Im delight to introduce the moderator for the second panel on the turkish economy. He is a senior fellow and director of the turkey project in the center on the United States and europe at the brookings institution. At brookings and previously on the faculty of the university in istanbul he has produced a rich body of Scholarly Research on topics including u. S. Turkish relations and turkish trade policies and Foreign Trade policies, the author of several books, the newest entitled turkey and the west fault lines in a troubled airline just came out in july. You can purchase it here if you like. We are very grateful to him for taking the reigns and i will leave to it him to introduce the panel and lead the conversation from now until 12 30. Please welcome him and the panel. Thank you. [ applause ] thank you. Im delighted to be here. Im not not sure whether ill be able to reign the panel as eliso has done and not sure i can speak as soft as she has been able to do. Please bear with me. Theres a lot that will need to be covered here. Oat in the program we have our honorable first speaker member of the European Parliament. I have sought his permission to allow me to start with a professor from the university of maryland. Right now, she has a fellowship working also with the fed as well as imf. I thought we could start with a bigger picture. And then finally, somewhere along the line, we will get to taspinar, my good friend and professor at National Defense university. There is a puzzlement. The puzzlement is that almost every month we read in the papers how the turkish growth rate is creeping up. It keeps going up. The turkish government frequently uses it as a sign that against all odds, turkey is doing very well. But simultaneously we also read the way in which the inflation rate creeps creeping up, which my limited knowledge of the economy suggest this is the kind of relationship we would expect there to be. But yet then the third leg of the economy is employment. Employment rates are not going up. If anything, unemployment is increasing. So how can we really square this circle, as the expression goes, and help us to understand what are the dynamics that are prevailing in the turkish economy right now. Thank you very much. Let me first start by thanking the middle eastern students for inviting me here and told no give very short answers. How can we be reconciled, short answer, we cannot. So thats the short answer. Let me explain. It is true that when we have very fastpaced growth, upward growth, gdp growth, that has high inflation rates but also has to be accompanied by decreasing unemployment rates or increasing unemployment rates or Central Bank Policy if they are independent raising interest rates. That is standard Economic Business 101. You can see the application in the United States, europe, china, india, emerging country, doesnt matter. If youre a fast growing economy out of control, overheating you will see high inflation growth and unemployment rates somewhere around 4 or 5 the central bank you raise interest rates. To rein in inflation. This is clearly not the case. Turkeys economy in reality slowed down considerably since 2007. Let me correct something in the Previous Panel a couple numbers that were wrong. It wasnt the case it was after 2013, blah blah, thats not correct. Turkeys economy grows very very fast on some grounds from 2002 to 2007. That was real growth, real productivity growth backed by structural reform. Mack coeconomics and financial macroeconomics Financial Stability after the financial crisis. That combined with a very important anchor, member anchor he was talking today. You can bring to it 2010 if you want but 20072010 period is special because that starts the Global Financial crisis period. And 20092010 was the crisis. You can say 20072010 thats it. After that turkey did not have real institutional reform and real outreach growth. You have unemployment going down, economy is growing and gdp per capita is growing and that is not happening. Coming back to the puzzle, this that, since 120. First part is the Global Financial kris si. We started seeing groet rate as low as two. Which doesnt go with turkey. Look how much india is growing look how much china is growing. That if youre a transition grow you have to grow 6, 7, 8 a year. We are seeing Something Like 2. 5 and we saw 5, 5. Something. To this is the statistic kal institute of in turkey that calculates the gtp numbers. Or bureau of labor statistics in United States. They change. They change the methodology. Instead of applying the that is standard, they decided to do two new things. There are a will the of details. In a nutshell. One they change the way they account investment growth. That will give you a pump up. Because we know construction sector goes. Two more important than that. This only gives you only part coming from investment not over all out put. The second change is important. They changed the. Data that under lies gdp member from production survey. You want to measure how much producing in the economy how much consume in the economy. This is a loop. And the loop that doesnt close down it comes from the outside. You consume goods from outside and sell goods to outside. Meaning other countries. This goes down to production. How much produce and all that. They changed that. The data comes from finance ministry and tax return. So this is a fundamental change. Other countries did this. This led to a change to gtp to 40 . Greece and china. And