the effects of the new welfare system on the inter- and ... · the effects of the new welfare...

The Effects of the New Welfare System on the Inter- and Intra-Class Distribution of Income in Turkey

Serdal Bahçe Ahmet Haşim Köse**

Abstract

The outcomes of the neoliberal experiences have paved the way for increasing literature on income distribution. Most of the studies in this tide provide significant and abundant evidence confirming worsening income distribution. However, very few studies use a class-based framework. The basic aim of this study is to examine the effects of changing public transfer policy of government (2002-2010) in Turkey on the intra- and inter-class income distribution. In this context, this study employs the Household Budget Surveys which have been annually conducted since 2002. The dataset from each survey covers three sub-datasets: individual level, households level and consumption datasets. First, using individual level data set, we determine the class status of each individual. Then, using this information, the class identities of households are derived. The theoretical background of this derivation process is mostly Marxian, however it incorporates Weberian themes. The results show that rapid and massive increase in the size of the labouring classes and parallel erosion in the ranks of peasantry and petite bourgeoisie have significant effects upon income distribution. Consequently, a Gini decomposition technique is used to analyze the change in inter and intra-class income distribution. In the first half of the period, the Gini coefficient decreased while it rose in the second half. The decomposition technique is also employed to find out the impacts of the new welfare regime upon both inter- and intra-class income distribution. This new welfare regime rests upon selective, infrequent and discretionary provisioning of public transfers. In this context, it is the negation of former welfare regime which has been dismantled by insistent and consecutive neoliberal reforms. The former welfare regime had risen over the non-selective, constitutionally guaranteed and rule-based public transfer mechanism. Moreover, in the period under scrutiny, the share and level of private transfers especially to the lower echelons of society has been increasing. The main sources of these transfers are private and autonomous foundations and charity organizations. However, official figures and the balance sheets of these organizations show that most of the income for these foundations and organizations are also transfers from central government budget. Therefore, it is not untenable to accept these transfers as also public transfers. The results of our analysis show that the new welfare regime arising over the selective public transfer mechanism has been used to limit the rise in inequality between social classes. Moreover, especially for the labouring classes and peasantry, public transfers have an equalizing effect.

Key Words: Social class, income distribution, mature neoliberalism, Turkey, Gini decomposition.

Department of Public Finance, Ankara University e‐mail: [email protected] ** Department of Economics, Ankara University e‐mail: [email protected]

THE INTER- AND INTRA-CLASS DISTRIBUTION OF INCOME IN TURKEY

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Biographies

Serdal Bahçe graduated with a Bsc. Degree from the Department of Computer Engineering at Middle East Technical University in 1994. He completed Master (1998) and PhD. programs (2003) at the Department of Economics at the same university. He worked as a research assistant at the same department between 1997 and 2003. Since 2006, he has been working at the Department of Public Finance at Ankara University.

Ahmet Haşim Köse completed B.Sc. degree at the Department of Economics at Middle East Technical University in 1985. He has a Masters degree from the same department (1989). In 1996, he made his Ph.D. thesis defense and graduated from the Department of Economics at Hacettepe University. Between 1986 and 1988, her worked as a research assistant in Middle East Technical University. In 1989, he began working at the National Productivity Center. He has been working at the Department of Economics at Ankara University as a full professor. He has many published books in Turkish covering a range of topics from productivity to development and financialization.

TABLE OF CONTENTS

I. Income Distribution in Mature Neoliberal Era in Turkey.....................................6 II. Methodology................................................................................................................8

a. How did We Derive Class Status of Individuals and Households?......8 b. Analysis of Inter- and Intra-class Distribution of Income...................10

III. The Change in Inter- and Intra-Class Income Distribution and the Underlying Factors.........................................................................................................................13

Conclusion………………………………………………………………………..……..26

Definitely, by all accounts, the global crisis erupted in 2007 was the worst crisis of global capitalism since the Big Crash in 1929 (Crotty, 2009, Frenkel and Rapetti, 2009, Shaikh, 2011). With the contagion effects sweeping along the globe, it has been extending its area of influence. Besides all its ruinous effects, the crisis paved the way for retrospective and introspective academic and intellectual questioning of neoliberal policies. Just after the crisis, some economists who are in mainstream current initiated a frontal attack upon neoliberal policies (Krugman, 2009, Stiglitz, 2013). These critiques share a common feature with the non-mainstream critiques of neoliberalism, all point to the tendency of neoliberal policies (and financialization as a phenomenon specific to neoliberal era) to aggravate intrinsic inequalities in capitalist societies.


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The rise of the neoliberal policies is widely accepted as the return of an economic and social framework in which the boundaries of capital accumulation has been immensely extended and the capital logic has been invading every aspect of our daily lives (Dumenil and Levy: 2004; 2011, Harvey, Kotz, 2009:307; Robinson, 2006). This invasion is also a well-defined class strategy. As Dumenil and Levy (2011, p.8) indicates, neoliberalism as a multilayered programme, has been reconfiguring the production relations at both national and international levels for the sake of increasing the command of “the highest income brackets, capitalist owners and the upper fractions of management” over produced value. Nevertheless, the concentration of economic power at the highest echelons of societies has been accommodated with absolute/relative impoverishment at the bottom. In the heyday of neoliberalism, despite the insistent critiques of heretics, the euphoria of academic circles and international institutions turned into a self-fulfilling censure mechanism against the flow of data evidencing the huge devastation. However, a series of less-than-global crises, the inability of the most of the capitalist countries to cope with the stagnating growth and employment generation and concomitant financial fragility, and the latest global crisis at last unleashed criticisms even from the former advocates. The main focus of the critical literature has been the effects of neoliberal policies upon income distribution and poverty. At this historical juncture, the growing interest on distribution has been emerging in a new form. Up to the beginning of the 1990s, the income distribution was analyzed either as an outcome of growth (neoclassical models) or as a determinant of growth (post- or new-Keynesian models). Neoliberal maelstrom has created the environment in which the interest towards income distribution has been proliferating in a very unconnected/independent pattern. The empirical studies and policy-level discussions concerning income distribution have turned into an attractive study field of distinguished scholars and international institutions.1 Thus occurred an outburst of empirical studies, without a parallel growth of theoretical discussion to the same extent.

In this context, the mainstream income distribution analyses (size distribution of income analysis in micro tradition and functional income distribution in macro tradition), especially those concerning neoliberal experiences, despite giving some important clues about outcomes, fail to unfold the basic dynamics which give rise to alterations in income distribution. For example, the most commonly used method, the size distribution of income analysis, which divides the whole population into fixed segments and looks at the income share of each segment, never gives a hint about the social and economic reasons behind the change in income distribution. This is because the standard size distribution of income analysis abstains from any research at the level of production relations. Even though, by concentrating upon personal/household level income distribution and taking real economic agents into consideration, this line of analysis seems to have a fringe over the functional income distribution analysis (which rests the analysis upon the non-personalized factor income shares), however, by neglecting the social identity and attributes of economic agents, it has insurmountable limitations.

1 As Atkinson and Bourguignon (2000, p.2) underly, in the 1950s,early 1960s and 1980s, there was a lack of interest in distribution issues. The 1990s witnessed a revival of interest


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The second track in the mainstream income distribution analysis, the functional income distribution focuses on the share of each production factor in total income; however, its horizon never extends beyond the market transaction analysis put forward by Adam Smith. Moreover, this approach, like the size distribution analysis, falls short of detecting what gives rise to the change in income distribution. Since the analysis is conducted by using macro level data (generally data derived from national accounts or manufacturing industry surveys), it fails to grasp the social and economic origins of the factor incomes. Moreover, the analyses concentrating on wage shares are mostly unable to differentiate between the different labor types. Since this analytical track uses aggregated data, it is nearly impossible to analyze the within-group distribution. Lastly, as Atkinson and Bourguignon (2000, pp. 7-8) stress, in this analytical framework, the fact that an individual may earn income from multiple income sources has been ignored. However, one merit of the functional income distribution analysis is worth mentioning. One important deficiency of income distribution studies, including ours, which use household level data is that they do not cover one basic income, namely the capitalist firms’ undistributed profits. This fact has naturally brings about a downward bias in income distribution indicators. However, since they generally use national income or macro level data, functional income distribution studies are exempt from this problem.

