Turkey’s eroding industrial base shows bad polic
Whenever I am asked to comment on the last 10 years in Turkey, I find myself reaching for the opening lines of “A Tale of Two Cities:” “It was the best of times, it was the worst of times.” Like the Dickensian atmosphere of revolutionary Paris of 1789, Turkey has continued its transformation process over the past decade. Ten years ago, budget deficits and the outstanding government debt were the major issues. Not anymore. Now the rule of the ballot box is stronger. We are talking about things that we could not talk about 10 years ago. As is the case in every transformation, the country stayed divided on every conceivable issue. The freedom of the press has quietly suffered as self-censorship rose. Economically, the industrial base eroded in this timeframe, entrenching Turkey in the middle income trap.
According to World Bank figures, there were about 101 middle income countries in 1960. Only 13 rose to high income status by 2008, namely Equatorial Guinea, Greece, Hong Kong, Ireland, Israel, Japan, Mauritius, Portugal, Puerto Rico, South Korea, Spain, Singapore, Taiwan. Four of them rose on the wings of the great European Project. Turkey, notably, is not among them. We could not properly use the transformative power of Europe in the last forty years. We tried in the past decade, but without encouragement from EU capitals, our political elite, like any adolescent, has lost its appetite for success. So Turkey made itself comfortable in the middle.
Turkey has also been losing out on its industrial base. Between 2000 and 2010, our manufacturing industry’s share of value added in GDP has declined about 5 percentage points, while that of Korea has increased a further 2.3 percent. That is a bad sign. The share of manufacturing value added is around 30 percent in Korea, while it is 17.7 percent in Turkey. In the last 10 years, the total growth in high middle income countries is around 80 percent on average, 20 percent of which is due to the manufacturing industry. Turkey’s total growth over the same timeframe is around 46 percent, 6 percent of which comes from manufacturing. That should give you some pause. You simply cannot move out of middle income status without producing things. Just ask the Koreans or the Taiwanese.
Turkey seems to be stuck between China and Europe. With Asian workshops like China and Vietnam around, Turkey has no room to sustain its current mid-tech, labor intensive exports. Quality is more important than ever. Without major structural reforms and investment in education, however, the country cannot become an innovative hi-tech and knowledge-intensive economy. Innovation and entrepreneurship will never flourish without path-changing reforms in taxation, education and the justice system. So far, the manufacturing industry has transformed Turkey, both socially and politically. It would be bad policy to let that go now. Deindustrialization is the surest way to stuck Turkey in the middle. Once you are stuck, it is hard to get going again.