THE TURKISH ECONOMIC DEVELOPMENT SINCE 1923:
ACHIEVEMENTS AND FAILURES
Güneri AKALIN·
THE ECONOMIC RECOVERY AND THE AGE OF ETATISM (1923-1950)
Turkey is a country who has been trying to develop herself since the
beginning of the nineteenth century. The fırst development efforts were made
almost two hundred years ago when Japon was a closed and underdeveloped
country. This fact shows us that Turkey's development had not begun with the
declaration of the Republic. Unfortunately the foundation of Turkish Republic
in 1923 had coincided after a series of wars such as: Libyan War (1910-11)., The
Balcanic Wars (1912-13), World War i (1914-18), The War of Independence
(1919-1922): Hence the economic heritage of the Ottoman Empire was not so
rich. The reasons were not only the lost wars,. but also the state of
underdevelopment. .Although Turkeyand Austria both lost their empires in the
early 1920's, their level of economİc development were extremely different.
THE ECONOMIC RECOVERY YEARS (1923-1933)
To give an idea about how poor an how underdeveloped Turkey was in the
early days of the Republic, one can look at the (Table 1) for population, GNP
and the GNP per head of Turkey. The GNP per head is calculated with both
current prices and constant prices (1938) interms of U.S. dollar.
It is understood that the GNP per capital had increased almost 30 %
between 1923-1935 and the welfare of average Turkish man had been doubled
between 1923-1950 period. The increase of population during the recovery
period (1923-1930) was rather high: it was about 2.1 % and the population had
been doubled between (1923-1950). During the (1923-1930) period, the average
rate of growth in GNP as around 9.6 % which was a high growth rate: 1
Especially the economic performance of Turkey before the great depression
years was satisfactory because the increase of the GNP needed only to restore
the production factors which were destroyed by the wars. But yet it is
questionable whether the level of economic activity returned back to the prewar
years. At the end with the impact of the great depression , the economy became
stagnant in 1930s.
•
1
Professor of Department of Finance, Hacettepe Universty.
W. Hale, The Polltlul and Econo.le Del'elop.ent or Modem Turkey, London, Croom Helm, 1981, pp. 4647.
Turlt:ish Public AdntUtistnıtiotAıınu4l, Vol.20-21, 1994-1995
TURKISH PUBLIC ADMINIS1RATION ANNUAL
92
Table 1
Turkish Population, GNP and GNP per Head Between (1923-1950)
Years
1923
1927
1935
1940
1945
1950
Population
12.582.000
13.648.000
16.158.000
17.821.000
18.790.000
20.947.000
GNP ($) (million)
Constant (1938)
Current
622.614.370
197.7
264.8
758.350.100
810.743.900
1.123.0
1.741.594.000
1.529.4
4.175.419.800
1.092.1
3.708.678.500
1.760.3
G NP per Head ($)
Constant
Current
43.6
40.0
55.6
52.0
50.2
69.2
97.7
85.9
222.2
58.1
177.1
84.2
Sources: Bulutay-Ersel- Ytldmm. Türlciye Milli Geliri. Ankara. SBF. 1974. W Hale, The PoIiIical and Economle Development of
Modem TurlcIy. London. Croom Hebn. 1981 DİE İsIIltistik YıUığı 1974. Thomburg. TurlcIy. Newyork. Greenwood Press.
1968.
it is also useful to look at the composition of labour force and the GNP by
sectors (Table II) during (1927-1950) period to understand how slow was the
economic development. This table also shows us that Turkey as a peasant
society in the past and nowadays still nearly half of the population is living in
rural area. Hence Turkey can not transform herself yet from an agrarian society
to, an industrial economy during the last seventy-fıve years of the Republic.
Table 2 Composition of the GNP and the Labour Force by Sectors as %, Between (1927-1950) in Turkey Sectors/ Years
Agriculture
Industry
Services
TOTAL
1927
80.9
8.9
10.2
100.0
Labour Force
1950
1935
76.4
77.7
11.7
10.3
11.9
12.0
100.0
100.0
1927
41.7
13.7
44.6
100.0
GNP
1935
35.4
18.1
46.5
100.0
1950
37.3
16.5
46.2
100.0
The reasons about the economic stagnation during the 1930s were firstly
the shrinkage of Turkey from an empire to a national state i.e. the loss of
markets such as Syria, Iraq, Lebanon, Palestine, Arabian peninsula. Secondly
the exchange and the exodus of population i.e. natiye Greelcs and Armenians so
on. Thirdly Turkey lost her primitive capital accumulation and
enterpreneurships in a great extend with the exodus of these minorities. 2
Especially the port towns like İstanbul, İzmir, Trabzon, Samsun, Mersin lost
their economic activities so far that: it is argued that for example Samsun or
Trabzon had been never recovered again. 3 Even there were no blacksmith, for
2
3
Max Weston Thomburg et al, Turkey: An Economic Appraisal, New York, Greenwood Press, 1968, pp. 22-23.
