Broadly speaking, countries can be divided into high, medium and low per person income categories. The income per person, adjusted for purchasing power, is a major indicator of the average welfare of a country’s citizens. The income per person grows with economic growth. Economic development occurs through broader human development as citizens increase their capabilities to choose due to higher incomes and access to education, health care and public services.

Despite the major environmental concerns, economic growth, or more broadly economic development, is a major goal for all nations, but more so for low and medium-income countries. Of course, economic growth is not only necessary for job creation and increasing standards of living, but it is also an important factor in determining countries’ positions in the international power structure in the long run.

Most of today’s high-income countries gained their status with the invention and adoption of new production technologies since the start of the Industrial Revolution in the late 18th century. The U.K., the West European countries and the U.S. are examples of countries that had economic growth through the 19th and 20th centuries. Some other countries, especially the high-income countries of Asia, caught up with these countries later, mostly after World War II. Japan saw significant economic growth starting in the late 19th century, but its economy, as well as European economies, were destroyed during World War II. They recovered fast during the post-war period. Starting in the 1960s and following Japan’s footsteps, some other Far East countries, such as Taiwan, South Korea and Singapore (these countries, including Hong Kong, are referred to as newly industrialized countries, or NICs) grew economically and caught up with the high-income countries in several decades. Starting from the late 1980s, we have a new group of countries, again mostly in Asia, with high economic growth rates, even though they have not gained high-income country status yet. Although we can list many countries in this group, such as Indonesia, Malaysia, Brazil, Turkey, Thailand and so on, among them the most noticeable is China due to its very high growth rates and the size of its economy. India is another country coming behind China, with high economic potential for the future.

The subsequent models

Economic development models, as countries adopted and experimented with them, have been debated among academics and politicians at national and international levels. Centuries’ old mercantilism was replaced with a liberal economic order in Europe in the 19th century under British "hegemony." Classical liberal economic models based on a laissez faire free market theory, advocating the least government intervention possible, were the mainstream economic thinking until after the Great Depression of 1929-1933. Nonetheless, various types of industrial policies were pursued, especially by the late industrializing countries, for example, Germany. World War I interrupted the international liberal order, and in the 1920s, major economies of the world followed protectionist policies, which harmed all open economies, since their exports went down along with their imports. The liberal economic order of the 19th century was supported by an international monetary system called "the gold standard." World War I also ended this system. The Great Depression further downsized the major economies, and later World War II destroyed European and Japanese economies.

A fresh start was needed after World War II, which also marked the end of colonialism. The world was divided into capitalist and communist blocs at the end of the war. The communist bloc countries aimed at industrialization and economic development through a government-controlled, centrally planned communist system, which collapsed in the 1980s. Among the capitalist block, the prewar major economies designed a new international liberal order with the creation of liberal institutions, namely the International Monetary Fund (IMF), the World Bank and the General Agreement on Tariffs and Trade (GATT), which aimed to liberalize the trade over the upcoming decades. In 1995, the World Trade Organization (WTO) replaced the GATT. A fixed but adjustable international monetary system was created in Bretton Woods, a town of New Hampshire in the U.S.; the IMF was designated as its facilitator. Basically, the U.S. dollar was tied to gold, and other major currencies were tied to the U.S. dollar. This system also collapsed in the early 1970s and was replaced by the current flexible exchange rate system among the major currencies. Nonetheless, a new liberal (or neoliberal) international order was created with increased levels of international trade liberalization over the decades. In comparison to the pre-World War II period, now governments are actively managing their economies with fiscal and monetary policies, following British economist John Maynard Keynes’ economic justification for government intervention after the Great Depression.

At the global level, previously industrialized countries, having achieved their fast economic recoveries, adhered to neoliberal economic policies and liberal trade in the post-World War II period. At the regional level, European countries further liberalized trade among themselves and took steps toward economic integration, culminating in today’s European Union. Other regional free trade areas also emerged over the decades, but none have achieved the same level of economic integration that the EU achieved.

