Tuesday, August 20, 2013

Turkey's Dollar Debts and Erdogan's Political Future

I've spent years complaining to friends about the awful coverage of Turkish politics in the New York Times. So, to give credit where it is due, it has an excellent article today entitled "Turkish Skyline Foreshadows Emerging-Market Slowdown."

UPDATE: Gallup has a nice new set of polls showing economic hardships rising among Turks, particularly among big-city dwellers. And while economic grievances are (not surprisingly) higher among government critics, they are rising among all respondents.

The summary version: Turkey's decade-long economic boom (which has been overstated by the government) has been fueled by a heavy dose of commercial debt (i.e., businesses and banks, rather than governments, borrowing) to fund big construction projects like The Sapphire, a newly constructed skyscraper in Istanbul.

In the past few years, many Turkish developers have borrowed in US dollars rather than in Turkish liras, as the combination of a strong lira and very low interest rates in the United States have made this cheap. The danger, as the NYT explains:
"But when local currencies start to weaken, in line with diminished economic prospects, then the effect is twofold: paying off dollar loans becomes more costly for the borrower and the lender becomes increasingly skittish about his exposure to a fragile currency and may move to reduce or even slash credit lines."
More problematically, many of these loans are short-term, meaning they will need to be refinanced soon. A tightening of international credit markets or an increase in US interest rates, which will likely occur in the near future, will trigger a slowdown in borrowing and spending in Turkey, potentially plunging the country into a recession or--more dangerously--an economic crisis. This danger is true for many emerging-world economies. But Turkey, "where dollar loans of around $172 billion represent 22 percent of the overall economy", is especially vulnerable.

"It's the Economy, Stupid!"

One of the strongest findings in political science research is economic voting theoryIn short, voters reward incumbent governments when the economy is good and punish them when the economy is bad.  (Strangely, though there have been hundreds of articles and books published on economic voting, including one or two, both gated, by yours truly, there isn't a good single internet article on the subject--just lots of dense academic writing).

As I wrote a few months ago, a significant portion of the ruling Justice and Development (AKP) party's support has been the result of economic voting. Turkish political scientist Ali Carkoglu highlights the importance of economic voting in the AKP's success in a recent academic article (gated). The AKP won the 2002 election in the aftermath of a serious economic crisis as challengers. As incumbents, the AKP increased its share of the vote from 35% in 2002 to nearly 50% in 2011 during the economic boom. In other words, not nearly all of the 50% of the Turkish electorate who voted AKP are core supporters. Many are moderate or unattached voters who will continue to vote AKP as long as it delivers prosperity. Put differently, many current AKP voters will abandon the party if the economy goes into recession! 

This fact of economic voting creates a real electoral danger for the AKP. In a certain respect, it may be unsatisfying that the economy--and not Erdogan's brutality, corruption, or anti-Semitic demagogery--could be his government's downfall. But that is what we observe over and over again (compare the fates of the governments of crisis-ridden Greece, Ireland, Portugal, and Spain with that of Germany). 

Of course, recessions and crises are no sure thing. As the old joke goes, economists have successfully predicted nine of the past five recessions. So a Turkish debt crisis may well never emerge. Nonetheless, the central insight--that Erdogan and the AKP have gained power as a result of the economy and will probably lose it in the same way--remains true.

Saturday, August 17, 2013

What Political Psychology Tells Us about the Debate over Turkey's Economic Record

Against the backdrop of the Gezi Park protests and the government’s response to them, a claim has been making the rounds on social and traditional media: during the 11-year rule of the Justice and Development Party (AKP) of Prime Minister Recep Tayyip Erdogan, Turkey’s economic has tripled in size. None other than Turkish Finance Minister Mehmet Simsek has made this claim, and it has been repeated by reputable news sources such as The Economist (though they later issued a correction). UPDATE: Emre Develi provides a fantastic debunking of the AKP's economic record.

