By Voting for Erdogan, Turks Have Ruined Their Economic Outlook

Turkey has been massaging the data and unwitting Turkish voters have just undone the democracy that had enabled prosperity

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Erdogan delivers a speech during a rally a day after the referendum, outside the Presidential Palace, in Ankara, Turkey, Monday, April 17, 2017.
Erdogan delivers a speech during a rally a day after the referendum, outside the Presidential Palace, in Ankara, Turkey, Monday, April 17, 2017.Credit: Press Presidency Press Service via AP
David Rosenberg
David Rosenberg

The world declared a state of mourning for Turkish democracy on Sunday, after voters narrowly approved the package of constitutional amendments concentrating political power in the hands of the president. But it wasn’t just democracy that died at the ballot box. The Turkish economic miracle, which has long been ailing, was also finally snuffed out.

A little irony is at work here. President Recep Tayyip Erdogan insists that Turkey needs a strong executive to cope with the many problems the country faces – the Kurdish rebellion, millions of Syrian refugees, strained relations with Europe and Russia, and double-digit inflation and unemployment.

But these problems didn’t arise because Turkish politics are too chaotic. At least some arose because power has become increasingly concentrated in the hands of one man. Now Turks have voted to make them worse by giving him even more power. 

Erdogan the destroyer

Erdogan’s dismantling of Turkish democracy is well documented: The tens of thousands arrested in the wake of last July’s coup, the mass firings of civil servants and academics, the cowing of the media, the abuse of the presidential office, the war in Turkish Kurdistan and the suppression of the opposition.

But the president has also dismantled the Turkish economic miracle, which, probably more than his Islamic politics and campaign to turn Turkey into a regional power, has won him the seemingly impregnable support of Turkish voters.

In fact, the miracle was as much about marketing as about economics. GDP grew about 6% on average in the miracle years while GDP per capita more than doubled to $8,510. But that was in 2007, the last year that can be truly described as miraculous. Since then GDP growth has been running about half that rate and more recently GDP has actually begun declining to $9,950 in 2015 from a peak of $10,800 two years earlier.

What happened? For one thing, things went badly outside Turkey’s borders, first with the global financial crisis in 2008 and then the unravelling of the Middle East in 2010, which Erdogan had been building up as Turkey’s new big export market. But Turkey coped well enough with those shocks.

But the gradual rot taking over the Turkish economy was a wholly internal development.

A paper by the economists Daron Acemoglu and Murat Ucer contends that far from being the miracle maker, Erdogan was responsible for its destruction.

Getting off the democracy train

The economy thrived in the years immediately after his Justice and Development Party (AKP in Turkish) took power in 2002, because of prodding by the European Union and the International Monetary Fund to fortify democratic institutions, pare back the military’s influence, tighten fiscal policy, and crack down on corruption. In those years, Erdogan was hailed as a man who could meld democracy with Islam and a modern economy.

As it turns out, it was all a façade. “Democracy is like a train. We shall get out when we arrive at the station we want,” the president is famously quoted as saying. After 2007, the influence of the IMF and the EU waned and Turkey reversed on their policies. Corruption and cronyism came back big time. The result is that foreign investment has fallen, productivity growth has stagnated and exports are sagging.

National flags of China, U.S., UK and Turkey, rightmost: Turkey's relative economic status is likely to suffer following the referendum.Credit: Michele Limina/Bloomberg

It’s good that the army is no longer powerful enough to stage a coup, as it might have in another era. In retrospect, though, it’s obvious that Erdogan wasn’t trying to remove the danger Turkish generals posed to democracy but the danger they posed to his rule.

That is why Erdogan went through as much effort to declaw the press, the judiciary and the political opposition. Without them, there’s no one there to protect democratic institutions or expose corruption.

Nor is there anyone to expose the truth about the parlous state of the economy.

Last year, the statistics office announced it was revising the way it prepares economic data, supposedly to make it better conform withglobal standards.  What it did was ensure economic figures conformed more closely with the government’s targets.

Suddenly the 2015 economy was 20% bigger than before and 2016 data were revised higher, adding 0.4 percentage point to growth for the year --though still an unimpressive 2.9% despite all the massaging.

It was that kind of statistical repair work that enabled Turkish Economy Minister Nihat Zeybekci to tell investors last September, "The Turkish economy is now at such a stage that it can be called a miracle after the coup attempt.” 

But the facts were exactly the opposite: Even after the massaging, growth still fell from a 4.9% in the first half before the coup to 1.1% in the second. This year, the jobless rate (announced a day after the referendum) has climbed to a seven-year high of 13% and youth unemployment to a staggering 24.5%.

Far from giving Erdogan the powers he needs to set Turkey right, it will give him unbridled power to keep sending Turkey and its economy in the wrong direction, unencumbered by a free press, a strong parliament or independent courts.

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