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THE NEOLIBERAL LANDSCAPE

A coup in 1980 marked the end of national developmentalism in Turkey and the beginning of the country's liberalization episode. The aim was to remove trade barriers in order to increase the rate of economic growth through an export-oriented strategy aimed at entry into global markets. By 1980, Turkey had a modern class structure built on the foundation of a combination of state-owned and state-guided private enterprises. There was a thriving national market for consumer goods produced by Turkish manufacturers and nursed by state promotion of a cultural ideology of consumption. The captains of industry had achieved the status of a national bourgeoisie, which, in turn, had come to rely upon the entrepreneurial, managerial, technical, and professional services of an urban, university-educated upper middle class. The core fragments of the middle class consisted of the salariat, which distinguished families of the middle class from a class of wage earners and those who held the means of production. By 1980, the core middle-class family could expect a comfortable life, secured by state provisioning of health, education, and pensions.

In the decades prior to 1980, the families of middle and upper middle-class fragments seemed to share consumption habits anchored in twin aspirations of living “a comfortable life” and attaining higher education. Perceived differences were embedded in a shared structure of feeling that the lives of their children would be better than theirs. In other words, the idea of improving class by means of education was common to both fragments of the middle class, belying the reality of the privileges already enjoyed by the established upper middle class.

The characteristics of and distinctions within the middle class of the post-1980 era in Turkey might best be understood within the context of the forces of global neoliberalism shaping developing economies. Over the past several decades, in one country after another, the logic of the globalizing market exerted pressure on nation-states to make wide-ranging policy changes favorable to free trade and economic growth. The policy of solving national problems through growth in capital opened virtually every sector of the national economy to the forces of global capitalist markets. Direct investment by foreign corporations became, in the eyes of many analysts, the most efficient cure for all social, political, and economic problems. This neoliberal perspective on the problems of the nation-state found an audience in almost every developing nation across the globe.¹ The ideology of neoliberalism, as globalized free enterprise came to be called, proclaimed national borders to be an obstruction to the free flow of global information and ideas, technological innovation, goods, people (labor), and financial capital—all factors critical to other forms of social and cultural development. Under the increasing pressures of neoliberal ideology and policy-makers, national governments came to be viewed as imposing an unbearable regulatory burden on individual initiative and a tax on collective welfare. Removing such obstacles would unleash human creativity and wealth, and also would bring a rising tide of wealth to all countries and all classes of people. These economic suppositions went hand in hand with the political claim that opening national markets to global trade and capital would bring not only the benefits of efficiency but also the elusive blessings of equity. The rising tide of global capital would raise all boats. People of every country, eventually and inevitably, would be better off in the new global marketplace.

Liberalization and the Restructuring of the Turkish Economy

Turkey participated in this project of neoliberal reforms. Its liberalization episode, which embodied the ideas of free-market benefits, began with an economic and political crisis in 1979 following a decade of turmoil between the Turkish political left and right. This crisis culminated in major bottlenecks in the economy, a slowdown of growth, a very high rate of inflation, high accumulation of external debts, and serious social unrest and street violence that resulted in thousands of deaths. A solution to the crisis that would help stabilize the Turkish monetary system was agreed upon between the Turkish government and the International Monetary Fund (IMF). On January 24, 1980, the government introduced a comprehensive economic stabilization program.² The major elements of the reform program, aimed at deregulating markets and opening them to competition, were as follows: the gradual removal of trade restrictions towards full commodity trade liberalization, the liberalization of the interest rates and the exchange rate regime, the privatization of industries and public services such as education, and the elimination of price controls and subsidies. This was followed throughout the 1980s by complete financial liberalization. The state abruptly abandoned national developmentalist policies.

A new government established in 1983³ announced that it would reinforce the economic policies initiated in 1980 by introducing a greater degree of liberalization, minimizing the role of the state in regulating markets, and reducing what was perceived to be excessive intervention in the economy.

