Richter Scale, Reforming Global Finance

It’s Not a Conspiracy, Mr. Erdogan!

Does it make sense for Turkey’s Prime Minister to attack financial markets? They have actually been his country’s friend.

Recep Tayyip Erdogan (Credit: Office of the Prime Minister of Greece - Wikimedia)

Takeaways


  • Financial markets bought the story told by Erdogan's very competent economic team.
  • Erdogan failed to reconcile desire for democratic rights with the economic success under his leadership.
  • These deep frustrations have come to the forefront in developed nations as well as in emerging ones.
  • Youth are demanding improved education, infrastructure and corruption, to narrow the income gap.
  • The whole point of Erdogan's reforms was to broaden the basis of wealth beyond the industrialists of Istanbul.

Turkey’s Prime Minister Recep Tayyip Erdogan has not responded kindly to mass demonstrations in the major metropolitan areas of his country.

And his assertion that the foreign “interest rate lobby” is out to get him and his AK Party because they don’t like a Turkey on the rise economically begs disbelief.

Rare is the prime minister these days who, voluntarily and unprovoked, picks a battle with the financial markets.

Unlike Greece, Spain and even Italy, his country was sailing along nicely. The markets’ solid support was not the result of everything being nice and dandy in Turkey. The country’s has had to contend with a rather massive current account deficit.

But the markets bought the story told by Mr. Erdogan’s very competent economic team, principally Deputy Prime Minister Ali Babacan and Finance Minister Mehmet Simsek.

They had markets convinced, with good reason, that Turkey’s fundamentals were strong, despite the current account issue.

And then, in a move that must have made his economic team lose all of its remaining hairs, Mr. Erdogan went out of control politically.

His badgering and the unleashing of the country’s police on protesters reawakened sentiments, both at home in Turkey and abroad (for a generation whose first encounter with Turkey was the movie “Midnight Express”), about the overuse of power in Turkey that had nearly been buried.

Mr. Erdogan spectacularly failed to reconcile the expression of democratic rights pursued by the demonstrators with his country’s economic success story that was achieved under his leadership.

In soccer terms, that would be labeled an “own goal” of historic proportions.

This is even truer when one compares Turkey’s situation with that of the series of countries where there have been street protests and strikes, often violent, as well.

Importantly, these sentiments of deep frustration came to the forefront in developed countries as well as in emerging markets.

It is almost forgotten now with all the protests elsewhere, but the wave pretty much started in 2011 in Chile, a very pro-market economy.

Next, it was on to South Africa, with miners’ strikes. The protest wave has since also affected Indonesia, before landing full bore in Brazil.

What fundamental problem do all of these countries have in common that Mr. Erdogan’s Turkey does not have to contend with? Better yet: What is the scourge all of these countries still face that Turkey actually excels in?
Gross income inequality.

Chilean students have demonstrated for free higher education — in order to close the wide gap between the rich and the poor in this extraordinarily successful country, which nevertheless suffers from some of the most uneven income distribution in the world.

In Brazil, millions have been lifted out of poverty and income inequality, while still very high, has at least been on a declining trend.

These days, young people are demanding improvements in education, investments in infrastructure and an end to corruption, to name only a few of the grievances, all with the aim of further narrowing the income gap.

In Indonesia, even though the middle class is expected to triple from 50 million in 2004 to 150 million people in 2014, income distribution has become more and more uneven, albeit from levels in 2000 that compared well internationally.

In all of these instances, one cannot deny that there was genuine progress.

But as the ranks of the middle class in those nations swelled, more and more of their citizens all of a sudden had the relative “luxury” to contemplate the fairness of their domestic societies’ structures and the often self-serving, if not self-enriching policy priorities of their countries’ political elites.

This is the common undercurrent across many of these demonstrations, even though specific grievances may differ.

If anything, Mr. Erdogan missed out on a spectacular moment in the sun. In the big BRICS debate that is of so much interest in all advancing nations that are plain tired of being considered a mere annex of the Western world, Turkey could have dashed to the front row.

The whole economic point of Mr. Erdogan’s reforms has been to broaden the basis of wealth beyond the industrialists of Istanbul, to reach a new middle class in Anatolia.

Yes, it is less urbane and suave than Istanbul’s industrial families.

But the latter had mainly excelled, quite shamefully, by always understanding to make the right, profitable moves with whatever generals were in power.

For a long time, economic power did not spread beyond those circles. It just shifted among them. Changing that feudalist business practice is precisely the story about Turkey that the markets and analysts “bought.”

There is a truly impressive “Kayseri class” of businessmen spreading across the country and creating many new centers of economic strength and personal wealth.

Sadly, Mr. Erdogan missed a golden moment to articulate a powerful Turkish Dream to build his legacy. He could — and should — have taken credit for having created a more prosperous country empowering people and emboldening them to ask for more.

But for that to happen, he needed to make one transformative step — to understand that middle classes, as they rise and grow, have a stronger sense of their own civic interests.

That goes hand in hand with a commensurably smaller interest in letting strong men hold the reins of the nation.

Not all is lost for Mr. Erdogan, although the odds for his coming to his proper 21st century senses are small at this stage.

To find the right answer, he just needs to ask how to give the Turkish people the tools to follow their dreams.

His term will come to an end in 2015 and following a three-time term limit, which Mr. Erdogan himself enshrined in the AKP’s charter in 2002, he will not be a candidate for Prime Minister then.

His time for legacy-building is now. Young Turks and the world can only hope he will surprise us.

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About Stephan Richter

Stephan Richter is the publisher and editor-in-chief of The Globalist. [Berlin/Germany]

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