and foreign investors for political reasons also damaged the economy. These domestic factors relating to mismanagement contributed to the economic and financial headaches but were not the main reason for the crisis. As in many other turning points in Turkey’s economic development process for the past two decades, and the development processes of other dependent economies, the main structural reason for this sudden setback could be found in the global 115

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context. There had been signs of dark clouds accumulating in the global system since 2012, when the growth of the world economy weakened considerably and contiuned to remain weak. Weaknesses in the main developed economies were at the root of the global economic slowdown. Many developed economies, especially those in the eurozone, were stuck in a vicious cycle of high unemployment, financial sector fragility, intensified sovereign risks, fiscal austerity and low growth. Several European economies were already in recession, and unemployment in the eurozone increased to a record high of more than 12 per cent in 2012. The US economy had slowed significantly, and deflationary conditions continued to dominate the Japanese economy in the same year (UN 2012). All these economic troubles in Europe, Japan and the US were spilling over to the emerging economies through a weaker demand for their exports and the need for foreign investment. For many years after 2002, the Turkish economy had enjoyed a foreign-funded construction boom (see Chapter 8). House prices had soared more than 50 per cent from 2009 and the country’s GDP had increased threefold from 2003. However, all this started slowing down in 2013, mainly because of increasing cautiousness in the US economy, meaning investors pulling their money from the emerging markets. In this second decade of the AKP being in power, when the global environment was not so favourable for Turkey to attract external finance, continuous economic growth appeared to be extremely difficult in the long term. Unemployment remained high, 10.1 per cent in 2014, and a large trade and current account deficit increased the “net external debt stock”. Turkey’s external debt was very high in 2001, close to 60 per cent of GDP, but after that it was reduced consistently, reaching a low point in 2005 at less than 35 per cent of GDP. It climbed to over 40 per cent in 2009 because of the global crisis but was reduced and remained below 40 per cent until 2013, when it started to rise again (Focus Economics 2017). In addition to these elements, the effects of the 2016 failed coup and the hesitation of foreign companies to invest influenced the economy negatively. There were high interest rates, a stalling economy and a collapsing currency, dissatisfaction with the government, chaos on Turkey’s doorstep in Syria and rising internal tensions. The ratings agency Fitch downgraded Turkey’s sovereign debt to “junk” in January 2017, snuffing out its last remaining investment grade. Other agencies Standard & Poor’s and Moody’s had also lowered their outlook for Turkey to “negative” from “stable”, stressing concern about political insecurity after the failed coup. Both agencies also raised concerns about pressure on the central bank (Dolan & Butler 2017). At first sight, the US–Turkey stand-off appeared to be a uniquely Turkish problem related to the government’s reaction to the 2016 failed coup and increasing anti-American sentiment in the country. All this led to a very public 116

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confrontation between Trump and Erdoğan, which was worsened by the idiosyncratic and often misguided economic approach of both leaders. Yet one cannot look at the Trump–Erdoğan conflict in isolation from the state of the global economy. According to most of the media, both in Turkey and internationally, the roots of the conflict were domestic and were related to the way that Turkey’s government had responded to the 2016 coup attempt, that is, it had blamed the US as a supporter and/or protector of the coup-plotters. Indeed, the moment Erdoğan put the whole blame on the Gülen movement and accused the US authorities of tacitly providing support to the coup-plotters, the US became for the Turkish public an imperialist power meddling in Turkey’s affairs. The arrest of a US missionary, Father Brunson, happened within this context. Brunson, who had been living in Turkey with his wife and three children for more than 20 years and had been working as the pastor for the small Izmir Resurrection Church, was arrested in October 2016 as part of a sweeping crackdown soon after the failed coup. Brunson was accused of supporting the Gülenists and for being a spy with links to the outlawed PKK. Many analysts suspected that he was being used as a bargaining chip to pressure the United States to extradite Gülen to Turkey, and indeed, President Erdoğan indicated that he would be willing to swap Brunson for Gülen. Erdoğan was also seeking to strengthen his domestic support base by appealing to Turkish pride and nationalism after the failed coup at a moment when his power base was seriously threatened. Similarly, public agitation over the fate of Brunson served Trump’s domestic political agenda by appealing to his white, evangelical, Christian-right (Protestant) base that considered Brunson a martyr. These people were loyal to him: they voted for him and ignored scandals about hush money for porn stars and children in cages. In return, he gave them conservative judges, an assault on abortion rights, jobs in key government positions and guarantees to safeguard a selective and weaponized idea of religious freedom whenever he can (Toosi 2018). After he became president, Trump, with strong support from his evangelical vice president Mike Pence, pushed for Brunson’s release. Trump was using Brunson’s case for his own political benefit for the forthcoming US mid-term elections, where evangelical turnout would be crucial if Republicans were to hold on to the Senate. In 2018, eventually, after pressure from the White House, Brunson was released from prison for health reasons and was kept under house arrest until his trial. A few weeks later he was resentenced to three years in prison but was freed because of the time he had already spent in detention, and espionage charges against him were also dropped by the court (BBC News 2018). However, the real, long-term underlying structural motives for the changing US financial policies that pushed the Turkish economy to its knees cannot be 117

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understood just by looking at the immediate reasons for the conflicts between the US and Turkey. The policy decisions coming from Washington was an important part of a US drive that aimed to displace and offload its own economic/ financial crisis onto the back of emerging economies by means of trade restrictions, economic sanctions, direct confrontation and, most importantly, using the dollar’s reserve currency status to hit the currencies of all emerging economies and beyond. That is why it was not just Turkey’s problem; it was affecting a large number of other economies, many of which were emerging economies like Turkey. This American drive was creating a global problem carrying substantial risks of contagion, and hence conflict and war, in Asia, Latin America, Africa and Europe. After a downturn immediately following the failed coup, the Turkish economy grew again at over 11 per cent year on year. However, although such high growth was a good thing on paper, it was at the expense of overheating. The expansion was fuelled by a large amount of foreign currency debt. Short-term financing was the main source of this growth. That borrowing fuelled consumption and spending, which resulted in the Turkish economy running deficits in both its fiscal and its current accounts – the former meaning that government spending exceeded revenue and the latter meaning that the country was buying more goods and services than it was selling. In 2018, the Turkish crisis appeared to be at its most intense, but there was much more going on between the US and the rest of the world. Turkey, according to strategists from JP Morgan Asset Management in August 2018 found itself “in the midst of a perfect storm” of worsening global financial conditions (Lee 2018). Turkey was not alone: in Argentina, South Africa, the Philippines, Mexico and Indonesia in the same year, growth slowed significantly, and all these countries ran very high fiscal and current account deficits and foreign currency borrowings (Gopinath 2019). Argentina, which had stabilized after a crisis earlier in the year, had fallen back into emergency mode, increasing interest rates to 60 per cent. Its currency, the peso, fell by 45 per cent in 2018 and 24 per cent in August. In South Africa, farming was badly hit by drought and the rand, was roiled by a sell-off of emerging market currencies. In Indonesia, the main domestic factor behind the weakening of the rupiah was the lower-than-expected growth of Indonesia’s GDP as a result of sluggish consumer demand. Michael Hanley summarizes it well: All these different countries, on different continents, with different economic situations and leadership started suffering from the same symptoms at the same time. Why? The short answer is uncertainty over the global economy brought about by the economic management of the global hegemon, the United States. Increasing interest rates, the uncertainty of 118

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a trade war, with the US putting tariffs on foreign goods, including steel and aluminium. Each of these countries had its own economic story, in the sense that the immediate triggers for the currency collapses in Argentina, Turkey, South Africa and Indonesia had all been different, but they all shared one thing in common: a disproportionate reliance on foreign funding for trade and government deficits. Argentina was suffering earlier in the year after the worst drought in 50 years hit production of maize and soybeans. Turkey was hit when a row with the US President over the detention of an American priest led to tariffs on Turkish goods and following sanctions. (Hanley 2018) In late 2018, as the tenth anniversary of the collapse of Lehman Brothers was approaching, it was becoming increasingly clear that a new period of serious crisis was gripping the global economy, and the conflict between Turkey and the US over Brunson was indeed an early manifestation of this. Every national economy, whether big or small, seemed to be locked into an escalating cycle of economic warfare without end: there were US sanctions against Iran, Russia, Turkey and Venezuela and a US trade war with China, the European Union, Canada and Mexico. These acts of economic aggression, reminiscent of the interwar period, were not only affecting the countries directly targeted; they were indirectly affecting a long list of other countries that had close economic links with these targeted countries. For instance, Chinese producers buy iron ore for steel from Australia, Brazil, India, Iran, South Africa and Ukraine, and bauxite for aluminium from Australia, Brazil and the poor West African nation of Guinea. All were being affected, some very seriously (McKenzie 2019). In 2018, global trade and the US dollar were used deliberately as a weapon by the US president, who considers trade sanctions and tariffs, such as the onslaught he launched against Turkey, as an integral component of his drive to secure the US’s geopolitical and economic interests at the expense of others, even if this hurts its own close allies. Trump’s trade wars constituted economic nationalism and damaged the multilateral approach that had existed in the global economy since the end of the Second World War. Trump’s “America First” policy was a strategy that was designed to protect US interests in the face of a continuing structural crisis of globalization and financialization. Since he had come to power, Trump had launched draconian economic sanctions and trade tariffs like missiles. He was fully aware of the impact of his policies. The US’s “aggressive unilateralism”, which had first emerged in the 1980s under former President Ronald Reagan, was being pushed to its limits by Trump. Trump here was not some bizarre abnormality but rather represented a coherent policy, the genuine face of the vital interests of a declining superpower that is prepared to initiate 119

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crisis and devastation worldwide to stop its eventual decline (Fouskas & Gökay 2018b: 83–8). When international credit is cheap, economic operators able to access it borrow money and invest in projects that seem viable given the level of low interest rates. However, when the US decides to make credit expensive (sometimes very expensive) to gain competitive advantage or for political economic reasons, suddenly, such “normal” and “sound” investments may find themselves bankrupt because of this sudden contraction of cheap credit. Because only the US state can issue the international reserve currency, the dollar, Wall Street, the hub of global financial activity, together with the City of London, can swing the international economy between oversupplying credit at one time and contracting it at another without even providing reasonable notice. As in any war, the element of surprise is critical. This was exactly what was happening in Trump’s sudden imposition of US sanctions and tariffs against Turkey in August 2018, which was described as a “stab in the back” by Turkey’s president in a televised address (Reid 2018). Since the 2007–08 global financial crisis, the reliance of financial markets on policy decisions taken by the US Federal Reserve expanded to unprecedented levels. Immediately after the global crisis hit the US in 2007, the Federal Reserve began what was called “quantitative easing” (QE), a type of Keynesian generation of money – buying up bonds to revive the flow of credit to a shrinking economy. The Federal Reserve bought a staggering sum of bonds from the struggling banks, which increased in eight years to a value of $4.5 trillion from $850–900 billion in 2010 (Debter 2017). Since then, four global central banks: the US Federal Reserve, the European Central Bank (ECB), the Bank of Japan and the Bank of England have engaged in QE programmes. The result of this QE was that the central banks flooded markets with an unprecedented flow of funds (dollars) through auctions and lending facilities, creating approximately $4 billion in new money each day, and thus financial markets were saved (Biderman 2013). This operation plunged interest rates to zero in an effort to prevent an economic collapse. This very large sum of money was in turn invested in any part of the world offering high returns because US bonds paid near-zero interest. The hope was that lenders would pass that liquidity along as credit to companies and households, thus stimulating anaemic economies. A large amount of this liquidity went into junk bonds in the shale oil sector, which in reality subsidized high-cost US shale production, despite the fact that only a few shale companies were generating enough cash to pay for their spending and dividends, and into the US housing market, which experienced a mini boom. Both sectors played a key role in the initial recovery of the US economy from the 2007–08 financial crisis (Financial Times 2017). 120

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Private investors, who were looking for new and more profitable places to park their investments (low-interest new money they had borrowed from the Federal Reserve), started pumping large amounts of this into emerging markets such as Turkey, Brazil, Argentina, Indonesia, India and China, where the economies were booming and US bonds could potentially give high returns (see Chapter X). Thus, corporations as well as private individuals in emerging markets had access to a large amount of cash. Even the Russian market received some liquidity dollars until Trump initiated sanctions in early 2018 (Ellyatt 2016). During the past ten years, the supply of cheap dollars to the global system has risen to unprecedented levels, exacerbated by the US, British, German and Japanese QE programmes. Total global debt (the debt of households, governments, corporations and the financial sector) soared to a record $233 trillion in the third quarter of 2017, according to a report from the Washington-based Institute of International Finance (Ciolli 2018). As long as the emerging markets were growing and earning export dollars at times of low interest rates, this debt was easily manageable. Low interest rates, combined with a weak dollar, were key for this, and it was not difficult for consistently growing emerging economies to pay this level of debt. However, although this low-interest credit has helped boost economic growth in the short term, heavy reliance on this has made the economies of emerging countries vulnerable to sudden financial changes (as seen in Chapter 1) and surprise economic warfare. If the interest rates begin going up quickly, as is currently the case (in 2020), then many debtors will not be able to pay their debts and the world may again be facing a 2008-style catastrophe. The emerging market economies’ huge dollar debt is therefore their key vulnerability, even for emerging economies that are still expanding, such as Turkey and Mexico. Turkish banks and large corporations now owe an estimated $229 billion in foreign-denominated debt, which is more than one-third of the country’s GDP (Convoy 2018). In 2017, the US Federal Reserve ended its programme of QE and started to reverse it, selling off the financial assets it had purchased, and hence effectively taking dollars out of the financial system. Time was on the side of the US economy given its relatively stable performance. Since late 2017, the Federal Reserve has retreated from markets by reducing the amount it reinvests after bonds in its portfolio reach maturity. Global finance has entered, de facto, into a new era of quantitative tightening (QT) (Financial Times 2018a). The Federal Reserve raised its benchmark interest rate from 0.25 per cent to a range of 1.5–1.75 per cent (New York Times 2018a). The Bank of England raised its policy rate from 0.5 to 0.75 per cent, the highest level since March 2009 (BBC 2018a). As a result, the dollar’s value began to rise. A stronger dollar ensued but the US central bank pulled back, which all matters greatly for the countries, banks and companies 121

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all around the world that have borrowed in US currency. This parasitic practice tends to further divert funds from productive sectors, which exclusively benefits US corporate investors. The last part of 2019 witnessed the most spectacular rise of US financial markets since the global financial crisis. The rise in the value of dollar, accompanied by successive interest rate rises by the US Federal Reserve, suddenly made debt payments for countries, corporations and individuals far more difficult. This was direct US financial policy that was deliberately precipitating a major new economic and financial crisis across the emerging world, especially in Iran, Turkey, Russia, South Africa, Argentina and India. The stronger dollar meant that emerging markets in particular were facing uncertainties: for companies, and individuals, in these countries that had issued dollar-denominated bonds, their interest payment burden got a lot heavier, and investors were worried about the ability of emerging market debtors to pay off their dollar-denominated debt. The Institute of International Finance (IIF) estimated in July 2017 that global debt amounted to 327 per cent of the world’s annual economic output (GDP) by the first quarter of 2017 and that it was mainly emerging market borrowing that was driving the rise (Seeking Alpha 2017). According to estimates, by the end of 2018 there was approximately $1 trillion less global QE than in 2017, and the peak for the fall of total emerging market dollar debt was in 2019, when more than $1.2 trillion matured. In other words, there were the equivalent of $1.2 trillion less in the world in 2019. This was simply to choke off dollar supply (Engdahl 2018). All of this was more damaging for emerging economies like Turkey. The cost of borrowing in a foreign currency increased sharply and foreign investment declined. Turkey, along with Argentina, Ukraine and South Africa, was near the top of the pile for a debt crisis. Argentina’s government, under the right-wing Macri, decided to get a huge IMF loan, the biggest in the history of the IMF, $57 billion, adding substantially to the country’s obligations. Strict restrictions on funds included a commitment to a zero deficit for 2019 and limits on central bank actions (The Guardian, 2018). Ukraine also received aid from the IMF to deal with its deep recession. The Turkish government could have borrowed up to $28 billion from the IMF to fund future debt repayments but refused to do so because it would mean being subjected to the diktats of harsh IMF austerity measures and losing control over government policy. Erdoğan made a populist appeal to his domestic audience, saying that he was not going to be told what to do by the IMF or the EU. The Financial Times explained the pressures upon emerging economies: “Turkey and other emerging markets remain vulnerable to forces outside their control, particularly the strengthening American economy that has pushed up the US dollar and given the Federal Reserve a freer hand to raise rates – which 122

