Foreign Capital

During the week, TurkStat (TÜİK) announced the market size controlled by foreign-capital companies in Turkey and the extent to which foreigners hold control in various sectors. According to this data, In the Turkish economy, 12.7 percent of the total turnover is under the control of foreign-capital companies. When we look at it by sector, we see that their operational focus is more on the domestic market than on exports. Since TurkStat has brought foreign capital to the agenda, let us also share some of our thoughts on foreign capital and Turkey, and draw attention to a major danger in the near future.

Turkey is in dire need of foreign capital. It is not coming; those that came before are packing up and leaving, and those that might come are demanding privileges reminiscent of the capitulations of the Ottoman era. 

I am not against foreign capital. Opposing capitulations and being treated like a semi-colonial country is one thing; supporting foreign capital to invest according to the country's laws and rules is another. Gazi Mustafa Kemal Atatürk, who won a great victory against imperialism and advocated and implemented independence in the economy and foreign policy during his time, had a clear view on foreign capital. Let us recall his words at the Turkey Economic Congress held in İzmir on February 17, 1923: 

“Gentlemen, while thinking and speaking in the field of economy, let it not be assumed that we are enemies of foreign capital. No, our country is vast. We need hard work and capital. Therefore, we are always ready to provide the necessary guarantees to foreign capital, provided that it adheres to our laws, and we want foreign capital to join our labor and our existing but insufficient wealth. Let it yield beneficial results for us and for them; but not as it was in the past.”

Let me also quote my dear friend, economist Prof. Dr. Emin Akçaoğlu: “Whether we like it or not, we are faced with the reality of global capitalism. Even the Chinese economy, managed by the Chinese Communist Party, operates within this logic today. Therefore, what you need to do is to increase the competitiveness of the Turkish economy in the international arena. Furthermore, the capital described as national capital has become so intertwined with foreign capital that it is no longer easy to determine who is domestic and who is foreign.”

While distinguishing between domestic and foreign, let us also add as a note the claims—whether right or wrong—that the domestic bourgeoisie has, at times, collaborated with imperialism and even counter-revolution. Of course, let us not engage in hostility toward capital, and let us also remind ourselves that there are those who uphold the values of the Republic.

In a globalizing world, rather than distinguishing between domestic and foreign capital, the position of the national economy in global markets carries more weight. To put it more clearly, are you a net importer or a net exporter? Is your currency an international reserve currency, or is it only valid within your own country? Does your economy have sufficient domestic savings for new investments, or do you need foreign capital? What is the state of your technological accumulation and human capital (skilled workforce) capable of competing in the global economy? Depending on the answers you give to these questions, it becomes clear whether you are a strong country that takes its share of growth and developments in the global economy, or a country that has opened its market to the global economy and surrendered. Unfortunately, the answers to all of the above questions are negative. 

The Ottoman Empire had a semi-colonial economy. It exported raw minerals and agricultural products at low prices and imported industrial goods at high prices. This picture changed with the Republican Revolution. In the period leading up to the Second World War, a rapid industrialization drive was initiated. Let us not go into detail; let us keep it brief. Afterward, with two steps forward and one step back, it reached 1980 with some heavy industry, but mostly import-substitution assembly industries. And in 1980,  it opened up to world markets without having completed its industrialization. Because it could not complete its industrialization, instead of becoming a country that creates and earns net value-added in the global economy, it became a global market.

It continued to struggle until 2004. However, it still managed to manage its external deficits at a reasonable level, keeping its external deficit at 0.5 percent of the national income. From 2003 onwards, as a result of the economic and monetary policies implemented by the AKP governments, it fell into the position of a semi-colonial country. The ratio of the external deficit to the national income increased 10-fold, reaching 6 percent, and it became mired in a debt trap.

The foreign capital that arrived during the AKP era targeted the domestic market, not exports. Domestic industrialists producing intermediate goods gave up on production and turned to imports and construction. Instead of contributing to the development of the economy, foreign capital treated Turkey like a semi-colonial country and took away more than the value-added it created. Let us present the data that supports this view. 

The AKP government experienced a fake 'Tulip Era' in the economy until 2008 due to the abnormal level of interest rates it provided for hot money in its early years. However, during that period, hot money earned terrifying profits, averaging 31 percent annually in dollars. (In those years, dollar interest rates were at the 1-2 percent level in developed countries and 4-5 percent in developing countries.) Every year, it transferred profits abroad amounting to about 2 percent of the national income. (Prof. Korkut Boratav, Economic History of Turkey 1908-2015, İmge Kitabevi.)

In the 1950-2002 period, 15 billion dollars of foreign capital entered Turkey over 52 years. During the AKP era, 430 billion dollars of foreign capital arrived, including 177 billion dollars in hot money and 253 billion dollars in direct investment. For 52 years before the AKP, the Turkish economy grew by an average of 5.1 percent per year. Despite the fact that the foreign capital that arrived during the AKP era was 28 times higher, the average annual growth rate fell and remained at 4.4 percent.

Despite such a large inflow of foreign capital, Turkey could not industrialize, unemployment did not decrease but rose, it could not achieve a surplus in foreign trade, and on the contrary, it became mired in a debt trap, increasing the ratio of its current account deficit to national income 10-fold. It became extremely dependent on foreign resources to keep the wheels of its economy turning. Outside of the economy, it also moved away from the rule of law and gradually turned into an authoritarian regime. It became unable to attract both hot money and direct foreign capital. It turned to selling its land and plots and citizenship rights. Not only did no one come, but large investments that had decided to come began to be canceled. (In the last month, the 1 billion dollar investment that Koç, Ford, and LG were going to make for electric car battery production, BP leaving Turkey, and the departure of portfolio investments from the stock market.)  

Worse yet, a major danger regarding capital flight, regardless of whether it is domestic or foreign, is at our doorstep. We wrote about this recently. The reserve area law, which I believe is being discussed very little in the public eye, will not only prevent foreign capital from coming to Turkey but will also cause existing capital, both domestic and foreign, to flee. The new wealthy capital created by the government, “if the minimum wage increases too much, unemployment will rise and factories will close” is making threats, but the real threat of unemployment and factory closures lies in the reserve area law... The opposition and the Constitutional Court need to do something urgently. Otherwise, you cannot even imagine the economic catastrophe that will emerge.