Here’s the catch: it’s not true. At least by the normal standard of how economists judge economic growth. Economist Dani Rodrik explains:

“The Turkish government likes to claim that the GDP expanded by more than three-fold between 2002 and 2012. This is a misleading number, as it is based on the dollar valuation of Turkish GDP at current prices, and hence lumps both dollar inflation and the real appreciation of the Turkish lira on top of real growth. Calculated properly, real GDP (or GDP at constant prices) rose by 64 percent during 2002-2012, and real GDP per capita by 43 percent.” (emphasis added)

It’s obvious to see why government officials would want to make a very flattering claim about their economic record. But why do others repeat and apparently believe it, despite the fact that it is easily debunked and has been by authoritative sources?

The first, obvious, answer is laziness. It’s easier simply to take a claim at face value than to do the hard work of fact-checking, or learning the proper methods for measuring something like economic growth. And, when it comes from the mouth of an apparently authoritative source like a finance minister, it’s tempting just to believe it. That explains The Economist initially repeating the claim but then correcting it once its flaws had been pointed out by others.

But the answer to this question goes much further than that. This is not a simple case of a fact that gets picked up for a while by a news source before being debunked and rejected. Instead, one continues to see the claim repeated on social media, often as a response to criticisms of the Erdogan government.

The answer lies in a concept drawn from political psychology: motivated reasoning.

Put simply, when we have strong feelings about something, we have a tendency to believe or reject new information based on whether it accords with our feelings. In other words, we choose to believe what we want to believe, and to ignore what we don’t want to believe, when we have a strong emotional need to maintain a certain set of beliefs. To put it yet another way, we often prefer to maintain consistency in our beliefs about the world rather than obtaining the most accurate information.

This explains why the false claim about Turkey’s economic record continues to get repeated. For supporters of the Erdogan government, it is powerful evidence of how well the AKP has governed Turkey. Undoubtedly, many AKP supporters willingly believed this claim when they first heard it, as it fits with their beliefs about the government. And, when exposed to evidence that this claim is false, AKP supporters are more likely to reject this new evidence as it does not fit their beliefs.

What’s more, there is evidence that motivated reasoning may be more prevalent among authoritarians, who make up a major portion of the AKP voter base (see here and here). So it is unsurprising to see that AKP supporters would continue to repeat this false but flattering claim about the Erdogan government’s record.

Motivated reasoning can help us to understand other puzzling phenomena in politics as well, such as the strength and durability of the “birther movement” in the United States or beliefs in bogus science such as the anti-vaccination movement or various forms of non-Western medicine.

Does this mean that any hope of an honest and objective political debate is hopeless? Not quite. Partisans—those who have the strongest emotional attachment to a party—will be most likely to embrace distorted views of reality that reinforce their political beliefs. In the short term, facts won’t change too many people’s minds. But, importantly, there are limits to motivated reasoning. At some point, everyone reaches a “tipping point” at which countervailing information simply overwhelms one’s ability to maintain a certain belief. This makes it important for academics and journalists to highlight and challenge false claims. At the very least, it will provide important evidence for those who can be persuaded (in the Turkish case, opponents of the AKP and “neutrals”). And the accumulation of persuasive evidence may eventually lead “motivated reasoners” to change their beliefs. So there is still a great deal of value in "chipping away" at false claims, even if the benefit is not immediately obvious.

The study of public opinion can be a depressing exercise when one confronts the realities of phenomena like motivated reasoning. Nonetheless, it is crucial to understand how and when these processes occur if one wants to play an effective role in politics.

Friday, August 9, 2013

A Mockery of Justice in Turkey

I was traveling when the verdicts in the Ergenekon trials, so this commentary is a little after the fact.

