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Opinion(A. H. Yalaz)

Chapter 4

Neo-liberal global restructuring and crisis in Turkey

4.1. Crisis and restructuring the world economy

Capital accumulation is the essence of the capitalist economic system based on the appropriation of unpaid labour or surplus-value. If we want to understand the situation in which capitalism finds itself we must, first of all, look at the process of capital accumulation or expanded reproduction. Crises of capitalism are, according to Carchedi, are basically determined by the process of technological innovation, by the consequent growth in the organic composition of capital (OCC) (constant capital divided by variable capital) and thus by the decreasing quantity of surplus value produced. ‘The result of this movement is the tendential fall of the average rate of profit.’ (1991: 154). If the OCC is high (introduction of more labour-saving technology), more use values and less value, thus surplus-value are produced. This means that ‘the total amount of surplus labour left available for redistribution through the price mechanism is then smaller, and with it the average rate of profit (...) the use values produced might increase but, if the labour appropriated (surplus value) decreases, a crisis is in the making.’ (Carchedi 1991: 155).

As a social formation, capitalism does not aim at maximum satisfaction of the material and immaterial human needs, but, on the contrary, profit is the basic motive of capitalism. Capitalist economy is based on production for profit, not on the satisfaction of needs. Put differently, the principal aim of capitalist production is not the creation of use value, but the creation of exchange value. As Shaikh puts it, profit is the heart and the soul of capitalist system (1986: 83). In order to increase their position in competition for the market share, capitalists introduce technologies that increase the labour productivity that makes it possible to reduce production costs per unit. However, reduction in the production costs per unit, thus increase in profit margins, requires rise in the fixed capital that forms an integral part of constant capital. This mechanisation of production, in its turn, leads to the fall of the average rate of profit (surplus value divided by total capital invested). Although economy expands, the total amount of profit decreases, because the increase in the capital stock owing to new investment does not compensate for the decrease in profit owing to the fall of the rate of profit (Shaikh 1986: 88). The fall of the rate of profit has a negative effect on investment motive and there comes a time that total amount of profit does not increase and even decrease: the crisis. Profits, real wages, the values of shares fall, bankruptcies, unemployment, poverty, etc. sharply increases. Capitalism is forced to restructure itself. That is what has been happening since the late 1960s in the U.S.A, the hegemonic power of the capitalist world system and other leading advanced capitalist countries.

After WW II, the United States of America (USA) became capitalism’s hegemonic or predominant strategic power. Under the leadership of US capital a new international institutional framework was set up that rested on US capitalism. The IMF, the WB, the General Agreement on Trade and Tariffs (GATT) were the main institutions of the emergence of this managed international economy. This international institutional framework lasted for about thirty years and the period 1945-73 was the period of the greatest boom in capitalism’s history. Under the hegemonic control of the USA, the capitalist world economy managed to grow without major crises until the end of the early 1970s. ‘(...) International co-operation produced large flows of resources, commodities, ideas, and technology from country to country. During the period up to 1973, many countries, but particularly the highly developed group, experienced a long period of unparalleled economic growth (...)’ (Kenwood and Lougheed 1996: 258). This was the period of organised state intervention in the national economies (Keynesianism) as well as in the world economy (international Keynesianism) that was characterised by the Fordist mode of capital accumulation.

Keynesian policies after WW II and the ‘golden age’ of economic growth were based on the war making of the worlds largest economy in the years 1950-53 (the Korean War) and 1965-75 (the Vietnam War) and on the economic effects of its demand for goods and resources around the world (Kolko 1988: 18). The so-called Cold War was also an instrument of capital accumulation, it was the linchpin of the capitalist world economy after 1945. State expenditure in the core capitalist countries of the world economic system played a vital role in sustaining the production and the market either directly or indirectly. While state purchases of goods and services were a direct way to stimulate and sustain the economy, welfare provisions, that allowed the workers to spend a high proportion of their wages on mass consumer goods, were an indirect way. ‘The OECD [Organisation of Economic Cooperation and Development) showed a vast increase in the state’s role both as an employer and as a market and a general intervener in the economy for the thirty-five years following World War II ’ (Kolko 1988: 19). The above mentioned period was a period of historically unprecedented rate of capital accumulation.

Between 1945-73 the intensive mode or regime of accumulation and the monopolist mode of regulation (Fordism) were dominant and industrial capital was the dominant fraction of capitalist class in the advanced capitalist countries. The basis of capitalist expansion was the long-term fall in the social cost of reproduction of labour-power and enormous expansion in the labour force. Fordism meant significant rise in the productivity of labour and thus increase in the relative surplus-value. The main weapon in competition between individual capitalists was reduction in unit costs. As Aglietta maintains, capitalist relations of production after WW II were further generalised by the interaction of two determinants that transformed the conditions of existence of the wage-earning class: (1) the social organisation of labour developed and deepened the principle of mechanisation; (2) an intrinsically capitalist mode of consumption was formed and structured by the mass production of standardised commodities (1979: 382).

