Turkey's industrial strategy and recent investment stimulus package

The repercussions of such an approach can also be easily found in the realm of economics. For instance, the state and the market are handled within such a dichotomous view. At one extreme end of the ideological spectrum are neoclassical or neo-liberal arguments in favor of the superiority of market economic life, and therefore the role and intervention of the state is strictly rejected. At the other extreme end of this ideological spectrum, there are arguments in favor of the merits of state intervention, ranging from direct fascism to rigid central planning.

There have been continuous tensions between these two streams of ideology in the last two centuries. Since the early 1980s, world economic as well as intellectual literature has been dominated by a neo-liberal ideology. In other words, the neo-liberal ideology has been the ideology of the “globalization” process. This period resulted in a severe global economic crisis in 2008, and yet there is no common understanding or compromise as to the nature of the new economic architecture for the period ahead.

Economic history has shown quite convincingly that polarization between the state and the market is not realistic. They are not enemies but complement each other. As Karl Polanyi's classic book “The Great Transformation” (1944) has shown, the path towards the market is opened by the state in the sense that the market is not a theoretical chimera, not living in the air, but rather to the contrary it works under certain rules and institutions that are implemented and enforced by the state.

Empirical evidence also supports this view. The history of economic development shows that control, guidance, regulation and providing for the stimulus of economic activities within the framework of a certain, coherent and consistent economic architecture has constituted the basis of economic achievements. This will not change in the post-global crisis. As a matter of fact, having considered new global and national developments in the post-global crisis era, in a recent book titled "Industrial Policy for National Champions" edited by Oliver Falck, Christian Gollier and Ludger Woessmann (MIT Press, 2011), the relevance of an old topic, “industrial policy for national champions,” has been deeply discussed. In my view, beyond the polarized views based on the vicious circle of “state versus market,” in the coming decade we will witness the return of the regulatory state in the world economy.

Turkey as a country in the process of development and fully exposed to global competitive forces is subject to many constraints such as serious macroeconomic imbalances including a rising current account deficit, high and persistent unemployment and inflation, and structural bottlenecks such as the transformation of the economy from agriculture to industry, from conventional classical industries to rising modern and more competitive industries with high value added and higher competitive power. A newer economy that would carry Turkey to the level of $2 billion in gross domestic product (GDP) per annum requires a large, new pool of human capital equipped with superior capabilities and an appropriate knowledge toolbox, high technologies and a production revolution based on total factor productivity rather than more classical factor input.

Based on this necessity, last year the Ministry of Industry announced an “industrial strategy document” with a slogan of “a production center in Eurasia,” and the document was declared to be the first of its kind in the history of Turkey. After that, the Ministry of Economy announced Turkey's “input procurement strategy” (abbreviated as GİTES in Turkish). Finally, in coordination with the finance and industry ministries, and under the coordination of the Economy Ministry, Prime Minister Recep Tayyip Erdoğan announced Turkey's “new investment incentive package.” This has been the fourth one during the rule of the current government, and each of them has been announced as “the single most encompassing, most realistic and effective measures of the republican era.”

The slogan of the package of measures is explained as “cutting down the ever-rising current account deficit” by stimulating both domestic as well as foreign investors to invest in the major industries dominating Turkey's trade deficit. To put it more broadly with the prime minister's own words, the measures are aimed at reducing both dependence on imported intermediate goods and the country's current account deficit as well as contributing to the structural reformation of the economy and the industrial sector and balancing regional differences.

The package includes measures aimed at general, regional, large-scale and strategic bases. It also includes measures to encourage investments that entail the use of more advanced technology. The package divides Turkey into six regions where each region will receive varying amounts of incentives in line with their level of development to address regional socio-economic differences. The program places special importance on strategic investment in defense and the aviation and aerospace industries as well as on the biochemical industry, which will receive a standard stimulus program designed for the fifth least developed region in the country. The package went into effect on Jan. 1, 2012.

In my next column, I will focus on the “quality” of the investment measures from the viewpoint of long-term-oriented development strategies within the context of the global economy.