econ 401 lecture 1

8/3/2019 Econ 401 Lecture 1

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The Structure of Turkish Economy

Alper Duman

September 2011

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Introduction: What is to be called?The evolution of economic institutions in Turkey and their consequences for economic growth and

distribution of income have not been closely studied.(Pamuk, 2007)

Turkish economy is currently regarded as an ’Emerging

Market’. This is revealing for the fact that the claim for

development has been dropped. Before, Turkish economy has been considered as an ’Less

Developed’, ’Underdeveloped’, ’Developing’,’Semi-Industrialized’, or ’Middle-Income’.

Each has a sort of conotation with production, economicgrowth and welfare.

’Emerging market’, on the other hand signifies a society

of consumption.

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This explicit change of attitude has largely infiltrated theminds of the common people.

It is widespread to observe a Turkish citizen comparingherself with a stranger on the basis of a cellphone model

each is using. Households’ savings are shrinking.

’Conspicious consumption’ is on the rise.

The production initiatives are seen as futile.

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In fact Turkish economy is a hybrid capitalist economy. As alatecomer, it has some peculiar structural properties thathamper the genuine development of capitalism as an

institutional structure. The striking example is urbanization.

Year Population (million) Urban Share Rural Share1970 35.6 28.7 71.31980 44.7 35.9 64.1

1990 56.5 51.3 48.72000 67.4 57.3 42.7

Table: Urbanization, 1970-2000

Table clearly demonstrates that till 1990 majority of thepopulation has lived in rural areas. Rural areas host mainlyvariosu agricultural activities or small scale service orientedestablishments. Furthermore, rural population could not

provide the effective demand for industrial goods.

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Year Agriculture IndustryShare Share

1970 37.3 17.2

1980 26.1 19.31984 21.2 21.11990 17.5 25.52000 14.1 23.3

Table: Agriculture and Industry, 1970-2000

There was no point to call Turkish economy as ’Industrializing’till mid 1980s. Agriculture in its semi/hybrid capitalist form

has been the main productive sector. It is ineteresting to notefrom Table 2 that the last decade from 1990 to 2000 has beenthe least successful one in terms of decreasing the relative sizeof agriculture and the first decade by far the most successful.The drop within 1970s, about 11.5 percentage points is almostfour times as big as the drop in 1990s.

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In terms of employment, the share of industry is no wherenear to surpass the share of agriculture.

In 1990, 15.9 % of the employed were in industry whereas46.9 % were in agriculture.

By 2000, agricultural employment share declined to 36.0% while the share of industry merely increased to 17.7 %.

That means until very recently one of every three personwho has a job in any sense engaged in agriculturalactivities.The greater the size of the agriculture the lower the

overall productivity growth. The end result with thedepressing growth rate of population up to the newmillenium was a very slow increase in per capita incomelevels.

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What has Failed?

The structural weakness, lower per capita income levels, hasbeen most detrimental to Foreign Direct Ivestment (FDI)flows. The ’international capital’ could not pick the Turkisheconomy till late 1990s as one of the real ’Emerging Markets’with such low levels of purchasing power per capita. Indeedthe extent and scope of FDI flows has been miniscule.

Year FDI Permits FDI Realizations, Net(Million $) (Million $)

1970 88 581980 97 181990 1861 8642000 3477 962

Table: FDI Flows, 1970-2000

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Tabel is striking. Net FDI flows did not exceed 1 billion $threshold up until 2000. Given the capital-scarce andlabor-abundant nature of the Turkish economy, the potentialmarginal returns to capital should have been high enough to

induce capital flows from the developed countries. Moreover,there have been more than hospitable incentive structuresimplemented after 1950s towards foreign capital. FDI flows didnot respond. The puzzle remains to be solved.

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The attitude towards books in particular and ’intellectualcapital’ remained short of full appreciation. Turkish citizens donot read. They spend on average about 10 days per year to

read books. The infrastructure is lacking.

Year Number of Number of BooksLibraries in Libraries (1000)

1970 576 36471980 632 51351990 915 92432000 1341 13831

Table: Libraries and Books, 1970-2000

According to Table, in 2000, there was only one book availablefor every five person.

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What is Achieved?Who would read books? Not the illiterates. The biggest andmost ironic 1 achievement has been the spectacular increase in

literacy rates between 1935 and 2000.Year Total Female Male

1935 19.2 9.8 29.3

1955 41 25.6 55.91970 56.2 41.8 70.31980 67.5 54.7 801990 80.5 72 88.82000 87.3 80.6 93.9

Table: Literacy Rates, 1935-2005

The Table shows that till late 1970s half of the women livingin Turkey did not have basic skills of reading and writing. Thetotal literacy rate increased from 19.2 percent in 1935 to 87.3

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Remember the two million marching agains the Health Plan

proposed by Obama. 40 million US citizens have no healthcoverage. That is about 15% of the whole US population lackany social security. The plan was designed to decrease thisratio. In a country with a median household income level of 50thousand $ this sign of ’underdevelopment’ should beshameful.In contrast to US economy, there is a success story in Turkey.Table underlines this dramatic achievement. In 2005, only tenpercent of the whole population were out of social security

coverage. The costs of sustaining such a widespread coveragemight be high but still worth.

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Year Total Active Dependents Ratio of InsuredInsured Population (%)

1970 2,272,329 6,670,155 25.81980 4,708,044 14,487,104 46.5

1990 8,130,881 26,516,727 66.32000 11,590,715 37,348,712 80.32005 13,243,006 45,910,178 90.2

Table: Social Insurance, 1970-2005

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Glass is Half Empty

Country 1500 1700 1820 1950 2003Turkey 600 600 643 1623 6731Iran 600 600 588 1720 5539China 600 600 600 448 4803South Korea 600 600 600 854 15732Japan 500 570 669 1921 21218Western Europe 771 997 1202 4578 19912

Table: Per Capita GDP in Selected Asian Counties and Western

Europe, 1500-2003 (1990 international dollars)

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According to Angus Maddison (2007) [?] Turkey hasperformed slightly better than Iran. Both Southe Korea andJapan outperfomed the Turkish economy by far. China was anexception and is still an exception. Morover, despite theideological rhetoric and commitment towards westernizationthe gap has widened from 1820 to 2003. The future does notseem to be rosy either.

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Country 1950-73 1973-90 1990-2003 2003-2030

China 2.76 4.84 7.53 4.5

USA 2.45 1.96 1.74 1.7India 1.4 2.55 3.93 4.5

Japan 8.06 2.96 0.94 1.3Germany 5.02 1.70 1.42 1.7France 4.04 1.91 1.47 1.7

UK 2.43 1.85 2.02 1.7Russia 3.35 0.99 -1.59 3.5

Indonesia 2.56 3.10 2.66 2.5Brazil 3.73 1.41 0.94 1.5

Italy 4.95 2.55 1.24 1.7S. Korea 5.34 6.85 4.66 2.5

Mexico 3.17 0.99 1.23 1.5Canada 2.82 1.84 1.61 1.7Turkey 3.37 2.67 1.67 2.5

Spain 5.6 2.7 2.69 1.7Thailand 3.68 5.47 3.44 2.5

Iran 5.06 -2.54 3.53 2.5Australia 2.43 1.68 2.4 1.7

Taiwan 6.68 5.33 4.39 2.5WORLD 2.92 1.38 1.81 2.23

Table: Growth of Per Capita GDP in the 20 Biggest Countries,1500-2030 (annual average compounded growth rates)

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econ 401 lecture 1

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