The historical role of state policies in redistributing resources vital to class formation now took a different turn, one that not only changed the national distribution of economic capital but also changed the social contract between the state and the middle class. In order to understand how this happened, and what it meant for middle-class economic and social reproduction, it is necessary to grasp, through various questions, the underlying economic and cultural logic of state policies that give substance to such concepts as liberalization, deregulation, privatization, and crisis. What was the state's main motivation behind liberalization and what were its main objectives? What were the consequences of the liberalization episode on different classes in the economy? How was the existing middle class hollowed out and polarized, resulting in a small but growing urban, professional, highly educated and globally linked fraction that have come to be known in the academic and media discourses as the new middle class? This chapter addresses the underlying causes leading to the bifurcation within the middle class as a result of neoliberal policies and the appearance of the new middle class in the Istanbul neoliberal landscape.

Accumulation by Dispossession

Marxist geographer David Harvey, in A Brief History of Neoliberalism, argues that “neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade” (2005: 3). In order to secure this neoliberal framework, the state “must also set those military, defense, police, and legal structures and functions required to secure private property rights and guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary” (2005: 3). Harvey's analysis of the new round of capital accumulation rests on the concept of “accumulation by dispossession” (2003: 137–83). This means opening up new areas for capital accumulation either by selling off state (public) assets or by forcing the governments to privatize, commodify, and marketize areas of social life that previously resisted the logic of capital. It also means state manipulation of crises and state redistribution of wealth and income through various policies. This process “has, however, entailed much ‘creative destruction’, not only of prior institutional frameworks and powers but also of divisions of labor, social relations, welfare provisions, technological mixes, ways of life and thought, reproductive activities, attachments to land and habits of the heart” (2005: 3). In fact, at the heart of the neoliberal ideology is this basic logic of capital.

Policies of Accumulation by Dispossession

During the neoliberal era, certain policies of dispossession such as state redistribution, financialization, and privatization created a new middle class in the globally integrated and fast growing economic sectors like exports, financial services, banking, tourism, media, advertising, accounting, and entertainment. An increasing number of highly educated professionals were able to situate themselves favorably in various sectors of the fast-track economy, accumulating assets and real wealth and thereby experiencing rapid upward material mobility. This group stood to gain the most ground, economically and politically, in ways that not only reproduced their class position but also elevated it—one is tempted to say leveraged it—in relation to the rest of the middle class. Income gaps within the middle class continued to widen.

State Redistribution

The liberalization period witnessed a dramatic change in the role of the state. The state shifted missions, from being a provider of social benefits and social investments to a regulator of income distribution in the interest of capital. The state redistribution of income was implemented through various policy tools such as devaluation, interest rate manipulation, public borrowing, and taxation.

One of the first neoliberal policies was the devaluation of the Turkish lira to boost exports. Later, in 1989, all restrictions on foreign exchange were lifted and the Turkish lira became fully convertible. This also meant that capital flows would be totally unregulated.

By a devaluation of its currency, a government hopes to generate more foreign demand for its goods while reducing the demand for imports, thereby improving the country's trade balance. Devaluation has the immediate effect of raising prices of imported goods in terms of the local currency. Imported goods—cars, textiles, and electronic devices, for instance—will cost more.

There are severe distributional effects of devaluations in the domestic economy. By changing the domestic prices of exports and imports and creating incentives for the exporting sectors (tradables) as opposed to domestic goods (nontradables), devaluation will benefit certain groups at the expense of others. In general, urban wage and salary earners, people with fixed incomes, small farmers, and rural and urban small-scale producers and suppliers of services who do not participate in the exporting sector suffer from the domestic inflation that typically follows devaluation. Their consumption is lowered through a decline in wages and salaries in order that a surplus of goods for export can be created. Meanwhile those in the export sector gain. The more the ownership of and control over the export sector are concentrated in private hands, the greater is the effect of devaluation on income distribution.

One other form of state redistribution was implemented through the manipulation of interest rates. The government of Turgut Özal had made promises to improve the purchasing power and saving capacity of the middle class and to ease the acute housing shortage through special incentives and programs. While talking about these reforms, he used the word “ortadirek ” to refer to the middle class, a term meaning the “core structure, pole or pillar” of a tent, as a rhetorical device to signal an intention to restore the economic base and social welfare of the middle class following the 1979 crisis.

In line with this rhetoric and in keeping with this program, Özal's government declared a “war” on inflation as the primary animus of its multipronged program. He promised to reduce the inflation rate in an effort to stop the erosion of middle-class purchasing power and savings. Once the inflation rate was reduced, middle-class incomes would rise and income distribution would equalize, favoring this class.