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has elevated the dollar even further” (Financial Times 2018c). As a result, the currencies of Venezuela, Argentina and Turkey were seriously hit. The Indian rupee, the South African rand and the Brazilian real also came under serious pressure. Of course there were particular factors operating in each country influencing this situation, but the underlying causes of the increased turbulence were the same for all of them – rising US interest rates and uncertainty generated by Trump’s trade and currency war abroad and huge tax cuts at home that were made to boost US corporate profits at the expense of everybody else. The Trump administration was breaking all the rules and international agreements to benefit from the increased chaos in global financial markets. The Turkish economy was particularly affected by the US trade and currency war, because Turkey relied on foreign investment and foreign currency debt more than any other major economy. Corporate, financial and other debt denominated in foreign currencies represented more than 70 per cent of Turkey’s economy. Turkish companies and real estate developers used borrowed money to pay for new shopping malls and skyscrapers. Foreign investment was also used to finance this unproductive investment. When the lira lost value, it became much more expensive for these companies to repay their dollar-denominated loans. China, the emerging superpower of the global economy, seemed to have been affected the least by US trade and financial policies. This was mainly because, during the past ten years, while the US and other leading Western economies were endlessly pumping out printed money and pushing further financial speculation globally, China had concentrated on further developing its productive capacity: the Chinese economy nearly doubled in size, overtaking Japan, and has become the second largest economy in the world. China also has a great financial advantage compared with other emerging market currencies: it has never been fully open to unrestricted financial flows, so there is no question of any serious capital flight.1 Furthermore, China has a current account surplus on its balance of payments, and therefore there has been no danger of a financial deficit. The turbulence, however, went beyond the financial markets of only emerging powers; currency traders in Australia, New Zealand and Canada (all reliant on foreign investment and commodity exports) were watching the US dollar rise with increased nervousness (Iosebashvili & Glynn 2018). The ability of the US government to control the global supply of money through the dollar was considered to be the US’s most effective weapon – it was far more deadly than its grand military machinery. The value of the US dollar was rising strongly against all other currencies, in particular the currencies of emerging economies. The Trump regime was also initiating provocative trade wars and sanctions against Russia, Iran, China and Venezuela. Turkey was not alone in all this and suddenly had a lot in common with Iran, Russia and China. The 123

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US seemed to be aiming at a domestic and international economic advantage by pushing the Global South into bankruptcy. This global financial and trade offensive, launched by the Trump administration, had already created huge uncertainty in Asia, Latin America and the EU. Peter Gowan, in his seminal work The Global Gamble, noted that “the US economy depends not only upon constantly reproduced international monetary and financial turbulence . . .” and that “Wall Street” in particular “depends upon chaotic instabilities in ‘emerging market’ financial systems” (Gowan 1999: 124). The motivations for this trade and currency war were also political: the US was punishing Turkey, Iran and Russia for having a divergent geopolitical agenda in Europe, the Middle East and Central Asia that clashes strategically with its own. However, whereas it was clear that the economic warfare between the US and Turkey (and other emerging powers) had deep structural causes, it would have serious implications as regards Turkey’s NATO membership and global peace. Political and security dynamics are relatively autonomous and cannot be reduced to financial economics alone. It is still not clear with any certainty yet what the ultimate impact of the current stand-off between the US and several emerging powers, from Turkey to Argentina, India and Russia, and China will be. However, it is almost certain that our world has, once again, entered a historic moment where uncertain global circumstances and the authoritarian populist agenda of unpredictable political leaders have coincided to initiate a major shift in the way the world economy and finance are organized. The political and economic developments that have happened in Turkey since 2016 have undoubtedly been worrying for Western governments. However, because they were busy with their own political crises, they have either been slow or reluctant to react to these developments effectively. In general, Turkey has been tolerated by Western governments as a partner, however problematic, because it has a predominantly Muslim population and its leadership potential in the Middle East as a whole, or perhaps even more so because of its role as a barrier for Europe against refugee flows. Another important turning point for Turkey came with the 24 June 2018 elections, which brought a complete change in the Turkish political system. Turkey had held a referendum on 16 April 2017 on changing its parliamentary system into a “super-presidential” system, which resulted in a small majority (51.4 per cent for, 48.6 per cent against) in favour of the change. Later, the government called for early elections in June 2018 to put the relevant constitutional changes into effect. Erdoğan again prevailed over his rivals and officially changed the Turkish regime into one with a more authoritarian one-man rule. Some people may see this regression in Turkey as caused by the Republic’s persistent 124

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democratic deficiencies since its inception, and others may see it as simply an ordinary example of Eastern despotism. However, I would argue that the Turkish case should be examined in the context of the global rise of right-wing populism that is itself a consequence of failing neoliberal globalization. Neoliberal economic governance and the right-wing populist and authoritarian currents it has generated have been posing serious threats to democracies all around the world, at least since the mid-2000s. Although this regressive trend was already in place, it intensified after the 2007–08 global financial crisis. Countries with weak institutions and immature democracies, like Turkey, have been the most severely affected by it. The origins of this trend should be sought in the late 1970s and early 1980s, when the neoliberal form of capitalism began to emerge and destroy the balance established between the state and the market after the Second World War. Turkey has never been a perfect democracy, clearly evidenced by its three military coups. Democratization in the 1980s and 1990s was also limited, although there was some progress in terms of curbing the excesses of authoritarianism, the rights of citizens were not substantially extended so they could play an active role in the political process. Rather, since the neoliberal reforms began under military rule in 1980, the political regime has been based on the depoliticization of society, the weakening of civil society and reducing democracy merely to participating in free elections.The The AKP was established mainly by pious provincial SME capitalists and members of the newly emerged professional middle classes who were conservative in their religious beliefs. However, in terms of votes, it mostly relied on unorganized, informal and peripheral sectors of the urban and rural working classes. The AKP appealed to these people by depoliticizing their class identities. They had mostly been neglected by the previous governments and were almost all subject to new kinds of poverty caused by the neoliberal policies. Because of the booming economy, it was easy for the AKP to maintain its political alliances between 2002 and 2007. The party’s financially stable and consumptionoriented neoliberal economic model not only satisfied capitalist groups but also provided benefits to the poor and marginalized sections of society. Its neoliberal and anti-labour policies were successfully masked by new povertyalleviation programmes and social protection measures blended with an Islamic notion of social justice. Indeed, the poor looked like relative winners under the AKP and had a stake in its survival no matter how authoritarian it turned out to be. These policies not only weakened the organizational capacity and autonomy of the working classes but also created political patronage. Thus, the AKP was quite successful in co-opting, assimilating and taking over any potential 125

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resistance to neoliberal policies. Under these conditions, it was impossible for more progressive counter-movements to emerge. From 2010 in particular, when the effects of the global crisis started to affect Turkey more deeply, the country began to show signs of approaching the limits of consumption-fuelled and deficit-driven economic growth. Hence, the AKP’s so-called populist neoliberalism became increasingly exhausted and its authoritarian tendencies grew. First, there was violent suppression of the Taksim Gezi protests and then the failed military coup attempt of July 2016. After the coup attempt, under the continuing state of emergency rule, the authoritarian process has continued, with thousands of academics suspended and many news outlets and civil society organizations closed down. According to Freedom House, Turkey is rated as “not free” in terms of civil liberties (Freedom House 2020). After the 2018 election, not only was the parliamentarian system replaced by a presidential one, but also Erdoğan acquired sweeping new powers, including, as already mentioned, appointing and firing ministers (he fired 12 of the 15 members of the country’s constitutional court), dissolving parliament and calling for elections, and possibly staying in power for another 12 years. Without any checks and balances from an independent legislature or judiciary, civil society or a free media, Turkey had become an electoral dictatorship. At the same time, annual inflation had risen to its highest level since 2014, market volatility and economic stress rose sharply in the summer of 2018, and the Turkish lira lost more than 20 per cent of its value, the knock-on effect being external debt burgeoning. The current account deficit reached record levels (annual level of $57.6 billion in May 2018, corresponding to 5.6 per cent of GNP) and the economy was overheating as it was no longer possible to sustain growth by credit pumping.

New partners: turning away from the West As the Turkish lira slumped to record lows under the pressure of Trumpian tariffs, President Erdoğan was looking to “new partners” to support the country’s economy. Amid rallying cries to the Turkish people, imploring that they steel themselves for further “attacks”, Erdoğan suggested that his country was now looking to form alternative economic alliances from “Iran, to Russia, to China and some European countries” (South China Post 2018). Economic cooperation between China and Turkey had increased over the past three decades. China has become Turkey’s largest trading partner in Asia and trade volume between the two nations has steadily grown. In 1990, trade was worth $238 million, by 2000 trade had reached a value of $1.4 billion and in 2017 it was $26.4 billion. In 2010, a long-term and constructive vision was created between the two countries by 126

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promoting relations in their “Strategic Partnership”. Following this, many partnerships were established for the purpose of cooperation in several areas, mainly projects relating to transport infrastructure. Projects involving the Eurasia Tunnel, Marmaray (the first submarine railway in the world), the Yavuz Sultan Selim Bridge (the third bridge on the Bosporus Strait), İstanbul Airport (which will be the world’s largest airport in terms of passenger traffic capacity once completed) and the Çanakkale 1915 Bridge have been devised as a component of the Chinese-led “Iron Silk Road” (see Figure 10.1). Following Erdoğan’s visit to China in April 2012, trade volume also increased consistently, according to the Turkish Statistics Office, making China Turkey’s third largest trading partner (Ahval 2019). The Ankara–İstanbul high-speed railway line was built by a Chinese company and completed in 2014. The line is 533 km long and high-speed trains run at up to 250 km/h (Shang 2017). The project was funded by China with a $750 million loan. This project is a Chinese company’s first high-speed railway project in a foreign country (Akçay 2017). Figure 10.1 China’s New Silk Road

Source: Xinhua News Agency, Shen Xinyi, Shanghai Daily. Figure 10.1

The failed coup attempt in 2016 may also have contributed to boosting Turkey–China relations. The majority of the generals purged in the coup were reported to be pro-US and pro-Western and sceptical about Turkey’s strategic relations with Russia and China. A few weeks after the failed coup, on 3 August 2016, China’s vice foreign minister visited Turkey to discuss regional issues of 127

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common concern. This visit was widely considered to signify China’s support for President Erdoğan and his government when his relations with the US and other NATO powers were at rock bottom (Daily Sabah 2016). Later Erdoğan thanked China for “supporting Turkey to maintain national security and social stability” (Xinhuanet 2016). In an op-ed in the Global Times, he stated that “in the aftermath of the attempted coup, our friend, our strategic partner, the People’s Republic of China were united with us. The friendly attitude of China was a friend in need. We, the Turkish people, will never forget about it” (Erdoğan 2016). The following year, on 13 May 2017, Erdoğan participated in the First Belt and Road Forum for International Cooperation in Beijing and gave one of two keynote speeches, alongside the Russian president, Putin. In a group photo taken at the meeting, President Putin and President Erdoğan flanked President Xi Jinping, highlighting the support of Russia and Turkey for China’s major strategic economic initiative and China’s willingness to align itself with these two countries (Ping 2017). For China, Turkey’s position at the crossroads of the Middle East, the south Caucasus, the Eastern Mediterranean and Europe makes it a key geographical location for Xi’s ambitious Belt and Road Initiative that aims to expand China’s standing and global influence in the global system. The Turkish leadership has considered the Belt and Road Initiative to be a good opportunity and an excellent way to attach Turkish economic development to the new emerging giant, seeing it more readily available for trade and help than declining Western powers. And China considered it extremely beneficial to create a rail and road network along the ancient Silk Road from Turkey through the Caucasus and Central Asia all the way to China. Expectations seemed to be realized when the Chang’an cargo train stopped at Ankara, Turkey’s capital, on 6 November 2019. After an official welcoming ceremony in Ankara, the train continued to İstanbul to pass under the Bosporus using the Marmaray tunnel, one of Erdoğan’s bold legacy projects, and it became the first direct cargo train to travel from Xian, China, to Europe and to go on through Bulgaria, Serbia, Hungary and Slovakia to reach its final destination, Prague. Thus, the Middle Corridor of the Belt and Road Initiative, which was partly made possible because of Turkey’s contributions, became operational. The Turkish regime attributed great importance to this trade network, which highlighted the country’s strategic location connecting the Middle East, Central Asia and the North Africa gateway. For China, Turkey’s location has a major role in the Belt and Road Initiative in terms of being a hub for land, sea and air transportation in the region (Bruce-Lockart 2017). Turkey’s strategic location and young, dynamic population have been offering economic opportunities to major Chinese corporations too. Turkey has become an important market and a regional base for the Chinese telecommunications 128

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giant Huawei, and the company’s second largest research and development centre is based in Turkey. At the end of 2019, Huawei was the second best-selling smartphone brand in Turkey, having increased its market share to 30 per cent from 3 per cent in just two years. “Huawei invested a lot in Turkey and keeps on investing. Turkey serves as a centre for both Eastern Europe and Middle East and North Africa markets”, said Özgür Çetin, the editor in chief of the technology website teknolojioku.com (Ahval 2019c). In November 2019, Türk Telekom, working with Huawei on a live test of the 5G network, achieved a single-user 5G smartphone speed of above 2.92 Gbps, breaking the world record in this field. At the same time, Türk Telekom was also the world’s first operator to test 5G New Radio Carrier Integration Technology (C-Band NR Carrier Aggregation) with the Huawei Mate 20 X 5G smartphone (Huawei 2019). Ankara’s ties with Beijing are unmistakably growing and this has fuelled speculation by some observers that Turkey, a NATO member, may be rebalancing its strategic relations away from the West to the East, not least because of Erdoğan’s own pronouncements, which did not hide his view that it would be more beneficial for Turkey to join the Shanghai Cooperation Organisation. During the same period, when relations were getting weaker with the West, the Turkish–Russian relationship was improving considerably too, in particular after a brief period of tensions and a proxy war almost starting in Syria after Turkey downed a Russian SU-24 bomber in November 2015. It seemed that neither side was willing to break off relations after this incident. Erdoğan said later that he was concerned about how relations had been sacrificed over what he called “a pilot error”. He also said that he wanted to improve ties with Russia but that he did not understand what kind of “first step” Moscow was expecting (Girit 2016). In June 2016, Erdoğan officially offered an expression of regret for the downing of the plane the previous November. Then came the coup attempt, on 15/16 July 2016: while Western governments held their breath, hoping that the autocratic and anti-Western Islamist Erdoğan might be overthrown by pro-Western generals, Putin was, however, the first foreign leader to condemn the failed coup and express his unconditional support for Erdoğan’s elected government (Hurriyet Daily News 2016). It took the United States days to condemn the coup attempt. The Russian response stood in stark contrast with the position of all Turkey’s NATO allies. “We have received unconditional support from Russia, unlike other countries”, stated Çavuşoğlu, Turkey’s foreign minister, on 25 July (Mankoff 2016). All this was enough to further deepen Russo-Turkish cooperation, and Russia was quick to take advantage of the mood in Ankara, normalizing relations with Turkey and giving the green light for the August 2016 Turkish incursion into northern Syria. On 24 August, the Turkish army launched a major military intervention in Syria, sending tanks and warplanes across the border 129

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with a dual purpose: to dislodge Isis from Jarablus, its last major redoubt on the 500-mile border, and to prevent the expansion of Kurdish control from a small, self-declared “safe zone” in northern Syria. Turkey’s governments have always considered armed Kurdish nationalist groups in the region as major threats to its security. In November 2016, three months after the failed coup attempt in Turkey, information about talks between Moscow and Ankara on the purchase of a missile system was heard for the first time. In mid-September 2017, a $2.5 billion contract was signed for the S-400, one of the best air defence systems currently in use in the world, and the fourth generation of the missile defence system that Russia began to develop during the Cold War (Reuters 2019). Military relations between Turkey and Russia have been expanding, and bilateral military defence and military cooperation has entered a new stage. The Russian industrial conglomerate Rostec won the tender for the construction of a Turkish anti-tank missile system, and since the sale of weapons to Turkey, there has been cooperation between the navies of the two countries, implementation of joint operations in the Black Sea, and the establishment of a coordinated military operation of security. The first shipment of the S-400 defence system arrived at the Mürted airfield in Ankara in July 2019, just ahead of celebrations in Turkey to mark the third anniversary of the 2016 failed coup. The Turkish media reported that a team of Russian specialist technicians also arrived to assemble the system (Gall 2019). The timing was deliberate, and celebratory media coverage further reinforced the symbolic importance of this event. Erdoğan declared that “the most important agreement in our modern history is the S-400 deal” (TASS 2019). This rapprochement was followed by the completion of talks on two infrastructure projects in the energy sector – the TurkStream pipeline and a Russian-built, owned and operated nuclear reactor in southern Turkey. The total volume of trade in commodities between the two countries significantly increased. The numbers of Russian tourists arriving in Turkey returned to their pre-crisis levels, going up from 700,000 in 2000 to 4.5 million in 2014. The two countries’ reaffirmed desire to expand their bilateral economic engagements particularly in the defence sector raised concerns in the West. Turkey depended heavily on Russia for reliable and plentiful energy supplies, and the Russian Federation depended on securing the Turkish gas market – which was second only to that of Germany and still growing. Turkey’s importance as an alternative route that would enable Russia to avoid Ukraine and maintain its dominance over European supplies also played a role in this exemption. In 2018, Turkey’s natural gas consumption reached 54 bcm (billion cubic metres), one-third of which was for electricity generation. Turkey purchases 52 per cent of its natural gas from Russia, 17 per cent from Iran and 12 per cent from Azerbaijan. 130

