Good morning ladies and gentlemen, I first of all wanted to thank the organizers of the Forum for me to address such an important forum for NGO’s and to discuss the development of the extremely important developing country Turkey.

I am going to use my 10 minutes to say something about the more competitive global economy, what it means for Turkey and pull on some lessons or possible explanations for how Turkey might manage the process by reference to China, simply largest and most successful of the emerging economies to date.

So I am going to start with just discussing what is the global economy in the coming years? Is it like the economy that we have face, well if you bear with me I am going to do a quick run through of what the global economy might look like. I don’t want you to hold me to it because the best forecasters in economics have a great saying they say that the best forecasters are those people who can tell you what happened today and I think they mean at the end of the day. So I am going to give you some facts, some projections and of course things may well go wrong but it gives us a possible picture of where the world economy is headed and I think it very much echoes what’s already been said about the changing global manscape. So what is the global economy and what might it look like within the next decade or so in ppp terms, that means adjusting for purchasing power, poverty. The BRICs economy will account for approximately 3rd of total world GDP. Of course that means that G7 which are the world’s richest countries, their share world GDP from what is about just under 50% to about 36% in the next 10 years. So that essentially means the world is becoming wormal tipolar, the G7 is likely to count for 3rd of world GDP, the BRICs the 3rd and the rest of the world, the rest of the 3rd and this is why the BRICs are the significant economies that we see them as today. In terms of population, the population share of China and India alone is today 1/3 of the world population. So what does that imply for of economic growth? Richard Freeman of Harvard, he refers to this as the great doubling that the labor force contribution of the BRIC economies has approximately doubled the world’s labor force and this is why goods are so much cheaper today then they have been in the past because emerging economies are able to produce goods and services at lower cost in world markets which have benefited consumers world-wide and help drive interest rates low and keep inflation low.

What is another feature of this new global economy? Well, not surprising, given the size and the success of China and the potential of India that we heard that there is a shift of economic gravity to Asia and by this of course I mean the fact that China and India are extremely important in terms of their shares of world GDP and population but also because of the dominance of Asian economies in world trade. East Asia accounts for and staggering half of the world’s exports, of electronic goods and more then a third of trade of all. China is already today one of the two engines of growth along side the US simply in terms of what drives global, economic growth every year, China contributes and has contributed in the past couple of decades. Yearly as much as the US in generating worldwide growth and of course it is doing so from a level which is substantially lower then the US meaning it is per capita GDP is 1700 US dollars while that is a faction of what it is in the US in other words while the US is contributing its weight China is contributing above its weight for Turkey.

Well, what is the meaning for Turkey? I have seen many academic economists give advise and meaning and sometimes it goes a bit wrong! So I am going to draw out some possible meanings but same as I said about the forecasting please don’t hold me to it. I am telling you what we know from economic research and I can tell you there is a lot that we don’t know and anyone who proffer to advise to a country I think needs to look at the core competencies, characteristics, culture, context in history of a country before that advise should be given. So with that mass of caveat I am going to now say what I think are 3 different ways in which this has meanings for Turkey. The first is what I call productivity, productivity, and productivity. At the core of economic growth when you strip away all of the possible factors that matter the only factor that drives long run economic growth sustained levels of economic expansion is productivity. It is the way that labor becomes more productive; it is the way of which capital meaning savings, investment are used productively and it is also how technology can make the existing factors in economy more productive. This is the factor that drives economic growth. It is about at the core productivity. Of course it is easier then that done I realize but this is why I am raising it as an issue and not meaning to give as policy advise.

