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Global crisis, Turkey and the regulation of economic crisis

Zlkf Aydin Capital & Class 2013 37: 95 DOI: 10.1177/0309816812473957 The online version of this article can be found at: http://cnc.sagepub.com/content/37/1/95

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CNC37110.1177/0309816812473957Capital & ClassAydn

Global crisis, Turkey and the regulation of economic crisis

Zlkf Aydn

Capital & Class 37(1) 95109 The Author(s) 2012 Reprints and permission: sagepub. co.uk/journalsPermissions.nav DOI: 10.1177/0309816812473957 c&c.sagepub.com

METU, Northern Cyprus Campus, TRNC

Abstract The Turkish economy has been crisis-prone since the establishment of the Republic in1923. The various policies that resulted from the series of crises following the 1929 world economic recession have not only shaped the countrys integration into the global economy, but have also determined the specificities adopted by the accumulation regimes. The impact of the current global crisis on Turkey, and the governments reaction to it, need to be analysed in relationship to the existing accumulation regime shaped by the countrys history. Thus, while this article is concerned with Turkeys reactions to the current global crisis, it contends that policies from 2008 onwards show a degree of continuity with the policies already in place to cope with the problems generated by the 1994 and 2001 crises experienced in the country. The internationalisation of the Turkish economy, the relationship between core and periphery within the country, and the shifting relations of production and labour relations have all informed the AKPs response. Keywords Global crisis, Turkey, accumulation regimes, authoritarianism

Introduction
The reactions of the Turkish government to the 2008-9 global crisis were a continuation of policies designed to support financialisation. Foreign capital inflow, which had increased from $10 billion in 2003 to a total of $184 billion in 2007, led to significant increases in current-account deficits and rising international debts, from $130 billion in 2002 to $290 billion in 2008 (Boratav 2009: 13). The contraction of financial capital during 2008 and 2009 exacerbated the fragility of the Turkish economy, as $10 billion left the country, causing a 7.8 per cent decline in the national income. Turkeys imports and exports declined by 30.6 per cent and 22.1 per cent respectively in 2009, while
Corresponding author: Zlkf Aydn, METU, Northern Cyprus Campus, TRNC Email: Zulkuf@metu.edu.tr
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international trade declined by 46 per cent (BSB 2011: 123). Despite the fragility of the strategy of high international borrowing and current-account deficit, Turkey has retained this path since mid-2010, when hot capital returned and exacerbated the fragility of the economy. The financial crisis emanating from the USA hit Turkey at a time when its growth model was based on exports and external financing. In order to understand why these policies were in place and why they persisted, we have to understand how policies designed to address the crises of the recent past were shaped by neoliberalism. The argument will unfold in three sections. First, the accumulation regimes pursued in the country since the establishment of the Republic in 1923 show how strongly the global economy and the systemic crises of capitalism have shaped Turkeys political economy. The second section concentrates on the impact of the crisis on Turkey, analysing the early policy responses to it. The third section focuses on the new alternative policies introduced by the AKP government in the aftermath of the 2008-9 crisis. Throughout, we shall see that despite the dominant form of the accumulation regime, the centralisation of economic and political control and the incorporation of the international economy have defined Turkeys response to the crises over time.

Development and modern accumulation regimes

Capitalisms crises and transformations have not been sequential, but simultaneous historical processes (Hoogvelt 2001: 65). Early crises in capitalism, such as those in 1825, 1836, 1847, 1857 and 1866, lasted only few months and brought about recession, reflecting falling output, business closures, unemployment and falling wages. However, in advanced industrial capitalism, crises (1893, 1896, the 1930s and the crises since 1973) were no longer short-lived events but related to the failure of long-term processes in accumulation, and could be known as secular system-wide downturns (Brenner 1998). The crises of 1973-4, 1979-1981, 1990-91 and the current crises since 1997 are evidence of how deep and regular the accumulation crises have been. In the last twenty years, persistent over-capacity and over-production in world manufacturing has led to a long downturn in capitalist accumulation (Brenner 1998). The systemic crisis of capitalism was effectively postponed or displaced by imperialistic expansion, the growth of credit money, restructuring of physical production and social relationships between capital and labour, and capital mobility, as well as by state fiscal, monetary and other policies (OConnor 1989). A range of social institutions ameliorated the tendency of capitalism to fail. Economic crises in the post-Second World War period were overcome by reconstruction and Keynesian state intervention, which regulated a balanced relationship between mass production and consumption, and core economies experienced phenomenal increases in the production of both producer and consumer goods using flow-line technology. Fordism allowed some developing countries to use a developmentalist model based on import substitution. But by the mid-1960s, Fordist expansion became unsustainable as the profitability of leading industries declined, wage gains could not be reduced, and there was a global decline in demand. The Fordist regime required the continuous expansion of markets, which could not be achieved on Fordist principles (Hoogvelt 2001: 45-50). The fragmentation of production, the deskilling of labour, technological revolutions in containers, telecommunications and

