Turkey: can’t see the trees for the woods

The explosion of protest over the last week in Turkey began when people tried to stop the pulling down of trees in Gezi Park as part of a government plan to replace the park with yet another shopping centre that would include yet another mosque, the demolition of the secular Ataturk cultural centre and its replacement with an Ottoman-era military barracks.   This was no accident of history really, because the loss of green spaces to development has been increasingly objected to by wide layers of Turks – working class and middle class.  According to the OECD,  33% of Turks feel they lack access to green spaces, much more than the 12% average of OECD European countries and the highest level of dissatisfaction in the region.

But Turkish capitalism has been on the move and, as far as the ruling AK party and domestic and foreign capital is concerned, nothing must stand in its way (including trees).  Turkey wants to move up the ladder of the rich club of the OECD and is still vying to join the EU by the end of decade.  At the same time, the government is autocratically trying to impose an Islamic style state superstructure onto this capitalist expansion, with strict rules on alcohol, religious observance, dress and the subjugation of women, Iran-style.  Up to now, the AK party has been riding high, winning election after election, enabling it to cut the former Ataturk secular military down to size and disperse the secular opposition of corrupt middle-class parties.  The AK was backed in this by the huge urban poor of the cities where it had carefully built a base over a decade or more.  But, of course, on obtaining unchallenged power, it has now become the tool of big business and foreign capital (despite the occasional rift over policy).  The government increasingly sees itself as a regional power able and willing to intervene in the various clashes of the region: Iran. Palestine and more recently, Syria.

On the surface, it would appear that Turkish capital is moving on and up without much problem.  And it is true that economic growth has accelerated in recent years while foreign investment has flooded in to exploit a labour force coming into the urban areas from the impoverished countryside – a classic emerging capitalist development.   But this apparent economic success is still founded on the shaky young legs of a weak capitalism and is also weighed down by corruption, religious backwardness and scant regard for human rights and laws.  Inequality of income, as measured by the gini coefficient, according to the IMF, is around 40, making it higher than the US, the most unequal of the advanced capitalist economies and the highest in emerging Europe, apart from Russia.

It’s no surprise that Turkey is ranked 154th in Reporters Without Borders’ Press Freedom Index. Not only is the country “currently the world’s biggest prison for journalists”, media bosses fire journalists because of pressure from the government.  And prosperity is a relative thing and of course, not for all.  More than 48% of the working-age population aged 15 to 64 has a paid job, a figure much lower than the OECD employment average of 66% and the lowest rate in the OECD.   People in Turkey work 1 877 hours a year, more than the OECD average of 1 776 hours.  In Turkey, however, 46% of employees work very long hours, by far the highest rate in the OECD where the average is 9%.

Around 67% of people say they are satisfied with their current housing situation, much less than the OECD average of 87% and the lowest level amongst OECD countries. On Turkey, the average home contains 0.9 rooms per person, less than the OECD average of 1.6 rooms per person and one of the lowest rates across the OECD. In terms of basic facilities, 87.3% of people in Turkey live in dwellings with private access to an indoor flushing toilet, less than the OECD average of 97.8% and the lowest rate across OECD countries.

The best-performing school systems manage to provide high-quality education to all students. In Turkey, the average difference in results, between the 20% with the highest socio-economic background and the 20% with the lowest socio-economic background is 106 points, higher than the OECD average of 99 points. This suggests the school system in Turkey mainly provides higher quality education for the better off.

Total health spending accounts for 6.1% of GDP in Turkey, more than three points below the average of 9.5% across OECD countries. At $913 in 2008, Turkey’s level of health spending per person is the lowest in the OECD, where the average is of $3268.   In Turkey, only 61% of people say they are satisfied with water quality. This figure is the lowest in the OECD, where the average satisfaction level is 84%, and suggests Turkey still faces difficulties in providing good quality water to its inhabitants.

