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Global crisis, Turkey and the regulation of economic crisis

Zülküf Aydin
Capital & Class 2013 37: 95
DOI: 10.1177/0309816812473957

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473957
2012
CNC37110.1177/0309816812473957Capital & ClassAydın

Capital & Class

Global crisis, Turkey

37(1) 95–109
© The Author(s) 2012
Reprints and permission: sagepub.
and the regulation of co.uk/journalsPermissions.nav
DOI: 10.1177/0309816812473957
economic crisis c&c.sagepub.com

Zülküf Aydın
METU, Northern Cyprus Campus, TRNC

Abstract
The Turkish economy has been crisis-prone since the establishment of the Republic
in1923. The various policies that resulted from the series of crises following the
1929 world economic recession have not only shaped the country’s integration
into the global economy, but have also determined the specificities adopted by
the accumulation regimes. The impact of the current global crisis on Turkey,
and the government’s reaction to it, need to be analysed in relationship to the
existing accumulation regime shaped by the country’s history. Thus, while this
article is concerned with Turkey’s reactions to the current global crisis, it contends
that policies from 2008 onwards show a degree of continuity with the policies
already in place to cope with the problems generated by the 1994 and 2001
crises experienced in the country. The internationalisation of the Turkish economy,
the relationship between core and periphery within the country, and the shifting
relations of production and labour relations have all informed the AKP’s response.

Keywords
Global crisis, Turkey, accumulation regimes, authoritarianism

Introduction
The reactions of the Turkish government to the 2008-9 global crisis were a continuation
of policies designed to support financialisation. Foreign capital inflow, which had
increased from $10 billion in 2003 to a total of $184 billion in 2007, led to significant
increases in current-account deficits and rising international debts, from $130 billion in
2002 to $290 billion in 2008 (Boratav 2009: 13). The contraction of financial capital
during 2008 and 2009 exacerbated the fragility of the Turkish economy, as $10 billion
left the country, causing a 7.8 per cent decline in the national income. Turkey’s imports
and exports declined by 30.6 per cent and 22.1 per cent respectively in 2009, while

Corresponding author:
Zülküf Aydın, METU, Northern Cyprus Campus, TRNC
Email: Zulkuf@metu.edu.tr

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96 Capital & Class 37(1)

international trade declined by 46 per cent (BSB 2011: 123). Despite the fragility of the
strategy of high international borrowing and current-account deficit, Turkey has retained
this path since mid-2010, when hot capital returned and exacerbated the fragility of the
economy. The financial crisis emanating from the USA hit Turkey at a time when its
growth model was based on exports and external financing.
In order to understand why these policies were in place and why they persisted, we
have to understand how policies designed to address the crises of the recent past were
shaped by neoliberalism. The argument will unfold in three sections. First, the accu-
mulation regimes pursued in the country since the establishment of the Republic in
1923 show how strongly the global economy and the systemic crises of capitalism have
shaped Turkey’s political economy. The second section concentrates on the impact of
the crisis on Turkey, analysing the early policy responses to it. The third section focuses
on the new alternative policies introduced by the AKP government in the aftermath of
the 2008-9 crisis. Throughout, we shall see that despite the dominant form of the
accumulation regime, the centralisation of economic and political control and the
incorporation of the international economy have defined Turkey’s response to the
crises over time.

Development and modern accumulation regimes

Capitalism’s crises and transformations have not been sequential, but simultaneous his-
torical processes (Hoogvelt 2001: 65). Early crises in capitalism, such as those in 1825,
1836, 1847, 1857 and 1866, lasted only few months and brought about recession,
reflecting falling output, business closures, unemployment and falling wages. However,
in advanced industrial capitalism, crises (1893, 1896, the 1930s and the crises since
1973) were no longer short-lived events but related to the failure of long-term processes
in accumulation, and could be known as ‘secular system-wide downturns’ (Brenner
1998). The crises of 1973-4, 1979-1981, 1990-91 and the current crises since 1997 are
evidence of how deep and regular the accumulation crises have been. In the last twenty
years, persistent over-capacity and over-production in world manufacturing has led to a
‘long downturn’ in capitalist accumulation (Brenner 1998).
The systemic crisis of capitalism was effectively ‘postponed or displaced by imperial-
istic expansion, the growth of credit money, restructuring of physical production and
social relationships between capital and labour, and capital mobility, as well as by state
fiscal, monetary and other policies’ (O’Connor 1989). A range of social institutions
ameliorated the tendency of capitalism to fail. Economic crises in the post-Second World
War period were overcome by reconstruction and Keynesian state intervention, which
regulated a balanced relationship between mass production and consumption, and core
economies experienced phenomenal increases in the production of both producer and
consumer goods using flow-line technology. Fordism allowed some developing countries
to use a developmentalist model based on import substitution. But by the mid-1960s,
Fordist expansion became unsustainable as the profitability of leading industries declined,
wage gains could not be reduced, and there was a global decline in demand. The Fordist
regime required the continuous expansion of markets, which could not be achieved on
Fordist principles (Hoogvelt 2001: 45-50). The fragmentation of production, the de-
skilling of labour, technological revolutions in containers, telecommunications and