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computer applications, and the relocation of industry to cheap labour reserve areas in the Third World were vital to the maintenance of a new mode of capital accumulation. The shift from the Fordist to the post-Fordist mode of accumulation therefore changed the role of the Third World in the global economy, from providing raw material resources to providing cheap labour and production for multinational capital. Given the scarcity of capital and technology in developing countries in the developmentalist era, the import-substitution type of industrialisation was only possible through the purchase of technology and/or through partnership with the TNCs. In either case, borrowing from international banks and granting concessions to TNCs were inevitable, and debt peonage characterised the majority of the Third World countries by the early 1980s, as states borrowed to maintain inefficient industries and high public expenditures. Highly skewed income distribution and rampant poverty in developing countries since the late1970s have led to market contraction and rendered these economies less attractive for direct foreign investment. The expansive phase of capitalism came to an end by 1980, and with it the deepening rather than widening of capitalist integration (Hoogvelt 2001: 67-93). This was a period when the ascendency of finance over industry together with the globalization of finance have become underlying sources of instability and unpredictability in the world economy (UNCTAD 1990: 10). With limited outlets for productive investment, capital sought other ways to invest surplus capital and found international lending and speculative capital movements. International institutions like the IMF and the World Bank play a crucial role in ensuring financial openness globally. Governments were forced to liberalise their financial systems and introduce floating exchange rates. Local banks pushed speculative finance capital into fragile financial markets in the South, siphoning off the savings, while speculative finance capital internationalised the crisis of Fordism through the creation of massive Third World debt. The pressure exercised by the IMF and the US Treasury led to the predominance of short-term financial capital in the financial structure of emerging markets, and the economic crises in 1997 in East Asia, in 1998-2002 in Latin America (especially in Argentina and Brazil), in Russia in 1998, and in Turkey in 2001-2002 (Stiglitz 2000a; 2000b). In recent years, the liberalisation of the Turkish economy has made it more vulnerable to the movements of international finance capital, and the current crisis in Turkey is largely due to structural economic weakness and Turkeys further integration into the global economy.

Turkey, crisis and the New World System

Although Turkey has experienced a number of serious crises since 1950, the frequency of crises in the country has increased since the 1977-78 crisis. The 1980-81 economic crisis brought about a military coup before the 1983 bankers crisis. Then there were the 1988 stock market and currency crisis, the1994 economic crisis, the 1998 textile crisis, and the November 2000 and February 2001 crises. Some of these were directly linked to the structural crises of the capitalist world system, which were transmitted deep into Turkish society to reinforce national social inequality. This process of uneven development in Turkey has evolved in relation to distinctly different stages of accumulation. Import substitution in Turkey started in the aftermath of the global crisis in the 1930s. It remained an important method for controlling foreign currency reserves until

