Many social scientists –rightfully- criticize economists for their standardized approach to social and economic problems. Gathering, quantifying and analyzing relevant data force economists to simplify many aspects of economic activities in order to compare different countries, or different regions of the World. That does not mean, however, economists are blind to the facts that make cultures, countries or regions different. Perhaps, one of the most important differentiating such factors is demographics.
In fact, “never bet against a generation” is a well-known argument in finance and investments literature. Demographic changes create enormous shifts in wealth, risk, productivity, asset pricing, economic realities, etc.
These shifts can become invaluable opportunities for the proactive minds, as well as disastrous problems for the procrastinating administrations. The same general rule applies not only to individuals and business organizations, but also to countries and their economic policies. One such case is Turkey and its demographic shift in the last decades.
Turkey is a relatively young country straddling at the crossroads between three continents. When I say “young”, I mean it both ways: a young republic, as well as a traditionally young and vibrant population… well, traditionally…
Like all traditions, Turkey’s years are numbered when the country can enjoy the benefits of having such a young and vibrant population. Maybe it is the faith of any region that sits at the crossroads of many dominant cultures and systems, i.e. they tend to inherit the problems around them. Turkey is no exception for that argument; it inherits all of the political and economic trends in the region, as well as the demographic shifts happening both in the Middle East and Europe. The following three maps present this effect on population growth in the last 60 years,(1955, 1985, and 2015):
These illustrations are very important for two reasons:
1-) One of the most important and strong internal forces behind Turkey’s economic growth has been its young and vibrant population supported by its rapid growth in numbers. The country enjoyed the benefits of this demographic reality for decades in many ways, such as:
- Migration from rural areas to urban city centers have created tremendous amounts of rentier capital for the country, both internally and internationally.
- Cheap labor not only provided much needed input for domestic operations, but also became a major export to Europe (i.e. millions of Turkish citizens have been living in Europe since early 60’s. They have been providing significant amounts of wealth and capital transfer into Turkey)
- Turkey was able to enjoy producing and supplying many low-cost and technologically less-challenging products to developed markets, e.g.: agro-products, automotive parts, cement, etc.
- Social programs by the government, such as government-sponsored retirement system, universal healthcare benefits for its citizens, etc. have enjoyed a demographics structure, where many young workers supported fewer retirees and the sick.
- Life expectancy have been relatively shorter than comparable economies, which also contributed to the previous equilibrium.
Demographic shift damages the economy
However, the demographic shift, as presented in the pictures above, is making the population older, reversing almost all of the above-mentioned trends and erasing their potential benefits for the economy. In 1960 population growth was 2.4%, whereas that number dropped to 1.6% in 2016, and its expected to turn negative before 2050. In addition, the percentage of the population in younger deciles have been decreasing consistently, compared to the older deciles. That means: not only the growth is slowing down, but also the elderly live longer…
Whether you claim that there simply aren’t enough people anymore to migrate to the cities to continue the traditional trends because of the slowing population growth; or, you claim that the cities are overcrowded and reached their sustainable capacities to support such migration… it simply slowed down!… and no one can bet against this!
Turkish economy is not only losing one of its strongest engines, but also it has to deal with the gargantuan social costs of increased number of retirees, universal healthcare system without having enough young people paying into the system, increased life expectancy of its citizens and getting caught unprepared to handle these financially, etc.
The populations traditional and total reliance on the government for retirement, healthcare, education etc. has made the culture less proactive in saving and preparing for these problems. In other words, every one of these services are expected to be paid by the government. An aging population only makes the cost of these services go up, and makes the economic model unsustainable, as well as the country’s business cycle more painful.
Syrian immigrants brought their own political and integration problems
Recent injection of nearly 4 million Syrian immigrants into the country only complicated the situation, not only because of the added social costs of the new “citizens” but also because of the political and integration problems they brought with them… (more of that in the next section)
2-) A quick visual observation of the three pictures above would reveal that the world population growth is slowing down as well, hence, this shift is not just a Turkish reality, rather a global force. However, in the case of Turkey, the effects of such global change, and the various influences Turkey is experiencing are special to Turkey’s location, again…. Remember the crossroads?
Turkey is in the middle of opposing trends, again, like many other aspects affecting the country in every possible way. To the east, it is the older population. To the west, it is the relatively younger population. This interaction and its potential effects on the country’s economy, as well as its culture, present some interesting challenges.
One quick look at the Turkish government’s recent policies towards Europe could easily reveal that the political establishment in Turkey used this as a blackmail towards Europe, especially in the case of Syrian refugees. In fact, many experts claim that this was the tipping point for the Turkish foreign policy shift into Neo-Ottomanism. Political implications of such shift could be the focal point of another article.
However, the economic implications are very important. Turkey is risking to lose one more economic engine, this time internationally, especially in its own backyard: being the reliable and stable regional hub for trade, energy, goods, services, tourism, and even labor…
Regional trade and stability is going to be one the most important determinants of economic success and welfare in the new century. Turkey’s location, both geographically and demographically makes this a great opportunity for the country. In fact, the best recent economic performance by Turkey was enjoyed during the 2007-2012 period, where the region also enjoyed relative political calm.
Consequently, in a region where two opposing demographic shifts are happening, Turkey has to choose its friends very carefully. Economic and social implications of the demographic changes in its region make it crucial for the Turkish government, to manage these trends proactively.
One more time, just like many earlier times during its short history, Turkey has to play the middleman between the East and the West…
Turkey can benefit from this interaction tremendously if it plays its cards correctly… otherwise, its aging population might put it in the risk of becoming another unstable economic model… everyone around it would lose, but not as much as Turkey would…