As to the mode of capitalist regulation, the class struggle between labour and capital in the economic sphere was institutionalised and new divisions were created within the wage-earning class and the destructive struggles among separate capitals caused by the centralisation of capital were checked. The field of capitalist social relations is ‘a complex whole structured by the domination of the wage relation and perpetuating it. Each of the principal structural forms (22) acts on the law of accumulation in a decisive area’ :
‘ (...) The procedure of collective wage bargaining guarantees the inflexibility of the nominal wage that is needed for the regular development of the mode of consumption, while the system of social security is designed to maintain workers deprived of their jobs in their position as consumers. The giant corporation and the financial group are forms of centralized capital adapted to the pursuit of that competition for investments which hastens the obsolescence of the conditions of production, while transferring the ensuing losses onto society as a whole. The monetary system unifies bank monies into a single national money under the guarantee of enforced currency, and socially validates the waste of resources, to the detriment of society as a whole, by a permanent erosion of the social purchasing power of money.
(...) They [the structural forms] can only form a complex structured whole, able to reproduce itself and evolve in an orderly manner, by their hybrid location, both within economic relations - in other words within the state. It is the state, and there alone, that the cohesion of these structural forms can be assured, permanently jeopardized and as permanently reproduced by the fluctuating compromises of economic policy. State monopoly capitalism is the mode of articulation of the structural forms engendered by Fordism.’ (Aglietta 1979: 382-83).
The state played an important role in economic life, but this did not mean that the state was the main force that made the expansion possible and suspended it for almost thirty years. In the 1950s and the 1960s the profitability was high and the amount of profit grew rapidly and the economic role of the state rode the waves. When economic problems worsened, such as a fall in profitability and investment, an increase in unemployment, the state had to pump financial resources in the economy in order to support credit system and suspend employment. This meant that the state increasingly appropriated the ever greater part of the surplus-value and an increasingly small part of the surplus-value went to investment and thus expansion. What happened was this: the state was forced to pump financial resources in the system because of the fall in the average rate of profit and the rate of economic growth to ease the problems in the short run, but, as explained above, this caused further drop in the rate of growth and worsened the future problems that required more state intervention and so on. This was a vicious circle. As the rate of potential expansion (growth) of the system fell, the increased pumping of resources in the system caused an increasingly growing inflation and a decrease in real expansion: stagflation (23) (Shaikh 1986: 99-100). This was the situation in which the hegemonic power of the capitalist world system found itself. The situation was, in essence, no different in other advanced capitalist countries, but relatively healthy economies of Japan and West Germany did better than the rest of the core capitalist countries.

The period of 1945-73 was also a period of an over-accumulation of capital (a significant mass of excess capital in the economy which cannot be invested at the average rate of profit) in relation to existing supply of labour that led to a fall in the average rate of profit, that is, crisis. It was no longer possible to continue with the policy of high wage increases that mass production and mass consumption of consumer goods and services required in the boom period. The years 1973-74 marked the historical turning point as far as the crisis of capitalist world economy, of course, particularly, the crisis of the most advanced sections of the world capital, is concerned. The manifestation of the crisis in the financial system in the form of the so-called oil crisis of 1974, together with other extraneous factors such as the liberation struggles, ‘excessive’ wage demands by the working class, etc., did not cause, as suggested by many, economic crisis in the centres of world capitalism, but it accelerated a process already under way. According to Shaikh, the crisis period in the USA began in the late 1960s, because the amount of profits, exclusive of financial sector, before taxation and the amount of profits after taxation both peaked in 1966 and thenceforth, in spite of fluctuations, began to fall. He also draws attention to the fact that at the same time the capital market index made no progress and thenceforward recorded sharp decline (1986: 94-95).

As Kolko puts it, the explicit rejection of Keynesianism and the emphasis on the purported dictates of the market became the new paradigm in the mid-1970s (1988: 18). The role of the state as employer began to shift with the fiscal crisis, and by the mid-1980s there was an evident worldwide move to privatise various state functions (Kolko 1988: 19). By the early 1970s, the Bretton Woods international monetary system practically collapsed. ‘This system was originally based on the equivalence of gold and dollars (at $35 an ounce) as universal money to be held by member countries as monetary reserves and used as means of international payment. As long as other countries were willing to accept this basis, which was the case for more than two decades, the United States was in effect provided with a free gold mine.’ (Magdoff and Sweezy 1977: 1.) A persistent and growing deficit in the U.S. balance of payments which poured dollars out on the rest of the world into a swelling reservoir ruined the Bretton Woods system (Magdoff and Sweezy 1977: 6).

The convertibility of dollar was abandoned de facto in March 1968 (except for the Central Banks) and de jure in August 1971. The shift from a fixed exchange rate to floating exchange rates since 1973 had a reverberating impact on all aspects of the world economy. One thing is clear that the international monetary system works for the benefit of a few highly developed capitalist countries organised in the OECD. ‘In spite of the general acceptance of floating exchange rates since 1973, deficit countries of the 1960s still remained deficit countries and previously surplus countries remain in surplus.’ (Kenwood and Lougheed 1996: 317). The changes in international lending system or arrangements had far-reaching economic effects. ‘The major change after 1970 in international lending from individual holdings of government bonds and government-to-government loans, such as existed in the pre-war world economy, to commercial banks as the major lenders to sovereign states radically altered the structure of international finance and the domestic economies of borrower and lender alike.’ (Kolko 1998: 19).

In 1974-75 the worst world recession since the 1930s occurred. ‘The combination of inflation and recession that confronted the capitalist states in the 1970s led to contradictory imperatives in government policy, restricted as governments are by the boundaries of capitalist economic categories. The anti-inflationary responses had nothing to do with inflation and only worsened the situation. But all the governments chose, in essence, to ascribe the source of inflation to higher labor costs (...)’ (Kolko 1988: 17-18).

