Since the onset of the global economic crisis political, economic and technological competition among the global and emerging powers acquired increased pace and tenacity. While the U.S., Russia and China experience geo-political tensions with increasing frequency and face the possibility of direct confrontation beyond proxy-wars; liberal economics and free trade approaches rapidly lose their proponents in the world economy.

The political backing behind the liberal international trading system represented by institutions such as the World Trade Organization is fading, while neo-protectionism gains ground along with rising economic nationalism. Triggered by the Trump administration in the U.S. and the rising tide of nationalist/neo-populist parties in Europe and elsewhere, trade wars, currency wars, cyber-space wars, economic sanctions and accusations of technological theft are also increasing.

A fierce conflict for sustained global economic hegemony, or to use Organski’s words, to prevent a “power transition,” openly takes place between the U.S. and China. All these developments constitute crucial challenges for the political and economic authorities of emerging powers and developing countries. There is an ever-increasing pressure on decision-making communities in these countries to monitor global developments closely and formulate effective and timely responses.

Managing the Turkish economy under presidential system

Turkey is heading for a systemic transformation towards the “Presidential Government System” under such difficult global conditions. But it is exactly these difficult conditions that make Turkey’s systemic transition more important and inevitable. As such, the systemic reform that will take place in Turkey following the June 24 elections shall be conceptualized not only as a legal and political reform that will restructure the separation of powers among the executive, judiciary and the legislative branches of the government. On the contrary, it should be construed as a structural reform that would transform the macroeconomic governance architecture and socio-economic development strategy with comprehensive institutional changes.

While embarking on major institutional reform in macroeconomic governance, there are several common features that need to be taken into account from the successful development experiences across the globe:

1. Strong political leadership that supports politico-economic stability and the autonomy of key institutions formulating long-term development policies with a clear division of labor.
2. A highly qualified, professional, meritocratic, practical, fast-acting, problem-solving bureaucracy controlled by “pilot organizations” with strong channels of communication with political and economic actors.
3. A dynamic, open-minded and innovative private sector that shares common interest with the politico-bureaucratic elite as to the long-term development goals of the country and focuses on vibrant sectorial competition strategies with a global view.
4. A dynamic social structure that allows vertical mobilization through a high-quality education system, participatory institutions and structured collaboration among political, bureaucratic and market actors.

Therefore, Turkey’s initiative for institutional reform shall proceed in a way to enable smooth progress on all these accounts. When we look at the historical record of previous AK Party governments for institutional reform, it is clear that significant reforms were made to institutionalize a “regulatory state” in the first decade of the 2000s. Consequently, fiscal discipline was permanently established and the financial structure became resilient against severe international shocks.

Several institutional reforms in line with the “Post-Washington Consensus” style of prudent financial and macroeconomic regulation were successfully accomplished. Instrumental independence of the Central Bank to conduct monetary policy and autonomy of key regulatory agencies responsible for the supervision of regulation of finance, capital markets and other services were secured. This robust regulatory framework was extremely effective in constraining the negative repercussions of the global economic crisis on Turkey.

But there was one major structural problem with the overall macroeconomic management approach in that it favored the inflow of international funds to sponsor the booming construction, finance and service industries; rather than industrial production and technological know-how.

Over the course of the years following the global economic crisis Turkey tried to realize a paradigmatic transition to a more production and real economy oriented growth model with no avail. In order to precipitate a transition to a more industry-technology and export oriented growth strategy various inventories and reports were prepared, sectorial goals were determined and subsidies were released. Yet the path dependency, which remained from Turkey’s stabilization program during the early 2000s with an emphasis on fiscal discipline and the service sector, could not be broken.

Social and political volatilities from the Gezi Park protests in 2013 to the failed coup on 15 July 2016 also exerted a negative impact on the projected strategic transition. As did the hesitant attitude of the AK Party leadership on taking a leading role for industrial-technological upgrading through public-private partnership schemes since these were seen contrary to the principles of economic liberalism.

