Professor Daron Acemoğlu: Risk of a 'hard landing'

There has been talk in Turkey’s economic circles of Prof. Dr. Daron Acemoğlu being appointed to the new cabinet that President Tayyip Erdoğan is to form. Acemoğlu himself has put a halt to speculation sparked off by Habertürk columnist Nagihan Alçı that Daron Acemoğlu may be placed in charge of Turkey’s economy. In a comment he made to our newspaper, Acemoğlu, noting that no such offer had come his way, said, “Nobody has contacted me. The talk amounts to nothing but rumour.” Massachusetts Institute of Technology Professor Daron Acemoğlu, one of the ten most quoted economists in the world, replied to our questions about both the talk doing the rounds and the future of Turkey’s economy.

The future is dark

Known for his criticism of the government’s economic policies, Acemoğlu sees the economy having a dark future for as long as there is no focus on medium-term policies in place of short-term policies for solving structural problems. Pointing to structural, political and judiciary-related problems in the Turkish economy, the famous professor thinks that the problems are not simple enough to be solved with the ending of electoral uncertainty. Daron Acemoğlu replied as follows to our questions:

There is talk in economic circles of your inclusion in the new cabinet that President Tayyip Erdoğan is to form. Would you care to comment on this talk?

Nobody has contacted me. So, this is just rumour. 

What are your expectations of the Turkish economy?

Electoral uncertainty has gone. Will the Turkish economy undergo speedy recovery? I don’t think so. I think the Turkish economy has structural problems. It is not electoral uncertainty that was the cause of high inflation, low investment levels and the appreciation of the dollar. The structural problems relate to the fact that Turkey’s economic growth over the past ten years has been boosted by debt and the real estate sector. There has been no great increase in productivity in the Turkish economy over the past ten years. There has been no increase in technological development and investment outside the real estate sector.

Necessary action not taken 

Inflation has been in double figures for the past ten months. As to growth expectations, these are negative for the second half of the year. Is there any risk of stagflation in the economy?

I think there’s a risk of a “hard landing.” This is a scenario with which observers of economies in which growth takes place through the real estate and construction sectors boosted by consumption and unrelated to foreign trade are very familiar. Growth of this kind is followed by a sudden standstill. It sometimes brings negative growth with it, and sometimes inflation, and sometimes problems in the banking sector. I hope Turkey avoids negative growth, bankruptcies of many companies especially in the construction sector and a subsequent hard landing that entails risk for the banking sector and remainder of the economy. However, I don’t think we’re doing what’s called for to avoid a “hard landing.”

IMF programme

Do you still think Turkey is one of the most fragile countries? Can an IMF programme solve the problems?

Yes, there are serious risks for Turkey. We have one of the highest inflation rates and one of the highest current account deficits. But, as I said, I am more worried about the underlying structural problems. I think an IMF programme might help, but we must think in the medium term and not just the short term.

Press freedom is essential for healthy growth

Are policies contrary to human rights, institutional independence, press freedom and European criteria having a negative effect on the Turkish economy? What is the effect of democracy on economic standards?

Much of my research has been into this interrelatedness, including my book titled “Why Nations Fail.” Democracy is beneficial for growth. Political institutions that support political freedom are beneficial for growth. This, of course, does not mean that we cannot have growth without political freedom. China shows this is possible. But, overall, if society is relieved of pressure, if there is freedom of expression, if democratic control mechanisms are in place and if the economy has not been usurped by power and influence circles, growth is encouraged and attains higher quality. In the same vein, a decline in press freedom, a reduction in judicial independence and the independence of other institutions and restrictions imposed on human rights make sound economic growth less likely.

Ekonominin başına geçeceği iddia edilen Prof. Daron Acemoğlu: ‘Sert iniş’ riski var