In spite of all their deficiencies, the results of mainstream income distribution analyses are worth mentioning. It is important to note that, due to several reasons, the number of studies employing size distribution of income analysis is too few, even though the size of the literature has been secularly expanding with the spurt given by the increasing availability of micro-level, household-level data. Most of the studies verify that the neoliberal economic policies have adverse effects upon the income shares of lowest and middle income deciles or quadrilles, while the highest income deciles seem to increase their shares. More importantly, the oligarchic top income shares, like top 1, 0.1 or 0.001 percents of the population, generally increase their shares. For example, in developed capitalist countries there is apparent evidence supporting these predeterminations. In most of the OECD countries, the famous Gini coefficient declined from the mid-1980s to late 2000s.2 The same trend could also be observed in non-OECD countries which got stuck to neoliberal bandwagon.3 According to Branko Milanovic (2005; 2009), the global inequality in income distribution has been increasing since the mid-1980s.4 Ortiz and Cummins’ (2011) results based on size distribution of income data for 141 countries show that income distribution became more unequal between 1990 and 2008 in the majority of these countries. However, all these studies do not give any account of the effect of the reconfiguration of production relations under neoliberalism upon the distribution of income. The functional income distribution analysis seems to be more elucidative in this context. The contribution of the quantitative analysis over the factor shares is invaluable.5 Most of these studies show that the wage shares have been declining under

2See the table at http://stats.oecd.org/Index.aspx#. 3 For Latin America see Baer and Maloney, 1997; Walton, 2004. For South Africa Leibbrandt, M. et al. (2010) 4There are numerous studies employing the size distribution of income analysis which point to the fact that neoliberal regimes have deteriorated the income disttribution. See Habibov and Fan, 2008; Kim, 1997; Pastor and Wise, 1997. 5 This brand of analysis owes so much to Michal Kalecki. There are so many important contributions in this domain. For example, Adelman and Robinson, 1988; Onaran, 2007; Stockhammer, Onaran and Ederer, 2009.


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neoliberalism (Akyüz, 2010; Dünhaupt, 2010; Michl, 1991; Mollo and Saad-Filho, 2006; Onaran, 2007; Peters, 2008; Stockhammer, 2009). The reports by international institutions confirm these results (ILO, 2013: p.v).

While assessing the adverse effects of neoliberal economic policies upon income distribution, this empirical corpus stimulates a discussion about theoretical construction of society lying beneath the analytical methodology used in income distribution analysis. Each school of thought in economics is the result of a distinct perception of society (Dobb, 1977). Its methodological individualism directs neoclassical school to perceive society as a mere aggregation of individuals.

“Conventional economists view the economy as a set of relationships independent of any larger society. The prevailing position is to construct theory by building the argument on the basis of a non-socially determined, hypothetical individual. … Social norms, institutions, behavior should conform to economic standards which are predicated on good theory, theory that is developed independent of any specific social context.” (Henry, 2001, pp. 633-634)

However, individuality is a socially/historically determined objective process rather than an isolated subjective state. No doubt, the most fundamental social/historical determination is the membership to a social class. In this respect, the ravages of neoliberal economic policies are not distributed or felt according to individual atrributes (good luck, bad luck, education, access to public services), rather the uneven distribution of adverse effects is a function of the social class membership to a great extent. However, there has been a certain “retreat from class” (Wood,1999) in social sciences which eventually dismantles their analytical merits. Though in the last quarter of the 19th and the first quarter of the 20th centuries even non-Marxist economists like Marshall were predisposed to use it as an analytical category, contemporary economics is not an exception.6 The concept of social class faded to oblivion in the realm of the discipline of economics long ago.

Probably on this account, for analyzing the effects of neoliberal economic policies over the income distribution, very few studies have used a social-class based framework. The study by Wolff and Zacharias (2007), which also heavily inspires this study, indicates that the income distribution in the USA deteriorated between 1989 and 2000. Moreover, their results show that the share of the contribution of inter-class inequality to overall inequality rose from 1989

6 “It is true that the action of the whole is made up of that of its constituent parts; and that in most economic problems the best starting-point is to be found in the motives that affect the individual, regarded not indeed as an isolated atom, but as a member of some particular trade or industrial group...” (Marshall, 1947, p.25). The same line of reasoning can also be found in Keynes’s writings. “Keynes’s emphasis on ideas implies a view of stratification congruent with Weber’s class-status-power formulation.” (Wiley, 1983:p. 35) “Keynes recognized classes and class relations as determining the essential social structure of such an economy. He usually divided society into two general classes- worker (often called the ‘earning class’) and capitalists, then further divided this second class into the ‘business class,’ or ‘entrepreneurs,’ and the ‘investing’ or ‘saving’ class, labeled ‘rentiers’…” (Henry 2001: 633).


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to 2000. According to these results, the share of capitalist households in total income also increased in the same period. Another important study by Portes and Hoffman (2003) gives a brief account of the effects of neoliberal economic reforms upon the class structures in Latin American countries. The most striking result is the shrinking share of working classes. Koch’s article (1999) on Chile for the period 1971-1994, using a Marx-Bourdieu framework to define classes, indicates that the income gap between managers (‘large capitalists’ as Koch names them) and the rest of the other economically active classes widened. However, neither of these studies takes the reserve industrial army into consideration.

Similarly, the effects of neoliberal policies upon the class structure and class based income distribution in Turkey are analyzed in a very few number of studies. The pioneering studies by Boratav (1990; 2004; 2005) opened up a new fertile ground for further research. Especially Boratav (1990, 2005) provide a brief account of how the initial phase of neoliberalism (1980-1989) in Turkey altered the class based income distribution in favour of capital. Moreover, since the Turkish Statistics Institute began publishing the data set of Household Budget Surveys in 2002, a number of studies focusing on the social-class based income distribution have been published (see Köse and Karhanoğulları, 2005; Köse and Bahçe, 2009, Bahçe et al., 2011). However, neither of these studies (except for Boratav (1990)) attempted to analyze the change of the income distribution in terms of inter- and intra-class dimensions.

The basic aim of this study is to look at the effects of mature neoliberalism in Turkey (2002-) on the inter- and intra-social class income distribution. However, this study is not only an inquiry upon the change in income shares of classes; it also aims at establishing the patterns of change in class structure. The next section gives a short story of mature neoliberalism in Turkey as a background to the analysis. Even though class structures are not generally so much sensitive to the changes in macroeconomic policies in the short run, during the course of neoliberal transformation, the social-class based income distribution is affected to a great extent. It is followed by brief information about our methodology. The subsequent section focuses on the empirical findings of our study. This section presents the change in the class structure, and also the changes in inter- and intra-class based income distribution.

I. Income Distribution in Mature Neoliberal Era in Turkey

The story of neoliberalism in Turkey began with a military coup in September the 12th, 1980. Only then the decisions taken by high economic bureaucracy and government at January 24th, 1980 that would initiate a full scale liberalization of the economy could be carried out. The three decades of neoliberalism in Turkey could be divided into three episodes; preparatory neoliberalism between 1980 and 1989, the chaotic neoliberalism between 1990 and 2001, and the mature neoliberalism from 2002 onwards.


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In 2002, with the election victory of the Justice and Development Party (JDP), the last and the “glorious” episode of neoliberalism began. In this episode, the reconfiguration of the production relations for the sake of extended accumulation of private capital was pursued in an unopposed and ripe political and international context (ISAAT, 2006). The JDP governments privatized so many SOEs. The public service sectors (education and health sectors mainly) were made more open to private investment. The legal framework which regulated labor relations was radically transformed, the outcome of which was a more flexible labor market. More importantly, agricultural policies were radically changed. For example, the support purchases of agricultural products by state institutions were abandoned to a great extent. The government, with the support of the World Bank and EU, initiated an income support program which was supposed to recover at least a part of peasants’ losses (Aydın, 2010). However, the effects of this program were too much disastrous for the agriculture sector. Only the landowner peasants could benefit from payments. The payments were made according to acreage of the land owned whether it is cultivated or not. Under this ingeniously designed payment scheme, many peasants tended to leave their agricultural lands uncultivated and move to cities. As expected, both the agricultural population and cultivated land diminished. This erosion deserves to be nicknamed as grey agricultural revolution.7 This period also witnessed the shrinking of the formal social security system and its replacement by an informal, selective new social welfare system. This new system rested upon the informal public transfers which were distributed very selectively.

This episode also witnessed a rapid surge in capital inflows as a result of Turkey’s efforts to accord to the rules of the game. In 2003, total net capital inflows to Turkey were about 10 billion dollars, while it was over 55 billion dollars in 2010. As a matter of fact, this loosened the external finance constraint of Turkey. With the aid of this, Turkey has been able to sustain its chronic and growing current account deficit. The next section deals with the repercussions of the macroeconomic developments in the mature neoliberal episode upon inter and intra-class income distribution.

