Adaptation Strategies for Global Economic Conditions in the 21st Century: Policy Recommendations for Turkey

Transcription

1 Adaptation Strategies for Global Economic Conditions in the 21st Century: Policy Recommendations for Turkey Adaptation Strategies for Global Economic Conditions in the 21st Century: Policy Recommendations for Turkey by Halil Kürşad ASLAN Introduction Economic globalization trends along with global political transformations have increased their pace since the last quarter of the 20th century. On the one hand, a third wave of democratization has gained momentum in the early 1990s; on the other hand, since the 1980 s, we have been witnessing the increasing integration and interdependence of national economies and markets into the broader global economy. It is clear that national states, from the most powerful to the weakest, have all encountered serious policy hurdles in their attempts to insulate domestic politics and policies against systemic economic pressures. Additionally, due to the changing power structure between states, markets, and citizens, it is likely that the direction, content, and nature of political transitions, including trends in democratization, may also be affected. The uniqueness of this most recent era of economic globalization is described by a scholar as the possibility for traditional nation-states, corporations, and even individuals to reach farther, faster, cheaper and deeper around the world than ever before. In this analysis I would like to highlight the critical importance of coordination as well as the synchronization of economic development along with the political transitions. It has been often emphasized that the trade of goods and services, capital investments, financial transactions, outsourcing and labor mobility are all intricately linked to each other. Great attention has been paid by political economy scholars to international trade and the cross-border activities of multinational corporations, in particular that of outsourcing. Global economic integration through factor mobility, trade, and the spread of technology entails several processes, two of which are particularly important. First is related to the restructuring and rescaling of the factors of production in the world economy. The second is about the mobility of factors: land, labor, capital, technol- ogy and entrepreneurship. It is important to keep in mind that a combination of these factors might create major faultlines in the development of democratic transformations throughout the world. The political economy scholar Susan Strange frequently emphasized the significant changes in the reciprocal relationship between individuals and other market actors on the one side, and between individuals and national states on the other such as the powerlessness and lack of social security nets for the less educated, and the increasing power of multinational corporations. While global economic processes operate according to their Wise Men Center for Strategic Studies (BILGESAM) 1 Mecidiyeköy Yolu Caddesi, No:10, Şişli -İSTANBUL bilgesam@bilgesam.org Phone: Fax: All rights reserved. No portion of this publication may be reproduced, copied, transmitted without the written permission of BILGESAM.

2 own rules, national states struggle to adapt to rapidly changing economic conditions as they attempt to anticipate and overcome the negative side effects of global economic integration. 1 In the global age the communication between citizens and states and all policy processes are to be made according to the changing power relations between political actors. In order to enhance their legitimacy states have to employ advanced governance techniques due to increasing complicated political demands from groups and individuals. Positioned at the intersection of economics and political science the sub-discipline international political economy examines power relationships wherein one of the most prominent studies on the matter is the smart usage of political power. Harvard University s political science professor Joseph Nye links political power with social institutions in terms of values, ideas and narratives. According to Nye, in order to win the hearts and minds of citizens, national governments should design their policy narratives in line with domestic realities. He frames the recent transformation of the global political economy within two major dimensions. The first dimension of the global change relates to the diffusion of power. He argues that all states without exception have been losing their power and non-state actors are replacing their authority. The second dimension is where the center of gravity shifts gradually from the West to the East. Accordingly, in a transitional environment, in order to develop appropriate adaptation strategies for Turkey we must analyze these economic and political processes at the systemic level through a theoretical framework. Based on this framework we may be able to demonstrate deep mechanisms, meanings, patterns and trends which can provide cautious but accurate projections for the future. The Changing Nature of Global Production and Trade Susan Strange provides us with a theoretical model that synthesizes the interactions between politics and economics by means of a four-dimensional template examining the effects of any kind of political authority (including states) on markets, and conversely of market forces on states. 2 According to Strange, without understanding organizational and operational dynamics of the global system, it is impossible to evaluate the global political economy and its dynamics. For Strange, there are four 1 Jagdish Bhagwati, In Defense of Globalization, 2004; Thomas L. Friedman, The Lexus and the Olive Tree, Susan Strange, States and Markets, 1994, 2nd edition. major structures constituting the organizational and operational dynamics of the global system. These structures are: 1) production and trade 2) finance and monetary 3) knowledge and technology and 4) security. In this analysis I will only talk about the first structure, that of production and trade. At this point some basic statistical data might be helpful in regards to global production and trade. According to the IMF as of 2012 there are almost 7 billion people living on our planet producing almost 72 trillion US$ worth of goods and services in The leading country, the USA, contributed 16.2 trillion, the EU collectively with 16.7 trillion, and Turkey (17 th country in the list) contributed 788 billion US$ worth of goods and services. Analysing closely the world economy in the post-industrial era, de-industrialization processes can be observed whereby the relative weight of manufacturing diminishes and that of services and high technology production grows. In the post-industrial stage of the global economy new industrializing countries, including Turkey, Brazil, Mexico and Korea, compete with each other in order to secure a larger share of the world s manufacturing; with the express aim of ascending higher on the developmental ladder by increasing their sophistication in production and in particular that of their exports. IMF experts maintain that specializing in some products will bring higher growth for a country than specializing in some others. For instance, high tech production could bring about greater knowledge spillovers. In other words, a sophistication level in national production and export is associated with higher productivity levels. The Turkish minister of economy Zafer Caglayan, understands this matter and therefore frequently touches upon this issue. Caglayan said that Turkey currently has a more sophisticated export structure than the BRIC countries. This statement needs empirical evidence; however, it seems that understanding the technical issue by the Turkish leadership is promising. Metin Ercan, a Turkish columnist for the daily Radikal, makes an excellent point in regards to the middle income growth trap. 3 In some countries such as South Africa, Malaysia and Venezuella, governments fail to exceed certain per capita income thresholds and they remain there for an extended period of time. Characteristically, countries have remained anchored in the middle income growth trap because they were unable to either attract sufficient amounts of investment from 3 Radikal, Oct 19 & Oct , Orta Gelir Büyüme Tuzağı-1&2. 2