The strategy of the capitalist class was to force the working class to carry the burden of crisis and thus to restructure the economic system in order to increase the average rate of profit. Not only the high labour costs, but also the welfare system were perceived as the main causes of the crisis. It was high time the dominant mode of capital accumulation in the advanced capitalist countries, that are the centres of capital accumulation on international level and the main motive force of the capitalist world economy, was changed. Therefore, neo-liberal restructuring of the capitalist world economy (‘neo-liberal globalisation’) began in those advanced economies that form the core of the system. The dominant mode of capital accumulation in the core countries determines the economic relations within the capitalist world economy. Restructuring the world economy is, in essence, a restructuring of the process of accumulation. That is why changes or transformations regarding the dominant mode of capital accumulation and regulation must form the starting point when the restructuring of the world economy is examined and analysed.

As we have seen, during the 1970s, Fordist structures of production and consumption entered into crisis. It was no longer possible to continue with the Fordist mode of production and (international) Keynesianism, that is, restructuring of the capitalist world economy was inevitable. The crisis gave rise to far-reaching changes in the technological and organisational basis of production in the advanced capitalist economies. As Ryner remarks, since the world recession of 1979-80 a new form of capital accumulation is emerging, and it constitutes the ‘economic core’ of neo-liberal globalisation. This new mode of capital accumulation (post-Fordism) entails a refraction of production relations in a number of identifiable dimensions: acceleration of the process of internationalisation of production with the rise of a new core technology (informatics and computer technology based on the ‘microchip revolution’), a secular trend of substitution of labour for capital in production, creation of ‘general purpose’ machines that facilitate competition through ‘flexible specialisation’ rather than ‘economies of scale’. ‘As a result, productive capital tends to perceive less of a dependence on nationally generated mass consumption.’ (1998: 6-7).

How should the restructuring of the capitalist world economy be understood? According to Cox,
‘(...) Restructuring refers to the reorganization of global production from Fordist economies of scale to post-Fordist economies of flexibility. It means fewer reasonably secure and high-income core workers and larger proportion of precariously employed lower-income peripheral workers, the latter weakened by being divided by locations around the world, by ethnicity and religion, and by gender. It also means that a large part of the world’s population exists in deepening poverty, outside the global economy (...)’ (1996: 31).
In addition to the above-mentioned aspects, restructuring refers, in my view, to the increasing liberalisation regarding the international trade and investment, increasing deregulation of the national/domestic economy and privatisation of the state-owned economic enterprises. These are all integral components of the restructuring process of the world economy. As far as state’s intervention in the economy and the relationship between the state, capital and labour in general and the struggle among different fractions of capital in particular are concerned privatisation plays a special role in restructuring. Privatisation is a constituent element of neo-liberal offensive of capital against the working class, the so-called welfare state, and all other economic and social gains by workers and other working people who neither own nor control the means of production. In the age of the so-called neo-liberalism, the capitalist state functions more as an agent of transformation of the state capital form of social capital into the private form of capital of which privatisation is the agency. (24)

I agree with Kolko when she makes a distinction between objective and subjective restructuring. She remarks that the objective restructuring occurs as the systemic (intrinsic) and structural (transitional) features of the capitalist system interact, while the subjective restructuring takes place through strategies of capital and the state responding to their perceptions of crisis (1988: 10). (25) In other words, economic crisis itself acts as an agency through which objective restructuring takes place without active intervention of the state and other institutions. It is a kind of natural selection through factory closures, bankruptcies of companies and banks, mergers, takeovers, further internationalisation of production, etc. Restructuring involves not only the objective restructuring, but also the subjective restructuring through conscious intervention of the national as well as international economic and financial institutions (official agents of international capitalist regulation) and, above all, through the intervention of the capitalist state which is not only the protector and regulator of the capitalist relations of production, but also producer of these relations. ‘There was a growing consensus among OECD governments that they should aid this natural selection by eliminating state subsidies, simultaneously reducing budget deficits and, they hoped inflation. They would also assist in the rationalization of industry, in order to increase its competitiveness. Above all, however, the state would ‘restructure’ the economy by shifting the national income away from labor and back to capital in order to renew investment incentives.’ (Kolko 1988: 30).

According to Kolko, the whole concept of restructuring of the world economy gathered force after the recession and during the recovery of 1976-80, when the world economy passed into the period of slow growth and stagflation. ‘Restructuring was essentially one more offensive in the class struggle to alter the perceived shift in class relations and shares in the national incomes that was held accountable for inflation, low investment, falling productivity, loss of competitive position, and, finally, unemployment itself.’ (1988: 31). Reversion of even rhetorical policy goals such as full employment and the state’s role in welfare provisions was dictated by ideology as well as by the fiscal crisis in the context of the economic system. Unemployment was in fact an important backdrop permitting the restructuring of labour relations. Denationalisation or privatisation of the state-owned enterprises, deregulation, dismantlement of welfare systems, and de-indexation of wages were all elements of this restructuring process. While anti-labour policies laid at the heart of neo-liberal restructuring, state expenditures beneficial to capital continued and in many cases grew substantially. Restructuring was successful primarily in wresting from labour the gains achieved in previous decades, and in further incorporating into the capitalist market economy those economies previously outside it. The crisis was important to the temporary success of these restructuring efforts. ‘These changes emerged in the interaction of objective development and subjective policies that themselves were the outcome of and response to the economic environment.’ (Kolko 1988: 53-54).

