After spending some time in the Mexico and the U.S. last week, I wanted to compare and contrast the economies of Turkey, Mexico, and the United States. Anecdotally, Turkey shares similarities with both Mexico and the U.S. Both countries are very much like Turkey in many respects and I find comparing countries and contrasting growth trajectories is always helpful. Turkey, like the United States, is a consumer consumption economy. Nearly 70 percent of the GDP of both countries come directly from consumer consumption. This means a 10 percent decline in consumer spending would mean, in the best case scenario, a 7 percent decline in overall GDP. We know, however, that even a marginal decrease in spending does not decrease overall GDP linearly but does so with varying multipliers of strength. In other words, a ten percent decline in consumer spending may result in a 10 percent or greater decline in overall GDP as was the case most recently, in Greece.
The most recent data out of the World Bank puts Turkey’s consumer consumption at 68.9 percent of GDP and the United States at 68.4 percent. Mexico is nearly identical to both countries and comes in at 67.3 percent. In 1980, Mexico’s GDP per capita was $2,803 whereas Turkey’s was $1,566. In 2014, Mexico’s was $10,197 and Turkey’s $10,800. So Mexico’s GDP per capita increased by a factor of 3.6 while Turkey’s increased by a factor of 6.9 during the same period. Why did Turkey grow faster?
Both countries are considered the factories of their much larger neighbors, the U.S. and the European Union respectively. While both are known as export dominated countries, both run a massive balance of trade deficits, although Turkey’s is much smaller than in previous years. Mexico’s proximity to the United States and its free trade agreement with Canada and the U.S. allow it to trade freely with both countries. This also allows these countries to export to Mexico freely. Similarly, Turkey experiences the same trading agreement with much of its European neighbors.
Another comparison, one I’ve made before in this column and one that is vital to this discussion, is that of South Korea. South Korea’s per capita GDP in 1980 was $1,788 and is now $25,997 for a growth factor of 14.5. While Mexico has natural resources that both Korea and Turkey do not enjoy, South Korea’s ability to enjoy hyper-growth relative to Turkey and Turkey’s ability to enjoy greater growth than Mexico’s are both factors of investment in one simple thing: technology. Technology is what has made South Korea what it is today and is what will make Turkey what it will be tomorrow. Investment in cutting edge technologies is the only path forward for Turkey and one that its policy makers have no choice but to invest in.
While Turkey has made serious strides in technology investment in the past decade, much more can be done. The United States National Science Foundation and the National Institutes of Health are two large government run foundations that invest billions in research and distribute grants to companies that also invest in science and health. The combined budget of the two foundations is nearly $50 billion and their grants reward both the public and private sector for investing in science and technology. As a recipient of funds from both foundations during my college years, I can attest to the doors such grants open for all types of research, research which would otherwise be impossible to do with little immediate commercial appeal. An investment in basic research, however, generally yields the greatest dividends down the road and is something Turkey does very little of.
In emerging markets, there is often much investment needed in many fields but not enough resources to go around. As with any investment strategy, prioritization is key. The message to this government and all future governments should be, “invest in technology above all else.” If Turkey is to meet its 2023 and 2073 economic goals, it has little choice but to liberalize economic policy when it comes to investing in technology and to do its utmost at encouraging both the public and private sectors alike to follow suit.