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Aydın 97

computer applications, and the relocation of industry to cheap labour reserve areas in the
Third World were vital to the maintenance of a new mode of capital accumulation.
The shift from the Fordist to the post-Fordist mode of accumulation therefore
changed the role of the Third World in the global economy, from providing raw material
resources to providing cheap labour and production for multinational capital. Given the
scarcity of capital and technology in developing countries in the ‘developmentalist era’,
the import-substitution type of industrialisation was only possible through the purchase
of technology and/or through partnership with the TNCs. In either case, borrowing
from international banks and granting concessions to TNCs were inevitable, and debt
peonage characterised the majority of the Third World countries by the early 1980s, as
states borrowed to maintain inefficient industries and high public expenditures. Highly
skewed income distribution and rampant poverty in developing countries since the late-
1970s have led to market contraction and rendered these economies less attractive for
direct foreign investment. The expansive phase of capitalism came to an end by 1980,
and with it the deepening rather than widening of capitalist integration (Hoogvelt 2001:
67-93).
This was a period ‘when the ascendency of finance over industry together with the
globalization of finance have become underlying sources of instability and unpredict-
ability in the world economy’ (UNCTAD 1990: 10). With limited outlets for productive
investment, capital sought other ways to invest surplus capital and found international
lending and speculative capital movements. International institutions like the IMF and
the World Bank play a crucial role in ensuring financial openness globally. Governments
were forced to liberalise their financial systems and introduce floating exchange rates.
Local banks pushed speculative finance capital into fragile financial markets in the South,
siphoning off the savings, while speculative finance capital internationalised the crisis of
Fordism through the creation of massive Third World debt. The pressure exercised by the
IMF and the US Treasury led to the predominance of short-term financial capital in the
financial structure of emerging markets, and the economic crises in 1997 in East Asia, in
1998-2002 in Latin America (especially in Argentina and Brazil), in Russia in 1998, and
in Turkey in 2001-2002 (Stiglitz 2000a; 2000b). In recent years, the liberalisation of the
Turkish economy has made it more vulnerable to the movements of international finance
capital, and the current crisis in Turkey is largely due to structural economic weakness
and Turkey’s further integration into the global economy.

Turkey, crisis and the New World System

Although Turkey has experienced a number of serious crises since 1950, the frequency of
crises in the country has increased since the 1977-78 crisis. The 1980-81 economic crisis
brought about a military coup before the 1983 bankers’ crisis. Then there were the 1988
stock market and currency crisis, the1994 economic crisis, the 1998 textile crisis, and the
November 2000 and February 2001 crises. Some of these were directly linked to the
structural crises of the capitalist world system, which were transmitted deep into Turkish
society to reinforce national social inequality. This process of uneven development in
Turkey has evolved in relation to distinctly different stages of accumulation.
Import substitution in Turkey started in the aftermath of the global crisis in the
1930s. It remained an important method for controlling foreign currency reserves until

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98 Capital & Class 37(1)