once we realize that, greece was too late. They with in a crisis. All the numbers were take. China the serious slow down was actually turn out to be a slow down after the region. Okay. Wow. Absorbing that will take a while for us. Let me turn to to you, and the person who sold through the original Customs Union in the parliament as the speaker of the parliament. I recall the days very well. Those who told that we were just going to be markets and eu was going to be a partner and again fit from the turkish market. When we look at academic literature today. As well as Business People. There is a recognition the Customs Union did give an important helping hand. To make turkey the kind of attractive dynamic economy it was. Around the time that made reference to. My question is a bit of a political economy question. To do again with squaring the circle. When i look at these figures, to do with the Customs Union, it is really turkish exports are growing significantly to the European Union. And while turkish exports the made a quick calculation back of a notebook, turkish exports to the United States in the first ninths of the month. Amount to twice turkeys exports to russia and iran. Structurally what this tells me, is that in terms of export which is critical to the economy. Turkey has no br else to go but the European Union. The Government Policies dont add up. How do we square this circle here and what does the picture look like from where you are . The European Parliament. Are you going to give the government a helping happened to upgrade the union . Thank you very much first of all for having me here. To the institute foundation. And so being proud sitting nebs to someone who has family background. I assume you talk about Customs Union agreement when came into place in 95. Which is the First Agreement of that state to the European Union as well. Towards third country situation. But also having this special situation of turkey who was in the process of applying which a at that time i think also nurtured a lot of positive results. Positive business and further understanding why to move forward and actually as we have heard today that has been taken up by himself. Because business was running very well throughout the last year or so. So where do we stand . The European Union has different sides we talk about Member States that have interest. We talk on the European Commission and the european participate limit to make it complex. But important. We have talked in the issue as many corner stones which are difficult. In our relationship as such. Let me tell you that i have been in turkey myself being at the week where the unity was taken by the parliament. And doing a press conference of colleague of mine from the netherlands from the liberals. Calling the country moves in sliding in towards from my perspective from east germany. And seeing the signs of tu turkey. Through their scientific people may have met from the community which dropped out of the media have been covered. And taken out of place. The political background is actually very difficult situation now for us in the European Union. The parliament at that time the question was not under Customs Union question but for example a liberalization. We made clear that they have not fulfilled the requirements theres no going to be. Now turkey moved in slipped towards the direction where we are now we have actually in facing a critical situation, where i think in terms of other relationships the European Union has. The business component its a crucial component. Thats the biggest in terms of being playing the rule in the situation the development of turkey itself. As yaw mention turkey is relying on the European Union. The exports to the is almost up to 45 . Also the imports are the biggest on 38 . So they actually see how big of both sides. Turkey is very important situation. And they the custom unit a lot in terms of where do we act on that. The parliament made clear that can read you some of the passages we have agreed on in the parliament in july. This year. I quote, believes that strength j the trade relations could bring concrete benefits to the citizens in turkey. And therefore in the light of the current failings of the unions support a Commission Proposal to start negotiations in the upgrading of the Customs Union. Reiterates that the turkish main trading partner and twothirds of Foreign Direct Investments come from the Member States. Under lines for the more the economic importance of turkey as a growth market. Considers involvement of social partners and negotiations as crucial. To include a cross of human rights and fundamental freedom in the upgraded Customs Union between the turkey making human rights and freedom a key. Recourse the Customs Union can achieve its full potential when turkey implements its Additional Protocol to all Member States notes Commission Conclusion that further trade integration would be stimulating by turkish eliminating the functioning of the custom units. There we go. Its important rare and how the human rights clause is fundamental freedoms clause is falling into the situation has been pointed out by in the beginning of our session. We are in a very difficult state. The german members of the media being imprisoned in turkey. I have been there and calling for the relief in the summer. When we had the trials in july. Also our members and who is here this morning is not allowed as a normal situation to visit our soldiers. In their native state