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The remaining 19 per cent comes as liquefied natural gas from Algeria, Nigeria and Qatar. Both the Russian President Vladimir Putin and Erdoğan repeatedly made ambitious statements and called for a trade volume target of $100 billion between their respective countries. Having reached a peak of $38 billion in 2008, the trade volume was somewhere between $23 billion and $26 billion in 2019. The scope of economic relations between Russia and Turkey was not limited to trade. Turkish companies, particularly contractors, have been active in the Russian Federation since the 1984 agreement by taking advantage of its clauses. The 1984 Natural Gas Agreement has been a corner stone in economic relations between Turkey and the Russian Federation. According to the agreement, Turkey promised to buy the Russian gas for 25 years beginning from 1987. It was not just an energy agreement, since Turkey paid 70 per cent of the gas by Turkish goods and services (Arafat & Alnuaimy 2011: 117). Many Turkish companies had established stellar reputations in their own industry. Turkish contractors had completed more than $65 billion worth of contracts in Russia by the end of 2017 and had invested around $10 billion in the country. In return, Russian investments in Turkey, excluding the Akkuyu Nuclear Power Plant, equalled that figure. Turkish investments in Russia concentrated on the construction sector as well as the low to medium technology sectors such as alcoholic beverages, chemicals and glass production. By the end of 2016, there were over 2,000 Russian firms operating in Turkey and around 1,500 Turkish firms operating in Russia. In 2018, Russia was the country with the highest turnover of Turkish contractor companies, including major Turkish companies like Anadolu Efes (alcoholic beverages), ENKA (construction), Renaissance (construction), Şişecam (glass), Eczacıbaşı (tiles and ceramic ware), Hayat (consumer goods and wood products) and Zorlu (household appliances and energy) (Özel & Uçar 2019). Turkey’s operations, in coordination with Russian forces, in northern Syria intensified in late 2019, which created the impression that Turkey and Russia were redrawing the map in northern Syria. The Turkish army crossed the border into north-east Syria at several points on 9 October 2019, launching “Operation Peace Spring”. This Syrian Kurdish region, the Autonomous Administration of North and East Syria, or Rojava, was controlled by the PYD (Democratic Union Party) until 2013. Turkish forces quickly penetrated nearly 30 km into Syrian territory and took control of a large section of the region’s main transport axis, hence achieving one of Ankara’s long-held primary objectives, to break up the territorial continuity of the Kurdish autonomous zone. Turkey has steadily opposed plans for an autonomous Kurdish entity since 2015. It has always insisted on creating a buffer zone 480 km long and 30 km deep in northern Syria as a security zone, and indeed Erdoğan had openly explained this plan at the 131

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UN General Assembly on 24 September 2019, two weeks after his army had entered Syria to execute it (see Figure 10.2). On 22 October, Erdoğan and Putin signed a 10-point agreement in Sochi, confirming the autonomous zone’s new configuration. The Kurdish forces were to withdraw to a distance of 30 km from the Turkish/Syrian border, but Turkey would retain control of the area. This was not a completely new idea either – there was a historical background to this claim. Even before Erdoğan’s AKP came to power, in October 1998, the then Turkish government had managed to persuade Syria to sign the Adana Treaty, which called for the closure of Kurdish (PKK) training camps in northern Syria and gave Turkey the right to intervene militarily, when necessary, in a zone 6 km deep and running the entire length of the Turkish border. In Sochi, Erdoğan and Putin simply agreed to reactivate the Adana Treaty, effectively giving Turkey the right to intervene in the autonomous zone whenever it felt the need for security reasons. The Sochi agreement also accepted the Turkish plan of returning one million Syrian refugees out of the almost 4 million currently living in Turkey to the Tell Abyad/Ras al-Ayn rectangle in this zone. Figure 10.2 Turkish plan for autonomous zone in northern Syria

Source: Deutsche Welle 2019; https://www.dw.com/en/turkey-unleashes-offensiveFigure 10.2 against-kurds-in-northern-syria/a-50758501.

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Erdoğan’s plan also had a significant economic dimension: the proposed settlement area would include 140 villages and ten districts. Each village would host 5,000 Syrians and each district would have a population of 30,000. The villages would contain about 1,000 residences, including houses and barns. Each town would also have hospitals and football pitches alongside 6,000 homes, 11 mosques, nine schools and other facilities. This grandiose construction plan would cost around 151 billion lira ($27 billion) and would provide opportunities for tens of construction companies and jobs for thousands of people (Reuters 2019). The autonomous zone has the advantage of being geographically contiguous with the province of Hatay in Turkey, which belonged to Syria before becoming part of Turkey in 1939. Although by the beginning of 2020, Turkey had developed more and more economic, military and political links with Asian powers, China most significantly, but also Russia, this does not necessarily mean that the significance of the Western powers has disappeared completely. In terms of economic links, trade with the EU countries are still important, as are strategic links with the US and NATO, despite these links having been seriously weakened since 2016. At the start of the third decade of the new millennium, Turkey seems more nationalistic and more inclined to assert its political and military power independent of the institutional framework of NATO. Now its Western allies will have to cope with the deployment of Russian S-400 missiles, the possible acquisition of Russian fighter aircraft, Turkish military operations in northern Syria and some military deployment in Libya.

Kanal İstanbul: Erdoğan’s “crazy megaproject” The ambitious Kanal İstanbul project, which has been called in Turkey “the greatest project of the century”, has been talked about in the country for more than a decade. Erdoğan built his reputation and electoral popularity partly on undertaking gigantic public works projects: a third bridge over the Bosporus, a high-speed train link connecting İstanbul to Ankara, a third airport in İstanbul and many other large-scale infrastructure projects such as showy housing complexes, glittery office towers and shopping malls. According to the Turkish media, in the past ten years, six out of ten of the world’s largest infrastructure projects have been undertaken in Turkey. Indeed, it seems that across Eurasia leaders have been seeking public support through the construction of massive infrastructure projects. The projects being undertaken by the leaders of China and Russia as well as Turkey are expected to capture the public imagination and to bring to mind the grandeur of a long-gone imperial era. However, lack of transparency, 133

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crony capitalism, and environmental concerns, have publicly plagued many of these projects, for example, members of Turkey’s largest construction companies, which are closely aligned with the government, have been investigated during the bidding process for questionable methods of obtaining credit. The Kanal İstanbul project involves building a Panama-style canal on the outskirts of İstanbul to bypass the clogged Bosporus Strait that links the Black Sea and the Sea of Marmara. The proposed 45 km-long and 400-metre-wide canal, an artificial sea-level waterway, to be built in İstanbul’s Küçükçekmece-Sazlıdere-Durusu corridor, will have a capacity of 160 vessel transits a day – similar to the current volume of traffic through the Bosporus (see Figure 10.3). If and when it materializes, it will have major geographical and economic consequences for the country, but it will also have potential major impacts on the regional and even global powers (The Times 2011). Although the planning for the project began as early as 2011, it was only in the first month of 2018 that the Turkish transportation minister officially announced the project (Güldogan 2018). The idea is not completely new; it has been proposed at least seven times in history, several of them during the period of the Ottoman Empire from the sixteenth to the nineteenth centuries, and the latest proposal was in 1994 by the then leader of the Democratic Left Party, Bülent Ecevit. The canal is scheduled for completion in 2023, to coincide with the one hundredth anniversary of the foundation of the Turkish Republic. The stated purpose of the project is to reduce the large volume of marine traffic that travels through the Bosporus and to minimize the risks and dangers particularly associated with tankers. The government is expecting to generate $8 billion in revenue per year from Kanal İstanbul, thanks in part to a service fee for transits. The canal will be the largest construction project of the decade globally. A comparison of the new project with the two most famous man-made waterways in the world is useful: Kanal İstanbul – width 150 m; length 50 km; beam maximum 77.5 m; Panama Canal – width 62.5 m; length 80 km; beam maximum 51.2 m; and Suez Canal – width 205 m; length 193 km; beam maximum 51.2 m. Kanal İstanbul will result in the levelling of 350 hectares of forest and will run through districts that are home to more than one million people. About 30 per cent of the land along the canal route is privately owned. Existing homes alongside the new seaway will be replaced with upscale residential and commercial areas. With construction set to start there any time in 2020, real estate speculators have been descending on the area, clamouring for locals to sell them their land. With the economy in crisis in Turkey and abroad, and with high unemployment and foreign currency reserves dwindling, investment in real estate and the construction sector are the principle ways to attract investment and create jobs. The construction sector in Turkey accounts for about 19 per cent of the 134

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country’s annual economic growth, and Turkish construction firms rank as the second most active in terms of overseas operations, after Chinese firms (National Geographic 2018). Figure 10.3 Kanal İstanbul project

Source: Günaydin (2018).

The Turkish authorities claim that this canal would ease shipping congestion on the picturesque Bosporus, a natural strait that intersects Turkey’s largest city, and one of the most crowded waterways in the world. Thousands of oil tankers made up part of the 53,000 civilian and military vessels that transited through the Bosporus in 2017, which compares with around 12,000 and 17,000 ships respectively that transited the Panama Canal and the Suez Canal (National Geographic 2018). However, the Kanal İstanbul project has received diverse and strident objections from both environmentalists and economists who say it could seriously damage Turkey’s most populous city. Doganay Tolunay, an environmental expert from İstanbul University, says that the project could have a significant impact on the region’s nature. Approximately 1.5 billion m³ of earth will be excavated and more than 115 million m³ of material will come from the sea and bottom screening. The canal will consume important water resources because İstanbul’s water reserves will be stored where it is planned to run. The canal will also endanger the region’s complex ecosystem. Tolunay has warned that “[t]he dune landscapes 135

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in the north of the city are home to protected forests, streams and pastures that are important for the ecosystem and are home to hundreds of species of plants and animals”. A serious disturbance of the ecosystem could also have economic consequences. Tolunay went on to say that “[f ]ishermen in the Black Sea and farmers would have to leave the region”. The project will increase oxygen levels in the Black Sea, impacting the wildlife population and the natural ecosystem that is vital for marine animals. Added to this are the enormous construction expenses. Officially, the equivalent of €11.5 billion ($12.9 billion) is being talked about, but experts expect the costs for the new canal to be much higher (PortSEurope 2019). This project may also provoke some serious legal conflict with the rest of the Black Sea riparian states. Some experts warn that there is an open question of whether or not such a canal would violate the Convention Regarding the Regime of the Straits (Montreux Convention), a 1936 treaty that ensures the free passage of the commercial vessels and naval ships of countries along the Black Sea, including Russia, through the Bosporus, except in times of war. In accordance with the Montreux Convention, the Turkish government has no legal rights to implement additional taxes or charges, or to slow down traffic at the entrance to the straits in order to establish better operational conditions for its new canal (Kalinov 2019). Chinese investors have expressed interest in taking over the project, as have companies from Holland, Belgium and France. Almost none of the Turkish companies are able to shoulder the financial burden because of the country’s slumping economy (Reuters 2020a). A mystery investment firm, Money Maker Management, the seventh largest fund in the US according to the Turkish media, has also offered to finance the $12.3 billion project (Ahval 2020a). As for Russia, its main concern is the legal framework that would manage the international passage through the planned canal. Aleksei Erkhov, Russia’s envoy to Ankara, declared that “[a]s long as it keeps the situation according to Montreux unchanged, it’s a Turkish matter” (gazete Duvar 2019).

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Turkey and uncertain predictions for the world economy

At the start of 2020, according to all available data, more than ten years after the collapse of the Lehman Brothers sparked the greatest financial crisis and economic downturn since the Great Depression, none of the underlying contradictions of the world economy have been resolved. The false claim that governments have broken the back of the recession was running out of steam. Global imbalances and deep-rooted tensions have deepened even further. In a survey by the US National Association for Business Economics, published in August 2019, 72 per cent of economists predicted that a recession would occur before the end of 2021 (National Association for Business Economics 2019). In the second half of 2019, fears over the health of the global economy had deepened with the publication of international data. Global manufacturing output was actually falling, as measured by economists from JP Morgan, and . . . weak international trade flows stymied hopes of a stronger recovery from the mid-year downturn in the sector. Subdued business confidence led to cutbacks in staffing, purchasing and inventory holdings . . . ongoing caution among manufacturers, resulting in cutbacks to purchasing, inventory holdings and staffing levels. Employment fell for the seventh time in the past eight months. Job losses were seen in the euro area, South Korea, Brazil, Indonesia, the UK, Russia, Turkey, Mexico, Thailand, Poland, Malaysia, Australia and the Czech Republic. (JP Morgan 2020) The Purchasing Managers’ indices for the service industries in the US, UK and Germany, published in October 2019, all turned out to be worse than economists had expected (Financial Times, 5/6 October 2019, 4). The UK economy saw no growth in the final three months of 2019; the Office for National Statistics (ONS) said that manufacturing had contracted for the third quarter in a row and the service sector had slowed. In particular, the car industry had seen a particularly 137

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weak quarter. The services sector – which accounts for more than three-quarters of the UK economy – grew by just 0.1 per cent in the final quarter of 2019, and the construction sector grew by 0.5 per cent. The manufacturing sector, on the other hand, saw output fall by 1.1 per cent when some car factories paused work in November in case Britain left the European Union without a deal on 31 October (BBC News 2020). It was not just the top economies in Europe and Asia and America that were slowing in 2019 – many emerging economies were going into recession. Only China had a better record, but even that saw a big drop in industrial profits (Roberts 2019a). Many governments and monetary authorities, desperate to avoid a new slump, were driving down interest rates on borrowing, such that interest rates in many places were negative. The figures from late 2019 pointed to a marked decline in economic activity in all of the 16 countries of the eurozone: “As the Europeans disregarded the calls to fix the roof while the sun was shining, time will be now of the essence as darker clouds are nearing. The risk of a recession may increase as the economic slowdown is expected to continue and could even become a downturn if the trade dispute between Europe and the US worsens” (EURACTIV 2020). The United Nations Conference on Trade and Development (UNCTAD) stated that weaker growth in both advanced and emerging economies meant that the possibility of a global recession in 2020 was a clear and present danger. In a 2019 report, UNCTAD declared: “A spluttering north, a general slowdown in the south and rising levels of debt everywhere are hanging over the global economy: these combined with increased market volatility, a fractured multilateral system and mounting uncertainty, are framing the immediate policy challenge” (UNCTAD 2019). Only China, India and Indonesia could record decent growth rates, and even for them there was a clear slowdown (Nikkei Asian Review 2019). On 24 January 2020, Yılmaz Akyüz (2020), former director of UNCTAD, said that “[s]luggish investment and growth, rising inequality, low inflation and interest rates, and rapid debt accumulation have become common features of major advanced economies and indeed much of the global economy at large”. In mid-January 2020, UNCTAD released its flagship report, World Economic Situation and Prospects 2020. Its main theme was that global growth rates in 2020 would be unimpressive and that the most powerful states would again rely on lowering interest rates to provide liquidity for the markets. The main warning lights were the escalation of the US–China trade war; slowing US growth; the long recession in Germany; the potential impact of Brexit; the Chinese debt crisis; serious economic crises and political uncertainty in Iran and Venezuela; and last but not least, the dire economic performance of several medium-sized emerging economies – Argentina, South Africa and Turkey. The bigger concern, however, 138



Turkey and uncertain predictions for the world economy Figure 11.1 World economic outlook, growth projections, 2019–21 8 6 4 2 0 -2

World Economy

Advanced Economies Emerging Economies

-4 -6 -8 -10

2019

2020

2021



Source: adapted from IMF (2020). Figure 11.1

according to the UNCTAD report, was that ten years on from the financial crisis, the global economy has remained excessively financialized and fragile. Even ignoring the worst of the downside risks, the report projected that global growth would fall to 2.3 per cent in 2019, compared with 3 per cent in 2018, and most of this growth would be the result of financial sector operations. An enormous amount of global debt has been “channelled into financial assets rather than into raising productive capacity – illustrating a worrying disconnect between the financial sector and real economic activity”. Even when capital has been invested in the manufacturing sector, it has not necessarily increased employment; the phenomenon of “jobless growth” has often been its outcome. Capital has been flowing into negative-yielding sovereign bonds, which shows that capital markets are pessimistic about future economic growth (UNCTAD 2020). “You can take a horse to water, but you cannot make it drink”, Michael Roberts says, referring to trying to solve the structural problems of the economy by means of pure financial speculation (Roberts 2019). Financial activity is not bad in itself. Its initial role is the healthy one of translating work products and services into exchangeable financial instruments to facilitate trade in the real economy. Through mortgages, workers can trade their promise of future wages for a home. Through insurance, homeowners are able to share financial risks and avoid financial catastrophe. The problems begin when financial operations become excessive, that is, when finance becomes “financialization”. All economic activity can be classified as either “creative” or “distributive”. Creative work is basically production that creates extra wealth and 139

