Turkey needs an industrial policy. Deindustrialization is Turkey's biggest problem.

If I were to ask you what the biggest gain of the eighty-odd-year history of the Republic of Turkey has been, you probably would have a number of answers. If you ask me, the biggest gain in the Republican era was becoming an industrial economy. The combination of the answers that came to your mind in response to my question has enabled Turkey to become an industrial country. However, the circumstances are worse now.  Turkey has been going through a process of deindustrialization for the last five or six years. The reason is that Turkey does not have a vigorous economic policy framework. Above I said that "no wise man enters the industrial sector." With your leave, let me say that no one with any sense has entered the industrial sector for some time now.

I wrote one or two anecdotes about this subject before. Today let me add another one. Some time ago I was chatting with an industrialist from an Anatolian city that had industrialized out of nothing.  For him it was a source of pride to be a member of a family that had been involved in industrial activity for three generations. Industry requires an advanced ability of organization. It is a justifiable source of pride.

My friend said, "I'm really embarrassed. My nephew recently graduated from university. We held a family meeting and began to discuss how we needed to set up a business for him. After long talks, we decided to open a McDonalds franchise in our province." As a member of a family that had been involved in industry for the last three generations, he had difficulty explaining the decision. "We would never have done this in the old days. But this is the case now. What can I do?" This is the deal. If anyone upon a simple calculation understands that any business other than manufacturing is profitable, what happens? The economy becomes deindustrialized.

Have you ever considered the merger and acquisition decisions of the holdings in Turkey? TEPAV economists have started to classify the merger and acquisition decisions of the 26 holdings involved in the largest 1000 firms as issued by the Istanbul Chamber of Industry (ISO). The initial results are provided in the figure below: In the period between 2002 and 2010, Turkey's largest 26 holdings generally decided to invest in sectors other than the manufacturing. This is what the figures reveal.

Figure: Acquisitions by the 26 largest holdings in Turkey, 2002-2010

Of course, the figures do not indicate that no one invested in industry. But in the examined period 80 decisions to invest in manufacturing were made compared to 263 decisions to invest in non-manufacturing sectors. The trend in favor of the latter sectors is already apparent in the graph. Moreover, the investments in the manufacturing industry were not made in high-technology areas. The qualitative characteristics of the investments are of key importance.  I will discuss this later. For now I want you think about the quantitative aspects.

I have argued before that the more the customers develop, the higher the advancement potential of industry will be. In practice it is impossible for Turkey to break away from the European Union market.

As a man sows, so shall he reap. Turkey industrialized only because our founding fathers sowed the right seed. Now the capacity of the country is being demolished as we have been taking the wrong steps.

This issue must be dealt with immediately. Turkey needs an industrial policy. Deindustrialization is Turkey's biggest problem.

This commentary was published in Radikal daily on 08.03.2011