The official reports and statistics indicate that the era of mature neoliberalism has witnessed a significant improvement in the income distribution. For example, according to the figures announced by TIS, the Gini coefficient was 0.44 in 2002 and it dropped to 0.40 in 2011. Even this improvement could not change the fact that Turkey has the third highest Gini coefficient in the members of OECD after Mexico and Chile (OECD, 2013). The same report indicates that the relative poverty rate of Turkey for 2010 was amongst the highest. On the other hand, between 2007 and 2010 the rate of child and adult poverty increased. The other OECD report (2012, p. 186) indicates that, as in other countries, much of the inequality in household income distribution could be attributed to the inequality in labor earnings in Turkey. In this episode, the public and private transfers especially to lower classes surged. The effects of this surge will be analyzed later.

7We abstain from using the name “green revolution”, since green revolutions were designed to increase agricultural produciton in countries like Mexico and India. Their results were disastrous for small peasants, as most of them lost their lands.


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II. Methodology a) How did We Derive Class Status of Individuals and Households?

In this study, we use dataset derived from Household Budget Surveys which have been annually conducted by Turkish Statistcal Insitute since 2002. The results of these surveys are used in size distribution of income analysis for Turkey and they constitute an important input for National Income Accounting. Generally, data generation is non-neutral to the theoretical objectives and, in this sense; each data set is constructed to answer specific questions. Nevertheless, albeit having some constraints, data sets might be reconstructed to provide answers to questions pertaining to different theoretical/ideological background. The main motivation behind this study is to reconstruct the dataset from HHBSs to attain class decomposition of Turkey.

This reconstruction is not an empirical process; instead it is a theoretically designed investigation. The data set covers qualitative data concerning the place of individual in production relations, social class identity of individual is derived using these data. It is important to note that theoretical design precedes the data processing. The theoretical design is modified slightly with the discovery of the limitations of data. Besides this, our theoretical design mainly rests upon Marxian treatment of capitalism as a distinct mode of production and a specific historical formation. Naturally, social class is central to this treatment. Indeed, the definition of class position is a highly contestable process. As Wright and Perrone indicate “Few concepts in social science have been used in more diverse ways than "class”” (Wright and Perrone, 1977: p. 33). Theoretical Marxian political economy mainly deals with the continuous interplay of abstract productive factors on the one side and payments to these factors on the other. However, in this stage the analysis is very rudimentary and it is very hard to observe the basic distinctive characteristics of a Marxian analysis. Moreover, at this stage the analysis is carried out in a highly abstract framework. For example, as indicated, the dominance of neoliberal economic view is widely accepted as the manifestation of the invasion of capital relation. Nevertheless, capital in this definition is highly abstract and not easily perceivable. As Marx pointed out: “...[C]apital is not a thing, but rather a definite social relationship, belonging to definite historical formation of society...” (Marx, 1977: 814). Therefore, the invader is a “definite social relationship” pertaining to a “definite historical formation”. This development has inevitably resulted in the accumulation of relatively more value (and more power) in the hands of capitalists. Therefore, any Marxian analysis of the outcomes and drivers of a reconfiguration of production relations should be extended into an assessment of the changes in class structure and income distribution among classes. Social class analysis is a means to objectify the abstract capitalist production relations. However, this objectification entails serious obstacles. These obstacles emerge as the result of segmentation within classes and also as a result of the limitations of the data set. In order to circumvent these obstacles, we are enforced to incorporate Weberian delineations into our theoretical framework.

Using the dataset from surveys, the individual class position of each individual is defined. However we do not conduct our analysis at individual level. With the retreat of state from sectors like health care and education, household, as a social solidarity hub, has been


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becoming more and more prominent. Moreover, household is not only a sociological unit, but, being the centre of wealth accumulation, it is also an essential economic agent. For these, even the class analysis should be conducted at household level. The steps in defining the class identity of individuals are briefly explained in Appendix I. After deducting individual level class positions, the information is used to determine the household level class positions. All this empirical investigation is preceded by the theoretical construction of society. The theoretical household level class structure is given in Figure I.

•Urban Professionals

•Small Enterprise Owners

Non-Agricılutural Activites

Agricultural Activities

•Peasants/Farmers

•Large Peasants/Farmers

Poperty Ownerhip:Land/Capital

Labor:Agiculture/Non-Agriculture Labor

•Agricultural Laborers •Propertyless Laborers

•Propertied Laborers

•Skilled Laborers

Figure 1: Class Composition of Households in Labor Force

•Urban rentiers

•Capitalists

•Landed Subsistence Peasants•ZONE VI

•Petit Bourgeoisie•ZONE V

•Urban Unemployed

•Rural Unemployed

•Landless Subsitence Peasants

•Rural Reniter

ZONE II: Rural

Propertied Classes

ZONE I: Urban

Propertied Classes

ZONE IV: Rural Laborers

ZONE III: Urban

Laborerers

The vertical axis designates the polarization around the ownership of means of production/ ownership of labor power nexus; therefore it is the mode of production axis.8 The horizontal axis, on the other hand, gives the divide between agricultural and non-agricultural activities. Roughly it corresponds to the historical formation axis. There are six zones in our framework and each zone points to a distinct amalgam of classes: Urban propertied classes, rural propertied classes, urban and rural laborers (which also cover urban and rural reserve labor

8 The framework for non‐agricultural activities given in Figure 1 has a lot of similarities to the class structure depicted in Wright, 1985: Table 3.3. However, there are stark differences. For example, in our framework, there are urban professionals and rentiers which are missing in Wright’s framework.


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armies respectively) and two more buffer zones which belong to two intermediate classes; landed subsistence peasants and petite bourgeoisie. In addition to these, there is a group of households which include only individuals who are not at working age or/and retired. Though class positions of these households cannot be determined, for the sake of full coverage of households they are included in the class analysis.

In each quadrant, several distinct classes are located. For example, urban propertied class quadrant covers capitalists, urban professionals, small enterprise owners and urban rentiers. The buffer zone classes; landed subsistence peasants and petite bourgeoisie are assumed to be transitory classes, as the capital accumulation expands, the households in these zones are inclined to fall below and join the mass of working classes. One can also prefer to devise more and more classes in each quadrant and no doubt, taking the historical particularizing effects of neoliberal capitalism for granted, this may be accepted as reasonable and convenient. However, the expansion of capital accumulation has also a homogenizing effect which erodes especially the social and economic demarcations between sub-segments of working population. Therefore, any inflation in the number of distinct class positions in theoretical and methodological framework may result in losing sight of this second structural tendency.

An important clarification should be made. In Figure I, in Zone II there are two sub-class categories labelled as “Large Peasants/Farmers” and “Peasants/Farmers”. The dashes correspond to the nexus of a long lasting debate in the domains of both sociology and economics. The category of peasant refers to a household which relies much on household unpaid labor power and less on waged labor power (especially seasonal workers). The social framework for peasant is certainly characterized by petty commodity production. On the other hand, farmer connotes an individual/ a household owning/running a capitalist enterprise engaging in agricultural activities. The development of capitalism in agriculture, according to some authors, inevitably turns the traditional peasant (if strong enough to survive during the invasion of agriculture by capitalism) into a capitalist farmer. In Turkey, well-to-do peasants generally hire waged labor power temporarily, especially in harvest seasons. However, we are not sure whether this pattern is a sufficient condition for those peasants to be elevated to the status of farmer. Moreover, any contribution to this debate is beyond the objective this study. Taking the risk, we will continue to entitle these households as peasants.

In order to derive the class positions of individuals and households we used the framework outlined above. The data is obtained from Household Budget Surveys which have been annually conducted by the Turkish Statistical Institute since 2002. The details of these surveys and steps taken in determining the class positions of individuals and households are outlined in Appendix I.

b) Analysis of Inter- and Intra-class Distribution of Income

After determining class positions, we pass on to the analysis of the change in inter- and intra class income distribution. For this purpose, we employed the widely-used Gini


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decomposition9 technique and mainly benefited from Yitzhaki and Lerman (1991).10 Throughout this analysis, we use household disposable income (household income net of taxes plus transfers).

