R&D Archives - Politics Today https://politicstoday.org/tag/rd/ Fri, 09 Sep 2016 08:17:35 +0000 en-US hourly 1 https://wordpress.org/?v=6.4.8 Financing the Manufacturing Industry in Turkey https://politicstoday.org/financing-the-manufacturing-industry-in-turkey/ Fri, 09 Sep 2016 08:17:35 +0000 https://politicstoday.org/financing-the-manufacturing-industry-in-turkey/

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.

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The Turkish economy has been growing relatively well for the last few quarters, compared to other G20 countries. When we take a look at the composition of this growth, it is clear that consumption and government expenditures have been the main drivers of economic growth. On the other hand, investment expenditures and foreign trade have not provided much support to economic growth for almost two years. Although Turkey’s growth performance is valuable, especially when the global economy hits choppy water, it is not sufficient for the country to achieve its big targets (such as Vision 2023).

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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.

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]]> Re-Thinking the Human Capital Aspect of Industry https://politicstoday.org/re-thinking-the-human-capital-aspect-of-industry/ Fri, 09 Sep 2016 07:51:18 +0000 https://politicstoday.org/re-thinking-the-human-capital-aspect-of-industry/

The human capital aspect of the new industrial revolution necessitates prompt planning with an educational focus that will equip students with technological backgrounds, starting from early ages.

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In the last few decades, most middle-income countries around the world have been unable to graduate to the high-income class. Those countries are presumed to struggle with an economic phenomenon called the “middle income trap” which describes the case in which productivity cannot be further raised and competitiveness is lost to some extent. On the other hand, endogenous growth models suggest that a country’s ability to generate persistent levels of welfare hinges upon the technology and innovation that it employs. Therefore, technological development has long been regarded as a way out, to bypass the so-called trap for middle-income economies, including Turkey. What is more, today, even the advanced economies prioritize their policies on high technology as the main driver to uplift the prevailing stagnant economic performances. Within this framework, industry lies at the core of those modern vital efforts.

The latest associated revolution the world has stepped at is known as Industry 4.0. In the search for a cutting-edge phase of industry, the recent endeavors witnessed have been established to give birth to a brand-new machinery era that will enhance productivity and help the sluggish economies wiggle thereby. Introduced by Germany and widely adopted by numerous developed countries in a short period of time, the new industrial movement is expected to bring back the longed-for efficiency acceleration, along with some competitive advantages. Europe, in particular, is eager to break the de-industrialization trend of the last decades with the aid of Industry 4.0 and support its lingering economy by this means.
On the other hand, the transformation in question will have implications not only for the upgrade-dedicated economies but also for the rest of the world through the competitive dynamics to be rebalanced. For this reason, the state-of-the-art industrial tide also concerns the developing economies, at least those that have assertive plans for future growth. In this respect, Turkey, with an economy set on transiting to the high-income class, will also have to take relevant policies into consideration.
Herein, it is obviously known that, for any country, the degree of success on this path will depend on the appropriate formulation of planning that entails courses of action in basic matters such as investment, data analysis, information security and human resources. Then again, while all such details are inevitable to be faced for the industrial upgrade of the coming age, there is no doubt that the human capital factor is of central importance. That is why, for any economy heading for the latest transformation, it is critical to address the issue from a futuristic perspective directly.

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One fundamental element to be evaluated at this point is the potential impacts of the targeted full industrial automation, which will bring about a more capital-intensive manufacturing environment. While a resulting outcome of such change could be the return of some industries from low-labor-cost locations to their homeland, another related serious implication could be seen on employment levels. This is because the new age, which is basically designed around a higher integration of systems with machines and robots, will inevitably replace the value of human labor to a certain extent. Therefore, prospective changes in jobs in terms of quantity and quality should be well grasped in order to be able to foresee the imminent consequences for individuals and societies.
In this sense, there are several viewpoints regarding the human capital effects of the new revolution, presented in a range of degrees. At the furthest end, for example, manual labor in manufacturing is expected to be radically minimized, significantly reducing the need for related workers sooner or later. A more reasonable stance in this context, however, draws attention to the structural employment shifts, indicating that certain work fields will disappear while some new job descriptions will emerge instead.
In order to concretize the issue at this point, some basic elements of the forthcoming industrial wave can be visited. To be precise, the expected transformation through robot-aided manufacturing, database quality control processes, smart supply chains and simulations provides some hints as to the job types that will be required. In this sense, positions with a nature of more manual work, supervision and quality control are anticipated to fade away, whereas those with higher technical skills will come to the fore. Thus, the revolution is being claimed to unquestionably surge the demand for engineers of various fields, as well as data analysts, simulation experts and R&D staff.However, the vital question that remains to be answered is: To what extent will the new job creations in the cyber-physical industrial world compensate for the losses of traditional positions? It is hard to tell. However, one thing to be sure of is that the cost to the labor force will be more manageable if proper measures are taken in terms of education. That is to say, the human capital aspect of the new industrial revolution necessitates prompt planning with an educational focus that will equip students with technological backgrounds, starting from early ages. Furthermore, in order to diminish the relevant costs to the workforce in the short to medium term, it is important for corporations to consider providing training programs for their employees in order to re-skill them. In this context, there is no doubt that Turkey needs to improve its educational system towards science and technology and shape its labor market in a supportive way.

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