Book Review - Neoliberal Turkey and its Discontents, Economic Policy and the Environment under Erdogan
Neoliberal Turkey and its Discontents, Economic Policy and the Environment under Erdogan. Edited by Fikret Adaman, Bengi Akbulut and Murat Arsel. IB Taurus, London 2017.
This is a collection of essays one group of which explore policy trends under AKP rule in urban development, social housing, agriculture and energy sectors in Turkey including an evaluation of the social impact of these policies. The authors also trace the increased role of the state in the economy since the global financial crisis (GFC) that has accompanied AKP’s increased authoritarian rule. This combination of policies has brought about what Erik Swingedouw in the concluding chapter labels “Zombie neo-liberal successor of the failed neo-liberal globalisation project” (p256 – there is a tendency to overuse the term “neoliberal” by some authors). A second group of contributions cover the impact of environmentalism – mostly its absence – in government policies in contrast to its emergence as an issue that has mobilised political opposition – the “Discontents” in the book title.
This review will mostly focus on the first group of articles as this is a rare find. The subject matter of most publications on Turkey are on its politics and international relations. Even when focused on the economy, commentary and analysis tend to remain limited to broad macro-economic trends or the key issues for international investors such as finance and foreign payments. The analysis based on bottom up surveys of developments in critical sectors provides an unmissable opportunity to review sectoral and social policies since the 2001 crisis. Hence this extended book review.
Environment not a major party-political issue despite many local campaigns
Environmental concerns remain mostly localised and on the margins of political debates according to Ali Carkoglu based on survey data from 1993-2010 by the International Social Survey Program (ISSP). As in many middle-income economies still in catch-up mode, Turkish public opinion and political parties continue to prioritise what is called “old fashioned developmentalist policies at the expense of real effective environmental regulations that aim to maintain global and local environmental sustainability” (p172). Since this book was published, AKP announced new policies at the end of 2017 aiming to improve energy efficiency and increase renewables in the energy mix that would also help contain the energy import bill. However, the plan targets have been criticised for being unambitious. The ISSP survey period also does not cover the Gezi protest that exploded onto the Turkish political scene in 2013 which is likely to have increased public awareness of environmental issues.
The politics of the Gezi protest is explored in Chapter 8 by Arsel, Adaman, and Akbulut. Other chapters also cover local campaigns against mining and energy projects in rural areas and a number of other opposition movements such as the on-again-off-again anti-nuclear campaign, the alternative food initiatives, and an anti-capitalist (“non-accumulationist”) commoning movement. These discussions bring to attention of English readers, the rainbow of extensive grass-roots political activism that persists in Turkey despite the narrowing of the democratic sphere in recent years that has accelerated since the failed coup in 2016. Although not covered in this book, one can add the trade union and professional associations of architects, doctors, teachers, electrical engineers, et.al. who remain active in trying to shape policy in their respective sectors.
Neo-liberal authoritarian developmentalism
In line with global policy trends, the liberalisation of the Turkish economy began in the aftermath of the 1977 debt crisis and 1980 military coup and was further shaped by the structural reforms following the 2001 financial crisis. The main thesis of this book is that since the mid-2000s, but especially since the GFC, the AKP has constructed a development discourse that has brought back a greater state role in the economy. Again, this is in line with global policy trends where elements of state intervention policies are increasingly evident in many developing and some advanced economies since the GFC. Even in über-liberal UK, there is talk of an “industrial policy”, an infrastructure bank, and from the Labour-left, renationalisation of the privatised utilities.
Historically, state led development is nothing new for the Turkish economy which has seen many phases of top-down modernisation reforms since the 19th century Ottoman era which also defined the initial decades of the Republic. But the authors argue that the current neo-liberal interventionist resurgence under the AKP is distinct from the state-led industrialisation policies of the 1930s to 1970s. Today, it has taken the form of an extensive web of re-regulation and re-centralisation of the economy and political structures which the authors refer to as “neo-liberal authoritarian developmentalism”. Moreover, this reviewer would add, the 1930-70 state intervention had a developmental coherence structured around the Five-Year Development Plans which directed policy in contrast with the current set of mostly reactive, arbitrary interventions.