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increases a society’s prosperity. Distributive work, on the other hand, just moves already created wealth from one hand to another. Every sector contains both. But activity in the financial sector is almost exclusively distributive. It makes money out of money by moving cash being generated from within productive processes into the hands of shareholders and top management. It has been said that “[s]uccessful societies maximise the creative and minimise the distributive” (Bootle 2009). As early as the 1950s, the British economist, Joan Robinson asserted that “where enterprise leads finance follows”, depicting a financial system that was merely supporting trajectories that had already been planned by the productive sector (Robinson 1952: 86). The situation in the world economy, at the beginning of 2020, has illustrated the negative impacts of expanding the financial sector, financialization, on the productive functions of the economy. At the start of the third decade of the twenty first century, the economies move more around the financial sector and less around the productive one. As a consequence, there is a significant transfer of available funds’ physical investment in productive activities to financial speculation. A survey of manufacturing companies in Sweden indicated that Swedish factories slowed in the last quarter of 2019, the most since 2008. Swedish GDP fell unexpectedly in the second quarter, and it was predicted that GDP growth will bottom out in 2020 (SEB 2019). During the same period, in American manufacturing, the pace of expansion was the slowest for more than a decade. The slowdown in Germany, the linchpin of European industry, was the most unsettling. In 2018, the EU was mostly a spectator in the US–China trade war. Since late 2019, however, the EU has been facing high US tariffs relating to a dispute over state aid to aerospace manufacturer Airbus. The figures from January 2020 suggested that the eurozone was teetering on the brink of recession (Financial Times 2020a). China’s slowdown was predicted and to some extent planned, but a trade war with the US made things much more serious. Another member of the leading emerging stars group, India, was faced with a credit crunch following a demonetization and the introduction of a new sales tax. Although economic worries were mounting in the advanced world, in late 2019, the growth deceleration was likely to be more painful in many emerging economies, notably Southern Africa, several economies in Latin America, and South and West Asia, including Turkey. Even before the US–China trade tension, growth rates were slipping in parts of the emerging world because of falling capital inflows – following announcements of monetary tightening by leading central banks – which have in some cases already turned negative, compounded by falling commodities prices. These weaknesses were emerging in the context of a significant build-up of debt across the emerging world, much of it short term 140

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and denominated in foreign currencies, with the biggest increases in the private sector (Rogers 2020: 139–41). The UNCTAD report stated that by 2017, total emerging world debt had reached its highest level on record, at 190 per cent of GDP. This was mainly composed of private sector debt, which rose from 79 per cent of GDP in 2008 to 139 per cent in 2017, rather than public sector debt, which represented just 51 per cent of GDP in 2017. The increase in private debt since the financial crisis has been particularly sharp in middle to high-income countries, reaching 165 per cent of GDP in 2017, but the trend is also visible in low-income countries. The UNCTAD report said that a recession in 2020 was more than likely. It went on to explain that over the past few years, growth rates were sustained by “one-off tax cuts and unsustainable deficits, made all the more precarious by a rapid build-up of private debt positions, particularly in the corporate sector”. Meanwhile, “unemployment figures hide problems of insecure jobs and discouraged workers”. Add to this “disrupted supply chains, volatile capital flows, and rising oil prices”, and it seemed inevitable that “on these trends a slowdown – and possibly even a recession – looks likely”. And “this pessimism” was based on “a recognition that the policy instruments favoured in the battle for recovery since the financial crisis have not only failed to deliver robust growth but are facing ever-diminishing returns” (UNCTAD 2019: II-III and 4). Turkey was particularly vulnerable because of its level of external debt, which had grown rapidly since the 2008 crisis as growth plans were met with enthusiasm from foreign investors. Although its total debt-to-GDP ratio was below the emerging markets’ average, Turkey was still significantly reliant on foreign capital, with 70 per cent of its debt denominated in US dollars and euros. This compares with 35 per cent for the average emerging market peer. Its current account deficit was close to 6 per cent of GDP – one of the largest among emerging market countries – making it vulnerable to a shock if foreign investors pulled back. Within the group of emerging economies, notably Argentina, Egypt, Indonesia and Turkey saw a sharp increase in the share of debt in 2019, particularly of corporate debt (UNCTAD 2019: 119). The credit rating agencies Moody’s and Standard & Poor’s downgraded Turkey’s long-term foreign currency sovereign credit rating to B+ from BB− with a stable outlook. In this way, the Turkish economy was moved into junk territory after concerns about the independence of the central bank, unpredictable policy-making and a forecasted recession in 2020 were cited as reasons for a deteriorating outlook. Credit rating agencies referred to a weakening of public institutions and the related reduction in the predictability of policy-making in a country that was facing a currency crisis. They also projected that the Turkish economy would sink into a recession in 2019 even as inflation accelerated to 22 per cent (Financial Times 2018b; Reuters 2018b). 141

Turkey in the Global Economy Table 11.1 Comparative economic growth (GDP), 2017–19 GDP growth %

2017

2018

2019

World

3.8

3.6

3.2

Advanced economies

2.4

2.2

1.9

United States

2.2

2.9

2.6

euro area

2.4

1.9

1.3

Japan

1.9

0.9

1.1

4.8

4.5

4.1

China

6.8

6.6

6.2

India

7.2

6.8

7.0

Argentina

2.6

−2.5

−2.1

Turkey

7.5

2.8

0.9

Mexico

2.1

2.0

0.9

South Africa

1.4

0.8

0.7

Emerging economies

Source: adapted from IMF (2019).

Turkey was already facing an acute set of economic challenges since 2018. Triggered by a sharp depreciation of the lira and a fall in investor confidence, domestic demand had collapsed. By the end of 2018, Turkey had entered a recession and had high levels of foreign exchange debt, particularly in the private sector. In 2018, the Turkish lira depreciated close to 40 per cent against the US dollar. Inflation topped 16 per cent, and investors were concerned that Erdoğan’s regime lacked a clear plan to restore fiscal discipline and he had yet to convince markets that his economic policies could assure a soft landing. Growth in 2018 fell to 2.7 per cent, with a contraction in economic activity in the last two quarters (World Bank in Turkey 2019). A World Bank press release dated 4 June 2019 stated that regional growth was expected to rise to 2.7 per cent in 2020 from a four-year low of 1.6 per cent in 2020 as Turkey recovered from an acute slowdown. UNCTAD singled out Argentina and Turkey that were crisis-hit countries as a result of global vulnerabilities, in particular resulting from the US-led trade wars (UNCTAD 2019: 8). A Reuters poll involving more than 40 economists suggested that the Turkish economy would shrink by 1.5 per cent in 2019 and see only modest growth in the following two years, according to the median forecast. The poll predicted growth 142

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of 2.4 per cent in 2020 and 3.4 per cent in 2021. Turkey’s economy last contracted on an annual basis in 2009, by 4.7 per cent. From 2010 to 2017, its compound growth rate was 6.6 per cent thanks to a construction boom driven by cheap capital following the global financial crisis (Erkoyun 2019). The Global Wealth Report, organized by Credit Suisse and considered the most comprehensive and up-todate survey of household wealth, puts Turkey among the countries that saw major losses in wealth in 2019. The erosion happened mainly because of the Turkish lira’s slump against the dollar, which led to the decrease in the GDP and the decline in the price of real estate, which represents the backbone of wealth. According to the Credit Suisse report, the richest 1 per cent in Turkey saw their share of total wealth fall from 54 per cent in 2018 to 42.5 per cent (Credit Suisse 2019). Turkey’s economy recovered in the third quarter of 2019, showing positive year-on-year growth for the first time since the painful currency crisis in the summer of 2018. Output increased by 0.9 per cent in the three months to the end of September compared with the same period in 2018. Turkey’s economy contracted by 1.6 per cent on the same basis in the previous quarter. On a quarterly basis, seasonally and calendar-adjusted GDP increased by 0.4 per cent. That figure was much lower than the consensus forecast of 1.1 per cent. The government issued a new development plan in July 2019 in which its earlier, more ambitious, targets, set for the centenary of the Republic in 2023, were drastically reduced. The original goals for 2023, first introduced in 2011, included $2 trillion as the GDP target, per capita income of $25,000, exports valued at $500 million and unemployment as low as 5 per cent. In 2019, eight years after the original targets were set, the government, slashing the original targets by around half, set the new GDP target as $1.8 billion, the per capita income target as $12,484, its export target as $226.6 billion and its unemployment target as 9.9 per cent (Ahval 2019b). The government had set a new growth target of 5 per cent or more for 2020, Erdoğan told his party members during the AKP’s 29th Consultation and Assessment meeting in October 2019. The programme also announced the target inflation rate as 4.9 per cent and the unemployment rate as 9.8 per cent. Erdoğan added, “We will follow our economic road map in the next four-year period without an election and reach our 2023 targets, . . . Turkey will keep the budget-deficit-to-GDP ratio under 3 percent” (Pitel 2019; Ergöçün 2019). Despite increasing tensions in the region around Turkey, it was expected that tourism revenues would increase in 2020. A UN report published on 16 January 2020, however, provided a bleak outlook for Turkey’s economy: Turkey spent the year recovering from a recession, achieving growth estimated at 0.4 per cent in 2019 after registering two consecutive quarterly declines in GDP in the second half of 2018 as the economy adjusted to a 143

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steep depreciation of the Turkish lira. While the pace of recovery in industrial production remains slow, declining imports have eased pressures on the Turkish lira. For 2020, a moderate recovery in domestic demand growth is expected, but the recovery in manufacturing exports is projected to be slow as demand from the European Union remains weak. Balanceof-payments constraints will effectively limit real GDP growth to 2.4 per cent in 2020. (UN 2020) The UK’s departure from the European Union also has posed crucial economic challenges for Turkey. Britain is Turkey’s third biggest export partner, second only to Germany in bilateral trade volume. In 2019, Turkey’s exports to the UK were worth around $11 billion and its imports around $5.4 billion, according to the Turkish Statistical Institute (Turkstat). Although some Turkish officials considered Brexit as an opportunity to further strengthen the Turkey−UK trading relationship, Turkey’s customs union with the EU could complicate matters (Hürriyet Daily News 2019). It seems more likely, Turkey would lose access to its second largest export market for years to come with its automotive, textiles and appliances sectors facing the biggest risk (Reuters 2019a). Figure 11.2 Turkey’s top export destinations, 2017 ($ billions) China Poland Romania Belgium Iran Israel Netherlands Spain France Italy US Iraq UAE UK Germany 0

2

4

6

8

10

12

14

16

18

Source: adapted from TurkStat (2017). Figure 11.2

The customs union allows Turkey tariff- and quota-free trade with the EU on many goods, but it also puts Turkey in a disadvantageous position when dealing 144

Turkey and uncertain predictions for the world economy

with third-party countries that negotiate with the EU. Turkey is required to abide by EU trade policy, which means that when the EU signs an agreement reducing trade barriers with a non-EU country, those reductions also apply to Turkey. At the same time, because Turkey is not an EU member, it does not gain the same preferential access for its exports that the EU gets out of such free trade agreements (FTA). Turkey can negotiate its own deals with non-EU countries, but these countries have little incentive to negotiate with Turkey because they can already gain preferential access to the Turkish market through trade deals with the much larger EU market. The UK can negotiate an FTA with Turkey as long as it also concludes one with the EU, but without a customs union, trade will flow less freely than before. Furthermore, a UK–Turkey FTA cannot be implemented until Britain and the EU agree their own FTA first. If Britain’s trade negotiations with the EU fail to produce an agreement by the end of 2020, the UK will be forced to operate under World Trade Organisation (WTO) terms, which would present high tariffs and quotas for its trade with the EU. This would be a worst-case scenario for Turkey. The director of the Economic Policy Research Foundation of Turkey (TEPAV) and Hürriyet Daily News columnist Güven Sak said in October 2019: “Brexit is a bigger problem for the Turkish economy than Syria” (Sak 2019). At the start of 2020, political turbulence spawned by the government’s transition to an executive presidency has blocked the economic reforms needed to improve the business and investment climate. Nonetheless, Turkey’s economy has shown resilience, in large part because of its solid public finances, well-capitalized and well-regulated banking sector, and dynamic, diversified private business sector. Critical challenges included a lack of transparency in government and erosion of the rule of law. The judicial system has been severely disrupted and has become much more susceptible to political influence. Turkey is ranked 71st of 180 countries in the Heritage Foundation Economic Freedom index, 2019, and a lack of transparency in government and erosion of the rule of law are the main issues that need to be tackled. The index, published annually by the Washington-based think tank the Heritage Foundation, aims to help people track the advancements made in economic freedom, prosperity and opportunity. It measures economic freedom based on 12 quantitative and qualitative factors, grouped into four broad categories: the rule of law, government size, regulatory efficiency and open markets. Singapore, Hong Kong and New Zealand are the freest countries in the world according to the 2020 results, whereas Turkey is among moderately free countries. Turkey is ranked 36th among 45 countries in the Europe region, with reductions in scores for judicial effectiveness and government spending exceeding modest increases for scores relating to business freedom and labour freedom. The report said that Turkey’s transition to an executive 145

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presidency system has blocked economic reforms that are essential for improving the business and investment environment. Turkey’s overall score (64.4) is well below the regional average but above the world average. The report noted that “M[m]oving into the mostly free ranks of economic freedom, however, will require reforms to make the labor market more competitive. More urgently, the government will have to strengthen judicial effectiveness and the fight against corruption, both of which were damaged in the aftermath of the crackdown that followed the attempted coup in 2016” (Heritage Foundation 2019, 2020).

146

12.

The Covid-19 pandemic

“There are decades where nothing happens; and there are weeks where decades happen.” — V. I. Lenin, March 19181

The global response The coronavirus has plunged the global economy into a new phase of uncertainty and created extreme shock which made all its other problems look smaller. Since emerging in the Chinese city of Wuhan in late 2019, the virus has spread to almost all countries and territories in the world. To stem further spread, authorities around the world implemented measures to lockdown countries to varying degrees, which include closing borders, shutting schools and workplaces, and limiting large gatherings. Those restrictions, which the IMF called the “Great Lockdown”, brought much of global economic activity to a halt, impacting businesses and jobs. To understand and explain the dramatic impact of the Covid-19 pandemic, one needs to look first at the economic structures of neoliberalism. The neoliberal phase of capitalism rests on fictitious capital, a vast expansion in debt creation, deregulation, outsourcing, and privatization of almost all public services such as energy, water, trains, health, education, roads and prisons. Neoliberalism treats healthcare as a private good for sale rather than a public good paid for with our taxes. This relocation of healthcare from the state to the free market has a detrimental effect both on access to healthcare services and the quality of what is affordable for many people. In many countries, the number of hospital beds were reduced, sections of essential healthcare were privatized and/or outsourced, and serious cuts were made in health budgets. Forty years of neoliberalism across the continents, especially in the so-called “advanced” western economies, have left the countries ill-prepared to deal with a public health crisis of this kind. Preventative medicine is a massive undertaking that requires heavy investment in 147

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research and development and only states can afford such undertakings, but neoliberal policies have meant that public investment in infrastructure, equipment, research and development of vaccines, medicines and skills has been significantly reduced, whereas private pharmaceutical companies have little or no interest in non-remunerative research on infectious diseases such as Covid-19. They rarely invest in preventive medical care, which does not contribute to shareholder value maximising the (average) rate of profit. Designing cures after we are sick is much more profitable. Indeed, the sicker we get the more they can charge for their medicines, and the more they see their profits increase. In less than six months, Covid-19 has transformed the world economy. As explained in the previous chapter, the global economy was already on a downward trend in 2019 well before the pandemic – Europe was more or less stagnant, Japan was in recession, important emerging economies like Argentina, Mexico, Turkey and South Africa were in a slump, and even the US’s rate of growth had hit very low levels in the second half of 2019. The pandemic is set to catapoult the global economy into recession. The IMF’s managing director, Kristalina Georgieva, calculated the human cost of the pandemic as “immeasurable” and predicted “a recession at least as bad as during the global financial crisis or worse” (IMF Press Release 2020). The effect of Covid-19 has not been felt equally among countries and business sectors, but it is already clear that, in Martin Wolf ’s words, “many countries will emerge from the pandemic with much higher deficits and debts than previously expected and that central banks will own huge proportions of that debt” (Wolf 2000). It is also clear that the coronavirus pandemic has had serious impacts on existing power structures in the global system. In the words of Adam Tooze, “Covid-19 is a wake-up call to adjust our world rankings and our understanding of our place in them” (Tooze 2020). As the world is overwhelmed by the coronavirus, China has moved out of its own crisis phase and has taken a leadership role. Having been initially caught on the hop with the virus outbreak, China was able to mobilize massive resources and impose draconian shut-down conditions on the population that eventually brought the virus spread under control. Having multiplied the production of medical equipment, China is well stationed to export and aid countries with its supplies, medical staff including to western countries such as Italy that has suffered tremendous losses. This form of “soft power” has allowed the Chinese leadership to control the narrative, showing itself to be proactively assisting in alleviating suffering globally. It was the 2007–08 global financial crisis that first generated the widespread perception that the American hegemony had reached its limits. Whereas the responses to the Great Recession of 2008 in the West were the deepening of 148

The Covid-19 pandemic

neoliberalism and austerity, China pursued a pro-Keynesian path. This can be seen from the real wage growth and from budgetary increases in health care provision. Real wage growth in “advanced” G20 countries is currently non-existent, and the welfare state is being retrenched further, because of the enormous pressure by private companies and neo-liberal governance to commodify every public economic space. Real wage growth in China sustained labour productivity since the Great Recession. After 2009, labour productivity in China rose by 7–8 per cent per year, whereas in the USA the increase was a bare 1 per cent. In the EU, productivity growth was even worse than in the US, especially in the eurozone, which “hovered below 1 per cent” (IMF Working Paper 2019). In 2009, China put forward an “Equalisation of Basic Public Health Services” (EBPHS) policy aiming to promote universal health care and strengthen public health care provision. Contrary to widely held views in the prevailing supplyside mindsets of Western governorates, Chinese authorities consider health as the “core premise of human development”. Following a time-series and crosssectional analysis, including comparisons with 131 countries, China’s 2017 Modernization Report drafted by experts in China’s Academy of Sciences, put forth a radical proposal aiming at applying engineering “super-highway practises” to modernize the country’s health system (Yang et al. 2016). Recognizing that the country’s investment in its health system is low compared to Western economies (10 per cent as opposed to 15 per cent of government expenditure), the report proposed an overhaul of health governance in China based on increased investment, modernization and technology application aiming at well-being and healthy ageing (Liu, Zhao & He 2018). The recommendations of the report have informed China’s health policy since and assisted the country to deal with the Covid-19 pandemic (Wang, Zhang & He 2020). Further, digital monitoring of citizenry mostly through their mobile devices and “Bentham-like Panopticon” cameras placed in buildings, helped China to deal with the pandemic rather competently (Economist 2020; Financial Times 2020c). Chinese bio-political authoritarian intrusion into private lives proved efficient, if not more efficient, in dealing with the pandemic, whereas the neoliberal authoritarian polities of the transatlantic core, with their pro-business attitude and austerity agendas failed to coordinate and produce a joint response. The Chinese government and prominent Chinese firms are providing large amount of healthcare materials and supplies to Western countries including the US. This is less surprising when one considers that in recent years China has expanded its support for global health. The Health Silk Road, established in 2017, intends to further strengthen its health spending and extend health and research cooperation between countries within China’s Belt and Road Initiative (BRI). In January, even before the pandemic fully hit the country, the Chinese managed to 149

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build a hospital with 2,000 beds in just 10 days from start to finish. When Trump was threatening the WHO with withdrawing American financial support, China was promising additional funds to assist the organization (Escobar 2020). It has been commented that the coronavirus crisis may mark the final shift of global power away from the United States and could be the “opportunity of the century” for China to cement its place as the world’s global hegemonic power (Taylor 2020). In a press conference about the Covid-19 pandemic, Andrew Cuomo, Governor of New York moaned: “We need masks, they’re made in China; we need gowns, they’re made in China; we need face shields, they’re made in China; we need ventilators, they’re made in China . . . And these are all like national security issues when you’re in this situation” (Lind 2020).