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the late-1970s, when foreign currency shortages, low productivity, imbalances between productive sectors and insufficient demand undermined the policy (Aydin 1997; Boratav and Trkcan 1991; Dervi et al. 1982: 337-371; Glalp 1980). The new Republics nationalist and state developmentalist project ensured a particular form of integration into the world economy in the aftermath of the Great Depression. In the atmosphere of relative freedom created by the world recession, Turkey was able to follow a nationalist development strategy, with the state taking a leading role in capital accumulation. After the Great Depression, Third World inward-looking nationalist industrialisation policies shifted towards the new international division of labour. Productive capital from the advanced capitalist countries found investment outlets in the Third World, and laid the foundations of new export-oriented industrialisation strategies. Export-led industrialisation, exported to the developing world to overcome the accumulation crisis in the centres of the capitalist system, became an important mechanism to ensure the centralisation of power in the global core By 1980, slow economic growth, contracting productive investments, balance of payments problems, a debt crisis, budgetary problems and huge inflation rates indicated the decline of the monopolistic mode of regulation. This led to the collapse of the welfarestatist economic policies and the populist democratic regime, with corresponding crisis in secular nationalist ideology (Glalp, 1992: 20). Governments aimed to eliminate unproductive capital in favour of more competitive capital (Aydin 1997). Exportled industrialisation was introduced under the directives of the IMF and the World Bank in the 1980s structural adjustment programmes. These were presented as a development strategy to integrate Turkey into the world economy, rather than as a stabilisation package (World Bank 1988). Export-oriented development based on the principle of comparative advantage and market-oriented resource allocation were the main pillars of the new strategy (Krueger and Turan 1993: 356). What was envisaged in the second half of the 1980s was a programme of structural adjustment with growth, which would enable the country to expand its production and thus its debt-servicing ability. As such, Turkey could become a model for other indebted countries in Africa and Latin America (Celasun 1991; Dervi and Petri 1987; Rodrik 1990; World Bank 1988). Only big capital would be able adjust itself to the new conditions and become internationally competitive. Exports showed a steady increase from 3.4 per cent of the national income to 8.1 per cent in 1981, 10.7 per cent in 1982, 14.2 per cent in 1984, and 15.5 per cent in 1985 (TSAD 1986: 74). In the first years of these policies, exports rose not in manufactured goods but in traditional export crops. Increased exports were achieved by reducing export prices through devaluation, and by shrinking the internal market through a strict wage policy throughout the 1980s (Boratav et al. 1994; Boratav et al. 2000; Yentrk 2001: 3). By 1990, the Turkish economy had become export-oriented, liberalised and open. Under the military government, all impediments for the free operation of foreign capital were removed, and private-sector-led export-oriented industrialisation was strongly supported by the state growth model from 1983-88 (Boratav 2003). Between 1980-1990, the developmentalist and import-substituting growth model was replaced by neoliberal growth agendas, transforming the relations of production, distribution, employment and growth (Boratav 2003; Boratav and Trel 1993). The process of liberalisation was completed with the full liberalisation of capital accounts in 1989-90. The rapid initial increase in exports was not sustainable, as it was based on labour-intensive sectors (Aydin
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1997; Ercan et al. 2008; Glalp 1983). Towards the end of the 1980s, commodity exports, which were emphasised as the motor of the accumulation regime in the 1980-89 period, experienced a serious crisis. During the second phase of the post-1980 period (1989-1999), the mode of accumulation relied heavily on capital inflows from outside. This coincided with an overabundance of financial capital in advanced industrial countries in search of new investment outlets that could offer guaranteed high returns for short-term lending (Aydin 2005). In this period, the focus of the mode of accumulation was not on productive activities but on transferring capital from international finance institutions to the banks owned by Turkish holdings through the mediation of state borrowing, which in turn enhanced the countrys exposure to the structural crises of international capitalism. The financial liberalisation introduced in 1989 through Decree Number 32 not only made it possible for the transfer of over-accumulated money capital in global markets