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Etatism in the Turkish Economy

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					  Etatism in the Turkish Economy




1933                    1938                 1945

       Etatism Period          War Economy
  Reasons of the Etatism Policy
• External Factors:

 ▫ Great Depression
 ▫ There was rapid industrialization in the USSR.
 ▫ Low export and import prices after the Great
   Depression
  Reasons of the Etatism Policy
• Domestic Factors:

 ▫ Falls in production and national income
 ▫ Serious falls in exports
    Foreign exchange bottlenecks
    Troubles in imports of raw materials
    Falls in employment
  Reasons of the Etatism Policy
• Domestic Factors:

 ▫ The need for domestic production of previously
   imported goods
 ▫ Private manufacturers were not successful
 ▫ The reaction to the CHF government in Anatolia
  Boratav, K. Türkiye’de Devletçilik
  s.143
• “... Yeni gümrük tarifesinin arkasına sığınarak dünya
  fiyatından birkaç misli yükseğe satan basit ve şımarık bir
  sanayi türemeye başlamıştı....İşte demir telleri keserek
  çivi yapan, çiviyi dış piyasa fiyatının on misline satan,
  milli sanayi olduğu için demir telleri de hammadde diye
  gümrüksüz sokan şu çivi fabrikası...”
  Boratav, K. Türkiye’de Devletçilik
  s.145
• “ .... Samsun’a geldiğimiz zaman başka yerde
  görmediğimiz bir manzara karşısında kaldık: Gece her
  tarafta fevkalade inzibati tedbirler alınmıştı. İstasyondan
  itibaren bütün yollar sürgülü askerler tarafından
  tutulmuştu. Bu suretle askerden ve polisten mada
  kimseyi görmeden, adeta bir düşman şehrine henüz
  giren bir kumandan gibi Gazi ve bizler otomobillerle
  Gazi’nin misafir edileceği konağa geldik.....” (1930)
  Definition of Etatism
• Moderates:
 ▫ Government should take action if private
   entrepreneurs fail to do something

• Radicals:
 ▫ Government must do everthing that ensures
   public interest
  Etatism in Turkey
• State-owned business enterprises

• The establishment and control of the economic
  life
  Etatism in Turkey
• 1932: The Soviet Committee headed by Prof.
  Orlof prepared the first report

• 1934: This report was accepted as the “First Five
  Year Industrialisation Plan”
  Etatism in Turkey
• First Five Year Industrialisation Plan:

  ▫ Covers the 1934-1938 period
  ▫ Industrial production must be based on agricultural products and
    natural resources
  ▫ Only exception: Industries that will provide high benefit to the
    society
  ▫ To substitute imports of consumption goods by domestic
    production
  ▫ The location of industry: Must be near to the natural and labor
    resources
  ▫ Priority given to: Textile, mining, paper, chemistry, glass and
    glassware, cement.
  Etatism in Turkey
• Second Five Year Industrial Plan:

  ▫ 1939- period
  ▫ Aim was to produce intermediate and investment goods
  ▫ Could not be put into practice because of the WWII
    Etatism in Turkey
•   It was financed by domestic resources (taxes)
•   High-technology
•   Production costs were low (limited worker rights)
•   Complements and encourages private sector
•   Import substitution (consumption goods)
    Etatism in Turkey: Results
•   Industrialisation started
•   Balanced budget
•   Trade surplus except 1938
•   Foreign firms that have privileges were liquidated
•   Railways were nationalized
•   State Economic Enterprises:
    ▫ Sümerbank, Etibank, Denizcilik Bankası etc.
    Agriculture
•   Distribution of state land
•   Area planted increased
•   1932/1938: Turkish Grain Board
•   Prices were volatile (domestic terms of trade)
•   Tax burden on agriculture
     Mining and Energy
• Importance given
• 1935: General Directorate of Mineral Research and Exploration
  (MTA)
    ▫ The institute was made responsible of carrying out the necesarry studies, chemical
      and technological analysis, in order to search and to find mining and stone beds,
      and then to determine whether they are appropriate for operation or not, and also
      to educate engineers, assisting personnel and qualified employers for the sector.
•   1935: Etibank
•   Mines were nationalized
•   1940: First oil well in Raman
•   Not efficient
•   Electricity production was deficient and costs were high.
  Industry
• Domestic demand was satisfied by domestic production
• Most successful industries:
  ▫   Textile (80% of domestic demand)
  ▫   Sugar (No need for imports)
  ▫   Cement (exported)
  ▫   Iron-steel
• Average number of workers:
  ▫ 1933: 47; 1939:84
• Problems:
  ▫ Increased import demand
  ▫ Agriculture-industry competition
    International Trade
•   Infant-industry argument
•   Clearing agreements
•   Trade surpluses except 1938
•   1934: Foreign Trade Office
•   Terms of Trade were against Turkey
  International Trade (million TL)
Year      Exports   Imports   Balance

1933       96,2      74,7      21,5

1938       144,9    149,8      -4,9

1939       127,4    118,2       9,2

1945       218,9    126,2      92,8
    National Income
•   National income increased by 9% on average
•   Pre-war period: Agriculture, Industry
•   Post-war period: Services
•   Income distribution problems
    1940-1945 Period
•   War economy
•   State of war: Loss of labor force
•   Reduced agricultural production
•   Reduction in tax revenues
•   Reduced imports
•   Increased military expences
  Capital Resources
• Money supply:
 ▫ Pre-war period:
    Rate of increase ≈0,5 % annual
    GDP Growth >5-6 % annual
    No inflation

 ▫ Post-war period:
    483,3 % increase
    Inflation
  Capital Resources
• Budget:
 ▫ Pre-war period:
    Budget surpluses
    70% indirect taxes

 ▫ Post-war period:
    Increase in direct taxes
    New taxes: Varlık Vergisi, Toprak Mahsulleri Vergisi
    Rise in government expenditures
  Measures
• 1940: National Protection Law
• 1940: Trade Office
• 1942: Wealth tax (Varlık Vergisi)
  ▫ Law No: 4305 “İktisadi şartların darlığından doğan güçlükleri
    istismar ederek yüksek kazançlar elde ettikleri halde kazançları
    ile mütenasip vergi vermeyenleri istihdaf etmekte ve içinde
    bulunduğumuz fevkalade vaziyetin icap ettirdiği fedakarlığa
    bunları da … iştirak ettirmek maksadını gütmektedir.
    Mükelleflerin mali (güçlerini) …halk mümessillerinden terekküp
    eden komisyonlar tayin edecektir.” (K. Boratav s.343)
• 1944: Soil Products Tax (Toprak Mahsulleri Vergisi)
Inflation
       Money supply increased
                 
        Production decreased
                 
             Inflation
  Inflation
• To cope with inflation:
 ▫ Price controls
 ▫ Government purchased agricultural products at
   low prices
 ▫ Distribution of basic intermediate goods was done
   by government

				
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