Warnings that industry is gradually losing its economic weight have long been a key agenda item in academic research and economic policy debates in Turkey.

Most recently, the Istanbul Chamber of Industry’s regular General Assembly meeting in July was held under the agenda item “The Danger Facing Turkey: Early Deindustrialisation”. ISO President Erdal Bahçıvan noted that Turkey has begun to lose industry’s share of the economy before completing its industrialisation process, and called for a production-focused and holistic industrial policy to counter the risk of “premature deindustrialisation”. Similarly, the “Call for Re-industrialisation” issued by the Turkish Garment Manufacturers’ Association contains similar demands.

Premature de-industrialisation is defined as the decline in the manufacturing sector’s share of national income and employment before the country has reached a high-income level, transformed its production structure towards high technology, or established a strong industrial base. Turkey’s industrial sector has been signalling this decline for many years.

According to GDP statistics, in the first quarter of 2026, the manufacturing sector’s share of GDP fell to 14.9 per cent, marking the lowest first-quarter level in the data series dating back to 1995. Job losses are becoming particularly acute in the manufacturing sector. Alongside high costs, financing difficulties are hitting labour-intensive areas of production, with the sharpest job losses recorded in the textile and clothing manufacturing sectors. The largest employment loss occurred in the manufacturing sector. The number of people employed in the manufacturing sector fell by 159,348 compared with the same period last year, dropping to 4,406,000.

The decline in the number of wage earners in the industrial sector reached 156,068 over the past year. This decline highlights the ongoing weakening of production capacity and the industrial base.

Meanwhile, the structure of the industry remains trapped in medium-to-low technology. The 2025 Industrial Products (PRODCOM) Statistics also provide striking data on production dynamics in the economy. In 2025, the market value of total industrial production rose to 24.1 trillion TL. However, high-technology products accounted for only 3.6 per cent of the value of sales from production in the manufacturing sector. Whilst the combined share of the low and medium-low technology groups stood at 67.5 per cent, the share of the medium-high technology group was 28.8 per cent.

Prof. Dr Ebru Voyvoda from METU points out that, rather than merely discussing the risk of premature deindustrialisation for Turkey, the country is already a ‘prematurely deindustrialised economy’. Stating that this situation is not new, Voyvoda said that de-industrialisation is a long-term trend that has become particularly pronounced since the early 2000s. Recalling that developed economies are also discussing re-industrialisation, Voyvoda said:

“With the rise of China and, alongside it, the Asian economies, it is important to recall that the negative consequences of this situation – long considered a ‘normal path to development’ – are now being debated even for the core developed economies, and that topics such as ‘green industrialisation’ and ‘re-industrialisation’ are also on the agenda for these economies.”

Noting that the textile sector has for many years been the only sector to make a net positive contribution to the current account balance, Voyvoda stated that, in a healthy transformation process, the economy must shift from labour-intensive production towards higher value-added and high-tech sectors; however, he pointed out that the process currently unfolding in Turkey suggests the opposite. Voyvoda noted that the manufacturing sector’s share of domestic income had fallen from around 30 per cent in the late 1980s to 22.4 per cent in 2022, and that the sector’s share of employment had also been declining since the mid-2000s.

THE COST OF CONSTRUCTION-LED GROWTH

Stating that the manufacturing sector is the key driving force behind technological progress and productivity growth, Voyvoda emphasised that “when this engine is taken out of the equation, the economy loses both its medium- to long-term growth dynamics and its most dynamic export sector”, highlighting that the manufacturing sector accounts for 94 per cent of total exports. Noting that the decline in industry is one of the main causes of the chronic current account deficit, Voyvoda said, “The decline in labour-intensive sectors is an indication that the price of prioritising construction- and finance-led growth is now being paid in full.”

Highlighting the role of industry in economic development, Voyvoda said, “As industrial employment is relatively skilled and characterised by high levels of productivity, it has a positive impact on broad sections of the working class. The relatively high interconnections between industrial production and other sectors also generate a high multiplier effect. Consequently, ‘premature de-industrialisation’ means being deprived of all these effects and losing growth momentum in the medium to long term. Viewed from this perspective, the preference for construction-led growth in Turkey, for example, shows that we are now clearly beginning to experience the consequences of this phenomenon,” he said.

Assessing the rise of the defence industry, Voyvoda stated that the existence of certain high-tech sectors alone is not sufficient for development:

“Dynamics that are niche in nature, employ highly productive and highly skilled labour but do not create employment for broad sections of the workforce are not, on their own, sufficient to counteract the consequences of premature deindustrialisation.”

Citing India’s software sector as an example, Voyvoda noted that this had not been sufficient to transform the economy as a whole, adding: “Although it serves as a globally competitive, high-value-added ‘showcase’, it may not have evolved into a driving force capable of transforming the entire economy and generating mass-scale employment.”