Between 1945-73 industrial capital was the dominant fraction of capital in the imperialist states. In this upswing period after WW II the introduction of high technology industries led to a capital deepening that led, in its turn, to an extensive capitalist development. In the 1980s and 1990s, however, the introduction of new technology has been overwhelmingly intensive. Up to the late 1970s, Keynesianism was the theoretical and policy orthodoxy in the advanced capitalist countries. In the 1970s, however, the upswing exhausted itself and stagflation was order of the day. Under these circumstances the capitalist class, particularly the financial fraction of it, abandoned Keynesianism and neo-liberalism became the new orthodoxy. The revival of neo-classical theories such as monetarism, the so-called ‘supply-side’ economics, rational expectations, etc. were the forms of appearance of this new orthodoxy.

In the course of the crisis and restructuring, the relationship between industrial capital and financial (money) capital changed. Within global capitalism industrial capital has lost its dominance and financial capital, thus financial speculation, regained its pre-WW II dominant position in relation to productive capital in the 1980s and 1990s. The importance and the role of money capital in the capitalist economic system have enormously increased. This parasitic and predatory fraction of capital has become more mobile and speculative capital has scored remarkable growth at the expense of industrial capital. The decoupling of finance from production is one of the tendencies of the contemporary capitalism and the privatised enterprises are increasingly going to be objects of financial speculation. According to Başkaya, the two distinctive features of globalisation are: a) the real direct investment dropped below the 1914 level; b) the increase in gross fixed capital in the private sector in the OECD countries is well below the increase in financial assets. In the 1980-92 period, the rate of increase in fixed capital was 2.3 per cent, while the increase in financial assets was 6 per cent (1999: 97). Before the collapse of the Bretton Woods system, only 10 per cent of capital involved in the international trade was oriented to speculation. In 1994, according to United Nations Conference on Trade and Development (UNCTAD), it reached 95 per cent (Başkaya 1999: 171). ‘In its latest manifestation, capitalism has emerged as financial capitalism. Rewards are no longer based on thrift and hard work, but on ‘playing the market’, i.e. speculative transactions in global stock markets by portfolio managers of huge sums of finance pooled in banks and hedge funds relying on programme trading in financial (as opposed to real) assets, including derivatives and junk-bonds.’ (Mehmet 1999: 149-50).

After the collapse of the Bretton Woods monetary system, international finance has become pre-eminent in a market mediated credit system. According to Cox, ‘international finance is the preeminent agency of conformity to world-hegemonic order and the principal regulator of the political and productive organization of a hegemonic world economy.’ He also notes that finance is the fungible form of surplus accumulated from production and its origin lies in the production process and in production relations. ‘In its form as money capital, this derivative of production becomes autonomous in relation to production and able to shape the development of the production process and the future nature of production relations.’ (1987: 267). As Ryner argues, economically, this means that productive forms of capital are subsumed to circulation forms of capital. It also means increased importance of rentier profit relative to profit from production. Accumulation of capital is increasingly sustained through a decrease in turnover time and the reduction of labour costs, rather than through productivity increases and mass consumption (1998: 7-8).

What role has the capitalist state played in restructuring the world economy according to the principles of the so-called neo-liberalism? As far as the USA is concerned, thanks to multiplying credit and deficits owing to state’s intervention in the economy, a depression comparable to that of the 1930s was prevented in the USA. By 1984 the USA became a net importer of capital, for the first time since before WW I, and by 1985 it was a net debtor. ‘The U.S. economy drained the world savings through either U.S. corporate Eurobonds or short-term borrowing, foreign funds seeking higher interests, speculation in foreign exchange, repatriation, debt repayment, or capital flight (...) Even more than during the Vietnam War, the rest of the world now financed America’s arms policy, which counted for most of the deficit.’ (Kolko 1988: 35, 48, 49).

According to Kolko, during the 1976-80 ‘recovery’ in the context of a continuing crisis, there emerged a new consensus among various governments to restructure the world economy and its various segments (1988: 40). According to the neo-liberal orthodoxy, the state’s role in the economy had to be reduced and the market forces had to be allowed to operate freely. ‘By 1978 the European governments were beginning to retreat from part of their direct role in the economy. The emerging new lexicon included denationalization, and positive adjustment policies, which translated into adjustment to high energy costs and a new international division of labour through the elimination of subsidies for noncompetitive industries and a general cutback on social expenditures.’ (Kolko 1988: 35). In the United Kingdom and the USA, the most aggressive so-called neo-liberal political forces (the new Right) formed the governments with a determination to reduce the state’s role in the economy and to allow market forces to operate unhindered.

There is a very close relationship between restructuring of the world economy and the further internationalisation of the state. ‘The internationalizing of the state, according to Cox, is the global process whereby national policies and practices have been adjusted to the exigencies of the world economy of international production. Through this process the nation state becomes part of a larger and more complex political structure that is the counterpart to international production.’ (1987: 253). States are not only mediators between internal and international economic relationships, but, they are also active actors within the world economy:
‘(...) They [states] are themselves market actors. As Philip G. Cerny has noted, states represent ‘a kind
of national ‘firm’ or cartel operating directly in the transnational environment.’ Therefore, states have both a direct and an indirect role to play in the global economy. They act as ‘national firms,’ at the same time shaping the domestic market through laws and regulations and the international market through treaties and agreements. Thus, as the global economy has expanded over the last few decades, the activities of states have become increasingly complicated.’ (Stubbs and Underhill 1994: 423).
As Panitch has argued ‘capitalist globalization also takes place in, through, and under the aegis of states; it is encoded by them and in important respects even authored by them; and it involves a shift in power relations within states that often means the centralization and concentration of state powers as the necessary condition of and accompaniment to global market discipline.’ (1996: 86). In recent decades, the nature of state intervention has changed considerably but the role of the state has not necessarily been diminished. States function ‘as the authors of a regime that defines and guarantees, through international treaties with constitutional effect, the global and domestic right of capital.’ The nation-states’s central role in organising, sanctioning, and legitimising class domination within capitalism continues (Panitch 1996: 85, 89).