The Great Recession hit Turkish capitalism just as hard as elsewhere.  The answer of the government (against IMF advice) was to let loose a huge credit boom to fuel domestic demand.  This pushed the inflation rate to double digits and widened the current account deficit to 10% of GDP (the second largest in the world in dollar terms) in 2011, exposing Turkey to the risks of capital flow reversal at a time of continued global uncertainty.  External financing needs are around 25% of GDP so that Turkish banks rely on short-term foreign borrowing. Turkey has jumped from an agricultural to services economy within two decades and the recession weakened the manufacturing base.  Conglomerates like Eczacibasi and Zorlu have built huge shopping malls in the past few years rather than investing in their core businesses.

In the last two years, the economy slowed, driven by weakening domestic demand.  Turkey remains prone to boom-bust cycles driven by foreign capital flows.  The health of global imperialism is still the overriding factor in Turkey’s own growth.  The national saving rate has fallen dramatically over the last 15 years, from 25% of  GDP in the late 1990s to less than 15% now. This decline has been larger than in any G-20 country over this period and stands in stark contrast to the experience in peer emerging economies.  So Turkey is forced into making its labour force competitive to attract more FDI flows into the tradable sector. At around 2.0% of GDP, FDI inflows are still below the G–20 EM average , with most flows tilted toward unproductive sectors such as banking and  real estate.

Between 2003 and 2011, real GDP growth averaged 5.3% a year, but the unemployment rate remained in double-digits, thus creating a reserve army of labour to exploit.  The deficit on trade and income with other countries was over 5% of GDP on average.  But these were the good years for Turkish capitalism.  Economic growth is expected to slow to less than 4% a year for the rest of this decade, at best, while the external deficit will widen to 7.5% of GDP.   The boom of the last decade was partly based on real estate, credit and services and construction and less and less on manufacturing, exports and investment.

That’s because the profitability of Turkish capital has declined as the expansion of the labour force began to slow.  The decline was visible during the 1990s. It was no accident that the AKP won landslide victory with the backing of big business in the 2002 elections  just one year after its foundation.  Under the AKP, profitability made a dramatic recovery (albeit based partly on unproductive investment).  The Great Recession brought a new reversal and this time the recovery in profitability has faltered.  Although profitability recovered to the previous peak by early 2010, since then it has taken a tumble and is still below the peak before the Great Recession.


The green shoots in the woods of Turkish capitalism are not so healthy that the government can continue to pull up the trees.

9 thoughts on “Turkey: can’t see the trees for the woods

  1. As good as this post was, the article is completely detached from the political social roots of the crisis. It’s feels like its all high economics portrayed as floating above with the present class struggle almost brushed aside as a symptomatic blip

    It’s ‘good’ in that it shows the contradictions of Turkish capitalism. The problems which emerge from a proletarianizing economy and the socio-political consequences of the same. But the treatment of FDI seems iffy, in that it doesn’t show the relationship of Turkey to the rest of the world economy clearly. And it doesn’t characterize the direction of Turkish capitalism very effectively. What is the main orientation of Turkish capitalism ? Is it land based ( resources, agriculture, real estate ) , is it finance based (big banking and services exports) ? or is it manufacturing based ?

    The other doubt which remains, is how is it possible that the army could be “cut down to size” ? We’re talking about the ARMY ! They practically made turkey ! If anything the army should’ve been able to make a coup by now if anybody dared threaten it. Either there is an internal politics within the army where some sections are supporting the AKP to purge some people off the army. Or there is some international pressure trying to curb Turkey’s traditional political power. That could be anybody, but this article doesn’t leave a clue. ..

    I would like to know in this regard how he would compare India’s economic growth and the phenomena of new proletarians being added to that of Turkey’s development. And what your take is on the theory of Imperialism, is it still valid today or is it outdated ?

  2. “Turkey has jumped from an agricultural to services economy within two decades.”

    What is a services economy? Is it: Let me style your hair, and then I will eat a meal at your restaurant?

  3. How do you work out your Turkish rate of profit? It seems very odd given that Turkey has been growing very rapidly in the last period, with GDP per capita more than doubling over the last decade.

