Erdoğan’s Turkey corp.

Erdoğan’s Turkey corp.

In a speech in the western province of Balıkesir on March 15, President Recep Tayyip Erdoğan made yet another controversial remark by stating that he wanted to run Turkey like a corporation.

Even loyal readers might think that as an economist, I would be pleased with this desire, but that could not be further from the truth. On the contrary, any sane economist would tell you that a country is not a company, as Nobel Prize winner Paul Krugman explained eloquently in a long article for the Harvard Business Review in 1996.

For one thing, as Krugman points out as well, even the largest companies are very small compared to countries. Koç, Turkey’s top conglomerate, has 85,000 employees, followed by Sabancı’s 60,000. According to December labor statistics released on March 16, 20.8 million people are employed in Turkey. And yet even this difference in size vastly understates the difference in complexity between Turkey’s largest conglomerates and the Turkish economy.

More important are the conceptual differences. Companies are mainly open systems, whereas even small, open economies (SOEs) are relatively closed systems. Even if Apple’s employees bought every single gadget it is producing, the world’s most valuable company would still be selling only a small fraction of what it produces to its own workers. But even SOEs, let alone large and closed countries like the U.S., sell most of their goods and services to themselves.

Krugman argues that businesspeople are used to open systems and therefore struggle with closed systems. He gives several examples where they have problems grasping basic economic concepts. For example, they tend to believe that you can export your way out of unemployment, or that countries receiving foreign direct investment will run trade surpluses. If you have taken a couple of economics classes, you’d know that both statements are false – unless you are one of Erdoğan’s economic advisers or writing for pro-government “newspaper” Sabah of course.

Or consider how a business executive would respond to a troubled company: She would cut wages and decrease costs. Tightening the belt has worked under specific circumstances for a troubled country as well, most notably in Turkey in the aftermath of the 2001 crisis. But if the problem stems from insufficient demand, decreasing wages and spending will only make the situation worse.

There are of course lessons that can be applied to running a country from running a corporation. Like a well-run company, a country should be governed with the principles of transparency and accountability. Shareholders, who make sure a public company follows these standards, are replaced by the separation of powers and voters in a country.

But what if the separation of powers is thrown down the drain so that the executive branch does not need to answer to anyone? They can then run the country as they wish. The decision-making process would be swift, as there would be no one to challenge their judgment, but that judgment would be incorrect, or worse illegal. The country would be run like an inefficient, small, family-owned company.

Such a company or country would not grow, but the patriarch or ruler would be able to say, “this is mine – and my sons’ – after I’m gone.” I think this is the type of corporation Erdoğan is aiming for.