Etatism in the Turkish Economy, 1930-1945

1. Etatism in the Turkish Economy, 1930-1945

2. Domestic Developments • Fail to satisfy economic independence- fast development • Industrialization policy of 1920s • In 1930s, unable to produce basic consumption goods domestically • At the end of first 10 years, production and revenues decreasing • Economic crisis in the world: had problems in exporting • Decrease in exports, shortages of foreign money, problems in importing intermediate and machinery goods

3. Domestic Developments • Decrease in prices and production • Unemployment and economic stagnation • Private capital not provide any stimulus for the economy • Goods that are not exported should be manufactured • This is done by public industrial enterprises • Domestic production of basic consumption goods and industrial inputs • Unable to industrialize by private enterprises so the government had to build public industrial enterprises

4. International Developments • Capitalist countries: 1929 economic crisis • Price decreases, production with less than full capacity, unemployment • Demand crisis due to decrease in prices and production • Solution to this problem: government intervention in fiscal and monetary policy, increase public expenditure • Free market has problems in allocating demand and supply and determining price: Liberal economic thought • For Turkey, this brought an advantageous position, Turkey can provide machinery for better conditions and this brought a stimulus in industrialization

5. International Developments • USSR: planned economy • Speedy industrialization • Close relation with Turkey • USSR provided credit and technical help to Turkey

6. Capital Formation • Two periods: 1930-1938 and war period (1939-1945) • 1930-1938: stability in money supply, stability in public budget and stability in international trade • Increase in public revenues from indirect taxes, balanced budget, • Consequence: no inflation, no deficit • 1939-1945: increase in money supply, decrease in production, increase in prices and hence inflation, increase in credits not for industrialization but for exchange of real property goods • New indirect taxes (Varlık Vergisi), more intervention of government in economy, increase in foreign debt

7. Capital Formation • Increasing direct and indirect taxes cause government to control a huge part of national income • This did not lead to increase in public sector production but led to development of private trade capital accumulation • Product shortages, negative impact on demand and supply equilibrium, causing increase in prices • Increase in public expenditures, decrease in production, decrease in imports also lead to product shortages • Growth in war period was seen only in trade capital accumulation

8. Etatism Application • Two precautions in 1930 for economic crisis: • To balance public expenditures with public revenues • To provide surplus in trade balance by limiting imports • Two applications of etatism: • Public enterprises in industrial production (industrialization through public investment) • Regulations in other sectors

9. Industrialization with Etatism • 1st Five Year Industrialization Plan in 1930 • Aims: • To develop industrial production units depending on natural resources and local or regional agricultural production • To give priority to domestic production of basic consumption goods (especially the ones that are imported and are in weaving industry) • Industrial enterprises to be close to input and labor force sources • Industrial plan: new industrial sectors to be build • Weaving (cotton, wool) • Mining (iron-steel) • Paper • Chemical (rose oil, sentetic silk) • Stone, soil (glass, cement)

10. Industrialization with Etatism • 1st Five Year Industrialization Plan in 1930 • The aimed production covered 44 % of imported goods (industrialization with etatism through domestic production of imported goods) • 2nd Five Year Industrialization Plan in 1936 • Priority to production of intermediate and investment goods • Electrification, mining and ports to be developed in terms of infrastructure • Huge investments in food, chemical, machinery and sea transportation fields • Unable to be applied due to 2nd World War

11. Industrialization with Etatism: Qualitative Structure • Financed by direct taxes that is levied on basic consumption goods • Technological structure: efficient so that production costs were low • Developments in relation with private enterprises • Industrialization through basic consumption goods (not investment goods) • Industrialization through import substitution because: • Not possible to produce machinery due to input structure, technological capability • Also hard to export investment goods in economic crisis but easier to export basic consumption goods

12. Developments in Other Sectors: Agriculture • No legal regulations in land ownership • Increase in the amount of processed land • No change in agricultural credits • No change in machinery and equipment • Establishment of Toprak Mahsülleri Ofisi (TMO) in 1932 to determine support prices for agricultural goods • Determination of prices left to free market conditions • Prices fluctuated depending on production

13. Developments in Other Sectors: Agriculture • Domestic trade ratios contrary to agricultural goods so that resource transformation to other sectors • Agricultural surplus was taken from rural sector indirectly by taxation of industrial goods that rural sector bought • Growth rate of agricultural production was the same as the growth rate of population • In war period, speculation and increase in prices of agricultural goods • Decrease in revenues of rural sector

14. Developments in Other Sectors: Mining and Energy • Relatively more importance attributed to mining sector • Public enterprise: MTA and Etibank in 1935 • Coal and copper minerals managemnet authority • Production of chrome and iron increased • Productivity per employee low due to capital and technology inadequacy • The main problem was incapability to develop mineral processing • Limited production and usage of electricity due to high cost of energy

15. Developments in Other Sectors: Industry • Developments in industry production • Able to produce basic consumption goods domestically • Domestic demand of goods to be fulfilled by domestic production • The most important development in weaving sector • Also private enterprises were established • 80% of domestic demand was matched with domestic production in this sector • Over production in cement industry and the surplus was exported • Iron-steel establishment in Karabük in 1939

16. Developments in Other Sectors: Industry • Increase in the number of public firms that has been supported • 44% of manufacturing enterprises in agriculture sector, 23% in weaving sector • Production per establishment was higher in mining sector • Increase in production scale: the number of employees per establishment was 84 in 1939 • The highest value for the share of labor in production was forestry goods, weaving and building construction sectors • The share of wage in value added was high in mining products, paper and chemical sectors

17. International Trade • Trade policy: avoid deficit in trade balance • Policies: • Importing goods from countries that Turkey exports • Limiting imports of basic consumption goods that domestic production was available • Free exports of goods in terms of bilateral agreements: clearing (imports in terms of exports) • In war period: limitations on international trade • Increase in exports (chromemineral and agricultural goods) in war period • The increase in international trade smaller than increase in national income: relative importance of international trade has decreased • As a result, economy became self sufficient and closed

18. National Product • Increase in national income (except 1935) in constant prices • Average yearly growth rate 9% due to developments in industrialization • Share of industry in national income 18% in 1939, share of agriculture in national income 39% in 1939 • Between 1933-1939, development in agriculture and industry • Between 1939-1945, war period, development in service sectors • In war period, decrease in national income in constant prices • In war period, inflation and decrease in production of agriculture and manufacturing sectors