The second facet in terms of meaning for Turkey is learning. Managing the process of globalization. We heard today about the goal of accession to EU. I am just going to add to that the importance of the BRICs and one possible way to learn from their experience is that size matters and regional positioning matters. So the BRICs are dominant players in the region. Brazil has close trade links with Mercusor a group of countries around it. India is dominant in south Asia, Russia is dominant particularly in the former Soviet block and of course China is dominant in east Asia not because of deep economic integration but because of the proliferation of cross-border supply chains and that means that even though differences exist politically between China and its neighbors the rise of trade between Asian countries is attributed to them attracting, being open enough so that many manufactures and services can locate in one country, process in another and move to another. That is trade integration without avert agreement so regional positioning matters but is that all, its regional positioning and institutional development that also characterizes the success of emerging markets not that the BRICs are perfect in this respect but institutional development, laws, regulation, these are factors which can facilitate and enable managing of the process of globalization where capital is fical investors look carefully at what a country has to offer in terms of stability and finally in terms of meaning for Turkey, shaping core competencies. Now in terms of what this means, what Turkey is good at both in terms of visa vie what is good externally so trying to work out where it can position itself in world markets because world markets are competitive. It is imperfectly competitive. Firms which have a dominant position have a dominant position and that means it is very difficult for emerging economies to create the kind of multinationals which are competitive on the world stage but to that is of course is easier said then done and one of the ways to look for your core competency is to look for what you can produce and other countries lack in terms of comparative advantage. So Turkey is rich in fresh water, China has very little water but of course it is not just about trading what you have, it is about moving up the value chain, industrialization and increasing the value added of services. Countries develop not by staying agricultural but by becoming industrial because manufactured goods are the drivers of industrialization and then therefore prosperity and that has been the case in history.

I am going to conclude with China’s experience on all three of these facets. The first one productivity, productivity and productivity, China was able to create productivity out of a very large and quite frankly inefficient agricultural sector because China is a communist state and most of its agriculture was centered around communes before economic reforms started in 1979. But by increasing incentive in agriculture it increase productivity of agriculture and along side that China created rural industries and this is why China’s growth in the early 1980’s before globalization was astounding and that is when half of China’s overall poverty reduction took place and China in of course of 27 years has lifted 400 million people out of poverty and of course China did exactly the same thing for industry, and it increased the productivity of the industrial sector. China did not embrace opening entirely. It controlled where foreign investment went, it also managed the processing of exports in other words even though China is now criticized for the slowness of its opening process, China is not susceptible to the kinds of external crises which plagued other emerging markets. They had a very controlled opening and managed the process of globalization and finally shaping core competency. China recognized very early on that it needed technology. It is a capital intensive, capital heavy country stemming from the period of central planning with abandoned source of labor. Labor productivity was essential. Of course labor productivity comes about through reforms as I discussed but also through technology. So China create special economics specifically geared to attract technology. Now is success in China assured? Is success in any emerging economy is assured? The answer is no but the path is there for us to see and to follow. We know that there are countries, which are successful which have opened, we know that countries, which are successful have begun to implement the type of laws and institutions, which underpin markets. So even though colleagues who do forecasting I am sure are absolutely right, we never know what the future will hold. I think seeing what history has taught us so far might give us some pointers along that way.

So I am going to conclude my comments there and thank you very much for your attention.


Question - Ayşegül: Boğaziçi Üniversitesi, Ekonomi son sınıf öğrencisiyim. Benim sorum Linda Hanım’a olacak. Girişimciliğe baktığımızda, büyük ülkelerin ortak bir payda olduğunu görüyoruz. Çin hükümetinin girişimciliğini desteklemesini ve bu konudaki görüşlerini bildirmesini istiyorum.

It is a great question and a great point because the only way for a country to become more productive is if there are entrepreneurs and companies willing to be innovative and then therefore create products that can be sold onto world markets. I would love to say that, that was how China came about because Chinese are extremely entrepreneurial I think to some extend that must be true because there is huge informal economy in China but I think in order to understand how entrepreneurship contributes to China’s growth, it has to be understood within the context of why China developed the way it has. Chinese producers are entrepreneurial because they come from having had a long period of shortage economy. An economy characterized by vouchers and economy characterized by lack of goods, people just didn’t have any opportunity to buy their homes and buy luxury goods or normal goods that we enjoy so when the economy began to liberalize and the government allowed people to begin to earn a wage in accordance to their skills. To begin to run their own businesses, the spirit on entrepreneurship was as expected because they just never had the opportunity before so I think that really does characterize sort of how a country’s history shapes the way that it is going to grow and the challenge actually for China now is to release its grasp on the state sector to allow private enterprises to flourish. It was only two years ago that private enterprises were allowed to borrow funds and the lack of private property recognition still stynese the amount of development, which is possible. So my hope for China is that the can recognize the spirit is there and it is time to make the institutional and legal changes to support that kind of market and I think for other countries seeing how to encourage entrepreneurship will be like the China example. What is the history, where the people coming from, what could center vise them to become more productive and energetic and that really is the key to growth that is simply the countries which produce, have people, the talent and companies and the legal system and a government that allows companies and people to realize their potential.