Today, the crisis of Turkey is both a crisis of capitalism and a crisis of the Republic.
To the extent that it is a crisis of capitalism, of a financialized regime of accumulation, its own internal business cycles are synchronous with the cycles of global capitalism. Even though the current economic crisis takes the form of stagflation (a high inflation rate combined with recession), its driving factor is the increased default risk of the highly-leveraged corporate sector. The Justice and Development Party (AKP), governing an economy fully-integrated to the international financial system since 2002, enjoyed the benefits of global liquidity as it consolidated its hegemony. Today, as the crisis hits corporations and households alike, Turkish President Recep Tayyip Erdoğan and the AKP resort to anti-imperialist jargon to pass the proverbial buck, and cover up their helplessness in the face of the vast scope of the crisis.
At first glance, Turkey’s crisis has manifested itself as a currency crisis resulting from capital flight. A deeper look identifies Erdoğan and his quixotic fight with the so-called “interest-rate lobby” as the culprit behind Turkey’s currency meltdown. A still deeper examination identifies the offender as Erdoğan’s increasingly dirigiste (state directed) deformation of the country’s financial system, originally established in response to the Turkish economic crisis of 2001 by Kemal Derviş, then a senior economist at the World Bank. The economist Daron Acemoğlu, for example, explains this crisis as a product of “the decline of economic and political institutions over the past decade” and calls for a return to the AKP’s early golden years, when “more inclusive economic institutions [were] guaranteed by democratic institutions.” More critical political economists such as Ümit Akçay and Ali Rıza Gürgen, however, contend that this institutionalist analysis does not cut deep enough. They agree that Turkey’s crisis is structural. But unlike those who see the source of the problem in Erdoğan’s drift away from the neoliberal model of the Derviş reforms upheld by more inclusive political institutions, they argue that the neoliberal model itself is the cause of the crisis.
To the extent that it is a crisis of the Republic, the internal borders (between Muslims and non-Muslims, Turks and Kurds, Sunnis and Alevis) that the Republic has come to govern and manipulate since its establishment in 1923 have spilled over onto the rest of the Middle East, be it in the form of a conflict between Sunni Jihadists and Kurdish-led Syrian Democratic Forces (SDF) in Afrin, an impasse with the United States over their support of SDF to the east of the Syrian Euphrates, Turkey’s fresh opposition to an independent Kurdish state in northern Iraq, or a split with Saudi Arabia and its allies over the Muslim Brotherhood in Egypt and beyond.
Exacerbating the crisis, without a doubt, is Erdoğan’s drive to consolidate power under the new executive presidential system. One can equally argue, however, that Erdoğan’s authoritarian push toward a permanent state of emergency after the failed coup attempt of 2016 was an inevitable response to the failure of the state bureaucracy, split between its Islamist-nationalist “Gülen” and ultra-nationalist “Ergenekon” wings, to hold itself and the Republic together.
The AKP’s Hegemonic Bloc
In the aftermath of the 2001 crisis, the AKP came to power in 2002 and gradually constructed its hegemony through combining a neoliberal institutional architecture with a financialized form of populism. The Derviş reforms establishing an independent Central Bank and a whole host of semi-autonomous regulatory agencies and boards, combined with the Erdoğan government’s commitment to fiscal discipline, provided the institutional guarantees for international financial capital to consider Turkey a viable destination for both long-term direct and short-term portfolio investment. This financial infusion provided the conditions under which the AKP, charged by Erdoğan’s political charisma, induced various classes to join its hegemonic project.
Mid-range Anatolian industrialists (both the independent MÜSİAD and the Gülenist TUSKON, dissolved after the abortive coup in 2016), for example, already had strong organic connections with AKP cadres who, by 2002, had gained a decade of experience governing municipalities, including metropolitan Istanbul, Ankara and Bursa, under Necmettin Erbakan’s Welfare Party. The Istanbul bourgeoisie and its financial capital (represented by TÜSİAD) were lined up behind the AKP as well. Its economic team (notably, Economics Minister Ali Babacan and Treasury Minister Mehmet Şimşek) remained committed to the IMF-sanctioned export-led growth strategy that aimed to limit corrupt and rent-seeking activities, while consolidating the banking industry towards supporting the “dynamic” sectors of the capitalist class that could compete in international markets and collaborate with international capital. This strategy required a further commodification of agriculture (through elimination of subsidies) and flexibilization of the labor market (through domestication of trade unions and promotion of subcontracting in the public sector).
