The Chairman's Speech at the Assembly / 22 October 2008
Mr. Chairman,Distinguished members of the Assembly and of the Press:
On behalf of the Board of Directors I would like to welcome you to our October meeting.
We have with us today our Minister of Labor and Social Security, Mr. Faruk Çelik.
We would like to thank him for accepting our invitation and welcome him to our meeting.
Welcome, Sir!
Esteemed Members of the Assembly:
As our distinguished chairman has said, this morning we learned that our Minister
of Industry and Trade, Mr. Zafer Çağlayan, has lost his father. I have spoken with
Mr. Çağlayan and expressed our condolences. I would like to repeat once again from
this platform that we ask for Allah's mercy on the deceased and wish our minister
and his family forbearance in their grief. In the wake of this sad news, before
moving on to the economy, I would like to take our minister's presence here today
as an opportunity to remind you of a recent encouraging development in Turkish diplomacy.
After waiting for forty-seven years, Turkey has finally succeeded in being chosen
to be a temporary member of the United Nations Security Council. This diplomatic
triumph adds a new dimension to our position in the world and in the way our country
is perceived and, without a doubt, is going to contribute in time to the development
of our trade and economic relations.
I would therefore like to thank and congratulate, in the person of our esteemed
Minister, our distinguished President, Prime Minister, Foreign Minister and our
entire government, who worked so long and hard and with such determination to accomplish
this goal.
Esteemed Members of the Assembly:
As we have pointed out in all our contacts with the government for many years, the
onerous burdens on employers in Turkey, mainly the burden of taxes and social security
premiums, have been one of the key items on the agenda of our industry.
A legal amendment aimed at providing some relief was finally passed this year, and
law no. 5763, known to the public as the 'employment package', went into effect
on 26 May.
To sum up briefly, this package lifts the obligation on employers in the private
sector to employ ex-convicts and victims of terrorism. The legal obligation to employ
3% handicapped workers remains, but the employer's share of social security premiums
for the handicapped is now being paid by the Treasury. Enterprises have also been
given the green light to hire an outside agency to meet their obligations to provide
a breastfeeding room and daycare, to employ a physician at the workplace, and to
set up a workplace health and safety unit.
In other words, an important development has been secured on the issue of the heavy
burden of taxes and social security premiums on employers, which is one of our fundamental
problems, and the employer's share of the SS premium is going to be reduced by 5%
starting from 1 October 2008.
Even if they are late in coming, these are very important steps.
Mr Minister:
We thank you for these amendments, which we believe are going to contribute importantly
to our competitiveness. We would like to say that we are expecting these improvements
to continue. As you know, the world is currently on fire. The economic crisis that
erupted in the United States has spread from there to the European Union and is
gradually sweeping the entire world. The worst part of it is that no one knows how
far this fire will spread or when it will be extinguished. Every day we get more
bad news. Most recently selloffs were experienced in hedge funds, which are said
to be at great risk. New rescue packages have come under discussion in the U.S.
There are concerns that a protracted recession could follow the financial crisis
and that the economy could go into recession. To prevent this, and to reinvigorate
the economy, the possibility of boosting public spending to some degree is therefore
being discussed in the West. In time of course an increase in public spending will
also exacerbate the risk of inflation. We might say that since the beginning of
the decade the world has enjoyed a prosperous period of low inflation and easy liquidity.
Here in Turkey we too benefited from this very prosperous interlude in the international
climate. For us, too, a period is now beginning in which we may find it difficult
to sustain growth and preserve jobs, two areas in which we were already experiencing
problems. At 4.6%, our growth rate in 2007 was below target. Nor does the picture
look very bright in 2008 either. We grew only 1.9% in the second quarter. Growth
figures indicate that investment and consumer spending have ground almost to a halt.
Our unemployment rate is approaching ten percent. At the same time, we are finding
it very difficult to create jobs.
