Chapter 8: The Evolution of Turkey’s Political Economy since Constitutional Monarchy

Introduction

This chapter describes important phases in the history of Turkish political economy and explains the development of economic classes as political economy or economic policies means, one way or another, determining how economic resources are distributed and used.

The Late Ottoman Economy

The Ottoman state never allowed collective identities and corporate institutions to challenge its political hegemony but it was not as encompassing as modern authoritarian states. The Ottoman state developed three social institutions, the devşirme (enslaved children levied from the Christian population of the Balkans, then trained as servants of the sultan), millet, and the guild system.

As a starting point, it is necessary to provide a summary of basic socio-economic and political factors to illuminate the failure of the Ottomans in adapting to global economic changes and in creating effective institutions. The Ottoman economy was integrated with the international economic system, however this integration came under the control of the European states before the Tanzimat Reforms in 1839-76 and, thus, it was disadvantageous to the development of Turkey’s productive resources and state revenues.

The failure of the entrepreneurial classes in the Ottoman Empire to develop into dominant classes and to extend capitalist modes of production and relationships, as happened in the Western world, could not be attributed to the influence of the religious ethic. Instead, this failure was due to the political position of economic classes vis-àvis the dominant military-bureaucratic classes.

In terms of agriculture, the distribution of land was not ideal for the shift of agricultural surplus to capital accumulation and investment. The state was the ultimate owner of the land and distributed the land to the fiefholders (Sipahi). The sipahi in turn allocated the land to the peasants for cultivation.

In terms of macro-economic policies, the state not only enacted policies that worked against the development of manufacturing but it also created certain obstacles for capital accumulation (Genç, 1994, p. 66). The Ottoman Empire maintained its control and limitations on export while permitting imports in order to keep the amount of goods in domestic market plenty at low prices. The state was charging only 3 per cent duty on imports while exports paid a 12 per cent duty (Heper, 1990, p. 301-2).

Attitudinal factors have little explanatory value in Muslim absenteeism in trade and industry because the attitudinal characteristics of people basically reflect their positions in a socio-political and economic environment. The Ottoman political structures and the structure of markets and property rights provided little incentives for Muslims to engage in capitalist activities.

The objective to create an indigenous capitalist class was initiated by İTC rather than the Ottoman dynasty, which in earlier periods pursued no discriminatory economic policies against the minorities. In fact sometimes the bureaucrats searched for skilled minority artisans to establish and run factories that were completely financed by the state as a move to reduce the dependency on imports.

The Early Republican Period 1910-1929

When World War I ended, the Ottoman Empire lost its independence to the occupying forces: Britain, France, Italy and Greece. This caused the emergence of resistance groups around the country, which were organized as independence movements. In a short while these groups, which included the petty bourgeoisie and land lords, went under the leadership of Ottoman Generals whose leading figure was Mustafa Kemal. After ending the occupation of the allied forces and ethnic conflicts, these associations were dissolved into the Republican People’s Party (Cumhuriyet Halk Partisi-CHP) in 1923. The sultanate was abolished and the new republic was acclaimed on the 29th of October 1923. Ankara became the capital of the new republic instead of Istanbul.

The official economic policy of the mid-1920s conveyed the objectives phrased by the organization of the National Economic Congress in 1923. The representatives of all economic classes were represented, ‘though on a selective and not truly democratic basis’ (Hershlag, 1988, p. 1). The congress stressed the importance of private economy although both the representatives of economy and politics did not sincerely believe in market economy.

Just because the state refrained itself from economic investment, the economy cannot be qualified as a liberal economy. Despite state intervention in property rights, this period has been considered to be liberal - or rather ‘private’ – economy.

The Etatist Period 1929-1946

After the demise of the Ottoman Empire, the new state elite perceived the economy, given its conflict-creating character, as a mechanism capable of destroying intentionally designed institutions as well as social institutions. In the economy, the limited revenue sources increased inflationary pressures on the balance of payments at the end of 1920s.

In reality, as Birtek (1985, p. 409) argued the etatism was a culmination of a search for economic structures to support a particular political centre. This political centre perceived, in fact knew, that the institutions, which are market and society oriented, would constitute a substantial threat to its elitist projects.

The fear of an empowered business class, which could impose its political ideology upon the state, guided governmental action. While the state resisted depending on the economic performance of markets and entrepreneurs, it became dependent on external agents. For example, Soviet experts were actively involved in the preparation of the first five-year development plan in 1934. This incident demonstrates the ruling elite’s lack of self-confidence and necessary resources to prepare national economic development projects because of the noncooperation of the private sector.

The bureaucracy considered itself to be the only legitimate class to control the means of economic and political governance. In this period, none of the institutional developments were directed to establishing autonomously functioning structures of a civil society, and the gap between the bureaucracy and civil masses became more apparent than ever (Keyder, 1987a, p. 36). For its ideological support, CHP created a network of social clubs called ‘People’s Houses’. Instead of mobilizing the masses, this institution created an urban middle class which formed the civil service and the professional cadre of the Republic.

Transition To Democracy 1946–1960

In 1948, growing opposition to the CHP government from the private sector, commercial farmers and landlords led to a change in the Cabinet in which the old cadre was replaced with more liberal ministers with a party program that endorsed anti-etatist ideas (Birtek, 1985). The CHP government had already declared the end of restricted wartime measures and the beginning of a new era of cooperation between the state and the private sector. This sudden change in the CHP ideology was a result of the pressure from the donors of Western aid (Buğra, 1994, p. 119).

Subordination of the etatism to economic liberalism did not mean the abandonment of state investments and intervention. The scope of state intervention expanded through large infrastructural projects, government contracts, and provision of government credits, bonds, and agricultural subsidies.

