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G20 harnesses the power of ideas

Interview - April 13, 2015

Turkey’s G20 Presidency has placed great emphasis this year on contributions from feed-in groups such as L20, B20, C20 and T20, the latter of which is composed of think tanks. This year’s T20 Chairman is internationally respected economist Güven Sak, who is also the director of economic think tank TEPAV. Mr Sak says that T20 is happy to assume the challenge laid down by Deputy Prime Minister Ali Babacan, who tasked the group with contributing significantly to every item of the G20 agenda, whilst identifying future problems for the global economy “from 10,000 metres above”. (additional comments by Selim Koru of TEPAV)

GUVEN SAK, CHAIRMAN OF THE T20
GUVEN SAK | CHAIRMAN OF THE T20

Turkey has developed rapidly since the turn of the Millennium, establishing itself as one of the top 20 economies in the world. But you recently stated that Turkey has lost its economic momentum. How can this be regained?

It is both very easy and very difficult. It is easy because we know what needs to be done in order to regain this momentum but some things are not that easy to do in practice. Turkey started its economic transformation with the policy and price reforms of the early 1980s. I think that led to rapid change in the political landscape throughout the country, because the economic transformation process developed into a social and political transformation process.

Changes since the beginning of the millennium are related to three things. One is the Customs Union Agreement in the late 1990's, which provided the environment for the change. The second is the structural reform that Turkey achieved with Kemal Derviş, former Minister of Economy. The third is the political stability that we achieved after 2012 elections. I think those three things, coupled with the structural transformation process that was started in the 1980's, pushed Turkey forward and was the basis of Turkey’s success. It didn't happen out of the blue. It was a long transformation process.

Since 2007, we haven't done much in terms of structural reforms. I think today's problem with the Turkish economy is related to that fact. We have also been impacted by the European financial crisis, of course. I think this last problem is secondary because we have seen that it is possible to do some reforms and to positively differentiate yourself and your economy from the world economy. The Indians did it, and also the Indonesians in the last year. They showed that, even under difficult circumstances, it was possible to do something, but we didn't do our homework.

Turkey has set forth a highly ambitious Vision 2023 agenda that would see the country become a top 10 economy with exports worth $500 billion by that year. Are these goals realistic and feasible?

Again, yes and no; it is possible to achieve these goals. If you look at historical data, there are many different comparisons that can be made but it took more or less fifty years for the United States to increase per capita income from 10.000 USD to 25.000 USD, so that`s our objective in this place. It also took the UK about fifty years. But if you look at South Korea, for example, it took only around fifteen years for them to pass from 15.000 USD to 25.000 USD. So, it is possible with the new innovation-based growth that is taking place at the moment, especially in European countries, in biotechnology, life sciences, material sciences and also in computer sciences. The advances in these new technologies and technology platforms have the capacity to influence positively the growth process or increase productivity levels in all the sectors. It is possible to achieve this in a shorter time span if you focus on the right things.

In terms of our preparedness, Turkey has started to focus on these issues, which have already been mentioned in the last development plan of Turkey. The problem is how to manage this new transformation process in an effective way. As a result, if we have effective management, it is possible to achieve the targets. Obviously, it will take us about ten years to achieve them. However, it all depends on whether Turkey is going to have some time to focus on the structural issues. There have been so many elections in recent years which have distracted us.

The OECD released a study in December 2014 which showed that income inequality is actually bad for growth. Turkey happens to be one of the G20 countries with the highest disparity between rich and poor. What can be done and is being done to address the income inequality gap domestically?

It is true that Turkey is the most unequal country in the OECD, but you need to take into consideration the fact that during the last ten years there was improvement; the income discrepancy was higher and inequality was a bigger issue 10 years ago but there have been some positive developments. In other OECD countries like the USA and Israel, the gap between rich and poor is growing. I think it is related to technology. The realties that the US and Israel are facing, for example, are not the same facts that we are facing. New technologies are increasing income inequality within countries; I think this is the problem.

Selim Koru:  In the most developed countries in the OECD, income disparity is getting worse whereas in Turkey there's slow improvement.

Yes, it's very slow and we are still the worst in the OECD but there's a relative improvement. That is probably because we haven’t reached the point of technological innovation of some countries. When we do, the situation will worsen.

Is there any way to avoid this?

The world is trying to find a way to avoid it. A growing chunk of revenues generated by this innovation-led growth is going to the people who invented the technologies. Productivity is increasing all around the world, but the wage share of GDP is declining everywhere. It is due to the fact that the share of those innovators are increasing within the GDP. It is a global policy issue. There are ongoing discussions on the importance of public sector support for developing innovations. For example, there could be a public equity fund established from the profits of innovations. The funds could be distributed to private companies for new R&D support and used for increasing the skills levels of the population in general. This is the new kind of inequality problem that Turkey is going to face, but more developed countries are already facing it.

Selim Koru: It depends on how quickly Governments can adapt their old institutions to the new technologies. These technologies can create robots that put people out of work but can also create online universities where people can gain skills. Some countries are now adapting to online technology in education. Countries like the United States and Brazil, for example, have been experimenting with alternative, more cost-effective higher education schemes. The countries that do that quickly will be able to get ahead whereas countries that don't will probably be victims of the destructive side of technology.

