Class 3
 The
industrial revolution began in England at
the end of the 18th century, and then spread
around to other countries.



Germany had an industrial revolution 75 years
later;
Japan, 100 years
Ottoman Empire, 150 years later (Erkan, 1998:
204).
 The
mass production resulting from the
industrial revolution created its economic
system and also resulted in changes in the
political and social structures.

The economic heritage that the young Republic
took over was as follows:






Basic industry could not be established in the Ottoman
Empire, despite all efforts.
There was an economic structure in which manufactured
goods were imported and raw materials and foods were
exported.
There was no facility to process the mines. A significant
part of the agricultural products used in industry was
sold abroad, without being processed.
The industrial facilities were established by the
foreigners.
The production did not meet consumption.
The capacity usage ratio was low and the costs were
high
 There
is almost a consensus that the political
economy of Ataturk’s era started with the
Economic Congress in Izmir in 1923.
 When a break was taken in the Lausanne
Conference (15 February - 4 March, 1923),
the Economic Congress in Izmir was gathered
with attendance of 1,135 delegates.
 Young Turkey’s economic problems were the
main issue for the country which newly got
out of the battle.
 “There
can be no political independence
without economic independence and the
national sovereignty should be supported by
financial sovereignty”, Ataturk said in his
opening speech in the Congress.
 He also put forth the objectives in terms of
the economic policy:

"There is a reality left over from the filter of the history
and experience. If the history of Turks is examined, it
could be seen that the comedowns and breakdowns were
resulted from the economic reasons. All the victories and
failures are related to the economic conditions... Our
people destroyed the enemy’s armies. For total
independency, there is a rule: the national sovereignty
should be supported by financial sovereignty. The unique
force which will take us to this objective is economy. No
matter how great the political and military victories, they
cannot be enduring unless they are crowned with economic
victories. Who conquers with swords is doomed to be
defeated, and finally leaves his place to who conquers
with cultivators”
 the
period between 1923 and 1929 is called
the “liberal era” while the period between
1929 and 1938 is called the “étatism era”
Reference (and required reading for details regarding the
economic policy during the early Turkish Republic:
Takım, A. And E. Yılmaz (2010). ‘Economic Policy During
Atatürk’s Era in Turkey’. African Journal of Business Management
4(4): 549-554.
 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.
 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


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.
 1.
Capitalizations were abolished
 2. Foreign privileges
 3. Ottoman debt
 4. Customs measures
 5. War losses
 6. Population exchange
 7. Musul problem
 Comprehensive
revolutions
 Revolutions that cover both social life and
economic life
 This is the key idea through 1940s.
Trade Associations and Professional Unions
(Meslek oda ve birlikleri)
 Central Bank (Merkez Bankası)
 Hygiene Institute (Hıfzısıhha Enstitüsü)
 Community Centers (Halkevleri)
 Dil ve Tarih Kurumu

 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
 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
 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
 65000



