Reflections on Turkey's Economy

Economic Power

Dear friends, economic power is the main determinant of the power of societies in every field. What determines the economic strength of a nation? Among the answers to this question, the subject that economists can agree on is production. However, production is not an element that can be increased in a short time. Labor, capital, natural resources and entrepreneurial factors must be organized at the appropriate time and in the appropriate amount. The concept we call labor includes not only physical labor but also mental labor that makes production possible. If the importance of knowledge in production cannot be grasped sufficiently, the production activity cannot go beyond repetition or imitation. This type of production also does little more than bring prosperity to societies, but rather make them a link in the agreed chain of the global division of labor. Today, almost all of the nations living in wealth (not dependent on any natural resource) are societies that have succeeded in producing knowledge.

The driving force of producing scientific knowledge is philosophy. From this perspective, for example, the foundations of today's wealth of Germany 17-19. It would not be wrong to look for it in the German philosophy of the centuries. This critical period is also a period when the industrial revolution took place and production began to be made on a mass scale. Societies that can produce knowledge in this period are those that have been successful enough to know how to get up from where they fell, even if they stumble or fall from time to time. It is possible to look for the reasons why the Turkish nation, which has an imperial past, was late in this process, in their departure from philosophy and scientific knowledge. We can think that the factor that determines the opening or closing of the welfare gap between nations is determined by the position of the nation in the knowledge production process.

Is It Possible to Close the Welfare Gap Between Nations?

In the sources written on imperialism, there are opinions that reveal the phenomenon of underdevelopment as one of the results of the global division of labor.

However, there are also success stories of societies that have managed to get out of the cycle. However, a real success story can be written by societies that have succeeded in producing scientific knowledge. The fact that South Korea, whose per capita income was lower than Turkey's in the early 1980s (1), has approximately four times the income of Turkey in 2021 (2) is mostly seen as the success of the education system.

South Korea ranks sixth or seventh in "PISA tests measuring mathematics, science and reading comprehension skills of students from OECD member countries", where Turkey is far behind (3).

If it is necessary to answer directly, it is always possible to close the gap, but for this, public policy processes, especially for administrative public services such as education, health and security, must be maintained in the light of scientific knowledge. In other words, it is necessary to be a society that can produce knowledge, that is, to be independent. Of course, it is necessary to emphasize the responsibility of political power here. While talking about the effect of institutions on political power in developed countries, having to talk about the effect of political power on institutions in underdeveloped countries cannot be explained by coincidence. Educational policies, which will affect the profile and production of a country's trained manpower for many years, should not be created by a decision made by a person at the desk. Otherwise, the picture that will emerge when the outputs of education are compared with other countries is inevitably clear. As the welfare gap between nations widens, it is inevitable that the dimensions of the risks to be exposed will increase. In other words, it is becoming more and more difficult to get rid of the clamp of underdevelopment.

Public Policy Preferences and the Economy

I mentioned in my previous article that there is an alternative cost as a result of public policy processes in which political powers play a decisive role (4).

The most important consequence of poor management is an increase in alternative costs. Wrong policy choices lengthen the do's and don'ts, and alternative costs increase. This increase also means the accumulation of public problems. For example, the country's unsuccessful performance in the PISA tests requires the initiation of a public policy process towards this public problem, while ignoring the problem and transferring public resources to non-priority projects or areas creates an alternative cost in the field of education. Over time, trained labor becomes an alternative cost if the problem continues to be ignored. The increase in the capacity to produce information also appears as an alternative cost. It does not seem possible to produce a production that can increase the welfare of the society without producing knowledge.

What the political power primarily considers as a public problem is the main factor shaping public policy choices. If it is claimed that the courses to be opened by the Presidency of Religious Affairs are the priority of the society, the public resources to be allocated to be successful in such matters as educated manpower, capacity to produce knowledge, and high value-added production that will increase welfare are often insufficient. Political discourse, on the other hand, is nothing but an effort to legitimize the wreckage of failure in such cases.

Could the Deterioration in Economic Indicators Be a Conscious Choice?

From the point of view of public policy choices, there are enough justifications to think so. For example, looking at who and what the stubbornly lowering of the policy rate can provide may help us to understand that a religion-based policy choice, which would constitute a crime in terms of Article 24 of the Constitution, actually means nothing more than political discourse. Because it is possible to collect what happened with this policy choice under the following headings;

1. Public banks transfer resources to certain segments with interest rates that are not compatible with the realities of the economy and cause duty losses. This duty loss is the harm of the public.

2. Contractors who support the policy can convert their remaining housing stock into money at high prices.

3. With the 14% funding provided by the Central Bank, banks are able to obtain high interest income on higher-interest bonds. In this period, there was a very high increase in bank profits.

4. The Central Bank has completely lost its effectiveness and has become unable to use the tools that can intervene in the instability in exchange rates. The KKM (Currency Protected Deposit) tool, created to control the exchange rate, means transferring public resources to those who have money. (When we say public funds, we need to understand the taxes we all pay.)

5. The country's bankruptcy risk premium (CDS) has reached unprecedented values. The five-year CDS continues to hover above 800 as 803 (5). The country's debt-based interest burden continues to increase indirectly.

6. In order to restore the deteriorated budget balances, tax rates in many products have reached unbearable levels for wage earners. It is possible to evaluate the fuel price hikes in this respect.

Conclusion

Even in this whole picture, the fact that it is directed to policy preferences based on different reasons, not scientific ones, can create a belief that these are a conscious choice. However, at the moment we do not have enough data on the real purpose of this conscious policy choice, and perhaps we will see and learn about it in the years to come. However, the negative effects of this choice on the welfare of the society make itself felt more intensely in the near term. At the end of this unsustainable process, there will definitely be a return to scientific economic management, but the compensation of the losses incurred carries the risk of reaching a dimension that may take many years.

The biggest risk for Turkey in the current situation is that the deterioration in economic indicators is not seen as a public problem by the political power. This disrupts the functioning of the public policy process and creates an inertia that can have fatal consequences. The characteristic of crisis situations is that the situation and conditions change rapidly. Hoping for good things to happen without taking action against it is like euthanasia. However, euthanasia cannot be a policy choice for a country's government.

References:

(1) https://www.mahfiegilmez.com/2017/08/turkiye-ve-guney-kore-ekonomilerin.html

(2) https://t24.com.tr/yazarlar/tamer-yakut/guney-kore-mi-turkiye-mi-ayni-yolun-yolcusu-mu-

(3) A.k.

(4) https://strasam.org/ekonomi/mikroekonomi-ve-makroekonomi/ Ekonomi-sorunlar-ve-kamu-politikasi-906

(5) http://www.worldgovernmentbonds.com/cds-historical-data/turkey/5-years/