I want to talk about the inclusiveness guiding principle of the Turkish G20 Presidency. By its very nature, can the G20 be inclusive?

The G20 is not very inclusive, so that's one reason why Turkey chose this principle. Considering that the G20 Presidency is going to pass from the western part of Asia to the Far East in 2016 when China takes over the Presidency, I think it is a good choice for a focus since it includes many things. It means that, for example, the G20 is not only about the interests of multinational companies but also about SMEs, so there's a need to have a new vista to look at the problems or the economic policy implications of decisions and their impacts on SMEs. I think this is an important issue that needs to be taken into account.

The objective here is to turn our SMEs into international companies and the way to do that is to help the multinationals to establish stronger and more inclusive global value chains all around the world. The way to do it is for countries like us to see why global value chains are not passing through some parts of the globe and why they are choosing other parts of the globe, so that we can also understand the type of policy reforms that need to be performed in our type of countries. In order to create an interest among politicians you have to build this kind of bridge between the politicians and people living in their lands, and SMEs are central to this. The aim is to ensure that leaders are not only acting for the vested interests that dominate the globe now, but also allowing others to enter the game.

Secondly, although G20 countries are responsible for 80-85% of global GDP, there are other countries that are left out. Those countries should not feel they are excluded from the process. If you look at those countries and if you make a decision that infrastructure investment is a good way to boost all our economies, as proposed by the IMF and the World Bank, then countries that are on the fringe – the LIDCs – are in need of huge infrastructure investments and we can all do business in those countries at the same time. The issue is how we are going to finance the investments. It is important to take those LIDCs into account and it is also fundamental to turn the whole globe into one marketplace to tackle the infrastructure bottlenecks.

Thirdly, inclusiveness relates to the latest discussions on the Asian Infrastructure Investment Bank. China, for example, has been a full member of the United Nations since 1971. They have a vote in the Security Council. But the other mechanisms, such as the IMF and the World Bank, have not transformed themselves yet. There have been some incremental improvements. Turkey, for example, now has an Executive Director in the IMF. But these changes are not enough. The economic centre of gravity in the world is changing and all actors have to be included in the game. The United States needs to lead the process of change.

I believe that connectivity in infrastructure is what we need, which means connecting the outer fringes of the globe to the centre of the globe. That’s why China decided to revitalize the Silk Road, which will include all of central Asia into the world economy again. These are wise decisions. In prioritizing these discussions, there should be a more equitable decision making process; the Chinese seem to understand that. The World Bank has started to do this as well. (They distributed the funds but this only led to corruption and wasted resources at the same time.) There's a kind of an element of conditionality in all World Bank finance when it comes to infrastructure. Why? Because when they tried to do it without conditionality, it led to corruption. When it comes to the Chinese ideas for global fund distribution, again, there's the need for some eligibility criteria. It is good to define standards in a more inclusive manner, discussing all the details together. This is an ongoing process.

You cannot solve all the global inclusiveness problems in one year. There are also other issues. One is income inequality. The other is the need for some kind of global R&D Cooperation Scheme, since all the developing countries would like to take part in this innovation process that is led by the United States; they would like to share the benefits and learn about these things. They would like their experts and scientists to be trained in all the latest fields. Some of these countries are already now using their huge public procurement budgets for that purpose. Some countries are approaching innovation in a good way, like China, and some in a very bad way, for example, Russia. So, there's a need of some discussions on scientific collaboration. The gender gap is another inclusiveness agenda item that may come to the fore later, perhaps during the Chinese Presidency.

Deputy Prime Minister Ali Babacan said the role of the T20 is to “fill in the blanks” and “identify issues from 10,000 metres above”.  How would you define the role of the T20?

T20 is slowly defining its role now. This year, we are working closely with Chinese think tanks. The major problem with the G20 is that there is no fixed secretariat and every year the agenda starts anew, so there is not much scope to hatch ideas for future discussions. This year we have decided to use T20 for this purpose. It is possible for us to take up some important issues that are not yet collectively agreed upon. We can formulate ideas and make them more acceptable for all parties involved. For example, this year we took Technology and Innovation as a separate topic within T20 and we are trying to lay the framework for easily agreeable topics for future years.

Moreover, what we can do is to look for and explore new global policy issues that the leaders may need to discuss and find solutions at that level. In the case of the T20, it is possible to establish a kind of virtual global policy dialogue network for different topics. This can include thinkers from outside G20 members. This network will be viable and will contribute to the G20 process as a whole. Moreover, it can also fill a kind of a blank in the process, as Mr Ali Babacan said.

So we are widening the bandwidth. It is good to foster communication at a more informal level. When I talk about things it does not mean my government agrees. But the think tanks are a good channel for the global community to increase dialogue.

Finally, Mr Babacan also said the G20 Presidency and the work of the T20 and other groups can help fix Turkey’s international image. Do you agree with this?

Yes, it is not a mystery that the image of Turkey is not great; we know that we need to do something about it. The important issue is that when it comes to finding a positive solution, we did it before. We tried many times in the 1980's and 1990's with structural reforms, and we failed so many times that at the end we learnt about failing. But we found the solution to those issues. I think that that the entrepreneurial spirit that created the Turkish success at the beginning of the millennium is still alive in this country. It is important to show that it is still alive.

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