ATA 522-PART 3 

BOĞAZİÇİ UNIVERSITY 2007BOĞAZİÇİ UNIVERSITY 2007Prof. Dr. Zafer Toprak

First part available at: www.ata.boun.eduunder faculty / Zafer Toprak

First part available at: www.ata.boun.edu.trunder faculty / Zafer Toprak

Political Periodization

Single Party Era – 1923-1945

Multy Party Era – 1946 -

Economic Periodization

Interwar years, 1923-38

The WWII & recovery 1939-1953

Democratic rule & agricultural growth 1951-1960

Inward-looking planning, 1961-1977

Reform and export-oriented growth 1980-

Building National Economy 1923-1928

The response to the Great Depression 1929-1932

Statism 1933-1938

War Economics 1939 - 1945

Aftermath of War Economics 1946 – 1948

The Liberalization Era, 1948-1953

Mixed Economy 1954-1957

Economic stabilization 1958-1962

Inward-looking planning 1963 - 1977

Economic Distress 1978-1979

Export Oriented Policy 1980 -

The Turkish Economic Historyin 1923

The Country economically in shamblesdevastated, in ruin

1923-29Foundation of the Republic

A period of institutional change westernization & reconstruction

1929 Great DepressionCompounded problems

1930 s’ - Development policy with industrialization as its backbone

War & Population ExchangeDeparture of Greeks and Armenians

A) Lack of entrepreneurial know-how

B) Lack of prosperous market

C) Lack of Economic IndependenceLausanne Treaty – import tariffs 1929

D) Lack of EncouragementLaw on the Encouragement of Industry 1927

Tax exemptions

E) Economic Instability in the World1929 Crisis

First Turkish Economic Congress – İzmir February 1923

Importance of economic independence

Choice between liberalism and state intervention

National Economy versus Economic liberalism

Call for protection of local industry

No opposition to foreign investment

Mixed economy

State responsible for major investments

Subsidization in the 1920sProtectionism in the 1930s

The policy after 1929 State Economics - Statism

An inward-looking, import-substitution strategyMixed economy with a large public enterprise sector &

economic planning

One of the first examples among developing countries

After World War IIThe standard policy in decolonized countries

This policy continued until 1980

A short period of liberalization in the early 1950s

Planning – Constitutional requirement in 1961

The policy of import substitution broke down in the late 1970s

Radical turnaround in development strategyLong overdue

The development strategy after 1980Liberalization of trade and export orientation

Turkey in 1923

An agrarian economy with rudimentary modern industry

Frontier economy: abundant resources of uncultivated land

No urban working class in the early 1920s

1920 & 1930

Agricultural expansion – Extensive farmingA frontier economy: abundant unciltivated land

Extensive (horizontal) expansion

1929 Great Depression

Agriculture recovered in the 30s’1927-1928 hit by a long drought

No system of buffer stocks to regulate prices

Loss of purchasing power

World Economic crisis hit very hard

Wheat price declined by 2/3Terms of trade deteriorated

100 – 1929 46 – 1934

Imposition of quatos and restrictionsImports declined 256 m. TL 1929 85 m. TL 1932

Late 1940s’

Marshall Plan

Mechanization and Intensive farming

Frontier conquered in the 1950s

Distribution of uncultivated public land to private smallholders [küçük üretici]

1945 – Land Reform

1920s

Industrialization based on private entrepreneurship

Support of the emerging domestic industry

Accumulation of private capital in the industrial sector with government intervention whenever necessary

Emphasis on public financing with the active participation of private local investors

& capital contributions from foreign investors

Initially emphasized sectors: Natural areas of IS

Raw metarials could be obtained domestically

Sugar, textiles & cement

Constraints:

1923 Lausanne Peace Treaty

The tariff and tax structure

Frozen tariffs at the level of 1916 for 5 years

No differential rates of taxes on imported and locally produced commodities

No quantitative restrictions on foreign trade 1924-1929

Exception: Government monopolies for revenue purposes

Direct investment by foreigners encouraged

Particularly in partnership with Turkish citizens

1/3 of the firms established in the 1920s

Joint ventures

Government subsidization of domestic private enterprise

Law for the Encouragement of Industry, 1927

A wide variety of incentives and subsidies

Private investors profited from state monopoly of

alcohol, sugar, tobacco, explosives, oil, matches, harbors etc.