Military Corporatism Vs Supremacy Of Parliament 1960-1983

Disillusioned intellectuals and businessmen approached the formerly authoritarian CHP, which had always maintained its close allegiance with the military and bureaucracy. The opposition in the press and student movements in the universities led the government to declare martial law. The military coup followed in 27 May 1960, as the military had stayed alert to seize any opportunity to end the civil government.

The developing world is attracted to the ISI policies despite its inbuilt contradictions because it contributes to the legitimization of political regimes and parties in two ways. First is that the ISI fosters the industrial structure of a society and transforms an agricultural society into an industrial society. Second is that it destroys the ancient customs and loyalties of a society which the reformist elite want to modernize. With these contributions, the ISI is also to be blamed for failing to create an entrepreneurial culture, competitive and democratic development.

Economic crisis continued with soaring trade deficits, declining currency reserves, high inflation rates, and the shift of capital from productive to non-productive activities. Turkey’s creditors began to plan a rescue operation in 1980.

The minority government of AP, with a standby agreement with IMF, prepared the structural adjustment programs (SAP) known as ‘24 January measures’. The main policy recommendations included:

• Removing state control over interests and prices and increasing competition for state enterprises through elimination of government subsidies.
• Avoiding the destabilization of the economy through making arrangements to cope with fiscal deficits, inflation and external debt accumulation.
• Shifting from import substitution to an export promotion strategy, import liberalization, promotion of foreign investment and determination of realistic exchange rates.
• Concentration of public investment on the energy and transportation infrastructure rather than manufacturing.

As the role of the military in politics and the economy became significant, businessmen also noticed the importance of connections within the army. The relationship of exchange and dependence came into existence between the military-civil bureaucracy and the big bourgeoisie. In their attempt to safeguard the officers from the crisisprone Turkish economy and to increase the military’s financial autonomy from the civilian administration, the Turkish Armed Forces started, from 1960 on, to create a number of companies that gave the officer corps a large stake in Turkey’s corporate economy (Karabelias, 1999, p. 139).

The Neo-Liberal Economy After 1983

The structural adjustment program (SAP) prepared before the military takeover came into full effect after the 1983 elections during which previous parties and their leadership were still on trial. ANAP under the leadership of Özal became the first party to encompass different political tendencies of the right wing electorate thanks to the political bans keeping the old prominent figures out of sight.

The structural adjustment program (SAP) prepared before the military takeover came into full effect after the 1983 elections during which previous parties and their leadership were still on trial. ANAP under the leadership of Özal became the first party to encompass different political tendencies of the right wing electorate thanks to the political bans keeping the old prominent figures out of sight.

The economic failures thus provided rich resources for the discourse against Özal who also became reluctant to collaborate with TÜSİAD and act upon the guidelines of the 1980 military coup. Özal furthermore lost his grip on the leadership of the Union of Chambers (Türkiye Odalar ve Borsalar Birliği-TOBB). After this point, Özal started to seek political support from small- and medium-sized businesses against the pressure from big business and industrialists but still watching the back of his friends in big business.

The restructuring of the economy since the 1980s implied a new set of relationships between the state, business, and labor, and within each of these classes. Inter-bourgeoisie conflict became apparent, as state involvement set capital against capital.

In order to correct macro imbalances in the economy and re-establish the conditions for suitable growth, the government launched another structural adjustment program on 5 April 1994. The government sought assistance from IMF and the World Bank for its program, and agreed on a 14-month IMF standby agreement in July 1994. However, the clashes between Çiller and the top representatives of business interests intensified so much so that TÜSİAD was not allowed to participate in the Economic and Social Council in 1994.

The 28 February decisions which included a serious blow to religious education was the beginning of an elitist and militarist intervention which aimed at restructuring the liaison between religion and the spheres of society, politics, and economy (Bayramoğlu 1998).

This was partly a response to the expansion of so-called Islamic capital, which benefited from the favorable treatment of the RP municipalities and government (Ayata and Güneş-Ayata, 1998, p. 116). The economic programs of the post-1980 period provided incentives for the mobilization of Islamic capital. The government allowed the establishment of special finance institutions (SFI), which operated as interest free banks and exempted them from taxation rules applied to other banks.

At the end of 2000, the economic policies of the new coalition government were judged to be a failure with 45 per cent inflation, negative economic growth, a huge trade deficit, high unemployment and declining wages.

2008–09 crises heavily affected the real economy as the economy recorded a recession of 5 per cent of GDP. The Turkish economy had a quick recovery as in 2010–11, the GDP growth rate exceeded the 9 per cent level and the unemployment rate started to lower again (9 per cent in 2013). However, this high growth rate led current deficits to reach record levels in 2012 (8 per cent of GDP). These ups and downs illuminate rather than hide the vulnerabilities of the Turkish economy as the political risks in the country and in the region are on rise.

Conclusion

This chapter has sought to explain the changing modes of state intervention, the development of economic classes and changing socio-economic and political conflicts. The Turkish state elite tailored themselves a pervasive role in institution building, economic development, and social stratification. The literature on the Turkish political economy generally upholds the view that state intervention was necessary for rapid economic transformation in a capitalist context not only as a regulator and facilitator but also as an investor and distributor. This role was considered to be a direct result of the impotence of the private sector and society, both of which needed to be modernized as quickly as possible in order to compete with advanced nations.

The failure of etatist experiments, and the state’s becoming an area of accommodation of distributive coalitions diminished the coherence of the state. In return, this failure strengthened the social advocacy of a freemarket economy, civil society, and democracy as a medicine within a new framework of political economy in the post-1980 period.