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This is the translation of an interview by Ruhi Sanyer with Professor Zeyyat Hatipoğlu in which the latter argues that the key weakness of the Turkish economy is its poor productivity. This interview appeared in the Turkish liberal daily, Radikal on April 15, 2002.
The article was, of course, translated by the Bridge.

Professor Zeyyat Hatipoğlu is one of Turkey's most high-ranking warriors against inflation. Hatipoğlu, who is retired, spends his days writing books. I talked about growth and inflation to Hatipoğlu, whose last four books entitled Sixty years in pursuit of an extraordinary economic dream, If you don't know these things you can't understand the Turkish economy, 25 years in pursuit of unconventional economics and Essentials of unconventional economics examine the causes of economic crisis.

Growth and inflation have been the hottest topics in recent days. Are growth and inflation mutually contradictory concepts? Can we establish that to begin with?

Let me make one thing clear: If you have learnt economics from a textbook written at the intermediate level, this relationship really does exist. For this affair has been with us since the 1960's and starts with a curve known as the Philips curve. Findings based initially on experience over a century of the Philips curve in England and subsequently over long years in America point to the existence of this relationship up until the mid 1970's. Of course, our economists, because they also know this very well, attach paramount importance to this phenomenon. They say if there is growth in a country, there is inflation. If the economy contracts, if there is stagnation, prices fall. Then, certain of our politicians or even former planning experts come along and say that Turkey developed a great deal in the 1960's and 1970's, but inflation was also low. They even give figures: We developed by 6.4% with 5% inflation. Thus they say that there is no such relationship. In my view, this is one of the biggest lies told to the public in Turkey. There was no inflation, but the Turkish economy did not develop in the 1960's. The troubles experienced by the Turkish economy in 2000 are a legacy of the 1960's and 1970's.

There was no development?

It can't be described as such. This development was a chain of events that led the Turkish economy into the blind alley in which we find ourselves.

So the economy did not grow?

No, it did not grow by 6.4% as has been claimed.

So where did they get that figure from?

They are the SIS's (State Institute of Statistics) figures. This is what the figures show but they are unaware of the phenomenon behind them.

What was this phenomenon?

The phenomenon behind them is as follows: In those years, there were two segments in Turkey. First the agricultural, and secondly the non-agricultural segment. There was what the Americans call a dual economy in Turkey, in other words there existed two separate worlds. Whilst per capita income in the agricultural segment was a hundred lira, outside agriculture this amount was five hundred lira. There was a factor of five; such a figure was unheard of in the world. Ever since that time I have tried precisely to show that this was unsustainable and that there was the semblance of development. And the reason is as follows: Up until the 1980's Turkey ran its economy solely by means of exports from its agricultural sector. We have the figures to hand. For instance, in 1979 exports amounted to 4% of our national income. Whereas after 1980 we started to export from outside agriculture. This share rose to around 15%.

So regular growth began after the 1980's.

Yes, but if you measure the growth after that date you will see that it was 4%. This means that our honest-to-goodness growth figure is 4%. There is really no such figure as 6.4%. It is possible neither to boast about it nor base our forward thinking on it. Now our economists, notably a highly rated economist named Mr Derviş, say: 'I am thinking of a 7% development rate'. And I say: 'Where do you get this thought from? Turkey has never had such a rate of development.'

Don't the figures show this?

No, they don't. The old figures were achieved because Turkey inflated its non-agricultural production with the aid of exceptional figures and stating very high prices.

It manufactured cars, sold them at extortionate prices, kept the prices of industrial goods high.