When we came to 2018, the global atmosphere concerning strategic public involvement in key industries and neo-protectionism are globally accepted practices and there is a relative sea change in terms of the public-private balances in macroeconomic management. Therefore, the political leadership in Turkey has more leeway to exert strategic activism when it comes to achieving prioritized sectorial growth objectives.

Restructuring macroeconomic management

In order to follow global developments leading to the so-called Fourth Industrial Revolution, Turkey needs to radically restructure both the philosophy and institutional manifestations of macroeconomic management in order to keep up with the pace of ever-fastening global competition among global and emerging powers.

Concretely speaking, the following institutional changes could be made in the existing macroeconomic governance architecture:

1. The basic law of the Central Bank could be altered to establish a dual role for the Bank focusing on price stability (inflation control) and employment (growth) as in the case American FED and several other major central banks. This will transform the current standing of the Central Bank from a purely financial management organ to a pilot institution trying to balance price and financial stability with growth and employment objectives in the real economy.
2. The current ministerial portfolio responsible for the management of macroeconomic areas is excessively dispersed. Several ministries could be merged and some of them could be made leaner in order to increase their efficiency.
3. In this context, the current Economy Ministry, Science-Industry and Technology Ministry, and Development Ministry could be merged together to form an “Industry, Trade and Development Ministry.” This ministry could play the role of a coordinating ministry such as Japan’s METI holding the pulse of the real economy and productive sectors.
4. The fiscal and financial branches of the ministerial-bureaucratic network such as the Ministry of Finance and Treasury could be brought under the roof of a “Ministry of Finance and Treasury” so that financing development and budget management could be properly coordinated.
5. A new “Ministry for Science, Higher Education and Information” could be formed to better manage science policy in close coordination with universities and institutions responsible for high-tech infrastructure.
6. An autonomous agency that brings together academics, experts, bureaucrats and key stakeholders from civil society could be formed to monitor the institutional reform process and conduct objective impact analysis such as India’s NITI or Malaysia’s PEMANDU.
7. Sector-specific incentive schemes could be prepared to boost research and development for scientific agriculture, nanotechnology, biotechnology, optics, lasers, rocket science, high-tech materials such as carbon-fiber and renewable energy technologies. Autonomous sectorial monitoring commissions could be formed within the Office of the Presidency to follow up the efficiency of these schemes.
8. Advisory positions within the Office of the Presidency could be organized into more institutionalized offices in order to allow sectorial offices for modernization of agriculture, manufacturing industry, R&D financing, entrepreneurship, export promotion and so on.
9. These presidential offices could follow up both policy formulation and implementation processes in order to solve jurisdiction problems among different ministries and assess the efficiency of devised policies, allowing policy adaptation.

On Wednesday figures published by the Turkish Statistical Institute (TurkStat) showed that Turkey’s industrial production rose by 10.4 percent in September, compared with the same month last year.

In September, the annual increase in electricity, gas, steam and air conditioning supply indices were 13 percent, while the manufacturing, mining and quarrying indices were up 10.4 and 4.6 per cent respectively.

Official data reflected that among all sections and main industrial groupings, the highest increase year-on-year was seen in the durable consumer goods index – which had a 36.5 per cent hike.

TurkStat noted that on a monthly basis, Turkey’s industrial output increased by 0.6 per cent in September, compared to August.

In addition, Turkey’s industrial production increased by 1.9 per cent in the third quarter of 2017, compared with the period of April-June, while the third quarter’s annual increase was 10 per cent.

According to the institute, the purpose of calculating a monthly industrial production index is to measure the evolution of the economy and to see the positive and negative effects of economical political decisions in the short term.

Turkey’s first indigenous automobile

While industrial production has been on the increase, important steps have also been taken to ensure a national automobile is ready for 2019.

On Thursday President Recep Tayyip Erdogan, Prime Minister Binali Yildirim and Science, Industry and Technology Minister Faruk Ozlu attended the launch of the automobile industry’s joint domestic venture at the presidential complex in Ankara.

