Turkey has a watershed decision to make. Policymakers can remove the fundamental roadblocks to faster productivity growth. Or they can maintain the status quo, allowing productivity to limp along at 40 percent of best practice levels, holding Turkey back from a breakthrough to sustained rapid growth.
The implications for Turkey are crucial in terms of not only providing an improved standard of living for its population of 65-70 million but also making itself a more attractive candidate for acceptance into the EU.
The McKinsey Global Institute (MGI) analyzed productivity levels in 11 sectors across the economy and has provided a series of recommendations based on that analysis.
Modern segments in almost all of the sectors studied showed substantial progress and impressive productivity rates. But often far larger segments within those same industries, which rely on traditional and inefficient operations, have dragged down productivity rates overall. In this traditional arena, businesses often compensate for their poor efficiency by operating informally, that is by evading taxes and other obligations to the state.
This phenomenon, combined with the corrosive effects of extreme economic volatility and low productivities in state enterprises, keeps Turkey's productivity levels at not much more than half of their potential.
