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HIST 3051-PART 3
HISTORY OF TURKISH REPUBLIC
BAHÇEŞEHİR UNIVERSITY 2007
Prof. Dr. Zafer Toprak
First part available at: www.ata.boun.edu.tr
under 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 History
in 1923
The Country economically in shambles
devastated, in ruin
1923-29
Foundation of the Republic
A period of institutional change
westernization & reconstruction
1929 Great Depression
Compounded problems
1930 s’ - Development policy
with industrialization as its backbone
War & Population Exchange
Departure of Greeks and Armenians
A) Lack of entrepreneurial know-how
B) Lack of prosperous market
C) Lack of Economic Independence
Lausanne Treaty – import tariffs 1929
D) Lack of Encouragement
Law on the Encouragement of Industry 1927
Tax exemptions
E) Economic Instability in the World
1929 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 1920s
Protectionism in the 1930s
The policy after 1929
State Economics - Statism
An inward-looking, import-substitution strategy
Mixed economy with a large public enterprise sector &
economic planning
One of the first examples among developing countries
After World War II
The 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 strategy
Long overdue
The development strategy after 1980
Liberalization 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 farming
A 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 2/3
Terms of trade deteriorated
100 – 1929
46 – 1934
Imposition of quatos and restrictions
Imports 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] 1924
c) State Industrial and Mining Bank 1925
[Devlet Sanayi ve Maadin Bankası]
d) Sümerbank in industry 1933
e) 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 debts
To 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 1931
Import restrictions
Law for the Protection of Turkish Currency 1930
Türk Parasını Koruma Kanunu
authorizing government to intervene in the local exchange
markets
To stabilize the international value of the TL
Bileteral trade
Clearing & 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 demand
arising 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 strategy
Radical reorientation of economic policies
Solution: Etatism
State to participate in economic affairs
A response to the Great Depression
A 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 projects
A 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 1934
A 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 1938
The 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 villages
1955: % 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 Era
New 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 methods
to 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 army
The 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 prohibited
Political 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 steadily
Immigrants from villages
1923: 20.000-30.000
1948: 300.000 in large factories alone
Twice in agriculture and small industries
With their families, : totalled at least 1.5 million
In 1946: Several hundred trade unions
They 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 1945
Welfare 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 Law
Land Distribution Bill
(Çiftçiyi Topraklandırma Kanunu) 1945
strongly promoted by İnönü
Emergence 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 Plan
echoed 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