Etatism in the Turkish Economy

1. Etatism in the Turkish Economy 1933 1938 1945 Etatism Period War Economy

2. Reasons of the Etatism Policy • External Factors: • Great Depression • Law export and import prices after the Great Depression • There was rapid industrialization in the USSR.

3. Reasons of the Etatism Policy • Domestic Factors: • Falls in production and national income • Heavy tax burden especially on farmers • Serious falls in exports • Foreign exchange bottlenecks • Troubles in imports of raw materials • Falls in employment

4. Reasons of the Etatism Policy • Domestic Factors: • The need for domestic production of previously imported goods • Private manufacturers were not successful • The reaction to the CHF government in Anatolia

5. Boratav, K. Türkiye’de Devletçilik s.143 • “... Yeni gümrük tarifesinin arkasına sığınarak dünya fiyatından birkaç misli yükseğe satan basit ve şımarık bir sanayi türemeye başlamıştı....İşte demir telleri keserek çivi yapan, çiviyi dış piyasa fiyatının on misline satan, milli sanayi olduğu için demir telleri de hammadde diye gümrüksüz sokan şu çivi fabrikası...”

6. Boratav, K. Türkiye’de Devletçilik s.145 • “ .... Samsun’a geldiğimiz zaman başka yerde görmediğimiz bir manzara karşısında kaldık: Gece her tarafta fevkalade inzibati tedbirler alınmıştı. İstasyondan itibaren bütün yollar sürgülü askerler tarafından tutulmuştu. Bu suretle askerden ve polisten mada kimseyi görmeden, adeta bir düşman şehrine henüz giren bir kumandan gibi Gazi ve bizler otomobillerle Gazi’nin misafir edileceği konağa geldik.....”

7. Definition of Etatism • Moderates: • Government should take action if private entrepreneurs fails to do something • Radicals: • Government must do everthing that ensures public interest

8. Etatism in Turkey • State-owned business enterprises • The establishment and control of the economic life

9. Etatism in Turkey • 1932: The Soviet Committeeheaded by Prof. Orlof prepared the first report • 1934: This report was accepted as the “First Five Year Industrial Plan”

10. Etatism in Turkey • First Five Year Industrial Plan: • Covers the 1933-1938 period • Industrial production must be based on agricultural products and natural resources • Only exception: Industries that will provide high benefit to the society • To substitute imports of consumption goods by domestic production • The location of industry: Must be close to the natural and labor resources • Priority given to: Textile, mining, paper, chemistry, glass and glassware, cement.

11. Etatism in Turkey • Second Five Year Industrial Plan: • 1939- period • Aim was to produce intermediate and investment goods • Could not be put into practice because of the WWII

12. Etatism in Turkey • It was financed by domestic resources (taxes) • High-technology • Production costs were low (limited worker rights) • Complements and encourages private sector • Import substitution (consumption goods) • Question: Why consumption goods but not capital goods are produced?

13. Etatism in Turkey: Results • Industrialization started • Trade surplus except 1938 • Foreign firms that have privileges are liquidated • Railways are nationalized • State Economic Enterprises: • Sümerbank, Etibank, Denizcilik Bankası etc.

14. Agriculture • Distribution of state land • Area planted increased • 1932/1938: Turkish Grain Board • Prices are volatile • Tax burden on agriculture

15. Mining and Energy • Importance given • 1935: General Directorate of Mineral Research and Exploration • The institute was made responsible of carrying out the necesarry studies, chemical and technological analysis, in order to search and to find mining and stone beds, and then to determine whether they are appropriate for operation or not, and also to educate engineers, assisting personnel and qualified employers for the sector. • 1935: Etibank • Mines are nationalized • 1940: First oil well in Raman • Not efficient • Electricity production is deficient and costs are high.

16. Industry • Domestic demand was satisfied by domestic production • Most successful industry: • Textile (80% of domestic demand) • Sugar (No need for imports) • Cement (exported) • Iron-steel • Average number of workers: • 1933: 47; 1939:84 • Problems: • Increased import demand • Agriculture-industry competition

17. International Trade • Infant-industry argument • Clearing agreements • Trade surpluses except 1938 • 1934: Foreign Trade Office • Terms of Trade are against Turkey

18. International Trade (million TL)

19. National Income • National income increased by 9% on average • Pre-war period: Agriculture, Industry • Post-war period: Services • Income distribution problems

20. 1940-1945 Period • War economy • State of war: Loss of labor force • Reduced agricultural production • Reduction in tax revenues • Reduced imports • Increased military expences

21. Capital Resources • Money supply: • Pre-war period: • Rate of increase ≈0,5 % annual • GDP Growth ≈5-6 % annual • No inflation • Post-war period: • 483,3 % increase • Inflation

22. Capital Resources • Budget: • Pre-war period: • Budget surpluses • 70% indirect taxes • Post-war period: • Increase in direct taxes • New taxes: Varlık Vergisi, Toprak Mahsulleri Vergisi • Rise in government expenditures

23. Measures • 1940: National Protection Law • 1940: Trade Office • 1942: Varlık Vergisi • Law No: 4305 “İktisadi şartların darlığından doğan güçlükleri istismar ederek yüksek kazançlar elde ettikleri halde kazançları ile mütenasip vergi vermeyenleri istihdaf etmekte ve içinde bulunduğumuz fevkalade vaziyetin icap ettirdiği fedakarlığa bunları da … iştirak ettirmek maksadını gütmektedir. Mükelleflerin mali (güçlerini) …halk mümessillerinden terekküp eden komisyonlar tayin edecektir.” (K. Boratav s.343) • 1944: Agricultural Product Tax

24. Inflation Money supply increased  Production decreased  Inflation

25. Inflation • To cope with inflation: • Price controls • Government purchased agricultural products at low prices • Distribution of basic intermediate goods was done by government