INTERVIEW: Nilgün Önder on neoliberalism and state intervention in Turkey since 1980

INTERVIEW: Nilgün Önder on neoliberalism and state intervention in Turkey since 1980

William Armstrong -
INTERVIEW: Nilgün Önder on neoliberalism and state intervention in Turkey since 1980

Turgut Özal (R), who as prime minister after 1983 oversaw many of the reforms to open up Turkey’s economy, poses with business tycoon Sakıp Sabancı (C) at a tire factory.

The effects of the 1980 military coup are still bitterly contested in Turkey today. The intervention put an end to bloody street clashes among left-wing and right-wing militants, but it also unleashed a period of fierce repression and imposed a nationalist-conservative constitution that is still in force today. The generals also kicked off a root-and-branch transformation of the Turkish economy, which became an early laboratory for IMF and World Bank-supported restructuring programs that opened the country up to global market forces.

These shifts are explored in a detailed new book by Nilgün Önder, an associate professor at the University of Regina in Canada. “The Economic Transformation of Turkey: Neoliberalism and State Intervention” explores the seeming paradox that neoliberal reforms actually led to an expansion of central state power over the Turkish economy and society. Rather than rolling back, the authority of the state was substantially deepened in the 1980s.

Önder spoke to the Hürriyet Daily News about her book (reviewed in HDN here) and the continued importance of the post-1980 economic upheaval in today’s Turkey.

Your fundamental argument is that far from retreating in a classic liberal fashion, the state in Turkey actually expanded and became more repressive during the neoliberal reforms of the 1980s. Could you explain how this occurred?

The main argument of the book is that the state was the main agent for the neoliberal transformation of the Turkish political economy throughout the 1980s and 90s. This role took two major forms: The first was a “negative” type of intervention. Negative state intervention basically removed and dismantled earlier regulations and institutions associated with the more state-interventionist, trade-protectionist, import-substituting industrialization, which was the main economic policy in the 1960s and 70s. This negative intervention removed restrictions on foreign trade and liberalized Turkey's foreign direct investment regime. It also lifted earlier legal institutional restrictions on the international movement of finance capital.

Turkey was one of the first countries to embark on a neoliberal transformation. Well into the 1990s, the main international economic organizations - the International Monetary Fund and the World Bank - focused their attention on that negative type of state intervention to create a free-market economy. But the government learned very quickly that a free market economy happens not just through removing legal-political restrictions to the operation of the free market; it also requires a new set of institutions. The negative type of neoliberal reforms led to high instabilities in the economy, especially in the banking and financial sector. 

INTERVIEW: Nilgün Önder on neoliberalism and state intervention in Turkey since 1980The Turkish government learned that the neoliberal transformation of the economy required another type of state role. I call this the “positive” type of state intervention. I’m not attaching values to these adjectives “negative” and “positive.” As I define it, "negative" meant removing earlier restrictions and dismantling earlier political and economic institutions, while “positive” state intervention was crucial for stabilizing and consolidating neoliberal reforms. That latter type involved creating a new set of economic and political institutions; new rules and regulations to enable the liberalized economy to operate without requiring direct forms of state control or economic intervention. New prudential and supervisory institutions and regulations for the banking and financial sector were introduced. There were also new state institutions to promote the reorientation of the Turkish economy toward exports. For example, a state export credit bank provided incentives for exporters to make their exports more competitive in the international market.

Another crucial aspect of this state intervention was in the area of industrial relations: Specifically, the collective bargaining system and relations between employers and workers or labor unions. State intervention in industrial relations played a major role in shifting power away from organized labor in favor of employers. There were new labor laws, including a new collective bargaining act and a new labor union act. New legislation introduced restrictions on the activities of labor unions and on their right to strike. This benefited employers and helped Turkish exports become more competitive by suppressing wages. At least in the initial stages, the reorientation of the Turkish economy toward exports and away from import substitution took place through the suppression of wages and the restriction of labor actions such as strikes.

A free-market economy doesn't just happen spontaneously and naturally. To quote Karl Polanyi, writing in the 1940s, “the road to the free market was opened and kept open by increased state intervention.” The Turkish case is an excellent example of that argument.

Plans to reshape the economy were actually in place before the 1980 military coup with the “24 January decisions” of Süleyman Demirel’s Justice Party [AP], which heralded a comprehensive IMF-led economic restructuring program. You describe how Turkey’s political system at the time was almost too messy to follow through with this program, which could only be realized by a more repressive post-coup military regime.

