econ 401 lecture 6

8/3/2019 Econ 401 Lecture 6

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Struture of Turkish Economy

Lecture Notes 6

Alper Duman

November 2011

Alper Duman

Struture of Turkish Economy Lecture Notes 6

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1946-1953: Liberalization Unconstrained and Integration

to International Division of Labor

Capitalist class had accumulated sufficient power to challengethe CHP’s one-party system after the WWII.

According to Istanbul Chamber of Commerce, 1041 new firrms

joined the Chamber in 1941 and 956 new firms joined in 1942. That capitalist bloc cracked the social basis of CHP, that

social basis consisted of corporatist but fragile amalgam of buraucracy, landlords, merchants, military and theintellectuals.

The capitalists wanted an unconstrained market economy.

The Second Congress of Economics held in 1947 wasinstrumental in this regard.

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Ironically multi-party system and democracy meant thatpopulism would be an essential part of politics

Democracy and capitalism had a fragile marriage.

The dynamics of capitalism and the class interests of thecapitalists had to clash with the popular demands of themasses

Ideology and culture played vital roles in the reproduction of the regime.

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September 7 Decisions of CHP was an attempt to appeasethe more powerful capitalist class.

The radical wing of CHP was eliminated; S. Aydemir and I.Hüsrev helped to prepare a Five-Year Plan for Industrialization

The proposals for land reform had to be discarded

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Devaluation of TL, removal of restrictions on imports andprice controls were welcomed by the capitalist bloc as well asthe western countries, especially by USA

The Turkish lira was devalued in August 1946, from TL 1.28

per U.S. dollar to TL 2.80 per dollar The long-term close relationship with USA started in 1946,

when US declared that an old debt of 100 million $ wasforgiven.

In the following year, 1947 Turkey along with Greece wereincluded under the Truman Doctrine.

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The immediate consequence of Truman Doctrine was

accession to OECD; then acess to credit Within the period of 1946-1950, Turkey obtained substantial

foreign aid and long-term credit, amounting to 391 million $.This amount was greater than the cumulative total credit and

aid of last 23 years. In return, USA made sure that public funds would be

reallocated from industry into agriculture and construction.

An adviser to the then State Secretary of US, MaxThornburg, explicitly reported that the credit and supportwould only be provided if Turkey left statism and let privateenterprises flourish

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Was the switch to foreign-influenced-liberalism reallyinevitable?

At the end of the WWII, Central Bank had FX reserves worth250 million $

In 1946 alone, trade surplus reached 100 million $

The benefits of FDI were overrated.

Then, why did the business and political elites opt forliberalism?

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However, the commitment of DP to free enterprise waspragmatic. In 1950 when Menderes gained power and henceEtatism theoretically ended, 63 per cent of value-added inTurkish industry originated from private firms and 37 per cent

from SEEs. By 1960 when Menderes government fell, 52 percent of industrial value-added originated in the private sectorand 48 per cent in the public.

Rent redistibution was more important.

Remember Vatan Street, Millet Street and İzmir shoreline

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The main line of support to agriculture was mechanization

The number of tractors increased from 1756 in 1948 to37,743 in 1954.

Cheap credit and technical support was also essential.

The area of actively used agricultural fields increased 9 millionhectares in 1949 to 13.2 million hectares in 1954.

The total production of wheat increased from 2,265 tones in1949 to 6,210 tones in 1955.

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The agricultural exports went up by 50 % from 1950 to 1953.

The GDP growth rates were phenomenal; 12.8% in 1951,11.9% in 1952 and 11.2% in 1953.

Nevertheless, fixed capital formation could not be raisedsignificantly. In 1953, as a ratio of GDP it mereley reached12%. The growth was due to agricultural expansion.

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The cumulative trade defcit was as big as 500 million $ within1946-1953 period.

Import dependency became a structural feature of the Turkish

economy. Almost one-fifth of all fixed invesments was financed by

foreign sources.

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The number of workers covered by Labour Law (1947) wentup from 329.5 thousand in 1948 to 556.5 thousand in 1953.

Unionization rate followed a trend of growth; from 15.8% in1948 to 25.2% in 1953.

However, still the unions were denied the right of strikes.

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The bureaucracy lost. Their share of salaries went down from

8.3 to 6.6 percent at the end of the period. Urban workers’ wage share also declined relatively; share of

compensation in value added decreased from 38.9 to 32percent.

In eight years an average farmer could increase her householdincome by 46.5 % according to the calculations of Nur Keyder.

Despite the relative price movements, thanks tomechanization and public investment in agriculture the ruralfamilies had benefited from this period.

This era was the Golden Years of farmers. They lovedMenderes.

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Why did İsmet İnönü agree to the liberalist project?

How did the Korean War influence the foreign trade patterns?

Which Banks were established during this era? Which

business groups were the founders? How did the agricultural production increase?

In which aspects the early Menderes period was similar to thecurrent era of AKP?

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econ 401 lecture 6

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