Download The Structure of Turkish Economy CLASS 1

Economic Growth and period after
WW2: 1950
CLASS 6
Dokuz Eylül University Faculty of
Business
After WWII
• Domestic and international forces combined to bring about major
political and economic changes in Turkey after World War II.
• Domestically, many social groups had become dissatisfied with the
single party regime.
• The agricultural producers, especially poorer segments of the
peasantry, had been hit hard by wartime taxation and government
demands for the provisioning of the urban areas.
• In the urban areas, the bourgeoisie was no longer prepared to accept
the position of a privileged but dependent class, even though many
had benefited from the wartime conditions and policies.
• They now preferred greater emphasis on private enterprise and less
government interventionism (Keyder, 1987: 112-4; Boratav, 2003:
93-101).
• International pressures also played an important
role in the shaping of new policies.
• The emergence of the United States as the dominant
world power after the war shifted the balance
towards a more open political system and a more
liberal and open economic model.
• Soviet territorial demands pushed the Turkish
government towards close cooperation with the
United States and Western alliance.
• The U.S. extended the Marshall Plan to Turkey for
military and economic purposes beginning in 1948.
• The shift to a multi-party electoral regime brought
Democrat Party to power in 1950 elections.
• The Democrat party (Adnan Menderes) came to power,
with a tendency to adopt more liberalized policies,
limiting the role of the state in the economy and putting
emphasis on private entrepreneurship.
▫ Liberalization of imports
▫ SEEs were put up for sale
• Economic policy during the 1950s can be divided
into three periods.
• The first, from the election until 1954, was a period
during which emphasis was placed upon increasing
agricultural production.
• The second, from the massive crop failure of 1954
until August 1958, was characterized by domestic
and foreign economic difficulties and economic
policy consisted largely of ad hoc measures to
counter them.
• The third period, starting with stabilization program
and de facto devaluation in August 1958, came to an
end with the Revolution of May 1960.
• Source: http://www.nber.org/chapters/c4106.pdf
Agriculture
• The most important economic change brought about by
the Democrats was the strong emphasis placed on
agricultural development.
• Agricultural output more than doubled from 1947, when
the pre-war levels of output were already attained,
through 1953.
• A large part of these increases were due to the expansion
in cultivated area, which was supported by government
policies and the Marshall Plan.
▫
▫
▫
▫
▫
Increase in tractor usage
Tractor production
Expansion in agricultural credits
Price supports for agriculture
Increase in fertilizer usage
• The Agriculture-Led boom meant good times
and rising incomes for all sectors of the
economy.
• 1952: Et ve Balık Kurumu was established.
• It seemed in 1953 that the promises of the liberal
model would be quickly fulfilled.
Agricultural Developments
Area cultivated
Number of tractors
Agricultural credits
1950
9.6
80.9
22.3
1951
5.0
44.7
56.8
1952
13.7
30.9
65.2
1953
8.4
13.3
13.7
1954
4.3
6.0
14.0
1955
7.0
6.7
4.1
1956
6.9
8.6
21.2
1957
1.3
1.0
11.7
1958
2.7
-3.7
2.5
1959
1.0
-1.5
7.0
1960
1.4
0.6
3.4
• These golden years did not last very long,
however.
• With the end of the Korean War, international
demand slackened and prices of export
commodities began to decline.
• With the disappearance of favorable weather
conditions, agricultural yields declined as well.
• Rather than accept lower incomes for the agricultural
producers, who made up more than two thirds of the
electorate, the government decided to initiate a large
price support program for wheat, financed by increases
in the money supply.
• The ensuing wave of inflation and the foreign exchange
crisis, which was accompanied by shortages of consumer
goods, created major economic and political problems
for Democrat Party, especially in the urban areas (Sunar,
1984).
• These developments together with balance of payments
difficulties paved the way to a major devaluation in 1958
and started a IMF and OECD-backed stabilization
program.
Mining and Energy
• 1954: Petroleum Law
• 1954: Mining Law
• Turkish Petroleum Corporation
(Türkiye Petrolleri Anonim Ortaklığı)
• Energy:
▫ Hydraulic Energy
▫ 350% increase from 1950 to 1960
Services
•
•
•
•
Rapid expansion
Migration from rural areas to urban areas
Highest share in national income: 46%
Trade, transportation, construction
Industry
• Domestic market expanded.
• Import Substituting Industrialization (ISI) policies were
completed (consumption goods).
• Private industrialization was enhanced.
• Intermediate and investment goods production started.
• 1950: Türkiye Sınai Kalkınma Bankası was established.
• In the late 1950s, the Turkish economy experienced severe
balance-of-payment difficulties and rising inflation.
• Efforts to control inflation consisted largely of price controls.
• Private-sector firms responded either by shutting
down or by selling on the black market.
• SEE's, however, sold
experienced losses.
• As inflation increased,
enormous amounts.
at
official
these
prices
losses
and
reached
• The losses were automatically financed by the
credits extended by the Central Bank to the SEE's,
resulting in high money growth (see Aktan 1964;
Okyar 1965; Fry 1972, 1980; Krueger 1974,1995;
Onis and Riedel 1993).
50
45
40
35
30
Agriculture
25
Industry
20
Services
15
10
5
0
1946
1950
1955
1960
National Income
•
•
•
•
•
1950-55: Annual growth rate 5-6%
Share of agriculture decreased
Shares of services and industry increased
Income per capita increased
Income distribution deteriorated
▫ (%)
Employment
Agriculture
75
Industry
10
Services
15
Production
35
17
48
National Income
• Consumption increased and consumption
patterns changed
▫ Demand shifted from non-durable consumption
goods to durable consumption goods
▫ Conspicuous consumption
• Black-markets
Thorstein Veblen (1857-1929)
(Ekelund, R. And R. Hebert, A History of Economic Theory and Method,
McGraw-Hill International Editions, 1990.)