President Erdogan announced that five automobile supplier firms – Anadolu Group, BMC, Kiraca Holding, Turkcell and Zorlu Holding – will jointly manufacture Turkey’s first national car.

The president expressed his warmest gratitude to the firms and promised his “full support” for the venture.

He also added that he “will closely follow the developments.”

The initiative came after President Erdogan repeatedly called for a joint car project of the Union of Chambers and Commodity Exchanges (TOBB), and the Science, Industry and Technology Ministry.

The president stated that he expected the prototype of the first domestically-produced car to be ready in 2019 and for sales to begin in 2021.

“Provided that I pay for it, I want to own the first automobile,” he said.

“No one should hesitate. We will produce Turkey’s car with the best design and technology, both for our country and for the world.”

 

In recent years, Turkey’s defense industry has been developing rapidly. At the very beginning of the 2000s, the country’s rate of dependency on foreign industrial suppliers was around 80%. It now is able to create weaponry and systems with its local resources. In this regard, The 13th International Defense Industry Fair (IDEF 2017) was important in demonstrating the development of Turkey’s defense industry.

Turkish firms showcased their weapons and weapon systems. The National Corvette MilGem, National Attack Helicopter T129 ATAK, National Main Battle Tank ALTAY, National Assault Rifle MPT-76, National Combat Aircraft TF-X, Turkish Light Utility Helicopter T625, Armed Hürkuş, Missiles (Cirit, Kaplan, Mızrak, Hisar, Som, Bora), National Unmanned Aerial Vehicle (UAV) Bayraktar TB2, Anka and Karayel, Göktürk-1 Satellite and Armored Combat Vehicle are some examples.

There are many other ongoing weapon and weapon systems projects like these that have been completed and are being used by the Turkish Armed Forces (TSK) and the police force. The era of direct procurement from abroad is soon to be over. From joint production and partial design, Turkey evolves towards creating genuine and unique designs.

Strategic Value

The defense industry is actually an integral component of a country’s grand strategy, national security strategy, defense strategy and hierarchy of military doctrines. The success of these strategies mostly relies on military capacity, consisting of national weapons and weapon systems. Therefore, we can talk about the development of military technology in accordance with the aims determined by the hierarchy of strategies.

While the security threats that emerged with the Arab Spring in the Middle East indicated the scope of possible threats posed by states and non-state actors, it also underscored the importance of having and utilizing domestic military technology. Turkey has repeatedly experienced the said strategic value of the defense industry. From the hardships faced before and after the Cyprus Peace Operation to the ones that are faced in fighting terrorism, from direct and indirect embargoes from Western countries to internal and external actors trying to halt the development of the Turkish defense industry, the country has experienced many difficulties. However, despite these past experiences, the Turkish defense industry has started to attract increasing international attention and become a rather hot topic over the last fifteen years. Two Turkish defense firms are now among the world’s top hundred defense firms. According to a 2016 evaluation by Defense News, ASELSAN has risen from 62nd rank to 58th, while TUSAŞ from 78th to 72nd. It should be pointed out that no other member of the Organization of Islamic Cooperation is on this list.

Despite being in a better condition than in previous decades, the Turkish defense industry has to employ multiple methods to meet its strategic aims in shorter periods. The defense industry has critical projects for the future; the national combat aircraft TF-X is one of them. There are alternative solutions for Turkey to eliminate the deficiencies in terms of qualified personnel capacity and technical infrastructure in a short time. According to TUSAŞ General Director Temel Kotil, “The TF-X will be a fifth generation combat aircraft. When we develop this aircraft, we will become the fourth ranking country in this field. TUSAŞ will collaborate with BAE Systems for the initial stage of the project. We are planning to have the first flight in 2023 and employ the aircraft by 2029.”

