Struture of Turkish Economy Lecture Notes 4

Struture of Turkish Economy
Lecture Notes 4
Alper Duman
October 2011
Alper Duman
Struture of Turkish Economy Lecture Notes 4
The burden of the Great Depression was not felt equally.
Mustafa Kemal witnessed the agonies of the common people
during his 3-months trip across Anatolian cities.
Bunalıyorum çocuk, büyük bir ıstırap içinde
bunalıyorum! Görüyorsun ya, her gittiğimiz yerde,
mütemadiyen dert, şikayet dinliyoruz. Her taraf, derin bir
yokluk, maddi manevi perişanlık içinde. Ferahlatıcı pek
az şeye rastlıyoruz. Memleketin hakiki durumu ne yazık ki
bu. (Boratav, 1982: 105).
Alper Duman
Struture of Turkish Economy Lecture Notes 4
I
The structure of the economy did not change dramatically.
I
The consumption and industrial goods were largely imported
at the end of 1920s.
I
The need to control monetary policy and capital accounts was
obvious.
I
The increase in monetary base kept in a strict target.
I
The balanced budget would be a priority
I
More importanty, thanks to import substitution the trade
balance would give surplus
Alper Duman
Struture of Turkish Economy Lecture Notes 4
The transformation of CHP program was announced in a speech by
Mustafa Kemal made in İzmir, January 1931.
Fıkramızın takip ettiği program...iktisadi noktai
nazardan devletçidir...Halkımız tab’an devletçidir ki her
türlü ihtiyacı devletten talep etmek için kendisinde bir
hak görüyor. Bu itibarla milletimizin tebayii ile fırkamızın
programında tamamen bir mutabakat vardır. (Boratav,
1982: 59)
The view on statism was always flexible. The only constraint was
not to be perceived as a socialist economy. The ultimate aim was
always to favor private enterprise.
Alper Duman
Struture of Turkish Economy Lecture Notes 4
The main feature of the period was potectionist-statist
industrialization.
Therefore, the shift of emphasis from agriculture to industry is
obvious.
The 1920s demonstrated that the ’national bourgeoise’ mostly
engaging in trade and agriculture had no real intentions to develop
an industrial base.
Furthermore, the international division of labor was a major
constraint for the development of the industry in Turkey. Lack of
control on exchange rates and protection made the
industrialization attempt harder to achieve.
The pressure on the devaluation of TL in 1929 forced the
government to issue a law, Protection of Turkish Currency (’Türk
Parasını Koruma Kanunu’).
Alper Duman
Struture of Turkish Economy Lecture Notes 4
The new motto was ’three whites’: flour, sugar and linens. These
commodities were regarded as the basic consumption goods to be
provided by the state and domestic private entrepreneurs. The idea
was to capture most of the industrial rents due to international
protection and the agricultural surplus through relative price
movements in order to support state-led industrialization.
In the early years of the period the protectionist measures became
effective. There were a few signs of state intervention into the
domestic economy. The most important one might be the
establishment of the Central Bank.
From 1932 onwards, the state enterprises were founded in all
sectors of the economy. The infrastrucutural investments and the
’three whites’ sectors were the priorities.
Alper Duman
Struture of Turkish Economy Lecture Notes 4
Table: Comparison of Subperiods, 1923-1939
Growth rate of GNP
Growth rate of Industry
Industry as a % of GDP
Investment as a % of GDP
Imports as a % of GDP
Trade Balance (million TL)
Alper Duman
Struture of Turkish Economy Lecture Notes 4
1923-1929
10.9
8.5
11.4
9.1
14.5
-55.6
1930-1932
1.5
14.8
13.6
9.7
8.9
6.6
1933-1939
9.1
10.2
16.9
10.7
6.6
12.4
The industrialization project was to be financed by public funds.
Consequently, the ratio of budget revenues and expenditures to
GDP would go up.
The required funding could be provided through state-to-state
loans. 10 million dollars obtained from US were used for the equity
capital of the Central Bank of Turkey. USSR supplied 10.5 million
liras (at 6.5 percent annual interest rate), which was channeled to
found industrial enterprises. Britain had extended a loan of 16
million pounds. That funding was directed to Kardemir.