K BelZeg. 'Tek Parti Despotizminin Ekonomik Temeli: Devletçilik ve Samsun Ometin, Yeni Fonım, Aralık 1994,
pp. 29-30.
mE TURKISH ECONOMlC DEVELOPMENT SINCE 1923
93
the Turkish cavalry during the Independence War because Armenians and
Greeks left the country: Hence with the Soviet aid a blacksmith school was
opened in Ak§ehir. 4 So Turkey lost not only population but also the most of
trades, enterpreneurship, capital and marketing capabilities, inside and outside
of Turk~y. Therefore the liberal attitude of İzmir Economic Conference and İts
results were not implemented because the lack of market responses. Fourthly
the abolishing of capitulations which brought in the tariffs and cotas, cabotage
rights, nationalization of foreign firms and capital, created a closed and
protected economy which isolated Tuırkey from the World Market.
Unfortunately economic nationalism under the banner of struggle against
imperialism and the economic conditions of great depression almost ruined
economic structure which was inherited from the Ottoman Empire; because the
old economy was built up under the conditions of free trade zones. The collapse
of the old economic structure; due to the economic protectionism, nationalism
and population exchange, created an economic vacuum. Even the liberals and
the people who had close connectİons with world were not appreciated in this
closed economy. Hence either they gaye up their ideals and joined the etatists or
they left Turkey such as Halide-Adnan Adıvars, Rauf Orbay and Fethi Okyar for
a long time. These were the condiJions at the beginning of etatİst era.
THE AGE OF ETATISM (1933-1950)
The influence of the USSR and her "economic success" in a closed planned
economy made an impact on the Turkish government who was struggling against
the collapse of Emperial Economy. Prime Minister İnönü'ss visits to the USSR
had convinced him to use same methods such as planning and state enterprises
for the pace of economic development. Also the support of left wtng
intellectuals such as Kadro Periodical has to be mentioned6 The first industrial
plan (1933-1938) was prepared by Prof. Orlov and his team who were Soviet
experts and financed mostly by Soviet economic aid. Textiles, cement, paper,
sugar and iron work industries were established during the first plan.
Without any doubt the Etatism was not only the pragmatİc consequence of
economic collapse but also an ideological choice for establishing a modern
economy. They were perfectly aware of that; it was an political option too. 7
Recep Peker the gen,eral secretary of the RPP (CHP) claimed that" We were
successful founding the army which defeated the enemy why can't we establish
the industry too? ".8 Hence the RPP promised to build up a classless and
privilegeless society to the nation and etatism became a constitutional rule. The
4
S.t.Aralov, BirSovyet DipIOIBatının Türkiye Hatıralan, (Çev. H.Ati Ediz), İstanbul, Burçakyayınevi, 1967, p.107. S
Z Y.Herslag, Turkey the Challenge or Growth, London BıiII, 1968, pp.6 ı ·76. 6
O.Okyar, "The Concept of Etatism", Economic Journal, March 1965, pp. 98-112. 7
8
Unönü, "Fırkamızın Devletçilik Vasfı", Kadro Mecmuası, Teşıinievvel1933, pp.4-6. Fenız Ahmad, 'The Political Economy of Kemalism", Atatürk: Founder or a Modem State, Kazancıgil.Özbudun (eds.) London, C. Hurst, 1981, pp. 145·165.
TIJRKISH PUBLIC ADMINISTRATION ANNUAL
94
first state economic enterprises (SEE) were the Sumerian Bank (Sümerbank)
which was responsible for industrilisatİon and Hittite Bank (Eti Bank) which
was responsible for mining.
Unfortunately the tariffs, the nationalisation and the Etatism were not only
a hinderance againsr the foreign capital or the minorities and the levantens but
also emergence of the Turkish bourgeoisie. The trade in big port cities
decreased and an industrialisation via import substitution in a closed economy
with the SEEs had been started by the state. Yusuf Ak'Tora who was a refugee
from the Russian Empire stated that " Anation may not exist if she is made up
only by officials and peasants.'
Unfortunately the monopolization of the political and economic powers in
the hand of the govemment, inevitably brought in a authoritarian government
model which was thought essential for the reforms in backward and conservative
country. Atatürk himself was an enterpreneur who had the Business Bank (~
Bankası) and he was a modern farmer also.He had contacts with business life
and the people so Atatürk himself was not satisfied with the economic and
political performance of the government, he dismissed İsmet İnönü and his
cabinet and appointed a market-oriented'banker Celal BayarlO as prime minister
in 1937. Unfortunately Atatürk died in 1938 so he had probably no opportunity
to carry on his economic reforms towards a market economy.
The social characteristics of the era were a very high illiteracy rate such as
90 % in 1923 and 80 % in 1930 and rather a high rate of population increase jll:8t
more than 2%. The economic characteristics of this age were: Firstly the import
substitution, began with basic needs of the nation which means the neglect of
comparative advantages of the economy. Secondly the direct foreign investments
were not allowed. Thirdly planning and public sectors (SEEs) were preferred to
a market oriented economy.
The outbreak of Second World War, so the war economy was another
obstacle against the development of market eco nomy. The govemment took
other measures, beyond the Etatists policies such as; the Capital Levy (Varlık
Vergisi) and the National Protection Act (Milli Korunma Kanunu). The first
measure, the Capital ~vy was a squeezer of capital accumulation in the private
hands and it was implemented in a discriminatory manner against minority
businessmen. u The second measure was an obvious intervention to market
mechanism and the bureaucrats tried to regulate it. Also the rationing policies
during and after the war have to be mentioned. The etatism plus these acts of
the govemment not only retarded the development of market economy, but also
became an obstacle to the emergence of Turkish bourgeoisie and the process of
nationalization of Turkish people and their economic development.
