Notes on Turkey's Medium-Term Program

Published 27.09.2017 20:27

It is necessary to elaborate on the fact that Turkey finally has a relatively ambitious Medium Term Program (MTP) compared to its previous ones. This MTP's annual growth target of 5.5 percent should be considered important with an eye to the growth target of a maximum of 4 percent in the previous years.

In previous MTPs, Turkey considered the growth average of the external world, rather than its internal dynamics, the general equilibrium created by inflation and external deficit targets proposed to it, and the public balance depending on the primary surplus target as the main determinants of growth. And as a result, growth targets were kept around 3.5 percent and 4 percent at the most, regardless of what the conditions were, assuming that the growth continuity exceeding 4 percent would create significant deviations on inflation, the external deficit, budget and primary surplus targets. Moreover, depending on the inflation targets of the central bank and the current account deficit, a downward revision of MTPs was also a tradition.

Certainly, this MTP also bears the traces of the past. For instance, inflation is still an ambitious target compared to unemployment. However, it must be the opposite, and unemployment must be an ambitious target in consideration of inflation. Unless the main factors of production make a continuous and increasing contribution to growth, in other words, unless the continuity and optimum combination of capital, labor and technology productivity is achieved, inflation will remain a chronic problem in Turkey.

The continuity of productivity in this sense means the increasing contribution of qualified human capital to growth, which in turn means more employment and labor productivity despite higher wages. In this context, there should be serious links between the Development's Ministry's five-year Development Programs and MTPs. In other words, development programs should directly produce MTPs. This politically means Turkey's position as a determining country in the region. We see how important it is these days. Therefore, the economy should keep up with politics.

With the 2008 crisis, an era of a new, open and market-friendly regulations (some see it as a new concept of planning) began in the global economy. By accepting the current level of globalization as data, countries are bringing up regulations that are tailored to their specific situations with profound reform programs. I think Asian economies like South Korea and China are doing this in the most striking way. The strong relationship between external openness and Total Factor Productivity (TFP) is arising from a deep reorganization of capital markets. The concentration of capital is shifting from the traditional banking system to gigantic state-run funds, which tell the new form of capital concentration and determine the world politics through strong capital flows.

When we look at the direction of capital flows and concentration in the world today, we see that Asia is rapidly coming to the fore. This is especially so in the context of the capital efficiency and its contribution to the growth of Asian countries. In other words, while the capital stagnated in the West is a cause of crisis in a liquidity trap, the capital oriented toward Asia is increasing its share in the TFP in terms of the growth of countries. And this capital is also rapidly growing and being exported to virgin areas like Africa.

Right here, we have three important change parameters that override all of our knowledge: First, these countries have a far more open and competitive economy than the West had in the past. Second, paradoxically, the state is the most effective market builder and an anti-monopoly market regulator. Third, technology is a new independent production factor directly in favor of capital and labor. In the West's model, technology was part of the capital, and it could not be an independent driving force. Now, however, technology is not the driving force of capital, but a direct driving force of qualified labor, production and growth. And this driving force is independent of the concentrated capital. This is exactly the limitlessness of technology.

I do not know what we can do more to ruin all the current growth and development clichés. The growth and development models that the West preached to both itself and others have failed. Do the German elections not show this already? When we said to the Germans that the Nazis were coming back, they considered it an insult. However, they have entered parliament 50 years later. If Angela Merkel cannot achieve a Jamaica coalition, theoretically speaking, the Nazis will be a candidate for power and Merkel's coalition partner. This is the latest picture in Germany. The West thinks it will be a leader in this new technology-industry revolution as it was in the first industrial revolution. However, it is impossible now.

As a result, developing countries should be more determined and bold about their growth targets, as they will be the pioneers and makers of the new industrial revolution.

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