Turkey “keeps wheels turning” Turkey confirmed its first case of coronavirus on 11 March 2020. By late April the speed of its infection rate has surpassed that of many other countries, but despite the high number of positive cases, the number of deaths remained much lower in Turkey (Ahval 2020e). In Turkey, the very low Covid-related death rate became a source of controversy both in the highly polarized domestic environment and abroad. Authorities were accused of being non-transparent when İstanbul was reported to have 36 per cent more Covid-related deaths than originally stated. Later it was seen that many other countries were no different than Turkey in this respect. Even when we assume that the deaths in İstanbul were about 30 per cent higher than the official records, and all the other countries were reporting accurate data, Turkey’s fatality rate still remained among the lowest compared to many European countries and the United States. China sent 50,000 rapid detection kits to Turkey on 23 March and another 300,000 a few days later. Furthermore, Chinese authorities shared vital information with Turkish health professionals through video conferences on treating patients suffering from Covid-19. On 10 May, Turkey had more than 138,657 confirmed cases and 3,786 deaths from complications related to the coronavirus, according to data collated by Johns Hopkins University (Johns Hopkins 2020). As can be seen in the table below, Turkey’s fight against coronavirus was much more successful than almost all key countries in the West, including Germany. Turkey had become one of the world’s top 10 countries in the number of Covid-19 tests carried out. The most important factor for Turkey’s success in its fight against coronavirus was its demographic structure: Turkey has a median age of just over 30, younger than anywhere else in Europe. Only 8 per cent of Turkey’s population is over 65, 150

The Covid-19 pandemic

the most vulnerable age group, while the average in the EU is 21 per cent (World Bank 2019e).

Figure 12.1 Number of coronavirus cases, 2 September 2020 Germany (246,001) Italy (270,189) Turkey (271,705) France (286,007) Pakistan (296,590) UK (337,168) Iran (376,894) Chile (413,145) Argentina (428,239) Spain (470,973) Mexico (606,036) S. Africa (628,259) Russia (1m) India (3.7m) Brazil (3.9m) USA (6.2m) World (25m) 0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000



Source: adapted from Statista (2020). Figure 12.1

Another contributory factor to this success was the significant increase in health expenditures, both in public and private sector, between 2002 and 2008. Although in 2020 Turkey had 2.81 beds per 1,000 people, ranking far behind Germany (8) or France (5.98), in a sudden crisis like Covid-19, it was not the regular hospital beds that mattered but the number of intensive care unit (ICU) beds, and Turkey entered the crisis with the highest numbers of ICU beds in Europe, with 46.5 per 100,000 people. This was even higher than Germany’s 38.7 (Trading Economics 2020; Sağlık Bakanlığı 2018). Also health professionals in Turkey, who were used to routinely working with exceptionally high workloads and large numbers of patients, did not seem to have been overwhelmed by the large number of Covid-19 patients. Initially, the Turkish government called for people to stay at home and self-isolate. Mass disinfection was carried out in all public spaces in cities. To encourage residents to stay at home, all parks, picnic areas and shorelines were closed to pedestrians. Some airports were closed and all international flights to and from Turkey were banned on 27 March. All schools, universities, cafes, restaurants, and mass praying in mosques and other praying spaces were suspended, and all sporting activities postponed indefinitely. 151



Turkey in the Global Economy Figure 12.2 Covid-19 deaths per 100,000 of the population, 2 September 2020 Peru (90.87) Belgium (86.68) UK (62.57) Spain (62.48 Chile (60.57) Brazil (59.09) US (56.72) Mexico (52.16) France (45.82) Iran (26.65) S. Africa (24.90) Argentina (20.49) Russia (12.02) Germany (11.24) Turkey (7.85) Poland (5.47) India (4.98) 0

10

20

30

40

50

60

70

80

90

100

Source: adapted from Johns Hopkins (2020). Figure 12.2 Many small businesses in the service sector were closed, and many companies in banking, insurance and R&D switched to working from home. But in many industrial sectors, such as metal, textile, mining and construction, workers were still forced to go to work or face losing their jobs. In İstanbul, where more than a quarter of Turkey’s GDP is produced, the public transport system still carried over a million passengers daily (Ahval 2020b). President Erdoğan openly opposed a total lockdown, arguing a stay-at-home order would halt all economic activity. On 30 March, he said continuing production and exports was the country’s top priority and that Turkey must keep its “wheels turning” (Reuters 2020c). Instead, the government chose to implement an age-related partial curfew. Non-essential movement of people over 65 and under 20 years of age was banned. This strictly enforced and protracted age-related lockdown for people over 65 both reduced infection/death rates and enabled less strict containment measures for the lower-risk groups, which in return facilitated a less severe contraction in production that could have been much worse with a uniform lockdown policy (Tekin-Koru 2020). By responding fairly quickly with testing, tracing, isolation and movement restrictions, Turkey “clearly averted a much bigger disaster”, according to Dr Jeremy Rossman, Lecturer in Virology at the University of Kent (cited in Guerin 2020). The Turkish government announced a 100 billion lira (£12 billion) stimulus package on 18 March, which included tax postponement, subsidies directed at 152

The Covid-19 pandemic

domestic consumption, such as reducing VAT on certain items and suspension of national insurance payments in many sectors for six months. But this was an insignificant sum for an economy as big as Turkey’s. Figure 12.3 Expenditure by country 40 35 30 25 20 15 10 5

US Sp ai Ca n na S. da Ko re a Br a In zil do ne sia C Ar hina ge nr in Tu a rk ey Ru ss ia S. Ar ab M ia ex ic o In di a S. Af ric a

UK Fr an Au ce st ra lia

Ge rm

an y Ita ly Ja pa n

0

Revenue & Expenditures Measures

Below the line measures

Source: Roberts (2020). Figure 12.3

As can be seen in Figure 12.3, Turkey was well down the list compared to other countries in terms of government spending. The government was spending less than 1 per cent of GDP on the crisis and needed to spend far more. Most of this support would go to medium and large companies that were forced to close, and only a very tiny amount to individual workers. In order to benefit from the scheme, a person must have worked at least 600 days in the past three years (450 days for those in Ankara) (Sönmez 2020). Those with most need got the lowest level of help or no help from the state. The tourism sector, which accounts for about 12 per cent of the economy, had been decimated, with some 2.5 million workers unable to work for at least three months during the peak tourist months between April and September (Küçükgöçmen & Erkoyun 2020). As we have seen, even before the virus hit Turkey the economy was already weak, still trying to recover from the impacts of the 2016 coup attempt and 2018 currency crisis, both of which caused severe stress to Turkey’s economic and financial systems. There has been a considerable flight of capital away from the emerging economies, such as Turkey, who depend, in the current global system, on the inflow of capital from the big global investors and financial institutions. “A shortage of US dollars worldwide, led the Federal Reserve and the IMF to lend dollars to certain governments, but denied this largesse to others. The Fed’s ‘swap lines’ covered fourteen central banks, but excluded Turkey, South Africa, 153

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Nigeria and Indonesia” (Pettifor 2020: 248). The investors took all their money back to where they brought it from, and as a result, there were approximately 100 billion dollars-worth of portfolio outflows away from emerging markets, more than three times larger than for the same period of the global financial crisis of 2008. This rush from emerging economies crushed their local currencies, while simultaneously inflating the dollar’s value (Georgieva 2020). In March, Turkey’s central bank reduced its benchmark interest rate by 1 per cent, and several of the country’s largest private banks announced measures to support the economy, such as suspending loan repayments (Financial Times 2020b, 2020d). As a result, the Turkish lira initially held up reasonably well, compared with other emerging market economies, but it fell to an 18-month low on 1 April as the coronavirus infection rates accelerated (Ahval 2020d). Official interest rates fell below 10 per cent, providing some protection to those holding Turkish lira versus some foreign currencies (CNN Turk 2020). Turkey’s financial options to limit the impact of the crisis were limited. Moody’s revised its prediction for the country’s GDP from 3 per cent growth in 2020 to a 1.4 per cent contraction (Ahval 2020c). Still, the economy got a reprieve from the low oil price. Turkey imports almost all its energy needs, and with the fall in the price of oil and gas, this meant Turkey could save about $12 billion (£9.6 billion) in energy imports (Kutlu & Mutlu 2020). Other help came from Turkey’s close Gulf ally, Qatar. A swap agreement had first been struck with Qatar during Turkey’s 2018 currency crisis; then in late May 2020 the existing local currency swap deal was tripled to $15 billion. Under the updated agreement, according to which Ankara exchange Turkish lira for Qatari riyal, the maximum limit for currency swaps between the two nations’ central banks was tripled from the equivalent of $5 billion to $15 billion, which provided some help for Turkey’s depleted foreign currency reserves (Soylu 2020). The Covid-19 pandemic has triggered enormous uncertainty in terms of future economic development, larger than that associated with the 2008 global financial crisis, and similar in magnitude to the rise in uncertainty during the Great Depression of 1929–30. According to IMF estimates, the severe global recession will result in a loss in 2020 of around 7.5 percentage points of GDP in the eurozone and 6.5 percentage points in the UK, both of which are Turkey’s main exports markets and main sources of tourists. It was predicted that Turkey’s own GDP would contract by 5 percentage points (IMF 2020). Even though Turkey was one of only two G20 economies recording positive growth (0.6 per cent) in the first quarter of 2020 (the other was India, 0.7 per cent), the shock of the global lockdown to its economy was very serious (OECD 2020). One of the impacts of Covid-19 was felt on the value of currencies in emerging markets. Emerging market (EM) foreign exchange rates were hit hard by the global market 154

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sell-off on the back of the pandemic. After three months, the South African rand was down 32 per cent against the dollar, while the Mexican peso was down 24 per cent, the Brazilian real down 23 per cent and the Turkish lira was down 14 per cent (see Figure 12.4). According to Turkish Statistical Association (TurkStat) data, the rate of unemployment in March reached 13.2 per cent and the number of unemployed was nearly 4 million.2 Figure 12.4 Emerging market currencies fall against the US dollar, Jan–Jun 2020 0%

S.Korean Won

10% Turkish Lira Brazilian Real

20%

Mex. Peso 30%

S. African Rand January

February

March

April

May

June

Figure 12.4

Source: adapted from CNBC (2020) and Trading Economics (2020).

The Covid-19 pandemic seemed to have been brought under control in Turkey in the second quarter of 2020, with parts of the economy back to pre-Covid levels. However, as a result of the continuing partial lockdown measures many consumers kept staying at home, many businesses remained closed, and unemployment continued to increase. At the time of writing, it’s expected that Turkey, alongside South Africa and Argentina, is sliding toward insolvency and debt default later in the year (Reuters 2020d).3 After that, everything will depend on how the crisis progresses and how long it will take to end.

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Since 2002 two parallel processes affected Turkey’s position in the world economy. First, the global shift (a massive and complex shift in global economic power from the developed West and North to the underdeveloped East and South) has been changing the parameters of the worldwide conditions of trade, finance and growth; and second, there has been a neoliberal transformation of Turkey’s economy that is centred on fast export-oriented industrialization and financial restructuring. In a real sense, the neoliberal transformation of the Turkish economy within the context of the global shift is the story of Turkey’s massive transformation, for better or for worse. In parallel to this economic transformation, the coming to power of a new political party, the AKP, at the beginning of this period represents the development of an alternative segment of Turkish polity with the historic potential of co-opting Islamist elements into Turkey’s ruling body. The main question which this book has tried to answer is to what extent Turkey’s economic transformation in this period was the result of this new political orientation or, in other words, was this economic process the consequence of the AKP’s Islamist political vision? During this period of nearly 20 years, Turkey provides an excellent example of how global developments, changing positions of power and rankings, as summarized by the term global shift, have influenced a middle-sized regional power and have created the conditions, both economically and politically, that were needed for it to change from being a backward, underdeveloped, static and dependent economy to being an important regional power and an influencer on the world stage, with a GDP that multiplied almost three times in less than 20 years. Although the country’s economy has experienced some serious setbacks, one after the 2008 global crisis and another one triggered by political tensions with the US in August 2018, it was still described in positive terms by the European Commission in 2019: “Turkey is endowed with a strategic geographic position, a strong and entrepreneurial business sector, a large domestic market and a growing young population” (European Commission 2019: 11). However, growing 157

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economic and social vulnerabilities emerged in the same period, together with an increasingly authoritarian and aggressive political direction, in particular after 2013, and as a result, a seriously challenging and uncertain picture of the country’s future has become apparent. Since 2002, the Turkish economy has developed fast, but in many aspects, Turkey has remained as a country of contrasts. We can make the following observations regarding changes over the past two decades: 1.

Inequality. In 2020, after almost two decades of experimentation with neoliberalism, Turkey remains a country of unequal opportunities, yet at the same time there was a sharp fall in poverty rates for many of Turkey’s poor: these two decades have brought unprecedented improvements in the living standards of working people (income, health care, education, housing and basic municipal services). Economic progress during this period has improved conditions not only for the poor but for most people living in the country, particularly for Turkey’s middle classes, whose number has more than doubled (see Point 7). Share of population in middle-income households in Turkey is higher than India, Mexico, Brazil, Chile and China (OECD 2019).

2.

Exports. Although the central government strongly encouraged economic reforms by providing a legislative framework for them, this transformation has been primarily private sector-led, strongly supported by a neoliberal political consensus, and implemented via a strong push and encouragement from the IMF and the World Bank. Turkey’s integration into the global economy through exports and cheap foreign credit has created a buoyant domestic market and stimulated both domestic and foreign investment. With the expansion of its export-oriented industrial production, the rise in Turkey’s global footprint, its export share, was impressive. Yet, compared with other similarly fast-rising medium-sized economies during the same period, there is still a long way to go for the Turkish economy to reach the average levels of export performance of East Asia and Eastern Europe. In this period Turkey’s exports have moved from medium to low-tech goods to medium to high-tech goods (such as manufacturing motor vehicles), but high-tech products (pharmaceuticals and computers) still remain seriously underrepresented in its export basket.

3.

Financial sector. Turkey’s financial sector is much stronger than it used to be two decades ago. Turkey’s banks are well capitalized, they attract funding from abroad and non-performing loans are low. All this was achieved

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as a result of some serious restructuring of the whole financial sector around several important legislative and institutional initiatives. However, the reform process has slowed in recent years and the various crises affecting the country’s financial sector since 2007 have shown that there is still much to be done in terms of financial restructuring. The financial environment has become more and more problematic with the increasingly shaky independence of Turkey’s central bank. The bank has been too cowed to act independently when necessary, for instance to raise interest rates enough to stem capital flight. To progress further, the quality of Turkey’s institutions and legislation would have to improve significantly to match the levels of similar countries that have successfully transitioned to high-income levels, such as South Korea and Poland. 4.

