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,