For an income type y, the Gini coefficient is estimated as follows;

2 ( , ( ))Cov y F yG

y (1)

y is the mean income, and F(y) is the cumulative distribution of y. F(y) may be roughly

estimated as R/n in which R is the rank of the individual or household in ordering according to y and k is the number of observations. Then we can decompose the Gini index as follows;

Within Component Between Coponent

2 ( , ( ))ki i

w b i i i ii

Cov y F yG G G PS O G

y

1 4 2 4 3 1 4 4 2 4 4 3 (2)

The first term on the right hand side denotes the within component while the second is representing the between component. Pi is the population share of the group/class i and Si is

the share of group i in total income y. Gi is within group Gini. iy is the mean income of group

i. Oi is the reverse stratification (or overlapping) index of group i. Let us clarify what this last index shows. It is estimated as below;

1 (1 )i ii

i

P QO

P

Qi here refers to the stratification index, it takes a value between -1 and 1. In an ordering according to a given criteria, this index is a measure of the proximity of the members of a particular group. If the members of the group constitute an identifiable and visible cluster in the ordered scale, the stratification index of the group will be high. On other hand, if the members are scattered over a wide range, it will be low. Therefore, a highly stratified group will certainly have a low overlapping index. In this regard, this index shows whether the differences between the incomes of the members of any class have been eroded, or not.

In this context, we can also find the source of any alteration in the income distribution by using Eq. (1) as follows;

W BG G G

and

9Gini decomposition is preferred because of its simplicity. However, there is a long list of decompositions used in the income distribution analysis like enthropy indices, Theil index. See Bourguignon, 1979; Dagum, 1980; Jenkins, 1995; Mookherje and Shorrocks, 1982. 10However, Wolf and Zacharias (2007) inspires the authors to a great extent.


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Contribution of the Contribution of the Contribution of the change in within-class Gini change in overlapping indices change in income shares

( ) ( )k k k

W i i i i i i i i i i i ii i i

G PS O G PS G O PG O S 1 4 4 2 4 43 1 4 4 2 4 43 1

Contribution of the change in population shares

k

i i i ii

S G O P 44 2 4 43 1 44 2 4 43

(3)

The bar over the variables points to the mean of the previous and current values. Then the first term in the right hand side is the contribution of the change in group Gini indices to the change in overall Gini and also to the change in within group component. The second is the contribution of the change in overlapping index. Finally the third and fourth are the measures of the contributions of changes in income and population shares respectively.

Following Shorrocks (2002), any income inequality measure, under certain conditions, can be decomposed into the contributions of income sources which add up to total income. Suppose there are M income sources. Then the contribution of the income source m to Gini (G) is ;

*2

2 1( ) ( ) ( )

2m mm

m jj

nS G G Y j Y

n

(4)

Above, ( )mG Y stands for a pseudo-Gini since miY gives the rank of individual j in ranking

according to total income, not the income from source m. Then the relative contribution of each income source to the total inequality is estimated as follows;

** *

1

( )( ) m=1,2...M ( ) ( )

( )

Mm

m mm

S Gs G G Y S G

G Y

(5)

Then we can use (5) to decompose the change in any Gini into the change of the contributions of the income sources. In our case we have four income sources; factor incomes, asset incomes, public and private transfers denoted by F, A, PubTr and PrivTr respectively. Then the change in intra-class Gini for class i in (3) for any year can be decomposed as follows;

* * * *_ _ _ Pr _( ) ( ) ( ) ( )i F i i A i i PubTr i i ivTr i iG S G S G S G S G (6)

Then the contribution of the change in the intra-class Gini to the change in overall Gini could be written as;

* *_ _

* *_ Pr _

( ) ( ) ( ) ( ) ( )

( ) ( ) ( ) ( )

k k k

i i i i i i i F i i i i i A i ii i i

k k

i i i PubTr i i i i i ivTr i ii i

PS O G PS O S G PS O S G

PS O S G PS O S G

(7)

First term on the right hand side gives the total contribution of the change due to factor incomes, the second one shows the contribution of asset incomes. The third and fourth terms are the total contributions of public and private transfers. Eq. (7) also allows us to detect the direction of the change in contributions of each income source for each class.


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III. The Change in Inter- and Intra-Class Income Distribution and the Underlying Factors

We generally use a dual class definition system; broad and narrow definitions. As explained in Appendix I, each broad class category, except for the transitory class categories like petite bourgeoisie and landed subsistence peasants, include several narrow categories. In this study, the analysis is conducted using broad class categories. This choice is due to two reasons; first, except for the year 2003, each sample for different years covers nearly 9000 households. In the context of class structure according to narrow definition, several class categories do not have more than 200 households, so for these classes, we have to tackle with the inevitable representation problems. Second, under narrow class definition, the population shares of some classes exhibit wide fluctuations. These fluctuations would certainly make our results less reliable. Therefore, in order to circumvent these problems, we decide to use broad class definitions.

As the tables 1 and 2 show, the mature neoliberal period brought about a massive growth of the working class.11 This could be more clearly observed in Table 1 which gives the percentage decomposition of households according to the broad class definition. The share of urban worker households was 49.58 % in 2002 while it rose to 56 % in 2010. Moreover, there was also a slight increase in the share of rural workers in the same period. As a result, in 2010, six out of every ten households were households of working class origin. The sources of this increase, as both tables show, are very obvious; the erosion of the ranks of peasants and petite bourgeoisie. The combined share of these classes (petite bourgeoisie, rural propertied classes and landed subsistence peasants) declined from 22.93 % in 2002 to 15.68 % in 2010. Table 1 shows the household level class structure for the period 2002-2010. Table 2 shows the number of households under both broad and narrow class definitions. The class categories in bold indicate the broad definition. According to table, the number of urban labourer households increased by more than 2.3 million between 2002 and 2010. On the other hand the sum of petite bourgeoisie, rural propertied classes and landed subsistence peasants decreased by nearly 0.8 million at the same instance. This implies that most of the newly founded households have tended to increase the number of urban labourer households. Turkey’s economic and social structure had never witnessed such a great transformation in such a short period before.

As indicated above, this significant transformation was due to the erosion of rural economy and devastation of agriculture. The curtailment of agricultural support policies and the decrease of the volume of crops harvested due the competition of imports made the subsistence of traditionally large rural households impossible. Moreover, the terms of trade between agricultural and non-agricultural products decreased in most of the period under analysis and this had a significant adverse effect upon the agricultural incomes. This situation crowded the urban labor force through two channels; either the large rural households broke down into smaller households and the new households migrated to the cities, or the whole

11 Even though we conduct our analysis at household level, some information about the individual level class composition should be given. Table II.1 in Appendix II gives the number of individuals in each class category.


14

household migrated to city. More importantly, it is more likely that highest share of this inflow was captured by the class of propertyless urban labourers. Between 2002 and 2010, the number of households in this class increased by more than a million.

Table 2 also shows the effect of the 2009 crisis. The number of urban unemployed households increased more than 250 thousands in 2009. On the other hand, the number of rural unemployed households rose by more than 200 thousands at the same time. Since average household size is nearly four in Turkey, these figures imply that nearly 1.8 million individuals suffered from unemployment in 2009.

Table 1: Class-Based Decomposition of Households in Turkey, 2002-2010 (%)

2002 2003 2004 2005 2006 2007 2008 2009 2010

Urban Propertied Classes 12.71 12.29 12.95 12.19 12.58 11.53 12.58 12.26 11.62

Petite Bourgeoisie 8.23 8.10 7.04 7.23 8.40 6.34 6.16 7.14 6.66

Rural Propertied Classes 6.20 6.23 5.28 4.32 3.42 3.18 1.99 2.06 3.37Landed Subsistence Peasants 8.50 6.15 6.65 7.52 5.67 4.33 4.92 7.88 5.65

Urban Laborers 49.58 49.67 50.57 51.70 52.28 57.71 56.81 55.42 56.00

Rural Laborers 4.30 3.83 4.75 4.24 5.08 4.02 4.27 5.56 4.96

Not Working/Retiree 10.48 13.73 12.77 12.80 12.57 12.88 13.26 9.68 11.74

No doubt, this transformation entailed a significant alteration in class-based income distribution, as can be seen from Table 3. The rapid depletion of agricultural activities and absolute decrease in the number of peasant households significantly decreased the income share of rural propertied classes. In addition to this, annual real incomes of peasant households declined for the most of the period.12 The other striking observation is that the growth rates of annual households incomes lagged behind the growth rate of GDP. Between 2002 and 2010 real net incomes of households grew at 2.3 % annually while the average growth rate of GDP for the period was 6.2 %. On the other hand, the income share of rural propertied classes was 8.41 % in 2002 while it declined to 1.24 % in 2009. In 2010 it increased to 3.37 %. Comparing Table 2 and Table 3, one should infer that the change in class-based income distribution was influenced by the change in population shares to a great extent.

