Thursday, May 27, 2010

Presentation at the Turkey 2020 Conference

The transcript of my presentation at the Turkey 2020 conference, co-hosted by Turkey's Change Movement and the Foreign Policy Centre in Istanbul on 28 May.


I work at a political risk research and consulting company. We advise financial and corporate investors about the political and regulatory risks in our respective countries of coverage. Soon after joining the company, I realized that I would have to look at Turkey and its issues through the eyes of foreign investors. They do not want to know more than they think they need to know. So I appreciate this opportunity to look at Turkey not through foreign investors’ eyes, but through my own.

A couple of years ago there was discussion about whether Turkey would become more like Malaysia. To this question, Cem Yılmaz responded by asking whether Turkey would become the Netherlands. We should take this second question seriously.

Despite the improvements in macroeconomic stability and favorable global conditions, the economic growth rate started its downward trend in 2006. Moreover, the high growth rates experienced especially during the AKP’s first term in power were accompanied by high unemployment and a high current account deficit. The unemployment rate was high despite women’s low labour participation rate, and the millions of people (according to some estimates 9 million) working in the informal sector with no social security. Now it appears that we will eventually reach the same equilibrium with a higher unemployment rate as global liquidity improves.

A high current account deficit means that our exports are not competitive, and we need external funding to maintain growth. This is an unsustainable model, as capital inflows are often procyclical. In this regard, we share much in common with Southern European countries.

We need a more sustainable growth model, and we need to answer two questions to achieve that:

1) How can we increase domestic savings?

2) How can we produce better quality, more sophisticated products and services?

We should address the vicious circles in our economy. The first one has to do with the informal economy. Companies in the informal economy produce low value added products, they don’t earn much, and they don’t save and invest. They are also not regulated to ensure the safety of their work conditions and their products. Meanwhile, because the government does not collect taxes from the informal sector, the burden of taxes and social security contributions weigh on the formal sector. Instead of trying to broaden the tax base, tax investigators target the biggest taxpayers. Companies in Turkey have little incentive in operating and investing in the formal economy. Public finances also suffer, forcing the government to borrow extensively from domestic banks and limit public investment.

To move up the value chain, we also have to address our education system. The current system only breeds inequality. The majority of the public spending on education is concentrated on a minority of bright students. These students have a much greater chance of getting hired in the formal sector than all the rest. After receiving their university education in Turkey, many students choose to move and work abroad.

The period from 2002 to 2007 presented a good opportunity to tackle these structural problems, but the government did not take it. The prospects for meaningful reform for this year and 2011 do not look much brigter due to the electoral cycle – the referandum this year and general elections next year.

I would like to conclude my remarks with a final observation. The majority of economic research is produced by academics or by financial institutions. That’s why we see aggregates when we look at the research, we don’t see individuals. We lack a sense of imagination. We do not imagine what it feels like to be a woman who is forced to sit at home all day, taking care of the children or the elderly. We also do not imagine what it would be like to be a teenager, who is trapped in a second-class education. We might console ourselves by thinking that they did not have the potential to succeed anyway, or that they are in fact not that unhappy because they are not aware of what is out there and what they could accomplish. But we need people who can dream of being successful. We need to be able to dream of reaching the life standards in the Netherlands one day.

I really hope that social democracy in Turkey will be able to imagine. They will be able to imagine how difficult people’s lives are, and they will be able to imagine something better. Thank you.

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