logo tobb logo tobbetu

Commentaries

Güven Sak, PhD - [Archive]

Interest rent is illicit. Is land rent licit? 14/12/2012 - Viewed 1838 times

 

I believe that Turkey has been deindustrializing due to this second rent economy era.

One type of rentier went and one other type of rentier has appeared in Turkey. Each is based on different structural defects. Let’s recall: in the past, the inability to ensure fiscal discipline forced the public sector to borrow extensively and thus to pay high interest. Today, the strategy is to flip-flop zoning regulations and raise land value via state decisions. In the past, we used to buy securities and wait for returns, without actually making an effort. Today, we purchase land and wait for its price to rise. And it actually does rise. Profits today are as unearned as they used to be. Turkey did not tax interest revenue. Neither does it tax unearned income from land today. In the end, however, Turkey’s industry loses. Turkey’s industrialists are aware that it is much more profitable to start a construction business. Lately, I have been wondering, if interest is forbidden by Islam and is illicit, is unearned rent over lands not? The answer should be yes. If the former is forbidden, so should be the latter.

Turkey has been losing its industry. It’s a no-brainer. Just check the bank loan series released by the Central Bank and you can see how pathetic Turkey’s industry is today. In 2000, 50 percent of the bank loans were used by manufacturing companies. The share of manufacturing industry decreased to 20 percent in 2011. Its share dropped by 60 percent. Serious, isn’t it? Given the bank loan performance, it is but natural that industrialists have switched to construction. Recently, a friend from Konya province said, “the banks were lavishing housing loans, so I decided to switch to construction and market the houses to my employees.”

It is for a reason that Turkey is no longer among the industrial giants of the world and above is this very reason. Germany, the U.S., China, Brazil, and South Korea are among the fifteen industrial giants, but Turkey isn’t. Not anymore. It made it to the list for the first time in the 1990s and remained there during the first decade of 2000. However, it moved off the list by 2010. In 2000, 50 percent of the bank loans went to the manufacturing industry compared to the 20 percent in 2011. What else is there to say?

The problem is about the structure, the system. It is this very system that created rentiers out of us. During the first-wave rent economy, the key was interest. Turkey wasted the 1990s in the interest economy. The state forgot all about budget discipline and the people paid the cost. During the proceeding decade, Turkey made great progress in terms of budget discipline, reducing the public debt stock from 100 to 30 percent.

Right after the first-wave, however, the second-wave rent economy started. One type of rentiers left and were replaced by another. Before this second era, zoning regulations had never been changed this much: between 2004 and 2008, 3900 zoning plans were altered in Istanbul. To facilitate this, Turkey established the Housing Development Adminsitration, TOKİ, which has been dealing with all zoning matters as the only authority.

I believe that Turkey has deindustrialized and moved off the list of the world’s industrial giants due to this second era of rent economy. Please note that in this period, domestic savings fell by half, from 20 to 10 percent.

If unearned land rent is licit, we will continue plundering our historical heritage. If this is licit, we will never overcome the middle income trap.

Just wanted to warn.

This commentary was publishedin Radikal daily on 14.12.2012

Share Bookmark and Share

« Other Commentaries