The short story: the verdicts were both predictable and a travesty. The overwhelming majority of the 256 defendants were convicted on a wide range of dubious charges, including coup-plotting, terrorism, and the like. Two prominent defendents were former military chief of staff Ilker Basbug (sentenced to life in prison) and journalist Mustafa Balbay (sentenced to 34 years in prison), but the list of convicted defendants includes a wide range of lawyers, academics, and journalists. The common theme: they were critics of the governing Justice and Development Party (AKP).

This, following on the earlier (and equally dubious) verdicts in the Sledgehammer trials, suggest that the judicial system in Turkey has been substantially corrupted by the AKP during its nearly 11 years in power.

A little background: Turkey's postwar history has seen periods of (somewhat) democratic government punctuated by military interference in civilian government (including outright coups in 1960 and 1980). Most recently, the military staged a "post-modern coup" in 1997 (essentially, a coup by memorandum) to remove a government led by the (Islamist) Welfare Party from power. Many observers of Turkish politics have thus long called for reforms to eliminate the military's influence in civilian politics, and for many the Sledgehammer and Ergenekon prosecutions were welcomed as efforts to bring the military to heel. And there is likely a core of truth to the initial Sledgehammer and Ergenekon indictments.

However, it's clear to any neutral observer that both trials have gone well beyond any credible criminal prosecution to become a wide-ranging show trial against opponents of the AKP and its fellow travelers the Gulen Movement, which is thought by many to have many members in the Turkish police and judiciary.

In both trials, some of the evidence was plainly laughable. Dani Rodrik highlights that the evidence in the Sledgehammer trials consisted of CDs allegedly produced in 2003 using Microsoft Office 2007! Apparently, other documents offered as evidence referred to buildings that were non-existent or had different names in 2003, when the coup plots were allegedly being hatched. And yet this evidence was accepted by the court!

What should we conclude?

Turkish journalist Mustafa Akyol argues that the Turkish judiciary is prone to an authoritarian and conspiratorial worldview that simply was determined to see a massive coup plot where there wasn't one. He is quick to dismiss the view that this was simply an AKP witch-hunt. He points to the fact that Basbug was convicted despite Prime Minister Erdogan's objections as evidence.

On one hand, given what I have written (here, here, and here) about the authoritarian worldview of AKP leaders and supporters, I'm sympathetic to an extent. I have no doubts that most of the judges are deeply authoritarian and probably overly given to conspiratorial thinking. But I think Akyol sets up a bit of a strawman argument. The argument is not simply that Erdogan (or Fethullah Gulen) was issuing orders to the courts to prosecute and convict the accused. That's hardly necessary. Rather, the AKP's dominance of the Turkish state for the past decade has allowed it to stock the judiciary with its "own" people (a process hastened by judicial reforms it passed a few years ago). Thus, there is no particular need to issue orders; the prosecutors and judges already share the same worldview. And, if one takes Erdogan's objections about Basbug's prosecution at face value, members of the judiciary may well be more zealous than AKP leaders.

Quite simply, the AKP has sought to expand its control over the state. We have seen this in its decisions leading to the Gezi Park protests: restrictive new laws on alcohol, heavy-handed urban planning (including the decision to raze Gezi Park), proposed new anti-abortion laws, and so on. The behavior of the judiciary is just an extension of this.

And, in the wake of the protests, the Erdogan government's methods have become increasingly authoritarian. It has recently opened up tax investigations into Koc Holdings. Why? Because Koc owns the Divan Hotel, which allowed injured protestors into its lobby during the police crackdown in June. This is, plainly, open reprisal (and, if you really think it isn't, Mehmet Simsek has a bridge over the Bosphorus he'd like to sell you). And that says nothing of the dozens of protestors who have been arrested and detained in the wake of the protests.

To be clear, rule of law and institutional checks on power have always been weak in Turkey. And this is not the first show trial in modern Turkey (witness the 1961 conviction and execution of Adnan Menderes). But it is obvious by now that what many Western commentators took for a process of democratization was really just a power grab by the governing AKP. Turkey's newest 235 convicts would surely agree.