Political Value

In fact, President Erdoğan’s will for the development of national defense industry allowed the sector to become what it is today. He enforced an approach that relied on local solutions and national power to ensure security and stability. In this respect, it was decided to minimize external dependencies with all kinds of incentives and support for the domestic the defense industry. While the rate of domestic resources being used to meet security needs was 24% in 2002, it rose to 41.6% in 2007 and 54% in 2011. Today, it is around 68%. Having 80% locality in terms of the defense industry, which is seen in developed countries, is what Turkey aims to achieve in the shortest time possible.

Fighting against terrorist organizations like the PKK/PYD and Daesh in recent years, Turkey once again observed the necessity of a local defense industry in its struggle for power with regional and global actors. The US’ strategic armament support to the YPG, and Western countries enforcing a direct or indirect arms embargo on Turkey as a tool during times of strained relations are now frequent occurrences. European countries are either not delivering the promised products or doing whatever they can to delay the delivery. Meanwhile, the systems that are being developed entering the inventory to ease Turkey’s anti-terror strategies and extraterritorial operations are necessary for building up a military power capacity. Looking at the transformation in anti-terror operations due to the use of UAVs is a telling enough sign.

http://thenewturkey.org/securing-turkeys-borders-a-proactive-strategy-with-high-tech-approach/

Müjdat Uludağ of the Undersecretariat for Defense Industries (SSM) stated the following: “The tensions between countries are undoubtedly affecting defense industry cooperation negatively. Especially countries with powerful defense industries are enforcing an industrial policy which aims to prevent new actors from emerging, just to protect their own positions. Turkey’s priority is to establish a completely independent defense industry. Yet, Turkey is also open to cooperation in the defense industry with allied countries; because the real threat is common issues faced by countries, like global terrorism. Common threats require common resolutions.

Keeping this in mind, our institution continues to have bilateral and multilateral cooperation with many countries around the world. We have ongoing cooperation projects with the countries of Commonwealth of Independent States (CIS), Asia-Pacific countries with developed technological infrastructure, South American countries and allies in the Middle East. Turkey will maintain its win-win policy in these defense industry cooperation strategies. In this respect, we expect more active support from our NATO allies against all terrorist activities that pose a threat to Turkey.”

Nevertheless, it is important to make this a goal not only championed by the political establishment, but also by the bureaucracy. Universities and research centers must be engaged in this process and collaborate with the defense industry. This will ease the development of the defense industry and allow its value to be understood by the public. It is obvious that there are certain deficiencies in the cooperation between the defense industry, universities and research centers in our country, especially when compared to other countries. However, according to Kotil, there are hopeful developments in this field:

“The interest in developing technologies in the universities, innovation, intellectual and industrial property, and entrepreneurship has increased in the recent years, showing a parallel with the diversification of support and incentive programs. In this respect, we can say that industrial cooperation both in our firm and country is rapidly developing. With a proactive approach, various policies are being developed and mechanisms created to strengthen the ties with universities. With the implemented applications, strategic cooperation with universities is expected. In this context, TUSAŞ has R&D cooperation protocols with 25 universities, KOOP (long-term internship) with two universities, integrated education program with three universities and Program for Training Defense Industry Researchers (SAYP) protocol with sixteen universities. As a part of these protocols, we are sharing certain information with university staff in engineering departments and research centers about our technological road map and how to conduct projects together. On the other hand, we are working on cooperation protocols regarding research and education with many other universities. A holistic view of Turkey suggests that the country has more potential in developing cooperation between the universities and the industry. For this reason, we try to understand the expectations of universities. We want to improve our cooperation with mutual trust, long-term common goals and win-win principles.”

Therefore, these kinds of cooperation will have positive outcomes in the future. Providing figures will clarify the importance of the subject: today, only at Teknopark Istanbul, there are 170 R&D firms and their 2,750 R&D personnel started around 600 national projects up to today. Moreover, the numbers of firms, personnel and projects are increasing by the day.

