On Turkey’s new development path

  • 26 Ekim 2018 Cuma

German Economic Affairs and Energy Minister Peter Altmaier is visiting Turkey this week. The minister will be accompanied by the CEOs of Germany’s largest companies. Will the perception of industrialized countries such as Germany on Turkey change? Do Germany and the EU try to learn and assess Turkey’s new growth and development paradigm and its potential to implement it? Does President Recep Tayyip Erdoğan’s spurt for local and national economy a closed economic paradigm or, on the contrary, a fully open, liberal and competitive one? Let us seek answers to these questions.

The Turkish economy under the Justice and Development Party (AK Party) governments could be evaluated in three main periods. The first was the “Program for Transition to Strong Economy” (GEGP), which was introduced immediately after the 2001 crisis, and the steps taken in the following years. The second was Erdoğan’s termination of the 19th stand-by agreement with the International Monetary Fund (IMF) in 2008 and avoidance of signing the 20th standby agreement despite the insistence by big capital – which was followed by Turkey’s endeavor to achieve high growth and development pace starting in 2010 and 2011.

The third was Erdoğan’s move for a new production-oriented economy, which has been shaped by the paradigm of local and national economy during Erdoğan’s presidency as part of the presidential system. Obviously, this is a move for unique, fully open and competitive growth. And it has similar features with Germany’s economic growth and development path. This is because, just like in Germany, the economy is based on qualified small and medium-sized enterprises, intensive technology production and perfect competition. As such, Erdoğan’s move prioritizes strong integration and strong and perfect competition. While the emphasis on locality and nationality prioritizes unique development, it also aims to achieve it with an open and competitive economy. Thus, it brings forward external integration and high-tech-dominated economy. In this sense, economic integration with the EU is a crucial and strategic objective for Turkey. Turkey has never given up this objective.

As part of this perspective, Turkey is in favor of strong and sustainable growth – the main dynamic of which is a fully open and competitive economy. Today, however, Turkey and other developing countries need to open their traditional growth and development models up for discussion. Under Erdoğan’s administration, Turkey has started to move away from the orthodox understanding of growth in practical terms as well as of 2010 and 2011.

Here, I would like to note that, as of 2012, the circles that considered Turkey’s growth above the global average to be “dangerous” insistently strove to undermine the strong a high-paced growth that Turkey achieved in 2010 and 2011. Unfortunately, they succeeded.

This leads us the point of such an important distinction and debate. More or less, the main argument of those who oppose to high growth in countries like Turkey is as follows: “It is quite problematic for a country with external deficit and savings-investments imbalance to grow based on external sources. Moreover, the use of plenty of cheap external sources will highlight import-based sectors and places the economy on the spiral of debt, external deficit and inflation.” The main cyclical mainstay of this argument is that, especially in the years that followed the U.S. crisis, the U.S. created a new spiral of debt in the world based on plenty of cheap dollars as a result of the Federal Reserve’s monetary expansion, leading to rapid borrowing in developing countries and resulting in a new crisis dynamic for these countries. This is exactly the tip of the iceberg. This would be the case when everything is stable or is assumed to remain stable forever.

This is also the case for neo-classical growth theory, which determines monetary and fiscal policies that dominate the mainstream economy. First of all, this paradigm considers the political and economic hierarchy in the world to be data and unchanging. Here, the main element of growth is capital accumulation which is something intrinsic. Per capita income, consumption and savings should be balanced. Rapid population growth and external technology transfer are disruptive elements for balance. The public sector does not play a role in this type of growth. The law of “decreasing yields” applies to this growth understanding. It is inevitable for the system to become increasingly old and inefficient. In this case, renewal will only be through external interventions. Meanwhile, for years, our State Planning Organization (SPO) made so-called “planning” through primitive and outdated models (see Harrod-Domar modeling) that exclude technological change dynamics. This is a sub-version of the above mentioned growth model which suggests that the economy should be on a knight-edge balance based on Keynesian saving-investment balance. This was a closed and statist economy. We must say that this understanding has been overcome under Erdoğan’s rule.

Now all these so-called growth theses have been destroyed. They had to give Paul Romer the Nobel Economics Prize as he is a serious critique of these theses, however his arguments did not qualitatively differ from them much and in a way renewed neo-classical growth theories. Romer acknowledged that technology can be an intrinsic element for the development of societies. Thus, technology is also an economic commodity that can be bought and sold, and once it has been produced, it will spread beyond limits and will be an element of a competitive market. As such, the small ones could be capable of developing technology as well as the big ones. On top of that, the fact that technology is the principal factor of growth and development along with human capital has completely destroyed the framework of monetary and fiscal policies imposed on developing countries so far. This is the case even if Romer does not want.

In other words, countries that accessed technology and reproduced it as an intrinsic factor started to prevent the technological rant of developed countries to a great extent. Pacific Asia was the pioneer here. Also, developing countries had the opportunity to get ahead of developed ones in control and leading industries, while developing countries with foreign trade deficit based on both natural resources and technology have come to have importance in the global system. Depending on all this, developing countries such as Turkey started devising politically and economically “independent” initiatives in their region. This is because the fact that technology is an element of global market in the defense industry (Romer) was an important dynamic here.

The growth paradigms that have been tailored in favor of colonialist-imperialist countries since the mercantilists have also begun to change. Furthermore, the Keynesian and liberal theories which were developed in response to each other imposed the same deadlock on developing countries together. Accordingly, developing economies will be able to grow and develop to the extent that they have borrowed or will borrow from developed countries or the dominant financial system and to the extent of their repayment capacity. Development is a direct debt payment capacity. The monetary and fiscal policy framework is shaped accordingly. If developing countries grow above the world average, this is a so-called disaster.

Turkey should now exit this vicious cycle as a dependent and strong country. To this end, we will soon carry out market-friendly and production-oriented reforms quickly. This is the starting point of markets and rational economy.

As I emphasized above, Turkey will support strong regional integration, with the EU taking the lead. With its strong growth and strong human capital, Turkey is the only way out for the EU today. Germany, albeit late, has understood this.