Dear sirs, Yesterday I had the privilege of attending a conference on the re-launching of the Italian economy. Great steps have been taken since Monti was wisely appointed a year ago this week as caretaker of this country. The spread on Italian debt over German debt has shrunk from over 550 bps to less than 350 bps.
Sachs, and others, have rightly acknowledged and praised the Erdoğan government for its economic policies, which have led to a higher growth rate. But the question is whether a developing country like Turkey can sustain rapid economic growth if the same government is undermining basic liberties and impeding the advance of key institutions needed for long-term success.
The Erdoğan government’s brutal response to the protests highlights this dilemma. Initially, fewer than 200 peaceful demonstrators gathered in an effort to protect Taksim Square – the last green space left in central Istanbul – against the construction of yet another shopping mall. As the government cracked down, with Erdoğan adopting an uncompromising position in defiant speeches, the protests grew – and continue to grow, despite (or perhaps because of) the use of excessive police force. Unofficial figures indicate that more than 1,000 people have been injured so far, and more than 1,000 have been arrested.
True, Turkey’s annual GDP growth has averaged 5% over the last decade of rule by Erdoğan’s Justice and Development Party (AKP). But this should not lead anyone to conclude that Turkey is a development success story. If we have learned anything from the extensive research on growth and development that now exists, the key to sustainable progress lies in a country’s institutional design.
Institutions embody and reinforce a society’s rules. They consist of both informal constraints (traditions and cultural norms) and formal rules (constitutions, laws, and regulations). They shape the structure of an economy.
There is an important distinction between policies and institutions. Policies reflect choices that are made within a political and social structure – that is, within a set of institutions. It is the institutions within which policies are framed that ultimately affect economic performance. Property rights, for example, influence investment decisions by protecting entrepreneurs against the risk of expropriation, and an independent judiciary is necessary to ensure credible enforcement of such rights.
Turkey still lacks the institutions that are critical for long-term progress. Its International Country Risk Guide score (a commonly used index that measures the overall quality of a country’s institutions) is one of the lowest in the OECD. Turkey also ranks last in the OECD’s Better Life Index. Only 31% of adults aged 25-64 have completed secondary school; inequality is dangerously high; and, according to the Committee to Protect Journalists, more journalists are imprisoned in Turkey than in any other country, including China and Iran. The 2013 report by the democracy watchdog Freedom House indicates that civil liberties in Turkey are increasingly threatened.
In recent years, much research has investigated the complex relationship between culture and institutions, with the former creating a set of informal constraints on the latter. Can Turkey lead the way among Muslim-majority countries in showing that a rather conservative culture is not a constraint on the type of institutions that are needed for sustainable growth and development?
Turkey’s success, as measured in terms of economic growth, is impressive indeed. Prudent monetary and fiscal policies, a cleanup of the banking system after the 2000-2001 crisis, and investment in infrastructure surely played a part. These policies set in motion a process of transitional/catch-up growth, with Turkey steadily closing the income gap vis-à-vis rich countries.
But we should not mistake transitional growth with long-term success, which requires strong institutions, including protection of property rights and civil liberties. This, in turn, will help to realize investments in education (especially for women) and technology, together with structural reforms, all of which have been highlighted as areas of concern in several studies of Turkey in recent years. It is far too early to ask, “How did Turkey do it?” and declare an answer based on policies that will boost short-run growth but that will run out of steam if not properly augmented.
Whether or not Turkey is a long-run development success remains to be seen. The indicators so far are not very favorable. The recent events in Taksim Square and in other Turkish cities are a stark reminder of the country’s still-weak institutional infrastructure. People are still in the streets – and they seem in no hurry to go home. I hear them chanting as I write this: “Democracy without liberty is no democracy.”
Ṣebnem Kalemli-Özcan, Professor of Economics at the University of Maryland, College Park, is Senior Resident Scholar at the International Monetary Fund, a research associate at the National Bureau of Economic Research, and a research fellow at the Center for Economic Policy Research.