Island in Turbulence Person of the Year Turkey's Elusive Middle East

Back in the days of Cleopatra and Caesar the Middle East fed much of the world, as wheat harvested by the Nile and Euphrates reached Persia, Italy and Spain. Since then, the region that lynchpins Europe, Africa and Asia became economically stagnant, with some of the world's highest rates of poverty, unemployment, and under-education.

Now, if it's up to Turkey's outspoken Prime Minister Recep Tayyip Erdogan, the Middle East's lost economic glory will be restored.

It took the rest of the world several years to detect, but by now the strategic reversal is clear: Nearly a century after its founder fixed its gaze westward, Turkey is looking east. Politically, this new strategy was hinted soon after Erdogan's election in spring '03, when Turkey refused to allow the invading US army passage to Iraq. Subsequent waltzing with Iran and Syria, disregarding Washington's demand to join sanctions against Tehran, and picking periodic bouts with Israel, added up to more than shots from the hip: There is a new diplomacy in Ankara, one that seeks an Islamic alternative to the European horizons the country has sought since the 1960s, only to be repeatedly rejected.

Economically, this means cultivating a Turkish commercial sphere in the Middle East, one where Erdogan would presumably play both de Gaulle and Adenauer, the French and German leaders who inspired the rise of what eventually became the EU. That is what lurks behind Ankara's announcement earlier this month, about the establishment of a free-trade zone with Syria, that borders Turkey, and with Lebanon and Jordan, that border Syria.

The new orientation naturally brings to mind Turkey's imperial past, and is generating talk of a 'neo-Ottoman' quest to peacefully return to the vast lands that were ruled from Istanbul for centuries before Ataturk (above), the founder of the secular and territorially shrunken Turkish republic, steered it westward. Notwithstanding concerns over the future of Ataturk's cultural legacy, an eastbound economic orientation is likely to prove elusive.

In terms of performance, Turkey's GDP alone – $620 billion – is about half the combined economies of the entire Arab world, and in terms of direct trade, the annual $30 billion in overall Turkish-Arab commerce is but a tenth of Turkey's overall foreign trade. Trade with Israel, by comparison, peaked two years ago at $3.3 billion, despite its population being hardly 3 percent of the Middle East's more than a quarter-billion Arabs.

Moreover, within the Arab world, the economies of Jordan, Syria and Lebanon are particularly weak, as they lack the mineral deposits with which most others in the region are endowed. Worse, Syria's, the largest of the three, is an introverted and centralized economy where only last week President Bashar Assad signed a protectionist decree designed to shield local industries from foreign competition.

Such an attitude is the very opposite of the mercantilist spirit that has made Turkey's economy shine for nearly a decade, registering average annual growth rates of more than 4 percent over the past eight years, the fruit of some resolute privatization, deregulation and fiscal discipline. Turkish Foreign Minister Ahmet Davutoglu's statement the other week, "we want a vehicle to leave Turkey and be able to reach Morocco without stopping at any border gates," is a natural extension of his government's economic dynamism. Unfortunately, this regionalist outlook is not shared by most of Davutoglu's Arab peers.

Ironically, Turkey's quest for a Middle Eastern economic union was already formulated and energetically promoted – by Israel, of all countries. The vision, dubbed by its prophet Shimon Peres "the New Middle East," was based on the assumption that in a rapidly globalizing world Arab leaders will also allow free passage of goods, credit, people and ideas, and encourage trans-national ventures like a coastal highway along North Africa, fast trains between Syria and Egypt, a Middle Eastern bank of development, and the construction of rivieras, airports, canals and power stations that would transcend political borders.

Alas, the vision that was enthusiastically backed by Europe, America, Japan, China and Russia never became reality. It turned out that for most Middle Eastern leaders a borderless region that is roamed freely by millions of people and billions of dollars constituted a political threat, a thinking that remains dominant in most Arab corridors of power. That is why the Turkish-Arab free-trade-zone deal only cancels the need in visas; a real shedding of borders, namely a customs and passport union of the sort West Europe introduced decades ago, is to Bashar Assad what a gay parade is to Mahmoud Ahmedinejad.

Yet Turkey's regionalist vision is for now a nonstarter not because of those it has already nominally hinged, but because of those it has altogether failed to enlist.

To do anything big vis-à-vis the Middle East one must start in Cairo – where the Arab world's political center of gravity lies – and then proceed to Riyadh and Dubai, where its financial heart beats. Anything else is a nonstarter. Yet the Turks could not enlist Egypt and the Gulf states for their project, not only because they don't believe in Turkey's kind of regionalism, but also because they don't believe in Turkey itself, which they recall as yesteryear's foreign occupier and suspect as tomorrow's domineering investor. That is how they treated Israel's regionalist vision, and that is how they will treat Turkey's.

Meanwhile, even with Syria, Lebanon and Jordan – prospects for meaningful trade remain hollow because what these Arab countries would most like to export, namely the excess labor that Syria currently offloads to Lebanon, and Iraq sends to Jordan, the Turks can be counted on to refuse, as they already are burdened with nearly 15% unemployment. At the same time, Arab middle classes are mostly too small, and their available income too low, to add up to meaningful outlets for Turkish exports, which by now are 90% industrial and only 10% agricultural.

To be economically viable, an integrated Middle East would need to be in a position to buy en masse what is fast emerging as Turkey's dominant export: the automobile. Already selling to West Europe and Russia annually more than a million cars at nearly $23 billion (in '08), Turkey has an untapped market literally at its doorstep, where millions of Arabs have yet to buy their first car. Yet for that to happen, a broad Arab middle class must first emerge and prosper, and that will not happen before the leaders of the Arab world decide to make of it a goal, the way the governments of India, China, Brazil, and Turkey, too, did in recent decades. For now, whether by governmental omission or commission, Arab society remains largely pre-industrialized. While the emerging economic powers' industrialization happened largely thanks to multinational corporations, from Nike and Nestle to Benetton and Ford that put to work millions from Mexico to Vietnam, no society industrialized without its own leaders actually desiring, inspiring and leading that transition.

The Middle East will be no exception, as Turkey is about to learn.

(MarketWatch June 30)