to Turkey, but also allowed a section of the Turkish bourgeoisie to become key agents in the money markets through their banking activities and capital groups became more exposed to speculative and international investments. Consequently, the 1990s witnessed a number of small successive crises in the productive sector, culminating in the February 2001 crisis (Boratav et al. 2000; ni and Aysan 2000; Ekinci 1998; Yentrk 2001; Yalman 2009). This reliance on portfolio investment to fuel economic growth simply increased the economys fragility by making it susceptible to the whims of the international financial markets (Ekinci 1996; Yeldan 2001). The results of the so-called financial revolution were disheartening: speculative foreign capital flows encouraged by high real interest rates caused havoc in the domestic asset markets, which culminated in the collapse of the financial system and the emergence of a severe economic crisis in 1994. A combination of populist high wage policies, the contraction of investments in the productive sector, the rise of a rentier type of accumulation fired by the speculative capital movement, and an economic growth based on short-term borrowing generated suitable conditions for the 1994 financial crisis. The inflow of speculative money led to the appreciation of the Turkish currency against other currencies, thus making exports more expensive and imports relatively cheap. The production and export of manufactured goods in Turkey slowed down between 1989 and 1994, and high interest rates contributed to the drop in investments in the manufacturing sector, revealing the problems of financial liberalisation. Trade deficits increased from 3.5 per cent of GNP in 1985-88 to 6 per cent in 1990-93, and fiscal balances deteriorated after 1989. Public-sector borrowing requirements rose from an average of 4.5 per cent of GDP during 1981-1988 to 8.6 per cent in the period between 1989 and 1997 (Boratav et al. 2000: 6, 24). The vicious circle of a growth model based on extensive borrowing, high interest rates and a distorted foreign currency regime was inevitably going to lead to a severe crisis. By the end of the 1990s, the government and big businesses promoted the international competitiveness of the economy in order to break out of the pattern of incessant crises. The 2001 transition to the stronger Turkish economy (STE) programme would reveal that its aims were to radically reform the economy, society, and statesociety relations. Comprehensive changes included reform of the banking system and the financial system (to ensure transparency in financial administration, in the agricultural system of subsidies and in the social security system, as well as abandoning the exchange-rate-based
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monetary policy in favour of a floating exchange rate system; and finally, the speeding up of the process of privatisation. The policies put into effect included a total overhaul of the banking system to ensure productive investment (Gltekin-Karaka 2009), institutional reform (Government Decree 2001; FIAS 2001), the disciplining of labour (SPO 2001) and better regional distribution of productive investment aimed at enhancing international competitiveness through regional labour markets. While the policies were able to introduce some antiinflationary fiscal and monetary measures, the envisaged structural reforms were very ambitious, and contradictory to the spirit of neoliberalism. The rhetorical nature of the state documents has been maintained in the recent documents produced in conjunction with the fight against the impact of the 2008-9 crises (SPO 2009, 2012; Sanayi ve Ticaret Bakanligi 2010), as many references are made to reducing regional inequalities and strengthening the international competitiveness of the industry. The governments main concern has been the generation of revenues for the central budget and fiscal adjustment, rather than efficiency, and the repeatedly emphasised competitiveness of the economy in the official documents (Atiyas 2009). Although privatisation has been on the agenda from 1980 to the 2000s, the governments did not pursue it very seriously for political expediency. The legal framework for privatisation of the public sector in line with the acquis communautaire was almost completed by the end of the 1990s, and the 2000s witnessed the speeding up of privatisation. Throughout these periods, the relationship between the Turkish economy and the international system was repeatedly reinvented in the forge of economic crisis. The shift to and from import-substitution strategies, defined during the inter-war recession, to the SAP-driven, export-led liberalisation of the 1980s and 1990s, under World Bank supervision, to the financial revolution of the 2000s under casino capitalism, were bookmarked by periods of economic crisis. In each crisis, the socialisation of national economic relations was reformed to match the interests of a dominant but shifting form of capitalism.