turkey. So the political frame work is so difficult that im going to look forward on the discussion how that could be imbedded and has to be imbedded to work on the custom unit. We are in a difficult state. Making this square a circle it might stay a square. You have to make a circle some other areas so we will discuss that. Thank you. Were come back and maybe also discuss some of the imperfections that the parliament paragraph quoted us makes reference to. In the Previous Panel, towards the end i was pointing out how the alliance between the hallowed turkeys institutions. One of the institutions that appears to be hallowing day by day is private property and also guarantees for the investment that Business People are making. The turkish economy structurally were well aware depends on Foreign Direct Investment. Not able to come up with a savings that is necessary to drive the growth that is turkey needs. Made reference to it. So whats happening there . How would you could you elaborate on the way in which those two institutions are being weakened in turkey . Private property as well as the guarantees of investment. Actually only yesterday the president made a point that there are some trait traders in turkey. Scrambling the funds out of the country. This morning he tried to correct it saying that business turkey remains open to business in terms of Foreign Investment. Could you open this up and help us to better understand what is going on out there. Thank you for that easy question. And ill try to blame it on your wife. I guess one way to approach the question is to point out how the political situation cannot be disentangled from the economy situation. When you have an absence of rule of law, which seems to be increasing the case. In turkey right now. And emergency law. Combined with a political culture where you toent have an independent Business Community. This is a deeply rooted problem in turkey. Normally for a capitalist liberal market economy to function you need to have secure private Property Rights. Thats what we know from theory. If you dont have secure Property Private rights. If theres arbitrary government intervention, then you have a basic deficiency a structural deficiency for the healthy functions of capitalism. We can talk for hours about how. Akp nkdsingly is becoming arbitrary. And imposing its own set of laws. But there is a different problem in turkey that i think secure Property Rights have always been a problem for our country. From the get go, turkish industrialization. The Business Community. The turkish so to speak. Required the appropriation of the wealth and real estate of nonmuslim minorties in. Turkey had a business commune. Had some level of capitalism. In the 19th century. It was primarily the nonmuslim community. Jews and greelk greeks. Nation billion as we know is a product of the no more greek communities left. Its a product of ar men yan massacre ask genocide. And the Jewish Community has shrank. We know from the 1940s that private Property Rights from the wealth tax from appropriation have always been a problem. When ever there was a conflict with scyprus. The creek grunt would be on the receives end of the policy. The government has a tendency to interfere and the whole industrialization of turkey the creation of the turk irk Business Community was a primarily state led affair. Where capitalism markets private sector didnt have clear cut atonmy or independence. In poor substitution was the way turkey wpted to establish a model in the 1960s. With know this led to a asian miracle a situation where patronage and major loss making Public Sector enterprises emerged. So there was a level of corruption. Stmic always built in this the system. It took really short periods of maybe some growth with higher productivity. 20020 to 2007. One can thing the early reforms when there was privatization. There was some productivity gains. Over all the system failure of turkey. The transparency. The equality has always been lacking. We can blame the akp today for protoappropriating the wealth o. People say about the 10 to 15 billion worth of companies have been appropriated. But thats not a new story. The turkish state has been doing that against enemies that it considers for a long time. So this is not a question of political culture this is a question of the independence of Business Community. The endependence of basically all the companies that to a certain degree owe their wealth, their existence, their profitability to public procurement to contracts to the government. Business with the government. We can explain many things in turkey. Including free media. On the fact that the largest Media Company of turkey is always very active in the energy sector. If you want to get government contracts, good luck being an independent newspaper in turkey. So theres a kroen yichl. A net work that in my opinion really poisoned the quality of turkish economy. And liberal market reform and the quality of turkish democracy. Thanks. Its id like to come back to you. Against the picture that he just drawn. And against the challenges around the growth rate in turkey. That you just shared with us. The technical aspects. How do yo you see the economy moving forward . How is the turkish economy going to keep up with the globalization but also much more importantly and there allow me to make the link between his point about how critical guarantees for private property is if an economy is going to be if aeconomy will be able to mo