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Inclusive Growth in Turkey – Can it Be?

Martin Raiser's picture
Also available in: Türkçe


Turkey-21406200003 World BankThe issue of social inclusion in Turkey is a controversial one. In this blog, I want to present some data that suggest Turkey experienced inclusive growth over the past decade or so. My colleagues and I have shared this basic story with a number of audiences in Turkey and often the reaction is disbelief. So what does the data say?

The bottom 40 percent can look up

I use three pieces of evidence to make my case.  The first is based on recent work by Joao Pedro  Azevedo and Aziz Atamanov of the World Bank on shared prosperity. Joao Pedro and Aziz’s work is ongoing and much richer than what I want to present here. So let me just focus on the following chart, which shows the growth of consumption of the bottom 40 percent in Turkey between 2006-2011 and in a number of other countries during roughly the same period. Turkey looks reasonably good albeit not exceptional. The rate of consumption growth of the bottom 40 percent was just over 5 percent, around 0.2 points below the rate of growth for the average. What this means is that during this period of significant global economic turbulence the average welfare of the bottom 40 percent improved by more than one quarter. This was better than India, Indonesia, or Mexico, albeit worse than Brazil, China and Russia.

 

Shared Prosperity in Turkey and Peers
 
Further analysis of the Turkish data shows that he two main drivers of income gains in Turkey are the labor market and pensions. For the bottom 40 percent, labor earnings and increases in employment together account for almost half of all income gains even during the crisis period. Pensions account for another fifth. This can be related to government policies, as minimum wages were raised during the crisis, jobs were protected through short-term work schemes and reduced social security contributions for women and labor force entrants, and pension coverage was extended. But unlike in much of Latin America, redistribution through social transfers does not account for a large share of improvements in the welfare of the bottom 40 percent. This is consistent with inequality failing to improve during this period. Growth can be inclusive without redistribution.

Closing the gap in health and education

The second piece of evidence I presented was the improvement in health and education coverage and resulting reductions in inequalities of health and education outcomes across socio-economic groups. This is well documented in other reports even if not always well known (see for instance: Universal health coverage in Turkey: enhancement of equity; and  Promoting Excellence in Turkish Schools). Just a couple of statistics to make the point: infant mortality rates for children whose mother had no education were almost three times higher than for children whose mother had at least secondary education in 2003 – by 2008 the difference had vanished. Infant mortality in the lowest asset quintile was 31.1 per 1000 live births higher than in the highest quintile in 2003, but this narrowed to just 11 by 2008. It should be noted that these improvements extended gains made since 1990, but the reduction in inequalities in access and health coverage is nonetheless remarkable.

In the case of education, between 2003 and 2009 PISA results for the bottom quintile improved by 20 points on average across reading, maths and science and by 25 points in the second lowest quintile, but only by 3 points in the top quintile.  The bottom 1 percent of achievers, which are predominantly drawn from the lower socio-economic strata, even saw improvements of between 25-33 percent in their PISA results. This is equivalent to around three quarters of a full academic year of additional schooling.

More women are getting to work

The third piece of evidence, and here it becomes most contentious, is the fact that the share of women in in Turkey who work has been increasing since a low point in 2005. This is because around that time the number of women in salaried work started to increase faster than the number of women in agricultural and informal employment declined. In fact, there were some increases in informal and agricultural employment of women during the crisis, but the share of women in salaried work has risen continuously since the 1990s. Together with evidence that employment rates among more educated women are higher and the fact that education levels among women are increasing, I argued that we may be seeing a trend towards gradually increasing female employment.

What’s missing?

The evidence is not in dispute. So why does the suggestion that Turkey had experienced inclusive economic development often meet with incredulity? I offer two possibilities. First, while I have looked at improvements over time, others may compare Turkey with the standards of advanced economies – for me the glass is filling, for them it is still less than half full. For instance, Turkey’s income inequality with a Gini of 0.43 in 2011 is higher than in all EU countries. Turkey’s average PISA ratings are still around one full year, or 40 points, behind the OECD average, and of course Turkey’s female labor force participation rate is much below the level of even other middle income countries. Second, perhaps the concept of inclusion is broader than what economic and social statistics convey. It may have something to do with a sense of being included in a national dialogue, from which some groups may feel excluded.

