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When the EU seems to come up in the agenda...
Currently, we are wondering what will be the magnitude of the economic contraction in 2009. The only thing we care about is whether we can decrease the size of this contraction via taking measures. Because, if it is manage, less people will lose their jobs and we will limit the rise in unemployment. However, just one and a half year ago, we were still discussing the second generation (micro) reforms. The issue considerably occupied the agenda, a lot of people started to comment and speak on the issue, which was a good thing.
Let us take a breath today. Let us get away from the crisis, i.e. today, for a little while and head towards the medium-long term. No, not to get relieved; because to head the future it is also necessary to begin with an 'unfortunately'. Yes, unfortunately in 2006-2007 period we missed a significant opportunity. We could introduce reforms that will permanently diminish the natural rate of unemployment and increase the growth rate, but we did not. The budget sources needed to realize those reforms were channelized to other fields. We spent the time and the energy needed to discuss the reforms and introduce a healthy reform program for other issues as well as walking on the dead-end streets.
I would like you to note that we were talking about diminishing the natural rate of unemployment and improving the potential growth rate. In other words, reforms improving the economic efficiency were on the agenda. But, is failing to introduce the reforms known to improve the economic efficiency unique for Turkey?
I have occasionally touched upon this issue. It is necessary to address the issue again, as the bitter days will end and we will survive. Second generation measures will and shall be on the agenda.
Once we survive, the agenda will be occupied by the second generation reforms, at least I hope so...
Anyway, let us get back to the real topic. As the EU seems to come on the agenda again, there is a point to be taken into account: Among the main reasons for failing to introduce the reforms known to be efficient in economic terms is ambiguity. The role of the ambiguity is this: For instance, let us assume that who will lose and win as a result of the reform is not known before the implementation of the reform. And assume that the opinions of the people living in the country planning to introduce reforms are asked (through voting). Two striking situations can come up:
First situation: If the reform is put into effect and thus the ambiguity regarding the winning and losing parties are eliminated, a world where the winners will outweigh the losers might be created. That is, the reform that will improve economic efficiency will be also accepted as a result of the political process. Unlikely, economic agents will not be able to calculate their situation in the 'shall or shall not be implemented' voting due to the ambiguity before the implementation of the reforms. If the number of the people believing that they will lose as a result of the reform is higher, the reform will be rejected before being implemented and the society will face loss.
The second situation is just the opposite: You miscalculated your situation before the voting due to ambiguity. The majority said 'yes' for the reform and the reform is implemented. But then, you faced a loss, for instance lost your job due the reform. However, if the status quo remained, you would still have a job. If the majority is suffers, resistance against the reform begins. Decision makers exhaust politically and most probably get forced to abandon the reform. Does the EU accession process resemble this situation? Yes, it does to a high extent.
This commentary was published in Radikal daily on 29.01.2009