How the ballot box made Turkey

Internal migration made Turkey. Families packing up and leaving their hometowns was one of the major building blocks of our growth model. But no more, according to the new World Bank report on Turkey’s transitions. Turkey is now reaching its limits regarding urbanization via internal migration.

Why? When I was born in the early 1960s, 30 percent of Turkey’s population lived in urban centers. The pace of urbanization increased further with the liberalizing reforms of the 1980s. By 1980, 44 percent of Turks were living in urban areas, and nowadays, around 75 percent of us do so. Meanwhile, in Egypt, that number was 44 percent in 1980 and is still around 44 percent today.

The population shift was a critical part of Turkey’s industrialization. But credit is not due to government policy; rather it is due to the ballot box. It was human interaction - a la Hayek - and not government planning that led to an almost East Asian urban transformation on the plains of Anatolia. Here is how it worked: Turks moved from rural to urban areas, where they had to look for jobs. The sectors themselves were not growing more productive, but enough people were switching from low-productivity agricultural jobs to higher-productivity industrial and service sector jobs to keep the economy growing. Internal migration did not improve the economy per se, but rather shifted it to a higher gear.

It certainly made the country better off, but that does not mean migration was an orderly process. When people came to the cities, they had no places in which to live. So they rolled up their sleeves and built shantytowns, which were half-jokingly called “gecekondu,” literally meaning “placed overnight” in Turkish.

Can an entire neighborhood be built overnight without the consent of municipal authorities? No. Can water and electricity legally be provided without such approval? No. But after 1980, the government started distributing post-hoc land titles to these zones. Why? Because of the ballot box. During a recent visit to the Economic Policy Research Foundation of Turkey (TEPAV), Prof. İlhan Tekeli claimed that during this period “Turkey moved from radical modernism to populist modernism.” Inhabitants of the new neighborhoods had little economic power, but their votes were as important as everyone else’s. Therefore, politicians had to give them something, and that something turned out to be the legal recognition of a massive real estate fait accompli.

Many of those who built "gecekondus" on occupied public lands became rich. The end result was a process of unintended but inclusive growth.

But we now have reached the limits of this inclusive growth strategy. At this point, it is worth quoting the World Bank's “Turkey’s Transitions” report in full:

“The country will need to find new sources of growth as the benefits of structural change start to peter out. This is all the more important because it appears that in recent years, in particular, growth has been increasingly driven by domestic demand, a credit fueled construction boom, and the rise of the service economy to support Turkey’s growing cities. Productivity growth has slowed markedly since 2007 and growth has been associated with rising external imbalances.”

This is serious stuff. Politicians no longer have a migration boom to ride. If they want growth to continue, they need to reform the economy. Unfortunately, 2014 was a lost year. So was 2013. In fact, our politicians have not been serious about structural reforms since 2007. As things stand, I doubt they intend to correct course in 2015.