,
lbld, 10 C,Bayar, Ben De Yazdı.., İstanbuL, Yükselen Matbaası, 1966, 11
Faik Ökte, Varlık Vergisi Fadası., İstanbul, 1951, THE TURKISH ECONOMIC DEVELOPMENT SINCE 1923
95
THE ERA OF MıXED ECONOMY
The period of the mixed economy years are divided İnto tWo sub periods
namely the Democrat Party's decade (1950-1960) and die Planned Economy
Period (1960-1983). These are the two different periods but their common
characteristic İs the growth of public sector with the help of establishing the new
public enterprises (the SEEs).
THE DEMOCRAT PARTY'S DECADE (1950-1960)
The Democrat Party was the political representative of the emerging
Turkish bourgeoisie and farmers: Hence it had liberal ideas such as free
enterprise, market economy, private property. Beyond that the real touch of
economic development and extention of welfare to the masses of people, began
with the Democrat Party due to four reasons: 12 (i) The structure of Democrat
Party was made up the classes who claimed economic development such as
enterpreneurs, farmers so on. (ii) American economic aid began with Democrat
Party years including capital investments (iii) American and European technİcal
help was made available to traİn Turkish staff for economİc development. (iv)
Korean War boom provided a good opportunity to Turkish export.
Meanwhile the lack of capital market with shortage of enterpreneurs and
political advantages forced the Democrat Party to carry on using the SEE's as a
means of İnvesment and economic development. u The SEE's are very useful in
terms 'Of party politics in a rent seeking economy. Hence these are the years
which Turkish people met with public deficits as the cost of financing economic
development. Ooce again monopolization of economic and political powers,in
the hand of government retarded the development of market economy and the
Democrat Party lost her ideals, about private enterprises and market forces.
The trends of this era were: A very high but still rising population growth
rate above 2 %, the rate of illiteracy less than 70 % and the people lived in cities
25 % of population. (Table III) shows some economic indicators about the
Democrat Party period (1950-60). The last column, the wholesale prices index
. indicates us that the collapse of market economY'was inevitable and it had sunk
in 1958 due to inflatİon. 14 Hence the İmpact of inflation on the income
distribution was so enourmous especially on the salaries of government officials,
not only market failed but also the state collapsed too. Therefore Turkey lost
both political and economic stabilities.
12 William Hale, op.eit., pp. 86-113.
13 Güneri Ahım. KİT Ekonomisi, Ankara, pp. 412-413.
14 MOnls Singer, "The Significance and the Changing Role of Government in the Development of a MİXed Economy:
The Case of Turkey", The Mixed Economy, M. Hiç (ed), İstanbul, i. Ü. İktisat Fakültesi, 1979, pp.169-20.6.
TIJRKISH PUBLIC ADMINISTRAlION ANNUAL
96
Table 3 Population, GNP, GNP per head and Wholesale Prices Index, The Rate of Population Iııcrease GNP($)
GNP per head ($)
Pop.
Wholesale
Years Population
1950 20.947.000
1960 24.065.000
1970 27.755.000
Current
3.708.678.500
7.521.500.000
5.440.331.100
Constant
Constant Growth Price
Rate Index
(1961)
Current (1968)
177.1
204.6
2.17 100
3.165.686.600
263.2
2.77 131
4.304.711.110
312.6
5.549.022.200
196.0
286.3
2.85 263
The main economic characteristics of era were; (1) The saving ratio was
less than 15 % of GNP, the growth rate was above 6 % (2) Public deficits and
infiation tax were used to finance the public investments (3) The great majority
of yoters were free riders which created public deficit as a method of income
transfers for peasantıy and tradesman (4) The public sector namely the SEEs
went on to grow (5) Democracy and the poverty of masses which created high
aspirations and free ri der problem were responsible for infiation and public
deficits: So they produced a politically unstable economy (6) The agricultüral
support prices become a political issue, it retarded the turn of the internal terms
of trade, against agriculture. (7) The market economy was committed by the
government first time in the economic histoıy of Turkey. (8) The Turkish
enterpreneurial class, began to emerge as industrialists and merchants (9)
Progressiye but secterian income and corporation taxes were introduced which
were veıy harmfuI, for the market incentives and especially for the accumulation
of capital1! (10) The import substitution and .protectionism were the policies
towards the industrialization (11) The comparative advantages of the economy
were ignored at foreign trade İn a closed economic development modeL.
The achievements and failures of the Democrat Party at the economic
development can be summarized such as: The achievements are; the Democrat
Party's intention to transform the etatİst economy to a market economy was
right. Besides to start an economic development which covers the masses with
the infra -structure investments16 created a base for the operation of market
forees. The support for emergence of Turkish enterpreneurial class was asound
policy towards a market economy. The failure of the Democrat Party was the
entegration of state and market by increasing the size of public enterprises.
