Rahmi Koç’s Statements Confirmed by OECD Data

Last week, Mr. Rahmi Koç’s statements stirred up the social media world. Rahmi Koç, a prominent Turkish businessman and honorary chairman of Koç Holding, Turkey’s largest industrial conglomerate, stated, “They say 5.5 million people are working at the government [in Turkey]. This does not include soldiers. This government can run with 2 million people.” As the owner of a group of companies that alone accounts for 8% of registered employment in Turkey, I believe Mr. Koç has “some experience” regarding how many people are needed for various jobs. However, many people involved in this debate on social media thought quite the opposite. Some even pointed out that public employment data shows that the OECD average is much higher than Turkey’s. Let’s look at these claims and their implications together.

The OECD was founded in 1961 by 18 Western and wealthy countries to foster cooperation among these affluent nations. At that time, Turkey was also considered a wealthy Western country, so we became one of the founding members of the OECD. After the Cold War, the number of OECD members increased to 38. However, the majority of the members are still wealthy European countries. For instance, no BRICS countries are members of the OECD. It is also useful to look at OECD statistics from this perspective.

Indeed, the ratio of public sector employees to the total workforce in our country is below the OECD average. Turkey’s ratio is around 13%, while the OECD average is around 18%. This figure is similar in Germany and Italy, while the ratio of public sector employees to the workforce in the US is 15%. Japan and Korea are much lower than us. In France and the Scandinavian countries, more than 20% of the workforce is employed by the public sector. So, the countries that raise the OECD average are these ones. Let’s also look at the ratio of public spending to national income. In some countries, the state has a significant economic share through social assistance and incentives rather than employing civil servants. This ratio is 35% in our country. The OECD average is 45%. The US public spending ratio to national income is quite close to the OECD average. In European countries like France, Germany, and Italy, the state’s share is always above 50%. Of course, the same is true in Scandinavian countries. In Chile and Mexico, this ratio is well below ours.

Averages, by their nature, do not capture individual nuances. As you can see, a few countries within the OECD have raised the averages for the weight of public sector employees or expenditures. Especially Northern and Western European countries. So, what has happened because these countries employed so many people in the public sector? Ruchir Sharma’s new book “What Went Wrong With Capitalism”compares the US and Europe well. When examining the European region, the book focuses on major economies like the UK, Germany, France, Italy, and Spain. Actually, the weight of the public sector in European economies was lower than in the US before 1980. As you know, during this period, the US lived under the legacy of the public-heavy, Keynesian policies of World War II and the preceding years. After 1980, President Ronald Reagan reversed this system with neoliberal policies. However, economic performance also declined after the public sector’s weight in Europe surpassed that of the US. For instance, since 1960, the rate of productivity growth in Europe has fallen from 7% to zero, while in the US, it has declined from 2.5% to 1%. In the 1980s, the per capita income in Europe and the US was roughly at the same level, but today, the US is 50% higher.

On the other hand, you would expect Europe to be more egalitarian with such extensive public spending, wouldn’t you? But it’s not quite so. In France, the ratio of billionaires’ total wealth to national income has reached 22%. This ratio is not higher in the US. But didn’t we know that “the public sector takes from the rich and gives to the poor?” Unfortunately, it doesn’t work that way. Because more public spending and employees mean leaving more rules and decisions to the public sector, decisions are naturally shaped by lobbying efforts as a quirk of politics in such an environment. Naturally, the best lobbying is done by large companies with more resources. As a result, the owners of these companies become even richer. What did Ufuk Akçiğit’s study of 112,000 firms in Italy reveal? If a company owner has friends or relatives in municipalities or central administration, the chances of the company growth increase while the chances of innovation decrease. According to Akçiğit, such relationships have caused the Italian economy to fall 2% below its potential.

You might attribute this situation to Italians being Mediterranean. However, a similar study was recently conducted by the Institute of Labor Economics (IZA) in Germany, and similar results were also found there because people are essentially similar everywhere.

So, what does this mean? Experience indicates that economies with many public sector employees and expenditures perform lower and do not improve social justice as much as expected.

Is the number of public sector employees high in Turkey? You can spend a few hours in any municipality and answer this question yourself. Are public sector employees in Turkey adequately paid? I always write that they are not and that there is a human resources shortage in the public sector because of this. Unfortunately, we are equalizing in mediocrity. Technically, it is possible to keep public spending constant while increasing quality. Politically, it is impossible.

This article is a translated version of “Rahmi Koç’un dediklerini OECD verileri doğruluyor” which was initially published in Economic Daily (Nasıl Bir Ekonomi Gazetesi) on July 5, 2024.