In the last week of April, heralding the coming of spring, the North Korean and South Korean leaders held a historic summit. Although apparently intimate meetings between the two leaders were described as a positive step towards stabilizing the region, there is much effort to be made. Besides, there are too many questions waiting to be answered. Is North Korea really sincere or trying to save time? How will China react to North Korea’s potential departure from its axis if relations improve? Will South Korean individuals shoulder potential economic burdens, as West Germans did in the past? How long will the Trump administration continue to be dovish against North Korea? Since I am not a political scientist or an international relations expert, I am glad that I don’t have to look for answers to these tough questions. The topic that I want to focus on here is quite different.

Turkish President Recep Tayyip Erdogan made an important visit to South Korea at a time when the 38^th parallel had experienced a dramatic event for global stability and peace.  President Erdogan and his counterpart Moon Jae-in signed four bilateral agreements on cooperation in higher education; information, telecommunication, space and satellite technologies; industry and energy; and health and medical science.  Prime Minister Binali Yildirim and his delegation also made an official visit to South Korea a few months ago. Turkey aims to strengthen its relations with East Asia, both commercially and financially, because the center of gravity of the world economy has gradually been shifting to Asia.

South Korea is a social laboratory for development economists, enabling them to understand how the state-led development strategy could be implemented successfully. South Korea is one of the few countries that have caught up with the developed world by experiencing a technological big leap with a strong industrialization push. Today, South Korea is the world’s leading spender on R&D as a percentage of GDP, innovating path-breaking technologies, and has global giant companies in different sectors.  In fact, South Korea had a similar level of development, in terms of GDP per capita, with Turkey in the early 1960s.

Turkey implemented a state-led industrialization strategy during the Cold War, just as South Korea did. However, while Turkey failed in this regard, South Korea took off. Smart industrial policies, strong bureaucratic capacity, an export-oriented approach, and a vibrant private sector have facilitated South Korea to climb up the development ladder.

South Korea has given priority to the manufacturing industry while giving incentives and making investments. Why? Compared with agriculture and services, in the manufacturing industry, productivity and spillover effects are higher. The manufacturing industry also offers special opportunities for capital accumulation and economies of scale.

Smart industrial policies are needed to avoid pre-mature a deindustrialization process and the middle income trap. Instead of giving incentives to all firms and industries, developing countries should pick the most promising firms and industries and support them. When giving support, South Korean governments set targets for firms and industries, and monitored them closely.

South Korea not only gave incentives to firms and industries, but also used disciplinary measures (e.g., withdrawal of subsidies and preventing the companies from participating in a public procurement). The carrot-and-stick approach was one of the most important reasons that made East Asian countries, such as South Korea, more successful than Latin American and Middle East countries.

Government supports and incentives were conditioned on performance, and especially on export performance. South Korea shaped its production structure by targeting mainly global markets, instead of its own market. The South Korean economy has risen with its tremendous export success.

To reap maximum benefit from state support and incentives, South Korean governments have taken into account upstream and downstream industries when designing industrial policies over the years.  Governments gave more support to industries with high backward and forward linkages. By doing so, South Korea increased its productivity level, minimized its dependency on imported high-tech intermediate goods, and offered more jobs to its citizens.

Since industrial policies are multidimensional, ministries and government agencies should work in a coordinated fashion to ensure that policies are implemented properly and efficiently. This is the working principle of the South Korean state. Strong bureaucracy has played a pivotal role in implementing all these policies featly.

In South Korea there is an entrepreneurial spirit that has a global vision and puts production success ahead of monetary success. Entrepreneurs wanted to prove to the whole world that South Koreans could produce as high quality and diverse products as Westerners. It was not enough for them to be an ordinary part of the global production chain, although this is an easy way of making good money with taking little risk. They wanted to be the special one. And they (e.g., Samsung, Hyundai, LG and Kia) did.

Over the last few years Turkey has started to give more importance to the manufacturing industry in order to reverse its pre-mature deindustrialization process, create more jobs and to escape the middle income trap. The Turkish government has been giving economic incentives to encourage more investment in key areas, such as automobile, defense industry, railway systems, renewable energy technologies, petro chemical industry, medical devices and so on. We need to investigate the South Korean development experience more carefully in order to raise efficiency of these incentives and investments.

There are two main types of monetary policy regimes particularly for developing countries: high policy interest rate – overvalued exchange rate and low policy interest rate – undervalued exchange rate. While there are certain pros and cons for each of these monetary policy regimes, the right one for developing countries is certainly the latter one. However, a majority of developing countries have increasingly found themselves – for the most part inadvertently and/or unwillingly – in a position of embracing the former regime since the advent of neoliberalism together with the financialization of the world.

For a relatively closed economy, pursuing monetary policy conducive to the needs of the country is relatively easy. This was the case for developing countries before neoliberalism, which had been implementing import-substitution industrialization (ISI) roughly up until to the 1980s. During the ISI period, the government had controlled the financial system outright or to a great extent. Even in a large number of developing countries, all or most banks had been owned by the state. Besides that, countries around the world had also controlled credit and deposit interest rates in that era. Further, central banks had directly been controlled by the state. These countries were also rather closed in terms of both foreign trade and international capital flows. Therefore, it was rather effortless for these countries to pursue a low policy interest rate – undervalued exchange rate regime in that period.

However, with the rise of neoliberalism, developing countries one-by-one dropped ISI and embraced an export-oriented industrialization (EOI) strategy. With this switch in economic policy, foreign trade has expanded tremendously and international capital movements increased dramatically. Moreover, the financial system was liberated and the caps on interest rates were removed totally. This era also witnessed the privatization of state banks, alongside other state firms, thanks to the privatization wave, which originated from the aura of the Washington Consensus. Hence, developing countries have become much more open both economically and financially. This transformation diminished the capacity of the state to pursue an independent monetary policy from abroad via her central bank.

Ironically, the emphasis on the independence of the central bank from the state in neoliberal ideology gained much ground at the same time. In the end, central banks did not become independent from everybody as generally assumed, but their subjugation and independence has changed its nature. In the ISI era, states were the masters of central banks and international markets were not important in that regard at all. On the other hand, in the EOI era, the international financial industry became the master of central banks in developing countries to a great extent, and the influence of the state over central banks dwindled tremendously. Note that states in the developing world also became much more susceptible to international influence both economically and financially within the neoliberal regime.

All in all, pursuing a low policy interest rate – undervalued exchange rate regime has become much harder in the neoliberal era. However, in order to complete industrialization processes, developing countries such as Turkey should adopt this regime. This regime is certainly not enough to the industrialization end, but is a must.