Turkey's economy serves as a model for developing countries

After Recep Tayyip Erdoğan was elected president, Ahmet Davutoğlu was presented as the candidate for Turkey's new prime minister, who is supposed to remain in the office until the 2015 general elections. I think Davutoğlu is a politician who will complement Erdoğan in his politics and particularly in the field of economy. I came to this conclusion as I witnessed Davutoğlu's influential foreign policy strategies which he applied when he was foreign minister. During Davutoğlu's tenure, Turkey, as a strong actor in the region, put its potential power into action and pursued a foreign policy strategy that has determined the dynamics of the region. A new growth and development program, which is in accordance with current conditions and Turkey's 2023 vision, can complete this foreign policy path.

Therefore, in this article, which will start from a theoretical basis regarding Turkey's 10th five-year development plan, I would like to focus on what can be done in the economy in the next term. This development plan encapsulates a growth model, which is based on technological efficiency and prioritizes an open economy as required.

I write this article to seek answers to the following questions: in this post-crisis period, which development model should developing countries adopt under the conditions of open economy? Does this model or strategy have foundations in economic theory? The economic plans, which were put into effect three years after the 1960 military coup, were based on saving-investment equality from the traditional Keynesian growth theory. They established mechanical relationships among production factors that cannot be maintained theoretically even in national and closed economies. As they were composed of statist applications that were developed after the 1929 crisis, these models cannot be implemented in dynamic and outward-oriented economies.

In fact, a consistent growth and development model was not constructed for developing countries in the whole of the 20th century, which was dominated by inward-looking nation- states that had high barriers to entry. The same goes for today, even though these economies have opened up to the outside world. So, how will sustainable growth be provided without full employment? This question has not only been a topic for the theoretical economy but it has also been of particular concern to governments. As the theoretically developed models did not work out, development plans of governments could not go beyond words.

For example, the neoclassical theory and its production function are based on the law of diminishing returns and, as such, economic growth can only be explained through external factors . The theory, which suggested that external technological inputs would prevent a profit decrease, also argued that economic decisions would be inefficient for growth in the long term. The "convergence theory" of Clark Kerr put forward the idea that the technological gap between countries would be bridged in the long term. However, this was impossible in a world where national economies and diminishing returns were in effect.

Paul Romer addressed this question in his 1986 article titled "Increasing Returns and Long Run Growth". Here, Romer was using a model that was founded on increasing yields, instead of a neoclassical production function. Rather than the material product, Romer used manufacturing knowledge as the baseline.

Many also acknowledged that the basic criticisms of Piero Sraffa in his study called "Production of Commodities by Means of Commodities" were true, but we had the chance to capture a new cycle that went beyond the paradigm he criticized. Here, another important question is: what would be the basic foundations of Romer's new growth strategies, which were based on human capital and supported by active policies? The answer was that developing countries should disturb the Malthusian equilibrium and develop dynamic economies of scope, instead of gaining a comparative advantage as suggested by the Ricardian model.

The same question also engrossed the minds of post-Keynesian economists and the developers of neoclassical theory. For example, Barro considered public policies as production inputs and added them to production function. Later on, Helpma, Stokey and Lucas added haphazard development models - which were based on R&D activities - to this, and it was conclusively modeled by Young in 1991.

Young's model is very simple: there are two countries symbolized as A and B; A specialized in producing technology-intensive goods and B specialized in traditional goods and they apply Ricardian trade. Here, A achieves geometrical growth, while B recedes, as Young suggests that there is learning potential in hitech goods.

Thus, as Malthus asserts, country A, which continues with technology-intensive goods, will achieve a geometrical growth with a high degree of efficiency, although its population and requirements increase geometrically. However, while the population and requirements of country B geometrically increase, its income (productive growth) will increase arithmetically.

In order to have Malthusian equilibrium, country B has to choose poverty by adopting an oppressive model. That is what we are going through now. As technology cannot be hidden now, reconstruction and phased progress also occur in developing countries now. This framework shows us the dynamics of overcoming the crisis and reveals clues about the new growth model for the post-crisis period.

For example, the haphazard growth of South Korea since the late 1980s and the path it has taken since 1998 can be explained by this; however this model cannot be generalized. We think that carrying out R&D activities without getting unearned income is linked with the unlimited circulation of technology and knowledge, as well as with eliminating educational differences in global terms. Hence, as a global exogeneity, R&D will be the center of investment for a single global public organization.

This, at the same time, means a new economy in which global market regulation will be made and market-friendly regulations will be in effect to make markets operate more efficiently. Nowadays, developing countries including Turkey, are wondering when the Federal Reserve will increase interest rates. This is the wrong approach as it is based on the aforementioned old and outdated growth models that were never implemented. Now the tenth five-year development plan that will be applied between 2014 and 2018, is founded on a new development paradigm, which regards technology as a dominant production factor, liberalizes market entry, improves the investment climate and prioritizes competition as I mentioned above. This, without any doubt, will also go for the period between 2018 and 2022.

With regard to all this, I think that Turkey's 10th five-year development plan is a realistic start in a theoretical sense as well. This vision and theoretical background correspond to an anti-monopolistic and open economy, which is based on free competition.