by Norman Stone
America in a Turkish mirror made for a contrast with Chile. In Chile there was a general in charge, and there were no elections for ten years while Chicago economists sorted things out. Then she experienced the end of history. Turkey did not, although there was a brave try. There, the army did not want formal power: no Pinochet. It was happier with professors of Political Science, and wanted figureheads. Turhan Feyzioğlu had thought that he would be indispensable to the generals, as an old, reliable republican alternative to the wayward Ecevit. There, he was wrong: this was a military coup with a big difference. This time round, the generals had thought things through; Turkey was the front line of front-line countries; it would not do for it to be run on non-democratic lines; there would have to be a democracy, the only one for a considerable number of miles to the east, north and south. Democracy generally meant Demirel, whom the military did not want at any price. They got Özal instead. In his way, he was a sort of South Korean politician, and this was an era when South Koreas shot into worldwide prominence, more interesting and productive than assorted European Legolands where a large part of the gross domestic product consisted of divorced men’s taxes, paying for other men’s divorced wives to have jobs as divorce counsellors, all paying VAT. He did not believe in the State, or at any rate not the Republican, Atatürk state. Özal was the IMF’s trusted man: he had served at the World Bank for two years, and worked closely with the Sabanci dynasty, where he understood directly the virtues of private enterprise (as distinct from state-dependent enterprise, the Sabancis being, on the whole, less dependent than other great enterprises) and the German government helped. As director of the employers’ union, he had been quite tough. Demirel had been his original patron, though as Özal rose the relationship became tense (in 1990 Özal put up a memorial to Menderes, and Demirel, who regarded himself as rather more successful, was put out; he brought back the bones of Enver Pasha from Kirghizia as a come-back, the Democrats being children of the Young Turks).
Özal won in 1983 because he had outmanoeuvred the generals. They took the blame for the 24 January measures, and the Özal party, ANAP, counted as opposition. His reign was very Second Empire, even to the point where, at its end, horizontales arrived from the Soviet Union in battalions (and caused such havoc among traditional religious marriages on the Black Sea coast that a law was passed against adultery: like the Atatürk hat law, it was a declaration of intent, much criticized by humourless people). Money showered, old quarters of Istanbul were bulldozed for motorways to take fancy motor cars, and there were always the tarikat connections to make hand wash hand in Anatolia (in Özal’s case, the Nakshibendi, who were quite open: his main Kurdish ally, Kâmran İnan, was one of their leaders, a Sheikh, with a Lausanne degree in law and a Swiss wife). Islam in Turkey was not at all dissimilar from Catholicism in Italy, and this had long, long origins. Even in mid-Byzantine times, Anna Comnena had divided the Anatolians into Greeks, barbarians and semi-barbarians, meaning the Turks. Özal was a very clever man, sitting on his exercise bike (it failed: he was huge) and zapping CNN, driving a BMW at absurd speeds, taking parades in a baseball cap and telling the generals to turn up to lunch. He was a far more interesting man than the wooden Pinochet, and moved his country forward in an extremely interesting direction. But he failed. The problem goes back to 1986, the return of inflation. Özal gave up, and was diverted, like Margaret Thatcher, into foreign policy, an entertainment not vouchsafed to Pinochet, who could get on with the job.