the late-1970s, when foreign currency shortages, low productivity, imbalances between
productive sectors and insufficient demand undermined the policy (Aydin 1997; Boratav
and Türkcan 1991; Derviş et al. 1982: 337-371; Gülalp 1980). The new Republic’s
nationalist and state developmentalist project ensured a particular form of integration
into the world economy in the aftermath of the Great Depression. In the atmosphere of
relative freedom created by the world recession, Turkey was able to follow a nationalist
development strategy, with the state taking a leading role in capital accumulation. After
the Great Depression, Third World inward-looking nationalist industrialisation policies
shifted towards the new international division of labour. Productive capital from the
advanced capitalist countries found investment outlets in the Third World, and laid the
foundations of new export-oriented industrialisation strategies. Export-led industrialisa-
tion, exported to the developing world to overcome the accumulation crisis in the cen-
tres of the capitalist system, became an important mechanism to ensure the centralisation
of power in the global core
By 1980, slow economic growth, contracting productive investments, balance of pay-
ments problems, a debt crisis, budgetary problems and huge inflation rates indicated the
decline of the monopolistic mode of regulation. This led to ‘the collapse of the welfare-
statist economic policies and the populist democratic regime, with corresponding crisis
in secular nationalist ideology’ (Gülalp, 1992: 20). Governments aimed to eliminate
unproductive capital in favour of more competitive capital (Aydin 1997). Export–led
industrialisation was introduced under the directives of the IMF and the World Bank in
the 1980s structural adjustment programmes. These were presented as a development
strategy to integrate Turkey into the world economy, rather than as a stabilisation pack-
age (World Bank 1988). Export-oriented development based on the principle of com-
parative advantage and market-oriented resource allocation were the main pillars of the
new strategy (Krueger and Turan 1993: 356). What was envisaged in the second half of
the 1980s was a programme of ‘structural adjustment with growth’, which would enable
the country to expand its production and thus its debt-servicing ability. As such, Turkey
could become a model for other indebted countries in Africa and Latin America (Celasun
1991; Derviş and Petri 1987; Rodrik 1990; World Bank 1988). Only big capital would
be able adjust itself to the new conditions and become internationally competitive.
Exports showed a steady increase from 3.4 per cent of the national income to 8.1 per
cent in 1981, 10.7 per cent in 1982, 14.2 per cent in 1984, and 15.5 per cent in 1985
(TÜSİAD 1986: 74). In the first years of these policies, exports rose not in manufactured
goods but in traditional export crops. Increased exports were achieved by reducing export
prices through devaluation, and by shrinking the internal market through a strict wage
policy throughout the 1980s (Boratav et al. 1994; Boratav et al. 2000; Yentürk 2001: 3).
By 1990, the Turkish economy had become export-oriented, liberalised and open.
Under the military government, all impediments for the free operation of foreign capital
were removed, and private-sector-led export-oriented industrialisation was strongly sup-
ported by the state growth model from 1983-88 (Boratav 2003). Between 1980-1990,
the developmentalist and import-substituting growth model was replaced by neoliberal
growth agendas, transforming the relations of production, distribution, employment
and growth (Boratav 2003; Boratav and Türel 1993). The process of liberalisation was
completed with the full liberalisation of capital accounts in 1989-90. The rapid initial
increase in exports was not sustainable, as it was based on labour-intensive sectors (Aydin

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Aydın 99

1997; Ercan et al. 2008; Gülalp 1983). Towards the end of the 1980s, commodity
exports, which were emphasised as the motor of the accumulation regime in the 1980-89
period, experienced a serious crisis.
During the second phase of the post-1980 period (1989-1999), the mode of accumu-
lation relied heavily on capital inflows from outside. This coincided with an over-
abundance of financial capital in advanced industrial countries in search of new invest-
ment outlets that could offer guaranteed high returns for short-term lending (Aydin
2005). In this period, the focus of the mode of accumulation was not on productive
activities but on transferring capital from international finance institutions to the banks
owned by Turkish holdings through the mediation of state borrowing, which in turn
enhanced the country’s exposure to the structural crises of international capitalism. The
financial liberalisation introduced in 1989 through Decree Number 32 not only made it
possible for the transfer of over-accumulated money capital in global markets to Turkey,
but also allowed a section of the Turkish bourgeoisie to become key agents in the money
markets through their banking activities and capital groups became more exposed to
speculative and international investments. Consequently, the 1990s witnessed a number
of small successive crises in the productive sector, culminating in the February 2001
crisis (Boratav et al. 2000; Öniş and Aysan 2000; Ekinci 1998; Yentürk 2001; Yalman
2009). This reliance on portfolio investment to fuel economic growth simply increased
the economy’s fragility by making it susceptible to the whims of the international finan-
cial markets (Ekinci 1996; Yeldan 2001).
The results of the so-called ‘financial revolution’ were disheartening: speculative for-
eign capital flows encouraged by high real interest rates caused havoc in the domestic
asset markets, which culminated in the collapse of the financial system and the emer-
gence of a severe economic crisis in 1994. A combination of populist high wage policies,
the contraction of investments in the productive sector, the rise of a rentier type of accu-
mulation fired by the speculative capital movement, and an economic growth based on
short-term borrowing generated suitable conditions for the 1994 financial crisis.
The inflow of speculative money led to the appreciation of the Turkish currency
against other currencies, thus making exports more expensive and imports relatively
cheap. The production and export of manufactured goods in Turkey slowed down
between 1989 and 1994, and high interest rates contributed to the drop in investments
in the manufacturing sector, revealing the problems of financial liberalisation. Trade
deficits increased from 3.5 per cent of GNP in 1985-88 to 6 per cent in 1990-93, and
fiscal balances deteriorated after 1989. Public-sector borrowing requirements rose from
an average of 4.5 per cent of GDP during 1981-1988 to 8.6 per cent in the period
between 1989 and 1997 (Boratav et al. 2000: 6, 24). The vicious circle of a growth
model based on extensive borrowing, high interest rates and a distorted foreign currency
regime was inevitably going to lead to a severe crisis.
By the end of the 1990s, the government and big businesses promoted the interna-
tional competitiveness of the economy in order to break out of the pattern of incessant
crises. The 2001 transition to the ‘stronger Turkish economy’ (STE) programme would
reveal that its aims were to radically reform the economy, society, and state–society rela-
tions. Comprehensive changes included reform of the banking system and the financial
system (to ensure transparency in financial administration, in the agricultural system of
subsidies and in the social security system, as well as abandoning the exchange-rate-based