Yes, it inflated everything. Those figures had to come down to normal levels. For if they had not come down to normal levels the Turkish economy would have been unable to survive, it was unable to survive anyway. Turkey is still unable to survive. In the periods before last year, half of Turkey's foreign exchange was earned from the export of goods. The other half came from tourism and emigrants. Unfortunately, a significant portion, I regret to say, came from heroin smuggling through Turkey. Turkey did not grow at those levels in those years. In which case, the following has to be said of all this: If you do not understand Turkey's growth dynamic, all expectations and comments about the Turkish economy are totally meaningless. Unfortunately Turkey's growth dynamic has most certainly not been understood and commented on. I think I was the first person to calculate the sources of growth in Turkey in 1978. After me the World Bank did this in 1980. After this no Turkish economist has sat down and calculated the sources of growth in Turkey. Now the calculations once more come from the World Bank.

I will ask two things. You say that Turkey's growth rate is 4%. It is clear that this will not provide sufficient employment. First, is there a way of increasing it, and second, what should be the sources of growth in Turkey?

According to the World Bank's error-ridden calculation, 4.2% of the 6.4% annual average growth achieved up until 1980 derived from increased input. In other words, more people worked, more capital was invested. 2.2% derived from raised productivity. Turkey grew at 4% after 1980; the increased input here was again close to 4%. Was there no increase in productivity after that? This means that we are faced with a contradiction. These are the economic problems that need to be discussed in Turkey. I was the first person to calculate the sources of growth. Turkey's real growth in the period 1950-2000 was an annual average of 4%. According to my calculations, a portion of about 3.5% of this 4% is attributable to increased input. What is increased input? If previously 12 million people were in work, now 22 million people are in work. While previously 11 or 12% of our national income was channelled into capital investment, now 22 or 23% is allocated for this purpose. A portion of about 3.5% does actually derive from this. There remains something in the region of half a percent, and that is increased productivity, which by world standards is exceptionally low. If Turkey cannot improve its productivity increase it will not be freed from these troubles. This is Turkey's greatest problem. Lack of productivity. If Turkey cannot raise its productivity it will constantly face these problems. We have to increase our productivity.

Then Turkey has to raise its productivity. Now, one group says that the important thing for Turkey is for us first to look at reducing inflation and then move on to growth. Another group says that we can disregard inflation a little but our growth is essential. In your view which of these should Turkey do, which should it chose?

There are no black and white answers in economics. It is not possible to speak in categorical terms. However, in my view, the number one problem is still inflation. We have got to get it down. But there is no way that Turkey can grow with this growth paradigm, without understanding growth. There doesn't even have to be any growth. What will happen? I will tell you straight away. If money supply is loosened, if the state reduces taxes, if a loose fiscal policy is adopted, the economy will in fact grow for a while. But the crash that will come after that will be much worse. I can give you a very recent example: A very serious crash was experienced in Turkey in 1994. The reason was exactly the same. Even though there appeared to be other reasons the reason was exactly the same. But over the following three years policies aimed at stimulating demand produced annual growth of 7% in the Turkish economy. Certain politicians point out that this was all their doing but if only they hadn't done this. It is precisely this growth that has brought Turkey to the precipice on which it stands today. Of course, if you increase the money supply without understanding growth dynamics we have the capacity to grow. They say we have the workers, trained managers and machinery so why don't we make the goodies. Because nobody understands what lies at the bottom and in the dynamics of the matter. They don't talk about it.

They don't talk about productivity, is that right?

No, in my opinion we are discussing the wrong things today in Turkey. Should we have inflation or should we have growth? Everybody is talking about that, discussing that. This is not what it's all about, we need to be discussing our productivity. There is a measure of productivity. The World Bank has ascertained that between 1950 and 1980 productivity contributed 2.2% to overall growth. The World Bank made the following calculation: Of that 2.2%, 1.6% is attributable to people working outside agriculture rather than in agriculture. It isn't really possible to class that as a genuine increase in productivity.

So in the period when it is claimed we grew fast there was no serious productivity increase.

When we take it into consideration as well, we get a half percent increase in productivity. Turkey grew, but that growth was always achieved by employing more people, investing more capital, there was no productivity gain. I have been trying to explain that for years.