Partly farmed out to private companies

Financial infrastructure – Lack of Capital

In agriculture

a) Agricultural Bank [Ziraat Bankası] reorganized 1925

In business & industry

b) Business Bank [İş Bankası] 1924c) State Industrial and Mining Bank 1925

[Devlet Sanayi ve Maadin Bankası]

d) Sümerbank in industry 1933e) Etibank in mining 1935

to meet the shortages of capital for financing industrialization and mining

Financial Policies

Replacement of tithe [Aşar] by sales tax & monopolies

Conservative – balanced budget, low inflation

Tight monetary policy - strong TL

DENK BÜTÇE – SAĞLAM PARA

Balanced Budget – Strong Currency

Trade deficit in the 1920s due to Lausanne Treaty

1929 A turning point for economic development

The beginning of the Great Depression

Tariff and tax autonomy

The year of abolition of the Capitulations

The first installment of the Ottoman debtsTo be paid between 1929-1953

Exporter of primary commodities

Turkey sufferred from adverse terms of trade development

A sharp deterioration in external terms of trade

A deterioration in internal terms of trade against agriculture

The plight of the peasantry

Growth rates

1927-29 to 1937-39 % 6.3

Per capita growth % 4.2

The volume of exports continued to rise in the 1930s

Protection as an infant-industry policy

The new tariff – an average nominal protection of % 46 The previous average rate of protection % 13

1929 An increase in imports

A depreciation of the TL

A law – June 1931Import restrictions

Law for the Protection of Turkish Currency 1930Türk Parasını Koruma Kanunu

authorizing government to intervene in the local exchange markets

To stabilize the international value of the TL

Bileteral tradeClearing & Barter Agreements

Takas Usulü

Germany to become Turkey’s largest trading partner

Overvaluation of TL – Continuing problem until 1980

1980 liberalization and reform brought an end to the policies initiated in 1930.

Quota lists - November 1931

Agricultural and industrial machinery, raw materials, and medicine free

Imports of processed food, alcoholic beverages, clothing, shoes, leather goods, some other consumer items

eliminated

Import licenses distributed administratively

Economic rents to a limited number of favored importers and producers

Priority to prevent large trade deficit

To maintain surpluses on the trade account to finance debt service

Result: Severe curtailment in the volume of imports

Bilateral trade, clearing, and barter agreements during mid-1930s

with German, the United Kingdom, France, & Italy

A worldwide trend

Bilateral trade agreements

% 84 of imports & % 81 of exports

Became part of the clearing and reciprocal quota systems in 1934-1939

The exception: the USA

Turkey had a trade surplus against the USA

Industrial output

High rates of growth after 1929

Manufacturing industry averaged over % 15 a year

Despite the contraction of rural demandarising from curtailment of imports

By the end of 1930

Private industry primitive in character

appropriating the rents brought about by the restriction of imports and

protection of the domestic market

A search for a new strategyRadical reorientation of economic policies

Solution: EtatismState to participate in economic affairs

A response to the Great DepressionA common approach: Latin American countries

Mixed economy & government intervention & balance of payments controls

Tendencies toward autarky in several European countries

The adoption of five-year planning in the Soviet Union

Under etatism

Foreign trade regime

Balance of payments controls

High tariff rates

Quantity restrictions

Recessionary Policy

Control of domestic markets

Direct or indirect price support policies (agricultural commodities)

Prices of some industrial goods controlled

Wages controlled in supported industries

Interest rates in financial transactions and banking activities fixed by central authorities