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100 Capital & Class 37(1)

monetary policy in favour of a floating exchange rate system; and finally, the speeding up
of the process of privatisation.
The policies put into effect included a total overhaul of the banking system to ensure
productive investment (Gültekin-Karakaş 2009), institutional reform (Government
Decree 2001; FIAS 2001), the disciplining of labour (SPO 2001) and better regional
distribution of productive investment aimed at enhancing international competitiveness
through regional labour markets. While the policies were able to introduce some anti-
inflationary fiscal and monetary measures, the envisaged structural reforms were very
ambitious, and contradictory to the spirit of neoliberalism. The rhetorical nature of the
state documents has been maintained in the recent documents produced in conjunction
with the fight against the impact of the 2008-9 crises (SPO 2009, 2012; Sanayi ve
Ticaret Bakanligi 2010), as many references are made to reducing regional inequalities
and strengthening the international competitiveness of the industry.
The government’s main concern has been the generation of revenues for the central
budget and fiscal adjustment, rather than efficiency, and the repeatedly emphasised com-
petitiveness of the economy in the official documents (Atiyas 2009). Although privatisa-
tion has been on the agenda from 1980 to the 2000s, the governments did not pursue it
very seriously for political expediency. The legal framework for privatisation of the pub-
lic sector in line with the acquis communautaire was almost completed by the end of the
1990s, and the 2000s witnessed the speeding up of privatisation.
Throughout these periods, the relationship between the Turkish economy and the
international system was repeatedly reinvented in the forge of economic crisis. The shift
to and from import-substitution strategies, defined during the inter-war recession, to the
SAP-driven, export-led liberalisation of the 1980s and 1990s, under World Bank super-
vision, to the financial revolution of the 2000s under casino capitalism, were book-
marked by periods of economic crisis. In each crisis, the socialisation of national
economic relations was reformed to match the interests of a dominant but shifting form
of capitalism.

The impact of the crisis on Turkey and the early

policy response
The early policy response to the current crisis reveals one of the enduring characteristics
of the financialised state: centralised political control. In Turkey’s case, this was revealed
in the executive’s over-confidence in the banking reforms after the economic crisis of the
early 2000s. It was also evident in the appeal to a new constituency of networked SMEs
that would form an alternative economic foundation to Turkey’s economic development.
The policy reactions to the 2008-2009 crisis were mainly the continuation of those
introduced after 2001, but the AKP government presented them as if they were new and
specifically designed to fight the consequences of an externally generated crisis. Although
the 2008-2009 crisis simply speeded up the already declining economy, the government
presented an image of a strong economy based on a strong banking sector (Öniş and
Güven 2011). In reality, industrial establishments had simply stopped investing in new
technology and equipment. This not only meant the loss of competitiveness in the world
market, but also a significant decline in the manufacturing industry. The situation in
which the AKP came to power provided an opportunity for the incoming AKP