Business environment. Today, Turkey’s business environment is regarded as good enough to facilitate entrepreneurial dynamism, and in areas such as property rights, investment freedom, implementing taxes and regulating financial markets, some real progress has been made. As a result, it is now considered easier to start a business in Turkey with more protection for investors. Still, Turkey ranked 33rd on the World Bank’s overall Doing Business Index in 2019, which is low for an upper-middle-income country. Compared with some other medium-sized economies (South Korea: 5th;, Malaysia: 12th; Taiwan: 15th; Thailand: 21st; Kazakhstan: 25th), Turkey has lagged behind in improving governance structures, the ethical behaviour of firms, and in a whole spectrum of other areas, such as property rights and in particular intellectual property rights (World Bank Group 2019a).

5.

Infrastructure. In terms of the country’s infrastructure, progress has been particularly impressive in Turkey’s transport and telecommunications sectors. The country’s network of double-lane inner-city roads has expanded to three times its size, Turkish Airlines is one of the fastest-growing airlines in the world, and the country’s seaports now compete for global transhipment business in the eastern Mediterranean. Turkey has one of the world’s fastest-growing electricity markets. However, supply is rising much slower than demand, with per capita consumption still well below Western European levels, and new investments are therefore urgently needed if the surge is to continue. The World Economic Forum put Turkey among the fastestimproving countries in the area of quality of infrastructure, ranking it above India, Brazil, Croatia, Serbia and Nigeria; the World Bank’s Logistics Performance Index ranks Turkey in the top 50, above Romania, Croatia, Mexico, Bulgaria, Brazil, Argentina and Russia (Schwab 2019; World Bank 2018). 159

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6.

Urbanization. During this period, Turkey’s cities have become the motors of its economic transformation. Over the past three decades, more than 30 million people have left their villages in rural areas and moved to more productive jobs in manufacturing and services in the big cities. However, despite the large economic gains that Turkey’s urbanization has brought, the whole process of social transformation has generated many problems. The featureless and poor-quality blocks of flats that populate almost all major cities today have raised concerns that they are becoming Turkey’s version of the crime-ridden housing estates of poor districts of Western European capitals. Fast-growing secondary cities in Anatolia have brought added challenges that today define Turkey’s second-generation urban agenda. There is no systematic monitoring of urban transformation practices and abuses. Valuation of land is not well developed in Turkey. Valuation services are provided by domestic and foreign companies for private purposes, but valuation methods are not standardized and requirements for public agencies are not clearly established. Municipal planning is ad hoc and short term. Although services in the urban areas have improved greatly, they are still far behind the OECD standards. Turkey’s policymakers need more suitable tools and better plans to shape the next phase of Turkey’s urbanization, which is essential to support Turkey’s transition from the upper-middle-income to the highincome group of countries.

7.

The middle class. Turkey has recorded rapid progress in poverty reduction, and economic growth has benefited all groups, but not equally. The largest driver for this progress was the increased number of jobs. As more members of households entered active employment, total income and welfare grew across the board, which led to a growing middle class. The emergence of the middle class as an increasingly important economic and political actor was one of the key characteristics of this economic process. The growth of Turkey’s middle class in this period is roughly comparable in terms of ratios to countries such as Brazil. In particular, the 2002–07 period witnessed the greatest progress in terms of increased prosperity for wider segments of the population. However, the bottom 40 per cent of the population fared worse than the rest when the 2007–08 crisis hit the country. The unemployment rate has increased since 2015, and in early 2020, before Covid-19 hit the country, was close to 14 per cent (Biçer 2020).

8.

Unemployment. Despite the expansion of employment of almost 5 per cent per year, and the increased employment opportunities for younger, bettereducated men and women this has not reduced the number of unemployed.

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The unemployment rate has remained, with the exception of 2011–13, a major problem, especially since 2016. Currently, in 2020, a large section of the workforce is not in employment, education or training (NEET) in Turkey, and this was the case even before the pandemic. According to OECD data from 2018, the NEET rate for Turkish young labour is the seventh largest among 40 countries, meaning that a significant share of the Turkish labour force is not contributing to the economy or undergoing any training so that it will be able to contribute to the economy. Only Estonia, Italy, South Africa, Argentina, Columbia, Brazil and Costa Rica have worse rates than Turkey. The hardest hit category is 20–24-year-old women; almost half of which is in the NEET category, the second highest after South Africa (which has a NEET rate of 52.3 per cent) (OECD 2020a). It is estimated that the Turkish economy will need to provide around 700,000 new jobs each year to accommodate new entrants to the labour force (World Bank 2014). 9.

Demography. Turkey’s relatively young population has a low age-dependency ratio compared with OECD countries. A higher dependency ratio means that relatively fewer working people are working in the economy to support those that are dependent, and therefore there is more pressure on working people. Turkey is in a significantly better position as its age-dependency ratio is currently at 50 per cent, meaning that there are two working adults for each dependent, an older person or a child. This is significantly lower than Finland, France, Israel, Japan, Sweden and the UK, but higher than Poland, South Korea and Chile (World Bank 2020). It is predicted that between 2020 and 2035, Turkey will experience a large inflow of highly educated young workers into the labour market. However, this will happen only if the education facilities and the quality of technical education are improved significantly. Currently, the skills gap is one of the key obstacles to improving productivity in the economy. Many of the jobs currently available are in low and medium value-added occupations, and therefore they do not require high levels of literacy or numeracy skills. According to the OECD Programme for International Student Assessment (PISA), in 2018, 15-year-old students in Turkey performed worse than the OECD average in all categories (science, reading and mathematics) (OECD 2018a). In particular, Turkey has one of the largest gender gaps among all countries in the world, so improving the educational attainment of young women so that they can play an active role in the economy is an urgent task. With better designed curriculums that are aligned with labour market needs, Turkey can convert its demographic opportunity into a demographic dividend.

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10. Productivity. Per capita GDP in Turkey has trebled since 2002, resulting in one of the biggest jumps in per capita global income rankings during this period. Yet at the same time, low productivity remained a serious weakness. Apart from a few breakout industries, such as motor vehicles, basic metals and textiles, manufacturing has stagnated since 2016. The construction and services sectors have expanded fast, but these sectors suffer from low and falling productivity. A 2018 World Bank study concluded that Turkey has much potential to increase the impact of services on manufacturing productivity (Haven & Van Der Marel 2018). In order to develop further, the Turkish economy needs to find a solution to this problem of low and declining productivity. There are several sectors with the potential to build a strong ladder of development and to take the economy to a higher and more sophisticated level, in particular pharmaceuticals, chemicals, motor vehicles and transport equipment. The machinery, electrical equipment, computers, electronics and optical equipment sectors also have reasonably good potential since they have generated significant employment in recent years. All of this requires more cognitive and technical skills from the Turkish workforce, which would require more targeted education policies that would help strengthen the relationship between skills and firm-level productivity (World Bank 2019c). 11. Corruption. Although the AKP when it first emerged presented itself as a break from the corrupt old order of traditional parties (“ak” means pure or pure white in Turkish) and expressed a clear intention to deal with the widespread corruption in the country, and despite it enacting a new Public Procurement Law in January 2003 in line with the wishes of the IMF and the World Bank, corruption has remained widespread in Turkey’s public and private sectors. Corruption in public procurement was among the chronic problems in Turkey’s economy in the 1980s and 1990s. The legal framework was ambiguous and full of loopholes, allowing ruling coalition parties to pursue rent-seeking and patronage-based relations with key constituencies by doling out goodies. Public procurement and construction projects are particularly prone to corruption, and bribes are often demanded. Although Turkey’s Criminal Code criminalizes various forms of corrupt activity, including active and passive bribery, attempted corruption, extortion, bribing a foreign official, money laundering and abuse of office, it has been noted by many observers that the ruling AKP has systematically “picked” local economic winners and losers by strategically allocating public monies and resources to provinces for particular electoral reasons. Because Turkey’s public finances are highly centralized, it is possible for Turkish governments to manage, use and misuse public resources to punish and reward 162

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voters (Cammett & Luca 2019). Corruption is perceived to be significant by international agencies and observers. Turkey ranks 91st out of 180 countries in Transparency International’s Corruption Perceptions index for 2019 (Transparency International 2019). The AKP regime has been relatively successful in terms of diminishing petty corruption in Turkey, demonstrated by improved performance in several business indicators, in foreign direct investment and in the decreasing rate of corruption-related crimes but it failed to move reforms further to regulate the legal framework for political party and electoral campaign finance, which eventually opened the door to cronyism. Favouritism is prevalent, particularly in the construction and services sectors. After 18 years in power, there are serious accusations that the AKP regime’s power is based on patronage, widespread cronyism and corruption and that these are all linked to a complex web of economic interests (Gürakar 2016). The past 20 years can be divided into two sub-periods: during the 2002–10 period, the first AKP era, the party was broadly positioned as a moderate Islamist party with a clear intent to revive the failing economy of the country. The Turkish economy improved significantly during this period, in particular until the global financial crisis of 2008, through liberalization and reinforcing the country’s EU candidacy bid through a series of economic and democratic reforms. The second period, from 2009–11, and particularly from 2013 onwards, marked the second AKP era, which was defined by an explicit authoritarian shift. The country’s political and institutional environment experienced serious backward steps in terms of both economic reform and democratization during this second decade of the AKP regime. Several significant incidents marked the increasing authoritarian style of the regime: the Gezi protests of the summer of 2013, the intra-Islamist split between AKP and the Gülen movement in late 2013, the presidential election of 2014, and the failed coup attempt of July 2016 and the harsh authoritarian reaction that followed. Although it was still possible to label Turkey a flawed or illiberal democracy before mid-2015, the developments since the June 2015 election and particularly after the July 2016 coup attempt (and counter-offensive) have led more observers to opt for sub-categories of authoritarianism instead. In the eyes of many observers, as a result of these significant steps towards a more authoritarian and conservative level of control, the AKP regime lost its initial reputation as a reformist and democratizing party and turned into a conservative reactionary political entity with a hard-line Islamist ideology: it has concentrated power in its own hands by stifling parliament, denouncing its opponents as traitors to the nation, displacing critics in its own ranks and purging all non-partisan (non-AKP) civil 163

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servants. This was typical of a right-wing, demagogic, nationalist, populist authoritarian leadership aiming to secure its power base through quasi-democratic means to make sure that it cannot be removed. Erdoğan’s AKP, in this second period, made its survival dependent on authoritarian control and an increasing level of fear, instilling a siege mentality among its followers. The political process as a whole is now so tilted towards Erdoğan’s authoritarian rule that it will be extraordinarily difficult to remove him. Patrick Cockburn of the Independent explains this as “a feature of the 21st-century type coup: once in office, leaders are proving more difficult to evict than a junta of military officers a century earlier” (Cockburn 2019). These two images/periods of AKP rule in Turkey, however, should be understood not as diametrically opposed regimes or ruling styles with inherently contradicting modalities of management, but as two interlinked nodes on the spectrum of an inherently authoritarian neoliberal conservative governance. This period of 20 years reminds us that the journey of the Turkish political economy followed quite closely a globally rooted typical neoliberal restructuring process. The state’s economic policies and domestic politics, as well as its fast-changing foreign relations, were mostly opportunistic reactions to the changing international situation and responses to the requirements and pressures of global neoliberal governance in the inter-state world system. From its first election victory in 2002, the AKP regime followed a standard neoliberal economic programme with a populist cushion that made it possible for the party to keep and even increase its electoral support. During the first five to six years, this was achieved with no difficulty by the introduction of a new welfare regime with a range of social assistance programmes and by greater financial inclusivity (making consumer loans available to the poor). Supporting such programmes in health, education and housing was only possible when there was a constant inflow of capital into the country and the economy was growing continuously based on this foreign investment. After the US Federal Reserve scaled back its easy money policy, alongside an interest rate hike, as a policy response to the 2008 global financial crisis, the inflow of foreign capital slowed down and stopped, and this put downward pressure on Turkish growth; this all made it increasingly more difficult for the regime to continue its populist neoliberalism. The neoliberal economic model continued in Turkey but with a much more weakened level of populist cushioning: many of the social welfare programmes and the expansion of consumer loans slowed down after 2008 and ended a few years after that. However, the regime still managed to keep its support among the poor by providing a little more, timed carefully just before the elections. All of those critical incidents, from the sharply increased pressure upon press freedom in 2011, with dozens of media professionals being detained under vague 164

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anti-terror laws, to the 2013 Taksim Gezi Park protests and the 2016 failed coup attempt, took place in the context of a global economic slowdown and a continuing financial and economic crisis. At the political level, the years following the aftermath of the 2008 global crisis witnessed an increasingly authoritarian surge, not only in Turkey but in many parts of the world, from India to Latin America, and from Eastern Europe to North America. The Marxist Italian philosopher Antonio Gramsci wrote in his Prison Notebooks that “the crisis consists precisely in the fact that the old is dying and the new cannot be born. In this interregnum, a great variety of morbid symptoms appear.” Gramsci was preoccupied with the breakdown and collapse of the liberal order that was the dominant pattern in international affairs after the First World War and in particular, understanding the rise to power of Benito Mussolini. For Gramsci, Mussolini was one such “morbid symptom” of the interregnum of the interwar period. The term “interregnum”, originally used to denote a time lag separating the death of one royal sovereign to the enthronement of the successor, is here, as used by Gramsci, understood as a period when one arrangement of hegemony is waning but prior to the full emergence of another. It seems that in the second decade of the twenty-first century, the world is once again living in an interregnum. It is poised between inward-looking old hegemonic powers (the US and European states) and reluctant new emergent ones (China and other emerging powers). Developments such as razor fences covering Eastern Europe’s borders against North African and Middle Eastern migrants, militant Hindu nationalism abandoning secularism in Narendra Modi’s India, Shinzo Abe’s campaign for “national revival” in Japan, the militaristic tactics of macho fascist Rodrigo Duterte in the Philippines, and the ultra-conservative evangelical Jair Messias Bolsonaro in Brazil are among the many morbid symptoms of our times. So is Donald Trump’s isolationism (“America first”), which is supported by Christian evangelicals both at home and abroad. It was, therefore, not just a coincidence that Erdoğan’s regime in Turkey turned increasingly authoritarian during the same years. All of these right-wing populist leaders, from Brazil to India, from Hungary to the Philippines, and from Turkey to Thailand are alike in specializing in aggressive patriotism, the defence of an endangered national independence and nostalgia for past glories. Consequently, in several countries, including Turkey, South Korea, and Brazil, we are witnessing increasingly repressive state apparatuses. Of course, in all these countries or cases there are local and/or national conditions that prepare the ground for such right-wing authoritarian surges. This authoritarian outbreak, however, is not rooted in the personalities or psychologies of Trump, Modi, Erdoğan or Bolsonaro, but in underlying conditions, longterm historical factors that affect the world economic system and the changing 165

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power balance. Trump, Modi, Duterte and Erdoğan are less the creators than the outcome of protracted economic, social and political processes. All such right-wing shifts are the result of an increasingly volatile and chaotic international situation, which became more emphasized in the aftermath of the 2008 global financial crisis and economic downturn. This is the direct consequence of a process that Giovanni Arrighi has called “hegemonic transition” within a period of systemic chaos, where “the incumbent hegemonic state (or group of states) lacks the means or the will to continue leading the system of states”. This long and protracted period of hegemonic transition from the Euro-Atlantic core to Asian economies, especially China and India, like every other period of hegemonic transition and instability in which “the old is dying and the new cannot be born”, has created more and more morbid symptoms. In many parts of the world, not only in emerging economies like Turkey and Brazil but also in the core economies too, including the United States and Western European powers, new forms of authoritarianism have emerged within the context of global crisis, severe austerity measures, economic nationalism, racism and xenophobia. This new authoritarianism is a morbid phenomenon in itself, and it is at the root of other authoritarian and morbid symptoms that grow from below. It is obvious that the current juncture represents a particularly dismal chapter in the history of Turkey that displays all the traits of economic crisis and political exhaustion. The problem is not just the AKP or its leader, Erdoğan. The popular appeal “anyone but Erdoğan” sounds clear and straightforward, but it is not only simplistic but misleading, reducing Turkey’s deep structural problems to a simple personal one. The problem for Turkey at this critical point in history is structural and historical. The current state of the Turkish economy and polity should be understood in the context of the global rise of right-wing authoritarianism that is itself a consequence of neoliberal restructuring and the global shift. Neoliberal economic governance and right-wing authoritarian leaders and movements are posing serious threats to democracies all around the world. Successful resistance to this toxic mix in one place, in Turkey, should start by learning from the experience of other nations that have been similarly damaged, and not by looking at one country’s experience in isolation.

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Notes

Introduction 1. China: $64.2 trillion; 2. India: $46.3 trillion; 3. US: $31 trillion; 4. Indonesia: $10.1 trillion; 5. Turkey: $9.1 trillion; 6. Brazil: $8.6 trillion; 7. Egypt: $8.2 trillion; 8. Russia: 7.9 trillion; 9. Japan: $7.2 trillion; 10. Germany: $6.9 trillion (estimates are in trillions of international dollars, using purchasing power parity measures), 11 January 2019; https://www.visualcapitalist.com/worlds-largest-10-economies-2030/. 2. Bloomberg, 8 January 2019; https://www.bloomberg.com/news/articles/2019-01-08/ world-s-biggest-economies-seen-dominated-by-asian-ems-by-2030. 3. “Hub-and-spoke” alliance systems were cultivated by the United States in all key regions of the world after the end of the Second World War – the United States was the “hub” and its regional allies were “spokes”. The structure consisted of a political– military and economic system of discrete, exclusive alliances between the United States and its regional allies and allowed the US to exercise effective control over its smaller regional allies (Gowan 1995).