When Turkey grows at 4% what should the optimum contribution of productivity be? For example, if we look at America's uninterrupted growth of the past few years, there has been a tremendous increase in productivity. What should this rate be here?

Half of the growth in America is due to productivity and half is due to increased inputs. These are the developments on a global scale. If we look at developing countries like ours, two thirds is increased input, one third productivity. Whereas our own productivity growth is exceedingly small. This is the source of Turkey's problem.

In productivity, we can't even keep up with the average for developing countries.

We can't even manage half of it. Turkey needs to talk about this.

Well, why can't we keep up?

There is a quote from Dostoevsky. He said 'We will solve the problem of bread because we talk about it. But we will be unable to solve the problem of women because we do not talk about it.' Turkey does not talk about productivity, it talks about other things. This is Turkey's problem and we will not solve it until we talk about it. Let us talk about the distribution of income a little. This phenomenon lies behind the bad and worsening distribution of income. If you cannot raise productivity you cannot improve income distribution. Only those countries that have increased productivity have managed to improve income distribution.

If you raise your productivity your inflation will fall, you will grow and your income distribution will improve. Is this the case?

Yes, it is. Inflation will fall, you will grow and income distribution will improve to a considerable extent.

So how are we going to increase productivity?

Productivity has also been misinterpreted in the economics literature. Productivity has come about in Turkey for two reasons. One of these is real productivity: That is to say producing more with the same capital and the same labour. And also it has come about from what is called dislocation, transferring production between different segments, in the Turkish economy. It has come about from transactions between such segments as agriculture, non-agriculture and exports. There is no longer any benefit to be gained from dislocation, from transactions between different segments. Turkey has to raise its real productivity.

'Turkey will learn to live on 2,500 dollars'

According to Hatipoğlu, in order for Turkey to get out of this crisis, given current productivity levels it must before all else learn to live on a pro capita income of 2,500 dollars and make do with this. Hatipoğlu, commenting that Turkey has a higher level of income than it deserves, says 'The economy can't support this level of income, this is the where the difficulty comes from.' It is clearly unsupportable. Professor Zeyyat Hatipoğlu, saying that it is impossible for Turkey to maintain previous import levels of 52-55 billion dollars, states 'Some time ago the chairman of the Exporters' Association said that exports would rise from 32 to 40 billion dollars.' This is wishful thinking. At such low levels of productivity there is no chance of us reaching those figures. In the first place, we will settle on a national income in the region of 2,500 dollars and make do with this. We will strive to make our subsequent growth balanced. If we increase inputs by around 2.5 - 3.0 - 3.5%, of this there will be a productivity increase verging on 1%. How is this possible? Increased productivity happens on two levels. One of these is within enterprises. That is to say enterprises operate more efficiently. The other entails the optimum allocation of resources at the macro level. We use the best possible means to assess comparative advantages. I believe that the market mechanism will do this best and of course to a large extent this involves good education. Although everyone knows about the importance of education, nobody sees the matter in these terms.'

According to Professor Hatipoğlu, instead of debating whether the Turkish economy grew by 5% or 6%, the question that needs answering is how much of this originated from increased productivity. Professor Zeyyat Hatipoğlu, saying that 'This will require a change of system', complains that he cannot get his message across to anyone.

According to Hatipoğlu, the national income figures for 2001 of 2,200 dollars announced by the SIS are 'totally' wrong. Hatipoğlu, stating that per capita national income may perhaps have fallen to 2,500 dollars as a result of the crisis, says the following:

'Per capita national income is currently at a level of around 2,700, 2,600 perhaps even 2,500 dollars. The calculation is certainly wrong. There are incredible errors, it's all text book economics. Now our problem is as follows. We are moving from 3,000 towards 2,500. 2,500 is really a major base level. The difficulty we are currently experiencing is just this difficulty. Indeed, if we had come down to 2,200 Turkey would have been finished. The lights would have gone out; hopefully we won't come to these levels, but it is within the realms of possibility. Unless we get our heads round this, it may even happen.'