As Turkey's economy booms, deep inequality persists
* Unemployment stubbornly high despite fast growth
* Poverty gap remains wide
* Women particularly vulnerable
* Policies mitigate impact, may not address root causes
* Disparity may become political challenge to government
By Seltem Iyigun
ISTANBUL, Nov 28 (Reuters) - Near the shores of the Bosphorus, a few minutes' drive from a bay of million-dollar homes and swaying yachts, Jimmy Choo and Prada vie for the affections of the Istanbul elite inside the glass rotunda of Istinye Park.
The sprawling shopping mall is an emblem of Turkey's economic boom, a success story that defies the commercial gloom across much of Europe.
But behind the complex, with its valet parking and chic boutiques, there's a slum housing rural Turks who have swarmed to this city of 14 million in search of jobs which, despite fast economic growth, are hard to come by.
The disparity is fuelling "alienation and disenfranchisement" in the poorest parts of the country, says Sinan Ulgen of the Istanbul-based Centre for Economic and Foreign Policy Studies. Inequality also deepens the fissures in society over issues such as Turkey's developing democracy, human rights and religion.
Through a decade of almost uninterrupted expansion, in which Turkey has established its economic and diplomatic clout as a Muslim democracy bridging Europe and the Middle East, the gap between rich and poor has barely budged.
In 2011, when Turkey had the fastest growing economy in Europe, enjoying an expansion of 8.5 percent, the richest 20 percent of Turkey's 74 million people accounted for almost half of national income. The poorest 20 percent had just 6 percent.
Turkey ranks third highest among 34 countries in the Organisation for Economic Cooperation and Development on a scale of income inequality. This is despite average annual economic growth of 3.5 percent between 2007 and 2011, driven by strong consumer demand and construction activity.
Analysts blame Turkey's inequality, in part, on a lopsided tax system that draws two-thirds of its revenue from indirect taxes such as an 18 percent sales tax on most goods and services, rather than direct levies such as income tax, which can be designed so that wealthier people pay higher rates. The sales tax itself seems distorted; the rate for clothing and caviar is 8 percent, and zero for some precious stones.
Other factors are the limited rights of trade unions, and barriers to women seeking work in a traditional Muslim society. Also, Turkey's unemployment rate remains stubbornly high at between 8 and 9 percent.
WOMEN MOST VULNERABLE
"The social state is missing in Turkey. The highest amount of taxes is collected from the middle and lower classes," said Turkish economist Mustafa Sonmez. He also cited draconian legislation limiting union activity that dates from a military coup in 1980.
"For the equal distribution of income you need strong labour unions, but this right has been scaled back since Sept. 12, 1980," Sonmez said. "Workers don't have a say in income distribution."
In October 2011, 16 percent of the population was classified as living below the poverty line, with an income of 3,120 lira ($1,745) per month for a family of four.
Women are particularly vulnerable in a society where many are not encouraged to work or seek higher education. Just 30 percent of Turkish women and slightly over 40 percent of Turks aged 15-24 are employed or actively looking for work.
"You really need to be qualified," said 23-year-old Umran Zeynep Yildiz, who graduated from a vocational lyceum five years ago but says she has given up on finding a job.
"For people like me, it has become very difficult to find a job since most people nowadays have university degrees."
Since she is no longer looking for work, Yildiz does not figure in the official unemployment statistics. Nor do 13 million housewives.
Critics say the government has largely focused on social programmes to mitigate the effects of unemployment and cut the costs to businesses of employing people in the worst-affected areas of the country, rather than tackling the root causes of inequality.
Early this year the government unveiled a national employment strategy, including vocational training programmes and incentives for businesses to hire more workers and provide training. In some cases the government provides money for wages and social security payments for six months.
While such programmes certainly help, they do not solve the problem of creating enough jobs in a young and fast-growing population, the critics say. Turkey's annual population growth averaged 1.3 percent between 2004 and 2010, according to the World Bank, compared to 0.3 percent for Europe and Central Asia.
Most jobs are created in the financial capital Istanbul, the administrative capital Ankara and other urban centres. Some rural areas are left behind, notably southeastern Turkey, where poverty is helping feed a decades-long insurgency by Kurdish militants of the Kurdistan Workers Party.
The government, led since 2002 by the Islamist-rooted AK Party, defends its record. It points to the fact that the unemployment rate is down from a peak of 14 percent in 2009, at the height of the global financial crisis.
"Turkey is the only country that reduced unemployment in the period after the global crisis, through incentives and legislation t o invest in the education of the labour force and the reduction of labour costs to employers," said Muammer Coskun, director of the Turkish Employment Service, an offshoot of the Ministry of Labour and Social Security which serves as an intermediary between employers and job seekers.
According to the ministry, the government has employed some 2,700 professionals as work advisors to match job seekers with companies looking to hire. The government says it is aiming for 5 percent unemployment by 2023.
Nevertheless, social inequality is striking under a ruling party which draws much of its support from the poorer, socially conservative Anatolian heartland. Since coming to power it has presided over the growth of a nouveau riche class, including tycoons and entrepreneurs with close links to the government.
For now, the AK Party may escape any serious political backlash from the inequality issue. It comfortably won the last parliamentary elections in June 2011; the poorest people are often religiously conservative and therefore unlikely to rebel against an Islamist-rooted government.
But critics say Turkey's inequality could become a political problem for the AK Party in future, if the government does not invest more in education, agriculture and labour-intensive industry to aid poorer regions, and encourage women to enter the workforce. Recent opinion polls suggest public support for the AK Party may have dropped below 50 percent.
"The strategic force of Turkey is its young labour force," said Faik Oztrak, in charge of economic policy at the main opposition Republican People's Party.
"If the hope of the young to reach the desired living standard gradually fades...Turkey may face serious social issues."