The AKP softened the impact of this neoliberal structural adjustment program by reaching the working classes not in the workplace but in their homes, as consumers of public goods and as recipients of aid. Taking control of the national government gave Erdoğan the opportunity to scale up the governmental technologies (the provision of social services through public-private partnerships, family-oriented welfare policies and targeted aid distribution) that AKP cadres had learned and developed through their experience in metropolitan municipalities. To this day, Erdoğan’s hold over vast segments of the population is due to the dense network of supporters that the Party, using municipalities, built in neighborhoods and, especially, among the Turkish-Sunni communities.
In short, Erdoğan and the AKP, by articulating a hybrid of the utilitarian ideology of “service” with the plebian (pan-Islamist) critique of the elitist (Kemalist) Republicanism, secured not only the support of the liberal middle classes to the neoliberal program, but also the acquiescence of the predominantly Muslim and conservative sectors of the subaltern classes. Finally, those sectors of Kurdish subaltern classes remaining beyond the sphere of influence of imprisoned Kurdish leader Abdullah Öcalan’s democratic autonomy movement were taken in by Erdoğan’s promise of a break from the official state discourse on the Kurdish question.
Imperial Aspirations on Borrowed Capital
This hegemonic bloc proved to be resilient in the face of the 2008 crisis, and began to be recognized by the international community as the long-sought-after articulation of political Islam within the framework of neoliberal globalism. In this respect, it was symbolically significant that President Obama’s first visit abroad in 2009 was to Turkey. In his speech at the Grand National Assembly, he alluded to the African-American civil rights movement with an oblique reference to political Islam and the Kurdish autonomy movement as the two dynamic forces that will shape Turkey’s future. In this way, Obama was presenting a politically liberal, economically neoliberal and culturally conservative Turkey as a model for the Middle East. Not long after, the US Federal Reserve’s expansionary monetary policies began to flood the global markets with liquidity. Consequently, with interest rates at a historical low in advanced capitalist economies, emerging markets such as Brazil, Turkey and Mexico were inundated with capital inflows, even while their composition shifted toward short-term portfolio investment.
With a resilient hegemonic bloc at home financed by global liquidity and backed by the United States, an emboldened Erdoğan made three successive political moves. First, together with the Islamist-nationalist Gülen network, now referred to by Turkish authorities as the Fethullah Terrorist Organization (or FETÖ), which was embedded in the security apparatus and the judicial system, Erdoğan engaged in a struggle with the Turkish Armed Forces and the secular-nationalist network that controlled it through the so-called “Ergenekon” trial. Second, after a major clampdown, also executed by the Gülenist cadres in the security forces, on the legal and paralegal sections of Kurdish political movement during the 2009–2012 period, Erdoğan initiated peace negotiations with Öcalan in 2013. Finally, having secured a ceasefire at home, Erdoğan and his Minister of Foreign Affairs, Ahmed Davutoğlu, attempted to capitalize on the Arab uprisings by trying to position Turkey as the protector of an international coalition of Muslim Brotherhood supporters (spanning Egypt, Gaza, Syria and Turkey). Such a leadership position in the Middle East, Davutoğlu argued, especially given the retreat of the United States from the region under Obama, would enhance Turkey’s regional and global influence.
All these maneuvers triggered adverse reactions along domestic, regional and global fault lines. On the home front, Erdoğan’s lurch toward the Muslim Brotherhood, the dealings of members of his government and family with Iran despite the US-led sanctions, and the negotiations with the Kurdish autonomy movement caused the Gülen network to gradually turn against him from 2010 onward. At the regional level, the alliance between Turkey, Saudi Arabia and Qatar to support explicitly Sunni rebels in Syria broke down, and Turkey became isolated as the only government to continue to do so. At a more global geo-political level, Syria became a site of managed partition among the United States and the Kurdish-led SDF to the east of Euphrates, and Russia and Iran behind the Syrian government to the west.
Reading the prospects of even a quasi-autonomous Kurdish-led region in northern Syria, called Rojava by Kurds, as an existential threat to its territorial integrity, Turkey first stalled the peace negotiations. Then, in the summer of 2015, after AKP lost the necessary parliamentary majority to form a government following the June 2015 general elections, the Erdoğan government launched a major military operation on the Kurdish provinces in southeast Turkey. The all-out war against the Kurdish will for autonomy (whether it takes the form of violent clampdown on the municipal democracy experiment in southeast Anatolia, or, later on, the occupation of the Afrin canton of Rojava) quickly became the platform for Erdoğan’s shift toward an irredentist neo-Ottomanist rhetoric, combined with anti-imperialist nationalist motifs.
