Over the course of the last two months, we witnessed heated debates between the proponents of the "yes" and "no" camps concerning the political, economic and social impacts of the proposed constitutional amendment. Inevitably, legal issues pertaining to checks and balances in the parliamentary and presidential systems, concerns related with effective separation of executive, legislative and judicial powers, as well as deepening democratic consolidation were high on the agenda.
Yet, it would be quite a superficial approach to portray the proposed constitutional amendment package as a mere legal restructuring aimed at the reformulation of executive and legislative superstructures. On the contrary, the presidential government system promises to trigger a radical restructuring of the macroeconomic governance framework and rehabilitation of institutional architecture. It also promises to break down organized private monopolies and bureaucratic tutelage mechanisms that have so far constrained Turkey's economic development potential.
Potential long term economic impact of the constitutional changes
To start with, the presidential government system will establish a unified executive branch and extinguish the problems of divided executive authority between the Offices of the Presidency and the Prime Ministry. This is an extremely vital aspect of institutional restructuring in Turkish public administration as it will improve coordination among the conventional ministries, bureaucratic agencies, autonomous bodies and sectoral advisory councils that are responsible for the formulation and implementation of macro and micro level economic policies. As such, the new system will centralize and speed up decision making under the umbrella of the Presidency, and therefore allow more dynamic interference capacity against potential market failures, to improve the efficiency of economic processes.
Turkey already has a sound regulation and supervision infrastructure designed for areas of macro-management such as finance and transport/communication services etc. But in areas in which there is a need for better intra-sectoral policy coordination such as science and technology policy, FDI policy, university-industry linkages, or modernization of manufacturing industries the new system will substantially increase the administrative capacity of the Turkish state.
Forming effective state-business linkages for long-term development objectives will be easier under a presidential system with a leaner and more agile bureaucratic structure. Under this system there will be greater protection of Small and Medium Enterprises (SMEs) against bigger conglomerates, and targeted social policy reforms to reduce regional and social inequalities.
The constitutional reform might open a window of opportunity through which the key governance problems that hindered the execution of crucial structural reforms over the course of the last decade, could finally be resolved.
The Turkish economy has been placed on a path of moderate growth in the wake of several political crises at home from the Gezi Park incidents in 2013 to the failed coup attempt on July 15, 2016. The main focus of the debates surrounding the socio-economic impact of the proposed reforms is the restoration of fast and sustainable growth. In this context, accomplishing fundamental policy goals that would support fast and sustainable growth require strong and effective coordination among public agencies: dynamic interaction with the private sector in order to monitor developments in global markets and produce timely policy responses and strengthening communication channels with civil society in order to support development initiatives through civil support mechanisms in the areas of education and human resources.
As far as Turkey’s development trajectory is concerned, the foremost policy objectives include monetary, fiscal and procurement policies to permanently reduce the current account deficit; micro-sectoral policies to increase the high-tech manufacturing and export capacities; fiscal reforms to reduce the burden on productive and export-oriented sectors; improvement of the investment climate to spur growth and increase the inflow of productive foreign direct investment (FDI); reducing energy costs to support local production and processing of raw materials; creation of new financial instruments to increase national savings and improve local financing of new investments; galvanizing the legal infrastructure of the business environment; raising human capacity through improved university-industry linkages; alleviating private monopolies and triggering sectoral productivity increases through stricter competition policy; alleviating regional disparities through better coordination of regional development agencies.
Turkey desperately needs the constitutional reform towards the presidential system for the successful realization of these goals under the coordination of a unified and strong executive which could oversee the formulation of a new development narrative based on real economy, industry-technology linkages, modern agriculture and information technologies. Maintenance of fiscal discipline and price stability while implementing an employment-friendly, inclusive, sustainable and equitable growth model requires effective coordination of policy realms such as education, industry, agriculture, technology, human resources, money and fiscal policy – at a time when exchange rate wars and neo-protectionism continue to rage in the world economy.
In the historical development of Turkey's public administration tradition, there is no precedent for institutional bodies such as the “Super-Ministries” seen in various developmental states in East Asia such as Japan’ s MITI or South Korea’s EPB. Therefore, achieving centralization at the top of the executive around the Office of the Presidency seems the only viable option for better policy coordination and swift decision-making. The proposed constitutional amendment is also vital to permanently eliminate the structural sources of the economic tutelage exerted by family-owned conglomerates in conjunction with their international partners by ensuring stable and robust executive authority that leaves no room for politico-economic manipulation. If the proposed constitutional amendment goes through in the referendum, the Turkish economy will certainly move into another strong growth path.
What is the potential economic impact of a “no” vote in the referendum?
As far as the outcomes of the latest opinion polls are concerned, the constitutional amendment will easily pass the mark required for absolute popular majority at the weekend. But in the unlikely event of a rejection, the perception of politico-economic stability in Turkey might temporarily be damaged as both the domestic and international market actors will delay their investment decisions until the discussions on the political system are somehow settled. There might be conjectural volatilities in the stock exchange and the exchange rates, but the sound fundamentals of Turkey’s macroeconomic governance will prevent a potential crisis scenario. The main socio-economic cost of an unlikely “no” vote will be the lost time in Turkey’s development narrative.