Similar to my own views, some accept the lack of exceptionally bright outlooks in all fields and sectors while still maintaining that overall achievement since 2002 has been quite satisfactory when it comes to macro-economic stability and growth. Given this, enhanced improvement will require the preservation of stability while efforts continue toward economic reforms, increased national savings, and additional direct investment in high value, dynamic sectors that will have long-term comparative advantages. In contrast to this way of thinking, some highlight Turkey’s obvious weaknesses, such as the current account deficit and the rising level of profit expatriation, triggered by our record-level interest rates on assets and lack of national savings.
In response two observations can be made. First, these problems reflect Turkey’s structural rigidity, the subsequent weaknesses, and the lack of short-term policy solutions. Second, it is absolutely critical to establish and preserve market practices that will allow improvement to continue.
As a development economist there are three major lessons I can draw from the history of development:
* We need appropriate prices;
* We need the correct institutions; and
* We need a culture that will encourage these institutions to serve and function in the desired direction.
To continue I would like to clarify what is meant by these concepts and discuss their implications for Turkey’s long-term development agenda. If we choose a market-based economic model over other alternatives (such as central planning or heavy intervention), then we must cultivate an appreciation for a free-functioning price mechanism as the most efficient and applicable means by which to allocate economic resources advantageously.
Naturally I am not going to argue that a country with an underdeveloped market can rely on market functions to make the changes necessary. In actuality such adjustments must be installed through public initiative. What I suggest is that the market is not a pure theoretical chimera; it does not function within a vacuum. Karl Polanyi’s important work, “The Great Transformation” (1944), shows that a market is a type of social institution and must coexist with others. Therefore we must take care to design it well and make it work.
In a market system prices are the single most reliable guide for entrepreneurs practicing rational decision making. It is for this reason that prices must reflect full opportunity costs. In an economy where double-digit consumer inflation persisted for more than two decades, public-sector deficit spent several years at 16 percent of GDP, accumulated public debt topped 100 percent of GNP, and most economic sectors are dominated by the underachieving and deeply subsidized public enterprises, there is little opportunity to discuss appropriate pricing. What we as consumers see are simply shadow prices, certainly not real indicators of resource scarcity.
A Chinese proverb says “if the shadows of people who are short are getting longer and longer, this means the sun is setting there.” Similar to this sentiment, if prices are changing daily in a country, that economy is declining, entrepreneurship is dying and the long-term horizons are no longer visible. It is at this point that the dream of capital accumulation begins to fade away along with prospects of increased success.
Incorporation of a well-functioning price mechanism requires macroeconomic stability, and a free and fair open economic system. Turkey has already achieved that goal and must now work to preserve political and economic stability while reforming other parts of the system.
