Turgut zal and his economic legacy Turgut Ozal was a critical
figure in Turkeys transition to a neo-liberal development model in
the 1980s. As the chief economic advisor to Prime Minister Demirel
in 1980, he was the principal architect of the stabilization
programme (24 Jan 1980) and was later entrusted with formulating
economic policy by the junta. Following the transition to
democracy, he carried out the implementation of the 24 January
decisions under the ANAP Government.
Slide 3
Turgut zal and his economic legacy Ozal, as the leader of ANAP,
became the Prime Minister and reached the peak of his influence in
that position for the next six years, with the ANAP repeating its
electoral success during the elections of November 1987. Ozal
became the president of the Republic in November 1989, a position
that he occupied until his unexpected death in April 1993. Thus,
for a period of a decade, from January 1980 to November 1989,
albeit with the interruption of a brief period, Turkey experienced
extraordinary continuity in economic leadership.
Slide 4
Turgut zal and his economic legacy The (24 January)1980
programme which was one of the earliest of its kind involved close
co-operation between the IMF and the World Bank as the providers of
massive financial support for Turkey. The scale of financial
support was, in part, due to Turkeys geo- strategic importance.
Ozals leadership also injected a considerable sense of optimism
into the domestic business community which had been accustomed to
operate within closed walls and high protective barriers. Clearly,
the changing nature of incentives made the environment much more
attractive in the early 1980s. Nevertheless, Ozals influence was
important in creating a mood of optimism whereby Turkish
businessmen felt confident in their ability to penetrate distant
markets.
Slide 5
Turgut zal and his economic legacy This element of optimism was
not only injected into the business community but into the Turkish
public at large. Ozals project of popular capitalism through such
measures as mass housing projects and high interests for the
savings of small investors managed to incorporate with considerable
success middle strata of the Turkish public as key stake- holders
in a Thatcher-style project of popular capitalism. This was part of
a broader project implemented with missionary zeal to transform the
Turkish economy and Turkish society at large in the mould of what
he believed to be a genuinely capitalistic economy and society,
overcoming its strong etatiste reflexes in the process.
Slide 6
Turgut zal and his economic legacy The parliamentary elections
were held in November 1983. The NSC took a number of restrictive
measures prior to the elections: it banned two parties that were
clearly recognized as the potential successors to the CHP (Sosyal
Demokrasi Partisi SODEP) and the AP (DYP); and it permitted only
three newly established parties to compete in the elections. Within
these circumstances, zals ANAP captured nearly a majority of the
votes (45 per cent) and 52 per cent of the parliamentary seats
Slide 7
Turgut zal and his economic legacy The dynamics behind ANAPs
unexpected electoral success was partly linked to the fact that the
party did not appear to be closely associated with the military.
The party aimed to present itself as a broad-based political party
that was to catch voters with literally all types of political
tendencies. ANAP was based on a hybrid ideology combining elements
of liberalism, conservatism with strong Islamist connotations,
nationalism and welfarism.
Slide 8
Turgut zal and his Economic Legacy The 1983-87 period witnessed
the ascendancy of Ozal and his ANAP. Within a few days of its
formation, (Dec 1983) the government issued a decree designed to
carry out a major reform of a number of ministries. Ozal appointed
an undersecretary for carrying out special tasks which had been
undertaken thus far by the minister. This procedure had political
implications as it undermined the principle of cabinet
responsibility by placing virtually all power in the hands of the
Prime Minister and his entourage of under secretaries.
Slide 9
Turgut zal and his economic legacy Hence soon after the ANAP
government was formed, a successful modus operandi was achieved
between the President and the Prime Minister with President Kenan
Evren engaging himself with matters related to internal and
external security, as well as foreign affairs and higher education.
On the other hand, the Prime Minister took over the responsibility
of all matters relating to the economy. The ANAP leadership seemed
to be happy with the 1982 Constitution and refrained from openly
challenging the military guardianship of the post-1982
constitutional regime.
Slide 10
Turgut zal and his economic legacy Initially the ANAP
government demonstrated a strong commitment to liberalization.
