The bath in question here is not of the kind brought to mind by a recent popular film with a similar title, but rather a deeper, broader (more historical?) one, the kind of bath which might even have appealed to good old Hegel himself: when learning to swim what you need is not a manual on swimming but a swimming pool. Or put another way, you can’t get into the water without getting wet.
And this is exactly what I seem to have done with my recent post on Turkey’s ‘economic miracle’, got myself extraordinarily ‘wet’. (Warning, this is a long post. It probably won’t make too much sense to you in any event, but it will make even less if you don’t read the original one :)).
What I did in the post was allude to something which everyone grudgingly accepts, but which still seems touches rather a raw nerve. This could mean I’m I getting through to the parts the “other posts cannot reach”, if so, and given that it is one of those long lazy August afternoons, it may be just worth running over the arguments one more time.
First let’s get one bull clearly by the horns. Hektor (see comments) asks me this: “How do you rate human rights, the role of the military, cultural rights for ethnic minorities, occupation of Cyprus, military adventurism in Iraq, etc?”
How would I answer this? I live in Spain, a country previously known for a long authoritarian and militaristic tradition. Spain at the time of accession to the EU was far from being a perfect democracy and bastion of human rights. What then has been the impact of EU membership? Well, leaving aside the bout of carping criticism from some quarters about atavism and the PP, it is clear that democracy in Spain is today a lot stronger and a lot healthier than it was 20 years ago (same incidentally for Greece, same for Portugal. The weakest case ironically here might be Italy, but still, even in that most theatrical of democracies a military coup seems a much more distant reality than it might have done in the troubled times of the 1970’s).
So why should Turkey be different? This is the key question.
This, of course, forms part of a much broader argument, which will not be resolved in a post like this, but I am deeply unconvinced by the argument concerning the benefits of boycott. The recent histories of both Cuba and Iraq only serve to convince me on this point. This aspect of the Iraq case seems little discussed at present, but faced with the resounding mess which we seem to have in front of us, the question might be asked if the less morally righteous, but possibly more pragmatically effective, road of aggressive trade and cultural influence policies might not have actually lead ultimately to a process of internal regime transition, a process which, while it would have undoubtedly been less spectacular, might actually have been of greater benefit for the Iraqi people. As I said though, if you go into the water, you are going to get your feet wet.
Incidentally, I want to make clear that I wasn’t personally advocating this at the time, I’m not saying ‘told you so’, I’m just trying to draw some coherent conclusions from what I am witnessing, and applying those mentally to places like Iran, Syria, Myanmar, Sudan and Cuba, none of whose governments I find particularly savoury.
Turkey’s case is far clearer. Important strides have been taken towards democracy. There is a great difference between the Turkey of the Cyprus invasion (and of course the Argentina of the Malvinas one) and the sabre rattling we saw during the Iraq war.
This of course is the easiest and (hopefully) least controversial of my arguments.
There is, of course, (as Hektor indicates: “It sounds to me like you have many reasons to want Turkey in the EU besides economics”) a bigger agenda. And what would be the link between the micro- and the macro- level argument, well let’s try a one word answer: evolution.
We humans evolve both culturally and genetically (in fact the two probably interact significantly in ways we don’t really understand too well). Human societies are in constant evolution from systems which exhibit a lower to those exhibiting a higher level of complexity. And this is why ‘nationalistic’ type arguments, which tend to attribute a timelessness to nations, and the customs and values of their inhabitants, simply don’t appeal to me. Turkey is no different from anywhere else in this respect, it is on a development path, and it is worth working to encourage what we may regard as the positive processes. This might also have the interesting side effect of helping to make the world a more stable place.
Now for the economics.
One thing which it might be interesting to think about is how the disciplines of economics and economic history manage to sit side by side without ever really being able to meaningfully communicate. This may be a gross oversimplification (what else do you expect on a blog!!) but what you could say is that economic theory in it’s neo-classical variant is about physics (think planets, orbits, celestial mechanics, all that type of thing) whilst economic history is about biology (change, evolution, path dependence, emergence, development, whatever you want). Somewhere in the former is the idea of a (relative) timelessness (that same ol’ business cycle), while somewhere in the latter temporality is pre-eminent, and the interesting ‘waves’ are the long ones.
So again, what has all this got to do with Turkey? Well our societies do move through a relatively longer wave from child dominated (think child labour if you want), to young adult, to middle age, to old age (senility?). Now to think you can do meaningful economic analysis without having this process as a backdrop is, to put it bluntly, ‘daft’. The fact that the majority of practising economists still do so doesn’t chasten me here in the slightest. The situation seems rather like geology before people woke up to the fact that there might be something behind the idea of plate techtonics.
So if we look at Turkey we should be able to see that it is at a very important stage in its economic evolution where it is effectively making the transition from a child dominated to a young adult society. Birth rates are falling, and the pyramid is narrowing nicely (just before, of course, it begins to invert). So this is the ‘sweet’ economic moment.
