The Structure of Turkish Economy

1. The Structure of Turkish Economy Class 3

2. Turkish Economic Congress 1923 • Objectives of the congress: • Tradesmen, farmers, workers, manufacturers presented their problems, needs and wants • Present the general picture of the Turkish Economy to the foreign world.

3. In the congress the parties presented their needs some of which are summarized below: • Farmers: 80% of the population. They want the tax burden and the tobacco monopoly to be abolished. • Tradesmen: Bank; Laws and regulations; chambers of trade; transportation; foreign capital

4. Manufacturers: Protecting industry through customs tax; taxreduction in machinery purchase; Industry Incentive Law (Sanayi Teşvik Yasası); education; Chambers of Industry • Workers: 8 hrs. Of work; pay leave; security; insurance; work safety measures.

5. Lausanne Peace Treaty • 1. Capitalizations were abolished • 2. Foreign privileges • 3. Ottoman debt • 4. Customs measures • 5. War losses • 6. Population exchange • 7. Musul problem

6. Reforms • Comprehensive revolutions • Revolutions that cover both social life and economic life • This is the key idea through 1940s.

7. Institutions • Trade Associations and Professional Unions (Meslek oda ve birlikleri) • Central Bank (Merkez Bankası) • Hygiene Institute (Hıfzısıhha Enstitüsü) • Community Centers (Halkevleri) • Dil ve Tarih Kurumu

8. Budget • Balanced budget • Sources of income: Primarily through indirect taxes (mainly through salt, tobacco, sugar consumption) • Expenditures: National defence, railway acquisitions from the foreigners, domestic and foreign debt

9. Agriculture • Reforms in • Taxes • Credits • Land ownership • Taxes: Abolition of the tithe. (Aşar vergisinin kaldırılması.) • Credit: For irrigation, fertilizers, seed, technical education. • Land ownership: Land for landless farmers; laws for private land ownership. • 1927 Census of Agriculture

10. Industry • Sanayi ve Maadin Bankası (1925) • Sanayi Teşvik Yasası (1927) • Gümrük Saptama Serbestisi (1929). • Incentives: • Land offer for the manufacturers • Tax exemption • No fee for communication, energy • Reduced rates in transportation of goods • State aid

11. 65000 manufacturing firms • 44% food • 24% weaving • 22% mining, machinery

12. Services • Restructuring • Nationalization of railways • Railways were not effective tools for industrialization but was helpful in advancement of trade

13. Foreign Trade, 1923-1932 (Current Prices, Million TL) Source:Bulutay,T.,Tezel,Y.S. ve Yıldırım N., age. Table 9.5 and 8.4A.

14. Foreign Trade Price Ratios,1923-1932 (*) Fs=Export;Fa=Import Prices Index Source:Price Indexes a)Bulutay,T..,Tezel,Y.S. ve Yıldırım,N..,age. Table 52. b)Ministry of Commerce, Ministry of Commerce and 50 Years,s. 48 vd.(Average Price Per Ton)

15. Export/Import Ratio and Foreign TradE 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 Source:Table III.3

16. Number of Students ,1923-1934(1000) Source: TUIK, Türkiye'de Toplumsal ve Ekonomik Gelişmenin 50 Yılı, Ankara 1973, s. 456 vd. and Ministry of Education Statistics.

17. National Income, 1923-1932(Current Prices,Million TL) Note:Numbers in parantheses shows percentage shares Source:Bulutay,T. Tezel,Y.S. Yıldırım,N.age,Table:8.2A

18. The Period of Etatism (or Statism) in Turkey

19. Why a statisT approach for the economy? • The failure of the policy implemented during 1920s which had given priority to the private sector has made it inevitable for the government to intervene in the economy. • Falls in the production and income levels in leading sectors of the economy.

20. “Shortage of foreign exchange” due to the decrease in exports to the countries facing depression. • Constraints on the imports of intermediate goods and fall in the national production due to the shortage of foreign exchange. • Increase in unemployment. • A worldwide consensus about the necessity of government intervention to cope with the depression.

21. Developments in the fields of money-credit and public finance 1.Stable development until 1938. 2. Monetary expansion during World War II.

