Etatism in the Turkish Economy

1933 1938 1945

Etatism Period War Economy

Reasons of the Etatism Policy

•External Factors:

▫Great Depression▫There was rapid industrialization in the

USSR.▫Low export and import prices after the

Great Depression

Reasons of the Etatism Policy

•Domestic Factors:

▫Falls in production and national income ▫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.....” (1930)

Definition of Etatism

•Moderates: ▫Government should take action if private

entrepreneurs fail 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 Industrialisation Plan”

Etatism in Turkey• First Five Year Industrialisation Plan:

▫ Covers the 1934-1938 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 near 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)

Etatism in Turkey: Results• Industrialisation started• Balanced budget• Trade surplus except 1938• Foreign firms that have privileges were

liquidated• Railways were nationalized• State Economic Enterprises:

▫ Sümerbank, Etibank, Denizcilik Bankası etc.

Agriculture• Distribution of state land• Area planted increased• 1932/1938: Turkish Grain Board• Prices were volatile (domestic terms of trade)• Tax burden on agriculture

Mining and Energy• Importance given• 1935: General Directorate of Mineral Research and

Exploration (MTA)▫ 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 were nationalized• 1940: First oil well in Raman• Not efficient• Electricity production was deficient and costs were high.

Industry• Domestic demand was satisfied by domestic

production• Most successful industries:

▫ 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 were 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: Wealth tax (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: Soil Products Tax (Toprak Mahsulleri Vergisi)

Inflation

Money 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