HIST 3051PART 3

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HIST 3051-PART 3 HISTORY OF TURKISH
REPUBLIC   BAHÇESEHIR UNIVERSITY 2007 Prof. Dr.
Zafer Toprak First part available at
www.ata.boun.edu.tr under faculty / Zafer Toprak

2
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-
3
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 -
4
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
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• War Population ExchangeDeparture of Greeks and
  Armenians
• Lack of entrepreneurial know-how
• 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 World
• 1929 Crisis

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First Turkish Economic Congress Izmir 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


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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
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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
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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
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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


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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


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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
13
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
14
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
15
Direct investment by foreigners
encouraged Particularly in partnership with
Turkish citizens 1/3 of the firms established
in the 1920s Joint ventures
16
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
17
Financial infrastructure Lack of Capital In
agriculture a) Agricultural Bank Ziraat
Bankasi reorganized 1925 In business
industry b) Business Bank Is Bankasi 1924 c)
State Industrial and Mining Bank 1925 Devlet
Sanayi ve Maadin Bankasi d) Sümerbank in
industry 1933 e) Etibank in mining 1935 to meet
the shortages of capital for financing
industrialization and mining
18
Financial Policies Replacement of tithe Asar
by sales tax monopolies Conservative balanced
budget, low inflation Tight monetary policy -
strong TL DENK BÜTÇE SAGLAM PARA Balanced
Budget Strong Currency Trade deficit in the
1920s due to Lausanne Treaty


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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
20
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
21
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
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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 Parasini Koruma
Kanunu authorizing government to intervene in
the local exchange markets To stabilize the
international value of the TL
23
Bileteral trade Clearing Barter
Agreements Takas Usulü Germany to become
Turkeys largest trading partner Overvaluation
of TL Continuing problem until 1980 1980
liberalization and reform brought an end to the
policies initiated in 1930.
24
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
25
Import licenses distributed administratively Ec
onomic 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
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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
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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
28
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
29
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
30
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
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Under etatism Foreign trade regime Balance
of payments controls High tariff rates
Quantity restrictions
32
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
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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
(KIT)
34
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
35
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
36
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


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State Economic Enterprises - 1938 State
intervention in agriculture 1932 To regulate
prices by building up and selling off
stocks Office for Soil Praducts 1938


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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


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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


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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
41
Villages confronted with following
problems 1.    Shortages of land 2.    Farming
methods and techniques 3.    Large estates
Distribution of national income unbalanced  
42
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 (asar)
43
Two states organizations 1. Office of Soil
Products (Toprak Mahsulleri Ofisi) 2. Forestry
Enterprise (Orman Isletmeleri) Aim to help
the peasantry
44
Office of Soil Products 1938 1. To protect
peasant through price supports 2. To accumulate
farm supplies for army, schools, needy
regions
45
2. Forestry Enterprise (Orman
Isletmeleri) a.    To exploit forests b.    To
conserve existing ones c.    To reforest new
areas
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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
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2.    Diminution in agricultural production
producers drafted into the army   Shortage of
bread The Office authoritarian unrealistic
policy Uneven distribution of the burden
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Four legislations affecting Single-Party
Era New wave of state intenvention 1. National
Defence Law 1940 (Milli Korunma Kanunu) 2.
Capital Levy 1942 (Varlik Vergisi) 3.
Agricultural Products Law 1942  (Toprak
Mahsulleri Vergisi) 4. Land Reform Law
1945 (Çiftçiyi Topraklandirma Kanunu)
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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)
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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
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 2.    Tax on capital / Capital Levy / Wealth
Tax - 1942 (Varlik 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
52
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
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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
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Deported / sentenced to Forced labor - Askale
a) Reaction from businessmen b) Criticism
from abroad   Tax enforcement relaxed -
Abolished in 1944 Irreparable damage to the
confidence of minorities
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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    
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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
57
Turkeys 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
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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 hitSharp 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
59
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
60
The Industrial Workers still very small
minority 300.000 / 20.000.000including
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
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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
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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
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Wages compared with profits of private
state enterprises remained extremely
low Insufficient for adequate standard of
living
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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  
65
  Government control barring the workers from
political activity Ministry of Labor
1945 Welfare needs Workers insurance law
(1945) Paid holidays law (1951)
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The Urban and Rural Middle Classes Landowners,
businessmen, industrialists, intelligentsia (inclu
ding government officials) Three major laws
purpose            a) establishing social
justice b) stimulating agriculture   2.    Tax
on capital (Varlik Vergisi) 1942 3. Agricultural
Products Law (Toprak Mahsulleri Vergisi)
1942      4. Land Reform Law (Çiftçiyi
Topraklandirma Kanunu) 1945
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• 4. Land Reform Law
• Land Distribution Bill
• (Çiftçiyi Topraklandirma Kanunu) 1945
• strongly promoted by Inönü
• Emergence of political opposition in post-war
  Turkey
•  
• Social reform to ameliorate the situation of the
  peasantry
• Purpose
•  
• To distribute land to
• the landless and land-short peasants
• 2. To furnish equipment for cultivation
•  

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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
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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
70
Result Concerted opposition to government
Rise of Democrat Party 1946  Demokrat
Parti RPP amended the law to appease the
opposition limiting to government and vakif
lands   Expropriation of private land provisions
barely applied  
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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
72
National Development Party (Milli Kalkinma
Partisi) by Nuri Demirag - industrialist The
liberalization of the economy The development
of free enterprise 
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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 Sef) abolished
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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
75
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
76
Turkey desperate for foreign financial
assistance   To facilitate this applied for
membership of the IMF  
77
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
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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)
79
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)
80
Twelfth of July Declaration by Inönü - 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 Semsettin Günaltay, - a compromise
figure
81
  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
82
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
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End of Part 3