Will Turkey’s economic rationality survive?

Will Turkey’s economic rationality survive?

In the days prior to the announcement of the new Turkish cabinet, which came out last Tuesday, there was a question I received from more than one foreign observer of the Turkish economy: Would Mehmet Şimşek, who used to be the deputy prime minister overseeing the economy, retain his job? If he did, foreign investors would take a deep breath and feel relieved. If he did not, however, their worries about the rational management of the Turkish economy would jump to a more worrying level.

Then came the news: Şimşek was in the new cabinet headed by the new Prime Minister Binali Yıldırım. “The markets” responded positively, as figures in the stock market went a little a bit up. Turkey’s rulers, some apparently concluded, are not as crazy as some people think that they are. 

Crazy may be a strong word. But there certainly has been a new trend in Turkey’s economic management that I would call “ideological” at least. It actually seems to be a combination of two separate ideologies. One is Islamism, expressed as an obsession with interest rates. This is based on the assumption that low interest rates will always help the economy and those who disagree with this wisdom must be the cynical pawns of a nefarious “interest rate lobby,” which is busy organizing coups against the legitimate government of Turkey. 

The other ideological component is what I would call “third world developmentalism,” which comes out of the assumption that developed countries are hindering the development of poorer countries, so salvation lies in “economic independence.” Just be nationalist, self-sufficient and defiant, and also make sure that you have an iron-willed leader. Then your economy will do wonders.

This “ideological” vision was certainly not around when the ruling Justice and Development Party (AKP) first came to power in 2002. There was rather another line, which I would describe as “rational,” “empiricist” and “pragmatic.” Accordingly, development would come with better integration into the world economy, adopting the systems and institutions of advanced Western countries. The Central Bank would be independent, for example, foreign investment would be encouraged, the rule of law would be enhanced, and “budget discipline” would be maintained.

This rational-empiricist-pragmatic line was executed quite successfully by Ali Babacan, who was the boss of the economy in all AKP governments until his retirement in 2015. Babacan was a symbol of Turkey’s economic success, heading an effective team that involved other ministers and heads of key institutions such as the Central Bank. 

Mehmet Şimşek is the last remaining vestige of that team, which has lately become a scapegoat for the ideological camp. This latter camp includes colorful persona such as Yiğit Bulut, known for mind-bogging theories that the “interest rate lobby” mobilized hundreds of thousands of socialists in the Gezi Park protests of 2013, or that the global system was working to kill Turkey’s prime minister through telekinesis. 

Now, what should we understand from the fact that Şimşek is still onboard? Have Turkey’s rulers opted for the rational school over the ideological one? Not exactly, in my view. A better description of the situation is the famous saying: They want to have their cake and eat it too. In other words, they still want to keep figures like Mr. Şimşek to calm international markets, but they also want to make full use of the benefits of the ideological camp. The latter makes for good propaganda, and also allows the great leader to intervene in the economy at will, supposedly for the sake of undoing the conspiracies of the Western world.

In fact, in foreign policy too “New Turkey” wants to have its cake and eat it. It makes full usage of the anti-Western narrative for propaganda purposes, while retaining its membership in, or partnership with, Western institutions. 

It remains to be seen how sustainable that policy will be. There may come a time when the government is not able to both have and eat its cake. That cake was its own success story, which is a vestige of its more reasonable times.