A Rip in the Sea - Bülent Eczacıbaşı

BE

I’m a little reluctant to equate innovation with the costly basic research and development activities of developed countries; it also shouldn’t be seen as a matter for a much more advanced stage. Perhaps the way to look at is this: Let’s not call it innovation, let’s call it competitiveness. Do companies need to be competitive or not? I mean, do they need something to differentiate them from similar companies? Everyone benefits from infrastructure improvements. So, if a company is to pull ahead and increase its market share, it needs a competitive edge.

I agree that many companies and countries start off by imitating others and then gain a footing on their own. But if a company manages to survive by copying, it’s relying on another competitive factor. It has an advantage of some kind, cheaper costs, perhaps, or cheaper labor, or a closed market, for example.

Where these are absent, competitiveness requires innovation, and by this I don’t mean grand or costly R&D activities or anything, just any novelty that creates a competitive edge, be it a new product or new production process.

RG

We’re in agreement on this definition.

MÜ

Actually, Turkey is relatively industrialized compared to other countries in its region. Industry contributes some 20 percentage points to GDP and exports of US$150 billion; that’s not negligible. On the other hand, call it a trap or not, it looks like Turkey has progressed to a point and then stalled. The end result is that Turkey’s export structure requires a very high share of imports. Hence, there’s clearly a bottleneck there. Yet countless economists, starting with Dani Rodrik of Harvard, maintain that industry is the key driver of growth. Every single country that has escaped the middle-income trap did so through industrialization.

RG

Countries that industrialized through “industrial policies.”

MÜ

We’d be interested to hear what your understanding of industrial policies is, Mr. Eczacıbaşı. Turkey needs industrialization, of course, but perhaps not “industry fetishism.” What’s more, the distinction between industry and services is increasingly blurred in the world. I think what we need might well be more general: a level playing field, for example, an education system that teaches basic skills, a peaceful environment that allows people to think what they like, exchange views and get on with their work. Government could certainly offer guidance in this process. Say you want to promote the development of the health sector, then you might provide the means for the sector to expand its vision. I know we’re far from that point now, but Turkey could actually become an education hub in the region. At the end of the day I see the issue as less of an industry-or-services tradeoff and more a matter of “clearing the decks,” to use a McKinsey approach. Once we’ve ensured the rule of law, that promises are kept, certain skills are available, the investment environment is clear, the path ahead is visible, and the rules are clear, then everything will work itself out and resources will be distributed correctly. Undoubtedly, you could still implement an industrial policy within this framework – and perhaps you should – but it needs to be well defined.

RG

I’m not totally against that. But coordination is of the essence here. And if we’re talking about innovation, which happens to matter to me, that’s going to be the only thing that matters for Turkey in the long run. And it’s not going to come mainly from services. For instance, when was the last innovation in hairdressing? The reality is that innovation and productivity gains are generated by industry.

MÜ

But hairdressing and education or health are very different, of course, though they all appear as services in GDP. If Turkey were to become a hub in the health sector, for example, it could lead to major linkages and help generate significant value added in the economy.

BE

Which is why barbers are now “hair designers.”

MÜ

Of course they are. They’re all brands now.

BE

I must confess, I believe the subject of industrial policy is important for Turkey. Since Turkey already implements policy through incentives. It does this in a variety of ways, which I guess is probably true for every country, most certainly for America. Although America might appear to have a system that is fundamentally opposed to industrial policy, its policies, in my view, have influenced the development of many product groups and technologies. One way or another, countries implement industrial policy, so the more deliberate and methodical our approach, the more likely we are to get results. For this, it’s essential that we make a careful analysis of what Turkey’s industrial incentives have achieved. For example, incentives may have had an important impact on regional development. Given our lack of global players and the absence of our brands in international markets, however, it makes sense to focus on the shortcomings of our industrial policy. A different industrial policy will help to create both. Perhaps that’s the perspective we should have from now on, or we should rack our brains about how Turkey can devise an effective industrial policy in the light of the experiences of South Korea, Japan, European countries and America.