The 24 January program was the starting point of the transformation of the Turkish economy. It was launched under a multi-party parliamentary regime by the center-right AP, in response to a serious economic crisis. At the same time there was also a political crisis in Turkey: A highly polarized and fragmented party system and increasing terrorist activities. 

It was a very dire situation politically and economically, and it soon became clear that it would be nearly impossible to implement the 24 January reforms effectively under the given political conditions. There was also strong opposition to the 24 January program within the state apparatus among pro-state interventionist bureaucrats, in some ministries, and also in parliament. Also, there was opposition outside the state, based on the highly mobilized leftist movement and organized labor unions, with thousands of workers on strike. So it was clear that the package wouldn’t be able to be implemented effectively; the government wasn't strong enough to carry through these reforms.

My argument is not that the military stepped in simply to implement the 24 January package. But without a highly authoritarian regime it would have been impossible to carry out such far-reaching economic reforms in such a short period of time. The coup took place on Sept. 12, 1980 and the military government immediately invited Turgut Özal, the architect of the 24 January package, to be the deputy minister in charge of economic affairs. Because organized labor and the leftist movement had been suppressed, and because there were no more free and functioning political parties under the military regime from 1980 to 1983, it was not so difficult to carry out the reforms.

It was very paradoxical in a way. The authorities tried to install highly nationalistic, militaristic political and social policies while at the same time opening up Turkey to the harsh international economic winds of globalization. They tried to close the country politically while opening it economically.

At first glance it seems paradoxical. At the time it was puzzling to many observers to see the Turkish military embrace the opening of the Turkish economy to international market forces. But when I looked at various statements of the generals who carried out the coup and controlled the regime for several years, I saw that many of them were convinced there wasn't any alternative. Securing the support of the international financial institutions and securing the further continuation of loans to Turkey were seen as the only way out of the deep economic crisis.

This was a major shift from the earlier position of the military, which had been supportive of a more protectionist, direct state interventionist program. Throughout the 1960s and 70s, higher ranking generals spoke in support of policies to deepen Turkey's industrialization through import substitutions and maintaining a closed economy. So obviously it was a very important switch for the Turkish generals to embrace the 24 January package after 1980.

1983 saw the first national election after the coup. The winner was the Motherland Party [ANAP] led by Turgut Özal. It was not the military’s favored choice but once the ANAP took over it continued the same economic reforms demanded. Could you describe this process?

The head of the ANAP was the same man who was the brains behind the 24 January decisions, Turgut Özal. Özal basically personified the continuity of the neoliberal package before and after the coup. During the military regime he was also invited to oversee the implementation of the economic program and he accepted the position. He resigned about two years later because of an economic crisis, but he continued to be active and created the ANAP after the military government signaled that it was time to start a transition to a civilian regime. 

The ANAP wasn’t the party favored by the generals, who actually created their own party - the Nationalist Democracy Party [MDP], headed by a retired general. The election wasn't entirely free and fair, but the ANAP was allowed to compete and it succeeded, receiving support from all sections of society. One reason why the military allowed the ANAP to compete in the election was the fact that Özal was well-known internationally. He had worked for the World Bank before he was invited back to Turkey to head the 24 January package. The military government realized that if it had vetoed Özal it would have received a negative reaction from Western governments and international financial institutions.

The ANAP government continued the same economic program as the military regime. Its election platform in 1983 focused on economic policy; there was hardly anything in its campaign about democratic rights and freedoms. That was partly because of various restrictions imposed by the military, but democracy wasn't the priority of the ANAP anyway. After it came to power in 1983 and again in 1987, it focused its attention on carrying out further economic changes and consolidating the earlier neoliberal reforms. 

The ANAP was very successful in terms of mobilizing support across social class divisions. Its discourse appealed to different sections of society. It was the main political representative of Turkish big capital but at the same time it secured significant electoral support from workers, public employees, small farmers and self-employed groups. The ANAP was able to build consent in civil society across socio-economic groups to continue the neoliberal transformation. I characterize this as the first "hegemonic attempt" by the Turkish big capitalist class to establish its hegemony in society, rather than continuing to rely on repressive state actions to serve its interests. 

The ANAP was very successful in framing neoliberalism in a way to popularize it. Its discourse was able to link neoliberal economic policies to the interests of all different groups. This allowed it to continue the economic transformation while still winning local and national elections. 