Chapter 1 1. See The Economist, 7 October 2006; https://www.economist.com/special-report/2006/ 10/07/nightmare-scenarios. 2. Power transition theory is a structural and dynamic approach to world politics. Although because of its focus on power relationships it is sometimes associated with the realist school, it differs in terms of its dynamic description of the international system as well as its focus on the importance of status quo evaluations. Unlike realism’s emphasis on anarchy, the power transition perspective envisions politics as a hierarchy of nations with varying degrees of cooperation and competition. Additionally, the theory views world politics as integrated horizontally and vertically. The static picture of structure and rules is complemented by dynamic factors that demonstrate how and why change occurs in the international system. Power transition focuses on differential growth rates and their effect on altering relative power between nations, resulting in new relationships among nations or competing groups and the formation of new political and economic entities (Organski 1968: 338–76).

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Turkey in the Global Economy 3. Modelski’s long-cycle theory (1978) and Gilpin’s hegemonic stability theory (1981) make similar arguments about change in power positions in the international system (Modelski 1978: 214–35; Gilpin 1981: 13). 4. It was Mao himself who laid the foundation for a successful transition for the economic integration of China into the world economy. 5. The US, Indonesia and Brazil follow as the third, fourth and fifth top internet-user countries (Mary Meeker’s Internet Trends Report, cited in Charlton (2019)). 6. China’s working-age population, people between the age of 15 and 64, is approximately 1 billion (Reuters 2018a). 7. The term “market economy” was coined in 1981 by Antoine W. Van Agtmael of the International Finance Corporation of the World Bank. 8. Credit Suisse considers the term “emerging markets” rather more widely, referring to China, Argentina, Brazil, Chile, Colombia, the Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan (Chinese Taipei), Thailand, Turkey and the United Arab Emirates (Credit Suisse 2019: 23). 9. A. F. K. Organski was one of the first authors to use the term “middle power status” in relation to the international system. According to Organski’s structure, the dominant power is at the top of the international hierarchical pyramid and controls the existing international order. The dominant power in this system is the state that established that international order in the first place, and this is the power that receives the greatest share of the benefits that stem from the continuation of the status quo. Below the major/dominant power(s) in this structure, there are middle powers (Organski 1968, 364–8). 10. Middle powers remain “pivotal” because they affect regional security dilemmas and can influence how great powers might choose to transform/control the chaos in the international system, demonstrating their important impact in their regions on the policies of the great powers. “Pivotal middle power” is a relatively new concept, but many recent studies that assess middle-power politics and their regional impact build on the work of Mackinder (Mackinder 1904).

Chapter 2 1. The same thing happened to several Middle Eastern and North African (MENA) countries in the first two decades of the twenty-first century, such as the 2007–08 food riots in Egypt, Yemen and Jordan. 2. Susan Strange’s subsequent book, Mad Money (Strange 1998), similarly anticipated the role that emerging technologies would play in disempowering governments’ management of the global economy. 3. The World Bank report on Turkey describes the achievements after 1980: “Turkey’s trade has exploded since then, growing around 50 per cent faster than world trade in the last decade . . . Steady growth over the decades brings Turkey to the threshold to high income . . . The middle class has doubled since 1993 in Turkey, . . . Consequently, Turkey’s share in global imports has more than tripled since 1980 and its export share has risen four times” (World Bank Group 2014). 4. The Undersecretariat of Treasury General Directorate of Banking and Exchange, Decree No. 32 on The Protection of the Value of Turkish Currency, JUNE 11, 2015 (the date of recent update, published in the Official Gazette on 25 January 2018 and

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5. 6. 7. 8.

9. 10.

11.

12. 13.

14.

15.

will come into force on 2 May 2018); https://ms.hmb.gov.tr/uploads/sites/2/2018/12/ Decree-No.32-on-the-Protection-of-the-Value-of-Turkish-Currency.pdf. Published in the Official Gazette, edition 20249 on 11 August 1989; Eder (2001), 201. President Turgut Özal’s address at the European Studies Centre Global Panel, 9 April 1991 (Özal, 1991) After Özal died suddenly of a heart attack in 1993, the Kurdish democratic opening process lapsed. The ceasefire ended and Turkey entered into the bloodiest era in the history of Kurdish problem. Following Commission Regulation (EC) No 1031/2008 of 19 September 2008 amending Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff, the Turkish nomenclature was modified through the Decision of the Council of Ministers No 2008/14483 of December 31, 2008. A 2005 study by the European Stability Initiative that was focused on Kayseri uses the term “Islamic Calvinists” to define Anatolian Tiger entrepreneurs and their values (European Stability Initiative 2005). An Anatolian Tiger, contrary to its name, is not a Turkish member of the big cat family. An Anatolian Tiger is the name for any of the rapidly industrializing Anatolian towns where large numbers of export-oriented entrepreneurs and a growing middle class emerged in the late 1990s and early part of the 2000s. The Dresdner scheme was based on the 1976 agreement between the Central Bank of the Turkish Republic and the Dresdner Bank of Germany that allowed migrant Turkish workers to open special interest-earning accounts at the Central Bank via the Dresdner Bank. This had the effect of assisting Turkey in managing its foreign exchange reserves. Although the scheme ended in 1984 because of the disapproval of the German authorities, similar schemes, such as super exchange accounts, have continued, although many changes have been made to their terms over time (Aydaş, Metin- Özcan & Neyaptı 2005). According to the Central Bank of Turkey, over $75 billion has been remitted to Turkey since the 1960s. Workers’ remittances that were sent to Turkey through the Central Bank between 1990 and 2000 ranged from between $3 billion and $4.5 billion annually. According to a survey conducted in Germany, the total savings of Turkish citizens in Germany are estimated to be around 164 billion Deutsche marks, see Ekovitrin (2001), 23. Banking Law No. 5411 officially replaced the ambiguous term “Special Finance House” with the moniker “participation bank” in 2006. As a result of this fundamental change, Islamic banks, or “participation banks”, began to be accepted as real banks like their conventional counterparts (Kansoy & Hüseyin Karlıoğlu 2013). İhlas Finance House was liquidated in 2001. Anadolu Finance House and Family Finance House were merged in 2005 and were renamed Türkiye Finance House. Five participation banks continue their activities in Turkey in 2020. These are Albaraka Türk Participation Bank, Kuveyt Türk Participation Bank, Turkey Finans Participation Bank, Vakıf Participation Bank and Ziraat Participation Bank (Varsak 2017).

Chapter 3 1. According to Strange, the transformation of industrial capitalism into neoliberal capitalism (“casino capitalism”) involved five trends. All of them increased the systemic

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2.

3. 4.

5. 6. 7.

8.

instability of the system and the level of political corruption: (1) innovations in the way in which financial markets work because of the introduction of computers; (2) the sheer size of markets; (3) commercial banks turning into investment banks; (4) the emergence of Asian nations as large players; and (5) the shift to self-regulation by banks (Strange 1986: 9–10). In the 1990s, the Egyptian authorities were forced to cut food subsidies and “restructure” the economy towards the service sectors and tourism. As a result, since the year 2000, Egypt has suffered from many food riots as the country, once self-sufficient in food, has become dependent on food imports, mainly from the US (El Laithy 2009). The 10 per cent threshold was imposed by the 1982 constitution, which was mainly instituted to make sure that the Kurdish party would not be represented in parliament. The usage of this term, “Islamist”, is a matter of contention. Gilbert Achcar, for instance, rejects this term arguing that it represents a concession to the pretension of the so-called “Islamists” to hold exclusive rights to the militant interpretation of Islam. He prefers to use the term “Islamic fundamentalism” instead. The term fundamentalism, however, denotes a literal interpretation of religious texts, and therefore offers an inadequate description of contemporary Islamism. I use the term, Islamist, in this work solely for lack of a better term (Achcar 2013: 401). The success of the 1979 Iranian Islamic revolution and the Soviet military intervention in Afghanistan were the key reasons for this policy. This seemed potentially useful to the promotion of American interests in several Muslim countries. With the encouragement by the government, enrolment in government-backed religious high schools grew and the study of Islamic religion was made a compulsory element for all schools in this period. The accession criteria, or Copenhagen criteria (after the European Council in Copenhagen in 1993 that defined them), are the essential conditions that all candidate countries must satisfy to become a member state. These are (1) political criteria: stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities; (2) economic criteria: a functioning market economy and the capacity to cope with competition and market forces; and (3) administrative and institutional capacity to effectively implement the acquis and the ability to take on the obligations of membership (https://ec.europa.eu/ neighbourhood-enlargement/policy/glossary/terms/accession-criteria_en. Erdoğan once said “in this country there is a segregation of Black Turks and White Turks. Your brother Tayyip belongs to the Black Turks” (quoted in Sontag 2003).

Chapter 4 1. Basel I is a set of international banking regulations issued by the Basel Committee on Bank Supervision (BCBS) in 1988 that sets out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8 per cent) of capital based on a percentage of risk-weighted assets. Basel I is the first of three sets of regulations known individually as Basel I (1988), II (2004) and III (2010), and together as the Basel Accords. 2. One of Turkey’s most notable success stories of this period is the jeans maker, Mavi

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3. 4. 5. 6.

7.

Jeans, a small family-owned company established in 1991. Mavi Jeans became the first ever Turkish brand to advertise on US television; it featured in the Zagat Survey, a well-known New York shopping guide, in 2005; Harvard Business School produced an in-depth case study of Mavi’s story; and Mavi jeans have been worn by the likes of Kate Winslet, Lady Gaga and Chelsea Clinton (Çukul 2012). Among others, Hakan Yavuz attributes the AKP’s success to “the new emerging bourgeoisie rooted in Anatolia” (Yavuz 2006: 1). The Çankaya district of Ankara was the official residence of the presidency until 2018. The Gini Index calculates the extent to which income distribution deviates from perfect equality (with zero implying perfect equality and 1, full inequality). The General Health Insurance system replaced the previous hierarchical threepronged health insurance system for workers, civil workers and the self-employed that aimed to provide universal coverage for all citizens (see Bozkurt 2013; Coşar & Yeğenoğlu 2009). Robert R. Barr describes neoliberal populism as a “political phenomenon in which a leader attempts to build personalistic ties to the impoverished masses while pursuing neoliberal economic policies” (Barr 2003: 1161; also see Barr 2009).

Chapter 5 1. “IMF says US crisis is ‘largest financial shock since Great Depression’”, The Guardian, 9 April 2008; http://www.guardian.co.uk/business/2008/apr/09/useconomy. subprimecrisis. 2. Sub-prime mortgages carry a higher risk to the lender (and therefore tend to have higher interest rates) because they are offered to people who have had financial problems or who have low or unpredictable incomes. 3. “Homes in foreclosure top 1 million”, CNNMoney.com, 5 June 2008; http://money.cnn. com/2008/06/05/news/economy/foreclosure/index.htm. 4. In the July 2007 elections, the AKP not only emerged as victorious but also notably increased its share of the national vote (47 per cent). 5. Argentina, Brazil, Indonesia, Mexico, Poland, Russia, South Korea, Thailand and Turkey are considered comparable when analysing the impact of the 2008 crisis (Öniş & Guven 2011: 588).

Chapter 6 1. In January 2013, only 33 per cent of the Turkish people believed that Turkey should continue pursuing EU membership in the next five years, according to an opinion poll; see http://edam.org.tr/document/EDAMAnketOcak2013.pdf. 2. Monthly ESI figures reflect the general economic activity of the EU. This indicator combines assessments and expectations stemming from business and consumer surveys. The decline in the ESI figure was due mainly to a worsening of confidence in the industrial sector and among consumers (European Commission, May 2005). 3. For a detailed comparative account of Turkey’s post-2001 economic performance, see Öniş & Bayram (2008).

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Chapter 7 1. Compiled by Ziya Öniş based on the data provided by the Central Bank of Turkey (see Öniş 2012: 12). 2. A “basket of currencies” is comprised of a mix of several currencies with different weightings. It is often used to set the market value of another currency, a practice commonly known as a currency peg. Informally, a basket of currencies is also referred to as a currency cocktail. 3. In January 2008, then Chief of General Staff, General Büyükanıt, was pictured on television showing a Turkish flag, painted with “real Turkish blood” by a group of school children. The flag was represented to commemorate the death of soldiers killed in the fight against PKK (Kurdish Workers Party) guerrillas. The students were apparently experimenting in a biology class to prick their fingers with a pin. Being motivated by the heavy patriotic atmosphere in the country where casualties were widely reported through ultra-nationalistic ceremonies, the students decided to use their own blood to paint a Turkish flag, now known as the “blood flag”, which is red with white crescent and star, and sent this to the Chief of General Staff with a letter saying that they would be happy to sacrifice their own blood in the fight for the homeland of the Turks. A number of doctors and teachers were reported to be disturbed by the students’ act, but Büyükanıt declared with pride on television: “Such a nation is ours”, and a nationalist daily distributed copy of the flag (Bianet 2008).

Chapter 8 1. The phrase “right to the city” was coined by the Marxist urban theorist Henry Lefebvre in 1968 in response to the upsurge of urban struggle that exploded in France during May of that year. 2. “The right to the city is not an exclusive individual right, but a focused collective right. It is inclusive not only of construction workers but also of all those who facilitate the reproduction of daily life: the caregivers and teachers, the sewer and subway repair men, the plumbers and electricians, the scaffold erectors and crane operators, the hospital workers and the truck, bus, and taxi drivers, the restaurant workers and the entertainers, the bank clerks and the city administrators” (Harvey 2012: 78, 137). 3. This is in line with Harvey’s reworking of Marxist political theory that places the city first, in terms of its position as a generator of capital accumulation, as opposed to the factory/workplace. Harvey explains that “the concept of work has to shift from a narrow definition attaching to industrial forms of labour to the far broader terrain of the work entailed in the production and reproduction of an increasingly urbanized daily life” (Harvey 2012: 138). Harvey also discusses how urbanization play a key role in the social conflicts of today. 4. “Turkish protesters are young, liberal and mad at PM, poll says”, France24, 5 June 2013; http://www.france24.com/en/20130605- turkey-protesters-istanbul-taksim-parkanger-erdoğan. 5. The massive protests of August 2011, or the Chilean Education Conflict (as labelled in Chilean media), were a series of ongoing student-led protests across Chile demanding a new framework for education in the country. Beyond the specific demands regarding education, there was a feeling that the protests reflected a “deep discontent” among some parts of society with Chile’s high level of inequality.

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Notes 6. It is interesting to note that just before the hike in bus fares, an important student demonstration was held in the southern city of Porto Alegre, around the Old Gas Station, against the destruction of a local park for the construction of a mall. This was coordinated by the same student groups that would organize for the later protests (although they did not consist of the same people). 7. There is a background to this: since 2008, the ongoing pacification programmes in Rio’s favelas have entailed a neoliberal urbanized approach to social and class warfare through the application of a range of different public policies to “troubled” neighbourhoods, such as special police units (Pacification Police Units, UPP) that patrol favelas to help broker peace between warring drug traffickers. 8. Although it should be noted that in the case of Brazil, many urban projects developed during the spike when the Brazilian economy had public money in it, and the Development Bank and Petrobras were central in injecting stimula into the private sector via public–private partnerships and public funding programmes.

Chapter 9 1. When Gülen applied for permanent residency in the USA in 2002, influential friends wrote letters supporting him, including George Fidas, a former director of outreach for the CIA, Morton Abramowitz, a former American ambassador and, perhaps most notably, Graham Fuller, a former senior CIA official (Filkins 2016). 2. After the coup, several statements, allegedly from the coup-plotters, were released to the media. The statements were impossible to verify, and none of the men who confessed had spoken publicly. Most of the statements appeared to have been heavily expurgated. Several photographs were circulated of abused military officials who confessed to be coup-plotters; many looked as if they had open wounds on their faces, suggesting that they had been severely beaten. All this raised suspicion about the accuracy of the testimonies (Kennedy 2016). 3. A dramatic arson attack of 27 February 1933 on the Reichstag (German parliament) building in Berlin. Claiming that the fire was part of a communist attempt to overthrow the government, the newly named Reich Chancellor Adolf Hitler used the fire as an excuse to seize absolute power in Germany, paving the way for the Nazi regime. 4. Based on the National Security Council’s advice, parliament voted to extend the state of emergency on 18 April, which was put into effect on 19 April. 5. The president became the face of the “Yes” campaign and toured the country extensively, holding nearly daily events in support of the amendments. These instances blurred the line between party and state. 6. Venice Commission Opinion on the amendments to the Constitution, adopted on 10 and 11 March 2017. According to the Venice Commission’s Code of Good Practice on Referendums, texts put to a referendum must not be contrary to international law or to the Council of Europe’s statutory principles (democracy, human rights and the rule of law). Moreover, texts put to referendums should be both procedurally and substantively valid “in order to prevent unlawful referendums”.