However, many of the low-income countries of the 1950s were producers of agricultural and primary products. The question was how they would industrialize and move toward a higher per person national income. In the international liberal trade environment, they did not have competitive industrial products, and they would not be able to increase their national incomes with the export of primary products. Of course, oil-rich countries are the exception to this. Due to high levels of oil reserves and worldwide demand for oil, they were able to increase their national incomes after nationalizing their oil industries from the colonial period under Western companies. Every country is not oil rich nor has sufficient primary products for exports. Two major models emerged and were practiced from the 1950s to the 1980s. One of these models was import-substitution industrialization (ISI), which aimed at developing domestic industries for manufactured products to satisfy domestic needs instead of importing these products from other countries. However, this model was proven to be unsustainable due to the budget and current account deficits it created. Heavy government involvement and the inability to export manufactured products were the causes of these twin deficits. The ISI model list its appeal, after the debt crisis of the early 1980s. The other model was export-oriented industrialization (EOI), followed by the successful Asian countries discussed earlier in this article.

By the 1990s, most countries left the ISI model and moved toward the EOI strategies within the neoliberal international order. In the meantime, former communist countries transitioned to market economies. The membership of the WTO increased to nearly 170 countries. Starting from the early 1980s, Turkey, under late President Turgut Özal’s leadership, also moved away from the ISI model. As countries transitioned to the new model, most of them needed loans from the IMF and World Bank. These institutions provided loans with the condition of structural adjustment reforms. The guiding economic ideology of these structural reforms is called "the Washington consensus," supported by the IMF, the World Bank, and the U.S. government, all of which are in Washington, D.C. The emphasis was placed on privatization of state-owned enterprises – especially ones that generate losses and burden government budgets – deregulation of markets and liberalization of trade.

The Washington consensus policies brought mixed results for countries. They did not benefit the poor inside countries and in some cases worsened income inequalities. In recent decades, a "new consensus" has emerged, consisting of many policy recommendations of the Washington consensus but also laying responsibilities on governments for reduction of poverty, provision of public goods and inclusion of all segments of their populations in the process of economic development. While the Washington Consensus was debated for its pros and cons, China emerged as a quite distinct model. The country has moved away from the communist system, but its state-owned enterprises continue to play an important role in the economy. It has been experiencing market liberalization without political liberalization. More significantly and like other Asian countries, state-guided industrial policies have been playing a major role in the development of selected industries. In fact, both the Chinese economic model and the way other Asian countries conducted their EOI policies were not a good fit for the developmental framework of the Washington consensus.

The Turkey example

Turkey, after experiencing the ISI model, and transitioning to the EOI model with structural reforms, has made significant progress in its economic development goals in recent decades. However, unlike the Asian export-oriented countries, Turkey continued to have persistent current account deficits due to its oil and gas imports as well as increased demand for imported intermediate and consumer products, as a result of its growing national income. Even though Turkey’s exports have also grown significantly, its imports notably exceeded its exports. The high valued real exchange rate was partly to blame for Turkey not being able to close the current account deficit. The government, with the drastic depreciation of the Turkish lira, has recently announced "new" development policies, which emphasize export-led growth with increased investment and employment. As Turkey’s products have become relatively cheaper, its exports are expected to grow, while its non-energy imports decline. In the coming months, Turkey’s current account deficit will most likely close, possibly turning into a surplus. The post-coronavirus period is also likely to create new opportunities for Turkey’s exports.

However, the problem is Turkey’s high inflation and instability in the currency markets. The success of the export-led growth strategy depends on stopping inflation and stabilizing the currency. If inflation and currency instability get out of control, the reduced confidence in the economy and investments due to the uncertain economic environment could slow economic growth, if not lead to a recession. Once incoming foreign currency –with the help of exports – exceeds outgoing foreign currency, the pressure on the Turkish lira will likely ease. If inflation can also be controlled, Turkey’s economic growth could continue with exports in the near future. 2022 will be the testing year of the new policy.