Turkey in the global competitiveness index

The World Economic Forum (WEF) published its 2013-2014 Global Competitiveness Index (GCI) this week. Turkey is ranked 44th among 148 countries, though it had been ranked 43rd out of 144 countries in the previous year's GCI.
It is clear that Turkey has essentially stagnated. The answer is simple: Economic reforms have been postponed, and the growth of the gross domestic product (GDP) declined sharply while the macroeconomic environment deteriorated. PM Erdoğan in WEF-Davos The GCI is not just a simple competitiveness indicator as its label implies. Its scope is very comprehensive, encompassing performance measurements of 12 areas -- or “pillars” as WEF calls them. The index is computed on scores estimated according to performance in areas like institutions, infrastructure, macroeconomic environment, health, education, market efficiency, labor and financial markets, technological readiness and innovation, market size and business sophistication. So, the GCI is more than a simple cost-price competitiveness indicator. Rather, it evaluates the welfare state of an economy as well as its potential per capita income growth. Though it is a valuable means for ranking not only a country in the world economy from these two criteria, it also allows for evaluating the strong and weak features of an economy. The overall score of Turkey in the 2013-14 GCI is computed at 4.5. Let me point out that the maximum score is 7, and the score of Switzerland, ranked first, is 5.72. The table below shows the scores of Turkey in each area. These results constitute a fair evaluation of the performance of the Turkish economy in recent years, as well as a strategic roadmap for the structural reforms to be done in the future. Regarding health and primary education -- which is compulsory for all children for at least eight years -- Turkey made considerable progress in the 2000s. The high increase of income per capita and the continued opening of the economy since the 1980s, as well as the diversification of foreign export markets in recent years, increased the overall market size tremendously, which, for the GCI, is considered an important factor in measuring an economy of scales. Macroeconomic stability has not yet been achieved; inflation and the current account deficit are still high, as well as the volatility of both the exchange and growth rates, but the public fiscal stance is in very good shape. The competiveness in good markets is quite acceptable, thanks to the customs union with the EU that introduced the rules and the culture of modern competition, but it is not sufficient nor is it yet at a desired level. Notable investments in infrastructure and the open skies policy have improved transportation, but the WEF says that there are still gridlocks in seaports and the railway network is well backward. In the areas above, more reforms are certainly needed for improvement. But priorities must also be set elsewhere. Regarding two areas, innovation and labor market efficiency, Turkey is absolutely far behind its competitors. Improvement in innovation needs a comprehensive strategy, while the labor market needs radical reforms that aim to introduce more flexibility. Faithful readers of this column will better understand why I am so critical of the rigidities that prevail in the Turkish labor market. Another priority is institutions. Recent arguments in the economic development theory, like those of Daron Acemoğlu and Dani Rodrik, prove that well-functioning political, economic and legal systems; property rights; and a transparent and efficient bureaucracy are necessary for high and sustainable economic growth. The GCI score in this area (4.1) shows clearly that Turkey has a lot of ground to cover. Last but not least, Turkey needs real education reform that makes a jump in the quality of education at the high school and university levels. The number of universities in Turkey is actually close to 200, but the quality leaves much to be desired. That said, the basic question remains the same: Is the Justice and Development Party (AK Party) government politically able to make all those difficult reforms? Strong and weak features of Turkish economy: GCI scores Scores above or equal to overall score of 4.5 Health & Primary Education Market Size Macroeconomic Environment Goods Market Efficiency Infrastructure 5.9 5.3 4.6 4.5 4.5 Scores below overall score of 4.5 Innovation Labor market Efficiency Technological Readiness Institutions Higher Education & Training Financial Market Development Business Sophistication 3.5 3.7 4.1 4.1 4.3 4.4 4.4