The Shift of Turkish Textile Producers to Egypt: A Normal Economic Transition?
“Our textile producers are moving to Egypt!” This has emerged as one of the most contentious issues in recent discussions. Has it truly become infeasible to maintain production in Turkey due to rising costs? Is this driven by the recent appreciation of the Turkish Lira, or are there deeper structural factors at play? To address these questions, we must contextualize the situation within the broader dynamics of the global economy.
Deindustrialization is widely considered a normal trajectory for affluent nations. Citizens in developed countries increasingly reject the notion of working eight-hour shifts in fixed industrial settings. Consequently, industrial facilities have been migrating to less-developed nations where laborers are willing to work extended hours — sometimes as much as 18 hours per day — and are even, regrettably, willing to engage in child labor. In the 1950s, approximately 30% of the GDP in the United States was derived from manufacturing; today, that figure has dwindled to a mere 8%.
The concept of “premature deindustrialization,” introduced by my esteemed professor at Harvard University, Dani Rodrik, in 2016 sheds light on these developments. Historically, deindustrialization occurred primarily in high-income countries; however, middle-income countries are increasingly facing similar dynamics. For instance, industrial employment peaked in Japan in 1969, whereas it peaked in India in 2002. Notably, Japan’s per capita income in 1969 was roughly five times greater than India’s in 2002, underscoring the disparity in development contexts.
Such examples are numerous, and they prompt a reconsideration of the structural evolution of the global economy. As Professor Rodrik posits, the globalization of competition within the manufacturing sector — intensified by the establishment of the World Trade Organization — has fundamentally altered the landscape. Textile producers in Turkey are now competing not only against local rivals but also against firms in Portugal and Ethiopia. This globalization has precipitated a rapid increase in productivity demands. Unfortunately, this trend has worked to the detriment of countries whose industrial sectors rely predominantly on low-cost labor. Technological innovations emerging from advanced economies (and, more recently, China) have driven down global product prices while simultaneously increasing the capital share of production at the expense of labor. Consequently, developing countries that depend on low-wage labor are losing their competitive edge.
In such economies, firms that can invest adequately in capital and successfully integrate innovation into their production processes have managed to grow and achieve global competitiveness. In contrast, firms that cling to a strategy centered solely on cheap labor are increasingly marginalized. Additionally, companies that increase the capital intensity of their production are not only reducing labor input but also employing a more skilled workforce. Therefore, the manufacturing sector no longer serves as the broad-based employment gateway it once was for unskilled labor.
In a recent study, Professor Rodrik compared textile producers in Tanzania and Ethiopia with their counterparts in the Czech Republic. Consider this: the Czech Republic is approximately twenty times wealthier than these African nations. Across the broader economy, the capital-to-labor ratio in Czech firms is twenty times higher. However, successful textile producers in Tanzania and Ethiopia that have enhanced their capital-to-labor ratios exhibit similar capital intensity to firms in the Czech Republic. This finding highlights the potential for developing economies to close gaps with wealthier nations by strategically augmenting capital inputs.
Turning our attention to Turkey, I consulted my dear friend Ekrem Cüneydoğlu, Director of Development Policies at TEPAV (The Economic Policy Research Foundation of Turkey), who provided data on employment and value-added in Turkey’s manufacturing sector. The data reveals that since 2004, the share of manufacturing in total employment has fluctuated between 18% and 20%. In comparison, the corresponding share in Greece fell steadily from 14% to below 10% over the same period.
This raises a compelling question: Is Turkey’s problem not one of “deindustrialization” but rather an inability to “deindustrialize” effectively? Numerous industrialists in Turkey lament, “We cannot find workers!” Conversely, job seekers retort, “We cannot work for the wages you offer!” This dichotomy suggests that a substantial portion of Turkey’s industrial enterprises has failed to align with global productivity benchmarks. These firms continue to operate by leveraging a large, unskilled workforce. When economic pressures mount, blaming an ostensibly “overvalued Turkish Lira” becomes a convenient scapegoat rather than addressing underlying structural deficiencies. To those who assert that the Lira is overvalued, one might ask: “When precisely was the Lira at an appropriate value, and by what criteria is this determined?” It is plausible that the Lira was undervalued for several years, thereby forestalling the kind of deindustrialization that comparable economies experienced. Additionally, the influx of approximately four million immigrants may have temporarily sustained inefficient enterprises by providing an additional labor pool.
From another perspective, we can examine Turkey’s export structure: the share of high-tech exports within total manufacturing exports remains below 5%. We aspire to raise this proportion so that those employed in the industry can receive compensation commensurate with their productivity. Without effective industrial policies to transition to high-tech sectors, we could, at the very least, enhance this share proportionally by phasing out low-tech manufacturing enterprises, hence lowering the denominator. This approach would enable our entrepreneurs to allocate their accumulated capital and organizational capacities toward more productive ventures. Viewed through this lens, the time for Turkish textile producers to relocate to Egypt may have already arrived — and perhaps even passed.
This article is a translated version of ‘Tekstilcilerimizin Mısıra Taşınması Normaldir’which was initially published in Economic Daily (Nasıl Bir Ekonomi Gazetesi) on October 04, 2024