Ozals economic programme, though described by his supporters as a
revolution in the economy, was in fact a continuation of economic
policy introduced in January 1980. The government hoped to bring
down inflation and raised interest rates in the hope of reducing
the money supply. Import and export regulations were liberalised
and within few months, it was possible to buy a large variety of
imported consumer goods.
Slide 11
Turgut zal and his economic legacy Ozals policies aimed to
accelerate the concentration of economic power in the major
holdings or corporations. Ozal argued that the restoration of
competition would force industry to become efficient and lead to
the survival of the fittest. There was a need for the
reorganisation of industry from top to bottom and small units had
to make way for large, competitive ones.
Slide 12
Turgut zal and his economic legacy The government initially
demonstrated a strong commitment to economic liberalization. It
reduced the degree of tariff protection on imports and reduced
similar restrictions on the capital account and foreign exchange
transactions by a considerable margin. Foreign and domestic
investors became subject to equal treatment before Turkish law. The
incentives provided to domestic investors were also given to
foreign investors and the level of foreign investment in Turkey
continued to increase.
Slide 13
Turgut zal and his Economic Legacy In this period, the ANAP
government showed little interest in advancing the democratic
process. Ozals philosophy was summed up in the words: first the
economy, then democracy. Ozal concerned himself with the economy
and left the martial law regime to maintain law and order. There
was no attempt to amend the undemocratic laws inherited from the
military government. The trade unions law, the higher education
law, the laws on elections and political parties, the press law,
the penal code, and the law governing the running of Turkeys radio
and television all remained unaltered.
Slide 14
Turgut zal and his Economic Legacy A central idea in this
respect was to limit the powers of representative institutions such
that the natural workings of the free market could be protected and
insulated from the detrimental effects of powerful interest group
pressures that can be exercised through representative
institutions. Hence, the notion of limiting the domain of
representative democracy for the benefit of the market was an idea
that Ozal clearly favoured. Ultimately, what Ozal desired foremost
was the speedy implementation of market-oriented reforms. It was
important in this respect that decisions be taken quickly and not
be obstructed by key interest groups that had a stake in opposing
reform.
Slide 15
Turgut zal and his Economic Legacy Indeed, this was the secret
of the so-called economic success of ANAP until the second half of
the 1980s. In this sense, the continued moderation or suppression
of wage demands was a critical factor in keeping domestic inflation
below the rate of exchange depreciation in the mid-1980s. From 1982
to 1988, industrial wages rose less than domestic inflation and
exchange depreciation in every year but 1987, leading to declining
real wages.
Slide 16
Turgut zal and his Economic Legacy The year 1987 marks the
beginning of a new phase in Turkeys transition from authoritarian
rule to democratic politics. Turkey applied for full membership of
the EEC. The ANAP government tried to improve legislations in line
with International Labour Organization (ILO) Conventions to prepare
for forthcoming full membership of the EEC.
Slide 17
Turgut zal and his economic legacy Turkeys application was
rejected, but Ozals initiatives paved the way for the Customs Union
(in 95) that became a crucial element in the full-scale
liberalization of the Turkish economy in the context of the 1990s.
In retrospect, the trade liberalization process in Turkey could
have been a much more gradual process in Ozals absence. Important
segments of the Turkish business community, notably those that were
primarily oriented towards the lucrative internal market, resisted
trade liberalization. Were it not for Ozals bold initiatives in
this respect, which he often tied in with the goal of EC
membership, the exposure of domestic industry to genuine external
competition would have been a far more protracted process.
Slide 18
Turgut zal and his Economic Legacy Even though Turkeys
application was not accepted due to its lack of democracy and
economic development, Turkey started taking steps towards
democratization in line with the expectations of the EEC. More
importantly, a referendum was held in 1987 on the issue of lifting
the ban on the political activities of pre-1980 political leaders
such as Suleyman Demirel and Bulent Ecevit. The ban was lifted with
a 50.3 per cent yes vote whereas 49.7 per cent voted no.