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Aydın 101

government in November 2002 to continue implementing some of the structural reforms

already put in place during 2001-2002 by the technocrats of the previous government,
who had been building upon them. The groundwork for the reforms had already been
laid out during Kemal Derviş’s time as the Minister of the Economy. In order to ensure
Turkey’s further integration into the global economy, Kemal Derviş, a World Bank expert
introduced measures that included the restructuring of the banking and social security
systems, improvement of debt management, and the re-orientation of public expendi-
ture in accordance with the requirements of the IMF and the World Bank. To a signifi-
cant extent, the AKP’s success in improving economic growth and the fiscal balance in
the six years preceding the 2008-9 crisis owes much to the restructuring process set in
motion by previous governments (Öniş and Güven 2011: 7). One of the main reasons
for Turkey’s slow reaction to the crisis was the false sense of confidence and complacency
created by a strong economic performance since 2002. At the root of this complacency
was the high rate of economic growth between 2002 and 2006, generated by the inflows
of foreign capital attracted by high real interest rates and an over-valued currency in the
country (Rodrik 2009). When the crisis emerged, the government’s wait-and-see attitude
was largely due to its confidence in the strength of its reforms to the banking system, and
the reform fatigue that set in after the efforts made between 2002 and 2006 (Patton
2007, 2009).
There are signs that Turkey has come out of the 2008-2009 crisis, which hit it very
suddenly and had a more severe impact than the previous ones. The IMF (2010), World
Bank (2010) and ILO (2010a and 2010b) shared an optimism that the 2008 economic
crisis had been gradually replaced by a process of recovery since the second half of 2009.
The government’s initial reaction was that the measures taken to overcome the 2001
crisis were robust enough to enable the country to withstand the new crisis from the
sudden stop in capital inflows. The resilience of local banks, together with huge cuts in
interest rates by the Central Bank, were not able to avoid rapid increases in unemploy-
ment and a decline in industrial output and gross domestic product (Rodrik 2012: 48).
The crisis was a product of the over-financialisation of the global economy. Turkey only
recovered rapidly thanks to ‘the stabilisation of the global financial market conditions
and the policy-driven sharp reductions in interest rates in advanced economies’, resulting
in the revival of capital inflows into countries like Turkey (Rodrik 2012: 43-5).
If Turkey had not responded so late to the crises, the results would not have been as
serious as a 0.7 per cent growth in 2008 and a -4.7 per cent growth in 2009 (Bagimsiz
Sosyal Bilimciler 2009: 186-204; Özatay 2009; Uygur 2010). The small package offered
in 2009 was far from the ‘Keynesian resurgence’ introduced in many developed and
developing countries (OECD 2009). A number of factors have contributed to the AKP’s
reactive policies to the crisis that exacerbated unemployment and impoverishment in the
country. They include the past accumulation regimes that generated economic fragility,
and the AKP’s political interests in entrenching its power and favouring its clientele
(Öniş and Güven 2011: 1-2).
Policymakers could not go beyond the familiar monetary and financial policies aimed
at economic stability to give priority to the development of the real sector and to distri-
butional problems (Öniş and Güven 2011: 2) Unlike the two most recent crises in
Turkey in 1994 and 2001, the 2008-2009 global crisis generated a sharp increase in the
levels of unemployment, which jumped from 9.9 per cent in 2008 to 14.4 per cent in

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102 Capital & Class 37(1)

