Turkey's dilemma

The economic dilemma we find ourselves in is as interesting in its history as it is a complete impasse for the country's future. The problem is not only difficult in terms of finding an immediate solution, but it also complicates long-term economic planning. When we frame Turkey's problems—primarily economic development—as finding permanent solutions to job creation and the current account deficit, it becomes clear that we are facing a complete deadlock in achieving both internal and external balance. Let us now delve deeper into the matter in this article.

First, we must address the issue of development as the primary subject among the problems we need to solve. When approaching the issue of development as a matter of investment, we face a dilemma: whether to move toward labor-intensive sectors or capital-intensive ones. On one hand, we seek to open up to the world to find a remedy for the current account deficit; on the other, we face the challenge of creating employment. While the former path might partially open us to the world and provide a remedy for the current account deficit, it fails to create a solution for internal balance, i.e., the employment problem. Conversely, if we turn to labor-intensive investment areas to provide employment, the share of high value-added products in exports will decrease, failing to produce a remedy for the current account problem. It is evident that the problems of the current account deficit and employment appear as mutually exclusive issues.

When we delve deeper into this dual dilemma, we encounter the consequences of the economy being managed not by economic rules, but by political logic. Since the founding of the Republic, although planning has been attempted several times—and even five-year plans have been drafted—almost none of these plans had a chance to be successfully implemented. Instead, the plans were set aside, and the country was managed according to political opportunism, which created today's economic and industrial infrastructure. As a result of this mentality, the first fundamental issue we inherited from the past is the inadequacy of the industrial-economic infrastructure.

This mentioned inadequacy presents itself as a dual problem: on one hand, as an input issue, and on the other, as the functioning of the industry itself. As we all know very clearly, significant items of most of our export products are imported. In other words, the export values reflected in statistics are not net, but gross values. In other words, when imported inputs are subtracted from export products, it is seen that net export values are insufficient to close the current account deficit. In fact, in many cases, it has been observed that the current account deficit decreased during periods when industrial production stopped or slowed down. The reason for this is that, for political reasons, the industrialization program did not give necessary weight to basic products and input products, but instead shifted to the manufacturing of final products that could be offered directly to the consumer for political purposes.

The second issue that breaks our back in industrial production is the low labor productivity at the production stage. In short, our industrial structure is not, on average, at an advanced level of productivity. Indeed, the fundamental reason for the inflation we are experiencing and cannot seem to bring down is the issue of the industrial structure and the average production backwardness that spreads from there to the entire economy. Beyond reasons such as social capital deficiency and insufficient savings, average labor backwardness also emerges as a serious problem in inflation. This is why the tight monetary policy and suppressive methods followed by the government partially suppress inflation but cannot prevent it. This is because the problem manifests itself more as supply-side inflation rather than demand-pull inflation. However, while the treatment of supply-side inflation requires a long-term, planned, and programmed approach, the treatment of demand-pull inflation can seemingly be controlled to some extent through tight monetary policy and immediate suppressive measures, allowing for the survival of daily politics.

So, why did we turn to such an industrial structure that is so far from productivity? The reason for this appears as a natural consequence of the political weaknesses of bourgeois states. When we look at countries like Japan, Malaysia, and South Korea, which implemented import-substitution/protectionist policies, we see a complete contrast between the implementation of these policies and our own. Specifically, the countries in question that applied import-substitution/protectionist policies did not go for absolute closure throughout the program; they opened developing production areas to foreign competition. Turkey, on the other hand, implemented total closure in line with the demands of the powerful capital structures of the period, creating a wealthy segment in terms of personal assets, while the productivity problem of the industrial structure was neglected. This structure could not get rid of the chronic current account deficit problem when the economy opened up, and the same problem continues today.

The final brushstroke we need to add to the picture in this short summary is the issue of the exchange rate. When the current account deficit remains high, the exchange rate rises, the cost of imported inputs for industry increases, labor is suppressed to keep the final price low, income distribution is severely distorted, and this cycle continues. As can be seen, political-economic mistakes buried in the past are narrowing the policy space of our present. If this is the issue, it would be wrong to say there is nothing to be done. From this picture, we must at least learn this: It is not possible for an economy moving from 85 million to 90 million people to find a long-term solution to its current account deficit or to move toward permanent economic development through a Medium-Term Program and financial exploitation. Such a large economy can only enter the path of development by preparing a long-term development plan and implementing it with perseverance.