Selling the Mother Land

In a tweet by Dr. Saeed Hareb, he mentioned how Turkey was almost bankrupt in 2001. The idea couldn’t have stopped at that point. What happened in a decade and transformed Turkey to a country that is, perhaps, on its way to be in the EU and one that has its say in what happens in the MENA region? The formula might be simple as much as it can be complicated. Turkey, like a few other countries back then, had a closed economy. It means that it was self-sufficient as it consumed what it could produce. This indicates that Balance of Trade, which is the balance of exports and imports, doesn’t exist since there aren’t any in a closed economy. A country is in positive balance of trade, referred to as Trade Surplus, when its exports exceed its imports and in a negative balance of trade, referred to as Trade Deficit, when it imports more products and services than it exports. The decision to either export or import is based on the concepts of Absolute and Comparative advantages.

Usually, the latter concepts are applied in a two-country and two-product model. It works best for illustration purposes but not in real life. Hence, let’s keep it simple. Absolute advantage means that the country can produce more of x products at a lower cost than other countries. A country with absolute advantage in all products can easily close up its economy and live happily ever after. However, this cannot be true with thousands of products and services circulating the world and tens of countries producing them differently. A comparative advantage, which seems more reasonable as a scenario, means that Country X produces  Product P that it’s more efficient in producing compared  to its other products and services, but not more efficient than country Y who got absolute advantage in product P. The take here is that Country Y would utilize more resources in the production of other products as Country X produces Product P  to allow trade to take place between them in a simplified economic model, which otherwise wouldn’t.

If you allow no imports in, you don’t allow foreign investments either. So the government subsidizes many products produced by local companies, some of which are owned by the government itself. Accordingly, jobs produced would be quite limited with a humble pay. To make it worse, government’s constantly increased spending leads to increasing inflation, which keeps the economy running but adding more zeros to the currency note, like the case was with Turkey. The government is not better off if it is in trade deficit as it will be in debt to other countries hence institutions. In order to save the day; Turkey had to open its economy, importing mostly from countries that it owed money to. Moreover, it encouraged foreign investments which enhanced its economic formula as well as allowing foreigners to own properties in Turkey. Jobs with better pay were created, reviving the consumer economy and initiating a new tax system including income and products sold. With self-generated revenue, some issues got solved and others were created.

Did Turkey have to sell its land when it could have just increased taxes and opened itself to importing and exporting products? Or perhaps it couldn’t have before foreign investments were allowed? The blame here is on no one in specific. If you consider a few gulf countries, lands and properties were also sold to foreigners even though these are oil and gas rich countries versus Turkey which is not compared to them. Opening up the economy is never wrong, but the ways you do it can be questioned. Taxes always levy heavily on residents who have to pay for the government’s investments and expenditures, with prices rising anyways. Moreover, the loss in welfare, usually not measurable in absolute quantity, would probably be represented by decreased happiness and satisfaction of those being taxed.  In the gulf, cities are being built with partial foreign investments while historic buildings in Turkey are being torn down to be replaced by modern ones. And yes, Turkey might be better off today, with a sold out mother land and increased taxation.