A Rip in the Sea - Bülent Eczacıbaşı

RG

I agree that’s how we should approach incentives. One of the main drawbacks of our industrial policies is thinking that incentives offer solutions without reflecting on the problem. And after offering incentives, not bothering to check if they’d worked! “They worked, did they? How do you know?” “Because we’ve given out X amount of incentives.”

Results are measured by expenditures. Nowhere else in the world and in no other business area would you see results measured this way. If someone were to ask, “How’s business?” “Good.” “How much are you spending?” You’d think that person didn’t know what he or she was talking about.

We assume that it’s investment costs that hold back new businesses, so we keep offering incentives aimed at lowering costs. Fine, but if that’s not the problem, incentives serve no purpose; you’re just throwing money away. For example, we want to promote industrial production in Turkey’s east. Based on purchasing power there, normalized costs etc., investment should happen on its own because it’s cheap to do business there. If there’s no investment in the east, then there must be another problem. Without reflecting first on what it is, there’s no point in offering to waive energy bills, provide land, and so on. If the problem is safety, for example, you can offer all the incentives you want but people won’t choose incentives over safety. I might say this is Turkey’s economic policy problem, but actually it’s a problem common to all our policies. Our training in economics tells us that people will do what they know to be right for them. If something isn’t working, then there’s a problem. So, we must first identify the problem.

There are many places in Turkey where people don’t want to live, for example. Lots of people want to live in Istanbul. Or in Ankara. Or in Izmir. And that’s about it. So, you can’t appoint a manager to run a business or operate a production plant wherever you want in the country. Which in turn means you can’t invest there.

In many places, it’s about the lack of cultural opportunities, cinemas or theatres, but in many others it’s that there aren’t any schools people feel they can send their kids to. Now, if that’s the main reason, no incentive’s going to do the trick. That’s why we should think about “industrial policy” comprehensively. For example, our industrial policy should be linked to our urbanization policy, but we’re using an industrial policy that allocates factory land. Of course it doesn’t work.

BE

Over the years the Eczacıbaşı Group has discussed partnerships with many foreign companies wanting to invest in Turkey or make it their base. They want to come to Turkey to set up production facilities that are competitive enough to defend against new foreign entrants and to export to global markets. At no point in these discussions did I ever hear any potential investor express interest in free land, tax breaks, or other measures that lower costs.

The overall investment environment, as Professor Üçer mentions, is what comes to the fore: the rule of law, availability of a skilled workforce, logistics, infrastructure, and, of course, both political and macroeconomic stability. Our incentive measures and incentive system were founded to serve very different aims and to operate accordingly. I don’t have quantitative data on the results, but our industrial policy doesn’t appear to me to be fit for purpose. It might be necessary to start from scratch.

MÜ

I see this more as a problem of good guidance. If I were to prioritize reforms, I’d say Turkey first needs to have a thorough understanding of the situation before developing policies and accepting the cost. Unless business has the right environment and guidance, all it can do is to ask for more financing. Which means treading water without ever being able to focus on productivity. Isn’t the choice that Turkey faces between productivity and debt? What are we doing now? It’s come to the stage where all we ever talk of is finance, and how to increase liquidity, extend credit, and create debt. In the meanwhile, the system’s blocked; no bank is able to give much credit and no one is asking for it. But the government continues to focus on how it can throw more money/debt at the economy to make it recover.

When we talk of industrial policy, we’re actually making an enormous assumption in my view. We assume that the public sector ought to have the capacity to identify problems very clearly. I’m not going to argue one way or the other about this because what counts is the assumption that it should, and more importantly, that this capacity won’t get politicized. I’m not suggesting that there should not be an attempt to identify and tackle issues, but the technocratic body to do this has to be designed well and must be accountable. What worries me is that we’re asking a lot of industrial policy; that aside, we’re basically saying the same thing. And on the issue of incentives, I fully agree with you. It’s obviously impossible to guide industry simply with money and without carrying out a single impact analysis.

I do have to insist, though: While there ought to be intervention where the market fails, it’s crucial to have the technocratic structure in place to make that judgment, and here, transparency and accountability are hugely important.

RG

It’s not like elsewhere in the world, where industrial policy worked, some wise folk brainstormed, pointed out the right way, and that policy was implemented! No, that’s not how it works! Everywhere it’s a trial and error process that gets politicized and then sorted out again and again.