In the 2002-2007 period when we grew on average 6.8% a year, we managed to boost
our employment rate by only one percent. Nor are our employment problems limited
exclusively to this. Apart from the jobless rate, I would like to draw your attention
to another key indicator relating to employment.
But first the employment rate. This ratio shows the share of those with jobs among
the 15 and up age group, which is regarded as the working age population. Based
on this, employment in Turkey was 43.1% in 2007. Yet we are looking at a European
Union average of 64.7%!
In 1990 our employment rate was 53.3%. In other words, far from boosting employment,
we have unfortunately let it slip by 10.2 points over the last eighteen years.
The OECD's Employment Outlook report for 2008 confirms this negative development
in jobs in Turkey. According to OECD figures, in the period from 1995-2006, employment
declined most rapidly in Turkey among the 29 OECD countries. In the same period,
employment rose overall in the OECD by 3.57 points with Spain, Ireland and Finland
leading in creation of jobs during this period.
Let us look now at the second indicator, the percentage of participation in the
workforce, which is the ratio of the population in the labor market to the working
age population. While participation the workforce is 70.5% in the European Union,
in Turkey it is 47.8%. We have a big problem here, particularly when it comes to
women. The ratio of women's participation in the workforce in the European Union
is 63.1% whereas in Turkey it is only 24.8%.
I should point out that a very important step was taken in this area with the employment
package. To encourage the hiring of women and young people, employer's SS premiums
on newly employed women and youths are going to be covered in stages by unemployment
compensation for a period of five years.
A low and falling rate of participation in the workforce means that the income earned
by the working sector is being shared among more people. And that, we know, paves
the way to a gradual fall in purchasing power on the domestic market.
But you, Mr. Minister, are of course are well aware of these details! I wanted to
bring these figures to the notice of our assembly so as to draw attention to the
very complex and multi-dimensional nature of our unemployment problem. As the indicators
make clear, there were serious problems with regard to growth, employment, investments
and competitiveness in the Turkish economy even before the crisis erupted.
A probable crisis could further deepen these problems. To prevent this from happening,
to at least limit the damage, our goal in the difficult period ahead should be to
sustain production, employment, exports and even investment and keep them vigorous
at all costs. Whatever the conditions, Turkey must not lose sight of her focus on
growth.
Industry is the key to growth! And the way out for Turkey is to buoy up her real
sector and her industry and clear the path ahead of it. The first thing that needs
to be done in the short term is to take rapid measures to keep the crisis in the
financial sector from being reflected in the real sector. There is benefit to be
had therefore in preparing right now to supply liquidity to the market.
If necessary the state banks can be brought into play to shore up the troubled SME's,
a move we know to already be on the government's agenda.
Another possibility is to ban the issuing of foreign currency credits while allowing
foreign currency savings. In the current situation, foreign currency credit can
be used only in return for a pledge to export. Undertaking an amendment here, it
would be possible to take advantage of the considerable resources in foreign currency
accounts in the event that restrictions on the use of foreign currency credits are
eventually loosened. Formulas aimed at supplying liquidity to firms directly from
the Treasury if necessary could even be considered as a last resort. If necessary,
this opportunity could even be extended to the real sector, as it was to the financial
sector in the 2001 crisis.
It is imperative that our financial sector look after the customers it has been
working with for many years and be careful not to create problems in the real sector.
If the real sector faces a financing bottleneck and is forced to suspend production
and employment, the entire economy, the financial sector included, could be adversely
affected. Under the extraordinary conditions in which we find ourselves, raising
credit costs by a small amount could be considered, but the credit conduits should
definitely be kept open since they are a lifeline for the real sector.
Another crucial necessity is to rapidly put in place arrangements that will improve
the competitiveness of our industry. For many years Turkish industry has been forced
to produce at far higher costs than those in our competitor countries. In spite
of this, industry succeeded in being the engine of growth for 26 consecutive quarters.
However, as the 4% contraction in the production figures for last August clearly
indicates, industry is gradually running out of steam.
