The A, B and C of Development

There are four countries which had welfare levels considerably below the EU average at the time that they became members. They are Ireland, Greece, Spain and Portugal. Our research indicates that, in terms of development, only Ireland benefited from EU membership. Contrary to what we had supposed, Greece actually suffered in terms of development from EU membership. There is no significant difference between the welfare levels in Spain and Portugal before and after they became members.

In terms of Purchasing Power Parity (PPP) per capita national income, the figure for Ireland was 63.2 percent of the EU average when the EU was established in 1957. In 1972 this declined to 60.9 percent. Ireland became a member of the EU in 1973. The data for 2004 show that Ireland’s per capita national income is now considerably above the EU average.

In 1957 per capita national income in Greece was 50.8 percent of the EU average. In 1980, one year before Greece joined the EU, this rate had risen to 74.2 percent. In 2004 the figure was 76.9 percent. In 1957-1980, the years between the EU’s foundation and Greece becoming a member, Greece’s per capita national income rose by 1.7 percent per annum. After it became a member this rate was only 0.1%.

The Asian Tigers

The situation in both Spain and Portugal is very similar to that of its neighbour. Both countries joined the EU in 1986. When the EU was founded in 1957, per capita national income in Spain was 51.8 percent of the EU average. This rate rose to 72.1 percent in 1985 and 88.7 percent in 2004. In Portugal these levels stood at 42.2 percent, 57.8 percent and 69 percent respectively. As can be seen from these figures, the pace of convergence between welfare levels in these two countries and the EU average before membership remained the same after membership. The rates of convergence before and after membership are very close to each other. This shows that EU membership did not provide an extra boost to development in either country.

The same table includes data on Japan and South Korea, which managed to develop without the EU. In 1957 Japan’s per capita national income was 47.9 percent of the EU average. At that time, Japan’s level of welfare was behind that of Greece. Today, Japan’s per capita national income is higher than the EU average. South Korea has succeeded in raising its per capital national income from only 15.3 percent of the EU average in 1957 to 71.6 percent today. In the period 1957-2004 South Korea sustained a high average annual convergence rate of 3.3 percent.

Half a century wasted

Unfortunately, the saddest result in the table relates to our own country. In 1957 Turkey’s per capita national income was 27 percent of the EU average. In 2004 this rate stood at 27.8 percent. This means that we made no progress over a period of nearly 50 years. In the period 1957-2004 the average annual rate of convergence was only 0.1 percent.

Two conclusions can be drawn from the results of our research. The first is that becoming a member of the EU is no guarantee of rapid development. The second is that it is possible to develop rapidly without being an EU member.

There is no doubt that becoming a member of the EU will bring Turkey a number of advantages in terms of development. For example, the interest that foreign capital has recently begun to show in our country is just one such advantage. But if we rely too much on these advantages and fail to develop our own policies than we could end up like our neighbour Greece. Even if we become an EU, in order for us to do what Ireland did, member we have to make a much greater effort than we have over the last 50 years.

On the other hand, if we do not become a member of the EU then this does not mean that we are condemned to underdevelopment. It is possible for us to break the vicious circle of poverty by following the road taken by Japan and South Korea.

Pushing ahead with the EU project

We have published the results of this survey to demonstrate that Turkey’s future is not entirely dependent on the EU. This does not mean that we are saying that we should completely abandon the goal of becoming a member of the EU. Nor should we paid any heed to solutions which treat us as second-class, such as the notion of a privileged partnership. But if EU membership does not happen, then we should also be aware that this is not the end of the world.

As we noted in the January 2005 edition of Capital, formulating a B plan for the EU does not require the shelving the ‘EU Project in the Economy”. On the contrary, we need to push ahead with this project even more enthusiastically. Because if we work hard at this project over the next ten years then we shall be able to close narrow the welfare gap between Turkey and the EU a little. The above mentioned article argues that this will make it easier to realize EU membership.

We still stand by our view, but let’s just suppose that we do not become an EU member even though we have implemented this project. If this happens then we shall still have the economic benefits that have accrued as the result of implementing the EU project. So the experience we have acquired will enable us to develop and continue our economic progress.

WHAT DOES THE MEDIUM-TERM PROGRAMME OFFER?

The State Planning Organization’s first Medium-Term Programme (MTP), which covers the years 2006-2008, came into effect following its publication in the Official Gazette of 31 May 2005.

The rates of Gross Domestic Project (GDP) foreseen by the MTP are comprised of the ‘fixed menu’ to which we have become accustomed in recent years. The target rates for growth in 2006, 2007 and 2008 are all the same at 5 percent each year. Of course, the economy will not follow such an orderly path. Moreover, if Turkey is to overcome its basic problems then the rate of growth must be at least 1-2 percentage points higher than these targets. Research shows that, just to cover the increase in those entering the labour force, it is essential that the economy grow by an annual rate of 6 percent.

When we look at the targets for consumption, investment and foreign trade, we see that the forecast is that they will be driven by investment and foreign demand. The expectations for an increase in domestic demand are not very high. The private sector is expected to provide the increase in investments. The MTP predicts that we shall have to wait until 2008 in order to see a significant increase in public investment.

The programme sets a target of an increase in our per capital national income to US$5,621 in 2008. In Purchasing Power Parity (PPP) terms this figure will be over US$ 10,000.

Employment is expected to rise by 461,000 in 2007 and 459,000 in 2008. Unemployment is forecast to fall by an insignificant rate. We believe that such increases in employment will mean that the unemployment rate will rise even higher. Because the number of people entering the labour market every year in Turkey is not less than 500,000. Even if the rate of unemployment remains at the foreseen level then it may prove a headache for the government during its second term. Because, inflation has been defeated, the people’s main priority will be unemployment.

If we consider the historical data in this series then the targets for the current account as a proportion of national income are high. But if the increase in the inflow of direct foreign capital continues then financing these deficits will not be a problem. In addition, the programme foresees a gradual decline in the rate of the current account to national income.