Turkey’s new economic program and its philosophy

  • 25 Eylül 2018 Salı

Turkey’s New Economic Program (NEP), formerly known as the Medium Term Program (MTP), was released last week. Market players are now trying to find their way according to the quantitative and numerical goals and expectations that economic circles are discussing. However, let us note that the NEP has a philosophy of its own and to emphasize that philosophy, the MTP was renamed. I think it is necessary to discuss this point and give due consideration to this name change.

The denomination of the NEP reminds me of the New Deal that the U.S. introduced after the Great Depression of 1929. I have been writing about this for a long time. The New Deal, true to its name, was a program of complete change and restructuring. In this sense, the New Deal aimed for a new economic system rather than renewal. So, it was a paradigm shift that prepared the U.S. for the post-World War II order and renewed the institutions in this perspective.

Undoubtedly, as required by the period, it was inevitable for the state to be the main regulator in the economy and create a new growth and coping strategy with state expenditures. However, this was not exactly the essence of the New Deal. The 1929 crisis had already invalidated the thesis that the self-operation of the market would grow the economy by excluding crisis dynamics. Here, the aim was to eliminate the monopolistic structures and Ponzi schemes that disturbed free competition, and to reinstate free competition by the state.

Within this framework, as of 1935, then-U.S. President Franklin D. Roosevelt’s Keynesian economic policies were practiced thanks to new laws and newly established institutions that were previously prepared. For instance, general planning laws were enacted to regulate financial and banking systems, and relevant regulatory institutions were established, in addition to supervisory laws and institutions that were founded to ensure competition, regulate labor markets and prevent unemployment.

Indeed, there was something paradoxical in this: On the one hand, the state provided employment by regulating the economy, while on the other, it smoothed the way for competition by struggling with monopolies. Therefore, it would not be appropriate to describe Keynes’ policy prescriptions for that period and Roosevelt’s New Deal policies as strictly statist policies. These policies made history as the multifaceted policies of renewal that were developed to overcome the crisis. Contrary to popular opinion, the New Deal period purified the system of criminal organizations, money launderers and ill-gotten gains. In this regard, it was not a statist, but a completely market-friendly period.

Well, does Turkey’s NEP consist of constructive and radical regulations and institutional restructuring like Roosevelt’s New Deal?

I will not mention the NEP’s numerical goals. It is a popular belief in the markets that goals and expectations are realistic. Of course, growth targets set in the NEP are small for Turkey. However, if NEP aims for new stabilization and then for a growth and development path centered on the new industrial revolution as alleged, 3.6 percent average growth rate for four years, including 2018, is acceptable and this average will be exceeded with lesser problems in terms of income distribution and employment.

Here, 2019 is the critical year. This year, it is being revealed that exports are the basis of growth. The contribution of net exports to growth is estimated to be around 1.5 percent this year, and this rate changes the basic axis of growth, taking it from the public sector and consumption and giving it to industrial exports.

What is important here is the continuation of this in 2020 and 2021 and the fact that the exporting industry, which creates employment, largely determines the growth performance of 3.5 and 5 percent in the following years. For this, we need to look at the detailed structuring of the financial sector that we cannot – naturally – see in the NEP, the restructuring process of the banking sector and which leading sectors will be highlighted.

However, we should not forget that this program is also a “stability” program that includes a stabilization process. In this context, the NEP puts forward a growth chart which can be considered much “better” than the Organization for Economic Co-operation and Development’s (OECD) growth forecasts for Turkey. Also, it acknowledges a rapid recession process in the last two quarters of 2018 and the first two quarters of 2019. We can put up with it, but what is important is that “stabilization” should be used for production-oriented reforms that will push Turkey into a new development path just like the New Deal.

We need profound reforms that protect the exporting small and medium-sized enterprises and strengthen their global competitiveness and that highlight high value-added industry as the basic dynamic of the economy. In this sense, structures such as the credit insurance system that support industry and the industry-based retail sector should immediately come into force and the steps of capital market regulations to finance our efficiency-based companies should be immediately taken. Economic stabilization programs come to the fore also as a result of the obsolescence of existing capital and loss of productivity, and all stabilization programs demand sacrifice from the entire nation. Turkey will do it with the NEP, which should be an opportunity for renewal as well. If this happens, the sacrifice by the nation will turn into a gain for the nation. No one should doubt it.

What will complement the NEP is radical production-oriented reforms and perspective to protect the industry and small and medium-sized enterprises as well as the financial sector. In this regard, I wish that the NEP is not a renewal, but is an opportunity to move to a completely new one as its name suggests – which we see in the subtitles of the program. We can see initiatives that highlight competitive and high value-added sectors and bring institutional innovations to track targets.

Meanwhile, I attended a meeting President Recep Tayyip Erdoğan had last week with global U.S. companies operating in Turkey. These global companies, almost all of which are world giants, manage their investments and operations not only in Turkey but also in the region from their Turkey centers. The majority of these companies announced that their investments in Turkey and the region would continue unabated. No one is worried about a crisis. I hope that the NEP will be an important road map for these companies and that they will revise investment plans upward.