Turkish Political Economy:

1923 – 1939
INTL 410 / ECIR 410
Prof. Ziya Öniş
 Outline

1. A century of Turkey’s political economy: Brief overview

2. Periodization of Turkish Political Economy

3. Turkish political economy between 1923-­‐1939

a. Liberal reconstruction years (1923-­‐1929)

b. Autarkic-­stati
‐ st years (1930-­‐1939)

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 A century of Turkey’s political economy transformation: Basic
indicators

• Turkey’s population grew from 17 million to 74 million

• The share of urban population increased from 28 percent to 76 percent •Share of agriculture in GDP substantially
• GDP per capita increased from 1,200 dollars to 10,400 dollars decreased and Turkey became an industry-­‐
• Life expectancy at birth jumped from 30 years to 74 years driven and service-­dominant
‐ economy.
• Adult literacy increased from 10 percent to about 95 percent •Share of agriculture in labor force
decreased dramatically. 3
Turkey in comparative perspective: Is the glass half full?

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 Periodization of Turkish Political Economy

¡ The historical development of Turkey’s political

economy may be divided into nine major periods
o War years (1908-­‐1922)
o Liberal reconstruction years (1923-­‐1929)
o protectionist-­statist
‐ years (1930-­‐1939)
o A break: Second World War (1940-­‐1945)
o Integration with world economy (1946-­‐1953)
o Stagnation and readjustment (1954-­‐1961)
o Import-­substituted
‐ industrialization (1962-­‐1979)
o Economic neoliberalization (1980-­2001)
‐
o Social and regulatory neoliberalism (2002-­‐2013)
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 Turkish economy between 1923 and 1939

¡ This period needs to be divided into two main parts.

o Liberal reconstruction years (1923-­‐1929)
o Autarkic-­‐statist years (1930-­‐1939)

¡ Liberal reconstruction years (1923-­‐1929)

o 1923 represents a “rupture” in terms of political regime and stateness.

o Macroeconomic policy; prudent monetary and fiscal policy (rupture)

o Industrial policy; liberal trade regime as well as nationalizations

o On the one hand, the dominant philosophy was to strengthen the “domestic bourgeoisie” along with “national
economy” model.

o On the other hand, Turkey was not allowed to pursue protectionist trade policies (especially customs tariff;duty)
due to the restrictions imposed by Lausanne Treaty (1923).

o Therefore state could not protect domestic industry-­‐industrialist were losers

o Tradesman (export and import business in mining and agriculture/ Production of primary goods in int. division of
labor) and bankers (profits from trade credit) winners (imported cotton and wool fabric was about 38% of total
imports for the period)
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 How state supported domestic bourgeoisie?

¡ If Lausanne Treaty avoided autarkic policies, how it became possible to

support “national bourgeoisie?
¡ State followed certain strategies;
o Creating state cartels and transferring them into the hands of a few privileged
individuals; offering monopoly rights and consessions
o A close network among domestic economic interest groups, bureaucrats, and
politicians
o For example: İş Bankası case (Falih Rıhı Atay calls İş Bankası as the “bank of politicians”)

o Tolerant policies toward foreign direct investment but also guided national
interest. However, state elites rejected all kind of privileges in order not to
revitalize the capitulations extended to the foreigners by Ottoman Empire.

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 Izmir economic congress -­‐İzmir İktisat Kongresi
(February 1923)

• The representatives of “labor”, “industry”, “agriculture”, and various state

bureaucrats attended the conference.

• Important decisions regarding the different spheres of Turkish economy

were taken:
o Foreign investment welcomed. Yet, “nationalization” policies also strongly
supported . For example, railway and tobacco industries were nationalized
(agreement reached and compensation paid by the state). The foreigners in
these sectors transferred their firms to the Turkish entrepreneurs. In railway
industry, state became the only player.
o In agriculture, the traditional tax (“aşar vergisi”) was abolished
o In industry, domestic capital was subsidized especially in sugar, flour, and fabric.
In 1927, new law was enacted to support domestic industrial production (Teşvik-­i‐
Sanayi Kanunu). A bank specializing on industrial credits was established in 1925
(Sanayi ve Maadin Bankası)
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 Weak Industrialization

• The major export products between 1923 and 1929 are agricultural products . For example,
tobacco, currant, cotton, fig, eggs, wool, and hazelnut composed almost 66 percent of total
exports. Turkey mainly imported industrial products. This demonstrates the peripheral integration
of Turkish economy into the world markets. In 1924-­1‐929 era, Turkish economy grew at an annual rate
of 8,6 percent. The agriculture grew at about 8,9 and industry grew about 10 percent.