February 2010 (TUIK). When these factors are considered together with the loss of
income by the self-employed, informal-sector labour force, the severity of the vulnerabil-
ity of the poor becomes more evident (TEPAV, UNICEF and World Bank, 2009).
Prime Minister Recep Tayyip Erdoğan claimed, ‘The crisis will pass at a tangent to
Turkey. We will overcome this crisis with a minimum change’ (Erdoğan 2008). This
cavalier attitude towards the crisis at best delayed the policy reactions, which seriously
undermined their effectiveness. In addition, the AKP did not go against the anti-IMF,
-EU and -World Bank sentiment that had been developing in the country for a decade.
Since the early months of the crisis and throughout 2009, the AKP government resisted
very strongly the new official financing agreement with the IMF due to the increasing
public disenchantment with the external actors. The EU was seen as generating new
obstacles to prevent Turkey’s accession, while the IMF and the World Bank were shaping
Turkish development in such a way as to promote Western interests. The IMF and the
World Bank insisted on reforming the tax administration, which would see the establish-
ment of an independent tax collection agency to tax the informal sector, where most tax
evasion took place. The AKP saw this as a serious threat to its political power base, as
most of its votes came from the self-employed, small and medium-sized entrepreneurs,
and farmers. Furthermore, the IMF’s insistence on financial restraint in the allocation of
resources to municipalities conflicted with the AKP government’s target of gaining con-
trol of more municipalities in the local elections. In short, the AKP’s political concerns
delayed an agreement with the IMF in the months following the outbreak of the global
crisis in 2008 (Öniş and Güven 2011: 19).
The government measures concentrated mainly on lowering consumer prices and
investment costs rather than distributional issues, and pressure applied by the industrial
class to withdraw support forced the government to change its attitude towards crisis
management (Öniş and Güven 2011:19). Policy-makers refused to see the global crisis
as a structural crisis of capitalism, but instead as a result of financial instability and fiscal
imprudence. The belief that the banking sector is the medium through which financial
shocks would be transmitted to Turkey was behind the relaxed attitude towards the
global crisis in its first six months in Turkey. The prime minister and high-ranking pol-
icy-makers repeatedly insisted in their public statements that no Turkish bank had expe-
rienced a payment crisis. A list of these statements argued that the real economy was
strong and that volatility was only temporary, and that the robust institutional and finan-
cial structures of the country would contain the damage (BSB 2009: 159-64). Those
who tried to link the crisis to inherent structural problems of capitalism were dismissed
and strongly opposed. Behind this optimistic view was the belief that the Turkey’s past
economic crises (in 1958, 1978-9, 1982, 1994 and 2001) were all due to fiscal misman-
agement, and that a carefully planned and controlled fiscal policy could protect the
country from the crisis. Indeed, the AKP insisted that the crisis would be ‘transformed
into an opportunity for the economy to prosper’ (BSB 2008: 159-64; Erdoğan’s repeated
press statements).
These policies also represented a shift away from the spirit of the 2001-2002 reforms
imposed by the IMF and the EU, but were in line with pre-2007 election concerns
aimed at consolidating the AKP’s power base to hold against the government. While the
pre-election policies included the re-introduction of agricultural subsidies to secure the
votes of the peasantry, which constituted approximately 30 per cent of the population in

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Aydın 103

2007 (Ministry of Agriculture and Village Affairs 2010: 92), the government was reluc-
tant to continue with the restructuring policies necessary for the country’s accession to the
EU. While the AKP government has been extremely instrumental in the liberalisation of
the economy along the lines required by the EU and the Bretton Woods institutions,
political expediency has forced it to pay more attention to local factors. In any case, one
main concern has guided its activities: that of establishing its hegemony.

New alternative policies in the aftermath of the

2008-09 crisis
Having realised that the traditional stability programmes were not generating the desired
results, and that the impact of the crisis was much more severe than envisaged, the gov-
ernment gradually started to think about alternative polices in early 2009. Government
officials, and particularly the prime minister, stopped blaming the opposition, business
organisations such as the TÜSİAD and TOBB and the banks for disastermongering and
demoralising the public. However, the programmes did not address the needs of the real
sector, nor did they include effective social protection measures to alleviate the impact of
the crisis on the impoverished masses. The government was not interested in introducing
a policy package that would address these issues immediately and effectively. Since the
beginning of the 1990s, the state agencies responsible for economic affairs had been very
busy with the process of privatisation and getting rid of state economic enterprises,
rather than with producing policy packages that would promote industrial transforma-
tion and development (Atiyas 2009).
The fact that MÜSİAD, a strong supporter of the AKP and representing the interests
of mainly small-scale Islamic capital, joined the TÜSİAD (the organisation of the big
industrialists) and TOBB (representing medium-sized enterprises and commercial capi-
tal) to demand that the government introduced comprehensive measures to ease the
problems of the real sector, indicated the government’s delicate position. The late attempt
in 2009 to tackle the problems generated by the crisis came only as a response to the
pressures put on the government, and yet the policies introduced were far from being
comprehensive and precautionary. The selective response reflected mainly the concerns
of those who could influence the government, rather than those of any other sector.
Thus, the measures introduced have not concentrated on the crucial issues of poverty,
employment and infrastructural development. While some of the demands of the busi-
ness community were addressed, the demands of the labour organisations such as the
Türk-iş were either simply ignored or paid lip service (Türk-iş 2009). While all sorts of
tax cuts were introduced for the business sector, no attempts were made to lower income
taxes for the waged.
However, the PM’s view that the crisis would pass Turkey tangentially, without any
significant impact, has proved rather optimistic. The government had assumed that the
crisis would be of a financial nature, and that the recently restructured banking system
was robust enough to endure it. Yet it was not the banking sector but the real sector in
which the impact of the crisis was felt very strongly, as the demand for Turkish manufac-
turing declined quite rapidly (Sönmez 2009, 2010; Ergüneş 2010). Specifically, the 30
per cent decline in exports to the EU, which accounts for 60 per cent of Turkey’s total
exports, posed a real threat to the manufacturing sector.

