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It is easy for China; but what about Turkey?
Global crisis revealed that most of developing countries must review their growth models. Take for instance the economies highly export-driven. If a crisis is not only global but also shows its impacts over a long time period, export-driven countries are deeply affected. When they become unable to export, they experience high decreases in growth rate.
Chinese economy recently used to grow sustainably around 10 percent. Now, it is foreseen that Chinese growth rate will be slightly above 6 percent. Of course the forecasts do not indicate an official contraction by 3.6 percent as is in Turkey; in the current crisis period, Chinese economy is expected to grow by a rate that can be considered as high for some countries even under normal conditions.
Nonetheless, as China is discussed, 6 percent growth is quite low given the requirement of enhancing living standards of the poor majority of the population to acceptable levels. Maybe, the way China must pursue to ensure growth at a level close to its older performance is to transform the export-oriented growth model into a 'more balanced' growth model. I say 'maybe'; because I am not a Chinese economy expert.
However, let us assume that this is a correct determination. In this case, China must encourage consumption. China has high saving rates. And a reason for this is that China does not have a solid social security system. People save for their old ages and treatment for possible diseases and consume less.
Under these conditions, there is a method to stimulate domestic demand in China in a nice manner; i.e. by fulfilling the social responsibilities of the state: to establish a broad social security system. This is not my personal recommendation; I am narrating what the experts of the issue recommend.
On the other hand, exact opposite of this situation applies for Turkey. We have low saving rates; therefore we need the savings of 'others' to enable high growth rates. But, how can we increase saving rate so that we are not lean on 'others'? Or, do we have to increase saving rate in Turkey?
A new study on this issue recently came into light: A study by Caroline Van Rijckeghem and Murat Üçer: "The Evolution and determinants of the Turkish private saving rate: What lessons for policy?" Economic Research Forum Publication No 09-01, February 2009).
At the last section of the study authors discuss policy alternatives to increase domestic saving rate: For instance, taxing consumption instead of imposing income tax can be considered as a policy. However, this is not feasible as in Turkey tax rates (indirect taxes) on consumption is considerably high.
Increasing overall saving rate by increasing public saving rate can also be considered. However, the authors maintain that this policy also is not much feasible. Besides, it is emphasized that this policy can lead to a fall in private saving rate. Authors examine the feasibility of several other measures.
This is what I get: Findings of the study imply that it is not easy at all to increase private saving rate. The challenge is the risk of potential resistance against the policies to be implemented or the need for an extraordinary designing capacity. Rather, it is hard to find such a policy set.
Maybe, the way to increase saving rate is to enhance growth rate; in other words, to 'reverse the causality'. A micro reform attack that will eliminate the barriers limiting sustainable growth rate can eventually lead to higher saving rate. It is necessary to discuss this issue after reviewing some other studies. I will do so and occasionally return to this topic.
This commentary was published in Radikal daily on 04.05.2009