Bottom-Up: Explain The Success Story of Turkey in the 2000's, Mustafa Acar

A lot of people around the world are wondering these days how Turkey was able to jump from bottom to the top within a decade and became a shining star of the region. It seems a miracle: starting from a terrible situation it faced with the eruption of 2001 crisis, but ending with a brighter than ever outlook. When the country cleared its external debts to the IMF last week, this outlook became even brighter, urging credit rating institutions to upgrade Turkey’s rating.

In 2001, Turkey hit the biggest economic crisis in its recent history. The situation was as terrible as one can imagine: Turkish Lira depreciated almost 100% in one day, overnight interest rates jumped to 7500% -a record in the history of economic crises-, 7 billion dollars escaped from the country within a few days, stock exchange market collapsed, foreign exchange reserves depleted falling below the critical threshold, inflation reached 67%, real economic growth was recorded to be -8.5%. Budget deficit exceeded 15% of GDP, government debts exceeded 90% of GDP… After a “lost decade” of populist economic policies combined with irregularities, anti-democratic, authoritarian, oppressive political implementations under a “military guardian regime” had led the country to the inevitable collapse: severe economic crisis combined with political unrest and uncertainty; the outlook was as bad as it can be in February 2001.

Interestingly enough, within just a decade or so, Turkey seems to be a shining star of the region: economic, political and social outlook seem much brighter and more optimistic than they have been in the near history. Economic and political stability have been achieved, macro-economic indicators have been dramatically improved. From 2001 to 2012, GDP increased 5-fold jumping from 150 to 790 billion dollars, per capita income increased almost 4-fold jumping from 3000 to nearly 11000 dollars (these figures are even higher when calculated on a purchasing power parity basis), inflation has fallen from 67 to 6.5% (it is now under control within 1-digit levels after 4 decades of chronically high inflation), real interest rates are almost zero%, exports jumped from 25 to 152 billion dollars, annual FDI inflows jumped from around 1 billion to 13-15 billion dollars, annual average growth rate has been around 6% in the same period. Foreign exchange reserves increased from 20 to 125 billion dollars. Turkey has been one of the fastest countries in recovering from the negative impact of the 2008-09 global economic crisis. Under “vision 2023” (100th anniversary of the foundation of the Republic) the country opts for being among the 10 largest economies with a GDP of 2 trillion dollars, per capita income of 25 thousand dollars, and annual exports of 500 billion dollars. One last achievement of Turkey to make the picture even brighter is the fact that the country cleared its debts to the IMF this week (Monday, May 20, 2013) paying the last installment of 422 million dollars. The volume of IMF-debt was 23.5 billion dollars in 2001. Having finished the payments, Turkey now joined the “no debt to IMF” club, a phenomenon of psychological comfort and self-confidence.

Many countries in the Muslim world, especially those countries going through a radical transformation under the “Arab Spring” have been talking about taking Turkey as a role model. How was it possible? How did Turkey achieve this, taking the road to the top? What was the secret? “Good question” as they say.

Well, in my opinion, there are a number of external and internal factors contributing to the success story of Turkey. To say the last word first, I would summarize the secret of this recent success story as “positive external climate, emerging middle classes, teaching lessons from the past crises, and the effective political leadership.” Now let me briefly touch upon these factors.

Among the external factors contributing to the radical change and transformation process Turkey has been going through, I would name 3 most important ones as follows: 1) fall of the Berlin Wall or end of the Cold War, 2) Globalization, and 3) emergence of Asia. With the fall of the Berlin Wall, the communist system collapsed, Cold War ended, central planning and command system was no longer a source of hope; so many countries turned their faces towards democracy, pluralism, open borders, human rights and free market economy. With globalization, emergence of new technologies in information processing, communication and transportation (computers, Internet, cellular phones, msn, facebook, twitter, Google, ipad, iphone, distance learning, etc.) which made life easier, access to information and education cheaper,faster and flexible, our lives have been transformed; our perception of “time” and “space” has changed. We saw the other side of the borders and our expectations from life, regimes and political decision-makers has changed. With emergence of Asia, we remembered the famous Muslim philosopher Ibn Khaldun’s theory that “civilizations are like human beings: they are born, grow up and collapse,” hence getting inspired that the economic gravity center of the earth could be moving towards the East and we are just “on the road.”

