Billionaire Book Review: Turkish Economy at the Crossroad

Editors Note:

In this article, the Turkish Billionaire Murat Ulker gave his take on a book about the Turkish Economy, he recommends anyone who wants to do business in Turkey to read this book thoroughly.

In this enlightening book Turkish economists analyse the position in Turkey today. (*) 

So, I will try to summarize the book with various quotations from the introduction chapter. I am afraid this time you have really read this valuable book thoroughly if you have or intend to have any economic activity in Turkey. I heartfully thank the editors and contributors of this book.

Who are the Editors?

Professor Asaf Savas Akat, currently at Istanbul Bilgi University, is a well-known and highly respected Turkish economist, with a distinguished career in academia, media, business and public life. Seyfettin Gursel is a Professor of Economics at Bahcesehir University in Istanbul and the Founding Director of its Center for Economic and Social Research (BETAM) and advisor to Yildiz Holding.

A Relevant Book

The authors finalized the chapters of this book in December 2019, only months before the Covid-19 pandemic hit Turkey, along with the rest of the globe. By the time the book went into print in the summer of 2020, the world had become a radically different place compared to only a few months ago. Yet, from Turkey’s perspective, we believe that the themes and the analyses of the book remain just as relevant post-Covid, as they were pre-Covid. If anything, in fact, the pandemic has increased the urgency of the policy choices to be made in order to remedy the structural weaknesses and imbalances of the Turkish economy, and perhaps even to avoid another round of financial turmoil.”

Contributors; Sevket Pamuk, Daron Acemoglu, E.Murat Ucer, Izak Atiyas, Ozan Bakis, M.Ege Yazgan, Öner Guncavdı, Ayse Aylin Bayar, Gokce Uysal, Hande Paker, Selin Pelek, Cengiz Aktar, Atilla Yesilada

The Irreversible Choice

“Turkey seemed to have made an irreversible choice since the 1980s, by gradually adapting its institutions through a long series of reforms to the requirements of an open market economy with a high degree of integration into the global system coupled with a pluralistic political regime. Progress rarely happens on a smooth straight line. Turkey also faced many road accidents: macroeconomic imbalances, financial crises, political instability, internal strife, etc.

Nevertheless, the overall orientation of Turkish society never wavered. Turkey’s determination to reform was crowned in 1995 with a Customs Union agreement with the European Union (EU), thus inserting Turkey into the European single market. A decade later, in October 2005, the Justice and Development Party (AK Parti) and its incontestable leader Recep Tayyip Erdogan (now the President of Turkey), in power since November 2002, gave the final push to Turkey’s civilizational project by starting the formal accession negotiations with the EU for full membership. Unfortunately, it did not take long for little dark spots to spoil this rosy picture. Early signs, barely noticeable, appeared after the Global Financial Crisis of 2008; …

Erdogan was elected as the first president of the new regime in June 2018. Less than two months later, early August 2018, the Turkish Lira (TL) faced a massive sell-off in the global financial markets, shedding over 30% of its value in just a few days, the worst ever. It was a devastating shock to the economy. The steep fall in consumption and investment spending hit hard on domestic demand, imports, and the production of non-tradable activities. The limited increase in exports could not make up for the fall in demand; therefore, output fell for two consecutive quarters, the official definition of recession, and unemployment reached record levels…

At this point, a few words are warranted about the natural environment. Turkey’s vast landmass is not endowed generously in natural resources. Overall, we can confidently claim Turkey to be a resource-poor country. Anatolia is a high, mountainous, and arid plateau where fertile agricultural land is limited to coastal areas. Production barely meets domestic needs; the exportable agricultural surplus is negligible. Of higher significance, Turkey has no reserves of fossil fuels worth mentioning, a geological puzzle in terms of its location (eastern neighbors Iran, Iraq, Syria, Azerbaijan are major oil/gas producers). It also lacks large deposits of essential minerals for commercialization. This resource base has critical implications. First, Turkey did not have the sizable natural resource surpluses to finance the early phases of industrialization. Second, for resource-poor countries, economic growth and development necessitate, by definition, ever-larger trade deficits in primary commodities (energy, raw materials)…” 

Range of Topics

The first chapter, “Economic Policies, Institutional Change, and Economic Growth since 1980” examines the evolution of the new economic policies and institutions after 1980…

The second chapter, “High-Quality Versus Low-Quality Growth in Turkey: Causes and Consequences”, covers the relations between institutional development and the quality and sustainability of Turkey’s growth in the long run, within a comparative perspective…

The third chapter, “Productivity, Reallocation, and Structural Change: An Assessment” supports and complements the analysis of the second chapter, by further elaborating on the technical issues of measuring productivity…

The fourth chapter, “Financial Cycles of the Turkish Economy: How Will It End This Time?” focuses on a crucial aspect of the modern economies, namely the identification and analysis of the financial cycles in Turkey, especially in the last two decades…

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The fifth chapter, titled “Structural Transformation and Income Distribution in Turkey”, focuses on two critical challenges of Turkey’s economy, not covered in the previous chapters, namely the transformation of the economic structure and its impact on the distribution of income…

The sixth chapter, “Labor Market Challenges in Turkey”, completes the macroeconomic and structural analyses of the preceding chapters, by looking at Turkey’s labor market…

The seventh chapter, “European Union and Turkey: Why It Failed? What is Next?” is the compact and analytical history of Turkey’s difficult relations with the EU…

The eighth and final chapter, “Turkey’s Development Conundrum: Three Scenarios for the Next 10 Years” is a courageous effort to predict how Turkey will evolve in the next 10 years from a perspective of economic and societal development, in line with the major themes of this book…”

The problem in Turkey is not as simple as interest rates up or down a couple of percents. It may be having a negative interest rate. But mainly it is the independence of decision making of monetary institutions, which wipes away the trust of people.

In democracies, even 1/3 of votes can determine who is ruling. So, that is why the constitutional institutions and independent economic bodies such as Central Bank, Anti Trust etc. are established to maintain the sustainability of the system in the long term. I don’t even mention “checks and balances”.

Commonsense

Today the administrative system in Turkey must guarantee the people and economic actors, that the constitution and decision-making system is independent of mortals, but commonsense is in power. Otherwise, with our never-ending negotiations over the system and constitution, there will be no peace. I mean “no peace” leading people to hesitate to invest, to produce more, and export more for the welfare of the country.

But the offered solution for the crises in the system today assumes a fast reaction, six months, of people towards investing in the country to create more jobs and eventually export more, import less leading to a “no deficit” level. Six months is short but would be wise for testing and if no progress is seen, switching back to conventional methods for economics.

In near Turkish history, the seventies, during S. Demirel’s (rip) era, import substitution and investing for increasing domestic production in times of energy crises lead to hyperinflation. This true-life experience is proof for the effect of external and given global factors at any time.

So, with the ongoing pandemic, global supply chain crises, and worldwide inflation in prices, especially in energy, the global pressure on the Turkish Economy is not promising. For more exports into the EU and USA, Turkey is not having the best mood in diplomacy and the neighbors are in fire.

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