Managing the economy in the new era

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Turkey is heading toward one of the most critical general elections next Sunday that will kick-start the practical implementation of the presidential government system. An essential part of the new politico-bureaucratic transformation will be a radical reshuffling of the macroeconomic governance architecture, in tandem with the new positioning of the executive, judicial and legislative branches of government. Institutional reforms in macroeconomic management are important both because Turkey is going through a rough patch alongside many emerging economies in the face of interest rate hikes in the U.S. and contracting global liquidity; and economic success constitutes one of the most important elements of sustained political legitimacy.

Over the course of their 15-year reign in single-party governments since 2002, the Justice and Development Party (AK Party) administrations paid special attention to macroeconomic prudence, fiscal discipline and tried to institutionalize a robust regulatory state. But the overall development strategy was very much defensive in the sense that the inflow of foreign direct and portfolio investments was promoted in the absence of a clear industry-technology policy; and the bulk of resources were directed toward the finance, tourism, construction and service sectors. But looking at contemporary developments as of 2018, the global policy atmosphere very much embraced strategic public involvement in strategic industries and neo-protectionism is rapidly becoming mainstream practice.

As such, there is a crucial sea change from the Washington and post-Washington forms of neoliberalism to more strategic types of coordinated capitalism. Therefore, political leaderships in emerging economies enjoy more leeway to exert strategic activism when it comes to achieving prioritized sectorial growth objectives thanks to recent global trends.

As the Turkish lira experienced a serious devaluation and increased volatility in recent months in the face global pressures and domestic uncertainties due to the election process, the importance of realizing a paradigmatic transition to a production-oriented economic structure became more pronounced in Turkey. Inflation and the current account deficit constitute two perennial problems that dominated the minds of policymakers over the course of the last 50 years and the transition to the presidential system presents an invaluable opportunity to get rid both of them for good. But in order to achieve a lasting paradigmatic transition, the mindsets of both the policymakers and market actors should adapt to the requirements of a production and knowledge-driven economy including modernization in agriculture and manufacturing, increased investment in research and development and energy efficiency, and targeted science and technology policies aimed at dispersing the know-how required to pursue the fourth industrial revolution across Anatolia.

To this end, one of the most important institutional reforms that could accompany the presidential system concerns a change in the basic law of the Turkish central bank in order to establish a dual role based on price stability and employment as in the case of the Federal Reserve. This step will augment the position of the central bank to manage monetary policy with a view to contribute growth and employment in the real economy, and practically turn it into a pilot organization.

Turkey's regulatory framework on financial affairs based on the central bank, the Treasury and autonomous financial agencies is relatively lean and efficient, but the conventional ministries are both outdated and bloated in terms of personnel numbers. Hence, for the sake of better policy coordination and efficient management several ministries responsible for various aspects of economic policy could be easily merged.

For instance, we would suggest the creation of a strong Trade, Industry and Development Ministry by merging the current Economy, Science-Industry-Technology and Development Ministries. By managing industrial production, domestic-international trade and development issues, this ministry could act as a coordinating institution for the real economy. Alongside a revamped central bank, the fiscal and financial branches of the ministerial-bureaucratic network could be brought together under a strong Ministry of Finance and Treasury to finance development and manage budget balances under the same roof.

In order to improve university-industry-technology linkages a Ministry for Science, Higher Education and Information could be formed in order to effectively manage science and technology policy in coordination with universities, fintech sponsors and high-tech infrastructure providers.

In order to overcome traditional disputes for jurisdiction, resources and control among the conventional ministries several coordination offices could be formed within the office of the Presidency. Employing highly qualified experts, these offices could follow up microeconomic (sectoral) issues related with the modernization of agriculture and increasing local production; updating manufacturing industry; the ecosystem for research and development and technology transfers; alternative ways of financing entrepreneurship; export promotion and substituting non-essential imports. These offices might help to overcome the bureaucratic hurdles that keep certain structural reforms on the loop due to interministerial struggles. Finally, an autonomous monitoring institution could be formed by bringing together academics, experts, business figures, bureaucrats and key stakeholders from civil society in order to design alternative scenarios, impact analyses and objective feedback reports concerning the institutional reform process as was done by India's NITI or Malaysia's PEMANDU. Turkey's future lies in more efficient and faster progress in productive sectors; more high-value added activity, cutting-edge research and better coordinated technology policy. Institutional restructuring toward these goals is bound to empower the presidential system and contribute to its sustained sociopolitical legitimacy.

I warmly congratulate everyone on Ramadan and wish peace for the Muslim world and humanity.

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