I recently met a group of top Turkish business folk from the financial sector. They were an impressive group and a powerful advertisement for the talent Turkey has to offer.
We discussed how best to boost Turkey’s role as a financial centre.
Turkey needs more inward investment. It must compete for that investment with other countries around the world.
My interlocutors noted that Turkey should have excellent chances of attracting inward investment. It had a fine location and a capable workforce. It had strong businesses, including world class banks and other financial institutions.
But they also said that to maximise its chances of attracting inward investment, Turkey needed to demonstrate to the world that it had transparent and clear operating rules. That must include the rule of law, with an independent justice system; and other independent institutions to provide the checks and balances every society needed: for example, independent media regulators; an independent banking supervisor; or an independent central bank.
This raises an important question: what does “independent” mean?
The government of any country, elected by the people, should set the legislative framework within which other institutions – whether it is the media, the central bank or the justice system – operate.
For example, in the United Kingdom, the government has told the Bank of England to aim for a symmetrical inflation target of 2%. The British government’s inflation target is announced each year by the Chancellor the the Exchequer (Finance Minister) in the annual budget statement. How to achieve that inflation target is a matter for the Bank to decide independently.
This is difficult stuff. Until 1997, governments in the United Kingdom often used interest rates as a political tool. It’s hard to hand over the levers of power to someone else.
The great Geoffrey Howe told me once that his only sleepless night in politics had been as Chancellor, before abolition of British exchange controls in 1980. No-one was certain what would happen. Losing a degree of control can be uncomfortable. But it may be better than trying to control everything yourself.
The key thing, for Turkey, the UK or any country, is that once rules have been set in law, the institutions concerned need the genuine freedom to operate within those boundaries. That way you set up the “transparent and clear operating rules” business craves. If potential investors fear that political actors may repeatedly intervene in the workings of institutions whose independence is guaranteed by law – whether the justice system, the central bank, the media or other institutions – that risks creating uncertainty. That’s bad for business.
The world is an uncertain place. But the more you can do to create certainty, predictability and transparency in decision-making, the more business is likely to thrive – and investors pour in. And in the case of Turkey, more investment will make the economy – and society – stronger still.
Follow Leigh Turner on Twitter @LeighTurnerFCO