Apple is buying parts from its rival because Samsung produces the highest-quality parts at the lowest prices. Apple has needed Samsung to become what it is today.

Such is the current era. You buy an Apple iPhone, but when you disassemble it, you see many parts that have been produced by Samsung. Korean Samsung is one of the main suppliers for American Apple. The major supplier, actually. Apple is a US-based company that produces products that we had not heard of five years ago, yet are indispensible for us today. Apple is a global trademark, but none of its products are manufactured entirely in the US. Why? Because you cannot create global trademarks with domestic goods. I recommend you the latest commentary of TEPAV economist N. Emrah Aydınonat on how you see Samsung when you slice an Apple. Don’t be deceived by the ongoing lawsuits. Samsung is still the main supplier for Apple and will remain so as long as it is the best component producer available. I believe that in today’s world, there are two types of countries: those through which a global value chain passes, and those through which just pipelines pass. Nowadays, Turkey is governed by people who care more about the latter than the former. And this is mistake. Let me tell you why.

In the past, when you looked at the world from the center towards the periphery, you would see countries through which a natural resource line passed. Let me call these “countries through which a pipeline passes.” Back then, we were surrounded by countries with pipelines passing through them. Today, however, it is the time of countries through which a global value chain passes, meaning countries which contribute to the production of a global trademark. Subcontractor countries, in other words. From this perspective, Samsung is a subcontractor to Apple. Yet, Samsung is the biggest electronics company of the world, with an annual turnover around $127 billion. If Samsung were a country, it would be among the top sixty in global ranking. To become a country through which a global value chain passes, you need large-scale subcontractor companies, an option at which Turkey turns up its nose. You need an industrial policy that will create sector champions.

In today’s world, what is the biggest economic harm you can do to a country? It is to design policies tailored to make that country one through which pipelines pass. For long, I have been thinking that Turkey has been wasting its energy this way. We would have been in a much better position if we had used half of the mental and physical energy spent to this end on becoming a country through which a global value chain passes. Why? I’ve already said the first reason, but let me underscore it: becoming a country through which a pipeline passes is a dream dating from the nineteenth century, not the twenty-first century.

And the second one: Becoming a country through which a pipeline passes is easier than becoming a country through which a global value chain does for the former doesn’t require human capital or the growth of economic capabilities. It just requires pipes mounted through the country and an army to maintain the security of the pipeline. The pipes don’t have to be domestic products, either. No matter how much you ornament it, becoming a country through which a pipeline passes is as easy as that. And it is all about nineteenth century imperialism.

To have a global value chain passing through your territory, however, you need to establish a certain level of production capacity, labor force, skills set, transportation facilities, and connectivity. Just take a look at South Korea: They started the race with a cheap labor force. They diversified and sophisticated production day by day. This is exactly why a top Apple product has parts manufactured by Samsung. Apple is buying parts from its rival because it produces the highest-quality parts at the lowest prices. Apple has needed Samsung to become what it is today.

The third point:  In today’s world, Turkey, obsessed with having a pipeline and missing the opportunity of having a global value chain passing by, is just like someone who has moved from the countryside to the city who tries to hit the jackpot by buying land. Let me note that those days have ended. Today, the owner of the land is as important as its location.

If you become a part of global value chains, you can both produce and consume in the global market. Otherwise, you just consume. The capable becomes a partner in the global system while the incapable remains a market. I think Necmettin Erbakan was referring to this case when he said, “they are partners, we are just a market.” Let me remind those who were misbehaving back then of this fact, after Mr. Erbakan.

This commentary was published in Radikal daily on 11.09.2012