Now back in the late 50’s the general ‘big picture’ outline of this process was described by two American economists: Ansley Coale and Edgar Hoover. More recently their work has been highlighted by Harvard economic historian Jeffrey Willamson:
Over forty years ago, Ansley Coale and Edgar Hoover (1958) proposed their famous dependency-burden hypothesis. It was based on a simple but powerful intuition: Rapid population growth from falling infant and child mortality and rising fertility swells the ranks of dependent young, and that demographic event increases consumption requirements at the expense of savings. Eventually, the youth dependency burden evolves into a young adult glut and the resulting savings boom contributes to accumulation and an economic miracle; finally, the demographic transition is manifested by a big elderly burden, low savings, and a deflation of the miracle.
Demographic Shocks and Global Factor Flows: PDF Link
Now perhaps the Coale-Hoover hypothesis is broad-brushstroke stuff, perhaps there are lots of devils lying waiting there in the details, but be that as it may my feeling is that they were onto something important. Indeed the age structure of a population may tell you a lot more about long term interest rate movements than any other single factor (sorry Wicksell :)).
This is the principle reason the global economy is currently swimming in liquidity in my view: not because of the ‘liberality’ of one A Greenspan, but because the bulk of the wealth is in the OECD world, and the OECD societies are ageing well beyond the ‘sweet point’. And this is a very good reason to expect that long term interest rates will continue to remain near historic lows, despite all the Cassandra predictions of imminent hikes. But I digress.
So, to pick on Mathew for a moment (:)), when he says: “Looking at the last 3 years is a little bit disingenious, in 2001 the economy contracted by 7.5%. Some of the growth since then has been catch-up stuff”, he is perfectly right. 2001 was a pretty disastrous year for Turkey, and clearly when you have fallen back so far there is lots of ground to recover. But it does seem that Turkey is now doing more than simply recovering lost ground. It does, on the surface, appear to be the case that something more important is happening. A society which was stuck in a cycle of crisis and underdevelopment is suddenly developing, ditto China, and ditto India: this, at least in my book, seems to be new. These societies are ‘catching up’. This surely is to be welcomed, even if these remarkable growth rates are a product of the relative ‘backwardness’ and these economies will, inevitably, slow down. (Of course we may still see some spectacular crises, I don’t rule this out, but my feeling is that the chances are less than they were before).
And of course the only factor isn’t the democraphic transition. As Rodrigo Rato says in his statement to the press accompanying the IMF’s recent eigth annual review:
“Turkey’s economic performance continues to be impressive. Growth has been sustained and rapid, and is likely to exceed this year’s 5 percent target. Inflation has been lowered dramatically to single digits and the 12 percent end-year target is clearly achievable. The government’s record of strict fiscal discipline, including taking remedial actions where necessary, has been instrumental to this success. Together with the Central Bank of Turkey’s commendable conduct of monetary policy, fiscal discipline has contributed to the success in reducing inflation and laid the basis for strong and sustained growth….
The authorities’ structural reform agenda is critical for supporting their fiscal effort, sustaining strong economic growth, boosting job creation, and underpinning the success of the program…..
The Turkish authorities have maintained their strong record of program implementation. They have also demonstrated their commitment to ambitious structural reforms that will help underpin fiscal consolidation and debt sustainability. The result has been strong growth, low inflation, and steady reductions in the government debt ratio.”
Obviously a whole series of policies, including structural and labour market reforms, have been operative here, and it is the combination of a good policy mix with an appropriate backdrop which seems to be bearing fruit.
Now, before leaving this, Frans G, in his trackback, takes me to task for the following point in Cevic’s original article:
“…the acceleration in the rate of labour productivity growth, coupled with a 20.8% drop in real wages, has lowered unit labour costs by 37.9% in the last three years. ”
Now I certainly wouldn’t want to be advocating a 20.8% drop in real wages as a recipe for anything. And certainly not in a relatively poor country like Turkey. What I am trying to do is describe, not advocate. In part this situation has been produced by the restructuring, and in particular by a 24% reduction in public sector employment which was a more or less inevitable precondition for this kind of process. You can see the same thing at work in China and you can see it in India.
Equally the very mechanisation of modern industry means that relatively fewer jobs are involved, even in a developing economy. This is again obvious in China where, despite the huge increase in output, industrial employment is actually falling. The key clearly lies in the development of a consumer oriented services sector. We have to hope that this is what will come next. There are some reasons to anticipate this. Turkey, as I keep saying, is evolving, and living standards should improve.
Quite different is the case of, say, Germany, which is at a different point in the process, where real wages may well be about to reduce, but where they may not begin to turn up again (at least not the after-tax version). As I say, different moments in history.
So my argument is twofold. Europe needs societies like Turkey and Morocco, both because they are young, and because they are culturally relatively distant. Europe needs to open. Left to it’s own resources the European economy will simply dry up. Europe needs to change. Mathew rightly says that the change in EU GDP from having Turkey in would not in itself be highly significant, but it would be a step, and a step in the right direction. And the cultural opening would also be important, changing our impression of ourselves as much as the image others have of us.
Ok, like I said, this has been a long post. It is a hot, sticky, summer’s afternoon, now’s a good time for that bath.