- [Archive]

An assessment of the economic opening of CHP 25/04/2011 - Viewed 2307 times

A period similar to the second half of April 2011 must be as rare as an eclipse for those concerned with Turkey's economic policies and growth problems. Turkey has started to discuss the future of economic policies intensely, maybe for the first time since after the end of the Cold War.  As the year 2023 comes closer, the importance of the growth phenomenon occupies the election agenda to offset the inertia of the previous decades.

Following the election manifesto the AKP (Justice and Development Party) announced on April 16, the CHP (Republican People's Party) declared an economic program for 2023 on Wednesday, April 20 and an election manifesto on Friday, April 22. The CHP issued two different economic documents. The 38-page summary booklet is similar to the economics section of the AKP's election manifesto. The report of 191 pages, which includes a more comprehensive analysis and solution alternatives, is deep enough to surprise a number of economists who follow the CHP from a distance, including me. I think this was done on purpose and that the length of the report (longer than necessary) was intended to change the perception that the CHP does not get economics. But first things first, this implies a substantial shift for a party that in the 2007 elections did not even mention the word "economics."

Later, I am hoping to write a commentary that compares the election manifestos of political parties. Today, I will summarize my assessment of the economic commitments of the CHP in 10 points.

1.       Convergence perspective and commitment to high growth. Unlike the AKP, the CHP directly declares the growth target in real terms without referring to assumptions and states that they target an average of 7 percent growth until 2023.[1] In this context, I find the CHP's emphasis on the issue of convergence appropriate. For the first time, a political party has brought the issue of convergence onto the agenda, promising the per capita income as a ratio to the European Union from 47 percent to 85 percent by 2023. Whether or not this target can be achieved is the subject of another discussion, but I believe that it is pleasing that converging with the EU's per capita income is taken as the main indicator for political success. I hope that opinion leaders embrace this issue more in the coming period and the issue of convergence becomes a common performance indicator for political parties.

2.       The source of growth. The first chapter of the CHP's economic report, upon successful identifications, states that the current growth model of Turkey suffers from structural and fundamental problems and that the party will adopt different growth models instead of gradual improvements. It is estimated that with this model, inspired by the successful Asian economies, the export volume will increase to US$ 650 billion and annual growth rate will reach 7 percent with an increase in savings and in new investments and sources of employment, by 2023. Though the identifications are correct, we can argue that the program is not concrete enough about the steps that will be taken to increase the share of savings in national income to 22 percent from the current 13 percent. How to increase the domestic savings, as was highlighted frequently by Kemal Derviş, the architect of the 2001 economic program, must be discussed in a broader context in the coming period. Personally, no strong opinion has formed in my mind on this issue.

3.       A new tripartite synthesis - social state, competitive economy, fiscal discipline. After the 1990s, which presented a high degree of economic instability, the economic policies Turkey implemented beginning in 2001 focused on ensuring and institutionalizing fiscal discipline. The macroeconomic stability ensured with the help of these reforms, called first generation reforms, should have been supported with second generation reforms that would increase the growth rate and improve the competitiveness of the economy particularly after 2007. However, such issues did not appear on the economic policy agenda. At this point, the CHP pledges that equal emphasis will be given to improving the competitiveness of the economy on the one hand and enhancing the qualifications of the social state on the other, while maintaining fiscal discipline. The program can be considered to be innovative as it combines the mentioned three priorities. Given Turkey's uncontrolled integration into the global economy especially since the 1980s, the CHP's program is a first in offering a policy framework to struggle systematically with the socioeconomic outcomes of this, though the program has significant defects. In this sense, it appears that if it sticks to this program, the CHP, both as the ruling or the opposition party, can contribute to the quality of policies in Turkey.

4.       Consistency of the policy framework. The assessment of the current circumstances is highly consistent particularly in the CHP's extended economic report (though it would be much better if the axes of the graphs were not changed). On the other hand, we can say that the link between these assessments and the policy framework is weak. For instance, pledging to increase R&D expenditures to 3 percent of the GDP without seeking to identify why Turkey cannot advance in high-technology exports might harm the consistency of the policy framework. The CHP, too, has failed to avoid the problem observed in the manifestos of the other parties: policy proposals enumerated in many categories look like an extended list that involves all alternatives. It is difficult to argue that the set of measures that are not prioritized based on any criteria demonstrate a satisfactory problem-solving approach. Similarly, giving a long-term macro target up to 2023, on the one hand, but failing to define any time perspective for the commitments, on the other, harms the credibility of the program. The consistency of the program can be affected negatively also by the fact that highly specific proposals (declaration of the votes of PKK [Kurdish Workers' Party] members) are followed by broad ones (improvement of the efficiency of fiscal policy). Finally, 3 separate documents are presented on the CHP's economic policies and the differences between these documents might be misleading. For instance, the Ministry of Science and Technology proposed on page 106 of the extended economic report is not included in the new ministries planned to be established on page 134 of the election manifesto.

5.       Competitiveness policies. The CHP's proposed economic program enlists a number of commitments about the industrial policy and competitiveness that an industrialist or an investor would like to hear. Seeing all of these on the same extended list, I surmise that the CHP lacks a systematic approach as to how to improve the level of competitiveness. In qualitative terms, it is difficult to argue that the CHP's commitments are distinguished from those in the AKP's manifesto. The innovative aspects of the CHP's manifesto are the prioritization of domestic production in public procurements, the establishment of a separate undersecretary for the improving the efficiency of the incentive system, support with special tools of the informatics sector as a key sector, and the emphasis that the industrial sector, which has been cast aside by the AKP at least in discursive terms, will be protected. As a result of seeing these documents, we have seen that the CHP refers to innovation as renewal. On the other hand, it is not clear what the pledge "we will effectuate the national innovation strategy" implies. The R&D targets do not distinguish considerably ahead those of the AKP.

