Davutoğlu’s biggest challenge: Transforming the economy

Ahmet Davutoğlu will be chosen as the general secretary in today’s Justice and Development Party (AKP) general congress. Very probably, he will be tasked with forming the Cabinet on the following day. In my previous articles, I had written that as the new general secretary of the ruling party and as the prime minister, Davutoğlu has a chance to stay in power until 2019 if he wins the general elections in June 2015. I have grouped the challenges Davutoğlu will face during his period in power into two main areas.

The first of these subjects is the issue of “democratization.” The second is regarding economic transformation.

The Turkish economy grows with a current account deficit rate that is never less than 7 percent of the Gross Domestic Product (GDP). This means we are using “foreign money” because “our money” and our savings are insufficient. We are financing our growth by attracting the excess of savings that is taking place in the other parts of the world.

It is evident that this growth is unsustainable. It is also clear the economy will be bogged down if there is no more excess or if others decide not to invest in our economy. This is the reason why Davutoğlu is told, “Don’t allow there to be a loss of confidence by changing the current economic administration, otherwise the flow of foreign money will decrease and there will be an economic crisis,” while he is trying to form his Cabinet. This is why he is trying to convince Ali Babacan to be in his Cabinet. Unless the economy in Turkey is not transformed structurally, its economic fragility will persist. Babacan is one of the people who know this and has been trying to change this system for years.

It is clear what structural transformation we need in order to succeed: To produce products with export value and transform the deficit in foreign trade into profit. (Yes, export does create a serious increase in employment and it has an immense contribution to the economy, but in the bigger picture, the contribution of foreign trade to the national economy is negative, because of the trade deficit.)
We can produce high-value products only by producing high-tech, original designs. If we have original designed, technologically advanced products, we can transform into an economy with a less current deficit, such as Germany.

Next week schools will open for 1 million students. If nothing changes, then the fate of these students is already known. Some 100,000 among them will be at a level where they will be able to compete with their peers in the world, while 200,000-350,000 of them will be at a level sufficient enough to compete in Turkey. The rest, in other words, more than half, will hit the streets as cheap labor. As long as this fate does not change, Turkey will not be able to produce enough original high-tech products.

Nothing will happen without legal protection

The capital that left Russia in the last three to four months has exceeded $70 billion. The amount of capital that has left Turkey since Gezi and the amount of capital that entered Turkey balance each other.

Capital is timid and it quits when the environment is unstable. Turkey is a country that faces difficulties in attracting capital investment. The reason behind this is Turkey has distanced itself from universal laws and has failed in providing the necessary judicial assurances for investors. We need to finance our economy with investors who are willing to establish businesses in our country, rather than with those who come for what is called “hot money.”

In order to realize this, we need a qualified work force, as well as legal assurances. It isn’t possible to accomplish these goals without a functioning constitutional state.