The most conspicious [remarkable] feature of Etatism

The emergence of the state as a major producer & investor

Most of the state monopolies, administered by private firms, transferred to the public sector

Foreign-owned maritime transport companies and railroad, nationalized and transformed into state

monopolies

An important role in large-scale investment projectsA Key factor in the development process: State economic

enterprises (KİT)

Five-year industrial plans drawn up

Preparatory work in late 1932 with the help of Soviet and American advisers

The plan adopted in 1934A detailed list of the investment projects for the public

sector

Financing partly obtained abroad(Soviet union and the United Kimgdom)

The First Five-Year Plan attained by 1938The Second Five-Year plan, started in 1938, interrupted

by the WWII

Agriculture emerged as the leading contributor to growth under etatism

Before etatism, public investment concentrated on transport & communications (railways)

With etatism, public investment shifted toward industry, education & health, & agriculture

Even so, more than half of public investment went into transport and communications.

Investment in transport benefited agriculture

Trade surplus 1930s

Autarky – A practical necessity

An autonomous industry

1929-1932 a period of searching

Statism

State took responsibility for creating and running industries

Lack of accumulated capital in private sector

Soviet delegation 1932

Concentration of textiles, iron and steel, paper, cement, glass and chemicals

1933 First Five-Year plan

State Economic Enterprises - 1938

State intervention in agriculture 1932

To regulate prices by building up and selling off stocks

Office for Soil Praducts 1938

Three Components of Turkish Economic History

1923 – 1948 Economic Autarky and Statism National Economy

1948 – 1980 Liberalism and Planning Mixed Economy

1980 - 2006 Neo-Liberalism and Globalization Liberal Economy

Transition to Democracy  

Wartime Developments

Social Stata (Classes)

 1. Peasantry 1945 :% 83 – 40.000 villages1955: % 71

Small property: the dominant type

2. Industrial Workers – Working Class

3. Middling Strata:

Landowners, Businessmen, Intellectuals

Statism created capital

and allowed accumulation in private hands

Classes / strata differentiated

Conflicts arouse 

Difficulty in maintaining social policy and statism

General discontent 

Peasantry – The largest social group

Living standard of peasantry deteriorated

Villages confronted with following problems:

1.    Shortages of land

2.    Farming methods and techniques

3.    Large estates

Distribution of national income unbalanced 

Measures necessitated by war: 

Industrialization in its initial stage

possible only

by exploiting internal markets

chiefly the rural ones.

Heavy taxes in agriculture&

internal terms of trade favoring urban strata

despite the removal of tithe (aşar)

Two states organizations:

1. Office of Soil Products (Toprak Mahsulleri Ofisi)

2. Forestry Enterprise (Orman İşletmeleri)

Aim: to help the peasantry

Office of Soil Products 1938

1. To protect peasant through price supports

2. To accumulate farm supplies for army, schools, & needy regions

2. Forestry Enterprise (Orman İşletmeleri)

a.    To exploit forests

b.    To conserve existing ones

c.    To reforest new areas

Uneven distribution of burden when war broke out

1.    Sharp increase in consumption of soil products

Army – from 120.000 to 1.500.000

No official mobilization

Ministry of Defence budget % 30 to % 50

Tax increases

Issuance of money – Printing money

2.    Diminution in agricultural production

producers drafted into the army 

Shortage of bread

The Office: authoritarian & unrealistic policy

Uneven distribution of the burden

Four legislations affecting Single-Party EraNew wave of state intenvention

1. National Defence Law 1940(Milli Korunma Kanunu)

2. Capital Levy 1942(Varlık Vergisi)

3. Agricultural Products Law 1942 (Toprak Mahsulleri Vergisi)

4. Land Reform Law 1945(Çiftçiyi Topraklandırma Kanunu)

The etatist laws already provided the framework for a system of wartime controls

1. National Defence Law - January 1940(Milli Korunma Kanunu)

Extensive emergency economic powers

Unlimited powers to:

a) Fix prices

b) Requisition materials (farm products)

c) Impose forced labor (angarya)

