Turkey’s Growth Performance: Making Stability Sustainable – Analysis

By Mustafa Kutlay

Turkey’s remarkable economic growth over the last decade has sparked new debates about the future of the country in the international political and economic system. From a comparative standpoint the most important issue is Turkey’s position relative to other countries and whether its present economic stability will be sustained or not.

The Turkish economy has achieved impressive progress over the last decade. Following the economic crisis of 2001, its financial system was restructured. Public finances were subjected to discipline, and big business began to pursue integrated policies in a way it had never done before. The volume of economic output and income per capita rose three fold and exports rose virtually four-fold. The natural outcome of these developments was that Turkey became the 17th largest economy in the world.

Parallel to Turkey growing economic success, the present Turkish government have made it their goal for Turkey to carry on with this performance so that it joins the ranks of the world’s top ten economies by 2023. Leaving to one side the question of whether this target is attainable or not, working out how to assess Turkey’s economic development performance has become an interesting question in its own right.

There are many economists who admire Turkey’s economic performance between 2002 and 2012 but it nevertheless leaves important challenges lying unanswered, such as for example just how far Turkey has been carried by this success inside the global system and what needs to be done to ensure that the present stability is maintained. Providing answers to these questions requires one view things in a comparative perspective that bring other countries in the photo frame too, rather than just within an essentialist approach which continually compares Turkey by itself.

Where does Turkey stand?

While a medium income Turkish citizen was five times poorer than a medium income American citizen in 1960, there has been no significant change in the intervening half century. This is because according to the data for 2010, a medium income Turkish citizen is still four times poorer than his US counterpart. South Korea on the other hand tells a complete success story. A medium income person in South Korea in 1960 was on average ten times poorer than his or her US counterpart. But by 2010, this had fallen to 1.7 times. Consequently it could be said that in the medium and long term perspective, South Korea was a country with a high development performance and had come rather close to the USA. Turkey had shown a definite improvement but comparatively speaking, it is still only a country that has managed to maintain its status.

In the last decade, Turkey has appeared to be stirring. For there has been a 4% improvement relative to the United States. But this improvement is not yet sufficient to suggest that Turkey is a strongly successful country. Furthermore if one looks at the situation in terms of income per capita, Turkey has reached the $10,500 band, but this implies that it now needs to follow creative growth policies in order to be able to reach the next level up, the important threshold level of $20,000 a year. Because Turkey is now approaching what is called in the literature the “medium level income trap.”

Overcoming the medium income level trap: the importance of institutions

All that was needed over the last decade for Turkey to lift its per capita income from the level of $3,500 to $10,500 a year was for it to rationalize the use of the resources it possessed, guarantee political stability, and ensure that it was backed by the winds of globalization which drive the world economy. There was not very much need to create a success story either by innovation or by trying what has previous not been attempted. But, when one starts to approach the middle income level trap, as Acemoğlu and Robinson put it, countries are obliged to rationalise and democratise their institutional structures and making them more inclusive in the way they operate in the fields of education, justice, infrastructure, and health. In order to join the ranks of those developed countries which have moved out of lower income levels, they have to demonstrate exceptional success and creativity. The most effective way of ensuring that stability is sustained, indeed perhaps the only way, is for institutional structures to be designed along the lines necessary to do that.

The greatest challenge for Turkey emerges from exactly that point. Because as far as the quality level of its institutions goes, Turkey does not have a record of great success. The United Nations Human Development Index is the most comprehensive indicator of development and on it, Turkey comes 88th out of 187 countries, and what is more, this position has not altered significantly since 1990. Similarly Turkey does not come in the top 50 in the other main indices which measure the quality of institutions directly or indirectly. All the data indicate that in order to avoid being caught in the ‘medium level income trap’ Turkey will have to transform its institutions and that therefore it must invest in sectors like education, infrastructure, health, and in particular in ones which emphasize innovation.

To conclude: it is obvious that as far as the essentialist view is concerned, Turkey has achieved rather a good trend as far as its recent growth performance is concerned. But when we examine the subject not just in terms of economic growth, but a much broader concept of economic development, it can be seen that Turkey still has a long way to go in the fields of institutional change and technological innovation. Because when its position is analysed in order to improve its relative position in the international system, Turkey has to boost its capacity not just as an essentialist power but within a comparative perspective . Otherwise it will be impossible to determine how much of its current economic performance is due to globalisation processes, and how much to Turkey’s exceptional success. Beyond that, if the transformation described here does not happen, then it will become steadily harder to ensure that they present stability continues.

Mustafa Kutlay
USAK Center for EU Studies

This piece was translated by David Barchard from the original Turkish article by Mustafa Kutlay, published in Analist Journal on September 2012.