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GÜVEN SAK >Unemployment amid the political storm

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March 15 was a very interesting day, or at least it was for me. The Netherlands held general elections, and the Turkish Institute of Statistics (TÜİK) released its Bulletin of Unemployment. I think it proved to be a day of glory for the Dutch, and despair for Turks. The Islamophobic Geert Wilders was sidelined by Dutch voters, who have turned up at a record 85 percent. On the same day, we found out that unemployment reached a seven-year high in Turkey, while having declined to a seven-year low in the EU, revealed just a week ago. It is worthwhile to unpack these events a bit. 

Since 2010, Turkey created more jobs than those lost in the EU and the U.S. We were very proud of the resilience of the Turkish economy, despite the 2009 hiccup. Much of this was thanks to quantitative easing by the U.S. Federal Reserve, but we didn’t talk too much about that. Now that we are seeing monetary contraction, things are turning around. Recently, the U.S. announced employment figures for February, revealing that 235,000 jobs were created in the country during the month. While TÜİK doesn’t have data for February yet, we know that in December, Turkey lost 36,000 jobs. The year 2017 might see a seven-year low in U.S. unemployment rate, too, just like in the EU. 

The unemployment rate is just below 5 percent in the U.S. today, and around 8 percent in the EU on average, whereas it is around 12 percent in Turkey. That is not very far from its 2009 peak of 13.9 percent. Youth unemployment is especially persistent, being more than 20 percent now while similar to 2009. Why is this happening in Turkey while things are getting better in the West? 

First, we have reached the limits of Turkey’s structural change. Two thirds of long-run average growth in the Turkish economy has been from internal migration. The urbanization rate used to be 30 percent in the 1960s, and is now at around 75 percent. It was this massive movement of people that created much of the value we saw up until recently. Now we need a new model to continue to grow, but there is none in sight.

Secondly, Turkey went through a failed coup attempt in July 2016 and declared a state of emergency in October. The state of emergency has since been extended twice. The number of companies confiscated by the government has reached 1,020, and the purge still isn’t over. It has now been eight months since the coup attempt, and not a week passes without a wave of dismissals or arrests in some branch of the government or a company. All this is taking its toll, both on growth and unemployment. This is because the state of emergency in Turkey means that there is no judicial control over administrative decisions. Since the “decree-by-laws” have not yet been brought to parliament as they should be, the constitutional court has no control over the process either. The state of emergency is a constitutional mechanism, but the institutions that are supposed to supervise it have not been activated. So the system is being bypassed, and without a functioning system, people won’t place their trust into the economy.

Third, there is a terrible lack of focus. The Fed is raising rates as expected, Turkey’s inflation numbers are reaching double digits again, its budget is performing worse due to low growth figures, and its current account deficit funding is covering a shorter and shorter term. Yet the country is not focusing on the structural problems of the economy. It only comes up with one-off measures to support employment and brings up additional loans to the corporate sector. All of these things are very short-sighted. What was good in 2010 is no longer enough in 2017. Pushing domestic demand today means a deteriorating current account deficit. That only increases the vulnerability of the economy in 2017 and 2018. 

The year 2017 is definitely not a good year to have a referendum. It’s going to be a bad one for general and presidential elections, too. The last referendum we had was in 2010, and it passed, paving the way for the 2011 elections. The unemployment trend was downwards back then. Today it is going up. Is there any hope for improvement in the near time? Very little. 

The Dutch-Turkish row is all about electoral politics. Both sides look content, because in the end, both are getting results. The problem with this kind of rhetoric, however, is that the public gets dull to it over time, so politicians feel the need to increase the volume. Today, the Hitler comparison on the Turkish side and the “Islam out” on the European side are making headlines. But tomorrow, that might not be enough. Politicians might compete to do and say more outrageous things. What are we to do then?

A little warning for those interested: The next TÜİK Unemployment Bulletin will be released on March 23. Who’s up for a bet?

March/18/2017

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