Economic Value

Beside its political and strategic yields, the defense industry also has important economic outcomes. Especially with the incentives for exporting and the development of products that can compete on the international market, the defense industry contributed to the economy of the country. Around $196 million in defense and aviation exports in 2004 skyrocketed to $1.673 billion in 2016. The total defense and aviation turnover of $1.855 billion in 2006 is now around the $6 billion mark. As the figures suggest, the capacity and the income of the sector were at lower levels thirteen years ago. Yet, it still lags behind powers that focus on this sector.

Uludağ evaluated the situation in his following statement:

“Our defense and aviation exports are sevenfold when compared to the 2002 data. While the said rise shows that our defense industry is improving in terms of competence, it also indicates to a huge potential waiting to be tapped. As platforms, we have achieved important exports in land vehicles in the past. We are aiming to reach high figures in exports in the global markets in parallel with our business development plans for ship and helicopter platforms along with UAV systems. To reach this target, we are working in coordination with certain public institutions in providing long-term loans for products by the defense and aviation industry that have high strategic value. Meanwhile, the platforms and systems we produce are being used by TSK and our security forces; this will prove to be an advantage for the firms. Yet, our firms focusing on the international markets and strategically prioritizing their efforts with a holistic outlook is also crucial for reaching higher figures in exports.”

Therefore, it could be said that the defense industry may build up a momentum with steady steps and cling onto the international markets. A $25 billion export target has been set for 2025. While this target may be deemed as impossible in the short-term, it is quite possible with the value-added that will be provided by nationalized production of software and hardware. According to the 2016 report of SSM, SSM has approved 269 projects which amounted to TL123 billion. Looking at the distribution of the projects, it could be seen that 47.58% is for domestic development, 8.18% for domestic direct procurement, 20.07% for R&D, 8.5% for joint production projects, and 10.78% is for foreign direct procurement. Therefore, support for projects that are more local than others will bring the desired economic value with it.

Turkey is the world’s sixth largest armament importer and fifteenth largest armament exporter. According to SIPRI data, Turkey spent $15 billion on its defense budget in 2016. Transitioning from a procurer of weapons to producer of weapons contributed to our exports. Turkey’s leading export partners in terms of the defense industry are the US, Germany, Malaysia, the Gulf countries and Azerbaijan. 34.3% of the exports were done with NAFTA members, 23.7% with the EU, 18.5% with Middle Eastern countries, 8.6% with Far Eastern countries, and 7.5% with CIS countries.

There are many steps to be taken for Turkey to have a defense industry that can compete globally; however, looking at the efforts, we easily can say that Turkey is on the right track. The more independent its military technology, the more powerful Turkey will be. In this respect, the private sector has to contribute more and take the initiative.

Turkey is fighting against multiple security threats in a region mired in conflict. To not have any vulnerabilities in its fight, Turkey has to increase and consolidate its military capacity. In this sense, the defense industry has to adopt the network-centric warfare doctrine and shape its efforts accordingly. On the other hand, there are certain risks that obstruct the national defense industry. The Gülenist Terrorist Organization’s (FETÖ) activities serve as a break for certain crucial projects. Similarly, embargoes enforced by Western countries bring the risk of slowing down these projects. However, the most important risk is that immense efforts to improve the defense industry may be halted by bureaucratic procedures. Despite all the hardships and challenges, Turkey must continue developing its national defense industry and seek ways to accelerate even further.

Turkey requires new investments, especially industrial investments, in order to steer its economy onto a sustainable path. Providing external financing opportunities is vital to make this happen. In this regard, financial institutions and markets such as banks, stock markets and venture capital can play a crucial role in helping Turkey to increase its manufacturing investment and to meet its economic targets.Turkey took many important steps in the restructuring of the banking sector after the 2000-2001 crisis. It is true that, up until that time, the Turkish banking sector had never given priority to the private sector, as it has in recent years. However, although there have been significant improvements in the intermediation function of the banking sector, its contribution to economic growth is still below expectations. The banking sector prefers to engage more in household credit and credit cards because of their high profitability and low-risk nature. Banks have been lending more to households than to firms, especially small and medium-sized enterprises (SMEs).Banks are also less eager to finance new entrepreneurs and R&D investments.  Promoting new, young and talented entrepreneurs is crucial to energize the marketplace and increase innovation. However, banks look on new entrepreneurs suspiciously because most new businesspersons have a lack of collateral and credit history.The situation is very similar for R&D investments. R&D-intensive firms are highly dependent on intangible assets that cannot be used as collateral. In addition to this, R&D investments have high initial costs and a longer gestation period. These characteristics of R&D activities do not fit with the way in which banks conduct business. Therefore, banks are usually hesitant to give credit to R&D-intensive firms and industries.