I should also point out that it would be wrong to link this contraction directly
with the global crisis. The contraction is clearly the result of problems that have
been building up in our industry, because industrial production started to sound
the alarm long before August. Among the subsectors there is a problem in manufacturing
in particular.
Mr. Minister:
According to your Ministry's "working life statistics" report, the average monthly
minimum wage was $156.30 in 2002. In 2007 it rose to $438.70. This means an increase
of 180% on a dollar basis in five years. This situation is probably going to change
now with the current strengthening of the dollar.
These figures are important in terms of showing to what extent the over-valuation
of the Turkish Lira, which has been going on for years, affects the competitiveness
of our industry.
When the recent hikes in the cost of electricity, natural gas and financing are
taken into account, the pressure such costs create on our enterprises is manifest.
In the difficult period that awaits us, the cost of state-produced inputs must be
rapidly lowered in order to sustain production, employment and exports. This is
what we expect from our government!
The Resource Utilization Support Fund (KKDF) should finally be able to make the
reductions that have been on the agenda for so long, such as reducing the TRT (State
Radio and Television) surcharge on electricity bills. These reductions will give
a great boost to our industry.
Another point is that the fall in oil prices should be passed on to the consumer.
But these proposals of ours should not be taken to mean that monetary discipline
should be abandoned. We are an institution that has supported monetary discipline
and the fight against inflation right from the start. Monetary discipline should
continue. However, under current conditions, monetary discipline - and I want to
underscore this - could be relaxed a little in the name of boosting not spending
but production, investment and jobs.
Careful cost-benefit analyses will offer an opportunity to compare the adverse effects
of these reductions on budgetary balances and on economic and social returns, and
make it easier to make choices.
Mr. Minister, Another very important issue for us is severance pay. Along with Portugal,
Turkey is the OECD country paying the highest rate of severance pay for twenty years
of service. This problem, which entails a heavy burden and introduces a constant
element of tension between employer and employed, should be resolved once and for
all in an approach that takes both sides into account. In the event that the fund
model for severance pay envisaged in the Labor Law is adopted, a new and additional
burden of payment on the employer will arise. A premium burden that will come through
the intermediary of a fund system will further exacerbate the situation at a time
when our enterprises are already under pressure. We have said repeatedly that the
existing resources in the unemployment compensation fund could be put to use until
the requisite resources for such a fund can be created. The surveys conducted by
our chamber show that our members also look favorably upon this proposal.
Again according to our surveys, the 5-point reduction that is being made on the
employer's share of the SS premium has been greeted with pleasure by our members.
It is however their common opinion that, despite this reduction, premiums are still
very high and reductions therefore need to continue to be made in stages until premiums
are brought down to tolerable levels.
Mr. Minister:
The amnesty granted on premiums owed is an important opportunity from the point
of view of enterprises that have accumulated debts and are experiencing difficulty
in paying up the premiums they owe.
The amnesty on premiums has in a sense allowed our enterprises that were experiencing
difficulties to breath a little easier. However, like all such implementations,
the amnesty has clearly been unfair to those enterprises that went to great pains
to pay their premiums on time. This is unjust, and such amnesties are, in this respect,
difficult for us to swallow.
In the circumstances, I should also point out that we have even more trouble explaining
discriminatory practices such as granting athletic clubs up to ten months to make
their payments at 4% deferred interest. If such amnesties and discriminatory practices
have to be, then some rewards and incentives should at the same time be considered
for enterprises that make their payments on time.
Mr. Minister: An important regulation directly concerned with working life and production
is the subcontracting regulation which went into effect on 29 September 2008 upon
promulgation in the Official Gazette. The employer - subcontractor relationship
is one of the most important institutions of working life in Turkey. When it was
still a draft bill, we pointed out that the regulation in question contains provisions
that severely restrict the use of subcontractors and therefore definitely needs
to be reconsidered.