Hydropower renaissance in the energy sector
These policies as implemented in the power sector are explored in Chapter 5 focusing on Turkey’s “hydropower renaissance”. Hydroelectricity has been an important component of Turkish power supply accounting for 25% of total at mid-2017 relying on a mix of small and large-scale plants. The latter include the Keban, Karakaya, and Ataturk Dams on the Euphrates and the soon to be completed Ilisu dam on the Tigris. These are part of the multi-decade and still ongoing South East Anatolia (GAP) energy and irrigation project -- one of those “old-fashioned development projects” that was begun in the 1970s and has more than tripled harvest yields on the Harran plain and turned the area into a net-exporter. Installed capacity in hydro has risen rapidly from 12,000MW in 2003 to 24,000 MW in 2010 and is expected to further double by 2023 – the Turkish republic’s centennial. This is a hard to meet target however. The locations for the bigger dams are now mostly used up, leaving the run-of-the-river small hydropower plants (SHP) as the main driver of this growth.
The SHP are the focus of Sinan Erensu’s very useful essay that also contains a historical overview of the legal and institutional changes in the Turkish power sector and its tortuous path of liberalisation. After 15 years of political debate and legal challenges, two critical pieces of legislation for the power sector was the 1999 constitutional amendment that gave privatisation its constitutional legitimacy and the 2001 Electricity Market Law reducing the role of the state and establishing the Energy Market Authority (EMRA) to regulate the sector. AKP elected in November 2002 after these major reforms were enacted moved swiftly with the privatisation of the generation and distribution assets in a process that has been beset with allegations of favouritism to business groups with close ties to AKP. In hydroelectricity, critical legislation gave State Hydraulics Works (DSI) the authority to lease (often for 49 years) sections of rivers and streams to private entities. Second, more controversially, the government stepped up the use of a 1940s war-time Administrative Law allowing state confiscation of land and property deemed to be strategic. This has been used to appropriate private lands often from small land-holders in order to speed up energy investment projects (as well as a variety of other infrastructure and urban renewal projects).
These short-cut measures fast-tracked investment into the energy sector and began to close Turkey’s decades-long chronic electricity supply gap. They also created winners and losers. The bonanza of hydroelectric licenses awarded to the private sector in 2003-2016, reveal the downside of the AKP mode of operation. Of the total 913 hydroelectric licenses awarded in that period, half were run-of-the-river installations under 10MW capacity. Erensu quotes a DSI bureaucrat that the micro-SHP “were not worth the effort” given the environmental disruption they could cause on smaller streams. This lucrative business also spawned a new breed of sometimes disreputable energy brokers – cantaci or brief-case men, who acted as the middle-men between the government and private investors. The 2014 drought which led to the drying up of smaller streams caused losses on investments and slowed the flow of money to the sector.
But this was not before a number of social changes were triggered by this injection of market forces to remote hills and valleys of Anatolia. Erensu reports how a former bee-keeper in rural Artvin (eastern Black Sea) who initially campaigned against SHP is now its local manager providing an additional 11 jobs in the village. Erensu concludes by observing the messiness of neo-liberalism but also the dynamism and transformational capacity of the new investments (it is hoped that this extra injection of income to Artvin also supported the bee-keeping business).
Policy zig-zags in agriculture
A similar complex picture is presented in Chapter 3 in agriculture. The contribution, by Huri Islamoglu, based on field research during 2006-08, traces how the liberalisation reforms that cut subsidies to agriculture following the 2001 financial and banking crisis have been partially reversed. Islamoglu tracks the policy zig-zags from the 1990s when state support for agriculture peaked at 4.4% of GDP. After two decades of reforms this is down to 2.4% in 2014-16. This remains higher than the average for the OECD, but that is not surprising given that agriculture still provides 8-9% of GDP in Turkey compared with an average of 3% for the OECD. The agricultural reforms following the 2001 crisis were mostly driven by fiscal imperatives to reduce public borrowing. They focused on the reduction of price support for key agricultural products to be replaced by direct income support to help farmers cope with the decline in income. This programme – the Agricultural Reform Implementation Project (ARIP), was successful in reducing agricultural budget spending. But its recommendations to restructure the main state grain purchase entity (TMO), privatise or close agricultural state enterprises (in sugar, tobacco, dairy, meat & fish) created havoc. These measures weakened long-established rural institutions that had been the “mainstay” of peasant household production, including the farmers cooperatives. The shock to the sector brought an exodus of people to urban areas. Agricultural employment that had peaked at 8.7 million in the 1990s, had fallen to 6.1 million by 2006.
