Blog Post

AEIdeas

In 1970, Venezuela was not only the richest country in South America, but also one of the twenty richest countries on earth. Fueled by gas and other natural resources, Venezuelans enjoyed per capita income not far below that of the United Kingdom. Income disparity existed, but the future was bright.

Then came Hugo Chavez, a former military officer who had been imprisoned for leading a 1992 coup attempt. Against dislocation caused by economic reforms and uncertainty, Chavez’s populist rhetoric resonated, especially with Venezuelans who felt themselves left behind. Against the backdrop of political cynicism, disillusionment with establishment politicians and high income disparity, Chavez won 56% of the vote.

He never looked back. He purged the technocratic class and placed his own ideological fellow-travelers in positions of power. He launched a media crackdown to constrain criticism and any narratives that would contradict his own government’s declarations. Venezuela’s economy tanked. Sure, the decline in international oil prices impacting the country caused Venezuela to take a hit but that alone doesn’t explain the poor state of Venezuela today: After all, oil prices had declined before but never had the crippling impact they did under Chavez’s rule.

Back to Turkey: If analysts substitute Islamism for socialism, Erdogan’s rise is eerily reminiscent of Chavez. Yes, there are important differences in both men’s stories and records; there always are in any analogy: Chavez was a military man; Erdogan was not. Chavez was a socialist; Erdogan, at least initially, embraced the free market.

Both grew up poor. Both served a stint in prison. Both were unable to hide their disdain for the constitution. Both men prioritized personal power.

But similarities outweigh the differences. Both grew up poor. Both served a stint in prison. Both were unable to hide their disdain for the constitution. Both men prioritized personal power. Like Recep Tayyip Erdogan in Turkey, Chavez recognized that an independent press could hamper his cause and so he launched a media crackdown (even today, though, Venezuela enjoys a press freer than that of Turkey). Both men used their press monopoly to promote conspiracy theories and to eschew personal responsibility. While claiming to defend the poor, both men appeared to enrich themselves and their families.

True, in his early years, Erdogan appeared to have put Turkey’s economic growth on the fast track, whereas Chavez hemorrhaged Venezuela’s from the start. Erdogan implemented reforms, some cosmetic and some real, and the Turkish economy took off. In hindsight, however, this had as much to do with a demographic dividend than anything Erdogan himself did, perhaps helped by a slush fund supplied by wealthy Gulf states like Qatar and Saudi Arabia.

But what was the death blow of the Venezuelan economy and may be of Turkey’s as well is the prioritization of politics above economics in setting policy, coupled with a wholesale denial of reality. Over the past couple months, Turkey’s currency has lost almost 15 percent of its value against the US dollar, and that is on top of an already worrying decline. Erdogan responded with a speech bragging about economic growth during his tenure. “Today’s Turkey is 3 times richer than it was 14 years ago,” Erdogan declared. This is nonsense; the truth is Turkey’s real GDP grew by about 65%, far less than most emerging and developing markets. No Turkish journalists can call out Erdogan for the falsehood, however, because to do so could mean loss of job or imprisonment.

But what was the death blow of the Venezuelan economy and may be of Turkey’s as well is the prioritization of politics above economics in setting policy, coupled with a wholesale denial of reality.

It’s not just Erdogan’s falsehoods which threaten the economy, though, but rather decision-making that increasingly revolves more around political vendetta than rule-of-law. Erdogan used the abortive July 15 coup as an excuse to purge more than 1,500 finance ministry officials. He has seized banks and businesses. Such actions have consequence. In September, Moody’s Investor Services cut Turkey’s bond rating to junk status. International lenders are avoiding Turkish banks. Turkish businessmen too are either leaving the country or transferring their savings outside its borders.

Erdogan has responded with more conspiracies and by digging in his heels. He has at times referred to an “interest-rate lobby” which he believes (a) exists and (b) has it in for him. More recently, he has urged Turks to sell their dollars to shore up Turkey’s own currency: “My dear nation, I love you for Allah’s sake,” he said. “I call on those who have foreign exchange savings under the pillow to convert their savings into gold or Turkish Lira so that Turkish Lira increases in value, gold increases in value.” “Why on earth shall we boost the value of foreign currency?” he added. “If you do so and take this step, tricks of some people will fail.” (There is yet no word on whether Erdogan himself has sold the billions of dollars leaked phone calls suggest his family kept in their palatial homes or their various Swiss bank accounts). Turks who analyze such things say trolls from his political party have begun organizing campaigns against US stock exchanges and Bank of America for its alleged critical analysis of Turkey.

Turkey’s economy is both more diverse and less energy-dependent than Venezuela’s and so Turkey might not fall quite so far, but Turks should be very worried about their future. Executive diktats and states of emergency are addictive. When political agendas trump rule-of-law, investors go elsewhere. Turks may take solace in the idea that their economy is too strong to allow its ruin by one man’s megalomania, but Venezuelans too once took comfort in that falsehood.