For Turkey, it is not possible to develop the manufacturing industry as desired without promoting SMEs, bringing new entrepreneurs into the marketplace and galvanizing R&D investments. Therefore, policy makers should take some steps to encourage banks to focus more on giving credit to SMEs, new entrepreneurs and R&D firms rather than to households.

Venture capital is a promising alternative way of financing new, young and talented entrepreneurs in the manufacturing sector. Venture capital not only finances bright entrepreneurs but also monitors their development. This is an important feature for corporate governance for young firms. Venture capitalists are particularly astute at picking and developing innovative firms, and thereby paving the way for ground-breaking innovations. The US is particularly successful in this regard. Some of the world-famous US-based giant companies such as Intel, Microsoft and Apple were financed by venture capital at their initial stages. In Turkey, on the other hand, the venture capital market is still in its infancy. To leverage the venture capital market, Turkey is implementing initiatives such as the Scientific and Technological Research Council of Turkey’s Venture Capital Funding Program. Such programs should be strengthened and their number should be increased as well. Improving the legal environment for venture capital is another key agenda item for Turkey.

As it is widely known, large firms can make new investments using internal cash flow, bank credit or equity financing. However, this does not mean that financing large manufacturing firms is smooth and frictionless. First of all, internal cash flows are not usually enough to cover huge investment expenditures. Second, the cost of bank credit (interest rate) is so high in Turkey compared to developed countries, as well as some of the developing countries with which Turkey competes. Third, in Turkey, the stock market is not financially deep, and it depends highly on foreign investors.

Policy makers should work more on promoting the investment and development banking system. Investment and development banks are more appropriate to finance large-scale investment projects. Unfortunately, investment and development banking is still underdeveloped in Turkey.

Islamic finance has a great potential in Turkey, but, so far, Islamic banks have focused mostly on murabaha (making purchases with cost-plus-profit contracts), which has limited effect on the manufacturing industry and the real economy. Islamic banks should provide more profit-and-loss-sharing (PLS) lending opportunities (such as musharakah and mudarabah). Sukuk, which is a type of bond that meets Islamic structures on interest, is another Islamic finance instrument that could fund large-scale manufacturing investments in Turkey. Policy makers should encourage Islamic banks to provide PLS lending and issue sukuk by using incentive-based regulation and strengthening the legal environment.

In sum, Turkey should switch its financial system from debt-based finance to equity-based finance to meet the manufacturing industry’s need for new investments. Developing an equity-based financial system may not only increase investments but also provide financial stability.

For example, during the industrialization process in Britain in the 19th century, contrary to what is commonly believed, the state significantly drove the economy and led Britain’s firms with carrots and sticks. In that period, Britain was one of the most protectionist countries in the world until its economy became “powerful enough.” Britain adopted a free trade policy only well into the second half of the 19th century. The US was no different. From the first half of the 19th century up until the Second World War (WWII), the US was one of the most protectionist countries in the world. The US, just like Britain, used subsidies and protectionism in order to nurture its infant industries. Only in the second half of the 20th century, when its power was absolute, did the US begin to preach free trade.

Most of the rich countries in today’s world got rich through state intervention and protectionism in one form or another.

