Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
List of special economic zones wikipedia , lookup
Economics of digitization wikipedia , lookup
Rostow's stages of growth wikipedia , lookup
International economics wikipedia , lookup
Microeconomics wikipedia , lookup
Economic calculation problem wikipedia , lookup
Economics 401 Week 6 Economic policies (1960s and 70s) How to pursue a more coherent economic policy to achieve steady economic growth along with a solid industrial capacity? And how to achieve that while becoming less dependent on foreign resources? New economic strategy started in the early 1960s It had two essential characteristics 1) Planned industrialization Industrialization through import substitution Why planning? A more efficient allocation of scarce resources (loans and foreign exchange) State would be assigned a crucial role (State Planning Agency [Devlet Planlama Teşkilatı] established in 1960) Economic policies (1960s and 70s) State Planning Agency: Academics and bureaucrats 5-year plans indicating preferred areas of economy (starting in 1963) The public investments took place according to the priorities of the plan, however, the same priorities only had an indicative effect on private investments State Planning Agency derived its power from its ability to allocate significant amount of cheap credits and scarce foreign exchange Economic policies (1960s and 70s) 2) Domestic market For the first time in Turkey’s recent history extended rights were given to workers (such as collective wage bargaining through trade unions or right to strike) These rights significantly improved the purchasing power of the organized workers which resulted in higher wages and generous benefits On the other hand, state also provided the majority of population with access to affordable education and health systems , and a generous social security system. Why would the industrialists accept this situation? Economic policies (1960s and 70s) Higher wages meant higher costs of production It is rational for individual producer to cut back on costs of production by lowering wages However, this individual act may lead to a collective problem because all wages constitute substantial part of the demand for domestically produced goods How to achieve the balance between wage as a cost of production and wage as a determinant of aggregate demand? Economic policies (1960s and 70s) Foreign trade is still important Selective protection (restrictions on the imports of consumer goods only) No barriers regarding the intermediate goods and capital goods This system was based on industrialization but not necessarily national industrialization Meanwhile, the same strategy also did not target less integration with the world economy The main idea was how to create a domestic industry that would be competitive in international markets in the near future However, before becoming competitive, the same industry would need some maturation in a protected market and be dependent on imported machinery, raw materials and intermediate goods during that time The same strategy was supported by developed countries, as well. Economic policies (1960s and 70s) What about agriculture? Direct effects on industrialization Potential source of demand for domestically produced goods especially for textile and food but also for tractor and other inputs. Price support programs and subsidies regarding important inputs (tractors, pesticide, fertilizer etc.) continued throughout the period. There was steady rise in terms of trade in favor of agricultural goods. Indirect effects on industrialization Most of the farmers kept their connections with their villages They received essential food and income from their families back in villages and therefore became part of domestic demand as consumers Economic policies (1960s and 70s) Another source of demand came from workers There was almost 100 percent rise in average real wages However, this case was mostly observed among organized workers in durable consumption goods sector or automotive sector This group was also labeled “labor aristocracy” Their income was also augmented by welfare policies of the state and official policies regarding shanty towns (gecekondu mahalleleri) Economic policies (1960s and 70s) Industrialists benefitted from high profits in the protected markets. They were not required to compete with better- quality and low-cost foreign goods. They received subsidized inputs (from State Economic Enterprises) and credits. One other contribution to high industrial profits came from exchange rate policy Economic policies (1960s and 70s) What was the exchange rate policy? Artificially overvalued domestic currency Only those industrialist who imported intermediate goods and machinery would get foreign exchange at the official rate Excess demand for foreign exchange led to unofficial high exchange rates in black markets On the other hand, the same exchange rate policy had adverse effects on Turkish exports Economic policies (1960s and 70s) There were other groups of industrialists who were producing goods according to the requirements of the main industrialists or to meet the local demand They had to operate under competitive conditions Therefore both the owners and workers were subject to fluctuations in their incomes Most of the workers in that group did not have any of the rights enjoyed by the workers in the first group. Some of these industrialist made the transition to the first group, however, the workers in those industries were the absolute losers of this process. On the other hand, those traditional industries positively contributed to the success of the first growth by providing them with cheap inputs and wage goods. Economic policies (1960s and 70s) What was the role of the external finance? Between 1947 and 1980, Turkey ran trade deficit In other words, Turkey always used external resources (other countries savings) to finance its extra consumption and investment Until the 1960s, the major component of the external finance was aid and long-term credit supplied by the US Towards the end of the 1960s, worker remittance (gurbetçi işçilerin gönderdikleri) became much more important source of external finance FDI never played a major role in external financing. Economic policies (1960s and 70s) The rate of growth depended on the availability of foreign exchange Industrial sector never made the transition to the production of internationally competitive goods, and therefore, never generated its own foreign exchange through exports Consequently, economic growth and industrialization continued with the help of foreign aid, official credits, and remittances. Both the oil crisis in 1973 and Cyprus war in 1974 resulted in unexpected increases in import bills. Worker remittances financed some part of the deficit, however, both the government and industrialists started to search for short-term foreign loans. Foreign exchange shortage emerged as one the most important barriers to the industrialization process during the last years of the 1970s. Economic policies (1960s and 70s) The shortage of foreign exchange also led to the shortages of key intermediate goods such as oil and electricity (because oil was the main energy used in the production of electricity) Given the high prices of major intermediate goods and high wages, profits of the major industrialists had to be cut. As a result of falling profits, both production and investment in industrial sectors started to decline in the late 1970s. Economic policies (1960s and 70s) The annual growth rate for the period (1962-1976) was about 6.8 %. The same figure was 9.6% for industrialization. The share of durable consumer goods and intermediate goods in total industrial production rose from 25 % in 1963 to 53 % in 1980. There was indeed a shift from basic to more developed goods production. However, the change with respect to capital goods was not satisfactory (from 8.4% to 7.5%). On the other hand, trade coverage ratio (export/import) fell from 68.5% to 34% between 1961 and 1976. Although there was a significant intensification of industrialization, still, the same change was oriented towards domestic markets rather than international markets.