4. 2. Crisis of the import-substitution industrialisation strategy in Turkey
The evolution of the economic crisis of the world economy in the 1970s had a tremendous negative effect on the economy of Turkey. The external dependence of the economic strategy, the economy of Turkey in general for that matter, became very clear. The import-substitution phase of economic growth and, to a certain extent, development in Turkey, as ‘the poor man’s attempt to catch up with the rich man’, exhausted itself. The period 1945- the early 1970s was the period of the greatest expansion in capitalism’s history and the capitalist development in Turkey was an integral dependent unit of this expanding capitalist world economy. Therefore, the global crisis of the capitalist system hit the economy of Turkey very hard. The crisis of ISI in Turkey was the reflection of this global crisis that expressed the close interaction between the external and internal factors regarding the economic strategy. In order to analyse and explain the so-called neo-liberal transformation of the economy of Turkey, let us describe and analyse the situation in which the economy of Turkey found itself and the crisis of ISI in the context of the interaction between external and internal factors.

It should first be established that the first phase of ISI, which aimed at replacing imports of non-durable goods, was successfully implemented in the period 1963-73. The second phase of ISI, which aimed at substituting for import of consumer durables, intermediate and investment goods proved no great success (Adaman and Sertel 1997: 170). There are several internal and external factors that played their role in this context. Exploring and analysing these factors and interaction between them is, however, not among the aims of this work. But it can be asked if it would be possible had this economic strategy did not run into crisis. Or, could it be possible to overcome the crisis of ISI?

The international economic environment was unfavourable to Turkey after 1974, and, according to Lavy and Rapoport, four external shocks were particularly detrimental to the Turkish economy:
‘ (...) First, the two oil shocks, the continuous increase in the prices of imported industrial goods and the deterioration in Turkish terms of trade resulted in an estimated loss of 4.1 per cent of GNP for 1974-76. Second, the worldwide stagnation in demand contributed to a reduction in Turkish exports estimated at 0.4 per cent of GNP for 1974-76. Third, the world economy turned unfavourable to debtor countries at the end of the 1970s as high rate of inflation and low levels of nominal interest rates of the early 1970s were replaced by rising nominal and real interest rates (...)
A fourth external shock was the negative impact of European stagnation on Turkish workers’ remittances (...) The fall in remittances is estimated at a cost of 1.7 per cent of GNP for 1974-76.’ (1992: 314).
These shocks should not, however, be viewed as the major reason for deterioration of the current account deficit and thus the debt crisis. Turkey’s debt crisis occurred in 1977-78, whereas the wider ‘Third World’ debt did not occur until 1982. Despite all these external shocks ‘no attempts were made to restructure the Turkish economy even as the share of exports in GNP decreased from 6.4 per cent in 1973 to 4.8 per cent in 1976 and 4.7 per cent in 1978. It was this failure to react to changes in the international environment, as well as the continuation of the government’s expansionary economic policy, that led to the debt crisis.’ (Lavy and Rapoport 1992: 314-15).

The reliance on extensive foreign loans to finance ISI led to severe balance of payments problems. The aggravated deficit on the balance of payments necessitated more external borrowing, thus leading Turkey into perpetual debt bondage. Until 1974, most of the loans came from governments of some highly industrialised countries and the international organisations such as the IMF, the WB and the OECD Consortium for the Aid to Turkey. Turkey’s strategic importance as a NATO member played an important role in receiving favourable loans and ‘aid’ from the governments of its NATO allies. ‘In the period 1974-77, the current account deficit was financed by private capital inflows, mainly short-term commercial loans; 74 per cent of the increase in the debt during this period was from private sources.’ (Lavy and Rapoport 1992: 321).

This change in international lending from government-to-government loans, and loans from the international ‘official’ organisations to commercial banks aggravated the debt problem. The excessive lending and borrowing of money capital was one of the striking features of the international financial system in the early 1980s. The international private commercial banks provided credits to less-developed countries well beyond their own resources. Because of the deterioration in terms of trade of the borrowing countries and the ‘second petrol shock’, the indebted countries confronted with problems concerning debt services. The result was an international financial crisis and the 1982 Mexican debt crisis alone threatened not only those banks, but also the whole international financial system with collapsing.

At this point the IMF entered the stage as an agent by imposing economic policies that would guarantee the debt repayments. This also reflected the changing role of the IMF from the lender of last resort to ‘debt-collector’ or ‘bailiff’ (Başkaya 1997: 127-28). ‘The debt has been a crucial weapon in the imperialist attempt to secure management control over internal economic policies. The IMF’s role in the economic policy of the Third World increased as the debt grew.’ (Kolko 1988: 27). The policies advocated and imposed by the IMF and the WB also contributed to the deterioration of the socio-economic and political situation in Turkey as well as in other countries and facilitated the establishment of military dictatorships that would be loyal executive agents of the policies of top institutions of the imperialist capital. It is remarkable that all three military coups in Turkey were preceded by the internationally imposed economic programs.