MÜ

That’s right, and that’s why it’s vital that those repetitions be as transparent as possible. They can suddenly transform us into a rent-seeking society, for example. Institutional capacity is crucial here. Who makes economic policy and in what sort of structure are the key questions here.

BE

I think we’ve come to the same point. Everything that we’ve discussed concludes that we need an industrial policy and an export policy, but they should be long-term and based on coherent consensus. Which leads me to the following questions: Should there be institutions responsible for Turkey’s long term? Would they be congruent with a free market economy? In their absence, how consistent or long-term can policies be if they’re directly linked to politics? In view of today’s realities and global trends, how realistic do you think it would be to have institutions tasked with studying and drawing up policy options for our country’s long-term strategy?

MÜ

First, there’s the matter of technical competence, which is questionable at the moment. The capacity of technocrats is key. Independent minds, free thinkers, outstanding technocrats, and experts with PhDs ought to be racking their brains about our country’s long-term issues utterly independent of government or politics. Otherwise, nothing is possible. In the early 2000s, Turkey decided to give the Central Bank independence and to establish an independent supervisory authority for the banking sector. It was a very positive move, but it didn’t solve the problem entirely. The question of how to design economic policy – and in what institutional structure – remained unanswered. Committees on financial coordination were established, but how effective was their debate? Turkey was unable to establish a sole ministry or department in charge of the economy. The basic issue is highly technical: We need a management team of economists selected on the basis of their competence and ability to think independently. They ought to be able to stand up whenever needed and say, “Dear Prime Minister, Dear President, Dear Minister; that’s not the way!” It’s impossible to think long-term without creating this type of capacity for independent policy formulation. The politicians will always have the last word, that’s a given, but it’s crucial to set up the mechanism that will use every channel to inform politicians correctly. There were times when Turkey came close. During Özal’s early years, and later, during the stabilization program of the early 2000s, technocrats and civil servants tried to provide good guidance to politicians. Whether they succeeded or not is open to debate, but this approach needs to be more organized and permanent.

RG

And that is the macropolitical aspect of innovation that we’ve been discussing on the corporate level.

MÜ

Precisely.

RG

And I could repeat here everything I said then. Firstly, every civic function must of course have true visionaries, deep thinkers, and long-term thinkers. On the other hand, if we could also retain old-fashioned civil servants of the kind who believe “This belongs to the state and shouldn’t be touched; that’s what the law says, let’s do it right,” we’d make stupendous progress. Of course you need luminaries pondering very long-term measures. But anyone of us, if asked, would say, for instance, that first we need independent, objective judges who know what they’re doing. That’s where you need to start.

I agree that long-term thinking is important, but by bringing it to the forefront again, we’re making the necessary measures look harder than they are. I’m referring to visionaries planning Turkey’s next fifty years and so on; I’ve dedicated my life to it and that’s fine, but I know it’s not the first priority. There are many easy things to do to make progress in Turkey. Take ordinary Turkish civil servants: Their first impulse is to nix everything because they’re scared, “Well, if I give it the go ahead now, I might be accused before you know it.” If we could at least tackle that problem, this country’s going to take off like nobody’s business.

There are two odd things I’ve noticed at every level of state bureaucracy in Turkey. The first is the response of a paper-pushing civil servant who doesn’t want to do something when you tell them something’s been done in such and such a place and it worked; they’ll say, “Turkey’s conditions are special; it might work there, but not here.” What are those special conditions? At the end of the day, we’re all human beings!

The second, in contrast, is the response of the lazy civil servant. “Why are you doing it this way?” “Because that’s how it’s done in such and such a place.” Well, OK, but they succeeded because of certain conditions we don’t have here. Once again, you have to start from, “How did they succeed, what are the similarities with Turkey and the differences, how do we do it here?” You have to think carefully about it and be disposed to doing the work.

When you approach it from this angle, things don’t look that hard. You can also see that most people have an innate sense of what needs to be done. Ask anyone with a bit of sense, and you’ll hear the same thing. Everyone says the educational system doesn’t work, that our current level of democracy can’t support national income growth, that our legal system needs reform. So, it’s not like we don’t know what’s wrong and what to do. That’s important as far as I’m concerned, and offers hope as well; there’s a general consensus about the problems and solutions.