Etatism in the Turkish Economy

1933 1938 1945

Etatism Period War Economy

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.

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

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

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...”

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.....”

Definition of Etatism Moderates:

Government should take action if private entrepreneurs fails to do something

Radicals: Government must do everthing that ensures

public interest

Etatism in Turkey State-owned business enterprises

The establishment and control of the economic life

Etatism in Turkey 1932: The Soviet Committee headed by

Prof. Orlof prepared the first report

1934: This report was accepted as the “First Five Year Industrial Plan”

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.

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

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?

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.

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

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.

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

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

International Trade (million TL)Year Exports Imports Balance

1933 96,2 74,7 21,5

1938 144,9 149,8 -4,9

1939 127,4 118,2 9,2

1945 218,9 126,2 92,8

National Income National income increased by 9% on

average Pre-war period: Agriculture, Industry Post-war period: Services Income distribution problems

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

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

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

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

InflationMoney supply increased

Production decreased

Inflation

Inflation To cope with inflation:

Price controls Government purchased agricultural products at

low prices Distribution of basic intermediate goods was

done by government