6.       "The Golden Rule" and public investments. When talking about economic growth, the CHP, though implicitly, recognizes that Turkey is in a medium-income trap and suggests that a substantial investment attempt is required to overcome this. This is a fixation on the spot, with which I also agree. "The golden rule" highlighted in the media is another innovative aspect of the CHP's program. The rule foresees that the current and transfer expenditures of the government will be financed via tax revenues and investment expenditures via borrowing. Many investors have voiced their concerns that this rule might disturb fiscal discipline. The underlying assumption here is that the returns on public investments will be lower than the cost of borrowing. But I believe that if the investment priorities are identified correctly, this assumption might prove wrong. Unfortunately, the CHP's program does not precise these priorities, that is, the public investments expected to generate the highest returns. For instance, the program does not assume an attitude that aims to reduce the domestic transportation costs, an important impediment to Turkey's competitiveness. The section on transportation is one of the weakest links of the manifesto. The absence of clear prioritizations might justify the concerns of pundits about the golden rule. For example, (under such program) investments in wrong areas have the potential to disrupt fiscal stability to a high degree.

7.       Fiscal policy and tax reform. I think it is a positive to see that the CHP promises to propound a strong political will to carry out a tax reform and tackle informality. Particularly the commitment to gain the revenue administration independency will be highly favorable for the business world. Similarly, the aim to reduce the share of indirect taxes in total tax revenues, if it succeeds, can automatically remedy a number of problems that impede Turkey's competitiveness. The policies to this end are to a large extent known; what has been missing so far has been the necessary political will. The CHP claims that this will change. We will wait and see to what extent they will pursue this determination.

8.       Public administration reform and new institutional structuring. One of the biggest shortcomings of the CHP's manifesto is the timidity about the structuring of the public administration reform. The strategy for the transformation to the proposed "revolutionary" growth model unfortunately is not backed up by an efficient public administration reform framework. The strategy the CHP foresees to overcome the shortcomings in the public sector relies mainly on establishing new institutions. The manifesto proposes two new ministries, an undersecretariat, seven general directorates, six institutions and four commissions. Though such strategy might be appropriate for short-term attempts, I am not sure to what extent this can contribute to ensuring a more efficient public administration system in the longer term. Consequently, it is quite doubtful to what extent establishing new institutions for specific purposes will serve to strengthen the institutional infrastructure of a dynamic economy in the absence of a strong reform perspective. In this context, the fact that the CHP does not touch upon the European Union accession negotiations in the section on the economy reinforces the perception of a weak institutional infrastructure.

9.       Employment and labor market policies. The CHP presents an impressive set of commitments in the field of employment. It is striking that the party aims to generate 800,000 new jobs each year. Additional employment for 800,000 people each year sounds quite pleasing. Given that since 2004, 500,000 new jobs have been created in Turkey and coupled with the intended raise in the potential growth rate, this promise does not sound unrealistic. But evidently, at this point, the party must make an effort to create qualified job opportunities instead of overstating agricultural employment through the TURKSTAT data. The CHP aims to increase the female labor force participation rate to 40 percent (it is not stated over which period). The program fails to answer the question of whether it is the jobs or employers that will be protected, which is the main strategic preference with respect to labor market reforms. Similarly, the CHP's manifesto does not reflect a solid approach to overcoming the labor market rigidities.

10.   Regional development and new urban vision. The CHP's will to reduce the regional development gaps and enunciation of differentiated economic growth rates for different regions (9.5 percent for Southeast and Eastern Anatolia) is highly positive. However, how to achieve this and the necessary institutional framework, for instance, the function of the Regional Development Agencies in this process is not defined in detail. The efforts to identify a new vision for major cities and the commitment to make 20 cities centers of attraction are pleasing; nonetheless, it would be better if a more throughout thinking was demonstrated for such important issues. Doubts might arise about to what extent the urban visions are in tandem with the demands of the local stakeholders and, more importantly, to what degree they can contribute to the economic growth. When seen as it is, I believe this is a good sign in strategic terms revealing the CHP's desire to seek for new growth poles other than Istanbul, despite the shortcomings of the plans and the visions.

Everyone following Turkish politics must be aware of the fact that election manifestos do not bring victory in elections and that well-prepared reports have minimal impact on electoral behavior. However, the CHP's recent attempts to assess and solve Turkey's growth problems with a new approach established on a strong intellectual framework compared to the previous years is at least evidence of the fact that the quality of the economic policy agenda will be improved in the coming period.

Particularly in the aftermaths of the 2008-09 crisis period when the state-market relations are being redefined, we can consider it a good development that the characteristics of the state intervention into the market and of the social state have begun to be discussed.

Even if the AKP wins the 2011 elections, I should better get prepared for a relatively more efficient opposition in economic matters. It appears that the CHP has begun to throw off its inertia and infertility in terms of producing ideas about the future of the economy.

[1] Since the AKP's macroeconomic estimates are not accompanied by any assumption and do not involve any technical details, I gave the implicit growth target of the AKP at 8.48 percent assuming that the alleged US$ 500 billion export target cannot be achieved with evaluating TL. Some others, relying on different calculations and assumptions for TL-USD convergence, state that this corresponds to a real growth rate of between 4 and 4.75 percent. In another commentary, I will address the conflict the export volume=import volume=US$ 500 billion target can raise if the exchange rate evaluates, that is, if 1 TL converges to 1 $ by 2023.

TEPAV Economic Policy Analyst Esen Çağlar, http://www.tepav.org.tr/en/ekibimiz/s/1025/Esen+Caglar