Transcript 1 Etatism in the Turkish Economy, 1930

Etatism in the Turkish Economy,
1930-1945
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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
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Domestic Developments
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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
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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
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International Developments
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USSR: planned economy
Speedy industrialization
Close relation with Turkey
USSR provided credit and technical help
to Turkey
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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
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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
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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
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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
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Weaving (cotton, wool)
Mining (iron-steel)
Paper
Chemical (rose oil, sentetic silk)
Stone, soil (glass, cement)
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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
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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
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Developments in Other Sectors:
Agriculture
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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
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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
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Developments in Other Sectors:
Mining and Energy
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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
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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
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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
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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
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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
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