To achieve this goal, the government reasoned, it would be necessary to liberalize interest rates. As interest rates went up, the middle class would put lifetime savings into time deposit bank accounts, creating a tool for increasing income. Increased savings would reduce consumption and therefore inflation. Upper middle-class families that were losing real income due to the high inflation rate by the end of the 1970s received this policy warmly as well.

Prior to this era, savings accounts were not very common among middle-class households because of negative real interest rates on time deposit accounts. Middle-class families kept their savings in the form of gold or real estate. At first, interest rate liberalization resulted in a fierce struggle among banks and broker institutions to attract funds from the public, mainly middle-class households. Unfortunately, this option was short lived due to a banking crisis in 1982. Kastelli, the largest broker, became insolvent and fled the country, leaving long lines in front of his brokerage houses. Middle-class people who had sold their houses or gold and deposited the proceeds with the bankers were the main losers. Although it is not known how many households lost their savings in this episode, it is clear that this first encounter with unregulated global capitalist markets was a disaster for the middle class, the supposed beneficiaries of the new policy. Following these failures, the government returned to its policy of regulating deposit rates, but in 1987, it liberalized interest rates again and banks were allowed to determine rates for their deposits. Once again middle-class families began to keep their savings in the form of high-interest deposit accounts in order to stretch their continuously shrinking incomes due to inflation.

The distribution and size of deposits revealed the winners of this policy.⁴ The overall effect was to increase the rent income of a very small number of deposit holders. Those who had substantial savings, like the capitalists and upper middle-class families, were able to increase their income through interest earnings. But for the vast majority, things only got worse. The majority of core middle-class families lost their purchasing power as a result of interest rate manipulation.⁵

The failed promise of improving the income of the vast majority of middle-class families had the effect of placing them at greater risk with an increasingly uncertain future. Economic uncertainty, though, was not the only concern. In the old system, the middle-class families had a respected status in Turkish society. Their social worth seemed to be assured. Now it was being undermined.

One other form of state redistribution of income was implemented through public borrowing, by transferring income to holders of public debt instruments (mainly the rentiers and the financial sector) through interest payments. Persistent and high inflation had created incentives for the private sector to delay tax and social security payments. The system encouraged evasion. Firms withheld these payments and invested them in government bonds earning high profits because the return on government bonds was far greater than the penalty they paid for being behind in their payments.

Meanwhile, tax policies favoring capital and punishing labor were continued. There was a shift from an earlier progressive income tax to an almost regressive one, favoring dividend and interest income on government bonds and treasury bills and increasing the tax burden on wage and salary earners. In addition, capital gains on real estate and financial assets were all exempted from taxation. These exemptions allowed an avenue of rapid accumulation for the new middle class who invested in the urban real estate boom, especially in Istanbul. Intellectual-property incomes and interest revenues on bank deposits were taxed at flat rates much lower than the lowest tax bracket applicable to wages and salaries.⁶

Financialization and the Istanbul Stock Exchange

The Istanbul Stock Exchange (ISE) was initiated in 1986 and a Capital Market Board was established in order to regulate and supervise the capital market. The removal of all restrictions on capital flows completed the financial liberalization program. An important characteristic of this final phase of liberalization was the massive flow of short-term speculative capital in response to fluctuations in exchange rates and interest rates. There were three sources of hot-money movements that dominated the capital account and led to external debt growth during this period: rentiers, firms, and banks. Rentiers engaged in currency switching, mostly between dollar and Turkish Lira (TL) assets, capital flight, and its reversal. Firms shifted between borrowing in TL and foreign currency. Banks borrowed abroad and lent domestically. In 1993, the Turkish stock market was considered to be one of the best-performing emerging stock markets in the world.

Growth in the financial sector is one of the clearest indications not only of higher incomes but also of the prospect for wealth that is one of the characteristics of the new middle class. Financial markets, including operations of the ISE, were the source of many new occupations as well as investment opportunities sought by the new middle class.