Özal’s government did remarkably well in the first period, with a cabinet largely made up of American doctorates and engineers (the chief Treasury minister, Kaya Erdem, clearly knew his business). Currency liberalization had to be pushed through the hostile bureaucracy; its style had been to present 13,000 pages, now reduced to fifteen; it retained valuable property — large offices, summer houses, shares, gold, etc. Inflation fell back — roughly to 30 per cent — as protection came down (only 200 items being banned for import; by 1988 thirty-three needed approval, and after 1984 only three were entirely prohibited). Tariffs, wharf charges, VAT had meant that the real rate of protection stood at around 60 per cent (c.i.f.) and it had often changed. Motor cars had incurred duty of 112 per cent in 1980, 145 per cent in 1986, 74 per cent 1989. Exporters’ tax rebates were accelerated, and after 1980 they were allowed to retain $40,000 and then more (earlier there had been compulsory clearing at the central bank, to pay for imports). The exchange rate itself was unified, as against the variable earlier rates, and income tax, hitherto the largest item on the revenue side, was cut from 40 to 25 per cent, and on companies to under 50 per cent, while VAT was raised at 10 per cent. Up to $3,000 could be bought per person, without restriction. Later, this was altogether freed. By 1987 income tax contributed only a quarter of income, indirect taxes one third. Parts of the country began to flourish, particularly the ultra-Western areas — Istanbul and the north-west, İzmir, some places on the south coast; there was a shift in trade towards Europe, and a growth of part-manufacture, particularly for Germany. By any index, Turkish prosperity was growing. One sign was the freedom to travel — people could now move more than once every three years, though a hundred-dollar tax remained until 1996.
However, there was much difficulty as regards the disciplines of monetarism: how could government expenditure be reduced? It was all very well to liberalize foreign trade and currency exchange: these things were vital. But what Pinochet had done in domestic matters was a different matter altogether, and here Özal was stuck; perhaps he even wanted to be stuck, because he had an excuse to channel state funds in the direction of his friends. Privatization might have been an answer, but in practice there were great problems — not least because the constitutional court kept striking down the proposals on the grounds that they were against the national interest. Public spending took a quarter of the GNP in 1980, a fifth in 1984, slightly more than that in 1987, and there was a constant deficit, 3-5 per cent of GNP, to which the State boards’ deficits might be added (6 per cent). The outcome was chronic inflation. Up to 1985 the lira had fallen steadily, in fact faster in dollar terms than in domestic prices. This was, overall, healthier than the alternative which set in after 1985, when Turkey joined efforts at managed exchange rates. After 1985 domestic prices rose faster than the dollar. More paper emerged from the Turkish printing press, and it could be freely exchanged for dollars, as insurance, at a crawling-peg rate. Time deposits could be held at will and switched, after very large interest rate gains, into dollars, and the upshot for anyone with savings was a 25 per cent tax-free annual dollar profit.
The technicality was that the dollar rose from 14 lire in 1975 to 47 in 1979, 76 in 1980, 163 in 1982, 225 in 1983, 522 in 1985, 1,422 in 1988 and 2,609 in 1990 (by March 2000 it had reached 600,000, and in 2003 1.6 million). The US price index rose from 56.6 per cent of the figure for 1985, reaching 95 per cent in 1981, after which there was stabilization (by 1990, 113). From 1985 to 1990 the Turkish price index rose from 100 to 769. In other words, the Turkish currency was appreciating by roughly 25 per cent every year against the dollar. By then, about half of the Turkish money supply was in dollars (or Marks). If you had access to foreign currency you could, with sufficient agility, make substantial (and tax-free) interest. In this way the banks became lazy. There has never been an inflation quite like the Turkish one. With that level, either the currency takes off into hyper-inflation, as in Latin America, or there has to be some stabilization, usually exceedingly painful and sometimes with blood on the streets. This did not happen. The technicians at the central bank were very competent, knowing how to judge interest rates and bond yields. But beyond that was always the notion that Turkey was too important to be allowed to go: the IMF would always step in (as indeed it did). But this was hardly a healthy business: inflation was a sort of hidden taxation, hitting especially the poor, and it rewarded parasitism or even straightforward criminality. The Left of Bülent Ecevit had failed in dealing with this, and so, in the event, did Özal, though
his failure was much more interesting: eventually, his legacy was to be taken over by an astute Islamic party endorsed by the Americans. House prices in Istanbul at the highest level showed what vast sums of money were available, in a country whose nominal GDP per head was at least in theory of Third World type.