This geopolitical turn in the sequence of events swiftly placed Turkey in an unstable equilibrium between the United States and NATO, on the one hand, and Russia on the other. An important turning point was when Turkey shot down a Russian fighter jet on the Syrian border. In response, Russia immediately imposed a very costly economic embargo on Turkey, damaging not only tourism, but also Turkey’s construction investments in Russia, as well as agricultural exports. This episode revealed the dependence of Turkey’s economy on Russia—especially given that more than half of Turkey’s natural gas imports and nearly a quarter of its oil product imports originate in Russia.
Straddling two geopolitical axes, one traversing the Atlantic (NATO) and the other the Silk Road (Shanghai Five), Turkey began to explore the possibility of using this state of being “in between” as leverage. If the first instance of this was the way Turkey used the plight of Syrian refugees in order to raise the price Europe had to pay for closing off the refugee flow across the Aegean, the second was Turkey’s collaboration with Russia and Iran in Syria (the Astana process), completely excluding the United States from the equation west of the Euphrates.
These tectonic tremors and sharp maneuvers along geopolitical axes coincided with the US Federal Reserve’s decision to begin reversing its policy of quantitative easing. As the US economy grew steadily and unemployment rates dropped, the Federal Reserve decided to gradually raise the interest rate. For an emerging economy like Turkey, burdened with increasing geopolitical risks idiosyncratic to the Middle East, this meant that international finance capital would require higher risk premiums and shorter time horizons. Under these conditions, to prevent currency devaluation, the Central Bank of Turkey also needed to raise interest rates. Whether industrial production is for domestic consumption or for export, Turkey’s economy is dependent upon the importation of energy and intermediate goods—hence the structural trade deficit. For this reason, currency devaluation inevitably translates to price inflation (first in production price indices and then, eventually, in consumer price indices). On the other hand, were the Central Bank to raise interest rates to prevent this undesirable outcome, this would immediately increase the cost of borrowing for both businesses and households, bringing the economy to a grinding halt.
Abandoning the Neoliberal Model?
This double-bind posed a problem for Erdoğan as he needed to hold together an electoral majority (50 percent plus one) through the then-upcoming constitutional referendum on the presidential system on April 16, 2017, and the subsequent (snap) general elections on June 24, 2018. The aborted coup attempt created the conditions under which Erdoğan forged an alliance with the Ergenekon network, initially against the Gülen network, but more fundamentally against the Kurdish body politic and its allies gathered under the Peoples’ Democratic Party (HDP).
In Erdoğan, Ergenekon found a popular leader who could mobilize the masses behind their nationalist project to restore the Republican order to its good old days when the Kurdish will to autonomy was curbed. In contrast, Erdoğan, shedding liberals and a significant majority of Kurdish subaltern classes in the metropoles and aligning with the nationalist discourse of key public figures associated with the Ergenekon network, found not only much needed allies in the bureaucracy and the Turkish armed forces, but also the possibility of an electoral majority to secure the constitutional change toward a presidential system.
Nevertheless, despite all this working for ideological reconfiguration in his hegemonic bloc, Erdoğan still required the levers of redistribution and access to liquidity that secured AKP’s hegemony among vast segments of the population. The construction sector has always played a central role in bringing together Erdoğan’s electoral coalition. Massive infrastructural investments, essential supports for Erdoğan’s vision of “Great Turkey,” were now underwritten by Treasury guarantees—a blasphemy to the neoliberal strictures of fiscal discipline. The housing sector, on the other hand, has always been the gateway through which the financialization of society has taken hold. Through the first decade of AKP rule, household indebtedness increased dramatically (from 1.8 percent in 2002 to 19.6 percent in 2013), and slightly more than half of the household debt is currently in mortgages. An interest rate hike would have stopped all this economic activity and undermined the cohesion of the electoral coalition that Erdoğan brought together through his ultra-nationalist turn.
The change of direction of global flows of liquidity, the tectonic shifts in geopolitics of the Middle East and the exigencies of domestic politics compelled the Erdoğan government to abandon its commitment to the neoliberal model. The proponents of the Atlantic axis in Turkey and abroad invite Erdoğan to return to the neoliberal model. But the currency crisis is not unique to Turkey; Argentina is already struggling with it (and is not necessarily very successful in its efforts even though it is in full cooperation with the IMF), and Brazil is not far behind. Erdoğan, on the other hand, in line with his geopolitical explorations, has been scrambling for an inchoate form of a pro-corporate economic nationalism that highlights the necessity of economic independence; centralization of power under Presidential rule; low interest-rates; bilateral agreements that will diversify Turkey’s export markets away from the European Union (the destination of nearly half of Turkey’s total exports); replacing the US dollar as the international currency of transactions in cooperation with other emerging economies (BRICS and beyond); and building a national economy with construction, energy, telecommunications and defense as its leading sectors.