3 domestic and/or outside sources, lacked diversification in manufacturing and exports, had poor physical and institutional infrastructures and most importantly lacked political stability. For this reason, the Turkish government must take appropriate measures to escape from the middle-income growth trap. Such measures may include developing an advanced infrastructure in the form of high-speed communications networks, reforming labor markets to ensure that rigidities do not prevent the efficient firing and hiring of employees, concentrating on productivity and innovation, human capital build up and a higher quality of education. In the political arena one of the most important issue is to pay attention to the democratization processes, particularly in relation to the new constitution. Another important point to highlight is the increasing mobility of the factors of production (capital, labor, and technology). It is apparent that factor mobility at the global level including capital movements and labor migration processes are resistant to governmental control. It appears that the most steady factor of production, that of land, has also been affected by global economic trends, albeit passively. The real estate bubbles which preceded the South East Asian and Russian economic crises, and most recently the global economic recession induced by the American mortgage market, are all related to a rapidly evolving economic globalization. In recent years several media reports directed our attention to large scale acquisitions of agricultural farmland in Asia, Africa and South America. The journal The Economist reported in its May 2009 issue that between 15 to 20 million hectares of farmland in poor countries have been subject to purchase or lease transactions since During the month of October 2013 some Turkish daily newspapers, such as Milliyet and Radikal, also publishes some articles regarding the large scale purchase of farmland in the Ukraine by Chinese national companies. It is obvious that neoliberal ideas inform the essence of trends in economic globalization. They influence the external and internal economies of scale, production efficiency, the free flow of currency (capital mobility), free trade, open markets, and individual empowerment in regards to choices and preferences. The increase in capital mobility in turn is explained predominantly by reductions in transactions and communication costs spurred by the revolution in computer technology. In 2012 the amount of worldwide foreign direct investment numbers reached 1.5 trillion US$. Almost half of this amount was received only by five countries: China, USA, Brazil, UK and France. With 270 billion US$ China received one fifth of the total whereas Turkey attracted approximately 15 billion US$ worth of FDI. Upon close examination of the capital movements, a pattern emerges wherein individual firms or certain sectors have benefited from both the external and internal economies of scale. Another factor in the production processes is labor. The issue of labor mobility, including its domestic and international dimensions, has become increasingly important in the last several years as huge numbers of people and vast amounts of financial resources (remittances) are gravitating across regions and borders. For instance, in the last three decades in China, over 100 million rural residents have left their native villages to work in cities in what has been described as the largest peacetime movement of people in history. 4 As people move from one place to other several implications can be observed: the rules of citizenship change; brain drain becomes a low level trap for the developing nations; a large portion of people live outside of their states jurisdiction, and they are not entirely subject to the domestic regulations. As of 2012 there is a stock of 214 million migrants worldwide, approximately 3% of the global population. If all the world s labor migrants were to constitute a nation, it would be the 5th most populous country in the world. Additionally, according to data released by the World Bank, in 2009, the total recorded global remittance flows increased to 450 billion US$, with almost 300 billion US$ of which was sent to developing countries. India and China are expected to receive almost a third of the total global remittances. In 2012, India received $70 billion in remittances while China had received $66 billion. In the current year, based on World Bank estimations India is expected to have topped the list of countries which attracted the largest volume of remittances in 2013 with $71 billion, ahead of China which is expected to receive $60 billion. If we look at the picture of labor mobility from Turkey s perspective there are all sorts of migrants in the country. While Turkey had been characterized as a predominantly labor-exporting country before 1980s, nowadays in Istanbul one can see migrants from as many as twenty different countries. Situated at the crossroads of Asia, Africa, Middle East and the European Union (EU), 4 Rachel Murphy, How Migrant Labor is Changing Rural China,