12 Annual average real incomes of households are given in Appendix II Table II.1.


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Table 2: Detailed Class Decomposition of Households in Turkey, 2002-2010

2002 2003 2004 2005 2006 2007* 2008 2009 2010 Urban Propertied Classes 2090136 2058353 2213606 2138975 2225655 1999201 2239085 2259975 2185810

Capitalists 1061286 1288159 1207462 1129836 1171097 1138719 1202726 1152766 1057420

Urban Professionals 41181 46541 43011 48417 78678 38699 30857 44257 42756

Small Enterprise Owners 913037 705663 883891 883535 894726 771076 935852 969620 972815

Urban Rentiers 74632 17990 79242 77187 81154 50707 69651 93332 112818

Petite Bourgeoisie 1352914 1356382 1202790 1268271 1485900 1098975 1096285 1315375 1253334

Rural Propertied Classes 1020145 1042389 902291 757764 605527 551651 353758 379373 632944

Large Peasants 458939 377863 338811 438686 254582 262721 155595 82559 51462

Peasants 526859 642158 535569 301487 315094 281838 178897 213411 485925

Rural Rentiers 34347 22368 27911 17590 35851 7093 19266 83402 95557

Landed Subsistence Peasants 1398233 1030459 1136946 1320173 1003038 750305 875971 1452178 1062602

Urban Laborers 8154495 8316196 8646121 9072817 9247225 10006149 10108356 10212885 10532465

Qualified Laborers 1097741 1058443 1135089 1165107 1027562 1178548 1353174 1462160 1482595

Propertied Laborers 4913229 4456121 5062487 5216288 5398389 5639988 5137990 4943642 4976154

Propertyless Laborers 1476973 2094138 1794708 1978123 2254342 2641570 2971265 2893270 3363153

Urban Unemployed 666553 707494 653836 713300 566932 546042 645926 913813 710563

Rural Laborers 706438 641175 811769 744115 899160 697771 760675 1024589 933707

Agricultural Laborers 364351 225622 419700 345009 390000 253571 300825 278358 272613

Landless Subsistence Peasants

147020 147692 128859 203972 233319 226807 209178 278916 265840

Rural Unemployed 195067 267860 263211 195134 275842 217392 250672 467314 395254

Not Working/Retiree 1724283 2299541 2183014 2246905 2223047 2233843 2360109 1782948 2207310

Not Working 310663 260730 298450 253383 240654 338834 329951 205694 442044

Retiree 1413620 2038812 1884564 1993522 1982393 1895009 2030158 1577254 1765267

Total 16446644 16744495 17096537 17549020 17689552 17337894 17794238 18427322 18808172 * In 2007, TurkStat began to estimate factorial weights based on Address Based Population Registration System.


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Table 3: Income distribution Between Household Classes 2002-2010 (%)

2002 2003 2004 2005 2006 2007 2008 2009 2010 Urban Propertied Classes 24.45 25.27 25.41 21.90 22.22 20.29 23.12 22.89 21.01

Capitalists 16.06 19.09 16.72 14.51 14.45 13.44 16.08 14.45 13.51 Urban Professionals 0.78 0.74 0.71 0.54 0.81 0.42 0.42 0.78 0.62 Small Enterprise Owners 6.43 5.32 7.55 6.40 6.69 6.25 6.27 7.16 6.48 Urban Rentiers 1.18 0.12 0.42 0.44 0.28 0.19 0.35 0.49 0.41

Petite Bourgeoisie 6.58 7.79 6.80 7.14 8.31 6.80 6.23 6.29 5.87 Rural Propertied Classes 8.41 6.21 5.67 4.92 3.57 3.15 2.30 1.24 3.37

Large Peasants 4.84 3.09 3.02 3.63 2.09 1.83 1.40 0.40 0.30 Peasants 3.43 3.07 2.57 1.24 1.36 1.30 0.87 0.72 2.89 Rural Rentiers 0.14 0.06 0.08 0.05 0.12 0.02 0.04 0.12 0.19

Landed Subsistence Peasants 4.03 2.87 2.98 4.17 3.12 2.45 2.43 5.76 3.07 Urban Laborers 46.67 46.54 48.26 50.85 51.64 57.17 55.08 54.52 55.88

Qualified Laborers 11.80 11.44 10.72 11.01 10.04 11.72 13.19 12.23 13.00 Propertied Laborers 27.31 23.98 28.02 29.54 30.35 32.04 27.36 27.64 26.83 Propertyless Laborers 5.53 8.72 7.39 8.04 9.53 11.89 12.63 11.91 13.92 Urban Unemployed 2.03 2.41 2.12 2.26 1.71 1.52 1.89 2.74 2.14

Rural Laborers 1.88 1.54 1.96 1.63 2.24 1.64 1.76 2.20 2.17 Agricultural Laborers 1.15 0.52 1.03 0.78 1.10 0.63 0.82 0.72 0.67

Landless Subsistence Peasants 0.38 0.35 0.28 0.50 0.56 0.57 0.46 0.68 0.69 Rural Unemployed 0.35 0.67 0.65 0.35 0.58 0.44 0.48 0.81 0.81

Not Working/Retiree 7.97 9.78 8.93 9.40 8.90 8.48 9.08 7.11 8.61 Not Working 0.78 0.61 0.54 0.55 0.40 0.57 0.58 0.40 0.71 Retiree 7.19 9.17 8.39 8.85 8.49 7.91 8.50 6.71 7.90

Total 100 100 100 100 100 100 100 100 100


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The alteration in income and population shares surely had an observable effect upon the Gini coefficients. There are various channels through which the repercussions were transmitted. The crowding of the mass of propertyless urban labourers with the displacement of peasant households thickens bottom echelon of the urban labouring classes. Concurrently, the erosion of the flock of peasants might very well begin with the migration of the most vulnerable peasant households. Both of these developments resulted in the decrease in the intra-class Gini of urban labourers. Figure 1 shows the change in within group Gini coefficients. As a general trend, intra-class Gini’s declined from 2002 to 2008, then showed an upward jump in 2009 (as a result of protracted effect of the global crisis) and then declined again in 2010. The Gini for urban laborers followed the same pattern. On average, urban propertied classes had the highest within class Gini, followed by two laboring classes (urban and rural).

Figure 1: Within Class Gini Coefficients

Since for most of the years in the period under scrutiny, intra-class Gini’s displayed a declining trend, we expected a decrease in the overlapping index for the majority of classes. Table 4 shows the development of overlapping index for social classes. Let us remind that the lower the overlapping index the higher the proximity of the members of the class to each other in the ordered scale of income. Urban laboring households had the lowest overlapping index for the whole period. Urban propertied classes had also relatively lower overlapping index. It seems that the polarization around labor/capital nexus has an effect of homogenization over these classes. Despite exhibiting a considerable decrease, the overlapping indices for rural classes are generally higher. This implies a more scattered distribution for rural households on the income ordered scale. This proves that the expansion of capital relation has tended to homogenize the class structure.

0,20

0,25

0,30

0,35

0,40

0,45

0,50

0,55

0,60

2002 2003 2004 2005 2006 2007 2008 2009 2010

Urban Propertied Classes Petite Bourgeoisie Rural Propertied Classes

Landed Subsistence Peasants Urban Laborers Rural Laborers

Not Working/Retiree


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Table 4: Overlapping Indices for Social Classes, 2002-2010

2002 2003 2004 2005 2006 2007 2008 2009 2010Urban Propertied Classes 6.0 6.7 6.1 6.3 6.5 7.5 6.8 7.1 7.4


Rural Propertied Classes 25.0 12.6 17.1 21.2 22.9 20.6 32.6 43.5 19.4Landed Subsistence Peasants 22.8 12.6 13.3 14.7 15.5 17.5 15.3 12.1 14.2

Urban Laborers 1.7 1.9 1.9 1.9 1.9 1.8 1.8 1.8 1.9

Rural Laborers 34.9 30.0 21.0 19.5 18.8 17.0 18.6 16.7 17.5

Not Working/Retiree 7.5 5.9 6.2 6.2 6.7 6.3 5.7 7.9 6.5

Up to now, we elaborated on the developments of the basic components of the overall Gini. Before assessing the contribution of each particular component to the overall Gini, we should point to the stark difference between the official Gini coefficient, which is estimated in a size distribution of income context, and the class-based Gini coefficient. As mentioned above, there are stark differences in estimation methodologies. Besides having different analytical units (deciles or quadrilles versus classes), there is also an important difference concerning the coverage of disposable income. The household disposable income used to estimate official Gini covers an “imputed” income for the owner-occupied houses. This is not included in disposable income we use. Two factors (one practical and one theoretical) lead us not to use the household disposable income definition of TIS: First, the details of procedure for the estimation of the imputed income are not clearly explained.13 Second, in our production relations based theoretical framework, this does not constitute a real and direct claim over the currently produced value. This leads to a significant difference between our own and TIS’s estimate. For example, in 2010, the share of “imputed” income for home ownership in total household disposable income was nearly 12%. However, the difference between two can not be solely due to the inclusion or exclusion of this imputed income. Figure 2 shows the variations in both the officially announced Gini and our class-based Gini coefficients.14 As Figure 2 indicates, class-based Gini is higher than the official Gini for the whole period. Up to 2006, the scissor between official and class-based was in a tendency of closing, however it began to open after. Class-based Gini declined between 2002 and 2006, then rose at 2008 and 2009. Officially announced Gini gave a strong impression that the inequality in income distribution improved for the most of the period. However, even the improvement in the official Gini could not change the fact that Turkey has the most unequal income distribution in Europe, moreover has the third worst income distribution (after Mexico and Chile) in OECD members (OECD, 2011). Class-based Gini coefficient, on the other hand, displays a different path. It declined until 2007 and showed a sharp increase in 2009.