Crop prices established arbitrarily

below the market prices

to keep down cost of bread in cities to peasants’ detriment

Price controls to mitigate the social effects of inflation

Paradox:

Fixing prices unrealistically low levels to combat inflation

Stimulating inflation through monetary/budgetary policy

Black market economy boomed

Price controls relinquished

 2.    Tax on capital / Capital Levy / Wealth Tax - 1942(Varlık Vergisi)

Emergency fiscal measures

Shortage of basic goods due to blockade War profiteering

Great fortunes made by the merchants, brokers, and mercantile agents in Istanbul

Tax evasion

Absence of effective modern system of tax assessment & collection

Purpose:

to secure addition revenue

for urgent military expenditures

A tax upon incomes and capital

Accumulated through unorthodox means  

speculation and black-marketing

Punitive taxation on excessive profits

Arbitrary (scandalous) taxes on minorities

Assesments made by local committees

(local goverment oficials, local representatives)

enforced by authoritarian methodsto bring hoarded goods onto the market

To be paid in 15 days

No fixed rate

Not allowed to spread payments

% 55 paid by non-Muslim communities

Subjected to higher rates

Deported / sentenced to Forced labor - Aşkale

a) Reaction from businessmen

b) Criticism from abroad 

Tax enforcement relaxed - Abolished in 1944

Irreparable damage to the confidence of minorities

3. Agricultural Products Law (Toprak Mahsulleri Vergisi) 1942 

A return to tithe (1925)

To tax wealth in the countryside

Target: Large commercial landowners

Failed to skim off excess profits from large farmers

However

Fell relatively heavily on small subsistence farmers   

Exports flourished

Turkish products in high demand

Strategic rather than commercial price

Accumulation of precious metals / foreign currency

High rate of government expenditure

Shortage of essential commodities

Inflationary pressure

Turkey’s GDP, dropped sharply during World War II

1939 level back in 1950

Compulsory contribution of crops

All crops in excess of the amount needed

for family consumption and seeding

to be delivered to the state.

 Peasants sold their belongings

to meet the contribution quota

Inflation

Feeding and equipping a large armyThe Central Bank printing money

Consumer price index increase: from 100 to 459 excluding black market prices

Wage – and salary – earners badly hit

Sharp drop in purchasing power for the civil servants

numbered 220.000

The drop: 1/3 for lower-ranking civil servants

2/3 for senior civil servants

Tensions within the bureaucracy

Mountain Villages

Forestry Enterprise applied prohibitionist measures

Making of charcoal subject to strict & burdensome controls

Flocks not allowed entering forests previously used as grazing lands

  Plus: Villagers to build their own schools

Forced labor - Angarya

Result: Economic distress

The Industrial Workers

still very small minority – 300.000 / 20.000.000

including artisanal production

Their socio-economic position weak

Badly hid in their purchasing power

The first measures: Political in character and motive

Class struggle & related activities punished

Trade unions & strikes prohibitedPolitical literature on labor suppressed until 1945

The Labor Act 1936 :

Italian labor law

Regulated labor relations in an authoritarian manner

Labor: considered only as a factor in production

The human aspect of labor disregarded

Number of workers increased steadilyImmigrants from villages

1923: 20.000-30.0001948: 300.000 in large factories alone

Twice in agriculture and small industriesWith their families, : totalled at least 1.5 million

In 1946: Several hundred trade unionsThey were dissolved in 1946

Because: The influence of “leftists”.