During the 1977-79, period the governments of Bülent Ecevit and Süleyman Demirel introduced an economic austerity program imposed by the IMF, and thanks to import compression, there was a small improvement in the current account deficit. However, the austerity program did not lead to elimination of the debt problem. ‘Turkey’s global debt had amounted to 23 per cent of GNP in 1977 as the payments crisis began (...) In 1979, the end of the austerity program, global debt amounted to 29 per cent of GNP, and the ratio continued to
increase, reaching 53 per cent in 1986.’ (Lavy and Rapoport 1992: 316). In 1977-78, the Turkish government, facing a severe shortage of foreign exchange, announced that it could not meet its foreign obligations. This payment crisis discredited the import-substitution industrialisation model.

Shortage of foreign exchange, low productivity, insufficient domestic demand, disproportionality between two departments of capitalist production, that is, between the branches producing means of production and the branches producing means of consumption,
were the manifestations of the contradictions of ISI. All these factors played their role regarding the emergence of crisis in Turkey in the late 1970s. As already explained, ISI was not an independent economic strategy, but, on the contrary, it was import-dependent. ISI required, above all, the availability of sufficient foreign exchange in order to function. The economy’s ability to earn foreign exchange was the Achilles’ heel of ISI. The most striking manifestation of the crisis was the inability of the economy to earn enough foreign exchange in order to meet its import-needs. The difficulties in increasing the export of the traditional commodities and the deterioration in the terms of trade led to the ever-growing dependence of ISI on external financing in the forms of workers’ remittances and external loans, particularly the short-term loans. Because of this development the foreign exchange problems (foreign exchange gap) facing the economy of Turkey received the most attention and it was seen as the main cause of the crisis of ISI. The real cause, however, lies somewhere else, namely in the low productivity (high production costs) that prevented the competition of domestically produced industrial goods in the world market. As far as ISI is concerned, the industrial capital didn’t have to earn the foreign exchange needed for its own production. Together with growing foreign exchange problems, shortages of imported materials increasingly led to production losses, under-utilisation of capacity, high inflation, reduction in industrial investment and employment as ISI was highly dependent on imported machinery, raw materials, semi-finished products, and spare parts.

Until 1977, real wages, with some fluctuations in early 1970s, had continued rising, but between 1977 and 1980 there was almost 28% drop in real wages. (In 1981 they dropped below the level of 1961) (Kepenek and Yentürk: 387-88). In private industrial sector, however, the average shares of wages in value-added during 1970-74 and 1975-79 were 32,1% and 34,1% respectively (Boratav 1989: 118). Competition between Türk-Is and DISK concerning higher wage demands was an important factor in high real wage increases in the early 1970s. In 1978 the unemployment level had risen to approximately 20 % . The relative strength of the trade unions and a shortage of skilled workers that had pushed the total wage level up are partly responsible for this that led the capitalists to use capital intensive production methods instead of labour intensive ones. Bayar draws the following picture of the economic situation in which Turkey found itself in the 1970s:
‘During the 1973-1977 boom, the inflation rate averaged about 20% (four times the average rate in the 1960s). Inflation continued to accelerate even after the 1977 slowdown to hit 100% in 1980. Oil shocks and public sector deficits were the source of continuous inflation in the 1970s. Income inequality increased dramatically because of the sharp decline in real wages as inflation began to accelerate after 1977. Labour market developments were also highly problematic in the 1970s. Labour supply continued to increase but the European labour demand for Turkish immigrant workers declined sharply because of economic slowdown. As a consequence the number of unemployed grew by 5.4 % per year between 1973 and 1977, and by 10.3% during the period 1977-1980. GDP growth rate declined to 0.3% per annum in the same period. Turkey thus entered into a period of heavy stagflation. Until 1980, however, the government was unable to implement an efficient stabilisation programme.’ (1996: 778).
As to the role of both the state sector and private sector in the economy it should be established that, in the years 1972, 1973 and 1976 the private sector made strong advances in total private capital formation; the increases amounted to 15.7%, 14.4% and 13.5% respectively. In 1977, however, private fixed investment stagnated and in the 1978-80 period it declined in real terms to the point where it was lower in 1980 than it had been in 1972. ‘Whereas manufacturing had accounted for almost a third of private capital formation during 1973-77, moreover, this decreased to just below 29 per cent in 1978 and below 24 per cent in 1979. Nevertheless, by the mid- and late 1970s the private sector had come to play a substantial role in Turkish industry.’ (Singer 1984: 159). However, at the end of the 1970s, the state sector was still the economy’s centre of gravity. Although the state sector’s share in total investment had stayed fairly constant for twenty years, the state sector investment in the manufacturing rose from 34% in 1965 to 65% in 1980. Employment in the state sector had risen from 362,000 in 1970 to 646,000 in 1980. ‘In manufacturing sector alone, state-owned enterprises accounted for 32% of value added, 36% of employment, and 43% of investment.’ (Richards and Waterbury 1996: 200-201).