A series of reforms were undertaken in Turkey's capital markets that clearly advantaged this emerging new middle class. An interbank money market law was enacted in 1986. Significant tax incentives were conferred on the financial sector to encourage equity financing. This policy benefited the new middle class at a time when core middle-class wage and salary earners already were carrying a disproportionate share of taxes. Also, the creation of the credit card industry enhanced the economic power and stature of the new middle class by enabling increased consumption.

In 1994, the government's attempts to reduce interest rates resulted in a massive outflow of short-term capital, necessitating a 65 percent devaluation of the Turkish lira. The financial crisis was, in part, a result of deteriorating macroeconomic fundamentals that were rooted in public sector imbalances. Important consequences of the currency crisis were the decimation of middle-class savings due to devaluation and high inflation, and the worsening of income distribution.

The currency crisis led to the implementation of an austerity program in April 1994. Fiscal “belt tightening” had the aim of restoring confidence in the domestic currency, reducing fiscal and external imbalances through cutbacks in government social spending, and forcing a slowdown of inflation. These structural adjustments had their effect on realignments within middle-class fragments that reflected a global shift in wealth, power, and privilege. The new middle class diverged from the core middle class, resembling a capitalist class more and more, while the core middle class, in turn, began to resemble the lower middle and upper working classes. Social bifurcation within the middle class continued during the postcrisis years.

Privatization and Commodification

The privatization of public assets has been an important feature of neoliberalism. In both industrialized and developing countries, state enterprises and banks, public utilities of all kinds (water, telecommunications, transportation), social welfare provisions (social housing, education, health care, pensions), public institutions (for example universities), and public land have been privatized to some degree.

Under neoliberalism, Turkey had its share of privatization as well. Privatization implementations gained momentum in 1986, and since then 193 companies have been privatized. Currently, the state does not have any ownership in 184 of these companies. The state completely withdrew from the cement, animal feed production, dairy products, forest products, ground handling, catering services, and petroleum distribution sectors. More than 50 percent of the state shares were privatized in tourism, iron and steel, textiles, sea freight, and meat processing sectors. The state has partially withdrawn from the ports and petroleum refinery sector. Privatization of public banks has commenced with Sümerbank and continued with Etibank, Denizbank, and Anadolu Bank. Public utilities like telecommunications and transportation were also opened to the private sector (YASED 2006: 20–22).

Privatization of public enterprises had major effects on middle-class families. Those who worked for the public sector lost their jobs and had a hard time finding new employment with similar salaries and benefits, given the high unemployment rates in the economy. Meanwhile, because public enterprises and services were privatized, middle-class families lost their access to affordable subsidized goods and services. Both developments led to the erosion of middle-class purchasing power.

Privatization affected social welfare provisions as well. Education, health care, and social security all experienced lower public investments under liberalization. Throughout the 1980s, the ratio of public spending on education and health services to gross domestic product showed a continuous downward trend. The withdrawal of the state from the provision of these services led to their commodification. From 1994 on, private investors started moving into these sectors due to generous government incentives. By 1996–97, the private sector's share in total education and health investments reached 50 percent (Boratav et al. 1995: 359). An expensive and in many ways luxurious private health care system emerged alongside the overextended public health system. The private system was supported by private health insurance schemes while public health care suffered from lack of public spending. This dual system clearly demonstrated the polarization of service delivery in the society. The core middle class was limited with insufficient public services due to loss of income, while the emerging new middle class enjoyed the benefits of the expensive private system. Within recent collective memory, social benefits and services that had been proclaimed by the government as the welfare of the ortadirek had become costs on capital accumulation and the pursuit of free enterprise.

In conclusion, during the neoliberal era of capital accumulation by dispossession, many professionals and businessmen of the Turkish “new economy” utilized their education and social connections to become part of the global “new economy,” which was constantly creating new demand for specific occupations that required special individuals with special education. Speaking a foreign language, having a degree from a prestigious university (often abroad), being interested in the business culture, cultivating certain consumption habits, and being ready to adopt (or at least adapt to) “the American way of life” or its French or German variants were among the most desired qualities for success in the new economy.

State enterprises, however, were slow to change, and most of the core middle-class professionals, managers, and technicians worked for public institutions or state-owned enterprises. State employees differed in wages and other material and social capitals from their counterparts in the private sector and lacked the entrepreneurial credentials and opportunistic predispositions sought by the new economy. Many were not positioned to take advantage of the opportunities being generated by fast-track growth. They remained ideologically committed to national developmentalism and viewed capitalist ideology with some suspicion.

