Do you look up at the sky once in a while? If you do not, please start doing. Particularly in Ankara and Istanbul, you first notice huge airplanes on scheduled flights. You can rarely see private planes and helicopters. Thirty years ago, when I was a child, you could not see such a picture when you looked up. Even if you could see something, it would be military helicopters or war crafts.  Nowadays it is enough to look out from your window to realize how Turkey has changed. This is the case particularly for my generation. However, the splendor of the progress made so far must not make us miss out the critical brink Turkey is at. Turkey is quite close to the middle income trap. We should protect the country from this middle income trap. The recent data from the export markets must be analyzed carefully. The problem is related not only with the exchange rate; at least this is what I believe. To me, the data repeats the same warning again and again: "Beware the middle income trap!" If you wonder what I am talking about, please join me down.

Turkey's economy has gone and has been going through a rapid transformation. But, despite the progress made, there are two facts that remained intact over the last three decades: First, Turkey is in the middle income group. The World Bank annually announces data as to which income group countries stand in. According to this, countries are classified under three main headings: low income, middle income and high income. And the middle income group is divided into two sub-groups, namely lower middle income and upper middle income. The ranking is based on the per capita income in each country. Turkey, with per capita income above US$10,000, stands at the upper middle income group together with Mexico, Brazil, Malaysia, and Azerbaijan. Some countries, thanks to oil revenues, can climb up on the list. Therefore, it is necessary to differentiate between the developing and developed countries in the high income group. Turkey has made substantial progress over the last three decades relying on the competitiveness of the industrial sector without a source of income based on a natural resource as oil. This definitely is good. But remaining among the middle income group countries implies that Turkey has grown, but not rapid enough. Turkey has a high competitiveness; but it is not sufficient to achieve rapid growth. Korea, which came with Turkey three decades ago, achieved the necessary qualitative take-off and advanced to the high income group. This is exactly what Turkey has to do now.

Second, for the last three decades, per capita income in Turkey has been around 20 percent of that of the USA. What does this mean? Does this mean per capita income in Turkey has not been rising? No, per capita income in Turkey rises; but there are two specific issues to note. First, per capita income has also been rising in the USA; so the relatively nothing changes. Furthermore, as Turkey's population grows more rapidly, it has to ensure higher growth rates to close the gap. Turkey's growth performance over the last three decades, which stands around an average of 4 percent, cannot achieve the said convergence. So, this would be the second point to keep in mind.

Then, can we say Turkey made no progress over the last three decades? No, we cannot. In the meanwhile, per capita income in Turkey boosted by 6.6 times from US$1,500 to US$10,000. But Korea ensured a more rapid improvement. Korea eventually succeeded in the qualitative take-off. Think about a country that has a per capita income of US$10,000. That country cannot continue to secure growth based on cheap labor. The competitiveness at that field evaporates. Exchange rate advantage, though can help for a while, is not sustainable in the medium term. We can examine the recent developments in Turkey's trade with the European Union based on figures as of April 2010. And TEPAV's discussed report is based on the data for April 2010. According to this, in the recovery process demand of consumers in the European Union for labor-intensive goods move away from Turkey inclining towards Southeast Asia where labor costs are lower. This is what data for March and April 2010 suggests. This is what the figures complied by TEPAV's economists indicate. But, Turkey is competitive not only in labor-intensive sectors, right? Recently middle-technology goods have also gained importance. Automotive and domestic appliances sectors have been playing a more important role over the last eight years. However, Romania and Poland, new members of the Union, block Turkey in these product classes. The way to prevent this is that Turkey achieves the mentioned qualitative take-off. Figures whispers us the same message: "Beware the middle income trap!" The issue, basically, is related with Turkey's competitiveness. A country seeking to succeed to the high income group from middle income group has to renew the production infrastructure. This can be transportation, energy, primary education, tertiary education, and legal system. It can be a constitutional reform if all the above mentioned elements hinder adjustment. These all, except the last one, imply big investments. The country must be investing today getting prepared for the take-off. The process of second generation reform implies a substantial mobilization for investment .

Turkey, now, stands at a critical brink: It has to move from one phase to another. It has to turn from a middle income country into a high income country. The change here is related with having the time to achieve a qualitative take-off. Without it, quantitative performance does not last. Turkey will either achieve the qualitative take-off or fall into the middle income trap. And falling into the trap implies a circle of spinning; not moving forward, not moving backward.

While Turkey is seeking a position for itself in the new-normal that has been taking shape, we have to hear what foreign trade figures whisper: "Beware of the middle income trap!" The issue is much deeper and critical than quantitative changes in export volume. Everyone would better realize that Turkey's struggle is now related with the quality as well as the quantity of the exports.

You cannot fight with facts.

This commentary was published in Referans daily on 03.08.2010