Golden age of authoritarianism in Turkey

The Republican People’s Party (CHP) has finally realized that the best way to campaign against the Justice and Development Party (AKP) is to prioritize bread and butter issues instead of falling into the trap of polemical polarization.

For years the main opposition party focused on secularism and instigated the fear of political Islam. Such a strategy failed to resonate with the masses but appealed to the so-called quotwhite Turksquot who constituted a disgruntled minority. Then, during the presidential elections the CHP changed course and decided that it should appeal to conservative AKP voters. The result was the nomination of a conservative name, Ekmeleddin ihsanoilu, as its candidate. Once again, this was the wrong strategy based on the faulty assumption that what motivated the masses behind the AKP were issues related to religion and conservatism. Today, the CHP once again changed its strategy with the epiphany, quotIt’s the economy, stupid!quot

This seems to be the right strategy because the main reason behind the AKP’s electoral success has always been the economy. Turkey achieved rapid growth in the 2000s thanks to structural reforms. The AKP built on the reforms of Kemal Dervii and wisely decided to invest in education, infrastructure and healthcare for large segments of society that had been left on the sidelines. An independent central bank helped end chronically high inflation. The public sector deficit fell, while the public debt-to-GDP ratio dropped to 35 percent. From 2002, improvements in economic institutions and policies generated a better environment for business and broadened the base of economic activity. Economic activity became more diverse across sectors, companies and regions. Most importantly, the number of mid-sized companies grew and provincial cities in Anatolia enjoyed unprecedented business activity. Foreign direct investment and short-term foreign capital also began to flow. According to World Bank figures, productivity in the manufacturing sector grew at approximately 7.5 per cent per year between 2002 and 2007. Yet, there is also another and much less rosy narrative about the performance of the Turkish economy that can be analyzed at two different levels. First, the current dynamics indicate that the era of high growth and structural reforms has been replaced by low growth, no reforms and major corruption. Second, it is becoming increasingly clear that Turkey greatly benefited during the high growth era from an unusually favorable external environment. In particular, financial globalization and the availability of cheap foreign capital seem to have played a critical role. According to this diverging economic narrative of Turkish economic performance, the key to Turkish economic success was not productivity growth but private sector borrowing. Very low levels of domestic savings has been the main structural constraint on the Turkish economy and under the AKP the private savings rate has come down even further thanks to low global and domestic interest rates. The result was macroeconomic populism. Instead of relying on public sector borrowing, this time it was the private sector that borrowed, especially short-term, to sustain domestic production, consumption and investment. This strategy worked as long as cheap credit and low interest rates were available. It also came at the expense of vulnerability and fragility in financial market sentiment as cheap credit funds dried up. The only silver lining in all of this is that there was much greater reliance on foreign capital inflows and less reliance on printing money. But borrowing continued with the difference that it switched from public-sector to private-sector. All this is not very good news for the CHP. Yes, the party has finally opted for the right strategy of prioritizing the economy, but it is doing so at a time when economic populism based on borrowing is becoming increasingly impossible due to global monetary tightening.