Complicating the picture was the start of Turkey’s EU membership accession in 2005 that began aligning Turkish agriculture with the EU’s Common Agricultural Policy (CAP). The author observes that CAP was a product of specific historical developments in agriculture mostly with reference to France with different institutions such as a strong tradition of producer unions to defend farmers rights. In Turkey, the EU accession reforms opened up agriculture to market forces at a time when rural institutions were already weakened by ARIP. Not surprisingly, the most at risk were small farmers, whose cooperative associations had been either privatised and/or went bankrupt. The sudden retreat of the state gave no time for extending rural education, training and technical back up needed to manage the changes and the newly privatised entities. The Turkish Chambers of Agriculture reported that between 2006 and 2010 some 25% of agricultural cooperatives were closed – a figure considered a conservative estimate.
But there were also winners. Some cooperatives such as Pankobirlik (of sugar beet and corn producers) and Fiskobirlik (hazelnuts, one of the oldest set up in 1938), or Taris (olives) have flourished in the more competitive environment also running profitable processing factories. Agricultural Credit Cooperatives also grew, becoming a significant source of credit to farmers. These conditions as well as the growth of agricultural machinery sector and increased supply of finance consolidated a middle-class stratum of entrepreneurial farmers approaching EU-style commercial contract farming.
Turkish agricultural sector is one of the strengths of the Turkish economy providing food self-sufficiency and – despite a steady rise in imports in key crops such as cereals – still remains a net exporter. However, among its many problems is the fragmentation of land holdings, and high (above world market) input prices for energy and fertilisers. In one of its most important policy initiatives, the AKP government began to address these issues in the 2006-10 Agricultural Strategy Paper. Legislation was passed to speed up consolidation of lands empowering government to merge holdings. The most important measure was the Soil Protection and Land Use Law that also amended the Inheritance law to make it possible to concentrate farm-land in the hands of a single heir. This was assisted by the farmer registration system previously established to manage the allocation of direct income support in ARIP. However, there is a long way to go. Average plot size stands at 5.9 hectares compared with 45-50 in France, UK, and Germany.
AKP government further increased its focus on the agricultural sector from 2007-08 as world food prices rose. A reorganised Ministry of Food, Agriculture and Livestock brought a more activist state policy that began to chip away at the ARIP framework and diverge from the EU’s CAP. The government policy that has emerged is an often arbitrary but also flexible process that extends support to offset fluctuations in input costs (such as fuel and fertilisers) or provide state transfers to critical activities such as livestock breeding, while also continuing with a more selective income support. Although farmers representatives protest that the government largely fails to deliver what they promise (mostly in the lead up to elections), in 2004-13, Turkish agricultural output grew faster than the global average with also higher total factor productivity growth. This reflects the exodus of people to the cities but also the contribution from farmers with larger land holdings or contract farmers working in vertically integrated national enterprises, and some, with international links. The latter have become the main beneficiaries of state measures and bank credit mostly growing commercial crops. There are still government initiatives supporting small farmers. But Islamoglu suggests that many policies designed to help small farmers inevitably end up boosting the entrepreneur farmers. The next challenge of course will be the renegotiations planned to start in 2018 to extend the EU Customs Union to incorporate agriculture!
Global crises, AKP policy shifts, and the search for a new growth model
In Chapter 2, Tuna Kuyucu examines the differing impact of the two crises – the 2001 Turkish financial crisis and the 2008 global financial crisis – on urban governance. He traces how following the 2001 crisis, it was mostly decentralisation of power from the centre to the municipalities that drove policy; this was reversed after the 2008 crisis. He argues that the different global conditions at the time of the two crises were the determining factors in the policy shifts. In 2001, the global economy was set for a prolonged period of expansion with Turkey’s privatisation programme attracting high levels of FDI that helped finance the current account deficit thus easing domestic economic and political pressures. In contrast, the 2008 crisis which, combined with the Eurozone crisis a few years later, undermined the Turkish growth model of the previous decade. AKP governments opted for “relentless centralisation” with state led infrastructure, and credit and construction driven growth to offset the contractionary impulse from the global economy.
Kuyucu argues against two widely held views regarding the reversal in AKP policy. One is a “power corrupts” thesis that AKP became more authoritarian as the AKP elite gained more power over time. The second is that AKP was always an authoritarian party which in its first two terms went along with democratic decentralisation to widen its support; the turning point was the 2010 constitutional referendum which provided the AKP the position of strength to show its true authoritarian colours. But according to Kuyucu, the key dates are the crisis years of 2008-2009 – a time when AKP’s popular support was weakening. In 2009, the then Prime Minister Erdogan announced the plans for a third Bosporus bridge – overturning the Istanbul Master Plan decision to reject it -- followed by the third airport, the Istanbul canal project, the nuclear plants etc. Critical legislation that underpinned centralisation were the two Municipality Laws in 2010 and 2012 that weakened district municipalities and concentrated power at the metropolitan level (which in the two biggest metropolises of Ankara and Istanbul were held by AKP). The creation of a new Ministry of Urban Development and Environment in 2011 also accelerated this trend to bypass local opposition to urban projects through the increased use of executive decisions, recourse to a Disaster Law, and revisions of the Public Procurement Law which first enacted in 2002 was changed 35 times by 2013.
