1. 1 Etatism in the Turkish Economy, 1930-1945

2. 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. 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. 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. 5 International Developments USSR: planned economy Speedy industrialization Close relation with Turkey USSR provided credit and technical help to Turkey

6. 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. 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. 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. 9 Industrialization with Etatism 1 st 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. 10 Industrialization with Etatism 1 st Five Year Industrialization Plan in 1930 –The aimed production covered 44 % of imported goods (industrialization with etatism through domestic production of imported goods) 2 nd 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 2 nd World War

11. 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. 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. 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. 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. 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. 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. 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 (chrome mineral 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. 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