The Neoliberal Landscape in Istanbul

As described above, national middle classes are becoming more differentiated as a consequence of the new economy, new wealth, and lifestyles that reflect the ideology of the global consumer culture. The significance of the emerging global new middle classes is that they represent a new historical phase of capitalist accumulation that differentiates them from national upper middle classes of the past. They move “closer” to capital than to labor by means of participating more in the process of accumulating capital and less in their reliance on salary. They are stakeholders in the new economy and demonstrate the aspirations more of an upper class than of an industrial core middle class.

In every country, some cities more than others are involved in the organizations and networks of the global economy. At the same time, these cities are embedded in national aspirations and subject to regulation by the state. In Turkey, Istanbul, a major commercial and financial center, has emerged as the country's globalizing city. What follows is an attempt to establish the appearance of a historically particular new middle class in Istanbul as a consequence of the liberalization of the Turkish economy. Taking into account the relationships among state, market, and family institutions in class formation, the substantive areas of emphasis will be on cultural capital in the forms of lifestyle and material capital in the form of housing.

Nowhere in Turkey was the middle class more affected by neoliberal ideology and policies than in Istanbul, a world city that after 1980 became a globalizing city. How did Istanbul become a globalizing city, and how did a conjunction of global, national, and local forces contribute to the remaking of a fragment of the upper middle class as a new middle class? In the last two decades of the twentieth century, Istanbul underwent an economic revival and cultural transformation as the central location of Turkey's integration into the global economy. It became a globalizing city, the center of changes in transnational networks of foreign capital, currency exchange, import-export trade, media and communications, and technology that emanated from other parts of the world. A key part of this transformation was the appearance of a new cosmopolitanism, reflected in an outward-looking new middle class that was entrepreneurial in spirit, quick to embrace the cultural ideology of consuming everything foreign, and engrossed in postmodern preoccupations with the deconstruction of old identities in the interest of creating new ones.

Globalizing Cityscapes

While Turgut Özal's Motherland Party pursued the political strategy of urban populism to win the national election in Istanbul, one of its members, Mayor Bedrettin Dalan, pursued an economic strategy more in tune with the Motherland Party's liberalization strategy for global integration. The two strategies worked in tandem to reshape Istanbul's cityscape during the 1980s. The Ankara government set the parameters by changing the administration of metropolitan government, passing legislation that created new channels of funding to pursue a variety of urban renewal projects, and instituting the National Housing and Investment Administration, which through the Mass Housing Fund underwrote the enormous expansion of Istanbul real estate markets. Perhaps as important as any of these policies was Dalan's vision of Istanbul as an international city and his ability to articulate his vision in a way that mobilized business interest groups to enact it.

The Motherland government began to increase progressively the proportion of total tax revenues allocated to municipal administrations. In 1983, new legal provisions also allowed metropolitan governments to levy and or increase local taxes, fees, and charges on activities ranging from sports and entertainment to advertising. These activities were among the growth sectors of the urban economy. Increases in tax revenue not only allowed the city to undertake projects to improve physical infrastructure but it also financed a new fleet of buses and imported new passenger ships at a time when the center city was becoming more congested from increased automobile traffic (Keyder and Öncü 1993: 26). In 1984, the Motherland Party enacted a law designed to centralize major metropolis-wide functions and place them under the direct control and authority of the metropolitan mayor.

The Globalizing Cityscape 1: Commodification of Culture as Heritage

Mayor Dalan's economic strategy for globalizing Istanbul reflected his vision of an international city that would attract conferences and tourists from all over the world. But his vision extended beyond the usual trade and commerce industries to wed economic prosperity to cultural industries by imagining past history as heritage, an accumulation history of eleven centuries of Byzantine Constantinople followed by five centuries of Ottoman Istanbul as centers of world power and commerce. Business groups supported his initiatives, which included new highways, under- and overpasses, and clearance and beautification projects.

