May 11, 2013

Acemoglu Talks Turkey

One of the world’s most noted economists — and coauthor of the prize-winning bestseller “Why Nations Fail” — offers an insider’s view of a turbulent region.

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If you’ve seen Daron Acemoğlu’s name lately, it may have been alongside the phase “future Nobel prize winner.” A professor of economics at MIT, he has written numerous influential books, papers, and op-eds, weighing in on issues ranging from what he calls Denmark’s “cuddly” capitalism to the decline of the Mayans 1,200 years ago. Along the way, he’s picked up numerous accolades, including the John Bates Clark Medal awarded to economists under age 40, and engaged in public spats with Bill Gates and Columbia’s own Jeffrey Sachs over whether geography is destiny (Gates and Sachs say it is; Acemoğlu says it’s not).

In April, Acemoğlu visited Columbia Business School to receive the George S. Eccles Prize for Excellence in Economic Writing for his most recent book, “Why Nations Fail: The Origins of Power, Prosperity, and Poverty.” In it, Acemoglu and coauthor James A. Robinson argue that the main determinants of a nation’s wealth or poverty aren’t weather, geography, or culture. Rather, manmade political institutions such as financial markets and judicial systems steer nations’ fates — and have done so throughout history.

Acemoğlu sat down with Chazen Senior Scholar David Beim for a spirited conversation on the outlook for Acemoğlu’s native country, Turkey.

David Beim: Your book posits the theory that political institutions fall into two categories: one is inclusive institutions that allow people free rein to use their talents and skills for economic gain, such as those found in South Korea and the United States today. The other category is extractive institutions, which siphon wealth and income from one segment of society to benefit an elite segment. If you take the ideas from your book and apply them to Turkey, what do we learn?

Daron Acemoğlu: Well, Turkey is a particularly difficult case for this framework. When you look at the historical details of every country, there are subtleties one has to take care of that don’t fall on one side or the other. But if you look at the Ottoman Empire until about 1850, it fits quite naturally into a military extractive society.

But today you actually have a society which in some ways is becoming much more inclusive. People who previously didn’t have a political voice for quite a while now have one. The economic base is getting broader.

Beim: Many businesses are formed by Islamic communities.

Acemoğlu: Exactly. The MUSIAD [The Independent Industrialists’ and Businessman’s Association], which is the independent business association but is really the Muslim business association, is competing much better for state contracts.

If you want to make money in Turkey, you have to have good relations with the state. There’s now a broader economic base but there are real concerns also.

Beim: What has you worried?

Acemoğlu: The biggest concern is that when you start from a situation where state institutions are weak and there’s not independent judiciary, a group that feels itself being the victim of decades of exclusion comes to power. They will have a natural inclination to say, “okay, we’ll take control of these institutions. We’re gonna eat the pie now.’” There are really no checks against them.

Essentially what you’ve seen over the last five years is that the AKP [a political party that advocates an Islam-inspired social conservative agenda and an liberal market economy] has taken control of a lot of the old vestiges of the Kemalist rule. So the judiciary that was very staunchly pro-bureaucracy, pro-military is now infiltrated with people who are sympathizers of the AKP. These authoritarian tendencies ebb and flow. It’s a natural inflection, a natural consequence of the fact that there are no constraints.

Beim: What’s your view on Turkey joining the European Union? Do you think it should happen?

Acemoğlu: That’s a really good question. In 2000, Turkey started undergoing fairly important institutional changes triggered by efforts to join the EU. It abolished the death penalty, and there was a further opening up to the Kurdish part of the population.

My view is that Turkey has hugely benefited from the accession plan. I think ultimately the European Union would have benefited. The EU politicians acted in a not irrational but perhaps myopic way. There’s no doubt that if Turkey did become part of the EU in the mid-2000s, that would have been costly for Europe but ultimately would have been a great boon, because it’s a very young, very active population. And it would have stabilized Europe in its relationship with the Middle East.

Beim: Turkey does seem to have a pretty favorable demographic base. Its population is much younger than its western peers, and it presumably has a lower dependency ratio. But there’s also chronic unemployment, and it seems like the government institutions favor state-owned enterprises that stifle entrepreneurship. How can Turkey best motivate this demographic?

Acemoğlu: I think state-owned enterprises are a problem. There is a big infrastructure-building going on in Turkey that is sorely needed, and that’s going to happen through procurement. The procurement law that was passed in 2002 was hugely revolutionary: previously, all procurement was in the dark and there was a huge amount of kickbacks going on. But that law has been eroding. Now, more and more procurements are put in a different category that goes under the table. These sorts of things worry me more than just the state-owned enterprises themselves.

I mean, no sane person would open a business in southeast Turkey right now. It’s still a war zone.

Beim: So are you optimistic or pessimistic about Turkey?

Acemoğlu: I’m still optimistic. It’s a country to watch. They have great potential.

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