13 Turkish Statistical Institute estimates this “imputed” income with two different methodologies. In the first, it is estimated using the rents paid for houses which are in the vicinity. Secondly, a regression analysis is employed. 14From here on, the Gini coefficients are multiplied by 100 for the sake of simplicity.


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Figure 2: Official vs. Class-based Gini, 2003-2010

Class-based Gini coefficient may be decomposed into its between-class and within-class components. First of all, Table 5 shows the within and between components of the overall class-based Gini. As the table shows, the highest contribution to class-based Gini comes from within component. The average contribution of the between component over the whole period was about 14.5 %. The contribution of the between component is initially higher, then falls towards the end of the period. As indicated earlier, Turkey was hit by the worst macroeconomic crisis of her history in 2001. The years 2002, 2003 and 2004 may be accepted as recovery period. 2009-2010 was also crisis years. The contribution of within component was comparably higher for the former and latter periods. The repercussions of the crises are likely to be distributed unequally even within a class.

Table 5: Class-Based Gini and Components

Class-based Gini

Between Component

Within Component

% contribution of the between component

2002 50.57 7.94 42.63 15.7

2003 47.24 7.61 39.63 16.11

2004 46.31 8.55 37.76 18.46

2005 43.16 6.53 36.63 15.12

2006 42.07 5.99 36.08 14.23

2007 42.04 4.85 37.19 11.54

2008 42.63 5.88 36.75 13.79

2009 46.21 5.75 40.45 12.45

2010 45.24 6.03 39.20 13.34

Table 5 proves that in our analytical context the within component dominates the change in the overall Gini to a great extent. It is important to note that this domination might also an

0,20

0,25

0,30

0,35

0,40

0,45

0,50

2003 2004 2005 2006 2007 2008 2009 2010

Class‐Based Gini TurkStat Gini


20

outcome of the design of the class structure used. As we use the broad class definition and each broad class category incorporates a number of distinct classes, the aggregation is likely to overstate the contribution of the within component. However, due to data problems, we should take this risk.

Nevertheless, yet we could not detect the main source of the change in the within component. For this purpose, the results of the decomposition given in equation (3) should be given. Table 6 serves this purpose.

Table 6: The Decomposition of the Change in Overall Gini

2003 2004 2005 2006 2007 2008 2009 2010

Change in overall Gini -3.33 -0.92 -3.15 -1.09 -0.02 0.59 3.58 -0.97Change in Between Component -0.33 0.94 -2.02 -0.54 -1.14 1.03 -0.12 0.28

Change in Within Component -3.00 -1.86 -1.13 -0.55 1.11 -0.44 3.70 -1.25

Change in Intra-Class Gini -2.87 -1.88 -0.98 -1.52 0.04 -0.17 4.17 -1.98

Change in Overlapping Index -0.49 -0.37 0.1 0.65 0.61 -0.4 0.5 0.36

Change in Income Share -0.15 0.21 0.04 0.07 0.19 -0.05 0.32 -0.29

Change in Population Share 0.51 0.18 -0.29 0.25 0.27 0.18 -1.29 0.66

Table 6 indicates that, in absolute terms, the contribution of the change in the within component is higher than that of the between component. As for the components of the change in the within component, the contribution of the change in intra-class Gini was far higher compared to other components. It is followed by the change in population share. As a preliminary conclusion, it seems that the relative improvement/deterioration in the distribution of household disposable income is mainly determined by the change in intra-class Gini. It had negative sign for the five out of eight observations. On the other hand, the contribution of the changes in overlapping index, population and income shares had a positive sign for most of the period. Total contributions of intra-class Gini, overlapping index, population and income shares throughout the period are -5.19, 0.96, 0.34 and 0.47, respectively.

Using equation (3), we can also decompose the total change in within component into its class-based sources. Table 7 shows total contribution of each class to the change in the components of the within class distribution. It is obvious from the table that the highest contribution was of the urban laborer households. Moreover, for the whole period, this class’ contribution was likely to increase the Gini coefficient. The period-wide contributions of all the other classes have a depressing effect upon the Gini coefficient. The second highest contribution came from the landed subsistence peasants. It was followed by the urban propertied classes. Keeping the fact that the Gini coefficient fell in most of the period in mind, it might be stated that the positive contribution that could be adhered to the urban laborers was more than offset by the negative contributions of other classes.

The comparison of the contribution of each class to each component of the within distribution gives some important insights about the repercussions of the alteration of the class structure upon the income distribution. The contributions of the change in income and population


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shares of urban laborers are the highest. This seems to be a direct result of rapid expansion of the urban laborer class. On the other hand, the contribution of the change in the intra-class Gini of urban laborers is relatively high; it is mainly due to the crowding of the mass of urban laborers with the inflow of poor peasants and the lowest strata of petite bourgeoisie.

Table 7: Total Class Contribution to the Change in the Components of Within Component throughout the Period

Intra‐Class Gini

Overlapping Index

Income Share

Population Share Total

Urban Propertied Classes ‐1.14 1.81 ‐1.23 ‐0.78 ‐1.33

Petite Bourgeoisie ‐0.18 0.44 ‐0.36 ‐0.63 ‐0.73

Rural Propertied Classes ‐0.13 ‐1.10 ‐1.22 ‐0.80 ‐3.25

Landed Subsistence Peasants 0.08 ‐0.68 ‐0.37 ‐0.55 ‐1.52

Urban Laborers ‐2.61 1.86 3.13 2.38 4.76

Rural Laborers 0.05 ‐0.55 0.21 0.11 ‐0.18

Not Working/Retiree ‐1.25 ‐0.81 0.17 0.72 ‐1.17

Total ‐5.19 0.97 0.35 0.45 ‐3.42

From Table 6, it is known that the contribution from the change in intra-class Gini is the most significant underlying factor beneath the change in class-based income distribution. However, another basic question is worth adressing: What is the source of the change in intra-class Gini? For the answer, we can use the decomposition given in eq. (7) in order to find out the contributions of factor and asset incomes, and also public and private transfers.

The share of public and private transfers has an increasing trend for the most of the period. A study by Köse and Bahçe (2009b) shows that the main source of the private transfers is non-governmental foundations and their basic income source for these foundations is the contributions from central government budget. Therefore, the bulk of private transfers are mainly public transfers.Table 8 shows the average share of social contributions as the sum of public and private transfers in total household income for each class.

Table 8: The Average Share of Social Contributions in Total Household Income (%)

2002 2003 2004 2005 2006 2007 2008 2009 2010

Urban Propertied Classes 8.10 7.84 9.80 11.03 10.94 11.46 12.66 12.25 14.81


Rural Propertied Classes 6.35 11.51 13.05 14.23 21.34 16.90 19.27 36.15 27.90

Landed Subsistence Peasants 34.37 30.61 34.89 35.93 45.11 44.97 47.50 31.74 44.35

Urban Laborers 17.43 17.35 18.95 20.21 18.85 18.31 17.83 18.45 17.72


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Rural Laborers 26.51 37.18 31.42 39.57 38.05 36.81 41.14 49.14 40.74

Total 17.55 19.99 21.20 23.04 22.30 22.21 22.47 21.33 22.46

Except for the urban laborers, the share of social contributions increased for all the classes. The rate of increase for the rural classes is remarkably high. The share for urban laborers seems to be stabilized around 17 % throughout the whole period. Since the population and income shares of urban laborers increased along with each other, we should infer that the social contributions to urban laborers increased to the same extent. These figures do not give any insight about the intra-class distribution of social contributions. For this purpose we should look at the results of decomposition in eq. (7). Figure 3 displays the contribution of each income source to the change in within component (and also to the change in overall Gini).

