The incentive system I was briefed about in Korea was thematic and had a spirit. Unfortunately, ours does not.

The new incentive system for industrial investments has been announced. So, let’s discuss if the new incentive system is useful or not. The business world seems to be content with the system. Everyone is stressing how successful the new system is. In my consideration we have a “yes, but not enough” case here. I think that Turkey is not as successful as Korea yet. Let me tell you why I think that this is not enough.

Since the first statement on the new incentive system, I have been looking for a detailed text or analysis to help me scrutinize the issue. Yet, I have not been able to find one. All of the positive interpretations highlighted in the media are based on the remarks by the prime minister when he declared the system and on a 52-page presentation by the Ministry of Economics. Looking at these documents, I was impressed by the advancement we have made in the design of the incentive system since 2004. But I was unable to understand from the remarks what we were to do in order to reduce the current account deficit, for instance. In my view, Turkey needs to make more progress in order to catch up with Korea in incentive policy design.

Before the Korea-Turkey comparison, let me stress one thing: Any kind of an incentive system is beneficial for the business world. Businesspeople love incentives. Who would not want to get support for a business that he or she was already going to initiate? What matters is whether or not the incentives also bring about a social benefit. This is exactly why governments design incentive policies. The objective function of any incentive policy can be defined as “reducing current account deficit, improving the value added of production, ensuring development in the least-developed regions, eliminating regional disparities and enhancing global competitiveness via supporting clusters and high-tech investments.” What matters is to set forth how the toolset of economic policy will take us to the targets or outcomes stated in the objective function. For example, how will the efficient use of the listed economic policy tools achieve the target of lowering the current account deficit?

Reading the texts mentioned above, I was able understand why the businesspeople were personally content, but I do not understand how the enumerated targets will be achieved. This is the first point to state. Second, TEPAV economists Esen Çağlar and Ozan Acar have written about the evolution and progress of the incentive system in Turkey between 2004 and 2012. Their note is accessible on TEPAV’s website. The works on the incentive system seem to have taken into consideration some important outputs of the meetings carried out within TOBB. One was about the benefits of providing in-cash support during the investment period. The new system grants tax cuts for all activities of businesses that make investments in regions entitled primarily for incentives. This was particularly reassuring for investors. Moreover, demands for incentive schemes to be based not on the NUTS regions but on provinces and districts are met, though partially. Also, it is a step in the right direction that a new category named strategic investments is defined. Since 2004, the tools of the incentive system have been diversified and the implementation principles have been detailed. These all are steps in the right direction.

Still, Turkey is not as successful as Korea yet. You know why I am obsessed with Korea: In the 1980s, the economic indicators of Korea and Turkey were the same. Today, Korea has left Turkey in the dust. We are still among the middle-income countries while Korean is now a high-income developed country.  I think this issue must be included in the bill of indictment of the September 12 case and the people responsible for this must be called into account.

I was in Seoul a couple of weeks ago. I was briefed in the Ministry of Strategy and Finance of Korea on the latest incentive system. The title of the presentation was “Green Growth” and the sub-title was “Korea’s pathway to sustainable development.” It explained how the entire toolset for incentives has been designed around certain sectors in order to reach the macroeconomic targets identified, and also had called businesspeople to action. This is exactly the part of the homework we keep skipping. Unlike Korea, we somehow fail in identifying sector and regional priorities.

The incentive system I was briefed on in Korea was a thematic one. It had a spirit. Unfortunately, ours does not. This is why I said, “yes, but not enough.”

This commentary was published in Radikal daily on 10.04.2012