The issue of productivity and exchange rates: The case of Turkey and Japan

Japanese engineering schools were opened during the "Meiji Restoration" process in 1868, approximately one hundred years after the Imperial School of Naval Engineering (today's ITU, 1773) was established in the Ottoman era. This period initiated a radical transformation in Japan, not only in its political structure but also in its education and production systems. The time students spent in school increased, engineering education became institutionalized, and a nationwide understanding of "development through science" emerged.

However, the Japanese did not achieve industrialization by copying the West one-to-one, but by adapting technology to their own conditions. They did not introduce innovations from abroad into the domestic market without passing them through the filter of local production. Their development of manual-labor-based systems for steam-powered boilers is a typical example of the search for compatibility with the structure of 19th-century Japanese labor. In other words, Japan did not imitate technology; it reproduced it.

Today, the Eurasia Tunnel, which passes under the Bosphorus in Istanbul, was also a turning point for Japanese engineering: Built as the world's first seabed tube tunnel, this project became one of the concrete examples of the "adaptation and application" skills of Japanese engineering.

PRODUCTIVITY AND EXCHANGE RATE STABILITY

For many years, Japan tried to keep the value of the Japanese Yen low to support its exports, but the factor that actually ensured stability was the high level of productivity that came with technological development. The foundation of the Japanese economy was formed by technology-based production and the innovative character of engineering. In the long run, what determines the value of a currency is that country's technological capacity. This is because technology brings productivity growth; productivity feeds exports; and exports maintain the stable value of the currency.

Throughout the 20th century, Japan created this "technology rent," especially in the electronics and automotive sectors. As a country poor in natural resources but rich in human capital, its only option was technological development and a qualified workforce.

TURKEY-JAPAN COMPARISON

In the short term, the determinant of the exchange rate is often inflation. The interest rate that breaks inflation expectations is the classic monetary policy tool of the neoliberal era. Although the Japanese Yen has lost approximately 46 percent of its value against the dollar over the last five years, this rate is only 0.76 percent in the last year. This is because the process of technological change and productivity in Japan was not interrupted.

Japan's inflation has been around 10 percent in total over the last five years; in Turkey, prices have increased approximately 10-fold in the same period. The exchange rate has risen 4.5-fold in 5 years. Although nominal wages in Turkey have quadrupled, real wages have declined by 50 percent. In Japan, the real wage level has remained almost constant.

2020–2025 Turkey Japan

Total Inflation +900 % +10 %

Exchange Rate Increase (against USD) +425 % +40 %

Nominal Wage Increase +375 % +11 %

Real Wage Change -50 % 0 %

While wages in Turkey cannot keep up with prices that have increased 10-fold, the stability of wages in Japan was balanced by productivity growth. In other words, technology production is the real insurance against inflation. As long as productivity growth continues, the exchange rate does not jump; reserves remain only as a side effect.

INTEREST, RESERVES, AND LONG-TERM STRATEGY

In Japan, the interest rate has hovered in the 0–2 percent range over the last five years. In Turkey, it has risen to as high as 50 percent in the same period. Japan's foreign exchange reserves are approximately nine times larger than Turkey's reserves. This difference is not the result of short-term monetary policies, but of a long-term technological development strategy.

CONCLUSION: ADAPTING, NOT COPYING

Today, "training engineers" does not just mean teaching technology, but providing the way of thinking that will adapt technology to social conditions. Japan achieved this in the 19th century. For Turkey to make a similar leap, it needs to turn toward an engineering approach that transforms rather than imitates. Otherwise, high inflation, volatile exchange rates, and short-term policies will only create an economy that survives through perception management.

True stability comes through productivity, but this productivity must come with technological development. Furthermore, the income that increases as a result of this productivity must be shared fairly and as equally as possible. Undoubtedly, inequality could be the subject of another article, but income growth that is not shared fairly is always problematic.