Moreover, after WWII in numerous countries such as France, Finland, Austria, Singapore and Taiwan, governments tried to develop important industries and improve their industrial base with state-owned firms along with protections and subsidies to private firms. In addition, in countries such as Japan and Korea, firms have been in close relationship with the state in the course of industrialization. Korea is a very curious case in the sense that this country was much poorer than Turkey in the 1960s, when the state started to transform the Korean economy. In the following decades, the government drove many firms into “important industries” such as automobile and electronics. These firms would not have entered these industries if they had been left alone. In the end, some of these firms have become success stories, such as Samsung, LG and Hyundai. And, once poorer than Turkey, Korea now almost two times richer.

Industrial policies are needed not just for getting rich, but also for staying rich, due to the fact that leading industries evolve and change all the time. Britain was the leading economic power in the world in the second half of the 19th century with its textile industry. However, Britain could not keep up with the technological progress in the world in the following century and its influence has gradually faded away. Then came the US hegemony in the 20th century, with its automobile and engine industries. Yet, in the second half of the 20th century, numerous countries began to catch up with the US in terms of industrialization. The US had to nurture and protect “key” and “leading” industries such as computer, internet and semiconductor industries in that period in order to sustain its hegemony; and it was mostly successful in that struggle up until the 21st century.

Industrial policies are needed not just for getting rich, but also for staying rich, due to the fact that leading industries evolve and change all the time.

Turkey started to adopt a neoliberal export-oriented growth strategy in the 1980s. In less than a decade, the economic and financial structures of the country were substantially transformed. However, one thing more or less stayed the same up until a few years ago: the absence of an industrial policy and the hands-off approach of the state. Under both import-substitution (pre-1980s), and neoliberal export-oriented growth periods (since 1980s to about 2010), Turkey has had no concrete industrial policy whatsoever.

In the former period, state protection resulted mainly in an assembly industry, wherein “chosen” firms, through import licenses and subsidies, assembled what they had imported from abroad and sold their products domestically, making very handsome profits with near-zero risk. Thereby, state protection in that period did not pave the way for the development of the infant industries, but rather culminated in the enrichment of a number of firms and their allies in the political sphere against Turkey’s “common people.” In the latter period, the elimination of the trade restrictions wiped out these excessive profits and the Turkish people started to consume a much wider variety of better quality goods, while paying less money.

In the import-substitution period, governments did not have any kind of industrial policy whatsoever in their minds, although the State-Planning Organization (DPT) was founded in the beginning of the 1960s and the state had numerous enterprises, or KİTs. The function of the DPT was merely the expression of wishful-thinking regarding the economy, without any elaboration on, or strategy, or any real planning as to how to reach the economic goals desired. While there were some successful KİTs, these enterprises were actually not infant industries the governments intended to nourish, but rather public resource-draining “political entities” with bad governance, overcrowded employees, retarded technologies and intentionally underpriced goods.

The Turkish state has now been trying to catch up with industrialized countries through colossal investments in the defense industry.

In the latter period, on the other hand, the absence of an industrial policy lingered and even gained an ideological base, namely neoliberalism, up until recently. The Turkish state has now been trying to catch up with industrialized countries through colossal investments in the defense industry; significant progress has been made as “domestic” rifles, tanks, helicopters and even aircrafts have been built or will be built in the near future. The state also has been trying to “develop” the prototype of a domestic passenger car, since no firm intended to step in this industry, although there have been automobile assembly factories in Turkey for more than sixty years.

While these recent developments are important steps in the right direction, they are not sufficient in any sense, because the government has been trying to improve our industrial base single-handedly. The Turkish economy needs a close relationship and collaboration between the state and private firms, or some kind of “carrots and sticks” industrial policy. The state should try to drive and enforce “chosen” firms into strategic and promising industries via carrots such as subsidies, tax-exemptions, cheap credits, tariff protections etc., and sticks of various kinds, in order to prevent firms from making investments in unproductive industries, all within the framework of a comprehensive industrial policy. Such a policy has worked very well for numerous countries such as Japan and Korea, and more recently for China. Now it is Turkey’s turn to implement such a policy.