• How should we interpret this data?

>>>The growth rates are really high. Yet, the main reason for the impressive growth is not high
capital accumulation but the increasing capacity utilization rate. The inactive capacity in the
agricultural and industrial sector was reutilized. Therefore, we should call this era as
restructuration. Industrialization in this period was not significant. For example, according to some
figures, the 46 percent of the workers in the manufacturing industry was working in the firms
that employ less than four workers. This shows that the industry was small, fragmented and
uncompetitive.

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 Distributional dynamics: who-­gets-­
‐ ‐
what? (1923-­1929)
‐

¡ The abolition of the traditional tax in the agricultural sector (“aşar

vergisi”/10% of selected agricultural products taxed) should be considered as an
income transfer to the peasants in the agricultural sector. Although, indirect taxes
are levied to the citizens, especially in sugar and gasoil, in the final analysis, the
agricultural sector was positively influenced from the abolition of “aşar vergisi” in
1925

¡ The privileged domestic bourgeoisie also gained substantially in this

period because state actively supported a few number of domestic capital-­holders
‐
via subsidies and nationalization policies.

¡ In this era, foreign capital holders and economic actors belonging minority
groups lost because of the active nationalization, taxation, and population-­exchange
‐
policies.

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 A sharp turn: Protectionist-­statist
‐ years (1930-­‐
1939)
¡ The keywords of this period: protectionism (customs tariff increased,
and FX controls) and statism (state investments, subsidies, monopoly rights)
¡ The liberal policies of the 1923-­1‐929 period were reversed
¡ Why such a kind of sharp turn?
1. Great depression: 1929 economic crisis paved the way for a protectionist environment all
around the world
2. Payment of oYoman debt since 1928
3. The end of Lausanne restrictions
4. The newly emerging paradigm: Turkish policy makers pursued deliberate industrialization
by taking statist measures because they recognized that industrialization is not possible by
just relying on “market-­actors”
‐
¡ Turkey’s policies in this period are parallel the dominant paradigm of the
time in many European countries and the US.
¡ Industrialists benefitted whilst tradesmen, peasants/farmers lost)

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 A sharp turn: Protectionist-­statist
‐ years (1930-­‐
1939)

• State banks
• FX and trade protectionism
• Central Bank Established
• 1930-­1939
‐ Turkey run trade surplus (except
1938)

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 Proto-­‐industrialization in Turkey

¡ First major (comprehensive

steps) were taken toward
industrialization in this period
¡ Strict fiscal and monetary policies
were implemented (“sağlam para,
denk bütçe prensibi”)
¡ In 1934 first five year-­industrial
‐
plan was prepared
¡ The major industries that were
targeted: sugar, flour, and fabric.
¡ The annual industrial growth
rate was 10,8 percent between
1930 and
1938
¡ The share of industry in GNP
increased from 10 percent in 1929
to 18,3 percent in 1939.
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Industrialization in consumption products

¡ Turkey succeeded producing

the necessary sugar, flour and
fabric for domestic consumption.
¡ The industrialization in
consumption products were
achieved at the end of 1939.
¡ Even, relatively “heavy industries”
like
Iron, steel, chemistry, paper and
aviation were developed up to 1939.
¡ Except 1938, Turkish foreign
trade balance had been positive.
¡ Turkey’s trade openness,
however, decreased dramatically
(about 11
percent of GNP) in comparison to
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1923-­‐1929 period.
 Distributional dynamics: who-­gets-­
‐ ‐
what? (1923-­1939)
‐

¡ Commercial bourgeoise (exporters and importers) gained from liberal trade regime until 1929; landowners,
farmers, peasants and miners were also winners.

¡ The import oriented commercial bourgeoisie negatively influenced from the protectionist policies (the total
import volume in 1939 was 50 percent lower than the import volume of 1929)

¡ The domestic bourgeoisie that has close relations with state gained significantly due to their privileged
positions in public procurements

¡ Some of the Private industrial elite also took advantage of protectionist capital-­accumulation
‐ policies pursued by
the state.

¡ The wages also increased in reel terms in this period.

¡ The agricultural sector had substantial difficulties due to the declining prices auer Great Depression.
¡ Industrialists gained b/w 1929-­3‐9; protectionism, decline in price of agricultural products, wages, land.

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