Recently experts have been placing emphasis on some key negative side effects of Turkey's growth model. Turkey's growth performance has been closely linked with the global environment in terms of financing development and export markets. However, due to some weaknesses in the Turkish manufacturing industry, the effect of growth on employment creation is not satisfactory and the amount of Turkey's balance of payment deficits is rising in an uncontrolled manner. In our view, a sustainable solution to these problems is to increase competitiveness through continuous fixed capital investments. As the level of productivity is significantly higher in the sectors dominated by foreign direct investments (FDI), one of the policy priorities of Turkey should be to continue improving the investment climate by further economic, institutional and political reform efforts so as to attract more green field investment by FDI. In this regard, a good strategy would be to use public funds more effectively in science and technology in order to increase overall productivity and therefore the competitiveness of domestic firms. It must be noted here that because the government is aware of this fact, a new support scheme is now being launched, according to which subsidies will be given on the basis of productivity. The new plan will not only be confined to the industrial sector but will also be introduced to the agricultural sector. Thus agricultural subsidies will be shifted from direct income support on the basis of the size of land to productivity- based agricultural.
As a matter of fact, the efforts of the public sector have been significant in improving the competitiveness of the industry. For instance, the share of public R & D expenditures reached 0.8 percent of gross domestic product (GDP) in 2006. Moreover, per capita R & D expenditures on the basis of purchasing power parity attained a level of $61 in the same year. Obviously these figures are far from satisfactory, but they are still the highest levels in Turkey's history.
As is apparent from the table below, the amount of direct public research and development support climbed from just YTL 169 million in 2000 to YTL 1.2 billion in 2006. This increase occurred during the implementation of a strong stabilization program requiring strict fiscal discipline.
Direct public R & D supports
There are two major issues here to keep in mind -- the first is motivating Turkish firms to budget a significant share of their resources for R & D activities and the second is motivating small firms to be more innovation-oriented. In the table below, we can see that there has been an attempt to keep small and medium-sized enterprises (SMEs) afloat in this cutthroat competition. According to the Scientific and Technological Research Council of Turkey (TÜBİTAK), the distribution of technology and innovation support and subsidies is rising among SMEs in terms of project application. The proportion that SMEs make up among all firms is rising as well as the number of SMEs among new firms.
The message here is that the public sector has been making a huge effort recently to increase its competitiveness and the time has already passed for private firms to carry out actions to improve their future competitiveness.