Figure 3: The Contribution of Different Incomes to the Change in Income Distribution

As Figure 3 indicates, the contribution of each income source is much higher in the crisis and post crisis years (2003, 2004 and 2009). All income sources show significant fluctuations around zero. For 2003 and 2004, only asset incomes had an equalizing effect. In 2009, factor and asset incomes had a deteriorating effect while public transfers seem to improve the intra-class income distribution. The figure implies that the whole period can be divided into three sub-periods: 2003-2004, 2005-2008 and 2009-2010. Table 8 gives the contribution of each income source to intra-class Ginis.

For the sub-period 2003-2004, the highest absolute contribution came from asset income and this contribution had an equalizing effect. For this sub-period, the other income sources generally tended to increase intra-class Ginis. The highest absolute contribution of the distribution of asset incomes to intra-class Ginis was of urban laborers with the value of -8.6.

‐10,00

‐8,00

‐6,00

‐4,00

‐2,00

0,00

2,00

4,00

6,00

2003 2004 2005 2006 2007 2008 2009 2010

Factor Income Asset Income Public Transfer Private Transfer Total


23

This is very far ahead of other values in the table. However, this was the result of collapse of the values of assets owned by labourer classes. On the other hand, in total, factor incomes had a deteriorating effect for all the sub-periods. Public transfers seem to have an equalizing effect upon intra-class Ginis after 2005. Especially for the years 2009 and 2010 in which the contagion effects of the global crisis were felt to an utmost degree, it seems that government used public transfers aggressively to dampen the effects of crisis. Private transfers had an equalizing effect in the sub–periods 2005-2008 and 2009-2010. In the former sub-period, its highest contribution (-3.52) was to the intra-class Gini of urban laborers. Private transfers also contributed to change in the intra-class Gini of not working/retiree households to a great extent. The last two facts are the symptoms of the emergence of a new welfare regime which operates in a selective and discretionary mode.

Moreover, the contribution of factor income is positive for both the whole period and the sub-periods. This is mainly true for urban labourers. It seems that the new laborers which were lucky to find jobs were hired at very low wages. Secondly, as the statistics about labor markets show, the share of laborers earning less than the minimum wage had a tendency to increase. In addition to these, the informalization of urban labor power and the multi-layered segmentation of the labor markets rose to unprecedented level.

As Table 9 indicates, the combined contribution of factor and asset incomes (market-related incomes) and that of public and private transfers (politics-related) had the opposite signs always. For the sub-period 2003-2004 the first had a negative while the second had a positive sign. For the remaining two sub-periods the market-related component tended to increase while the politics related component had a depressing effect upon the inequality in income distribution. These pinpoint to the fact that market-related and politics-related components have changed in countercyclical directions. In order to clarify this, we should also look at the correlations among the contributions of each income source. Table 10 gives the correlation coefficients of the contributions of each income source to intra-class Gini.


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Table 9: The Period-Sum Effects of Income Sources upon Intra-Class Ginis, 2003-2010

Factor Income Asset Income Public Transfers Private Transfers

2003-4 2005-8 2009-10 2003-4 2005-8 2009-10 2003-4 2005-8 2009-10 2003-4 2005-8 2009-10

Urban Propertied Classes 1.07 -1.44 1.05 -2.09 0.14 0.05 0.07 0.09 -0.09 0.04 -0.01 -0.01

Petite Bourgeoisie 0.14 0.2 -0.05 -0.64 0.07 0 0.15 -0.09 0 0.01 0.04 -0.01

Rural Propertied Classes -0.04 -0.34 -0.2 -0.07 0.04 0.08 0.19 0.22 0.04 -0.07 0.00 0.02 Landed Subsistence Peasants -0.15 -0.02 0.08 0.00 0.02 0.18 0.26 -0.08 -0.06 0.06 0.00 -0.21

Urban Laborers 1.67 2.55 1.72 -8.6 0.06 -0.43 1.21 -0.25 -0.89 3.55 -3.52 0.33

Rural Laborers -0.23 0.04 0.05 0.07 0.04 -0.06 0.25 -0.13 0.05 -0.05 0.05 -0.03

Not Working/Retiree 0.03 0.05 -0.02 -4.07 -0.03 1.68 1.63 -0.03 -0.78 0.89 -0.33 -0.28

Total 2.48 1.05 2.61 -15.41 0.35 1.49 3.76 -0.26 -1.73 4.42 -3.77 -0.18


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Table 10: The Correlation Coefficients of the Contributions of Income Sources to Intra-Class Ginis

F‐A F‐PTr A‐PTr PTr‐PrivTr F‐PrivTr A‐PrivTr

Urban Propertied Classes ‐0.494 ‐0.014 ‐0.208 ‐0.673** 0.223 ‐0.013

Petite Bourgeoisie ‐0.448 ‐0.186 ‐0.477 0.237 0.564*** ‐0.257

Rural Propertied Classes ‐0.513 ‐0.869* 0.027 ‐0.577** 0.426 0.203

Landed Subsistence Peasants ‐0.826* ‐0.981* 0.749* 0.842* ‐0.855* 0.539

Urban Laborers 0.118 ‐0.545*** ‐0.674** 0.475 ‐0.434 ‐0.773*

Rural Laborers ‐0.471 ‐0.666** 0.095 ‐0.044 ‐0.300 ‐0.480

Not Working/Retiree ‐0.146 0.045 ‐0.936* 0.173 ‐0.423 ‐0.401 Note F: Factor Income A: Asset Income PTr: Public Transfer PrivTr: Private Transfer

*: Significant at 1% **: Significant at 5% ***: Significant at 10%

According to Table 9, not all the correlation coefficients are significant. For urban laborers, the contribution of public transfers is significantly and negatively correlated to the contributions of factor and asset incomes. The contribution of public transfers is used mostly as a countercyclical tool against the deteriorating contributions of factor and asset incomes. We think that this discloses the gist of neoliberal economic policies towards social welfare. Correlation of public transfers has also a significant negative correlation with the contribution of factor and asset incomes of rural laborers, rural propertied classes and landed subsistence peasants. Indeed the level of correlation is very high for the three classes. As indicated earlier, many peasants have given up agricultural activities (and hence have stopped earning factor income) and begun to benefit from the income support payments made according to acreage of the land owned. Since, the land ownership structure in Turkey has been manly dominated by small land holdings, income support has been distributed accidentally in a very egalitarian manner. However, most of the peasants have continued to engage in agricultural activities while benefiting from income support scheme. The high and significant negative relationship between the contributions of public transfers and factor incomes is mainly due to the heterogeneous reactions to the income support scheme.

Conclusion

Even though having peculiarities, the story of mature neoliberalism in Turkey exhibits common features with the most of the other neoliberal experiences. The observed differences, in some sense, do not pertain to qualitative characteristics, rather they are scalar variations. The quantifiable differences may also be ascribed both to the intensity and extension of “reforms”, strength of opposition and the compensating steps taken by governments against the excesses of neoliberalism. Balance sheet of the outcomes could be best understood from the alterations in class structure and income distribution between and within classes. The basic aim of this study is to provide a detailed balance sheet of mature neoliberalism in Turkey.

Some authors (Harvey, 2005; De Angelis, 2001) indicate that the neoliberal policies have provided the environment for the immanent and continuous primitive accumulation tendency of capitalism. As a fact, the tendency of primitive accumulation has a dual aim; first to


26

enlarge the size of labouring classes and reserve labor army for the sake of making labour power plentiful at a very low wage, and second, to enlarge the circuit of capital to incorporate the former commons or public assets. In this respect, our analysis provides clear and significant evidence supporting this argument. The apparent dissolution of peasantry, decrease in the petite bourgeoisie households and more importantly the decrease in the number of unpaid family laborers have resulted in the expansion of urban and rural labourer classes. This has a profound impact also upon the income distribution among classes. Especially, the income share of urban laborers increased throughout the period at the expense of the income shares of other classes in working population. However, the decrease in the income share of urban propertied classes should be treated cautiously due to two reasons. These are also the constraints of our study originating from the data limitations of the data set we used. First, as indicated, the data set does not cover the undistributed profits of the firms. Second, it is very unlikely that the data set covers data about oligarchic households from top 1 % or 0.1 % income brackets. These limitations definitely bring about an underestimation of the income share of the urban propertied classes.

The change in social class-based income distribution has two components; between class and within class components. The merit of social class-based income distribution analysis over functional income distribution analysis is the opportunity of incorporating an analysis focusing on the latter as well as the former. The enlargement of the size of labourer classes and diminution of the peasantry inescapably causes a change in within class income distributions. Our analysis shows that the change in Gini coefficient between 2002 and 2010 was manly determined by the change in within class income distribution. The share of the contribution of the between component does not exceed 20 %. The most affected classes, peasantry and petite bourgeoisie, have lost their most vulnerable members first. These ruptures have generated flows into the lowest strata of urban and rural laborers; indeed many of them have become ordinary members of reserve labor army.

