The Future May Not Be So Bright (Part 2) : Dr. Semih Akçomak, TEKPOL, Middle East Technical University /  August 11, 2013Macroeconomic Analysis

Assume that the Turkish economy is an automobile. Consumers value two elements when buying a car: comfort and security. Institutions are just like a comfort package in a car. In times of social and economic turmoil you can lean back on institutions (only if they are well-functioning), take your time and try to come up with solutions to problems. The first part of this two-part opinion piece questions the current state of education and rule of law in Turkey. I argue that unstable institutions would hinder sustainable growth. In other words the first part was related with comfort.

The second part is more related to a secure sustainable economy. What mechanisms does Turkish economy have to sustain the current so called booming economic state? The elements that created this booming economy are actually the very ones that would also create its demise. The purpose of this short piece is not to present full-fledged analysis of the current state of the Turkish economy. Rather I would highlight some oblique points such as (i) the fuel of the Turkish economy is money, but somebody else’s money; to sustain growth we have to produce, (ii) the service and construction sector boomed but got out of control, (iii) interest rent-based economy turned in to a real estate rent-based economy; economic rent due to real estate is invested back to real estate and services but not to industry, (iv) the government could not still grasp the value of production; still no solid industrial policy; government behaves as if Turkey is industrialized (v) the audit mechanism of the government institutions has been downgraded on purpose. Let’s give some details.

(i) The fuel for the post 2007 Turkish economy is cheap and abundant money in the world economic system. Now with the expansionary monetary policies of Japan, USA and European central banks there is a huge amount of money travelling across geography. This money runs after profit and economic gains and travels to places where the return of investment is the highest. But eventually it would turn back to its origin (Yılmaz Akyüz, chief economist at UNCTAD made a similar remark in the Turkish Economic Association Congress last winter in Cesme, Izmir).  Erinc Yeldan calls the latest economic boom as debt-ridden growth arguing implicitly that we are actually spending somebody else’s money.[1] This money supports the tremendous growth of non-productive construction and services in Turkey. Only a little amount is invested in productive industry sector.

(ii) The money that is in the Turkish economic system mostly travels within construction and services sector. Where do I come up with this observation? The advertisements in the newspapers! Have a look at major newspapers you’ll understand what I mean. Especially on the weekends the newspapers are full of full-page advertisements of luxury residences, apartments, villas and non-productive service sector commercials such as restaurants, hotels etc. And for those of you who believe in hard data the first quarter growth figures in 2013 is driven by public and to a certain extent private consumption. The share of high growing three sectors (hotels and restaurant, finance and insurance services, construction) in GDP is now about 30%.[2] On the employment side, the share of employment in industry did not change that much in the last 20 years. But an important part of the employment in agriculture is almost one-to-one translated to employment in unskilled services.[3] Employment in occupations that are created by cheap and abundant money boomed: call center operators, unskilled workers in construction and services, protective services, personal services, customer services in banking, finance and real estate (using 2010 figures a little less than 50% of the employment is employed in these sectors). And some tough questions: do we really need this many (luxury) housing and offices? What will happen to employment in occupations that are extensively supported by cheap and abundant money? People who work in unskilled construction and service jobs have extremely narrow job definitions specialized on few tasks. What will happen to these people when abundant money drains?

(iii) Gains from banking in times of high inflation where money created money (economic rent from interest) are replaced by real estate rent-based economy (an important argument put forward by Güven Sak).[4] My humble contribution would be that gains from real estate are invested back in the non-productive construction and services sector. The excessive real estate rent either travels within the finance sector; or invested back in real estate or just spent within the services sector. This argument is also based on simple observations. Real estate gains are easy gains. People who gain money from easy real estate rent would not invest in industry where risks are high, profits are low and where it is hard to make money. They either try to make more easy money or spend what they earned. Maybe that is why I see a lot of luxury cars in the streets of Ankara; perhaps that’s why houses in Ankara (with a spectacular view of complete emptiness!) that costs 2.5 million TL (about 1 million euros) can easily find customers.

(iv) Everybody in Turkey talks about R&D and innovation but not about industry. When we talk about R&D and innovation all we can think of is ICT and nothing more. That is an irony I would say. Here is another interesting observation. Let’s have a look at the so called frantic projects of the government: third bridge in Istanbul, third airport in Istanbul, Istanbul canal, high speed trains, dams, roads, huge urban transformation projects etc. All these projects are related to construction, services and transportation. There is not a single project on industry that could be comparable in scale to one of the projects above. There are two additional factors that weaken our industrial structure. First, the structure of our exports is changing. Compared to 10 years ago Turkey exports to countries that are poorer compared to Turkey. And again compared to 10 years ago exported products are less technologically complex.[5] Second, we still do not have a solid industrial policy. But we have a lot of people who think that we do. We should remind ourselves frequently that we are yet to complete industrialization and capital accumulation. On to contrary we behave as if we did. How can you be optimistic about sustainable growth in an economic structure like the one that we have in Turkey?

(v) Lastly let’s have a look at the changes in government auditing in the past 10 years. Government audit bodies have been specifically reorganized in a way to downgrade auditing. Government auditing units used to be prestigious working places with rich human capital. Not anymore. Auditing plays important role in collecting taxes and spending the collected taxes. With the new planned changes in the Court of Accounts law most government expenditures would be out of auditory investigation. You could not expect more of a government whose policy is totally based on expenditures. With such a huge amount of tax evasion and unregistered employment this is just another irony. However the purpose is clear. The government wants to spend taxpayer’s money with no responsibility at all.

I tried to summarize some points that I see problematic regarding the Turkish economy without drowning in to technicalities. The main message of the two-part opinion piece: with unstable institutions and an economy policy with the main purpose of increasing absolute numbers, sustainable long-run growth is wishful thinking. As the money in the system drains problems in social and economic structure will become apparent. Therefore the future of Turkey may not be as bright as it seems.

Dr. Semih Akçomak, TEKPOL, Middle East Technical University

Please cite this publication as follows:

Akçomak, Semih (August, 2013), “The Future May Not Be So Bright (Part 2)”, Vol. II, Issue 6, pp.31-34, Centre for Policy and Research on Turkey (ResearchTurkey), London, Research Turkey. (

[1] See the opinion piece by Erinç Yeldan, Turkey’s Debt-Ridden Growth, Research Turkey:

[2] Milliyet newspaper column of Güngör Uras, in Turkish devletin/ekonomi/ydetay/1721705/default.htm

[3] Have a look at my paper with Burcu Gürcihan from the Central Bank of Turkey, unfortunately in Turkish, Akçomak, S. ve Gürcihan, B. (2013), Türkiye işgücü piyasasında mesleklerin önemi: hizmetler sektörü  istihdamı,  işgücü ve ücret kutuplaşması, TCMB Çalışma Tebliği No: 13/21.

[4] Güven Sak, Faiz rantı haram da arsa rantı helal midir? , Radikal Gazetesi, in Turkish

[5] TEPAV study of Selin Arslanhan ve Yaprak Kutsal, in Turkish.