Among the internal factors, I would enumerate the following: 1) Ozal’s reforms in the 1980s, 2) emergence of the middle classes and religious-conservative bourgeoisie (“Islamic Calvinists”), 3) teaching lessons from the past crises, 4) the “educated children” factor, and 5) effective political leadership. A few words on each one of them follows.

If I would name 4 most effective political leaders in the last 150 years to put his seal to the transformation of Turkey, I would name Ottoman Sultan Abdulhamid II, M. Kemal Ataturk, Turgut Ozal, and the current Prime Minister Mr. Recep Tayyip Erdogan. Ottoman Empire rapidly disintegrated after Abdulhamid II, Ataturk founded modern Republic of Turkey, but ruled under a very authoritarian, oppressive regime. Liberalization efforts of 1950s under Menderes could not be sustained, interrupted with military interventions (1960, 1971, and 1980). It was under Mr. late Ozal and his courageous economic and political reforms Turkey started to change in real sense. A series of reforms he initiated (liberalization of trade and foreign exchange regime, privatization, removal of state monopoly in education and communication, targeting EU-membership, searching for a peaceful solution to the Kurdish problem,..) paved the way to the reforms conducted later under Erdogan in the 2000s.

As borders were open and entrepreneurs, merchants, businessmen in Anatolia started to trade with the world, they started earning money; they invested what they earned, also they sent their children abroad for higher education. As middle classes grow, a new “religious-conservative” bourgeoisie has emerged; their interests required more freedom, more democracy, free trade and investment. “Educated children” factor entered to the scene right on time: thousands of young men and women had been sent (under Ozal’s leadership) abroad; they learned English, got masters and PhD degrees from prestigious universities in the US and Europe, got rid of their “inferiority complex” against the West, developed a new mentality in peace with democracy, pluralism, multi-culturalism, civil society, free trade, open borders, limited government, and free market economy. They took initiatives in academia, politics, bureaucracy, mess media and the business world when they returned. 

Moreover, a number of crises in the 1990s and early 2000s (1994, 1998, 1999, 2000, and 2001, 5 crises within 7 years!) have thought everyone that the populist economic policies of the 1990s combined with political oppression (i.e. so called “28 February Process”) was a dead lock. It was not the way to go; enough was enough. The show was over, the sea was behind, the ship hit the rocks. The country has to change its route. 

Last, but not the least, Mr. Erdogan’s charismatic leadership also contributed a lot in the fast recovery and dramatic social change process Turkey has been going through. He showed a leadership profile of young, energetic, charismatic, reformist, dynamic, and determinant. Under Erdogan leadership the whole mindset of the government has changed: the “ancient regime” based on autarchy, collectivism, closed borders, nationalism, protectionism and political oppression has passed away; a new regime emerged based on open borders, integration with the world, free trade, privatization, rule of law and free market economy. Turkey has been emerging as a Muslim country with a democratic, pluralist, secular political establishment. Islam, democracy and free market economy is harmonized and synthesized now in Turkey successfully. 

The ancient regime based on military-bureaucratic guardianship claimed that Turkey was “surrounded by seas from 3 sides, but enemies from 4 sides” i.e. everyone was our enemy; that “there is no friend to a Turk except another Turk”; that the whole world was against us; that there are not only “external enemies” but “internal enemies” too. Now in the new regime, we believe that these prepositions are nothing but a bunch of baseless, junk slogans used as instruments of ideological indoctrination. We now believe that we can be friends with all our neighbors; that there is no “internal enemy” but there could only be “criminal citizen”; that there are a lot of non-Turkish friends of Turkey around the world. For the first time in our Republican history, those military officers and bureaucrats who paved in the past the ways to military interventions are giving account before the Court. Citizens are now comfortably express themselves and their demands from the government; they are released from the ideological, legal and political chains they have been tied with for decades. And, again, for the first time in our Republican history, the Kurdish and the resulting terror problem is on the way to be solved through peaceful means. When the government respects the beliefs, customs, dress codes and life styles of the people, when the citizens start to breathe comfortably, that is, when they are free, then the ground is ready for recovery, growth, and development. 

So, if you ask for 3 key concepts for the Turkish success story, I would say, “economic freedom, political freedom, and free market economy.” They are good, and I advise everyone to take them. Don’t get me wrong: I am not arguing that Turkey is paradise. There are a lot more to do on the way to strengthen the rule of law, limited government, pluralist democracy and free society. But clearly we are on the right track and we will try harder to proceed further.

Strategic Outlook