Turkey: Capitalism nurtured by the state

Esen Eslu.

Posted on Weekly Worker August 16, 2018.

The downward spiral of the lira has meant that suddenly Turkey is headline news in the international media, as numerous experts clamour to have their say. As the monetary crisis is intertwined with the Erdoğan regime’s falling out with the US president, another set of experts are busy commenting on Turkey’s international relations.

According to most of them, the growing antagonism between Donald Trump and Recep Tayyip Erdoğan is related to the evangelical pastor, Andrew Brunson, who has been detained on ‘trumped-up charges’ of aiding terrorism. Despite a tacit understanding being reached, he has still not been released. What interests us, however, is the impact of these events on the class struggle and the struggle for democracy.

In Turkey itself the tightly controlled media is full of praise for the valiant struggle of Erdoğan and co to defend us against the attack on our economy led by the evil Trump. This is a national liberation struggle – for some even a jihad. That line is echoed by the president’s loyal opposition. The recently formed rightwing İP (Good Party) was first to declare its support for the president in this battle. The İP only managed to get onto the ballot in June’s general election thanks to the help of the so-called ‘social democrat’ CHP (Republican People’s Party).

The CHP itself has proposed a 13-point plan to deal with the economic crisis and has stated that, had Erdoğan adopted this plan, his government would have been worthy of full support. The plan includes restructuring the state’s bureaucracy, reinstating the independence of the central bank, introducing ‘international standards’ on tax auditing and pushing for a production-based economy.

The opposition of various ‘left’ organisations is often based on similar calls – with the addition that the people must not pay for the crisis through increased taxation, reduced wages, further unemployment and factory closures. How it arrived in this position is a matter of dispute, but it is clear that more than 30 years of dirty war waged in Kurdistan has strengthened the so-called ‘progressive’ aspects of ‘Kemalism’ in the eyes of the ‘left’. This was based on an ‘anti-imperialism’ distorted by genocide, ethnic cleansing, nationalism and xenophobia, together with a ‘statism’ that has suffocated democracy – but welcomed as the only way to achieve anything progressive in a country immersed in Muslim reaction.

Against this background it is apparent that today’s convulsions have resulted from a financial crisis that has become entwined with a parallel crisis of international relations. To try to disentangle them I would like to examine the historical roots of the Turkish bourgeoisie’s foreign debt addiction and what lies behind it.


In their ‘holy national liberation’ rhetoric, Erdoğan and co are full of praise for the ‘native and national’ in every speech they make. But those terms ring a different tune to Turkish ears.

Turkey is a country where capitalist production and a bourgeoisie did not develop organically. That also goes for all today’s states that occupy the former Ottoman territory covering almost all the eastern Mediterranean basin and Mesopotamia. Under the Ottoman empire capitalism developed thanks to the direct intervention of the archaic state, which was trying to ‘modernise’ in order to extend its precarious life. The state saw its task as nurturing a native capitalist class through ‘concessions’ in order to provide the necessary goods and services. Because of this peculiar relationship, the emerging capitalist class was from its very first breath monopolistic – its interests intertwined with those of the bureaucracy.

This class was protected as far as possible from the competition of the Levantine bourgeoisie: that is, the agents or partners of international trading houses based in the major ports of the Levant, or the eastern seaboard of the Mediterranean. The conflict between Turkish capitalists and the non-Muslim Levantine bourgeoisie wreaked havoc in the early 20th century, when nationalism became the main driving force leading to World War I.

After the formation of the Republic of Turkey, the bourgeoisie and its nationalist partners in the state bureaucracy played an important role in triggering the Armenian genocide during the war and the compulsory ‘population exchange’ that destroyed the Aegean and Pontic Greek communities, as well as those of the orthodox Christian Turks of central Anatolia. It also drew in a large Muslim population from Greece and the Balkan countries.

Since then nationalism has meant the expropriation of ‘foreign’ – ie, non-Turkish and non-Muslim – capital and the transfer of such businesses into Turkish-Muslim hands. Until after Wold War II, this policy of nurturing a native and national bourgeoisie continued – protected from free competition by monopolies and concessions.

After the war, when the economy started to open up to global capital, such protection was regarded as more important still. High tariffs and import bans were enforced, together with subsidies for local industry. While the commodities produced were hardly of a quality acceptable to international markets, they were considered good enough for domestic consumption, and such second-rate goods dominated the national market.

Those years of state protection resulted in the creation of a thin stratum of finance capitalists, of which the Koç and Sabancı groups were the most well-known. They controlled many subsidiary companies operating in almost every sector of the economy, from manufacturing to retailing and banking.

But by now they were closely linked to international finance capital, which provided retired generals and top civilian bureaucrats seats on their boards. Some of the major industrial companies were formed in partnership with OYAK, the army pension fund, as well as international corporations. They operated in industries considered to be of ‘critical importance’ by the state.

Foreign debt

Originally, the Ottoman empire had lacked the resources to support such an ambitious project, and in the mid-19th century it was forced to accept loans – the start of the addiction to foreign debt. The ever-increasing borrowing of the empire eventually led to a major default in 1879.

In 1881, western creditors formed the Ottoman Public Debt Administration to collect taxes and pay the domestic and foreign debt for and on behalf of the Ottoman empire. Almost all major manufacturing, transport and finance within the empire came under the direct control of the OPDA. At its peak before World War I the OPDA employed 9,000 people – more than the staff of the finance ministry.

However, for the nascent bourgeoisie and its counterparts in the military and civilian bureaucracy, OPDA was seen as the principal impediment. It was regarded as a deliberate attempt to create a stronger non-Turkish and non-Muslim bourgeoisie able to control the economy.