    1. I specifically say that the Turkish rate of profit made a dramatic recovery in the last decade and that coincides with the pick up in real growth from about 4% in the 1990s (not bad) to near 7% between 2002 and 2007. Since the global crisis broke, growth has been volatile and slowed to 3.3% from 2008 to 2012. So I dont think there is anything odd.
      I work out the rate of profit using the Penn Extended World Tables that I have referenced before and the EU Commission’s AMECO database as my raw data. I have explained how I use these data to work out a rate of profit before. For the latest years, I extrapolate using estimates provided by the IMF in its recent study of Turkey – see http://www.imf.org/external/pubs/ft/scr/2012/cr12338.pdf p41.
      Clearly Turkish capitalism has been a dynamic emerging economy but with some degree of fictitious unproductive expansion and high inequality.

  4. I am from Turkey, I read your paper curiously… I really wonder what is your source about these figures .

  5. It is clear that there are major sources of discontent in Turkey as we have seen in the recent demonstrations there. However, given that a majority of the demonstrators were not from poor backgrounds, I think it fair to say that the current economic situation in Turkey was not the driving issue behind the protests.

    On the issue of living standards (wages, housing, working hours etc.) in Turkey, I think that some aspects of the presentation of the situation in Michael’s report can easily lead to incorrect conclusions and confusion. I would like to add a few comments that might balance the picture and thereby better explain developments here.

    For example, the social statistics that Michael draws attention to certainly indicate that Turkey is still way behind the OECD average in housing, health, working hours and so on. Living here it is very easy to see that this is the case. However, what these statistics miss is a comparison with the relatively recent past, a past in which Turkey was a poor, backward, economically weak country largely dependent on agriculture and textiles and constantly plagued by financial crises.

    In contrast, the current situation (as long as it lasts under this increasingly unstable neo-liberal system) has significantly improved for large layers of society. While Turks are having to work longer hours (as many other workers are internationally in the neo-liberal era) and inequality has risen significantly (another inevitable consequence of the neo-liberal system that the Turkish government has fully embraced) it is nevertheless true that standards in housing, health, spending power etc. have risen very fast for many sections. And for the first time in modern Turkey the economy has not seen major crises and dramatic falls in the value of its currency.

    After all, it is not the comparison with the standards in other countries that is the minds of voters when they go to the polls but how they feel things have been developing in their own country. Have things been improving or getting worse? For many Turks they feel that the country is moving forward economically. Compare things to the US and the EU where cutbacks in public spending and social benefits are raining down on the population. In Turkey the atmosphere is very different – new roads and rail lines are being built across the country; urban modernisation is taking place virtually everywhere; health and social security schemes are being expanded; there is a big increase in the number of schools being implemented and so on.

    These comparative advancements explain the growing support among the poor for the AK Parti goverment. Without this they would not have been able to secure increasing support in the last three elections.

    It should also be pointed out that Turkey has for some time been a largely urbanised society (72% – World Bank) more so than say Italy’s 69%; with movement from the countryside to the towns continuing but not at anything like the rates we see in many other developing countries (1.9% – World Urbanization Prospects, the 2011 Revision).

    Similarly, while banking and real estate may have collected a lot of foreign investment in recent years, these sectors do not explain the massive increase in manufacturing and services that one can see when you travel around the country. To take auto manufacture as just one example, the last decade has seen it increase dramatically with production now standing at 1.2 millions vehicles per year ahead of Italy and not far behind the UK, and exports at $20 billion a year.

    Similarly, many of the white goods (refigerators, washing machines etc.) consumed in the EU are made in Turkey. Agriculture is still important in Turkey but major Turkish food processing and food product companies have emerged with successful international brands. In shipbuilding Turkey has emerged from nearly zero to become a leading figure. The Turkish construction sector is very advanced winning many tenders in Eastern Europe, the Middle East and the ex-Soviet Asian republics. And Turkey has risen to become a leading tourist destination on the back of the construction of a huge number of four and five star hotels and an associated road and facilities infrastructure.

    That said, the strategy of the Turkish government to wholly rely on private sector investment (the government here is privatising anything that moves) attracted largely by a low paid and overworked workforce is bound to come a cropper. As Michael points out, the rate of increase in the economy is slowing down, and the over-dependence on foreign investment is highly fragile – already the protests in Istanbul and elsewhere have hit investor confidence and tourism.

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