By July 18, 2013 Read More →
Emerging Markets: Turkey Loses its Shine

Emerging Markets: Turkey Loses its Shine

What do terrorists, foreign spies, Christiane Amanpour and The Economist have in common? These unlikely bedfellows were “responsible” in some way or another, of  inciting the wave of civil unrest that engulfed Turkey in June this year – according to the Turkish state media, that is. While it is common knowledge that Turkey’s ruling Justice and Development party (AKP) has been inclined, from time to time, to dip its toes in the proverbial conspiracy theory pond, the extent to which it has done so in recent weeks has left many observers slack-jawed. As the FT reports,

During the month of protests, Mr Erdoğan not only blamed the demonstrations on an interest rate lobby – generally taken to refer to both international and domestic financiers – but also threatened to “choke” speculators and appeared to encourage supporters to use state rather than private Turkish banks. More recently, Besir Atalay, a Turkish deputy prime minister, has linked the protests to the “Jewish diaspora” and the international media.

The international media coverage of the protests that have erupted throughout Turkey has of course been highly unflattering. This was particularly disconcerting for a government that has devoted much effort to cultivating its international brand;  a “forward-looking” Muslim democracy with a benign foreign policy, good for business, great for tourism. The Turkish Foreign Minister Ahmet Davutoglu went as far a pleading on twitter that “The continuation of these protests … will bring no benefits but will harm the reputation of our country which is admired both in the region and the world”. But international media coverage of Turkey’s civil unrest has been unflattering for good reason.

The flames of mass protest were fanned in late May by a brutal, inept government response to protesters camping out in Istanbul’s Gezi park, in the centre of the city. (To the dismay of local residents, the park had been scheduled for demolition to make way for a shopping mall.) Vicious police efforts at suppression served only to galvanise protesters further, leading to a transformation of local unrest into a nationwide wave of popular urban demonstrations.

Erdogan’s uncompromising stance towards protesters should not come as a surprise. The AKP’s response to the events is characteristic of the “increasingly autocratic tendencies of Turkey’s ruling party”, as Reading University’s Burak Kadercan wrote recently. Seen in this light, the recent protests – and the government’s response – are a symptom of deeper issues. These include increasingly autocratic behaviour on the part of the AKP, crony and corrupt economic practices, and the reality that the benefits of economic growth have been highly unevenly distributed. Although sidelined in much of the debate over Turkey’s development this past decade, these issues have been evident for some time. But this leaves us with the question: how come adherents to the conventional wisdom on the Turkish political economy have been thoroughly blindsided by the recent surge in public anger?

Since the early 2000s, Turkey’s Islamists have implemented structural economic reforms (including capital account liberalisation, privatisation programmes, labour market reform) while focusing on the tradable goods sector as an engine of economic growth. Averaging around 3.6 percent a year, the relatively rapid expansion of the Turkish economy over the past decade has been widely perceived as a reward for adherence to development orthodoxy. As such, Turkey has been awarded stellar reviews in the international press: a “rare success story” in a troubled region. While there is a degree of truth to this story, Turkey’s economic success has been overstated. Too much attention has been placed on the narrow economic dimensions of the Turkish “miracle” -whereas political trends and institutional factors have been sidelined in much of the analysis. Had these been given due attention, the mass protests throughout June would have been seen for what they were: an eruption of discontent that has been simmering for some time.

In light of the 2008 financial crisis, and the June protests in particular, optimistic narratives of Turkey’s development have come under increasing scrutiny. The upheaval in recent weeks offers a valuable opportunity to reassess the the turkish growth story.

II: A more critical assessment of the Turkish “miracle”, 2002-2013

As the crisis of 2008 demonstrated, there are significant drawbacks to maintaining a highly open economy as a developing country. Turkey’s over-reliance on foreign investment and exports to drive growth proved highly detrimental in 2008-9, and will continue to be problematic going forward. Focusing on export-led growth is fine when the external environment is benign, and foreign demand for Turkish exports is high. However, as we have seen, the collapse in growth in Europe since 2008 has had significant adverse effects on the Turkish economy (The EU accounts for almost 50% of Turkish exports). Moreover, as a result of its open capital account, Turkey is highly vulnerable to swings in investor perceptions and sentiment; as has been well-documented, international capital flows have an inherent short-term bias. Turkey’s increasing reliance on foreign capital inflows to fund its deficit poses significant risks; as The Economist recently pointed out, the country remains heavily dependent on capital inflows, and thus on foreign investors’ confidence. By mid-week the Istanbul stockmarket index was down by 20% from its all-time peak on May 22nd.

Turkey also suffers from chronically high unemployment (averaging 10.8% from 2005-2013). This poor record on employment creation suggests that the gross underutilization of domestic resources is a key limitation of the growth strategy Turkey has pursued this past decade. Increasing domestic investment levels would suggest a possible solution, but as renowned trade economist Dani Rodrik explains,

given the present level of domestic saving, a substantial rise in domestic investment would push the external deficits to heights that would clearly be unsustainable and dangerous. And second, even moderate reliance on foreign savings, as we have seen during the recent crisis, leaves the domestic economy vulnerable to sudden stops and confidence reversals that originate from external sources. A comparison with Brazil is again instructive here. Brazil entered the 2008-09 crisis with a much smaller external imbalance than Turkey, and as a result has experienced a much more shallow recession.