Chapter 10 1. In May 2008, the late Egyptian economist, Samir Amir, talking in Beijing at a conference, one of his last public appearances before he died, gave a very timely and

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Chapter 11 1. Quoted in Catherine Merridale, Lenin on the Train; http://catherinemerridale.com/ lenin-on-the-train.html. 2. The Confederation of Progressive Trade Unions of Turkey Research Centre (DİSK-AR), however, disputed this claim, saying that the TurkStat figures were “too low to reflect the earthquake created by Covid-19”, noting that it used the International Labour Organization’s (ILO) “full-time equivalent loss of jobs” method to calculate the loss of jobs and unemployment (Bianet 2020). 3. It seems South Africa is the worst among this group with struggling municipalities defaulting on payments to basket-case electricity monopoly ESKOM ($1.8 billion in unpaid bills), while ESKOM scrambles to protect itself by seizing bank accounts, resulting in power cuts and cities unable to pay worker salaries.

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Index

5G 17, 129 24 January decisions 36, 43–4 Abe, Shinzo 165 Abramowitz, Morton 173 Acemoğlu, Daron 5–6, 63, 78 Africa 1–4, 11, 15, 22–4, 34, 50, 66, 73, 75, 89–90, 101, 118, 128–9, 165, 168 AGOS 64 Ahmadinejad, Mahmoud 82 Airbus 140 Akar, Hulusi 107 Akyüz, Yılmaz 138 “America first” 119, 165 “American Century” 18, 21 Anadolu Efes 131 Anatolian Tigers 48, 62, 169 ancient Silk Road 128 Ankara 46, 86, 92, 107, 127–31, 133, 136, 153–4, 171 Ankara–İstanbul high-speed railway line 127 “Arab socialism” 91 Arab Spring 85, 90–91, 96, 100 Argentina’s great depression 51 Armenians 64 Arrighi, Giovanni 14, 54, 68, 166 Asia-Pacific region 17 Asian crisis (1997) 53 Asian Tigers 48 Assad regime 92 Atatürk, Mustafa Kemal 45, 51, 64, 94 Australia 15, 25–6, 48, 119, 123, 137, 153

Balkans 1, 55, 87, 90, 101 Bank Cards and Credit Cards Law 71 Bank of England 120 Bank of Japan 120 Basel I 170 Basel III 61 Beijing 80, 128–9, 173 Belt and Road Initiative (BRI) 128, 149 the middle corridor of 128 Ben Ali, Zine al-Abidine 90 “Bentham-like Panopticon” 149 Black Sea 87, 130, 134, 136 Blair, Tony 102 Bolsonaro, Jair Messias 165 Bosporus Strait 76, 127, 134 Boydak Holding 48 Brazil 2–4, 13, 15, 21–4, 34, 51–2, 77, 88, 90, 97, 100–104, 119, 121, 137, 151–3, 158–61, 165–8, 171 Brazilian financial crisis 51–2 Brazilian real 123, 155, 173 Bretton Woods 32–3, 39 Brexit 79, 138, 144 BRIC countries 4, 23–4, 88, 101 Brunson, Andrew 115, 117, 119 Brzezinski, Zbigniew 26 Bouaziz, Mohammed 90 Büyükanıt, Yaşar 64, 172 Çanakkale 127 Çanakkale 1915 Bridge 127 casino capitalism 39, 54, 68, 169 Caucasus 1, 75, 87, 90, 105, 128

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Turkey in the Global Economy Çavuşoğlu, Mevlüt 129 Central Asia 1, 75, 87, 94, 101, 105, 124, 128 Central Bank (of the Republic of Turkey) 49, 51, 55, 61, 70, 73, 82, 117, 141, 153–4, 159, 169, 174 Centre for Economics and Business Research (CEBR) 17 China 1–4, 11–13, 15–23, 26–7, 50, 62, 67, 71, 76, 79–82, 88, 97, 104, 119, 121, 123–4, 126–8, 133, 138, 140, 142, 144, 148–50, 153, 158, 165–8 Internet Watch 20 Mobile 20 National Bureau of Statistics 18 Chinese debt crisis 138 CHP (Social Democratic Party) 59, 81 City of London 120 Citigroup bank 67 Cockburn, Patrick 164 Cold War 14, 25–6, 31, 57, 78, 83, 88–9, 130 Columbia 161 Columbus, Christopher 18 “Copa pra quem?” 101 Copenhagen criteria 59, 170 coronavirus 147–8, 150–51, 154 Costa Rica 161 Covid-19 147–55, 160–74 “credit crunch” 69, 140 Credit Suisse 69–70, 143, 168 Cumhuriyet 30 Cuomo, Andrew 150 customs union agreement 46–7, 73 Czech Republic 79, 137, 168 Davutoğlu, Ahmet 26, 78, 85–9, 91–2 Demirel, Süleyman 36 Democratic Party (DP) 56 Deng Xiaoping 39, 50 Derviş, Kemal 55, 61 Dicken, Peter 11, 14, 16 Dink, Hrant 64 Disaster and Emergency Management Authority (AFAD) 93 Duterte, Rodrigo 165 Dutch Republic 8

200

e–memorandum 64 Eastern Europe 15, 37, 69, 79, 129, 158, 165 Economic Freedom index 145 Economic Policy Research Foundation of Turkey (TEPAV) 145 Ecuadorian financial crisis 51 Eczacıbaşi 98, 131 Egypt 55, 90, 100–101, 141, 167–8, 170, 173 emerging powers 4, 12, 15, 21–4, 45, 71, 103, 123–4, 165 ENKA 131 “Equalisation of Basic Public Health Services” (EBPHS) 149 Ergenekon (Turkish deep state) 83 Erkhov, Aleksei 136 Estonia 161 Eurasia Tunnel 127 European Central Bank (ECB) 120 European Commission 5, 46, 93, 112, 157, 171 European Committee for the Prevention of Torture (CPT) 112 European Council 46–7, 170 European Economic Community 46 European Union 1, 73, 77, 79, 80, 93, 119, 138, 144 Eurosceptics 78 Evren, Kenan 43 Federal Reserve 69, 120–22, 153, 164 Fidas, George 173 financialization 53–4, 71, 119, 139 First Belt and Road Forum for International Cooperation 128 First World War 29, 85, 165 Fitch 116 Frank, Andre Gunder 3, 7, 12 Free Syrian Army 92 Freud, Sigmund 110 Friedman, Milton 39 Fuller, Graham 86, 173 G20 economies 15, 149, 154 Gaddafi, Muammar 91 Gamble, Andrew 65

Index Gaza 77 Georgieva, Kristalina 148 Germany 15, 19–21, 25, 31–2, 47–8, 80, 87, 93, 109, 130, 137–8, 140, 144, 150–53, 167, 169, 173 “gift from God” 109 Glass–Steagall Act 68 Global AI Talent Tracker 17 global financial crisis (2008) 1, 12, 62, 69–73, 79, 82, 88, 115, 120, 122, 125, 143, 148, 154, 163–4, 166 Global Gamble (Gowan) 124 global shift 3, 8, 11–12, 16, 22, 69, 157, 166 Global Wealth Report 69, 143 globalist, perspective 7 globalization 16, 41, 119, 125 Gökçen, Sabiha 64 “Golden Age of Capitalism” 31 “golden age” of the Turkish economy 63, 70 Goldman Sachs 2, 67 Gowan, Peter 7, 14, 22, 69, 124, 167 Gramm-Leach-Bliley Act 68 Gramsci, Antonio 14, 165 Great Britain 8 Great Depression (1929–30) 29, 67, 137, 154, 171 “Great Lockdown” 147 Great Recession (2008) 148–9 Greece 87, 96–7, 104, 168 Gulf States 2, 90 Gülen, Fethullah 105, 107–108, 112, 117, 173 Gülen movement 108, 110–112, 117, 163 Gülenists 108, 117 Guinea 119 Hanley, Michael 118–19 Harvey, David 14, 39, 96 Hayat 131 Health Silk Road 149 hegemony 3, 13–14, 16, 21–2, 24, 40, 69, 99, 110, 148, 165 Helsinki Summit (December 1999) 46 Heritage Foundation 145–6 Hezbollah 82

Hindu nationalism 165 “Hizmet” (Service) 107 Hong Kong 48, 145 Huawei 129 “hub-and-spoke” system 3, 167 Hungary 128, 165, 168 Ibn Khaldun 95 India 2–4, 11–13, 15–23, 51, 62, 67, 79–80, 82, 88, 97, 119, 121–4, 138, 140, 142, 151–4, 158–9, 165–8 Indonesia 2, 4, 13, 15, 23–4, 26, 88, 118–19, 121, 137–8, 141, 153–4, 167–8, 171 Institute of International Finance (IIF) 19, 121–2 International Atomic Energy Agency (IAEA) 77 International Monetary Fund (IMF) 2, 17, 31, 36–41, 44–5, 52–5, 60, 67, 69, 74, 78, 91, 122, 139, 142, 147–9, 153–4, 158, 162, 171 interregnum 165 I–Phone 115 Iran 17, 26, 75, 77, 80, 82, 86, 90, 92–3, 119, 122–4, 126, 130, 138, 144, 151–2, 171 Iran–Brazil–Turkey deal 77 “Iron Silk Road” 127 Islamic Calvinism 48 Islamist 56–7, 59–60, 62, 83, 92, 101, 107, 129, 157, 163, 170 İş Bankası 49 Israel 17, 77, 90, 111, 144, 161 İstanbul 48, 51, 53, 56, 60, 64, 77, 95–7, 102, 107, 127–8, 133–6, 150, 152, 172 İstanbul Airport 127 Izmir 13, 30, 117 Izmir Resurrection Church 117 Johns Hopkins University 150, 152 JP Morgan Asset Management 118 Justice Party 36 Kanal İstanbul 133–5 Kayseri 48, 169 Kennedy, Paul 4, 11–14, 19, 27, 32, 173

201

Turkey in the Global Economy Keynesian 120, 149 Konya 48 Kurdish 46, 59, 94, 99, 112, 130–32, 169–70, 172 autonomous zone 131–3 Kurds 46, 94, 112 Lapavitsas, Costas 54 Latin America 15, 24, 30, 34, 37–40, 65–6, 70, 118, 124, 140, 165 Law Amending the Laws Related to the Housing Finance System 72 Lehman Brothers 67, 119, 137 Lenin, V. I. 147, 174 Libya 75, 89–92, 133 Libyan National Traditional Council 92 Macovei, Mihai 5 Malaysia 23–4, 137, 159, 168 Marmara earthquake 53 Marmaray 127–8 Mavi (jeans maker) 170–71 Mavi Marmara 77 Mediterranean 13, 45, 76, 87, 128, 159 MENA region 55, 91 Merrill Lynch 67 Mexico 2–4, 13, 15, 23–4, 26, 34, 51, 70, 118–19, 121, 137, 142, 148, 151–3, 158–9, 168, 171 Mexico, Indonesia, South Korea and Turkey (MIST) 23 Middle East 1, 22, 37, 50, 66, 73, 75–6, 82, 85–7, 89–90, 92, 101, 105, 124, 128–9, 165, 168 Milli Görüş 60 Modi, Narendra 165 Money Maker Management 136 Montreux Convention 136 Moody’s 116, 141, 154 “morbid symptoms” 165–6 Morgan Stanley 67 Motherland Party 43 Mussolini, Benito 165 Napoleon Bonaparte 95 “narcissism of small difference” 110 Nasrallah, Hasan 82

202

National Association for Business Economics (US) 137 National Intelligence Council (NIC) 18 National Order Party 57 NATO 80–81, 83, 86, 89, 91, 124, 128–9, 133 neoliberalism 37–42, 44, 55–6, 61, 65–6, 71, 99, 126, 147, 149, 158, 164 authoritarian 99 populist 66, 126, 164 “with a human face” 66 New York Stock Exchange 67 New Zealand 123, 145 North Africa 50, 66, 75, 90, 101, 128–9, 165, 168 gateway 128 markets 129 North America 3, 11, 13, 165 Not in Employment, Education or Training (NEET) rate 161 Office for National Statistics (ONS) 137 “open-door policy” 92, 94 Organisation for Economic Cooperation and Development (OECD) 2, 15, 43, 50, 65, 69, 75, 154, 158, 160–61 Organization for Security and Cooperation in Europe (OSCE) 111 Organski, A. F. K. 12, 24, 167–8 Ottoman Empire 2, 27, 29, 85–6, 134 Özal, Turgut 36–7, 41–6, 48, 57–8, 62, 78, 86, 88, 169 Pacification Police Units 173 Panama Canal 135 Pence, Mike 117 Petrobras 173 petrodollars 37 Philippines 23–4, 118, 165, 168 Pinochet, Augusto 39 PISA (Programme for International Student Assessment) 161 PKK (Kurdish Workers Party) 112, 117, 132, 172 Poland 137, 144, 152, 159, 161, 168, 171 Porto Alegre 173 Portugal 96–7

Index Prague 128 Prestowitz, Clyde 11 Prison Notebooks (Gramsci) 165 Public Procurement Law 162 Qatar 92, 131, 154, 168 riyal 154 quantitative easing 120–22 quantitative tightening 121 Quah, Danny 13 Reagan, Ronald 119 Rebel Cities 96 Reichstag fire (of 1933) 109 Renaissance 131 Re-ORIENT: Global Political Economy in the Asian Age (Frank) 12 “right to the city” 96, 172 Roberts, Michael 138–9, 153 Robinson, James A. 5–6 Robinson, Joan 140 Rojava 131 Rossman, Jeremy 152 Russia 3–4, 11–12, 15, 21–3, 27, 51, 53, 70, 75–7, 80–81, 86, 119, 121–4, 126–31, 133, 136–7, 151–3, 159, 167–8, 171 Russian financial crisis 51–2 Russian SU-24 bomber 129 Samsung 115 Saudi Arabia 75, 92, 168 Savings Deposit Insurance Fund 110 Sea of Marmara 134 Second World War 29–31, 59, 86, 119, 125, 167 Serbia 90, 128, 159 Shanghai Cooperation Organisation (SCO) 80–81, 129 Shiite bloc 92 Singapore 48, 145 Şişecam 131 “Sledgehammer” 83 SME capitalists 125 Sönmez, Mustafa 5 South Africa 3–4, 23–4, 118–19, 122, 138, 142, 148, 153, 155, 161, 168, 174 South African rand 118, 123, 155

South Korea 3, 12, 15, 19, 23–4, 26, 48, 76, 95, 137, 159, 161, 165, 171 Spain 2, 82, 96–7, 104, 144, 151–3 Standard Chartered 2 Standard & Poor 116, 141 Strange, Susan 39, 54, 168 Suez Canal 135 Sunni axis 92 swap agreement 154 Sweden 140, 161 Syria 1, 75, 85–93, 116, 129–33, 145 civil war 26, 92–3 National Council 92 refugees 93–4, 132 Taksim Gezi 95–100, 103–105, 107, 115, 126, 165 Taiwan 19, 48, 159, 168 Tehran Declaration (of May 2010) 77 Thai baht 51 Thailand 137, 159, 165, 168, 171 The Long Twentieth Century (Arrighi) 54 The Rise and Fall of the Great Powers (Kennedy) 12 Tolunay, Doganay 135–6 Tooze, Adam 148 Transparency International 59, 163 Corruption Perceptions Index 163 Trump, Donald 115, 117, 119–21, 123–4, 126, 150, 165–6 Türk Telekom 129 Turkey/Turkish Airlines 109, 159 Anti-tank missile system 130 Armed Forces 42, 64 army 129, 131 asset markets 63 Atomic Energy Authority (TAEK) 76 banks 61, 72, 121 blood 64, 172 capital account 44 Criminal Code 162 Electricity Trade & Contract Corporation (TETAS) 76 exports 42, 48, 73–4 financial and economic crisis in 2000/01 3, 53

203

Turkey in the Global Economy financial system 49 flag 172 free zones 51 GDP 1–2, 29, 46, 53, 62, 70, 73, 75–6, 97, 116, 121, 141, 143–4, 152–4, 157, 162 Grand National Assembly 56, 107 imports 49, 154 intelligence agencies 108 Islam 48 lira 36, 44, 51, 59, 63, 74, 93, 115, 126, 142–4, 154–5 migrants 48, 58 nationalism 93–4, 117 racism 93–4 Penal Code 64 Statistical Institute (TurkStat) 1, 63, 127, 144, 155, 174 Ukraine 22, 26, 119, 122, 130 Unesco 2 United Nations (UN) 55, 138 Conference on Trade and Development (UNCTAD) 138–9, 141–2 United States 2, 25, 27, 111 US–Turkey stand-off 115–16 Vasco da Gama 18 Venezuela 119 Virtue Party 56 Visual Capitalist 2

204

Volkswagen 20 Wall Street 24, 67, 96, 120, 123 Washington Consensus 40–41, 45, 55 Welfare Party 56–7, 60 Western Europe 4, 11, 13, 29, 43, 48, 79, 159–60, 166 White House 117 WHO 150 Wolf, Martin 22, 69, 148 World Bank 1, 16–18, 36–9, 41–5, 48, 53–5, 65, 67, 78, 91, 95, 142, 151, 158–9, 161–2, 168 Doing Business Index 159 Logistics Performance Index 159 World Economic Forum 18, 159 World Economic Situation and Prospects 2020 138 world-economy 7–8 world systems analysis 7 World Trade Organization (WTO) 16, 37, 145 Wuhan 147 Yavuz Sultan Selim Bridge 127 Yunus Nadi 30 Yurtta Sulh Konseyi 108 Ziraat Bankası 49 Zorlu 98, 131