The global political economy is dominated by a complex interplay of state and non-state actors that are involved in an unrelenting competition to improve their respective positions in the "global pecking order." In this context, state-led developmentalism of the 1960s and the 1970s, which was based upon dirigisme and protectionism, gave way to waves of neo-liberalism after the 1980s, a development that increased the operational weight of multinational corporations (MNCs) in the world economy, while spurring a process of financialization around the notion of an integrated global marketplace. Yet, first and second generation neo-liberalisms, while opening up developing markets to the influx of portfolio capital and foreign direct investment (FDI) desperately needed to finance socio-economic development, also created conditions for imbalanced capital accumulation and inequitable income distribution.
Especially in global conjunctures characterized by abundance of liquidity in core economies and easy flow of low-cost credits to the developing world, development paths associated with deindustrialization, consumption-led growth, real asset bubbles and increased income disparities became increasingly pervasive. Turkey has always been a laboratory for new global approaches to development in view of her close geo-strategic links with the Western alliance and historical contacts with Bretton Woods institutions. In the 1950s, Turkey was one of the first countries in the developing world to follow extensive trade liberalization under an agriculture-based development strategy largely devised by the World Bank. Likewise, she became one of the pioneers of import-substitution-cum-planning in the early 1960s following the May 27 military coup and the country in which the famous structuralist economist Jan Tinbergen, who later received the Nobel Prize, completed his apprenticeship. Following the collapse of the ISI regime in the late 1970s, under the strain of balance of payments problems, Turkey again came to the forefront of global policy debates thanks to a radical transition to first-generation neo-liberalism via the infamous Jan. 24 Decisions formulated by Turgut Özal. Premature and uncontrolled financial integration triggered a series of financial crises in the 1990s that paved the way for the institutionalization of second-generation neo-liberalism under Kemal Derviş in the early 2000s. The Justice and Development Party (AK Party) governments inherited the policy framework and maintained efforts to empower the "regulatory state" with a myriad of bureaucratic-administrative reforms in tandem with the process of accession negotiations with the EU. The fast growth years in the early 2000s improved Turkey's position in the global pecking order substantively, but the fragile growth model based on the influx of foreign capital to finance service industries and domestic consumption remained largely intact.
The unraveling of the global financial crisis triggered discussions about Turkey's "development narrative," and there were calls to adopt a more manufacturing-oriented, knowledge-intensive, research and development friendly path, but the maintenance of reasonably high growth rates after the crisis and political pressures delayed structural reforms. After 2011 there were the initial signs of overheating in the economy, which called for a controlled slowdown or "soft landing." Yet the deterioration of the political atmosphere following the Gezi protests and the Dec. 17-25 incidents undermined the fine-tuning governance prospects, rendering the slowdown in the economy long lasting. Since then, the country has gone through several critical elections; the political stage was dominated by discussions around the position and powers of the popularly elected president; the AK Party failed to form a single-party government for the first time in more than a decade; and finally the resolution process maintained with the radical Kurdish nationalist forces pushing for secession or autonomy has collapsed. All these developments happening at a time when the Federal Reserve gave signals about imminent interest rate hikes had negative economic ramifications led by a de facto devaluation of the Turkish lira and lackluster growth.
The general elections on Nov. 1 come at a critical juncture in which Turkey's position in the global pecking order as the rotating president of the G20 would be put to a stringent test. A re-injection of political stability might alleviate many systemic risks and turn around gloomy expectations concerning the country's prospects.