Güven Sak, PhD - [Archive]

Is the construction frenzy necessarily bad for industry? 04/01/2013 - Viewed 2101 times

If Turkey abides by the same 1930s’ mentality in urban transformation policy, it cannot overcome the middle income trap.

No, it is not. For a while now, I have been trying to explain how the ongoing “construction frenzy” could put Turkey in trouble. I have argued that the loose taxation of the rent earned on land has both escalated the informal economy and prevented a possible leap to advanced industrialization. Also, I have argued it is bad for savings rates. I have complained frequently about the second era of rentier economy. Yet, the construction rush per se is not necessarily bad. I believe that Turkish industry can make the best use of the urban transformation process. The industrial sector is in need of smart incentive mechanisms. The problem is we do not know how to design them. If you wonder how the Turkish industry can benefit from the “construction frenzy,” please read on.

Technological advancement is the major trend observed in the current era. We are living in times of unlimited technological and industrial advancement. Can you imagine what this means? During the two centuries following the industrial revolution between 1750 and 1950, technology and industry were concerns for only 15 percent of the world. Those were times of separation.

Today, industry and technology affect the lives of 75 percent of the world’s population. It is the era of convergence for all nations. We owe this to the pace and ease of the spread of industry and technology. Do you understand why this new world is a challenge for Turkey? Thanks to the reforms of the 1980s, the economy of Turkey has been transformed from a stagnant agricultural one into a medium-technology industrial one. Like Turkey, many peer economies today enjoy an industrial basis. The number of our rivals has increased. Cheap labor that used to ensure competitiveness is no longer enough. Now we need a new structural drive. Turkey has been missing the opportunities falling into its lap flagrantly. Once you miss an opportunity, it is gone forever.

The craziest project Turkey has at hand today is urban transformation. If it fails to develop the capacity to design green buildings and build those with domestically produced, high-value added materials, however, Turkey will become a haven for losers. With its seventh-grade dropout people who lack skills but are happy and politics that seem like public storytelling, Turkey will be confined to relying on steel, iron and cement as star sectors. Turkey cannot avoid being a loser by exporting rebar. Yet this is the current state of the county.

But does not this construction frenzy auger any good? Yes, it does. Turkey evidently needs to go through an urban transformation. We deserve to live in earthquake-resistant, pedestrian-, woman- and child-friendly cities and environment-friendly green buildings designed to be long lasting. We all prefer cities that actually have an urban infrastructure over those which are the sum of distant TOKİ fortresses. Turkey has to rehabilitate more than 7 million buildings. This equals the sum of all buildings in Hungary and Denmark. If we continue to build slum-like buildings, no high-technology industry will come of it. If we are use this opportunity to make advances in the construction and materials sectors and to modernize the consultancy services, today is the day. This is all about correct policy design and targeted use of public procurements.

The relationship between urban transformation and the construction sector is the same as that between public health relations and the pharmaceuticals industry.

TEPAV researcher Selin Arslanhan reports that the price and repurchase policies of the Social Security Institution and the Ministry of Health of Turkey do not encourage a high-value-added structure in the pharmaceuticals industry. If Turkey abides by the same 1930’s mentality in its urban transformation policy, it cannot overcome the middle income trap.

The buoyant construction sector can bring an advance in industrial sector, if correct steps are taken.

This commentary was published in Radikal daily on 04.01.2013