Unfortunately our warnings went unheeded.
While we as industrialists were demanding that the obstacles facing us be removed,
new obstacles were added that make it even more difficult for us to take a step,
much less move forward. This regulation definitely must be reconsidered!
Esteemed Members of the Assembly: During the difficult process ahead, we have expectations
from our government. But there are also things we ourselves need to do:
As the private sector, we need to be more sensitive about laying off workers only
as a last resort. When a possible crisis looms, the first thing enterprises do,
albeit unwillingly, is to lay off workers and suspend investments. While it might
provide some temporary relief to enterprises, let us not forget that laying off
workers drives up unemployment and therefore does harm to both the economy and society.
As I have also pointed out in the press, if we as a chamber call on enterprises
not to lay off workers this will not go beyond empty words. But it is also possible
for this to be turned into a realistic appeal realizable in practice.
An important obligation falls upon our ministry and our government here.
If during this process the private sector, by creating the proper infrastructure,
is supported by various mechanisms, by some temporary subsidies, for example, it
will be able to reduce worker layoffs. Workers could, for example, be given leave
in rotation for specific periods, and during those periods unemployment compensation
would effectively kick in. In short, we could benefit from the opportunities offered
by flexible working models.
Flexible working models open up the field of action for both enterprises and workers,
especially during periods of crisis, and offer the employer a chance to protect
both himself and his worker. The new labor law that went into effect in 2003 introduced
flexible working models into our system. Unfortunately, however, the models included
in the law never managed to be implemented.
Flexibility is nonetheless one of the basic components of European employment strategy
today. Going one step further, the European Union has added 'security' to 'flexibility'
and developed the concept of a balance between the two in 'flexicurity'. The answer
to the question, 'Flexibility or security?" is now along the lines of a balance
between the two. We too should be able to discuss these new instruments and put
them into practice.
Mr. Minister: In the name of making good use of our time, I have tried to touch
on the main aspects of the economic situation in which we find ourselves today.
We know however that there are many more topics we could bring to the agenda in
connection with working life.
Establishing a bridge between education and employment and equipping our work force
with multiple skills are just two of them. At the same time, two important draft
laws on working life, namely the draft laws to amend the labor union law and the
law governing collective bargaining and lockouts, are currently being debated in
the Turkish parliament. We are trying to follow these two drafts very closely.
Mr. Minister, Esteemed Members of the Assembly:
Despite all their destructiveness, periods of crisis can be instructive in certain
areas, enabling to see the weaknesses in our system and therefore to undertake ameliorative
measures.
The 2001 crisis resulted in some important lessons and conclusions in that sense.
Turkish industry recovered from the wounds it suffered in that crisis and embarked
on a process of healing itself. But the reforms that are a condition for the completion
of the healing process must be implemented in a timely fashion.
We hope that the crisis this time can be turned into an opportunity in that sense.
This is what we are asking, Sir, from you and from our government. We know that
you are working to make efforts in this direction and we are expecting those efforts
to pay off.
Experience has revealed that rescue packages don't get results if they are too late.
Consequently, we are compelled to be swift, determined and, if necessary, radical
if we want to protect our economy, minimize the probable adverse effects of the
crisis and even, as I said earlier, turn it into an opportunity.
We must be proactive and get a handle on events before they overtake us.
Mr. Minister, Esteemed Members of the Assembly:
We will soon be celebrating the 85th anniversary of the founding of our Republic.
In many senses we are going through a difficult period. We are experiencing hard
times. But one thing we know is that we are going to overcome those hardships, and
take the Republic of Turkey, in unity and undivided integrity, into an infinite
future of many more 85th anniversaries with a democratic, modern and secular structure.
I would like to remember with gratitude and God's mercy all those who have given
their lives for this cause, and in closing to salute you all once again on behalf
of the Board of Directors.
C. Tanıl KÜÇÜK
Istanbul Chamber of Industry
Chairman of the Board of Directors