Monday, November 16, 2009

Weekly Hurriyet Column: Competitiveness for a way out

Below is the unedited version of my column for this week. You can read the final version at the Daily News website. Another week without a cheesy movie title... Other than that, I do not have much to add to this column, except that I somehow did not like this article. I have no idea what's wrong, and I think I hit a couple of important points, but they all somehow did not fir together well. Anyway, if you know what's wrong with this column, please let me know...

I have to renege on my promise to write on Turkey’s 2010 budget in favor of a convention I attended on Friday, which is much more relevant for Turkey’s long-run prospects.

The Competitiveness Congress, organized jointly by the Federation of Industrial Associations, or SEDEFED and the TUSIAD-Sabanci University Competitiveness Forum, or REF, has been held annually since 2005. This year’s conference, titled Way out the Crisis: Competitiveness, consisted of the presentation of a report on Turkey’s position in the latest World Economic Forum, or WEF, Global Competitiveness Report and introduction of a new database to compare the country’s competitiveness with 48 peers using standard international trade competitiveness indices, in addition to a couple of panels.

The authors of The WEF Global Competitiveness Report 2009-2010: An Evaluation for Turkey have to be commended for undertaking the tedious task of looking at almost all the possible combinations of Turkey’s rankings in different competitiveness indicators and benchmark countries. The result is a comprehensive laundry list of Turkey’s comparative strengths and weaknesses, but not much more.

The problem with such lists is that they give no sense of binding constraints. In other words, given that the government needs to prioritize with its limited resources, it should know where it will get the biggest bang for the buck in the shortest time. Luckily, Fusun Ulengin, the principal author of the report, did mention where she thinks the binding constraints lie: Human capital, especially education & women’s participation, and innovation were also highlighted in the panel discussion following her presentation.

Incidentally, both areas have already been underlined in recent World Bank labor market and education reports as well as the Bank’s Investment Climate Assessment, which precisely tried to identify the private sector’s binding constraints. While it might be self-assuring to reinvent the wheel now and then, we have to go a step further with policy recommendations. Without a prescription, you’ll just have to cross your fingers that the binding constraints just disappear by themselves.

But even then, I would doubt that the government would be willing to swallow the pills, as it is anything but a hypochondriac. Or at least, that’s the impression I got from Competition Board’s chief advisor Erdal Turkkan during his question-cloaked criticism of the report. His putting the blame for Turkey’s mediocre competitiveness to lack of perfect competition, while not supported by WEF data, could be deemed valid to a certain degree. It could also be forgiven as a reflection of the institution he is affiliated with.

It is also easy, at least as an economist, to sympathize, and even concur, with his criticism of panelist recommendations that the government should support certain sectors- the so-called Asian model, which was applauded and studied as a role model, until the Asian crisis exposed the inefficiencies of such managed industrial policy. It is therefore a twist of fate that another crisis has put the Asian framework back in vogue globally, and the panelists have just been following this international fad.

On the other hand, Turkkan’s criticism that such rankings look at the macro environment without considering sectors and firms is definitely valid. In response, Fusun Ulengin has dislosed that they are holding discussions to measure competitiveness at the sectoral level, which I am looking forward to.

But Turkkan is missing the subtle point of these rankings: Once governments provide the cultivating ground for competitiveness with the right environment and incentives, competitiveness will flourish.

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