You say the ANAP weakened towards the end of the 1980s due to the negative effects of the economic reforms on its ordinary voters. This led to a period of fragmentation in Turkish politics with a series of weak coalition governments. There was also an increase in labor activism in the late 80s and early 90s. How did these two dynamics develop?

The ANAP's popularity began to fall at the end of the 1980s. A major disconnect started to emerge between what it promised and what was happening on the ground. As a direct result of state intervention in the system of industrial relations, real wages dropped significantly and small farmers lost out. Economic and social life became more difficult for workers in both the private and public sectors.

Toward the end of the 1980s there was an outbreak of labor actions. It had taken a long time for workers to mobilize because of political restrictions and also because of the significant support for the ANAP across socio-economic groups. But in spring 1989 there was a sudden outbreak of more or less spontaneous labor activity. The labor unions were involved but the labor union leadership wasn't in charge of these activities - the movement came from below. Workers were marching and demonstrating and there was a lot of general public sympathy. Through such mass-scale mobilization, workers were able to secure wage increases during collective bargaining rounds in 1990 and 1991. 

The neoliberal economic program was not really producing the kind of benefits that had been promised to the people and the ANAP lost in the 1991 general election. But no other party was able to win a majority and form a government, so Turkey’s political system moved back to a period of weak governments and coalitions like the 1970s. 

In one sense, the neoliberal economic program from the early 1980s was quite successful in reorienting the Turkish economy away from more inward-looking trade-protecting import-substituting industrialization towards an outward-looking export oriented economy. When we look at the figures with respect to Turkey's foreign trade and the proportion of exports in Turkey's economy, the change is incredible. But despite such economic successes the program also contained major structural weaknesses. Turkey's economy was exposed to highly volatile short-term financial flows, speculative hot-money movements. Turkey's exports grew significantly in terms of dollar value and as a relative proportion of the economy, but these exports didn’t achieve a more advanced technological transformation. Turkey became an export-oriented country and its exports moved toward processed and manufactured products. But compared to some other major emerging market countries - South Korea, for example - Turkey's exports are still poor in terms of information technology. Advanced technology products make up only a small proportion of Turkish exports. 
When we look at the current situation we also see an expanding current account deficit, including a trade deficit. These structural weaknesses have caused a series of major economic crises in Turkey. 

While reading the book I was struck again by how back in the 1980s parties were still largely defined by their economic programs. That contrasts with today when Turkish politics is basically a battleground of competing identity-based parties. It could be argued that the economic focus began to change when the post-1980 retreat of the state’s welfarist role opened up space for Islamist groups to provide services that were no longer provided by the state. What do you think about the rise of Islamist parties in Turkey in the context of these big post-1980 economic shifts?

There is definitely a major connection between the two phenomena. If a promised new political economic settlement had been realized in the 1990s it might have weakened, if not prevented, the political Islamist movement. The electoral rise of political Islam basically started in the 1990s, when the main Islamist party of the time, the Welfare Party [RP], emerged as the top party in the 1995 general election. The RP was not supportive of neoliberalism; it had campaigned on a platform highly critical of neoliberalism and its socioeconomic consequences. It promised an alternative economic program, called the “Just Order,” but it was not strong enough to carry out this kind of alternative program. Still, the adverse socioeconomic consequences of neoliberalism created the political conditions for the rise of political Islam from the mid-1990s. Islamist parties and organizations capitalized on major popular discontent. 

But by the start of the 2000s, neoliberalism had become a structural feature of the Turkish political economy. It was further consolidated through the creation of new institutions in the wake of the 2000-01 financial crisis. The current ruling Justice and Development Party [AKP] was founded in 2001 and won a major victory in the 2002 general election. The AKP's election platform did not question the neoliberal framework. Instead it embraced neoliberalism and focused on identity politics, referencing Islam and Islamism. 

But we shouldn't assume that there is no economic background to identity politics just because parties don't currently compete on an economic platform. One major reason for the rise of political Islam was the increasing inequality resulting from the neoliberal economic reforms. Another economic factor is that the political Islamist movement is based on a group of new international-oriented enterprises and business. Their managers are Islamist in terms of their ideological orientation but they operate within the neoliberal framework and derived significant benefits from Turkey's opening up to global market forces. They engage in exports or became subcontractors of bigger national and multinational companies.

So there is obviously an economic subtext to prevailing identity politics, even though parties barely campaign on economic platforms. They now take neoliberalism for granted, rather than challenge it.

* This and other interviews are available on the Turkey Book Talk podcast. Subscribe via iTunes here, Soundcloud here, or Podbean here.