22. Developments in the Money-Credit System • Increase in the money supply is less than the increase in national income between 1930 and 1939. • Since the upward move of the money supply is slower than that of the national income, a contractionary effect has taken place. • As a result , the wholesale price index (TEFE in Turkish) has not increased until the years of the war.

23. Increases in required reserves (“yasal karşılıklar” in Turkish) were used to control the money supply and inflation rates accordingly. • However, during the war, increase in the money supply has surpassed the increase in the national income (which is opposite to the prewar period). • Increases in inflation rate were observed as well. • Excess supply of money was given as credits.

24. Developments in Public Finance • Etatism in industrialization. • Between 1933 and 1938 greatest part of the revenues was provided by indirect taxation and invested in industrial projects. • In this epoch, balanced budget has been adopted in principle which has led to a surplus in the budget.

25. The share of indirect taxation in budget expenditures has decreased. • The share of direct taxation increased by imposing taxes on wealth and land. • Government revenues are spent as transfer expenditures rather than industrial investments.

26. Private capitalist groups emerged. • Domestic borrowing strategy followed during the years of war.

27. Aims of the Statist Policy • Creating a balance between public expenditures and income. • Creating a foreign trade surplus by imposing restrictions on imports.

28. Statist Industrialization Policy • The commencement of the statist policy dates back to 1934. • The main purposes of the plan: • Construction of an industrial production system based on agricultural production and natural resources. • Domestic production of imported goods. • Diminishing the physical distance between the sources of factors of production and the place of incorporation for the firms in the economy.

29. The statist industrialization policy aimed to establish national industries for knitted clothes and textiles, mining products, paper products, and chemicals. • Statist industrialization program was conducted through relying mainly on indirect taxation which would not increase the domestic or foreign debt.

30. Agriculture • During the implementation of the statist policies the ratio of the farmed lands has increased. • Interest rates for the bank loans given by the Ziraat Bank has decreased and transactions has been eased. • “Toprak Mahsülleri Ofisi” was founded within this period.

31. Mining and Energy • MTA and Etibank were established in 1935. • MTA was responsible for mechanical issues such as searching, mining and extracting the ores and/or training the miners or other personnel whereas Etibank was fulfilling certain financial tasks such as buying and selling of the mines. • Besides, Etibank was given other crucial duties such as producing and distributing electricity which was then an irreplaceable source of energy. • Though a considerable progress has been experienced in mining and energy sectors, some unfavorable factors such as low yield per worker due to lack of advanced technology and capital investments, deficiencies in processing the mines or raw materials, and high costs of producing electricity have deteriorated the positive picture.

32. Industrial Structure • The basic characteristic of the manufacturing industry during that epoch is that it has focused primarily on the production of consumer goods. • The most prominent progress was seen in the sector for knitted clothes and textiles. • Substantial part of the mining and manufacturing industries has taken advantage of the “incentive law”. • In this era, iron and steel production plants have been constructed in Karabük, and cement production has increased.

33. Considerable number of workplaces were centralized on the agricultural industries and textiles. • Indicators like production per workplace or number of workers per workplace were in favor of the mining industry. • However, forestry products, textiles and construction sectors have recorded the highest values when it comes to the share of labor. • Similarly, mining products, paper products, chemicals, and constructing industry have given the highest share to the wages from the value added in comparison with the other industries. • Mining, construction and other manufacturing industries have had the highest average values for “çevirici güç” per sector.

34. Foreign trade • The main purpose was to prevent trade deficits. • While doing so, 1. Imports of the goods produced domestically have been restricted. 2. “Imports in return for exports policy” was adopted. Restrictions on imports have been relaxed this way. 3. Turkey’s sole trade deficit within the 1933-1945 period was seen in 1938.

35. National Production • Rapid growth in national production has stemmed from the developments in the industrial structure. • National income has continued ceaselessly to grow during the years of war, except for 1945.

36. Social Developments • A great deal of progress has been shown in literacy rate. • Villiage Institutes have been developed to improve the literacy rate and educate qualified labor. • A “labor law” has been enacted to regulate the labor hours in a week, thus women and small children 16 or under have been protected. .