Political situation and organised interest representation
The political situation in Turkey became more and more unstable during the 1970s because of, inter alia, the growing working class struggle in the forms of strikes, factory occupations, sit-ins, demonstrations etc. regarding the working conditions, wages, social wages, unemployment, etc. but also because of lock-outs. The capitalist class, particularly its dominant fraction and the working class, particularly the industrial workers were both organised and waged an increasingly bitter struggle against each other. The working class was ideologically and politically divided; this division was also reflected in different trade union organisations in the politico-economic life. Besides Türk-İs and DISK, there existed two other union confederations, namely religiously-oriented Hak-Is and the fascist Confederation of Nationalist Trade Unions (MISK) and many independent trade unions. Türk-İs and DISK were the main trade-unionist representatives of the organised labour. While the former was the main agent of job-unionism, the latter was the main agent of politico-ideological unionism that aimed at promoting the consciousness of workers and supporting the political party which would ‘defend’ their interests. They were both run by the different fractions of trade-union bureaucracy with differing ideological and political colours that developed self-interest. Particularly Türk-Is was ready to collaborate with the capitalists and the state regarding the interests of the working class. Türk-Is was mainly organised in the state sector enterprises and cooperated with the state and the big capital. DISK was organised mainly in the large private sector enterprises and was not a part of the corporatist arrangements and represented the most militant section of the industrial working class. There was a bitter competition between the trade unions, particularly between Türk-Is and DISK.

The Industrialists and Businessmen Association of Turkey (TÜSIAD), the Trade Union of the Metallic Goods Industrialists (MESS) and the Confederation of the Employers Unions of Turkey (TISK) were the main representatives of big capital. In the 1970s the influence of organised capital rose dramatically. Organised capital undertook the task of confronting competitive labour unionism and its radicalising and activating impact on the workers. The realignment of various interest associations around the hardline TİSK, which reflected the growing solidarity of capital against labour, was the most important development in the capital sector. The most concrete action of TİSK against labour was to clamp down on wages and strikes. It viewed Turkish trade unionism as irresponsible because of forming organic links with political parties, and suggested an authoritarian solution for the labour question. ‘The guiding principles of the dramatic reorganization of labour after 1980 were thus being laid down by TISK in the late 1970s, giving rise to post-1980 allegations by Türk-İş that the model devised for labour in the 1980 [1982] Constitution and the Labour Code of 1983 was an exact replica of the pre-1980 demands of TISK (Cizre-Sakallioglu 1992: 723-24).

In short, both the industrial bourgeoisie and the industrial workers were organised and they waged class struggle against each other under the leadership of their respective organisations: the organised workers versus the organised capitalists. The workers, however, had to fight at three fronts: against the capitalist class, the state and, last but not least, against
the trade-union bureaucracy, while the state was trying to maintain and improve the favourable conditions for the dominant mode of capital accumulation. In 1978, the Ecevit government experimented with neo-corporatism (26) by signing a ‘Social Contract’ with Türk-İs, the first of its kind in Türk-İs’s history. The document became defunct within six months ‘because of the highly unrealistic promise of guaranteeing the public-sector workers their 1976 level of earnings.’ (Cizre-Sakallioglu 1992: 724).

Besides the labour trade unions and unions, associations and different chambers of the capitalist class, the 1960s and 1970s, particularly the second half of the 1970s, saw a very fast growing legal civil society which ranged from cultural associations to political ones. Organisations that made up the civil society were mainly organisations of the non-propertied social classes and strata. Students, civil servants, teachers, some sections of peasants, Kurdish patriotic nationalists, etc. founded many organisations. Besides legal civil society there existed illegal and/or semi-illegal civil society, mainly because of political repression and persecution. In two decades, thanks to the high tempo of capitalist development, the multi-ethnic society of Turkey became a highly organised one.

The economically powerful social classes (the capitalist class and semi-feudal large landowners) were also divided into different economic and political fractions. Political struggle among the political parties reflected this cleavage. This does, however, not mean that there is a mechanical relationship between the social classes and their political representation. Although political parties represent the class or fraction interests of the social classes, in a parliamentary system, they develop a certain self-interest. In order to maintain and improve their position in the political arena they have to win the support of the electorate and this makes interest representation politically problematic. Moreover, there is no mechanical reflection of class interests and the class interests, particularly on ideological and political levels, are subject to social construction. There can emerge contradictions between the social classes and their political representatives concerning not the essence, but forms of interest representation. It could be said that bourgeois political parties, like bourgeois state, enjoy, in fact, are forced to enjoy, a certain relative autonomy with regard to the bourgeoisie. There can arise situation which requires sacrificing the bourgeois political parties as political forms of representation, as happened in September 1980 when the military dictatorship established itself as the predominant representative of capitalist class. If there is no political party to represent the interests of the capitalist class, there is always the capitalist state to substitute them in the need of emergency. As to the political situation in the second half of the 1970s, with relatively weak coalition governments since the parliamentary elections of October 1973, Turkish state was not capable to make the necessary changes with ‘normal’ methods to overcome the economic, political and social crises which manifested itself as political polarisation and near-civil war proportions of social strife between the fascist political right and the revolutionary left.

Protectionist industrialisation-political liberalisation, economic liberalisation-political repression
In theoretical framework I have argued that there existed a close relationship between the dominant mode of capital accumulation and the political development. The case of Turkey proves that while the ISI strategy stands in direct proportion to political liberalisation, the EOI strategy stands in inverse proportion to it. Industrialisation and creation of a relatively large domestic market in Turkey required economic as well as political concessions to the consumers and potential consumers of the import-substituting industrial sector. In the 1960s and 1970s, Turkey experienced a remarkable de facto as well as de jure political liberalisation (the 1961 Constitution reflected this) and even a certain degree of political democratisation in the bourgeois sense of the term. The ISI mode of capital accumulation in those two decades required an expanding domestic market and thus relatively high purchasing power of the consumers of the industry which produced for the domestic market and a widely organised social security system. When ISI in Turkey was in crisis at the end of the 1970s there came the end of the economic and political concessions to the working class and the salary-dependent working masses in general.