This mobility and dissolution calls forth a long lasting debate about traditional middle classes; especially peasantry. With the advance of capitalism, the Kautsky/Lenin line anticipates the dissolution of petty commodity production with all its modes of existence, especially including peasantry (Kautsky, 1988; Lenin, 1977). This line of thought defines a path of dissolution with differentiation of peasantry which dictates the most vulnerable segments of peasantry to become wage labourer. In opposition to this view, a coalition by Narodniks, especially Chayanov, later Dependistas and various authors in Neo-Marxist current, emphasize the viability and durability of peasantry in particular, petty commodity production in general especially in underdeveloped capitalism. The rapid dissolution of peasantry in Turkey seems to provide an upper hand for the orthodox Marxist view. Especially, Lenin’s and Kautsky’s expectations have been nearly realized (Lenin, 1977: pp. 27). They indicate that the presence and vitality of small peasantry is a result of reduction of the needs even below the level of needs of labourer and intensive exploitation of household labor. In our case, the most depleted strata of peasantry between 2002 and 2010 was large peasants, followed by peasants. The decrease in the number and share of landed subsistence peasants was low compared to these classes. In addition to this, the number of landless subsistence


27

peasants increased. The last two classes seem to be able to exert some resistance, but not without the aid of state’s new welfare regime.

This new welfare regime has been arising upon new principles like selective coverage, informal transfer mechanism, discretion, private initiative and irregularity. These principles are direct contradiction to the principles of former state-centric and state-funded welfare system like regularity, constitutionally guaranteed non-selective transfer mechanism, full coverage objective and rule based distribution. The new welfare regime provides a very crucial tool for the redistributive politics.

The new welfare regime is crucial for neoliberalism in the sense that the social extended reproduction of labor is of vital importance for the system as a whole. Even though neoliberal economic policies have been eroding the former welfare system by marketizing every protective belt, the presence of an industrial reserve army should be sustained with a new welfare regime. This regime also serves another purpose; through informal transfers, new welfare regime not only supports the extended reproduction of labor power, but it prevents the total demand to full below an emergency level. This turns into a correction mechanism for the deteriorating income distribution among and within labouring classes. Our analysis shows that there is a significant negative correlation between the contribution of factor incomes and that of public transfers to the change in intra-class Gini.15 It seems that governments under neoliberalism, despite promoting the retreat of the state, are forced to devise new schemes and they could not leave the reproduction of labour power (as a fictitious commodity in Polanyian terms) on its own against the pillage of capital which has been aggravated by neoliberalism. Therefore, we are living in a world in which Marxian tendency and Polanyian drift have been simultaneously materialized. This is the essence and paradox of neoliberalism.

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Appendix I

The Household Budget Survey (HBS) covers three sub-surveys covering individual, household and consumption data. At the individual level, the data about personal characteristics, employment status and earning is provided. On the other hand, at the household level survey gives data about the wealth of the household. Finally consumption survey gives data about monthly consumption of a household. As Table I.1. shows, except for the survey of 2003, generally data sets cover about 9 thousand households and 30-40 thousands individuals. The Turkish Statistical Institute also provides the factor weight of each household which indicates the number of households represented. Using these factor weights, one can map the results obtained for the country level.

Table I.1: The Coverage of the HBS’s

Year Number of Individuals Number of Households

2002 40675 9555

2003 107614 25764

2004 35388 8544

2005 35498 8559

2006 34939 8558


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2007 34611 8548

2008 33287 8549

2009 38453 10046

2010 38206 10082

Firstly, as depicted in Figure A.1, the class positions of individuals are determined with the aid of the answers to the questions concerning the status in the production relations. In this process, initially, the individuals out of working population are identified. Then remnants are divided into two broad categories; working and non-working. Non-working population are decomposed into unemployed, retirees and rentiers. The identification of class status of individuals in the working population proceeds over the distinct employment statuses. Firstly, individuals having waged and casual employment status are categorized into sub-classes of the working class. Then self employed individuals are classified. Finally, entrepreneurs are classified as capitalist. After the identification of class status of individuals, the class status of each household is determined as shown in Figure A.2. In this step, firstly, we look for the households having any capitalist individual. If so, it is defined as a capitalist household. Then, for the remaining, the households having at least one urban professional are marked and classified as urban professional household. The process goes on in this manner till the number of remaining unidentified households is zero. The path followed can easily be observed in Figure 1. It starts with the highest echelon of Zone I and passes on to the Zone V and then to Zone III. The following sequence is as follows: Zone II, Zone VI and Zone IV. This sequencing proves that the direction of prioritization is as follows: Urban Capital/Property - Urban Labor - Rural Capital/Property - Rural Labor.


33

Figure A.1: The Derivation of the Class Status of Individuals


34

Figure A.2: The Derivation of Class Status of Households

No

Capitalist>0? YesCapitalist

Household

Urban Professional>0?

Yes

No

Small Enterprise Owner>0?

Yes

Small Enterprise Owner Household

Urban Professional Household

NoPetite

Bourgeois>0Yes

Petite Bourgeoisie Household

No

Private Management Labourer>0?

YesCapitalist

HouseholdNo

Peasant>0? YesPer capita agricultural income> per capita income of agricultural laborer?

Yes

(Land Owning) and (Per Acre

Productivity [PAP] >mean PAP)?

Yes

Large Peasant

(Not land owning) and (Per capita income> mean per capita agricultural

income of large peasansts)?

Yes

No

No

No

Peasant

Subsistence Peasants

Peasant

Land owning?

Yes

No

Landed Subsistence

Peasants

Landless Subsistence

Peasants

Qualified Labourer>0?

YesSkilled Labourer

Household

No

Labourer or Propertyless Labourer>0?

YesLaborer

Household Asset Income>0?Yes

Laborer Household

No Propertyless Laborer Household

NOAgricultural Laborer>0?

Ye

s

No Agricultural

Laborer Household

Unemployed>0?All the mebers out

of working population?

No

No

Size of the Enterprise>25?

Yes

No

Skilled Household Laborer

Yes

Not working households

Yes

Urban?

Urban Unemployed

Yes

Rural Unemployed

No

No

(Owning Asset) or (Earning Asset

Income)?

No

Yes Urban?

Yes No

Urban RentierRural Rentier


35

Appendix II: Supplementary Tables and Graphs

Table II.1: Individual Level Class Decomposition of Population 2002-2010

2002 2003 2004 2005 2006 2007 2008 2009 2010

Capitalist 1004 1205 1092 1027 1086 1043 1050 950 929

Small Enterprise Owner 937 724 896 905 932 792 976 1006 1017

Urban Professional 51 53 51 58 79 39 31 46 43

Rentier 66 38 41 23 21 6 2 13 4

Private Management Laborer 276 272 306 273 238 319 404 416 370

Petite Bourgoisie 1493 1437 1267 1346 1638 1161 1190 1454 1338

Laborer 7703 7592 7785 8322 9172 9713 10045 9755 10604

Qualified Laborer 1108 1163 1247 1335 1235 1259 1512 1428 1508

Non-Qualified Laborer 1215 1335 1635 1929 1706 2200 2225 2558 2576

Peasant 3930 2885 2949 3216 2822 2309 2287 3034 2592

Agricultural Laborer 782 422 778 687 737 508 593 557 608

Unpaid Family Laborer 5402 4660 4590 4908 3619 3229 2907 4046 3464

Unemployed 4315 4370 4507 4248 4043 3937 4439 4714 4540

Retiree 2719 3441 3554 3813 3793 4112 4325 3452 3560

Not Working 37391 39600 39576 39522 41484 38274 37736 37105 38191

Total 68393 69196 70274 71611 72606 68901 69724 70533 71343


36

Table II.1: Average Real Annual Household Incomes in 2003 Prices (TL)

2002 2003 2004 2005 2006 2007 2008 2009 2010 Urban Propertied Classes 19579 19880 20713 20075 19876 20494 22623 22985 22082

Petite Bourgeoisie 8146 9295 10201 10948 11129 12500 12458 10853 10760

Rural Propertied Classes 13809 9653 11346 10943 11738 11519 14271 7421 12248

Landed Subsistence Peasants 4825 4511 4729 6138 6195 6606 6085 9002 6640

Urban Labourers 9582 9063 10073 10970 11115 11535 11940 12115 12189

Rural Labourers 4459 3900 4356 4167 4961 4759 5060 4869 5348

Not Working/Retiree 7738 6885 7381 8031 7968 7665 8432 9050 8965

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