Turkey's financial crisis in February 2001 was its worst since the end of World War II. Some two years later, many sectors and many companies - those that survived - remain badly bruised. The average Turkish citizen has paid a crippling price. It could well be another 12-24 months before demand and output recover even to pre-2001 levels.
But all nations, Turkey included, have parables about the good that can come from the bad. Sure enough, there is increasing cause for at least cautious optimism. The financial system has been materially overhauled. The commitment to market liberalization remains very strong. For the first time in more than a decade, Turkey has a single party government, one apparently committed to change. Labor, business, and government constituents are aligned as they have not been in a generation in the desire to break Turkey's "boom-and-bust" cycle. It is a demanding time, but also a time for new ideas.
Now is also a perfect time to focus on the role that productivity growth must play. McKinsey & Company in Turkey, through the McKinsey Global Institute (MGI), has drawn on the methodology refined in a dozen other country settings. Our goal is to help policymakers understand what Turkey has to do to achieve its productivity and growth breakthrough.
After two decades of committed liberalization, Turkey is now on the cusp. It has one foot in the world of productive modern industry, but it also has the other deeply planted in traditional, inefficient methods. Modern segments in the cement and automotive parts industries, for example, have productivity rates higher than counterparts in the United States. And yet traditional segments of many sectors are indexed as low as 20 percent of U.S. levels. And, in most sectors, traditional operators employ a substantial majority of labor.
Turkey has to solve that problem. It must successfully extend liberalization into its key utilities sectors. It must also smooth its economic volatility. A tall order, to be sure. But it is doable, and now is undoubtedly the right time to start.
Turkey: Making the Productivity and Growth Breakthrough Privatization and enforcement of financial laws could boost Turkey's economy. Read more