Stating that “part of the rise in the defence industry is a product of the current geopolitical climate”, Voyvoda argued that Turkey needs to rethink its industrial policy, noting that this cannot be viewed as merely comprising support for technology and R&D:

“Industrial policy cannot be designed around a single small, high-tech sector. If, whilst a few advanced sectors continue to grow, the economy as a whole is deindustrialising and employment is shifting towards the construction and finance sectors, the consequences of premature deindustrialisation are not being addressed.”

Stressing that industrial policy must be addressed within a broader framework, Voyvoda said, “We need to consider industrial policy as a whole, alongside policies on distribution/income, mass and skilled employment, climate/green transition, and skills and technology.”

COMPETITIVENESS RELIES ON CHEAP LABOUR

According to Prof. Dr Özgür Orhangazi of Kadir Has University, the issue of premature deindustrialisation should not be addressed solely in terms of the decline in industry’s share of national income or employment. Emphasising the nature of the industrial structure that is in decline, Orhangazi said, “Whilst Turkey’s manufacturing industry relies predominantly on low- and medium-technology sectors, a significant proportion of the energy, intermediate goods, machinery and technology used in production is imported. Consequently, when industrial production and exports increase, so too do imports and the need for foreign currency.”

Drawing attention to the fragmented structure within the industrial sector, Orhangazi noted that, on the one hand, there are large companies integrated into international production networks with easier access to finance and technology, whilst on the other hand, there is a broad segment of small and medium-sized enterprises struggling to survive on the basis of low wages, long working hours, informality and cheap credit. Noting that sectors such as finance, property, construction and rent-seeking have become more attractive than long-term and uncertain industrial investments, Orhangazi says: “Competitive strength in industry is increasingly based on the cheapening of labour. Consequently, early de-industrialisation is emerging not so much as a result of a spontaneous technological transformation, but rather as a consequence of Turkey’s accumulation model in recent years.”

Noting that not every job loss in industry carries the same significance, Orhangazi summarised as follows: “In highly industrialised economies, a decline in manufacturing employment may result from high productivity gains and the ability to produce with less labour. If the displaced labour is employed in high-productivity, well-paid service sectors, this can be regarded as a specific stage of economic development.

In Turkey, however, the manufacturing sector’s capacity to create employment is weakening at a lower level of income and productivity, and it is not possible to say that those who lose their jobs are able to move to other sectors under the same or better conditions. Labour-intensive sectors such as textiles, ready-to-wear and leather should not be idealised due to their low wages and poor working conditions. However, these sectors create significant employment opportunities for the low-skilled workforce, women, young people and migrants, and shape the economic structure of certain regions. A sudden and uncontrolled contraction would mean the loss not only of existing jobs but also of ancillary industrial links, supplier networks, production know-how and regional clusters that have developed over the years.”

EMPLOYMENT SHIFTS TOWARDS SECURITY-LACKING SECTORS

Orhangazi emphasises that the shift of those who have lost their jobs towards low-productivity services, precarious platform work, temporary construction jobs or informal employment does not constitute genuine structural progress. “Even if employment statistics show that people have moved to other sectors, in reality, underemployment, low wages and insecurity become more widespread,” says Orhangazi. “What needs to be done is to transform these sectors through the use of domestic inputs, energy efficiency, design, branding and technological renewal, whilst bringing production and employment losses under control. The cost of this transformation must not be borne by workers; productivity gains must be shared in the form of higher wages, shorter working hours and more secure forms of employment.”

Noting that one of the most significant consequences of deindustrialisation is the weakening of labour’s bargaining power, Orhangazi said: “The manufacturing sector has historically created more regular, formalised and unionisable employment, and the wages of industrial workers have served as a wage anchor for the rest of the economy. The disappearance of these jobs and the dispersal of workers into fragmented, informal and low-productivity service sectors makes unionisation more difficult, reduces collective bargaining power and expands the reserve army of labour, comprising the unemployed and those underemployed. The threat of unemployment also becomes a means of suppressing the wage demands of those still in work. Consequently, whilst the share of wages in national income declines, the share of profits, interest and rent increases. The replacement of industry by low-wage services, finance, property and rent-seeking activities condemns broad sections of the population to low and irregular wages, whilst simultaneously increasing the wealth of those who hold financial assets and property. The issue is not merely a shift between sectors, but a change in the distribution of income from labour to capital and property. Industrial policy must therefore also be approached as a redistribution policy."

Note: This article is translated from the original article titled Sanayisizleşmenin anatomisi: Rant ekonomisi sanayiyi geriletti, published in BirGün newspaper on August 3, 2026.