7 May 2018

Turkey: an accident waiting to happen?

Julia writes:*

It has been widely accepted that institutions play a key role in the quality of governance and in economic growth. Following the 1980 military coup and the junta years, Turkey still had a long way to go in terms of political and economic institutional quality. At the beginning of the 21st century however, the country began experiencing a period of rapid institutional changes and economic growth. According to Acemoğlu & Üçer, the financial crisis in 2001, forced Turkey to accept economic reforms imposed by the IMF and World Bank. Furthermore, as Turkey-EU relations began to advance, the possibility of EU membership kept fueling institutional changes. Tukey’s EU membership bid instigated a range of legislative reforms, including the establishment of a more progressive legal system, the abolishment of the death penalty, increased freedom of speech and improved rights for minorities. So called ‘harmonizing packages’ were being passed in an attempt to fulfill EU criteria. As a result, the accession negotiations were opened in October 2005.

When Turkey first began implementing institutional changes to pursue EU membership, large economic benefits were observed. The high-quality period of economic growth between 2002-2006 was also accompanied by development, and Turkey saw a reduction in inequality, and improvements in areas such as education and health. The start of EU accession talks seemed to provide additional assurance that progressive reforms would continue and persist in the long run.

However, despite the large-scale progress made in the early 2000s, the past ten years have been characterized by institutional reversals. This turnaround has not only lowered the quality of economic growth, but it has also taken a toll on the country’s democratic quality and individual freedoms. Although the formal institutions of a procedural democracy are still in place, Sarfati argues that, Turkey fails to meet the conventional standards of a democracy, and systematically violates civil liberties.

With the worsening quality of institutions, it would be sensible to expect economic repercussions. Furthermore, it may be reasonable to think that, if the reforms of the early 2000s were so influential in enhancing economic growth and development, a wide-ranging reversal should have correspondingly damaging impacts. Although there has been a slowdown of the Turkish economy since 2007, given the circumstances, GDP growth rates are still high.

However, judging Turkey’s stage of development based on this aggregate number is dangerous and tells us little about the quality or the sustainability of this growth. For many, it is also becoming increasingly clear that Turkey’s economy is running out of steam. Most likely, this is also the reason why president Erdoğan has called for early elections in 2018, arguably he hopes to secure the vote before a potential economic downturn.

Bottom Line: While Turkey has gained a lot from the reforms that were adapted following the 2001 crisis and those made as an EU candidate, it appears that the country has not yet faced the full-scale consequences of deviating from this progressive institutional path. Nevertheless, many are worried the state of Turkey’s economy and according to McNamara, “Turkey looks to us like an accident waiting to happen.”

* Please help my growth and development economics students by commenting on unclear analysis, other perspectives, data sources, etc. (Or you can just say something nice :)