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