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104 Capital & Class 37(1)

The AKP leaders simply oscillated between the demands of the TÜSİAD (the organ-
isation of big industrialists) and the MÜSİAD (an Islamic-oriented organisation of
small-to-medium-sized Anatolian businesses). While the TÜSİAD demanded that a new
standby agreement should be signed with the IMF to ease the external borrowing needs
of the big manufacturing sector, the MÜSİAD put pressure on the AKP administration
not to sign a new agreement with the IMF that would introduce new tax burdens for
SMEs and reduce public spending as well as state support for the local authorities. The
protracted negotiations with the IMF ended in March 2010 without an agreement, once
capital inflows increased, reaching the pre-crisis levels at the end of 2009.
The policies that emerged were therefore driven by international and national elites,
reinforced patterns of inequality and regional development, and weakened the power of
organised labour. Finally, the crisis allowed the AKP to reinterpret the ‘iron fist’ of the
domineering state in a form that matched its own political priorities.

Policies
The credibility of AKP policies concerning democratisation, getting rid of military tute-
lage, joining the EU and resolving the protracted Kurdish problem, had waned signifi-
cantly. The AKP government had become arbitrary and whimsical, using the security
forces and the judiciary to further its own interests and conceal its policy failures (BSB
2011: 7-8). Rising unemployment forced the government to introduce new investment
incentives and employment packages across government between 2009 and 2010
(Official Gazette 2009; SPO 2009; Sanayi ve Ticaret Bakanlığı 2010).
These initiatives intensified the post-2001 agenda to restructure the economy to fit
the financial accumulation regime. By 2000, it was realised that the capital accumulation
model was no longer sustainable, and that it was time to go beyond an export-orientated
model based on the exploitation of cheap labour (Gültekin-Karakaş and Ercan 2008).
The new model envisaged close co-operation between the state and the private sector in
enhancing the global competitiveness of the productive sector, and was promoted by the
Ministry of Industry and Commerce and ÖİK, a joint planning/think-tank committee.
The 2009 package aimed to redirect savings to high value-added investments to increase
productivity and enhance international competitiveness (Official Gazette 2009). The
measures announced by the SPO (SPO 2009) and repeated in 2011 (SPO 2012) aimed
to transfer resources to financial and productive capital to invigorate the domestic mar-
ket by reducing the prices of durable consumer goods. The inducement package for
investments has been quite ambitious in aiming to become the production basis of
Eurasia in medium- and high-technology products (Sanayi ve Ticaret Bakanlığı 2010).
The government’s attempt to turn the crisis into an opportunity allowed it to devise
investment incentives according to the levels of regional socio-economic development.
The most developed of the four regions received state investment incentives for high-
technology sectors, the next in multi-functional intelligent textile, and the least devel-
oped two regions had incentives targeted at labour-intensive agriculture-related industries
(Official Gazette 2009). The shortage of liquidity during the crisis allowed the govern-
ment to direct subsidies to areas that would speed up the neoliberal restructuring of
agriculture in ‘production zones’ controlled by TNCs and their local partners, and linked
to the direct income support programme supported by the World Bank. These made the

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Aydın 105

qualification for direct income support conditional upon the production of specified
crops in specified zones.
A number of constitutional amendments restricted the rights to unionise, strike and
participate in collective bargaining (BSB 2011: 63, 69). Law number 6111 (2011)
changed more than 80 laws and decrees concerning work and employment, unemploy-
ment benefits, civil service, social security and health services. Such extensive and com-
prehensive changes curtailed the right to organise and unionise, and undermined job
security by introducing temporary, insecure and flexible work. In doing so, they prepared
the legal framework for capital to use non-unionised, part-time or temporary and sub-
contracted labour (Official Gazette, 25 February 2011). These regulatory reforms to
workers’ rights and employment relations have been framed by a Constitution that states
that basic rights and freedoms cannot contradict international agreements. But Law
number 2822, which governs collective bargaining, strikes and lockouts, contains a
number of clauses that are in direct contradiction with the agreements number 87 and
98, signed with the ILO.
The ‘iron fist’ on the labouring classes has been accompanied by the oppression of
oppositional forces under the pretext of their plotting against the state. The Ergenekon
court case and the purge on the Kurdish organisations are cases in point. Hundreds
of journalists, academics, authors and local Kurdish municipal officials as well as
ordinary citizens have been held in custody for long periods, and blamed for involve-
ment in conspiracies to topple the government, or conspiracies to divide the country
along ethnic lines.