Another mistake was the using infiation, as a method for financing the
development which eventually ruined market Le. price system. The government
also failed to understand the importance of the comparative advantages and the
cost of a closed economy at the world market. The mixed economy Le. not to
separate market and state brought in a rent seeking society and political
15 Kenan Bulutoğlu, Kamu Ekonomisine Giriş, İstanbul, Sermet, 1969, pp. 300-395.
16 Osman Okyar, 'The Mixed Eoonomy in Turkey", The Mixed Eeonomy, op. cit, pp. 77-167.
THE TURKISH ECONOMIC DEVELOPMENT SINCE 1923
97
corruption. Instead the rewards should be distributed by competition in a
market economy.
The Democrat Party was not aware of that democracy needs a
decentralized market economy.17 The increasing the size of public sector via
setting up new public enterprisese, indicated that the Democrat Party had no
strong comrnitrnent to her liberal programme.
The Democrat Party years were ended by a miHtary push in 1960 with some
tragic consequences due to economic and political instabilities.
THE PLANNED YEARS (1963-1983)
The indicatiye planning became a constitutional rule in 1961 and the
planning· was compulsory for the public sector which produced half of the
industrial output. One may call the planning period the return of a covered
etatism (=planning+public enterprises) i.e. a development attempt in a closed
economy with the state initiative.
As Z. Herslag indicated: 18 The starategies of 1960s and partly also those of
the 19708 restored the fundamental concept of the 19308, still based mainıyon
the industrialization drive and inward orientation (that is import substitution)
policies, supported by a high degree of protectionism. In the past this method
somehow might be seıved to diversification of the economy, improved external
balances and consolidation of the sprit of economic and political independence.
Although these aimS' of planning and planning itself versus market mechanism
are debatable but Turkish economic planning had similarities with Soviet
planning just like Indian Planning such as aimed autarchy, giving priorities to
industry and especially investment goods neglecting agriculture and impot
substitution so on. Planners ignored absence of scales, under utilized capacities,
artificiaI price structures, unrealistic exchange rates and low productivity in
agriculture. Unfortunately not only Turkish planning failed in the Iate 19708, but
also Soviet and Indian plannings also failed at the same period. The economies
which rejected the gains of international market so the division of labour lost
their comparative advantages hence couldn't survive after the oil shock.
if we look back to the planning experience; its expectations were rather
naive. The First Five Year Plan (1963-1967) summed up the next fifteen years
targets such as;19 "to train outstanding experts and scientists in every field of life,
to provide the 7 % rate of economic development, to solve unemployment
problem, to set up a balance in foreign payments and to reach aU these targets
accordingly with the principle of social justice." Firstly the feasibility to İnteıvene
a market economy by the state was questionable. Secondly there was no
intention to deve10p a market economy and to increase the factor of
17
18
19
F. Hayet, 'The Road to Seddolll, London, Routledge, 1944, pp. 42-.53.
Z Y.Herslag. 'The Conte.porary Turkish Econo.y, London, Routledge, 1988, p.21.
DPT, Kallon•• Plana: Birlnei
Yıl, Ankara. DPT, 1963, p. 33.
ae.
98
TURKISH PUBLIC ADMINIS1RATION ANNUAL
enterpreneurship but rather to train experts and scientist. Thirdly the planners
were not aware of the population bomb so they expected to solve the
unemployment problem besides to bringa balance of payments in foreign trade.
Neither of them were reached yet the most successful performance was the
growth rate was around 6.5 % between (1963-1978).20
Turkey implemented four plans between (1963-1983) the first plan (1963­
67), the second plan (1968-72) the third plan (1973-77) the fourth plan (1978­
83). After the 1979 economic crises, the 24th January 1980 economic stability
programme was introduced but there was another military takeover. The year of
1983 was the beginning of Turgut Özal's period which was the starting point to
transform the planned economy, to an open market economy. The planned
years began with an investment ratio 16.3 % of the GNP and ended up with 20.7
%, the average growth rate was less than 5 %. This shows that the performance
of Turkish economy between (1978-1983) was rather unsatisfactory. The period
was ended up with a very high inflation rate above 100 % and a negative
economic growth -2.8 % in 1980. The 1980-83 years were the years of drastic
economic stability measures which were taken by the military regime. 21
The prices were distorted by several reasons such as:
ı. Firstly setting up wages above the market level by the trade unions with
collective bargainings. (monopoly pricing)
2. The determination of agriculturaI support prices above the world prices
by the government (political prices)
3. The price of capital was kept low with the help of state banks credits i.e.
low interest rates and the fixed foreign exchange system (subvention).
These distorted prices were transformed to this planned and closed
economy through the public enterprises with their pricing policy of cost plus
approach. 22 The results were inflation, unemployment, balance of payment
deficit and negative growth rate so the collapse of the mark~t order and the
economy. Turkey was a closed and planned economy but she was operated in a
world market so she wasn't able to neglect world prices forever. The market
order was introduced to Turkish economy in each crises with a balance of
payment deficit and her economy was regulated by the IMF for economic
stabilization.23 For example in 1963 at the beginning of planned years, Turkish
export was less than 400 billion $ in current terms and at the end of the planned
years in 1982; it was 5.746 $ but the trade deficit was 3.097 billion $. The oil
shock showed how fragile this closed and planned development model, such as:
in 1979 the Turkish export was about 2.261 $ which was less than the trade
20
21
22
Z Y.Henlag, o"ciL, p.l04. lbld. pp. 91.124. Z Y.Henlag, o"ciL, p. 22. 23 Bela Blassa et a~ Turkey: Priees and Prosped ror Growth, Volume I, IBRD, Official Report, 1979, pp. 24·30. TIIE TURKISH ECONOMlC DEVELOPMENT SINCE 1923
99
deficit and it was barely enough to payonly the oil bill of the economy. In the
twenty years of planned period per capita GNP was almost doubled in constant $
terms but it was arather a low rate of growth; if we compare it with th rate of
geowth in the export-oriented open economies such as Korea, Taiwan so on.