We are currently engaged in an exercise to draw lessons from Turkey’s experience. The fact that economic development seems to have been inclusive is one of the possible emerging messages. I’d be curious to hear your views whether this is correct and how if at all it should be qualified.
 

Comments

Submitted by CAA on

I have always thought, that while social protection is very important, it must be implemented with utmost care, not to create a culture of dependancy, thereby loosing a portion of the workforce altogether.

Policies that encourage inclusive growth through an increase in income, such as the case of Turkey, ensure sustained growth and would be the better way to get rid of inequality in the long run.

Economically wise, Turkey is definitely doing the right thing. I remember 30 years ago we traveled there with my family. The streets were very clean, and the highways were wide but nearly empty of cars. Everything was charming, the people though, were a bit poor.

Fast forward to last year when I visited with my wife: the streets of Istanbul are still very clean (which is something that can't be said about many cities), the people have more much money and they are at par with Western countries when it comes to education, and there are many, many tourists.

I think one of the most important factors that protected Turkey's economy is its persistence on using the Lira. People there are now used to high inflation (the Lira now is losing 20% of its value/year), which is a kind of a good thing.

Submitted by Ali Sokmen on

Looking at the chart and also taking into account the figures on the evolution of income distribution from the Turkish Statistics Institute, I would argue that Turkey's growth between 2006 and 2011 has not been a good example of inclusiveness. At least in terms of income and consumption, that is.

We can see that the consumption growth of the bottom 40% is below that of the national average in Turkey. Of course, in absolute terms the gorwth is considerable, which reflected positively on the lives of the poor people. Nevertheless, in order for growth to be clasified as inclusive, it should at least occur under the existing distribution of income/consumption, or also reduce the inequalities. In Turkey's case, the poor are getting richer while the middle and upper classes are getting richer even faster. Brazil, with help of its redistributive and human development oriented policies such as the Bolsa Familia has done a much better job in improving the lives of the poor and bridging the gap between rich and poor, thus providing a better example of inclusiveness.

The inequality effect of Turkish growth is nevertheless small, especially when compared with China or Indonesia. We should also keep in mind that inequality in Turkey was declining during the five years before 2006, and the trend reversed during the 2008-2009 crisis. We are yet to see whether the increase is temporary and the declining trend will resume.

Submitted by MartinRaiser on

Dear Ali
You are correct that what we call shared prosperity, namely significant income or consumption growth for the bottom 40% of the distribution in Turkey was not associated with a decline in income inequality. The reason we nonetheless think economic development has been inclusive is because of the reduction in equality of access to basic services, in particular health care over this period. For a sustained future decline in inequality, the still significant inequalities of in educational outcomes linked to differences in socioeconomic backgrounds need to be tackled.

Martin

Submitted by Efe Savas on

I agree with Ali that Turkey's growth experience can not be held as a case of inclusive growth considering lack of any significant improvement in the 'relative' income of bottom 40% and the persistence of huge income gap even despite the constant growth that Turkey has been experiencing throughout the post 2001 period. The fact that Turkey can not be considered as a text-book example of 'inclusive growth', nevertheless, should not keep us away from recognizing that more people has been 'included' thanks to the improvement in absolute terms. Yet I still think there are two parameters that should be kept in mind before evaluating government's policies for the poor and middle income people. First, one should be cautious before so readily attributing such improvement to the government policies alone, as the temporal enhancement in the global liquidity which in turn stimulated consumption not only in Turkey but in all developing countries. Credit bubble, and the construction sector that has been built around that bubble with the help of ever declining labour costs surely helped. In that regard, it is blatantly obvious that Turkey has failed to capitalize well enough on this exceptionally helpful global conjuncture when compared to Brazil and China.. Second, institutionalization of short term labour contracts and flexible and informal employment, though, seem to help as a cushion against economic downturn in the short-term, for the long-term, lay the foundations for increased inequality by rendering labour market regulations less and less friendly for employees..

Submitted by Stefan on

I agree with Ali and Savas. Inclusive growth story in the article for Turkey seems to be a wish rather than the fact.

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