Another overlooked dimension of economic performance is the comparative dimension of Turkish growth. In the decade since 2002, Turkey’s economy has grown at a rate of 3.6% (real) per year. While this is respectable, Rodrik reminds us that “the last decade has been an exceptionally good one for developing countries as a whole. When Turkey’s performance is compared to the average for emerging and developing countries, it hardly looks distinguished.” This is illustrated in the figure below:

Turkey Real GDP Development vs. Comparators

Source: Conference Board Database / Dani Rodrik

III: Worrying political trends…

Going forward, the increasing authoritarian tendencies of the AKP government bode ill for Turkish democracy. It is often forgotten that  Turkey was ranked 154th out of 179 countries in the 2013 World Press Freedom Index, and named “world’s worst jailer of journalists” by the Committee to Protect Journalists – ahead of the notoriously free-speech loving Iranian regime.  The government’s response to the demonstrations, which evidenced a complete unwillingness to accept the legitimacy of popular, non-violent protest, reveals a worrying trend in Turkish politics. As Burak Kadercan writes, for many protesters,

the problem is obvious: Erdoğan’s AKP is slowly but surely becoming more intrusive and controlling over their lives. Erdoğan personally has taken the charge; he has authoritatively commented on various issues such as abortion and architecture, openly vilified atheists, categorized people who consumed alcohol on a “regular” basis – defined as drinking once a week – as alcoholics (but suggested that those who voted for AKP were not so), publicly disparaged journalists, prompted extensive educational reforms that introduced further religious elements to curricula despite mass protests, and so on.

The international community has been all too ready to ignore the realities of an increasingly intolerant and uncompromising AKP government. Accordingly, the overwhelmingly positive international media coverage of Turkey in recent years is to a certain extent off-mark. Important changes that Turkish society has undergone since the early 2000s were relegated to the footnotes of both foreign and local analysis of Turkish politics and economics. In a recent piece for the LRB blog, Çağlar Keyder provides an interesting perspective on these social changes. It seems fair to suggest that some of the generation of youth that has come of age during AKP rule are less inclined to tolerate the heavy hand of state abuse than, say, their elders might have been. As Keyder observes,

Almost all the protesters in Gezi Park were young people with no direct experience of military rule or state repression. They were the beneficiaries of economic growth and greater openness to the world. They now wanted the basic rights that they knew existed elsewhere: they wanted to be able to defend public space against neoliberal incursion, and they refused to live under the authoritarian guidance of a self-appointed father of the country. They felt at home in a collective way of life with gender equality and respect for diversity — a recipe for a new covenant that makes irrelevant the pretensions of Erdoğan’s supposedly benevolent (and now wrathful) paternalism. It might once have been possible for the political class to dismiss their demands as the aspirations of a cosmopolitan minority in Istanbul, but their resistance found widespread (and unexpected) support in many urban areas, with a rich mix of civil disobedience, demonstrations and street politics.

…It is evident that the old guard don’t know how to respond to a challenge that lies outside their understanding of politics as a struggle to rule. The government’s response is at the level of greater coercion: they keep trying to find ‘the culprits’ and redouble police powers to repress any hint of dissent. In their panic they variously rage against the haute bourgeoisie of Istanbul, the European Parliament and their former supporters. They seem to have given up on hegemony and are banking on violent domination. Meanwhile, the protesters’ displays of fraternity, resistance, creativity and humour expose the failure of the tutelary regime. Erdoğan’s project to be anointed an omnipotent president through a change in the constitution is now no more than a dream. The newcomers to the political arena may not yet be in a position to draft a new set of rules, but they have shifted the keystone that supports Turkey’s patriarchal firmament.

Turkey’s democratic prospects depend much on the regime’s approach going forward. As one observer has noted, there is a tendency in Turkey for “powerful political parties to drift into populism-fuelled authoritarianism.” Whatever the case, it is evident that the recent protests are a symptom of underlying issues that have been simmering beneath the waves for some time. On closer examination, the consensus position on Turkish development has been found deeply lacking. A more holistic approach to the analysis of economic development in Turkey helps to show that the roots of the current civil unrest run deep. The AKP has demonstrated a decidedly authoritarian bent and is operating with a high degree of inflexibility in its response to legitimate public grievances. As the crisis of 2008 demonstrated, there can be significant drawbacks to maintaining a highly open economy as a developing country.

Read More:

Burak Kaldercan – Turkey’s ongoing protests may yet lead to a backlash from the government’s supporters and a new ‘Turkish winter’ – LSE EUROPP Blog

Trouble Ahead for Turkey – Financial Times

The Turkish Economy: Strong But Vulnerable – The Economist

Tear Gas as a Dangerous Weapon – The Economist

Dilip Hiro – Turkey’s Economic Miracle Under Fire – Yale Global

Dani Rodrik – Turkey’s Protests Send a Strong Message

(Wikimedia Commons image courtesy of Paul Keller)

About the Author:

William Oliver is Nabateans’ editor for international economics and Middle East current affairs. He obtained his degree in History from the School of Oriental and African Studies in London. While his studies focused on the Middle East in the 18th and 19th centuries, William has a long-standing interest in international finance and the political economy of development. William’s work is aimed at understanding how the Middle East integrates with the global economy, and into the wider geopolitical landscape.

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