4 Turkey is now characterized as a migration-exporting, importing and transit country. Scholars who conducted field research regarding migration trends in Turkey, such as Nilufer Narli, Didem Danis and Kemal Kirisci, inform us that in Istanbul alone there could be more than one million irregular migrants. With the most recent Syria crisis one could see thousands of irregular migrants from Syria who are employed in many industrial districts of Istanbul including Zeytinburnu, Ikitelli, Merter and Umraniye. In regards to labor migration one of the most critical policies Turkey must pay attention to is that of the brain drain. In order to build the human capital for a knowledge economy the Turkish establishment must design policies which attracts them with assurances of a comfortable life including non-nationals who possess a high quality of education. It must also provide a rewarding and competitive environment in order to facilitate the development and production of a high level of human capital. International trade is another dimension which Susan Strange points out leads to a better understanding of the global political economy. The increase in the volume of trade in the last quarter of the 20 th century has been incredible. For example, since 1950, the volume of world trade has increased more than 20 times. Between 1950 and 1973 in real terms world trade volume increased 8% per year. The share of international trade in the global production was 5.5 percent in 1950, and this figure was around 10 percent in the mid-1970s. In recent years this number is almost one third of the world GDP. In a recent IMF report it is stated that the expansion of global trade is mostly accounted for by growth in high-tech products such as computers and smart phones as well as a growth in the importance of regional concentrations. Political Implications and Policy Recommendation for Turkey Having mentioned briefly changes in the global production and mobility factors, it is time to talk about political implications. In the global political economy the most demanding task for national states is to provide a balance between political development and economic growth. The means through which economic efficiency and political balance is achieved are key factors. In this analysis I want to highlight five major points that Turkish policy makers should take into consideration: a) synchronization of economic development along with the political transition b) avoiding middle income growth trap c) democratization and new constitution d) national reconciliation e) Improving education and the buildup of human capital. Turkey must provide a healthy balance between the benefits of production and trade while limiting their negative effects on domestic society. The second thing the Turkish state must do is to promote its export industry whilst easing the fallout on those who lose out because of globalization, from the demands of protectionism, and the effects on distribution. It is needless to say that democratic processes bring serious challenges to policy makers. Thus, officials have no better alternative than to reconsider their macro policies on political economic development and their expression of power and authority. Successful governments are now flexible and cautious so as not to weaken or damage their bonds with the citizen population particularly its entrepreneurs and the highly educated people. It is often emphasized that a nationstate s restrictive policies do not have a real impact on citizens in the global age. A common axiom states that individuals vote with their feet. Under new global trends, individuals and all other market players within the national state are playing directly at the systemic level, and they have more options so as to circumvent regulations and restrictive policies established by national states. 5 People have increasing demands and expectations from their states, and national governments have to find ways to improve their quality of governance, and ultimately capture economic growth and development, in order to successfully respond to those gestures and remain representatives of their subjects. The ideal role for national governments can be prescribed as the successful management and alignment of the domestic political-economic structure with global economic integration. In the Turkish context, the most important policy priority is drafting a new constitution with extended liberties in line with the requirements of the new global age. This is instructive since in the last decade, Turkey has become a polarized society. Hence, the national government should be vigilant in regard to its macro policies and rhetoric so as not to hurt the norms, values and hearts of the people. 5 Stephen Castles and Mark J. Miller, The Age of Migration,

5 In general all over the world it is observed that political and economic processes do not occur simultaneously and coherently. This disharmony is predominantly due to the slower reaction of political institutions in many developing and even developed countries vis-à-vis economic actors and their dynamism. The entire political processes including the state as an institution have been relatively slow to adjust to the economic transformation and trends. In a borderless global village, economic actors such as investors or labor migrants make their decisions rapidly. Similarly, states have to establish flexible decision making processes to catch up with the economic agents. It must be kept in mind that progress comes only when courageous and skillful leadership exists. About BILGESAM About Author Established in 2008, the Wise Men Center for Strategic Studies (BILGESAM) is one of the leading think tanks in Turkey. As a non-profit, non-partisan organization BILGESAM operates under the guidance of a group of well-respected academics from different disciplines, retired military generals and diplomats; and aims to contribute regional and global peace and prosperity. Closely following the domestic and international developments, BILGESAM conducts research on Turkey s domestic problems, foreign policy and security strategies, and the developments in the neighbouring regions to provide the Turkish decision-makers with practical policy recommendations and policy options. Halil Kürşad Aslan is assistant professor of international relations. He has a BSc degree of Political Science and Public Administration from the Middle East Technical University, MA degree of Internationbal Relations and Political History from the Marmara University, and PhD degree in political science from Kent State University, Ohio, USA. In his dissertation, titled as International Labor Migration from Rural Central Asia: The Potential for Development in Kyrgyzstan and Uzbekistan H. Kürşad Aslan analyzed Central Asian people and their economic behaviors based on his field research conducted in several villages of Kyrgyzstan and Uzbekistan. His research areas include international political economy, post-soviet politics, economic and political development and foreign policy. 5