Table 4 The Main Economic Indicators of the Planned Years (1963-1983) GNP ($) Million (1000)
Population
Years
1963
1965
1970
1975
1980
1983
(looo)~
28.933
31.391
35.605
40.348
44.737
47.864
Current
7.422.3
8.525.1
9.951.3
36.323.4
75.757.1
62.200.8
Constant
(1968)
9.354.2
10.040.8
13.936.1
20.153.7
22.154.7
24.946.0
GNPperhead
Total
Constant Investm. Growth
Current (1968)
Ratio
Rate
257
315
16.3
7.7
272
321
4.4
16.3
395
280
20.4
6.1
7.9
900
503
22.45
21.37
1693
553
-2.8
1299
20.68
623
4.2
The most interesting plan w~ fourth plan which covered the period of
(1979-1983). it was prepared by the B. Ecevit's Government aimed to reduce the
size of private sector and it set up the 8 % growth rate target but it was a
complete failure. Even at the first year of its implementation; the emergence of
a negative growth rate with a record high infiatİon which forced to change the
party at the power through the elections. The attempt to transform the mixed
economy to a semi-socialist economy also created a havoc and some protests by
the TUSİAD ( Turkish Industrialists and Businessmen Association) and the
Association protested the government with the advertisements at the
newspapers first and last time in the Turkish economic history.
if we look at the intellectual background and the preparations of the
planned years and the etatist age, there are great similarities such as: Kadro
Journal and Yön Review shared the same ideology İ.e. socia~sm24 and their
programmes for the development of Turkish society which failed in practice in
both period. Anyone who is interested in intellectual view about the planned
years; D. AVCioğlu's "The Order of Turkey"ıs (Türkiye'nin Düzeni) gives a good
idea of this elitist approach of the Turkish left in the past. The tradition which
comes from the Union and Progress Party i.e. the elitist and centrally organized
development model and its implementation by the state completed its mission
with the end of mixed economy years.
J. Landau, Radical Politics in Turkey, Leiden, Brill, 1974, pp.49-64.
ıs Doğan Avcıoğlu, Türkiye'nin Düzeni, Ankara, Bilgi, 1969.
24
100
TURKISH PUBLıe ADMINISTRATION ANNUAL
We can divide this period into two subperiods such as Mr. Özal and the
Motherland Party years and the True Path Party years (or the Economic Crises
Years).
TURGUT ÖZAL AND HIS REFORMS (1983-1991)
Strangely enough Mr Özal was an explanner who advised and implemented
reforms transition to a market economy from a planned-mixed economy.u So
Turkey moved almost a decade earlier, towards a market economy than the
Soviet Block.
Özal's refoms can be counted such as: (1) Convertibility of Turkish Lira (2)
Giving up the price controls of the government (3) Liberalization of imports (4)
Ending all prohibitive measures for holding or transfering foreign exchange (5)
Making capital market operational (6) Introducing the VAT (7) Supporting'
export and exporters (8) Introducing privatization programme (9) Reducing the
powers of the SPO (the State Planning Organization) (10) Decreasing the size
of public sector investment (11) Claiming to reduce the size of the public sectoro
it is obvious that all these measures were aimed to create a market
economy; but as the 1994 economic crisis proved us, either these efforts were
not enough or he made some mistakes too. His mistakes were:
(i) Çontiniuning to public sector deficits as a means of financing economic
development i.e. the inflation tax (ii) keeping the increases at the price of'
foreign exchange lower than the rate of inflation for financing the public sector
deficits and the balance of payment deficits with the hot money policy İ.e. by
foreign capital (iii) failing to change the distorted factor pricing such as; high
wages and low interest rates.
He was not successful about the converting voters to income taxpayers. if a
great majority of voters are free riders, public deficits and inflation are a
political demand for income transfers; so no one can cotrol inflationary
pressures. 27 Beyond that he was not successful at the' collective bargainings with
the trade unions keeping real wages low enough; to increase domestic savings
İ.e. his income policy failed. In addition although privatization was in his agenda,
but it was not implemented. He was elitistjust like other Turkish reformers and
he couldn't think that the real designer of the monetary and fiscal policies wasn't
himself, but the majority of voters i.e. free riders who were against any decrease
at their level of consumption.