Slide 19
Turgut zal and his Economic Legacy The referendum had a
significant impact on ANAPs decline. It had already started to lose
support due to growing public disenchantment with its management of
the economy, particularly regarding the problem of inflation. The
second half of the 1980s witnessed a rise in the inflation rate and
rising unemployment figures that led many voters to desert
ANAP.
Slide 20
Turgut zal and his Economic Legacy The year 1989 is important
as it signifies the limits of an accumulation model based on wage
suppression. Politicized by the intransigence of governments, the
working class started organising a wide array of workers actions
that were referred to as Spring Actions. In 1989, hundreds of
thousands of workers, disregarding their union leaderships,
descended onto the streets and protested against their multifarious
problems.
Slide 21
Turgut zal and his Economic Legacy When the cabinet postponed
the strikes, in an arbitrary move that it inherited from the
military regime, the workers actions turned into different forms of
struggle such as boycotts, visits to the doctor, organized
demonstrations, meetings, lunch boycotts, the growing of beards,
shaved heads and working barefoot.
Slide 22
Turgut zal and his Economic Legacy The Spring Actions of 1989
spilled over into 1990 and the following years. The number of days
lost in strikes far exceeded those lost in 1980. The governments
reply to the strikes was to increase wages and salaries of
public-sector employees. Real wages in manufacturing increased by
90 per cent from 1988 to 1991.
Slide 23
Turgut zal and his Economic Legacy The dissatisfaction on the
part of the two principal losers in the structural adjustment
process, agriculture and labour, determined the outcome of the 1991
election which marked the end of eight years of ANAP rule. The
centre-right Do ru Yol Partisi (DYP), which drew its support
primarily from rural areas and small business, formed a coalition
government with the center-left Sosyaldemokrat Halkc Parti (SHP)
that drew its support primarily from urban wage earners and lower
and middle level public sector employees.
Slide 24
Turgut zal and his Economic Legacy Turkey has been exposed to
successive economic crises in the second phase, in 1994, 2000 and
2001 respectively. The author believes that these are the products
of Ozals legacy. Ozal himself played an instrumental role in the
radical decision to liberalize the capital account fully in August
1989. Ozal hoped that an open capital account regime would help to
attract large amounts of external capital. This, in turn, would be
instrumental in accelerating the pace of economic growth.
Slide 25
Turgut zal and his economic legacy Yet, this proved to be a
serious miscalculation. The decision to liberalize the capital
account in an environment of high degree of macroeconomic
instability and the absence of an adequate institutional framework
to regulate the financial sector rendered the Turkish economy
highly dependent on short-term and highly speculative capital
flows. Short-term capital inflows magnified the degree of
instability in the Turkish economy as political actors used these
funds to finance rising budget deficits thereby postponing costly
adjustment decisions to the future. It was not surprising in this
context that Turkish economy experienced successive financial
crises with serious real economy consequences.
Slide 26
Turgut zal and his economic legacy There is no doubt that
Turkey have made significant strides in transforming its economy,
having experienced deep crises in their import substitution phase
of development. However, the kind of neo-liberal reform experiment
that essentially bypasses and undermines democratic institutions
and norms can generate devastatingly unfavourable consequences from
a longer-term perspective.
Slide 27
Turgut zal and his economic legacy Turkish society is
characterized by a high degree of income inequality. Ozal hoped to
deal with the problem of pervasive inequality through sustained
economic growth. He tended to reject the notion of extensive direct
re-distribution as being inherently inconsistent with the
neo-liberal logic. Yet, the kind of growth path that he helped to
instigate was a highly fragile pattern of debt-led growth which was
highly vulnerable to speculative attacks and financial crises.
Slide 28
Turgut zal and his economic legacy Turgut Ozals leadership had
a decisive impact on the neo- liberal transformation of the Turkish
economy. The early 1980s constituted the heyday of the Washington
Consensus. Turkey, having lived through a major crisis in the late
1970s, was one of the first countries to encounter the new
liberalization message from Washington.
Slide 29
Turgut zal and his economic legacy It shall be underlined that
the negative aspects of Ozals legacy were synonymous with the weak
spots in the Washington Consensus. For example, Turkey was not
alone in being exposed to the vagaries of financial globalization
through premature capital account liberalization.