manufacturing firms
44% food
24% weaving
22% mining, machinery
 Restructuring
 Nationalization
of railways
 Railways were not effective tools for
industrialization but was helpful in
advancement of trade
Export
Import
Deficit()/Surplus()
Export/Import
Export/Additive National
Income
Import/Additive National
Income
Foreign Trade
Amount
1923
85
145
-60
58,5
8,9
15,2
24,1
1924
159
194
-60
82,1
13,2
16,1
20,3
1925
192
241
-49
79,6
16,6
15,8
28,4
1926
187
235
-48
79,4
11,3
14,2
25,5
1927
158
211
-53
74,9
10,7
14,3
25
1928
173
223
-50
77,6
10,6
13,7
24,3
1929
155
256
-101
60,6
7,4
13,3
20,7
1930
151
147
+4
102,7
9,6
9,3
18,9
1931
127
126
+1
100,5
9,1
9
18,1
1932
101
86
+15
117,8
8,6
7,3
15,9
Source:Bulutay,T.,Tezel,Y.S. ve Yıldırım N., age. Table 9.5 and 8.4A.
Fs/Fa(*) (a)
Index
Fs/Fa (b)
Index
1923
1,53
100
0,79
100
1924
1,68
126
0,91
115
1925
1,5
113
0,88
111
1926
1,11
83
0,63
80
1927
1,19
89
0,69
87
1928
1,2
90
0,86
109
1929
1,15
86
0,88
111
1930
0,96
72
0,85
108
1931
0,96
72
0,56
71
1932
0,76
57
0,45
57
(*) 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)
1923
1924 1925
1926
Source:Table III.3
1927 1928 1929
1930
1931 1932
1933
Primary
school
Middle
school
High
school
Vocational school
University
1923
341,9
5,9
1,2
6,5
2,9
1924
390,4
10,1
2,2
7,1
3,5
1925
406,8
11,6
2,7
6,8
3,9
1926
235,6
15,6
3,1
6,3
3,5
1927
462
19,4
3,2
7,7
3,9
1928
477,6
23,2
4,2
8,5
3,8
1929
469,1
25,4
4,7
8,2
3,6
1930
489,3
27,1
5,7
9,1
4,2
1931
523,6
30,3
6,9
9,2
4,7
1932
567,4
36,1
7,9
7
5,3
1933
591,2
42,3
9,6
7,7
5,9
1934
643,4
43,8
9,8
8,2
6,6
Source: TUIK, Türkiye'de Toplumsal ve Ekonomik Gelişmenin 50 Yılı, Ankara 1973, s. 456 vd. and
Ministry of Education Statistics.
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
379,3
573,3
733
820,7
608,5
724
1 075,2
723,2
632,4
470,9
(39,8)
(47,6)
(48,6)
(49)
(41,4)
(44,3)
(51,9)
(45,8)
(45,5)
(40,2)
126,1
118,8
147,7
166,3
191,6
188,8
204,5
180,2
175,8
165,2
(13,2)
(9,9)
(9,7)
(10,1)
(13)
(11,6)
(9,9)
(11,4)
(2,9)
(14,1)
73,9
84,9
110
115,5
118,3
119,8
131,2
162,9
95,5
84,8
(7,8)
(7,1)
(7,2)
(7)
(8)
(7,3)
(6,3)
(6,5)
(6,9)
(7,2)
373,3
276,8
534,9
548
552,8
599,9
662,2
574,2
487,9
470,2
(39,29)
(35,4)
(35,1)
(33,2)
(37,6)
(36,8)
(31,9)
(36,3)
(34,7)
(38,5)
952,6
1 023,8
1 525,6
1 650,5
1 471,2
1 632,5
2 073,1
1 580,5
1 391,6
1 171,2
Additive National
Production
(100)
(100)
(100)
(100)
(100)
(100)
(100)
(100)
(100)
(100)
Chain Index
-
126,4
186,7
108,2
89,1
111
127
76,2
88
84,2
Agriculture
Industry
Trade
Other Services
Note:Numbers in parantheses shows percentage shares
Source:Bulutay,T. Tezel,Y.S. Yıldırım,N.age,Table:8.2A

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.




“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.
1.Stable development until 1938.
2. Monetary expansion during World War II.
 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.
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.
 Increases
 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.
 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.
 Private
capitalist groups emerged.
 Domestic
borrowing strategy followed during the
years of war.
1.
2.
Creating a balance between public expenditures
and income.
Creating a foreign trade surplus by imposing
restrictions on imports.
 The
commencement of the statist policy dates
back to 1934.
 The main purposes of the plan:
1. Construction of an industrial production system
based on agricultural production and natural
resources.
2. Domestic production of imported goods.
3. Diminishing the physical distance between the
sources of factors of production and the place
of incorporation for the firms in the economy.
 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.
 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.
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.


 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.
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.

 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 19331945 period was seen in 1938.
 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.
 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.
.