In effect there were two or perhaps even four economies at work in the Özal era, apart from the criminal (drugs-related) one. Exports did very well indeed with the reduction of corporation tax and tariffs. They accounted for one fifth of GNP in 1989, more than double what they had been ten years before, and considerably more suitable for a country without oil. Export earnings grew at almost 20 per cent annually, from 1980 to 1988, which was all the more remarkable as world trade slowed in the early part of that period. Their character also changed. In 1976, agriculture had accounted for two thirds (just over a billion dollars) but by 1989 18 per cent ($2.1bn). Industrial exports rose from one third ($600 million) to four fifths ($9bn) and manufactures accounted for nearly all of this, as distinct from half-finished items. Textiles accounted for half, followed by chemicals and then steel, of which Turkey had hardly supported any in the 1970s, despite the enormous Karabük plant. Now, Turkey’s exports were worth $1.5bn, an astonishing feat, given where she had started from. There was also a change of direction. The Middle East took more, in volume, but much less, in proportion; OECD countries, and especially Germany, now took two thirds of the exports. It became quite common for representatives of Turkish businesses to travel the world, probing markets — not a feature seen by the world since the later sixteenth century. Turkey could now, at least on economic grounds, advance her candidacy of the European Common Market which had been tabled as early as 1963; Europe in 1981 had accounted for about a quarter of trade, but by 1995 well over half ($28bn). In fact she weighed more than all other candidate countries put together, and then some. The same had of course occurred elsewhere, especially with Japan, in the fifties, and South Korea and Taiwan in the sixties. Was Turkey now catching up, and why had it taken her so long? The short answer was: other ‘miracles’ had had an American occupation. Turkey had a semi-demi American occupation, and Özal was its symbol. Overall it had been a great success, but the price was debt — the international one rising from $13.5bn to $40bn, interest on which took 70 per cent of export earnings. By 1997 the World Trade Organization was optimistic about Turkey — noting that exports had grown by 11 per cent per annum as against a general 7 per cent. The Istanbul stock exchange, trading $300m every day, was among the top four of the ‘emerging’ ones; imports at $67bn, and exports at $57bn (including the estimated $10bn-15bn to Russia) were creditable, especially in the light of Turkey’s past. The Bosphorus was three times busier than the Suez Canal.
Americanization was the watchword, and not one greatly liked by the old republican establishment. It stood for a sort of Turkish sixties, and in not dissimilar circumstances — in 1980, 60 per cent of Turks had lived on the land, and there was then a great flight, as happened a generation before in Italy or Spain — and it happened at every level. There was insider dealing in politics, and Özal’s own family was involved. The Emlak Bank would make loans, its manager taking part of the proceeds, where no other bank would have lent; eleven state banks gave out loans that no private bank could have contemplated. In the cities there was illegal building, some of it of such poor quality that it collapsed in earthquakes that left stoutly built housing blocks unimpaired. Özal just waved such corruption aside: to him, as to others of his way of thinking, it was less expensive than honest but idiotic state wastage. But the Westernization of Turkey went ahead in other ways. Students went to the West in great numbers — 25,000 to the USA. On the military and scientific level, the co-operation was intense: in Britain and the USA there was a substantial Turkish professional emigration, whereas in continental Europe ‘the Turks’ were, on the whole, of rural origin.
Private business might flourish, but much of the economy was still in the hands of the State. This was the same unhappy business as elsewhere — 2 million workers retiring early and underproducing, in factories varying in output from steel to pickles. Public enterprises undertook about a third of manufacturing. The State owned over half of the usable land, i.e. excluding mountain and forest, and there were a million farms and small plots, many simply squatted. The army owned almost one fifth of Ankara (often distinguished by tree-planting, sign of a military presence), and there was famous clientelism at work, with soft loans. Özal himself believed in privatization but this was difficult — it even constituted a vicious circle. There was not enough capital in Turkey; it could only come from abroad; but because of inflation, and perhaps also opaque business practices, this would not happen until finances had been stabilized, which could only happen through privatization. Otherwise the budget deficit just went on and on, worsening in 1986 when ANAP spent money for the election (in which its vote fell to one third, although this meant two thirds of the seats). Privatization did not happen — or at any rate only on a small scale (under $3bn in eleven years). Meanwhile, state managers became demoralized; there was not much investment (and the railways especially suffered, though the resulting lengthy journeys could be romantically old-fashioned). The Zonguldak mines (employing 30,000 people) would have cost less had they simply been closed down; meanwhile, foreign investment banks for some time made fortunes out of advice to then naïve Turks, and nothing much followed. Özal’s one real contribution was a build-operate-transfer system for capital projects, by which foreigners could make their profit for some years before transferring the project to the State (as happened with the Bosphorus Bridge).