The historical peninsula at the confluence of the Bosphorus Strait and the Sea of Marmara had been a destination of foreign tourists for a long period, but Dalan used heritage to promote the assets of two world cities as the cultural capital of a globalizing city. The culture industries of London, New York, and other global cities were being recognized as assets of inestimable market value for attracting global corporate headquarters as well as symbolic value in their global images. In Istanbul, a vital past is present and visible within the borders of the western peninsula. Topkap1, commonly referred to as the Ottoman sultans' “palace,” is an imperial city that rests on a promontory overlooking the Sea of Marmara. Before it became the home of Ottoman sultans for nearly five centuries, it was the home of Byzantine emperors for a thousand years. While much of Byzantium was ruined by the time of the Ottoman conquest in 1453, to the trained eye a surprising amount of Byzantine architecture remains intact.

Coexisting with and dominating the historical cityscape is the monumental architecture of the Ottoman period. Topkap1's walls and gates and the many buildings that housed the treasury, the enormous kitchens, the harem, and the palace itself occupy the point of the peninsula. The imperial treasures remain in the various buildings. Sultans' mosques on hilltops overlooking the Golden Horn dominate the sight line of the peninsula. The intricate pattern of lacework streets and narrow alleys that surround the museums, palaces, mosques, and monuments house one of the most densely packed residential populations in metropolitan Istanbul.

There is, then, a material presence of cosmopolitan heritage that has become a symbolic currency in efforts to reimagine Istanbul as a globalizing city. The heritage movement is also important to the story of a globalizing city in another way. It was through the tourist gaze that the city's inhabitants, especially its upper middle class, began to imagine itself as a city that was on the move, able to visualize the prospect of a bright future as continuous with a glorious past. Nearly all the physical structures that have been mentioned are in use today.

The historical peninsula also represents the deep past as present in the lives of Istanbullus. Foreign visitors and tourists who come to the historical peninsula have no choice but to intermingle with Turks from all over the metropolis who live, work, trade, and shop there. The historical peninsula remains the symbolic and physical center of the city, alive with every activity, sight, sound, and smell.

The Globalizing Cityscape 2: Financialization

If the strong presence of global financial institutions is an indicator of a globalizing city, then Istanbul met the test. By the early 1990s, a glass city that became the home of the fledgling Turkish stock market, investment banks, insurance carriers, and five-star international business hotels could be seen a few miles to the north of the old city center, just over the hills from the Bosphorus shore and minutes from the intersection of highways that brought workers over the bridge from the Asian side to merge with the traffic caused by the north-south commuters on the western side. Maslak, as the new financial area was called, became the headquarters of some of the largest Turkish transnational corporations and banks. The rapid change was dramatic when contrasted to the preexisting 1930s state banks headquartered mostly in the central Anatolian capital of Ankara to be close to the state bureaucracy that regulated them, a pattern the early private banks followed from 1950 to 1980. The Turkish Lira was not yet traded on international currency markets, and most banks in Turkey were state enterprises, each with a designated function in different development sectors of the national economy such as agriculture, social security, insurance, and maritime shipping.

The monopoly of the Central Bank over foreign currency transactions came to an end when commercial banks were freed from government regulations and able to operate in international markets, in some cases forming joint ventures with foreign banks. After 1983 there was a premium on banks with greater access to world markets. The export boom and borrowing from abroad brought foreign capital into the Istanbul economy and, more particularly, into the households of those business families that were in a position to benefit from investment in growth sectors such as finance, insurance, real estate, accounting, media, entertainment and fashion, marketing and advertising, and textiles.

New five-star international hotels catering to businessmen, conventioneers, and groups of tourists appeared in the new financial center but also in other parts of the city. Istanbul had no modern international hotel until 1955 when the Hilton was built on Cumhuriyet Boulevard near Taksim square, a center for foreign travelers and international tourism since the mid-nineteenth century. The following year the exclusive Divan Hotel was built a few blocks away. Two decades would pass before the Sheraton and Marmara hotels were added to the rising skyline around Taksim. In contrast, the decade after 1982 saw the construction of a large number of international hotels, several of which were located near corporate headquarters in the financial district.

The Globalizing Cityscape 3: Privatization of Media and Communications

The political economy and culture of media and communications was revolutionized during the liberalization episode. From three state television stations with content provided by state-funded programming before 1983, this whole industry became privatized by the early 1990s.