Alper Duman
Struture of Turkish Economy Lecture Notes 4
Table: Budgets
1933
1934
1935
1936
1937
1938
1939
Revenues
198.9
241.2
266.8
270.8
317
329.3
388.3
Expenditures
205.4
228.8
259.5
265.8
310.7
314.7
394.4
Alper Duman
Struture of Turkish Economy Lecture Notes 4
Balance
-6.5
12.1
7.3
5
6.3
4.6
-6.1
Indirect Taxes
73.6
77.3
71.9
74.5
70.2
68.5
50.6
The price of wheat had declined 68% from 1929 to 1932. The
majority of the farmers suffered from the declines in agricultural
products. The striking popularity of ’Serbest Fıkra’ among the
rural population could be attributed to this sudden change in their
fortune.
State pursued a strategy of transferring public lands to the landless
farmers and small-scale farmers. The total land area given was
more than 1 million hectares from 1923 till 1938.
The annual growth rate of agricultural output was 5.1%. Although
there were absolute increases in wheat, tobacco, sugar beet
production the relative price effects caused a slower expansion of
the agricultural output. The incentive structure for the middle and
upper scale farmers led them to restrict production.
Alper Duman
Struture of Turkish Economy Lecture Notes 4
Table: Distribution of Land Ownership, 1937
Land Areas
Less than 12 hectares
12-32 hectares
32-64 hectares
64-320 hectares
Bigger than 320 hectares
Landowners -%
37.8
27.3
17.5
11.1
6.0
The agricultural credit expansion during the period of 1934-1939
was limited to 30%. The main instiutional difference was the
introduction of TMO as a subsidiary of Zıraat Bankası in 1932,
which later in 1938 became an independent public office. The
relative price movements coupled with the decline in international
prices disproved the slogan ’köylü milletin efendisidir’.
Alper Duman
Struture of Turkish Economy Lecture Notes 4
The annual growth rate of industry in constant prices was
impressive 10.3 %.
The fixed capital formation averaged to 10.1% of the GDP during
the period.
The share of industry in GDP reached 18.3% in 1939. It was 9.9 %
in 1929. The investment in machinery and equipment was also
increasing by 10% annually.
Thus the increase in industrial output could be associated by the
new capacity created mainly by state enterprises. In contrast to
1920s, this major achievement were sustained largely without
foreign savings.
Alper Duman
Struture of Turkish Economy Lecture Notes 4
Moreover, the industrialization attempt was extented on to capital
goods and heavy industries, such as steel, paper and chemical,
cement and construction materials. The cement production could
be raised from 14.4 thousand tones in 1927 to 220 thousand tones,
of which 90 thousand tones were exported.
The average number per establishment increased from 47 in 1933
to 84 in 1939. The mechanization had gone up as well.
In 1935, MTA and Etibank were established. Energy projects
would be taken by state through Etibank.
Alper Duman
Struture of Turkish Economy Lecture Notes 4
International traders definetely lost both in terms of prices and
volume. However, for those who could monopolize importation of
industrial and consumer products there existed monopoly rents.
The merchants who previously had the priviledges of selling the
agricultural products, or basic consumption goods such as ’three
whites’ had lost.
The overwhelming majority of the farmers had seen their incomes
declined, with great fluctuations. Some of these farmers fled to the
cities and took up jobs in the industry or service sector.
The main beneficiaries were the businessmen undertaking state
sponsored projects, especially construction. The industrial
capitalists also increased their income and wealth.
The government employees were also the winners bothin terms of
employment opportunities and in terms of income. This
development paved the way of long term conflictual relations
between the rural population and the ’men of the state’ which
later on culminated in the ’hatred for bureaucracy’.
Alper Duman
Struture of Turkish Economy Lecture Notes 4
Table: Trends in Distribution
Year
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
Wages (P)
–
–
–
1.3
1.4
1.6
1.5
1.3
1.4
1.7
1.7
Salaries
5.2
6.8
7.1
8.2
8.6
8.8
8.7
7.2
7.4
7.6
9.1
Alper Duman
Struture of Turkish Economy Lecture Notes 4
Profits
–
–
–
3.4
4.9
5.8
5.7
4.9
5.5
5.3
6.2
Wheat/Ind
120
91
59
80
74
68
80
70
68
68
68
Agr./Ind -%
114
102
91
119
94
86
94
83
85
91
91
Questions:
1. How did the Statism policies change after Celal Bayar was
appointed as the Minister of the Economy? Who had given
support to him?
2. How did the share of indirect tax revenues evolve during the
period? What could be the consequences of such a
development?
3. What were the constraints on the state-led industrialization?
4. What was the main policy view on workers’ rights? What
would be the effect of such a view on private accumulation?
5. Which of the current holding companies dated back to the
1930s? What was the main line of business then?
Alper Duman
Struture of Turkish Economy Lecture Notes 4