When the ratio of per capita income levels of Argentina, South Korea, and Turkey to the per capita income level of the United States observed, Argentina’s situation is deplorable. There is a dramatic decline compared to 1980 down from 57.1 percent to 33 percent. “If we do not start implementing a reasonable economic program, Turkey is in danger of becoming like Argentina” summarizes the reason behind this statement very well. Argentina has experienced a great loss of prosperity in the last fifty years. In contrast, Korea has done a great job. The ratio of its income per capita compared to the United States was up from 17.1 in 1980 to 70.5 percent in 2023. In the IMF’s country classification, Korea is now in the ‘developed’ group. I draw your attention to the fact that South Korea was behind Turkey in 1980 regarding this comparison. Very far behind. But then it overtakes us. Turkey has not done a bad job either, but there is still a big income gap with the US. (28.5 percent in 1980 and 52,1 in 2023.
There is an elective course I teach to fourth-year economics students: ‘Current Issues in the Turkish Economy’. For a significant part of the course, I try to unravel the reasons behind this phenomenon. After examining the investment and savings rate, the areas in which investments are made, the level of education of the population, the quality of education, the level of productivity, and similar possible reasons, I eventually came to the institutional structure. However, the concept of ‘institutional structure’ may remain abstract for students.
In some cases, this handicap is easy to overcome. For example, it is easier to discuss the importance of the institutional structures of the central bank or the institutions that regulate and supervise the financial system. After all, Turkey is a laboratory in this respect. It is easy to show how rapid credit expansion or financing budget expenditures by printing money at the CBRT can spur inflation and often serve as a trigger for an economic crisis. The next step is to discuss what kind of institutional structure can prevent such policies, and to what extent the current institutional structure that allows such practices is far from preventive.
However, there is an area where how the institutional structure is shaped is much more important: The law. After all, the structure of the central bank or the institution responsible for the financial system is more related to stability. Stability is, of course, a sine qua non for economic breakthroughs. But if your legal system is not in order, you will not be able to make breakthroughs to reduce the income gap between you and rich countries, even if you have economic stability. Discussing the importance of the legal structure can sometimes be abstract for students. Or rather; it used to be. It will probably be easier from now on.
Look at what happened between the two highest courts. In a country where the Court of Cassation is filing criminal complaints against members of the Constitutional Court and the decisions of the Constitutional Court are not obeyed, it will be easier to discuss to what extent the level of economic development can be increased with this legal structure.