The transition from ISI to EOI in Turkey demanded contraction of the domestic market and an end to economic and political concessions, particularly to the industrial workers. The political expression of the neo-liberal restructuring in general and the transition to export-oriented economic strategy in particular took the form of the military coup d’état. This suggests an inverse relationship between the transition from ISI to export-oriented neo-liberal economic strategy and capitalist democracy: economic liberalisation is accompanied with political repression. In short, in the period of ISI the people of Turkey enjoyed more bourgeois democratic freedoms in comparison with the still ongoing neo-liberal restructuring period. As far as the military dictatorship sub-period of the neo-liberal restructuring process is concerned, there could be no talk at all of the political rights for the vast majority of the people.

The social alliance breaks down
According to Keyder, the social coalition which sustained the ISI strategy in Turkey broke up because of the crises brought about by foreign exchange constraint. Why? Because the ISI strategy was based on selective protection of the domestic industrial sector. While capital goods and inputs were imported, outputs of industries that developed domestically faced no competition from foreign producers. ‘In the direct relationship between the volume of imports and the volume of domestic industrial production, the ceiling on the rate of industrialisation was determined by not only the classical crisis tendencies of a capitalist economy, but also by the importing capacity.’ (1987: 165). Classical crisis tendencies, argues Keyder, were held at bay during the history of import-substitution; ‘hence the constraints that limited the pace of industrialisation were always determined by the availability of foreign exchange, i.e. the importing capacity.’ Problems in system integration forced the split in the balances established at the level of social integration (1987: 165).

The social alliance based on domestic market-oriented industrial capital, an organised industrial working class and the bureaucratic bourgeoisie collapsed because of the internal contradictions of ISI. During the history of the ISI strategy in Turkey the state acted as an agency for mediating the relations between the internal and international economy. A closely regulated external trade and foreign exchange regimes were the main instruments of the state. Through legislating and institutionalising the collective labour rights and a social security system, the state provided a framework to incorporate working-class interests and expand the domestic market that benefited capitalist class, particularly the inward-oriented dominant fraction of the industrial bourgeoisie.

Whatever social contract had earlier emerged, maintains Keyder, it did not penetrate deep, and economic growth was faltering. The state was hindered by intense political competition whose rules were far from being settled or universally accepted. ‘In giving way to privatisation and parcelling up of its agencies, the state rapidly lost its ability to fulfil its accumulation function vis-à-vis the bourgeoisie. Its legitimacy, already eroded in the eyes of social groups excluded from the populist equation, declined parallel to its growing privatisation.’ (1987: 223).

In the late 1970s, the conflict between internationally-oriented fraction of capital and the ‘national industry’ was manifest. This conflict became acute regarding the allocation of scarce foreign credits and the supportive role of the state enterprises. With the help of the IMF the internationally-oriented fraction became dominant in this conflict (Smit and Van Velzen 1982: 107). The state-owned enterprises in the Middle East, according to Richards and Waterbury, have not, except the petroleum sector, contributed to exports, while their import needs and hence claims on foreign exchange have remained high (1996: 208). For this reason, to the conflict between the export- and the inward-oriented fractions of capital over scarce financial resources it must be added the conflict between these and the state sector, thus different fractions of the state bureaucracy. It must, however, be emphasised that many capitalists, particularly the big ones who advocated reduction of state control and more room and role for private sector activity in the economy profited from their access to the state enterprises, for instance through low input prices.

Towards the end of 1979 the economic crisis took such dimensions that deeply effected not only the great majority of people, but also the capitalist class. Inefficient price controls over the basic consumption goods, high inflation rate, queues in front of the shops, black-market, etc. were the daily phenomena in Turkey. The organised sections of the working class were struggling to maintain the real wage levels through trade-unionist struggle. It was a period of stagflation in which reduction in the mass of surplus-value was a significant feature of the capitalist economy. The traditional mechanisms of surplus distribution, such as credit, allocation of foreign exchange, tax rebates, etc. were losing their importance. Under these circumstances it was imperative for the industrial bourgeoisie that increasing the rate of surplus-value should take precedence. This required intervention in the relationship of forces between labour and capital in favour of capital. Big capital demanded that trade-unions be put under discipline and a safe environment be created for capital (Boratav 1989: 120). The age of the import-substitution mode of capital accumulation and the mode of regulation and state structure that corresponded to it was over. The mode of accumulation that once substituted for the mode of accumulation based on export of primary products was to be substituted by the export-oriented mode of capital accumulation: negation of the negation!

Read more... Chapter 5

(22) Aglietta uses ‘the term structural forms for the complex social relations, organized in institutions, that are the historical products of the class struggle.’ (1979: 19).
(23) The term stagflation refers to the combination of stagnation or reduced economic activity and inflation.
(24) I have borrowed the concepts such as social capital, state capital and individual capital from Marx. He argued that ‘the social capital is equal to the sum of the individual capitals (including the joint-stock capital or the state capital, so far as governments employ productive wage-labour in mines, railways, etc., perform the function of industrial capitalists) (...)’ (1986: 100).
(25) Kolko argues that ‘the intrinsic characteristics will remain constant as long as the system itself exists. This means the economy cannot be reformed - that is, the intrinsic features cannot be altered - though it can be, and is being, restructured.’ Structural features are the outcome of the dynamic interaction of economic and political factors and they define particular periods and are always changing (1988: 8-9).
(26) In neo-corporatism, the state intervenes and shapes the labour unions not by coercion and repression but by offering organisational and policy benefits or inducements (Cizre-Sakallioglu 1992: 727, n. 1).