The (Table 5) shows the developments {)f economic indicators between
(1983-1991) years. (i) The first success of Turgut Özal depended upon the
26 Turgut Özal, "Açı§ KonU§masl", 3. İzmir iktisat Kongresi Açış Koo...-alan, Ankara, DPT, 1993, pp. 19-29.
27 James Budıanan, The Polilleal &oooıııy orWelfare State, Stockholm, lIESR. 198, pp. 12·13.
THE TURKISH ECONOMIC DEVELOPMENT SINCE 1923
101
increase the saving ratİo (SN) at the beginning of his period which was almost
doubled: But this was due to a shift of income from wages and salaries to profits
which had. political limits. Mr. Özal lost the local elections in 1989 hence he had
to change his income policy which increased the public deficifs, lowered the
saving ratio and created a higher inflation. (ii) Another field of his success was
exports: In 1983 Turkish export was 5.727.832 $ but İn 1991 it was 13.593.500 $
so it was İncreased 2.4 times with dollar terIDS.
Unfortunately he increased the rate of inflation from 25 % to 60 %.
Anyone who doubled the rate of inflatİon and reigned an economy with a 60 %
infiation, his achİevements are questİonable because his monetaıy and fiscal
policies İ.e. his interventions eventually ruined the market order. His success
was more visible at the solution of historical foreign exchange shortage; because
it is an economic problem. He failed at the problem of public deficits i.e.
inflation, because it is a political problem The infiatİon in Turkey is not a
monetaıy but a political problem which is created with public deficits by the
demands of the yoters who are actually free riders. 28 Unfortunately he was not
aware of it.
Table S
The Trends of Economic Indicators Between (1983-1991)
GNP ($) (1000)
Yeal"S
1983
1984
1985
1986
1987
1988
1989
1990
1991
Population
(1000)·
Current
47.864
62.175.336.
49.070
60.748.660
50.306
68.214.936
51.433
76.480.871
52.561
87.671.748
53.715
90.939.495
54.893 108.633.240
56.098 152.306.070
57.326 152.143.200
Constant
(1988)
52.793.992
55.939.800
58.807.714
63.571.188
68.329.300
70.796.370
75.422.982
78.761.592
79.109.880
GNP ($) per head
Domestic
Constant Savings Growth
Current (1993)
Ratio
Kate
4.2
1.299
2.162
16.5
7.1
1.238
2.258
17.37
1.356
2.298
18.9
4.3
1.487
2.399
21.8
6.8
9.8
24.0
1.668
2.578
2.559
25.4
1.5
1.693
2.545
1.979
26.0
1.6
2.715
2.724
23.5
9.4
2.654
2.675
22.9
0.4
The overail evaluation of his period as the rate of economic growth 5.1 % is
rather satisfactoıy besides it was achieved during the various reforms towards an
open market economy.
THE ECONOMIC CRISIS YEARS (1991-1995)
After the 1991 general election Turkey was led to an economic crisis in
1994 gradual1y but warnings were not heard.
28 James Buchanan, Constitutional Economics, Oxford, Basit Blackwell, 1981, pp. 10S-1 10.
102
TURKISH PUBLIC ADMINISTRATION ANNUAL
The similar reasons produced economic crisis in 1994 as they did in 1971
and 1980 such as the increase of PSBR ( public sector borrowing requirements)
provided a high level of inflation: But the government's policy to reduce the rate
of İnterest and keep the foreign exchange rates increases lower than the rate of
inflation which created huge foreign trade deficit: The foreign trade deficit was
14 billion $ in 1993 which was almost equal to the export of the same year. The
traditional economic crisis mechanism is in Turkey such as ; the public deficits
creates inflation and inflation produces foreign trade deficits so the shortage of
foreign exchange stops the production. z9 The economic crisis broke out in 1994.
As it is mentioned before the problem is about Turkish economy lies in
public finances: There are almost 40 millions voters but only 7 millions income
taxpayers. Hence the baııot machine is nothing more than an income transfers
from taxpayers to the majority of voters who are free riders. The PSBR is
nothing more than a tool for income transfer to the majority of voters which is a
cause for the internal price distortions such as; the agricultural support prices
and the wages in the public sectoro (Table 6) shows the trends of economic
indicators at the period of 1991-1995. if prices are distorted, especially the real
wage is set above the market level by unions and government's over
employment or the agricultural prices are kept above world prices or the cheap
state credits determine the price of capital low then there İs always a cost of
these interventions in terms of the PSBR and inflation and foreign exchange
shortage. Hence the price distortions up set the macro balances. 3o The PSBR
was 12.1 % of GNP in 1993 and the same year the wholesale price index was
120.7 % and eventually a devaiuation took place as 300 % in April 1994.
Although the political causes the free ridership creates the economic crisis,
it was never solved: But the economic crisis were tried to be engaged by
economic measures. The devaiuation, rising the interest rates, increasing the
taxes and prices of public enterprises are temporary measures which have
political limits. Besides so me mismanagements of the economy also contributed
to the last economİc crisis. Such as: (i) Reducing the interest rates for the sake
of decreasing te rate inflation in Autumn 1993. (ii) Changing the income tax law
for taxing the interests on bank deposits. (iii) Keeping the increases of exchange
rate lower than the inflation (iv) Failing to implement the privatization
programme due to political conflicts so on. Unfortunately the result is the
record high inflation rate 120 %, 10.5 % unemployment and a fall of GNP 6 %
and so the economic crisis broke out in the Spring of 1994. The consequences of
the stability measures namely the 5th April 1994 Programme are doubtfuL The
inflation rate is over 90% and the economy begins to grow with an inGreasing
balance of payments deficit.