But there is a consistent strand: patronage
However, somewhat weakening Kuyucu’s argument that 2009 was the turning point is the central role of TOKI (the social housing administration). TOKI existed before AKP came to power but had collapsed in a mire of corruption during the banking crisis of 2001. AKP transformed TOKI from a “credit dispensing mechanism and remade it into the most powerful contractor and land broker in the country” (p56). TOKI was given power to by-pass municipalities in changing zoning laws and the authority to sell all public land (except land owned by the military). It also has a unique legal status, not legally a public institution, excluded from the general budget, and not subject to the Public Procurement Law -- all of which raise major governance issues. Hence the tendencies towards central control, removed from public scrutiny, that builds patronage networks for rent extraction on which political and economic power rests were there from the start of AKP rule. Nor is this unique to AKP as it has been a historic persistent feature of Turkish economic and political scene.
The author also argues that the weakening of the EU membership anchor from 2007 onwards undermined the “carrot” towards a democratic, more transparent institutional framework. Perhaps. The extent of corruption and patronage in the southern EU economies revealed by the Eurozone crisis and the turn towards “illiberalism” in Hungary and Poland would also suggest the “EU anchor” even after several decades of EU membership is not sufficient to ensure institutional strength. There is also the possible impact on Turkish policy makers of the experience of the 2008-09 global financial crisis which revealed the fault-lines of the “Western” model in contrast with an apparently more resilient “China model”.
This is a commendable book which highlights on-the-ground changes that have taken place in the Turkish economy and highlighting the successes and failures of the liberalisation reforms. These reforms – mostly begun in the 1980s were successful in improving productivity by bringing market forces to bear on those parts of the Turkish economy previously shielded by the state umbrella. Among the successes – not covered in the book -- are the restructuring of the banking sector after the 2001 crisis and the privatisation of State Enterprises pursued by the AKP government in the 2000s. The post-2001 crisis reforms also aimed to reduce the scope for patronage and corruption by introducing independent regulatory institutions that would give more autonomy to the bureaucracy. This latter objective has been progressively whittled away by the AKP governments as seen with the repeated amendments to the public procurement law and the weakening of independence of the Central Bank.
This book’s unique contribution is its focus on the more complex sectors such as agriculture and energy where the impact of liberalisation has been mixed and where it is being partially reversed. In agriculture the liberalisation reforms fostered the emergence of a class of commercial entrepreneur farmers that increased agricultural productivity and in the power sector brought increased investments to meet Turkey’s fast-growing energy demand. The privatisation and restructuring of the electricity sector were exceptional in that there was a long public debate in the 1990s. But, the resulting sectoral structure is overly complex with the state still playing a major role through BOTAS (the state owned oil and gas pipeline and trading entity) and a haphazard dynamic as seen with the privatisation of the SHP. Moreover, in their rush to fast-track energy investments, the AKP government failed to address Turkish economy’s Achilles heel: energy import dependence.
In contrast to the long debate on the power sector, reforms under ARIP in agriculture were rushed through to meet fiscal targets. They undermined the established rural institutions and had a high social cost. AKP government policies since the mid-2000s sought to address the negative consequences of the reforms on their key rural electoral constituency with increased state support through subsidies, state-guarantees and incentives. Just recently, with an eye on the upcoming presidential election, the 2018 agricultural support measures announced by Prime Minister Yildirim promised that “half the cost of fuel is from us”. This combination of policies accompanied by a state led construction and credit boom have increased the scope for political discretion and helped consolidate AKP patronage networks that has become more evident since the 2016 failed-coup. The missing piece of the puzzle in this collection of essays is a contribution on patronage networks (for example in the health sector – another major state social infrastructure focus) that would have supported the analysis.
Dr Mina Toksoz is an Honorary Lecturer at the Alliance Manchester Business School, University of Manchester, and Associate Fellow at Chatham House (RIIA). The analysis of the Turkish economy has always been a focus set in context of wider expertise on Emerging Markets working at the EIU and managing country risk in investment banking. Her latest book The Economist Guide to Country Risk was published by Profile Books in 2014.
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