The Özal years split the country. The foreign trade element had done enormously well, and continued to do so; and this was far from being just a matter for Istanbul and İzmir, as there were places far to the east, such as Antep, that were lifted off, and the new motorways through Kayseri, the chief town of Cappadocia, to the east and south became arteries of European trade. The perennial question, as to whether Turkey could become a member of the European Union, was debated endlessly at ministry level, but it was in effect being settled by voting with feet, or at any rate wheels. Maslak, where once, during the Crimean War, the French army had trained on the European shore of the Bosphorus, saw one Manhattanish skyscraper rise after another, and the multinational hotels also built. It meant the ruin of parts of the city, an especially scandalous instance being the destruction of the old Park Hotel, next to the former German embassy in Gümuşsuyu. It had been a Pasha’s house, had been turned into a grand hotel, and in its place half of a gruesome car park went up until it was stopped. The counterpart was that, as the money poured in, so did migrants. The city became, like Mexico City, a megalopolis, and although old Stambul survived, it was squashed in with concrete or clapboard suburbs, each taken over by a region in the east. It was a demonstration of the trickle-down effect, in that the crumbs from the tables of Maslak rolled down into Sütlüce, and the parking arrangements of Galata were taken over by a Kurdish mob from Bitlis, near Lake Van.
The later years of Özal have a shadowy resemblance to the later years of Margaret Thatcher, when the machine ran beyond the monetarist desert and entered upon richer and much more intractable soil. The real parallel for this is Italy, in the Christian Democrats’ blue period: a veneer of piety, and the sound of the till. ‘Social control’ was maintained by Islam, but the ANAP itself split, on religious matters: at a conference, the culture minister even fought a very large minister of state as to whether the Aya Sofya should become a mosque again. Özal, putting in his wife as chairman of the Istanbul branch, distanced himself from the kutsal ittifak element, the ‘holy alliance’. There had always been an element of Islam to the Özal mixture, and it sometimes seemed to be taking over — for instance, in 1988-9 the old question, whether women should be allowed to wear head-coverings in universities, came up, a matter of vast symbolic importance that Özal himself preferred not to take up: he said, just leave the question alone, dealin
g with it is for later. His supporters wanted their girls to be virgins when married, and (in theory) thought drink the mother of all evils. There was another side to this, perhaps Iranian in origin: secularists were assassinated, and even Moslem modernizers. By 1989 the ANAP was down to one fifth of the vote in local elections, Inönü’s (renamed) SPP taking nearly one third; the ANAP majority was now artificial. By 1991 new elections put Demirel ahead of ANAP by under a quarter, and bizarrely he struck up an alliance with another old dispossessed party, the SPP (‘Socialist’ etc.), now renamed Republican (CHP), and this introduced a period of political kaleidoscopes, governments of various coalitions succeeding each other until 2002, when a sort of Islamicized (and American-leaning) version of ANAP appeared, as the Justice and Development Party. Özal had really failed with the resumption of inflation in 1986, and the clash of the external and internal economies. The same had happened with Margaret Thatcher, and, like her, he now made his reputation in foreign affairs. However, Turkey had some real weight, not least as the only Moslem country in the world, apart from Jordan, with serious credentials (as a wise historian, Hasan Ali Karasar, remarked, ‘Islam, politics, economics — choose two’). How would she use it? The most imaginative answer would have been the annexation of northern Iraq, on the lines of the National Pact that had been pushed by Mustafa Kemal sixty years earlier.
