Reproducing Class. Henry Rutz
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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.