Z9
Bella Blassa et al, op.cit., pp. ı 64-167. 30
Merih Celasun, "Geli§me Stratejileri ve Makro Politikalar: Panel", 3. İzmir İktisat Kongresi, pp. 301 ·306. lliE TIJRKISH ECONOMlC DEVELOPMENT SINCE 1923
103
Everyone is aware of that the timing of the stabilization programme was
wrong Le. the implementation of a stabilization programme barely 1.5 year
before the electİon was a very short time span for its success. Hence the
government lost her confidence with the local electİons results during the
implementation period; so the government made a U turn, İncreased the money
supply whİch raised the İnfiatİon and increased the PSBR. For example, in
March 1994 money supply was 64 trillion TL. but in September 1994 it was 118
triHion TL.31 Therefore the rea! stabilizatİon programme İs postponed after the
general election whİch wiıı be held İn 24th Dec. 1995.
The problem whİch wiH be faced by the government after the election İs not
only stabilization programme but a question of struttUfal change. Turkish
economy is not transformed yet from a so caııed mixed economy to a market
economy. These are the figures about the economic size of goverqment (Table
7).
Table 7
The Size of Public Sector in 1994
The Production of the SEEs / GNP
The State Budget /GNP
Local Government Budgets / GNP
Funds
Social Security Premiums
Revolving Capitats (Döner Sermaye)
10%
37%
3.3 %
4%
2.2%
0.1 %
56,3%
We can add to these totalother expenditures such as public trusts and the
taxes in kind Le. military service so on. Hence the size public sector İncreases
towards 60 %. if we look these figures, the share of state is 60 % and the share
of market is 40 %. Turkey is stiıı lagging behind the ex-socialist countries such as
East Germany and Hungary to transform herself a market economy. The
rehabilitation programme of Turkish economy should have two sub
programmes: (i) The more important one is economic reconstruction i.e.
transforming her to a market economy (ii) and an economic stabilizatİon
programme.
THE PROBLEMS AND ACHIEVEMENTS OF TURKISH ECONOMIC
DEVELOPMENT
PROBLEMS OR FAILURES
(i) The main failure of Turkish economy is lagging behind the her
competitors: in 1950 Turkey competed with Greece, Spain and Portugal and she
31
DPT, 1995 Vılı Geçi, Programı, Ankara, DPT, 1994, p. 78.
104
1lJRKlSH PUBLIC ADMINISTRATION ANNUAL
was defeated in terms of per capita income. Then in 1970s Turkey competed
with Korea, Taiwan, Malaysia and she lost the competition. So Turkish
economic retardation continiued even during the period of Republic and Turkey
has to change to this course.
(ii) Turkey's choice as apıanning mechanism was not right. it was proved in
theory and in practice that market mechanism which operates with competition
is more efficient even in terms of develoing countries. Competition and market
incentives were not taken into consideration in the past i.e. during the planned
years.
(iii) The preference of planning mechanism eventually was completed with
the SEEs and a vast public sector which is not productive in terms of creating
resources for development due to lack of profit incentive and ownership plus
ageney problem. The etatism also retarded the development of the nation
because preventing emergence of Turkish bourgeoisie.
(iv) The neglect of seperation state and market created the mixed economy
which produced waste and inefficies: it is a kind of socialism which Mr. Özal and
Mrs. Çiller time to time mentioned but they couldn't transform this so called
mixed economy to market economy because of vested interests. The
monopolization of the economic and political powers in the hand of government
created not only waste but corruption too.
(v) The preference of planning and public sector imposed import
substitution as a method of industrialization in an almost a closed economic
modeL. This model provided inefficiencies such as giving up comparative
advantages, economies of scale and underutilization of capacities and
unemployment. Turkey is isolated from division of labour in international which
determines total factor productivity.
(vi) The earlyintroduction öf the İncome and the corporation taxes with a
high progressivity played a destructive role on the market incentives. Hence
these taxes were used to finance the public sector expenditures which were·
inefficient. 31
(vii) So high progressivity and marginal rates forced the private sector
hidden itself İn the informal economy and they kept the firms in small scales.
The tax burden with other regulations such as social security premiums on small
firms are almost destructive, hence it is impossible to accumulate capital and
became a registered firm in the formal economy.
(viii) Turkey created a democraey which the great majority of yoters almost
80 % are actually free riders. They vote for income. transfers through public
deficits which are the political roots of inflation in Turkey. Agricultural support
31 Güneri Akalın, "VII Be§ Yıllık Plan Döneminde Vergi ile İlgili Yapısal Ddzenlemeler (Report for Planning
Commission)", Vergi Dünyası, Haziran 1995, pp. 98-110.
1HE TURKISH ECONOMIC DEVELOPMENT SINCE 1923
LOS
prices, wages and interest in public sector are the political prices that distort
price system in Turkeyand theyare used for income transfers. Turkey can not
solve the PSBR and the inflation problem without converting her yoters to
income taxpayers besides colleeting user charges in the public sectoro Hence the
balanced bu4get must be an aim for the economic and political stability.
(ix) Turkey failed to achieve a privatization programme İn the last deeade
and it may be so in the near future. There is a coalition of vested İnterests
against the privatization programme. The trade unions, workers, farmers, left
wing parties, politicians and even judges are against a full scale privatization
programme.Also the reduction in the size of state i.e. public expenditures
beyond the privatization programme almost was not implemented at alı.
