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    I don’t have the answer

    Fatih Özatay, PhD03 October 2013 - Okunma Sayısı: 1339

    Fighting against informality should be the first step of the reforms aimed to increase Turkey’s sustainable growth rate.

    We always hear and voice assertive statements such as “productivity level should be improved” “inflation should be reduced”, “sustainable growth rate should be increased” or “high-technology exports should grow.” Sure all of these and similar remarks are unquestionable facts, but it is nothing but hollow to come up with these unless you answer the question how.

    The other day, one of my readers asked me the same question upon a commentary. In commentaries, it is important to distinguish between making hollow propositions and citing expert views. I believe the first one is obvious; so let me elaborate on the latter.

    As you all know, experts specialize on a subject and devote years to researching a single question, such as “Why only a few countries were able to close the income gap with rich countries?” and “Do countries that succeeded have anything in common?” As a result of a series of research, the academia reaches a consensus. Hence it is useful to cite expert views on why, for instance, Turkey fails to close the income gap and converge with high-income countries for readers who are interested in the Turkish economy but don’t have time to follow the relevant literature. At least this is what I think.

    Research points at the importance of the length and the quality of average education level and the share of high-technology goods in total exports. These two are of course interrelated. This identification is critical as it lights the way for reformers. Therefore, highlighting that high-quality education is a key feature of high-income economies and hollowly proposing that education and education reform are important concepts are two different things.

    For instance, “fighting against informality should be the first step of the reforms aimed to increase Turkey’s sustainable growth rate” as I have insistently stressed here is not a hollow preposition. One reason is that the vast majority of informal businesses have low productivity. They compete with productive businesses in the formal sector by avoiding certain liabilities and taxes. But centuries of experience shows that “creative destruction” is necessary for economic development. In the case for informality, creative destruction stands for the elimination of unproductive businesses in the informal sector so that productive ones can flourish and have higher chances in the global competition. Second, Turkey’s savings rate is radically low, which is a major source of problems. One way to improve the savings rate is to increase tax revenues and reducing informality serves this purpose as well. Third, the additional tax revenue can be used to finance programs that will boost productivity.

    Having mentioned these, it is not at all useless and hollow to reinstate that Turkey should fight informality. Both Turkey and other countries that have overcome informality have the pool of experts who know how to win this battle. If the reformer has the courage to advance on informal economy as a first step of the reformation process, the primary thing he or she needs to do is to form a working group of experts. The use of commentaries like this one is limited to informing readers of such developments and helping them demand reforms from the government. If I had all the answers to all questions concerning the Turkish economy, I definitely would be a marvelous person. Yet I don’t have them most of the time.

    This commentary was published in Radikal daily on 03.10.2013