Development vs. Growth (Revisited)

In OECD Economic Outlook, June 2020, developed countries and emerging-market economies & developing countries are treated differently in different scenarios, respectively, in a “Single-Hit Scenario” and in a “Second-Wave Scenario”. After reading the OECD’s estimates, I wondered whether the differences between levels of development in developing countries and developed countries are the reason behind OECD’s predictions.

If yes, isn’t it better to be a “rapidly developing country” rather than being a “rapidly growing country”? I’m sure there are many people capable of providing a good answer to this question. I tried to look at this issue from two key perspectives of the development theory, which were thoroughly highlighted in my latest book “İktisattan Çıkış” (Exit from Economics).

One of the most important approaches in development theory is associated with the private sector:

“No progress is possible without investing in human capital…”

That is to say, investing in machinery would not help increase productivity unless you develop your employees’ skills and offer them sustainable learning activities to create performance improvement. However, companies in Turkey sadly can’t manage to keep up-to-date with the industrial revolution.

Trying to improve human resources management by taking into account only the demands of “blue collars” is utterly outdated. Global firms today, prefer to hire candidates that equipped with good knowledge of design, branding, continuous innovation, sales, marketing, collection, and logistics.

Despite the fact that the A.I. is being used in many aspects of manufacturing today, it can be seen that my statement above still remains valid. Pre-manufacturing and post-manufacturing services always add more value to products and services. Therefore, improving the skills and abilities of employees working in manufacturing and production is a must.

The world is already moving towards multi-clouded and fully automated Industry 5.0 environment even before Turkey and most of the emerging countries are able to understand Industry 4.0. The value of “factory production” activities within overall prices of goods and services in the new world order has already fallen below 15%. As I mentioned above, the factors that determine the price of goods and services are these pre-manufacturing and post-manufacturing services and activities. Those who fail to offer their customers these critical services in a proper manner are sadly destined to remain at the bottom of value chain. This being the case, it seems unlikely for Turkish private sector to lead the economic development.

Now, let’s take a quick look at the second key perspective of the development theory:

“It is the duty of the State to invest in infrastructure to reduce production costs in manufacturing and other businesses”.

So, the development theory suggests that a very critical role must be performed by the Government, in other words by the public sector. According to the theory, the fundamental duty of a State is to build the necessary infrastructure to ensure a decrease in producers’ costs. That is to say, it seems utterly unlikely to achieve real development by building bridges with poor vehicle travelling/passing rate because they are expensive, or tunnels with expensive tolls, unnecessarily large public hospitals or public buildings and governmental offices, airports so large that they make people waste their time and energy. Such attempts were made before, especially by the totalitarian leaders of the WWII era who were living on the edge of extreme modernism.

In early 1930’s Atatürk had foreseen that Hitler’s and Mussolini’s delusions of grandeur would lead to massive destruction of Germany and Italy. Atatürk’s warnings for the rise and the collapse of Nazi Germany are also held by the National Archives of the United States today. According to Mustafa Kemal Atatürk, the founder of Turkish Republic, the three pillars of economic development are education, justice and freedom.

Today, these three pillars are referred to as major musts that must be built upon new structural reforms. The longer we delay these reforms, the less chance we have of achieving development.

Even these two perspectives alone tell us why Turkey can’t become a developed country.

I’ll share with you the details of OECD’s June 2020 economic outlook in tomorrow’s report, hopefully helping you understand what I am trying to say exactly.