▫ Theory of the Leisure Class (1899)
▫ American Institutional Economics
▫ Conspicuous Consumption:
 A person’s status is determined by how well his or
her holdings square with those of an immediate peer
group and with the group immediately above the
person
 PRODUCTIVE WORK becomes a mark of infirmity
and LEISURE becomes evidence of pecuniary
strenght. Thus a leisure class emerges in all stages of
culture, but its ultimate expression takes place in a
quasi-peaceable stage of society.
Conspicuous Consumption
(Ekelund, R. And R. Hebert, A History of Economic Theory and Method,
McGraw-Hill International Editions, 1990.)
 Conspicuous consumption: waste of goods
 Conspicuous leisure: waste of time
 Leibenstein (1950): Veblen good is the one whose
utility derived not only from the direct use of the
good but also from the price paid for it. Thus a
conspicious price is the price that a consumer thinks
the other people think he or she paid for a
commodity.
 Qd= f(P, P’)
where P is the price and P’ is the expected
conspicous price.
International Trade
• The fixed and low exchange rate regime hindered
exports.
• The balance-of-payments pressures which had
emerged in 1952 and 1953 intensified.
• Thus on both the domestic and foreign fronts
detailed government regulation and intervention in
economic activity replaced the rather more liberal
economic policies of 1950-1952 period.
• Source:http://www.nber.org/chapters/c4106.pdf
International Trade
Year
Imports
Exports
Balance
1946
223,9
432,1
208,2
1950
799,9
737,6
-62,3
1952
1556,6
1016,2
-540,4
1955
1393,4
877,4
-516,0
1961
4585,1
3120,7
-1464,4
Capital Resources
• Internal resources:
▫
▫
▫
▫
Increase in money supply
Increased credit volume
Budget deficits (Duty losses)
Resource transfer from public sector to private
sector
Capital Resources
• External resources:
▫ Borrowing from USA (1945-1949)
▫ Aids from USA (1950-1960)
▫ Foreign investments




95 % in industry (high profits)
Partnership with domestic capital
Small scale production (not efficient)
Usage of imported inputs
▫ Petroleum Law (1954)
Capital Resources
Increase in
money
supply (%)
Bank credits
Budget balance
TEF Annual
change
(%)
1950
7.3
1301
-48.0
1951
16.8
1779
+65.5
+6
1952
9.6
2620
-13.2
+1
1953
16.5
3429
-22.0
-
1954
3.1
4311
-173.9
+11
1955
31.5
5062
-160.5
+8
1956
29.2
5885
-182.6
+20
1957
26.6
7849
-196.2
+26
1958
3.6
8737
-155.0
+25
1959
11.5
9511
-342.2
+37
1960
12.3
9640
-387.0
+12
Labor Force
• The 1950s also witnessed the dramatic acceleration of ruralto-urban migration.
• The development of the road network also contributed to the
new mobility (Zürcher, 1993: 235; Keyder, 1987: 135-40;
Kasaba, 1993).
• Many of the newly arriving immigrants were able to use their
savings from rural areas to build low cost residential housing
(gecekondu) on state lands in the urban areas. They soon
acquired ownership of these plots.
• To this day, agricultural producers and their descendants,
many of whom are now urbanized, continue to view the
Democrat Party government as the first government to
understand and respond to the aspirations of the rural
population.
Labor Force
• Number of workers increased
• Population increase (from 19 million to 27,5 million)
• Urbanization
▫ Increased tractor usage
▫ Housing (squatter’s house;shanty)
▫ Transportation (dolmuş)
• Ministry of Labour
• İş ve İşçi Bulma Kurumu
Labor Force
• Sectoral composition of
employment (%)
1955
1960
80,8
77,7
Mining
0,5
0,6
Industry
6,2
7,1
Energy
0,1
0,1
Services
12,3
14,5
Total
100
100
Agriculture
Developments in the period
•
•
•
•
•
•
•
1950: Democratic Party government (Adnan Menderes)
1950: Liberalization of imports
1950: SEEs were put up for sale
1952: NATO membership (Korean War)
1953: The law for free trade areas
1954: The law for encouragement of foreign capital
1958: First attempt to join European Economic
Community
• 1958: Stabilization Program (IMF)
▫ As a result of, fiscal and balance of payments crisis, in 1958, Turkey
implemented an International Monetary Fund (IMF)-supported
stabilization program, which improved the foreign-exchange situation
and drastically reduced inflation.
▫ The most important component of the program was an increase in the
prices of SEE goods.
▫ Raising those prices in 1958 resulted in an immediate and once-and-forall increase in the price level, after which the reduced rate of expansion
of Central Bank credits reduced inflation.
▫ Although inflation dropped from 25% in 1958 to less than 5% in 1959,
real gross domestic product (which had been declining) started growing
immediately due to the greater availability of imports.
• 1960: Military coup (May 27)
Stability Measures
• (2nd) Devaluation of TL: August 4, 1958: Exchange rate
differentiation
▫
▫
▫
▫
▫
▫
(Remember: 1st devaluation: September 7, 1946,
TL/$=1,30  2,80
Aim:
Inflation
To decrease imports and to increase exports
IMF membership
▫ devaluation was made in
▫ Import liberalization
▫ To tighten money supply and expenditures
▫ To raise the prices of SEE’s prices
• Import liberalization
• To tighten money supply and expenditures
• To raise the prices of SEE’s prices