The impact of the crisis on Turkey and the early policy response
The early policy response to the current crisis reveals one of the enduring characteristics of the financialised state: centralised political control. In Turkeys case, this was revealed in the executives over-confidence in the banking reforms after the economic crisis of the early 2000s. It was also evident in the appeal to a new constituency of networked SMEs that would form an alternative economic foundation to Turkeys economic development. The policy reactions to the 2008-2009 crisis were mainly the continuation of those introduced after 2001, but the AKP government presented them as if they were new and specifically designed to fight the consequences of an externally generated crisis. Although the 2008-2009 crisis simply speeded up the already declining economy, the government presented an image of a strong economy based on a strong banking sector (ni and Gven 2011). In reality, industrial establishments had simply stopped investing in new technology and equipment. This not only meant the loss of competitiveness in the world market, but also a significant decline in the manufacturing industry. The situation in which the AKP came to power provided an opportunity for the incoming AKP
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government in November 2002 to continue implementing some of the structural reforms already put in place during 2001-2002 by the technocrats of the previous government, who had been building upon them. The groundwork for the reforms had already been laid out during Kemal Dervis time as the Minister of the Economy. In order to ensure Turkeys further integration into the global economy, Kemal Dervi, a World Bank expert introduced measures that included the restructuring of the banking and social security systems, improvement of debt management, and the re-orientation of public expenditure in accordance with the requirements of the IMF and the World Bank. To a significant extent, the AKPs success in improving economic growth and the fiscal balance in the six years preceding the 2008-9 crisis owes much to the restructuring process set in motion by previous governments (ni and Gven 2011: 7). One of the main reasons for Turkeys slow reaction to the crisis was the false sense of confidence and complacency created by a strong economic performance since 2002. At the root of this complacency was the high rate of economic growth between 2002 and 2006, generated by the inflows of foreign capital attracted by high real interest rates and an over-valued currency in the country (Rodrik 2009). When the crisis emerged, the governments wait-and-see attitude was largely due to its confidence in the strength of its reforms to the banking system, and the reform fatigue that set in after the efforts made between 2002 and 2006 (Patton 2007, 2009). There are signs that Turkey has come out of the 2008-2009 crisis, which hit it very suddenly and had a more severe impact than the previous ones. The IMF (2010), World Bank (2010) and ILO (2010a and 2010b) shared an optimism that the 2008 economic crisis had been gradually replaced by a process of recovery since the second half of 2009. The governments initial reaction was that the measures taken to overcome the 2001 crisis were robust enough to enable the country to withstand the new crisis from the sudden stop in capital inflows. The resilience of local banks, together with huge cuts in interest rates by the Central Bank, were not able to avoid rapid increases in unemployment and a decline in industrial output and gross domestic product (Rodrik 2012: 48). The crisis was a product of the over-financialisation of the global economy. Turkey only recovered rapidly thanks to the stabilisation of the global financial market conditions and the policy-driven sharp reductions in interest rates in advanced economies, resulting in the revival of capital inflows into countries like Turkey (Rodrik 2012: 43-5). If Turkey had not responded so late to the crises, the results would not have been as serious as a 0.7 per cent growth in 2008 and a -4.7 per cent growth in 2009 (Bagimsiz Sosyal Bilimciler 2009: 186-204; zatay 2009; Uygur 2010). The small package offered in 2009 was far from the Keynesian resurgence introduced in many developed and developing countries (OECD 2009). A number of factors have contributed to the AKPs reactive policies to the crisis that exacerbated unemployment and impoverishment in the country. They include the past accumulation regimes that generated economic fragility, and the AKPs political interests in entrenching its power and favouring its clientele (ni and Gven 2011: 1-2). Policymakers could not go beyond the familiar monetary and financial policies aimed at economic stability to give priority to the development of the real sector and to distributional problems (ni and Gven 2011: 2) Unlike the two most recent crises in Turkey in 1994 and 2001, the 2008-2009 global crisis generated a sharp increase in the levels of unemployment, which jumped from 9.9 per cent in 2008 to 14.4 per cent in
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February 2010 (TUIK). When these factors are considered together with the loss of income by the self-employed, informal-sector labour force, the severity of the vulnerability of the poor becomes more evident (TEPAV, UNICEF and World Bank, 2009). Prime Minister Recep Tayyip Erdoan claimed, The crisis will pass at a tangent to Turkey. We will overcome this crisis with a minimum change (Erdoan 2008). This cavalier attitude towards the crisis at best delayed the policy reactions, which seriously undermined their effectiveness. In addition, the AKP did not go against the anti-IMF, -EU and -World Bank sentiment that had been developing in the country for a decade. Since the early months of the crisis and throughout 2009, the AKP government resisted very strongly the new official financing agreement with the IMF due to the increasing public disenchantment with the external actors. The EU was seen as generating new obstacles to prevent Turkeys accession, while the IMF and the World Bank were shaping Turkish development in such a way as to promote Western interests. The IMF and the World Bank insisted on reforming the tax administration, which would see the establishment of an independent tax collection agency to tax the informal sector, where most tax evasion took place. The AKP saw this as a serious threat to its political power base, as most of its votes came from the self-employed, small and medium-sized entrepreneurs, and farmers. Furthermore, the IMFs insistence on financial restraint in the allocation of resources to municipalities conflicted with the AKP governments target of gaining control of more municipalities in the local elections. In short, the AKPs political concerns delayed an agreement with the IMF in the months following the outbreak of the global crisis in 2008 (ni and Gven 2011: 19). The government measures concentrated mainly on lowering consumer prices and investment costs rather than distributional issues, and pressure applied by the industrial class to withdraw support forced the government to change its attitude towards crisis management (ni and Gven 2011:19). Policy-makers refused to see the global crisis as a structural crisis of capitalism, but instead as a result of financial instability and fiscal imprudence. The belief that the banking sector is the medium through which financial shocks would be transmitted to Turkey was behind the relaxed attitude towards the global crisis in its first six months in Turkey. The prime minister and high-ranking policy-makers repeatedly insisted in their public statements that no Turkish bank had experienced a payment crisis. A list of these statements argued that the real economy was strong and that volatility was only temporary, and that the robust institutional and financial structures of the country would contain the damage (BSB 2009: 159-64). Those who tried to link the crisis to inherent structural problems of capitalism were dismissed and strongly opposed. Behind this optimistic view was the belief that the Turkeys past economic crises (in 1958, 1978-9, 1982, 1994 and 2001) were all due to fiscal mismanagement, and that a carefully planned and controlled fiscal policy could protect the country from the crisis. Indeed, the AKP insisted that the crisis would be transformed into an opportunity for the economy to prosper (BSB 2008: 159-64; Erdoans repeated press statements). These policies also represented a shift away from the spirit of the 2001-2002 reforms imposed by the IMF and the EU, but were in line with pre-2007 election concerns aimed at consolidating the AKPs power base to hold against the government. While the pre-election policies included the re-introduction of agricultural subsidies to secure the votes of the peasantry, which constituted approximately 30 per cent of the population in
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2007 (Ministry of Agriculture and Village Affairs 2010: 92), the government was reluctant to continue with the restructuring policies necessary for the countrys accession to the EU. While the AKP government has been extremely instrumental in the liberalisation of the economy along the lines required by the EU and the Bretton Woods institutions, political expediency has forced it to pay more attention to local factors. In any case, one main concern has guided its activities: that of establishing its hegemony.

