Frontal assault on free enterprise in Turkey

The way Turkey’s power-hungry Prime Minister Recep Tayyip Erdoğan and his small cadre of yes-men advisors, most of whom are subscribers to politically charged Islamist ideology, are running the country as a shadow government has taken the nation to a breaking point, where the pressure on the Cabinet members and deputies of the ruling Justice and Development Party (AK Party) has intensified beyond the limit. The opposition voices in the AK Party parliamentary group, with several deputies openly questioning Erdoğan’s decisions on several issues, and cracks in the government shown by government spokesperson Deputy Prime Minister Bülent Arınç chastising Erdoğan over differences of opinion on co-ed housing are recent evidence of the wounds Erdoğan and his advisors are inflicting on their own government.

The public outrage over a controversial government plan to ban all privately run college prep schools, which have been in operation for decades as educational institutions that supplement the failing public schools when there is fierce competition among students to enroll in top-notch colleges and universities, is just the latest example of how Erdoğan and his yes-men misread the mandate given them by the voters to run the country until the next election. By attacking prep schools and threatening them with forced closure by law, Erdoğan hopes to hide the miserable public education record that saw the reshuffle of five education ministers and six major overhauls during the AK Party’s three terms. The colossal mistakes the AK Party government made in education with fast-tracked reforms that did not take into account the concerns expressed by education specialists, parent-teacher associations, unions and other stakeholders have frustrated millions of parents.

Underage drinking, smoking and drug use and abuse are rampant problems in the Turkish education system and the government’s track record is not so good when it comes to addressing these problems. According to a survey of 32,000 students in İstanbul released earlier this month, 45 percent of ninth graders smoke cigarettes, 32 percent drink alcohol and 9 percent use drugs. The survey was conducted between 2010 and 2012 in ninth grade classes at 154 high schools in all of İstanbul’s 39 districts. It was led by Professor Andres Pumariega, chair of the department of psychiatry at the Cooper Medical School of Rowan University in Camden, New Jersey, on the request of the İstanbul Police Department and Provincial Education Directorate. A government-backed education project, the Movement to Increase Opportunities and Technology (FATİH), launched at pilot schools in February 2012 to fulfill an election promise for the 2011 elections, has not yet been completed and is now being investigated for corruption claims. The shortage of teachers and lack of sufficient school facilities has not been resolved, either. Creating a villain out of privately funded prep schools that have proven to be successful sanctuaries for parents to get extra tutoring for their kids in order to boost the children’s chances of getting into better schools has served as a useful tool in shifting the blame away from the government. Erdoğan is abusing this issue as a distraction from his own failures.

What is more, Erdoğan fired a warning shot across the bow of the Hizmet movement, which operates some one-third of the more than 3,500 prep schools, hoping that the movement would fold under the pressure and shy away from criticizing the government on lingering corruption, the lack of bold reforms, the stalled EU membership process, the failed constitutional work, its intrusion in people’s ways of life and privacy, blunders in foreign policy and the weakened transparency and accountability in governance. Judging from the remarks of Mr. Fethullah Gülen, who has vowed to remain steadfast against these threats, urging his millions of followers to never be shaken, not to give in to despair and to be patient, I believe the movement is keen on maintaining its principled stand on these issues and committed to upholding the very values that make this nation great. Erdoğan is gambling away his good fortune on the eve of the elections because his attempt to ban these educational institutions will certainly backfire on him, possibly costing him his presidential ambition.

Erdoğan’s government is also undertaking a huge risk with this manifestly ill-advised move. It may very well scare away foreign investors whom Turkey needs desperately because of its chronic current account deficit (CAD) and low saving rates. This will add a big chunk to the pile of concerns already being expressed by international investors who deal with Turkey. It will ring alarm bells among investors who already feel uneasiness about Erdoğan’s government, which exploits the law against legitimate businesses for political purposes. Several ambassadors in Ankara have told me that some of these concerns have made it to the agenda in bilateral ties because of complaints from foreign companies to their respective governments. For example, a Western ambassador told me in confidence that a major investment scheme has been waiting for approval on the prime minister’s desk for far too long despite an appeal made by the Investment Support and Promotion Agency of Turkey (ISPAT) to lure that company to Turkey. He was complaining about red tape and the lack of transparency and predictability in the government bureaucracy. This downward turn in the investment climate and undermining of basic principles and values like transparency and accountability may spell bigger risks for the Turkish government when the Federal Reserve begins tapering off and funds become scarce and expensive to attract.

The government’s move to shut down private prep schools once again highlights the danger of the few checks and balances we have in Turkey against the abuse of the executive branch, which uses the majority it has in Parliament to push through unpopular bills with impunity. The government uses this legislative power to intimidate or coerce its political opponents wherever and whenever it feels like it, undermining the rule of law in the sense of universally acceptable standards. This gives rise to claims of the authoritarian tendencies Erdoğan has not been shy to show off.

It was also widely reported in the media that the witch hunt apparently targeting Turkish citizens who do not subscribe to the Islamist ideology of Erdoğan has been going on for some time, and many moderates, including people who sympathize with Gülen’s teachings, were terminated, suspended or moved to low-key positions. The specter of political Islam now looms large and dominates the government bureaucracy as the AK Party sacrifices its democratic credentials with the rapid erosion of pluralism at the expense of diversity in government agencies.

Another worrying result that could stem from the possible ban would be the burgeoning of the unregistered economy in Turkey. The prep schools have emerged as a necessary and corrective measure in the liberal market, where supply and demand shape the economy. Some 100,000 people are employed in the prep school system, valued at some TL 2 billion to TL 3 billion. Banning it will not wipe out this major economic activity as long as strong demand is there, and it is quite likely there will be as students will naturally compete for good schools, and it will be necessary to test them. But the ban will push the system into the gray area of the unregistered economy, which is already a big problem for the government.

According to data released by the government in November, nearly 40 percent of the 26 million workers currently employed in Turkey are not registered in the social security system. Companies usually opt for unregistered workers to avoid high payroll taxes, social security premiums and severance benefits. Banning prep schools will move more people to the informal economy, resulting in a loss of revenue. This issue is also a major handicap for Turkey in attracting foreign investment because foreign investors who choose to follow the rules and register their workers in the system face unfair competition from Turkish companies that do not.

Erdoğan’s government, which attacks the right to private ownership, the right of establishment and freedom to provide services, the right to free enterprise and the right to education, will deal a blow to business confidence and the climate of investment in Turkey. The business community values predictability, and frequent changes to the legal and regulatory environment scare it off. If this draft bill becomes law, how will the Turkish government argue that private entities may freely establish, acquire and dispose of their interests in business enterprises in Turkey anymore? If Erdoğan is stubborn enough to go after the largest civil organization that partially owns and operates the prep schools, the daunting message is that he can do anything and everything to whomever he pleases, whenever he likes. The cascading impact from this pattern will be a rising risk assessment for Turkey, which will in turn make insurance premiums on lending expensive as investors are forced to re-evaluate their plans for Turkey. Private Turkish companies that have been benefiting from low-interest foreign loans and credit will feel the pinch. Eventually, the government will have to make a choice whether it can sustain structural changes and reforms.

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