(x) The Central Bank is not a autonomous body and money supply is
controlled by politics. There should be a criterion for the increase of supply such
as the growth rate of the GNP. Although the statue of the Central Bank was
changed for providing a degree of autonomy but the majority of the directors of
the board and the president of the Bank are appointed by the government.
(xi) Turkey was too Iate to develop a capital market to finance her industry
but she was too early for granting monopoly powers to the trade unions in the
labour market. Hence the operations" of market forces are retarded by in both
factor markets which are very important for economic development.
(xii) Turkey's commitment to seeularism, created a neglect to develop a
social ethic which is neeessary operation of any economic system. The economic
development and economy itself are thought only in terms material values in
Turkey: Yet the process of development can not be achieved only with the profit
motive and it needs beliefs also. The economic development was started by
Protestant societies who wanted to transform this 'imperfeet world' to the
heaven. Turkey needs to develop a social ethic which win be·helpful to her
development and the social ethic is a social good in an economy.
(xiii) Turkey must set up certain limits to internal and external debt which
creates economic instabilities. The total debt of govemment must not exceed the
GNP and the state borrowings must be restricted only with the infrastructure
investments. The consumption and transfer expenditures of state should be
financed by only tax revenues because they have no capabilities of return.
(xiv) At last, the rate of population growth is so high that mass
unemployment hence the income inequalities are unavoidable. Population İs an
external variable- to any economic model,buethe poverty of people makes them
free riders.Therefore the great majority of voters demand public deficits which
are means of the income transfers outside the market. Hence it is extremely
difficult developing a market economy with the market discipline, in an
economy which has a high rate of population increase: So the resu1t is poverty,
unemployment and the demand for government intervention to market by baııot
box for the sake of social justice.
106
TURKISH PUBLIC ADMINIS1RATION ANNUAL
ACHIEVEMENTS
The solutions of problems in Turkish economy could take time. it is
obvious that these problems are partly due to structural deformations, partly due
to under development and partly due to inaccurate economic policies. Yet the
real results of the Turkish economic development experience will be realized in
the first half of the rtext century. Hence it is very early to evaluate any process of
development before a century long. Although the economy has some problems
but it is developing at the right direction towards a market economy. Integration
with the European Union is another reason for being hopeful. The per capita
purchasing power is above 5.000 $ in Turkey which is still an achievement. The
competitiviness and the flexibility of informal sector are the other sources of
dynamism which helped Turkish economy overcome the economic crisis. Turkey
is investing more than 20 % of the GNP and she has a growth trend S % and the
rate of population begins to fall from 2.5 % to 1.6 % . Whether this economic
growth is sustainable depends upon solution of the problems which were
mentioned above: Tax reform, privatization, developing the market economy,
integration with the E.U., reducing the size of public sector, curbing the powers
of the trade unions, separating state and market, providing social ethic which
makes market system operational so on..
CONCLUSION
if we evaluate the data of this survey , we may reach certain conclusions
:The gap between developed economies and Turkey is not reduced in terms-of
percapita GNP in the last fifty years of the Republic . The Turkish percapita
income is almost less 10 % of the developed countries such as the USA ,
Germany Japan so on. hence the state couldn't satisfy the aspirations of the
na tion which were raised by promises of the politics.
The poverty is not the only problem .the inequality at the income
distribution creates radical politics and social disturbances . Yet the reason
which causes inequalty is the high rate of population growth, such as above 2 %
Hence the accumulation of young workers at 'the lowest income groups
produces poverty so inequality. The economic history of the world has not been
witnessed to the development of an economy which the population increases
rate like 2 %.
The vicious circle of poverty and inequality ean be broken in two ways .
Either to reduce the population growth rate around 1 % or to increase saving
rate around around 30 % of the GNP. Another possibilty is to engage with both
targets but Turkey has not achieved to broke the ,vicious circle of poverty yet.
Any nation who wants to survive in the XXI. century with a pereapita income
around 2.500$ running a quite serious risk. Hence backwardness as
underdevelopment of Turkish economy and inequality of its income distribution
emerging as a national security risk.
mE 1URKISH ECONOMIC DEVELOPMENT SINCE 1923
107
Another problem is the method of financing economic development such
as inflation tax. The data shows us that Turkish Economy has a growth trend
around 5 % in yearly bases. Any effort to raise this annual growth rate only
creates inflationary pressures because the lack of real sayings.The inflation also
disturbes operations of market forces. Therefore Turkey must make a choice
between market mechanism, price stability and inflation, growth. Actually the
price stability and growth are not conflicting target variables. In the long run the
growth of an economy needs price stability and market order. Turkish people
may realize this fact.
Lastly the size of public sector which is around 60 % of the GNP must be
halved. The data shows us that the economİc size of the state is enormous so it
creates waste. This is the starting point of economic reforms which may
transform. The Turkish economy to a market oriented, competitive and open
economy. Turkey must increase the supply of enterpreneurship and capital
(savings) to overcome the vicious circle of underdevelopment.
i believe that Turkish economic development could gain an acceleratİon
under the umbrella of the E.U. in a democratic context towards a powerful
market economy like Italy or Japan: So she may catch these competitors in the
next century which she missed them in the last.