The Trade Union Law 1947

Wages

compared with profits of private & state enterprises:

remained extremely low

Insufficient for adequate standard of living

Trade Union Law 1947

 Industrial workers did not benefit from

welfare programs

except for a few measures

connected with work safety and hygiene until 1945

 

 

Government control

barring the workers from political activity

* * *

Ministry of Labor 1945Welfare needs

Workers’ insurance law (1945)

Paid holidays law (1951)

The Urban and Rural Middle Classes

Landowners, businessmen, industrialists, intelligentsia(including government officials)

Three major laws purpose:

          a) establishing social justice

b) stimulating agriculture 

2.    Tax on capital (Varlık Vergisi) 1942

3. Agricultural Products Law (Toprak Mahsulleri Vergisi) 1942 

    4. Land Reform Law

(Çiftçiyi Topraklandırma Kanunu) 1945

4. Land Reform LawLand Distribution Bill

(Çiftçiyi Topraklandırma Kanunu) 1945

strongly promoted by İnönüEmergence of political opposition in post-war Turkey

 Social reform to ameliorate the situation of the peasantry

Purpose:  

1. To distribute land to the landless and land-short peasants

2. To furnish equipment for cultivation 

Violent criticism of the government Large landowners alienated

The deputies divided - dissension

1.     Social-intellectual & political approach

Intellectuals and government officials

2.  Economic & technical approach 

Personal land interests - Landowners

Improvement of cultivation methods Rational agriculture and mechanization

Partitioning the land (Political project) 

Social consequence of populism  -

Egalitarianism versus Private Ownership

respect for and guarantee of the right to private property

Reform versus Status Quo

Preservation of the status quo of landed property

Result:

Concerted opposition to government &

Rise of Democrat Party 1946 Demokrat Parti

RPP amended the law to appease the opposition

limiting to government and vakıf lands 

Expropriation of private land provisions barely applied 

The Memorandum of the Four (Dörtlü Takrir)

Celal Bayar, Adnan Menderes,

Refik Koraltan Fuat Köprülü

supported by Vatan and Tan

a) Turkish constitution be implemented in full

b) Democracy established

National Development Party

(Milli Kalkınma Partisi)

by Nuri Demirağ - industrialist

The liberalization of the economy

The development of free enterprise 

Sixth Congress of RPP - 1943

RPP Extraordinary Congress – May 1946

1. Liberalizing measures

2. Direct elections

3. The position of permanent chairman of the party abolished

4. The title of “National leader” (Milli Şef) abolished

After the congress

1. A liberal press law

2. Autonomy for the university

National elections brought forward

from July 1947 to July 1946

 Catching the Democrats before they fully established 

Elections

 DP won 62 of the 465 seats

1. Massive vote-rigging

2. No guarantee of secrecy during the actual voting

3. No impartial supervision of the elections 

As soon as the results were declared

actual ballots were destroyed

making any check impossible

Turkey desperate for foreign financial assistance

 To facilitate this applied for membership of the IMF

 

To qualify for membership

7 September 1947 Decisions

A devaluation of Turkish lira by % 120

Liberalizing measures

aimed at the integration of Turkey

into the world economy

1946 - A new economic five-year plan similar to pre-war plans

Emphasis on autarky and state control

 1947 - A new Development Planechoed the wishes

of Istanbul businessmen and of the DP

1. Free enterprise

2. Development of agriculture and agriculturally based industry

3. Road instead of railways

4. Development of energy sector (oil)

Hardly any difference between the economic policies of the DP and of the RPP

Exception: the DP wanted to sell off the state industries

(the earliest project of privitization)

Twelfth of July Declaration by İnönü - 1947

a) Legitimization: Legitimized the existence of the opposition

b) Impartiality: Called upon the state apparatus to be impartial

 Defeat of hard-liners in the RPP

Hasan Saka replaced Recep Peker

1949 Şemsettin Günaltay, - a compromise figure

 Seventh RPP Congress - 1947

 RPP moved even closer to the DP program

1. Advocated free enterprise

2. Decided to retract /withdraw art. 17 of Land Reform

3. Allowed religious education in the schools

4. Reformed the Village Institutes

Istanbul Economic Congress - 1948

emphatic in its support for liberal economic policies

 1945-1950 years of growth (11 % growth in GDP per

year)

Economic growth in agricultural sector

From 1947 onwards,

trade surplus changed into a persistent trade deficit due

to fast-rising imports of machinery

End of Part 3