New alternative policies in the aftermath of the 2008-09 crisis

Having realised that the traditional stability programmes were not generating the desired results, and that the impact of the crisis was much more severe than envisaged, the government gradually started to think about alternative polices in early 2009. Government officials, and particularly the prime minister, stopped blaming the opposition, business organisations such as the TSAD and TOBB and the banks for disastermongering and demoralising the public. However, the programmes did not address the needs of the real sector, nor did they include effective social protection measures to alleviate the impact of the crisis on the impoverished masses. The government was not interested in introducing a policy package that would address these issues immediately and effectively. Since the beginning of the 1990s, the state agencies responsible for economic affairs had been very busy with the process of privatisation and getting rid of state economic enterprises, rather than with producing policy packages that would promote industrial transformation and development (Atiyas 2009). The fact that MSAD, a strong supporter of the AKP and representing the interests of mainly small-scale Islamic capital, joined the TSAD (the organisation of the big industrialists) and TOBB (representing medium-sized enterprises and commercial capital) to demand that the government introduced comprehensive measures to ease the problems of the real sector, indicated the governments delicate position. The late attempt in 2009 to tackle the problems generated by the crisis came only as a response to the pressures put on the government, and yet the policies introduced were far from being comprehensive and precautionary. The selective response reflected mainly the concerns of those who could influence the government, rather than those of any other sector. Thus, the measures introduced have not concentrated on the crucial issues of poverty, employment and infrastructural development. While some of the demands of the business community were addressed, the demands of the labour organisations such as the Trk-i were either simply ignored or paid lip service (Trk-i 2009). While all sorts of tax cuts were introduced for the business sector, no attempts were made to lower income taxes for the waged. However, the PMs view that the crisis would pass Turkey tangentially, without any significant impact, has proved rather optimistic. The government had assumed that the crisis would be of a financial nature, and that the recently restructured banking system was robust enough to endure it. Yet it was not the banking sector but the real sector in which the impact of the crisis was felt very strongly, as the demand for Turkish manufacturing declined quite rapidly (Snmez 2009, 2010; Ergne 2010). Specifically, the 30 per cent decline in exports to the EU, which accounts for 60 per cent of Turkeys total exports, posed a real threat to the manufacturing sector.
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The AKP leaders simply oscillated between the demands of the TSAD (the organisation of big industrialists) and the MSAD (an Islamic-oriented organisation of small-to-medium-sized Anatolian businesses). While the TSAD demanded that a new standby agreement should be signed with the IMF to ease the external borrowing needs of the big manufacturing sector, the MSAD put pressure on the AKP administration not to sign a new agreement with the IMF that would introduce new tax burdens for SMEs and reduce public spending as well as state support for the local authorities. The protracted negotiations with the IMF ended in March 2010 without an agreement, once capital inflows increased, reaching the pre-crisis levels at the end of 2009. The policies that emerged were therefore driven by international and national elites, reinforced patterns of inequality and regional development, and weakened the power of organised labour. Finally, the crisis allowed the AKP to reinterpret the iron fist of the domineering state in a form that matched its own political priorities.