Conclusion
Since 2002, the AKP has pushed for small- and medium-scale Anatolian businessmen
and their organisation MÜSİAD to become the dominant economic force in Turkey.
The failure of import-substitution policies and Turkey’s specific integration into the
global economy since the 1980s played into the AKP’s hands. Turkey’s new route to the
international economy has been based on flexible specialisation among networks of small
firms, flexible work practices and outputs, and small-batch production of customised
goods. Slowly, small- and medium-scale Anatolian businesses with Islamic traditions
(hence ‘Islamic’ or ‘Green’ capital) have replaced Istanbul’s traditional large-firm bour-
geoisie. As sub-contractors to flexible firms supplying labour-intensive commodities,
these smaller companies have strengthened the AKP’s power base (cf. Demir at al. 2004).
Having consolidated its economic and political hegemony, the AKP has started a full
frontal attack on oppositional forces (Toprak 2011; Dündar 2011; Dildar 2012; Yılmaz
2012). Thousands of Kurds and municipal officials in the Kurdish South-East region
have been detained in the so-called KCK (Kurdish Communities Union) operations.
These aimed to eliminate the leading cadres of the BDP (Peace and Democracy Party)
that posed the only serious challenge to the electoral success of the AKP in the 2011
general elections. According to the Economist (24 March 2012), the number of people
arrested in connection with the KCK rose from 16,000 in 2005 to 60,000 in 2010. The
AKP rule has become extremely intolerant of any democratic protest, and has abused
anti-terrorism laws, detaining protestors and oppositional forces for long periods with-
out trial (Yılmaz 2012). Journalists, academics, politicians, students, trade unionists,

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106 Capital & Class 37(1)

workers and many others are held in prison in conjunction with either anti-terrorism law
or with the investigation into the Ergenekon conspiracy. Increasing authoritarianism has
become a structural necessity of the accumulation regimes in Turkey in recent decades in
order to address increasingly severe economic problems.
The accumulation regime in Turkey since 2002 has seen the rise of Islamic or Green
capital willing to be integrated into the global economy on the AKP’s terms (Öniş 2007,
2009). Changing the educational sytem and control of the legislative and the executive
organisations has been at the top of the AKP agenda. The so-called 4+4+4 compulsory
education has enabled the government to re-introduce imam-hatip religious schools at
secondary-school level, to deliver what Prime Minister Erdoğan has called a generation of
‘pious youth’ (Evrensel 2012). On the other hand, the constitutional change approved by
Parliament and ratified in a referendum on 12 September 2010, strengthened the AKP’s
grip on political power and the economy. Its 24 articles changed the way judges and pub-
lic prosecutors are selected, evaluated and investigated. Presented as breaking the Kemalist
backbone of the military, judiciary and state bureaucracy, these constitutional changes
also sought to ban gender discrimination and enhance civil liberties and personal privacy.
But the main target has been changes to the judiciary, allowing the president and
Parliament to have a greater influence on the appointment of senior judges and prosecu-
tors. The expansion of the size of the constitutional court and the judicial appointment
committee has given the AKP the freedom to pack the courts with its supporters. The
appointments of the new judges and public prosecutors by the AKP government led to
the head of the Union of Judges and Public Prosecutors for Democracy and Freedom,
Orhan Gazi Ertekin, to claim that the judiciary is no longer independent (Radikal 2012).
Having established control of the police, the judiciary, bureaucracy and the media,
the AKP has managed to subdue the army and the workers’ movements. This has serious
implications for the way socioeconomic policies are shaped, as the condescending atti-
tude of the government to the 2008 crisis shows. The government was confident that the
crisis would not impact on the economy, and showed no inclination to introduce precau-
tionary measures or stimulus packages like those that were introduced in the emerging
markets of Argentina, Brazil, Russia and Thailand (UNCTAD 2009). The policies intro-
duced in reaction to the global meltdown of 2009 were piecemeal in nature and socially
exclusionary, and linked to the past accumulation regime that had generated the crisis in
the first place. These policies have meant that EU accession demands for product quality
standards, as well rules and regulations enabling free movement of capital and the
requirements of financialisation, have been observed very strictly.

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Author biography
Zülküf Aydın is a professor of politics at the Middle East Technical University, Northern
Cyprus Campus. He has taught at Durham, Leeds and London Universities in the UK,
and at various universities in Turkey, Jordan and Cyprus. His research interests include
the political economy of Turkey, globalisation, rural transformation, food sovereignty,
development and democratisation in the developing world.

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