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Much of the global attention to the upcoming Turkish elections, and in particular the presidential race between incumbent Recep Tayyip Erdogan and opposition leader Kemal Kilicdaroglu, has focused on the state of Turkey’s democracy. Hopes are high that Erdogan’s successors, should they prevail on May 14, will be able to reverse Turkey’s authoritarian drift.
But an equally important question in this election is what a post-Erdogan Turkey might mean for the geoeconomics of the emerging world order. Put simply, an economically revived Turkey could become a crucial partner for a West seeking to recalibrate its dependence on China and diversify its supply chains. Both Europe and the United States have an interest in Turkey changing.
Turkey is a major economy at the gates of Europe and a regional powerhouse. It enjoys a broad industrial manufacturing base, a sophisticated business climate and a capable, well-educated workforce. Turkey is a major net exporter of agricultural goods, is making strides in renewable energy and has recently started producing its own electric car. A 1995 free trade agreement with the European Union more or less harmonized Turkey’s regulatory framework with that of Europe. As The Economist wrote in 2010: “Turkey produces things like furniture, cars, cement (it is the world’s largest exporter), shoes, televisions and DVD players. In a way… you could call it the China of Europe.”
But that promise was never kept. Turkey was once the 16th largest economy in the world – and should become the 12th largest by 2050. Today it’s down on all indexes compared to a decade ago, from per capita income to the size of its economy. Instead of becoming Europe’s China, Turkey has been looking more and more like Europe’s Argentina in recent years. As Erdogan consolidated power, he began to hollow out independent institutions, planting yes-men at every level of the country’s bureaucracy and relying on massive government spending to keep the wheels of the economy turning. All of this has, over time, led to a significant brain drain, a loss of investor confidence and runaway inflation.
Could Erdogan himself turn the tide? In fairness, Turkey’s strongman is not himself ideologically hostile to the markets. But its penchant for flashy construction mega-projects over investment in industrial capacity has hampered economic development. And his eccentric views on interest rates have wreaked havoc on the financial system. He ran the economy like a small town mayor, micromanaging every aspect. His personalized rule has deterred foreign and domestic capital.
Should the opposition win, they have a difficult task ahead of them. But it has a better chance of anchoring Turkey in the West again. Turkey will certainly face strong economic headwinds after the election. A market rally to celebrate Erdogan’s fall could help initially. During last month’s meetings of the IMF and World Bank in Washington, there was much talk about a possible change of government. When I asked why, an international hedge fund representative told me, “If Erdogan leaves, Turkey will be the biggest trade of the year.”
But hot money only helps in the short term. Ultimately, a Kilicdaroglu government would have to fundamentally restructure the Turkish economy. Economists in Kilicdaroglu’s coalition, like former Finance Minister Ali Babacan, understand that to stabilize markets, Turkey must reverse “erdoganomics” and commit to rules-based and predictable economic governance.
And the long-term vision must be anchored in manufacturing. As the US and European economies seek to reduce the risk of over-reliance on China, Kilicdaroglu advisers see an opportunity. Turkey will have to do what China did decades ago: support and subsidize innovation, invest in future technologies and reorganize its industrial base to adapt it to the needs of Western markets.
The West can help – especially the European Union.
Europe is already Turkey’s most important trading partner and biggest investor. There is already a free trade agreement. But further integration has stalled as relations with Erdogan have deteriorated.
Turkey was once on the road to EU membership. And like the previous candidate countries in Central and Eastern Europe, Turkey regularly implemented economic and political reforms. But a decade ago, when Erdogan turned illiberal, Europeans began to tire of EU enlargement. This vicious circle has led to mutual alienation, with the arduous accession process now completely on hold.
The resumption of the country’s accession talks with the EU could provide the Turks with the framework they need for economic and political reforms at home. It would provide the next level of government cover for the difficult work of restoring the rule of law.
In the early 2000s, the United States played a key role in urging Europe to invite Turkey into the club, thereby strengthening democratization and entrenching a major Muslim nation in the West. The Biden administration should follow the same pattern in encouraging European leaders to revive accession talks with Turkey and modernize the outdated Turkey-EU Free Trade Agreement
An opposition victory on May 14 could change the game for both Turkey and the West. It would be a triumph of democracy and a blow to entrenched authoritarianism. But it would also present a meaningful opportunity for the West to restructure its supply chains away from China and towards friendly countries. It is an opportunity not to be missed.
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