Nevertheless, these neo-mercantilist dreams of delinking do not hold up under reality testing. Neither Turkey’s economy, with its deeply interwoven links (i.e., trade agreements, supply chains and financial commitments) to the European Union, nor Turkey’s defense industry, with its strategic links to the United States and NATO, will allow for such a shift in axis without a major geopolitical earthquake. The outcome of these dalliances with economic nationalism is likely to be out-of-control inflation (due to the delayed interest-rate hike) and deep stagnation (due to the dramatic hike that the Central Bank was forced to implement once Erdoğan realized that he had no other choice): a prolonged stagflation.
This crisis of capitalism, combined with the crisis of the Republic, may unleash significant changes in the class composition of the country. Wage and salary earners will either lose their jobs, or their purchasing power will erode due to chronic inflation. Youth and women would be most adversely affected from the deterioration of the conditions of labor market. The bursting of the construction sector bubble will mean a sudden spike in unemployment rates among the most precarious sections of the working classes (i.e., Kurds and Syrians). The thick hegemony of Turkish Sunni nationalism will then most probably further entrench itself around the figures of the Kurd as the “enemy of the state” and the Syrian refugee as the “parasitic guest.” Moreover, the Erdoğan regime, given its sovereign power to decide which corporations are to be bailed out and which are not, will attempt to use the crisis as a context to re-shape the capitalist classes to its own liking.
In short, it is quite plausible to expect that Erdoğan, whose authoritarian grip on the society is now nearly complete after the last general election, may be welcoming the crisis as he is groping for another way to reorganize capitalism in Turkey. Whether he will succeed or not depends not so much on the capacity of the opposition (which is either in prison or in total disarray), but rather on the limitations and weaknesses of the one-man regime he has constructed. ■
The author wishes to thank Fikret Adaman, Kenan Erçel, Lara Fresko, Ceren Özselçuk, Şemsa Özar, Sedat Yılmaz and the editors of MERIP for their comments and criticisms.
 Daron Acemoğlu, “To go forward, Turkey Must Look Back,” Bloomberg, August 30, 2018.
 Ümit Akçay and Ali Rıza Gürgen, “Lira’s Downfall is a Symptom: The Political Economy of Turkey’s Crisis,” Critical Macro Finance, August 18, 2018.
 Yiğit Karahanoğulları, “Neo-liberal Popülizm: 2002–2010 Kamu Maliyesi, Finans, Dış Ticaret Dengesi ve Siyaset,” Toplum ve Bilim 123 (2012).
 Cihan Tuğal, Passive Revolution: Absorbing the Islamic Challenge to Capitalism (Stanford, CA: Stanford University Press, 2009).
 Derya Gültekin-Karataş, “Sermayenin Uluslararasılaşma Sürecinde Türkiye Banka Reformu ve Finans Kapital-içi Yeniden Yapılanma,” Praksis 19 (2009).
 For a collection of essays that investigates the construction of neoliberal hegemony throughout the first decade of AKP rule in Turkey, see İsmet Akça, Ahmet Bekmen, and Barış Alp Özden, eds., Turkey Reframed: Constituting Neoliberal Hegemony (London: Pluto Press, 2014).
 Sevinç Doğan, Mahalledeki AKP: Parti İşleyişi, Taban Mobilizasyonu ve Siyasal Yabancılaşma (İstanbul: İletişim, 2016).
 Bülent Küçük and Ceren Özselçuk, “‘Mesafeli’ Devletten ‘Hizmetkâr’ Devlete: AKP’nin Kısmi Tanıma Siyaseti” Toplum ve Bilim 132 (2015).
 Aykut Öztürk, “‘This Is Not The Half Of It, Wait Until 2023’: Utopian Narratives And Affective Partisan Ties In Turkey,” Paper presented at the Middle East Studies Association Conference, Washington DC (2017) and Önsel Gürel Bayralı, “‘Yeni Türkiye’nin yeni statları: Yeni-muhafazakâr iktidar blokunun hegemonya inşasının kısa bir hikâyesi,” Birikim, 345/346 (2018).
 Ümit Akçay, “Neoliberal Populism in Turkey and its Crisis,” Working Paper No. 100 (Berlin: Institute for International Political Economy, 2018).