Policies
The credibility of AKP policies concerning democratisation, getting rid of military tutelage, joining the EU and resolving the protracted Kurdish problem, had waned significantly. The AKP government had become arbitrary and whimsical, using the security forces and the judiciary to further its own interests and conceal its policy failures (BSB 2011: 7-8). Rising unemployment forced the government to introduce new investment incentives and employment packages across government between 2009 and 2010 (Official Gazette 2009; SPO 2009; Sanayi ve Ticaret Bakanl 2010). These initiatives intensified the post-2001 agenda to restructure the economy to fit the financial accumulation regime. By 2000, it was realised that the capital accumulation model was no longer sustainable, and that it was time to go beyond an export-orientated model based on the exploitation of cheap labour (Gltekin-Karaka and Ercan 2008). The new model envisaged close co-operation between the state and the private sector in enhancing the global competitiveness of the productive sector, and was promoted by the Ministry of Industry and Commerce and K, a joint planning/think-tank committee. The 2009 package aimed to redirect savings to high value-added investments to increase productivity and enhance international competitiveness (Official Gazette 2009). The measures announced by the SPO (SPO 2009) and repeated in 2011 (SPO 2012) aimed to transfer resources to financial and productive capital to invigorate the domestic market by reducing the prices of durable consumer goods. The inducement package for investments has been quite ambitious in aiming to become the production basis of Eurasia in medium- and high-technology products (Sanayi ve Ticaret Bakanl 2010). The governments attempt to turn the crisis into an opportunity allowed it to devise investment incentives according to the levels of regional socio-economic development. The most developed of the four regions received state investment incentives for hightechnology sectors, the next in multi-functional intelligent textile, and the least developed two regions had incentives targeted at labour-intensive agriculture-related industries (Official Gazette 2009). The shortage of liquidity during the crisis allowed the government to direct subsidies to areas that would speed up the neoliberal restructuring of agriculture in production zones controlled by TNCs and their local partners, and linked to the direct income support programme supported by the World Bank. These made the

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qualification for direct income support conditional upon the production of specified crops in specified zones. A number of constitutional amendments restricted the rights to unionise, strike and participate in collective bargaining (BSB 2011: 63, 69). Law number 6111 (2011) changed more than 80 laws and decrees concerning work and employment, unemployment benefits, civil service, social security and health services. Such extensive and comprehensive changes curtailed the right to organise and unionise, and undermined job security by introducing temporary, insecure and flexible work. In doing so, they prepared the legal framework for capital to use non-unionised, part-time or temporary and subcontracted labour (Official Gazette, 25 February 2011). These regulatory reforms to workers rights and employment relations have been framed by a Constitution that states that basic rights and freedoms cannot contradict international agreements. But Law number 2822, which governs collective bargaining, strikes and lockouts, contains a number of clauses that are in direct contradiction with the agreements number 87 and 98, signed with the ILO. The iron fist on the labouring classes has been accompanied by the oppression of oppositional forces under the pretext of their plotting against the state. The Ergenekon court case and the purge on the Kurdish organisations are cases in point. Hundreds of journalists, academics, authors and local Kurdish municipal officials as well as ordinary citizens have been held in custody for long periods, and blamed for involvement in conspiracies to topple the government, or conspiracies to divide the country along ethnic lines.

