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.

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 inTaxesCreditsLand 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 manufacturersTax exemptionNo fee for communication, energyReduced rates in transportation of goodsState aid

65000 manufacturing firms44% food24% weaving22% 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/ImportExport/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 15,9Source: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)

Source:Table III.3

1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933

 Primary

schoolMiddle

schoolHigh

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

Agriculture

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)

Industry

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)

Trade

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)

Other Services

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)

Additive National Production

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

(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

Note:Numbers in parantheses shows percentage sharesSource: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.

Increases 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.

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. Creating a balance between public expenditures and income.

2. 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 1933-1945 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.

.