Despite achieving part of their aims in forming a Muslim Turkish state following the war, the Kemalists were unable to get rid of OPDA immediately. They had hopes of receiving new credit to assist recovery after the war and it remained fully in place until 1939. No new loans had materialised, and OPDA’s tax collection authority was eventually removed – its role now was to distribute repayments to creditors. The ‘anti-imperialist’ nationalist-statist Kemalist regime was forced to pay the Ottoman debt to the last penny and the final repayment was not made until 1954 – almost a century after the first foreign loan was received.

However, in the late 20s and early 30s the Kemalists had managed to obtain credit from the Soviet Union to help build up Turkey’s manufacturing capacity and, in the 30s, Soviet-style control over the economy and state planning became attractive to the new Turkish regime. That was useful for what they were attempting to achieve – the creation of a national bourgeoisie, which continued to be pursued ruthlessly. The Kemalist hostility to the remnants of non-Turkish, non-Muslim capital did not cease.

In the mid-30s, anti-Jewish pogroms were conducted in eastern Thrace. A decade later, an asset tax was imposed on the Christian community and those who were unable to pay were forced into compulsory labour in concentration camps. In the 50s and 60s the pogrom against Christian communities in Istanbul, and the forced deportation of Greek nationals who had been allowed residence under the Lausanne treaty, were part of the same ‘anti-imperialist, progressive political and economic strategy’ of the new Turkey.

Despite the fact that such claims found an echo in the policies of sections of the new ‘left’ born in the mid-60s, such policies did bear fruit – a thin layer of native and nationalist finance capitalists emerged, establishing strong bonds with international finance capital.

Before the 80s, those finance capital corporations created a network of subcontractors and suppliers. While this extended the base of the bourgeoisie, by now it was starting to feel impeded by the constraints of the state bureaucracy that had served it so well in the past.

The financial needs of the 60s and 70s were catered for first by bilateral deals with the US and later through the stand-by agreement with the International Monetary Fund. As the US had ultimate control over IMF loans, Turkey had to toe the line. When it misbehaved, the US did not hesitate to remind it of its subordinate place in the global order. During the Cyprus crisis of the mid-70s US-Turkish relations deteriorated – Turkey refused to accept Washington’s dictates and closed US bases. In a situation similar to that of today, the lira tumbled, inflation sky-rocketed and the economy ground to a halt.

The result was the military takeover of 1980. Among the junta’s first acts were the ending of Turkey’s opposition to Greek membership of Nato and the reopening of US bases. On top of that the junta agreed to plans put forward by Turkish ‘Americanists’. They actually represented what Turkish finance capital had previously asked for, but now they would be implemented under the iron heel of the junta.

Once more, money started to flow in to quench the insatiable appetite of Turkish finance capital. This period saw deregulation and privatisation, and a drive to export-oriented development. The increasing role of non-Turkish and non-finance capital reached such a level that there was now increased competition for state favours. That was one of the factors behind the growth of AKP (Justice and Development Party).

The so-called ‘Anatolian Tigers’ – that is, the native and national capitalists, with their Islamist world outlook, based in the secondary cities and towns of Anatolia – started to play an important role. To assist that process the post-junta AKP diverted the benefits of state favours to those groups, winning their political support. AKP also used them to buy the allegiance of the new strata joining the ranks of the working class through the employment created by public construction projects.

Showdown looming

The crash of the banking system in 2001 and its reconstruction under an IMF programme had the effect of applying the brakes to the extension of the state umbrella over Islamist capital – the first AKP governments had fully operated such restrictions.

The last stand-by agreement with the IMF coincided with the 2008 crisis, after which the international ‘quantitative easing’ policy was applied. That provided AKP with ample opportunity to obtain short-term loans on relatively favourable terms and the government started to provide more support to Islamist national capitalists.

With a more favourable international background, Erdoğan and the AKP felt emboldened to challenge the tutelage of the military and civilian bureaucracy, and the prosecution of members of the army top brass followed. However, the bribery and corruption scandal that engulfed the AKP leadership forced Erdoğan to change tack. In this situation negotiations to find a peaceful solution to the ‘Kurdish question’ were doomed.

The attempted military coup in July 2016 was the culmination of that shift. Erdoğan and co now set their Islamist agenda aside and united with the military and civilian bureaucracy in a new phase of war on the Kurds. They also came together behind the policy of state economic support for newly developed Turkish manufacturing and the export of military supplies.

The reinvigorated war against the Kurds, together with military ventures into Syria and Iraq, required hugely increased spending. The programme of reforms within the military after the coup attempt also required substantial sums. So long as easy credit was available, such spending was viable. However, as the quantitative easing policy gradually ended, the resulting squeeze started to have an impact on state finances.

Despite all that, the government maintained its plans to accelerate growth through public construction and prestige projects, and the effects of the increasing pressure on the lira started to be felt at the beginning of 2017. Erdoğan and co delayed any corrective action, as it went against their Islamist-nationalist dogma and, more importantly, they desperately needed increased spending if they were to win the 2018 election. All this provides the background to the current crisis.

Despite the increased spending and bribes distributed to left and right, the AKP was only able to obtain a majority in parliament with support from the MHP (Nationalist Action Party) – the mainstay of racist nationalism. Erdoğan was ‘elected’ president, thanks to the overwhelming weight of state institutions.

But now the much anticipated currency crisis has hit home. However, thanks to Islamist pressure, the government has not felt able to talk about the need for a hike in interest rates. Even the Association of Turkish Businessmen and Industrialists, in a recent press release citing their demands, did not openly mention the question.

Having developed under the protection of the state, Turkish finance capital feels unable to speak plainly. It must remain timid and submissive to the whims of Erdoğan – until, that is, some upheaval topples him and all his entourage. I intend to discuss that possibility in a future article.

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