Conclusion
Since 2002, the AKP has pushed for small- and medium-scale Anatolian businessmen and their organisation MSAD to become the dominant economic force in Turkey. The failure of import-substitution policies and Turkeys specific integration into the global economy since the 1980s played into the AKPs hands. Turkeys new route to the international economy has been based on flexible specialisation among networks of small firms, flexible work practices and outputs, and small-batch production of customised goods. Slowly, small- and medium-scale Anatolian businesses with Islamic traditions (hence Islamic or Green capital) have replaced Istanbuls traditional large-firm bourgeoisie. As sub-contractors to flexible firms supplying labour-intensive commodities, these smaller companies have strengthened the AKPs power base (cf. Demir at al. 2004). Having consolidated its economic and political hegemony, the AKP has started a full frontal attack on oppositional forces (Toprak 2011; Dndar 2011; Dildar 2012; Ylmaz 2012). Thousands of Kurds and municipal officials in the Kurdish South-East region have been detained in the so-called KCK (Kurdish Communities Union) operations. These aimed to eliminate the leading cadres of the BDP (Peace and Democracy Party) that posed the only serious challenge to the electoral success of the AKP in the 2011 general elections. According to the Economist (24 March 2012), the number of people arrested in connection with the KCK rose from 16,000 in 2005 to 60,000 in 2010. The AKP rule has become extremely intolerant of any democratic protest, and has abused anti-terrorism laws, detaining protestors and oppositional forces for long periods without trial (Ylmaz 2012). Journalists, academics, politicians, students, trade unionists,

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workers and many others are held in prison in conjunction with either anti-terrorism law or with the investigation into the Ergenekon conspiracy. Increasing authoritarianism has become a structural necessity of the accumulation regimes in Turkey in recent decades in order to address increasingly severe economic problems. The accumulation regime in Turkey since 2002 has seen the rise of Islamic or Green capital willing to be integrated into the global economy on the AKPs terms (ni 2007, 2009). Changing the educational sytem and control of the legislative and the executive organisations has been at the top of the AKP agenda. The so-called 4+4+4 compulsory education has enabled the government to re-introduce imam-hatip religious schools at secondary-school level, to deliver what Prime Minister Erdoan has called a generation of pious youth (Evrensel 2012). On the other hand, the constitutional change approved by Parliament and ratified in a referendum on 12 September 2010, strengthened the AKPs grip on political power and the economy. Its 24 articles changed the way judges and public prosecutors are selected, evaluated and investigated. Presented as breaking the Kemalist backbone of the military, judiciary and state bureaucracy, these constitutional changes also sought to ban gender discrimination and enhance civil liberties and personal privacy. But the main target has been changes to the judiciary, allowing the president and Parliament to have a greater influence on the appointment of senior judges and prosecutors. The expansion of the size of the constitutional court and the judicial appointment committee has given the AKP the freedom to pack the courts with its supporters. The appointments of the new judges and public prosecutors by the AKP government led to the head of the Union of Judges and Public Prosecutors for Democracy and Freedom, Orhan Gazi Ertekin, to claim that the judiciary is no longer independent (Radikal 2012). Having established control of the police, the judiciary, bureaucracy and the media, the AKP has managed to subdue the army and the workers movements. This has serious implications for the way socioeconomic policies are shaped, as the condescending attitude of the government to the 2008 crisis shows. The government was confident that the crisis would not impact on the economy, and showed no inclination to introduce precautionary measures or stimulus packages like those that were introduced in the emerging markets of Argentina, Brazil, Russia and Thailand (UNCTAD 2009). The policies introduced in reaction to the global meltdown of 2009 were piecemeal in nature and socially exclusionary, and linked to the past accumulation regime that had generated the crisis in the first place. These policies have meant that EU accession demands for product quality standards, as well rules and regulations enabling free movement of capital and the requirements of financialisation, have been observed very strictly. References
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Author biography Zlkf Aydn is a professor of politics at the Middle East Technical University, Northern Cyprus Campus. He has taught at Durham, Leeds and London Universities in the UK, and at various universities in Turkey, Jordan and Cyprus. His research interests include the political economy of Turkey, globalisation, rural transformation, food sovereignty, development and democratisation in the developing world.

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