Policy reforms in Turkey and Iran
Today there are two types of countries in our region, the Middle East and North Africa. Within these two categories there are countries that are functioning market economies and those that aren’t. The first category is rather lonely: only Turkey and Israel have functioning market economies in our neighborhood.
In the other countries, you need to get on well with the political elites to gain access to markets. If political relations are down, the best products and services at the best prices won’t be enough to get access. This has significant consequences. If your economy is sputtering while the world around you keeps going, public discontent will sooner or later erupt into protest. I see the election of President Rouhani as the start of a process of pragmatic transformation in Iran to alleviate the political consequences of public discontent. In a country like Iran, after all, these things happen only when those in power let them happen.
Global trends hit the region around the same time, but affect countries in different ways. Turkey was not a functioning market economy in the 1970s. It was at this time when the Cold War started to thaw a bit, and the movement of people and ideas became easier. In 1979, Iran overthrew its shah in popular uprisings, creating an environment in which the Islamic revolution could take hold. Turkey responded to the winds of change by instituting groundbreaking policy reforms starting in 1980, opening up the country for business. Egypt, as the other serious state in the region, could not do it, and its system ossified over time.
The results show two things: First, taking the path of change is definitely better than not changing at all. Egypt’s per capita GDP is practically flat. No wonder its people rose up in protest.
Second, putting economic transformation over political reform appears to be better for welfare. Turkey opened up economically while Iran clammed up in the 1980s. Opening up transformed Turkey from a sleepy agrarian country to a mid-tech industrial country. Iran has had to focus on political transformation and a nasty war against Iraq, and is now far behind in GDP per capita. It still suffers from significant public discontent.
The election of President Rouhani was Iran’s return from self-imposed exile. The Iran deal is the natural result of this, and it will in due course lift sanctions and allow Iran’s people to engage directly with the global community. That is progress. Now we need to enter into the second phase of this pragmatic transformation in Iran. It is now time to start policy reforms.
This means that Iran must stop focusing on the order of the universe, the international system and become a country among countries. It must humble itself to focus on the immediate needs of the more than 77 million mere mortals living within its borders. For that, the Turkish experience will surely be useful.