The Political Economy of Turkey

Zülküf Aydin

• Publisher: Pluto Press
• Year: 2004
• ISBN:
  9781783719464
• Edition: 1
• Topic: Economics
• Subtopic: Economic Policy
• Index: Economics

Since the 1970s, Turkey has faced some of the most serious crises since the Republic was established in 1923. This book analyses the political and socio-economic problems faced by Turkey in recent decades and the country's gradual integration into the global economy. Social unrest, political and ethnic violence, paralysis of the state bureaucracy and other institutions, increasing foreign debt, decreasing economic growth, vast inflation and increasing unemployment have all been part of everyday life in Turkey's recent history. Zulkuf Aydin argues that this state of affairs is symptomatic of a deeper, more enduring crisis arising from the way in which Turkey has been integrated into the global economy. Looking at democracy, repression, the military, the Kurdish question and regional inequalities, civil society, human rights and Islamic fundamentalism in Turkey, he shows how Turkey has become reliant on foreign investment and international financial institutions, offering a broader critique of globalisation in this light.

1

The state

INTRODUCTION

This chapter looks specifically at the changing nature of the Turkish State since the establishment of the Turkish Republic in 1923, and in particularly since the 1980s. The underlying idea behind this is that the state is the locus of a struggle to redefine the relationship of a society to international capitalism. The unenviable position of the Turkish State in trying to please different and often competing demands of various classes will be highlighted. The state must inaugurate a process of accumulation which somehow reconciles (or chooses between) the demands of peasants, workers and civil servants, etc. on the one hand, and the realities of foreign capital domination and world economic forces on the other. It will be maintained that in the early days of the Republic, the state was used as an instrument to create a local bourgeoisie under a very strict authoritarian bureaucratic rule. Throughout the history of the Republic, the state has been confronted by the simultaneous need to promote capital accumulation, sponsor a ruling class and legitimise class rule. Until the 1980s, populism, nationalism, developmentalism and foreign aid had enabled the state to carry out its difficult tasks. When there were difficulties of legitimacy, the military came to the rescue. However, further integration of Turkey into the global economy in the 1980s necessitated the abandonment of the primary principles of populism, nationalism and developmentalism. Export oriented industrialisation and export orientation of agriculture meant the main principle that underlined the state policies was to be that of the free market economy. The new industrial elite who came to control the state apparatus in the 1980s had a vested interest in liberalising the economy along the lines imposed by global capitalism and its organisations like the IMF and the WTO. The shift from a nationalist state apparatus to a liberal one has not been smooth under a crisis-ridden economy and society.

STATE INTERVENTION IN TURKEY

The Turkish State emerged from the ashes of the Ottoman Empire, which collapsed in the aftermath of the First World War after a long period of decay under European influence. The newly established Republic (1923) had the mammoth task of reconstructing the economy, which was almost completely ruined as a result of the Empire’s integration into the world capitalist system as an open market and supplier of raw materials (Avcıoğlu 1968; Keyder 1981; Yerasimos 1975).

The dominant elements in the mainly agrarian economy inherited by the young Republic were merchants and landlords. As the economy was characterised by the export of agricultural products and the import of manufactured goods ever since the 1838 ‘free trade treaty’, agriculture was the ‘primary channel of integration into the world economy’ (Keyder 1981). The influence of merchants and landowners on the state is quite evident in the policies followed between the establishment of the Republic in 1923 and the Great Depression of 1930. A large number of measures were taken to commercialise agriculture and increase its productivity. On the other hand, the state attempted to industrialise the country through joint investment with foreign capital as well as through the establishment of State Economic Enterprises in the aftermath of the world depression. Large scale import substituting industrialisation (ISI) type production units were established by the state with a view to complementing private enterprise rather than supplementing it.

The world recession of the 1930s provided an opportunity for the new Republic to follow inward-looking development strategies during what is generally referred as the étatist period (1930–39). The relative freedom from external influence in this period enabled the nationalist Kemalist regime to establish import substituting industries in textiles, sugar, cement, paper, mining, etc. Through the introduction of five-year development plans, the state guided the economic growth in both industry and agriculture with little reliance on external sources (Kepenek and Yentürk 1994:60–79). Through significant internal borrowing and taxation, the state managed not only to establish what was going to be the backbone of the Turkish industry in the coming years but also to develop the infrastructure and transportation facilities. In the étatist period the state’s active involvement in capital accumulation and investment in economic enterprises took private interests into very careful consideration. The state entered into economic areas where private enterprise failed or was not strong enough, such as the building of infrastructural establishments, main industrial institutions, electrical power stations, railways and the iron and steel industry. The burden of capital accumulation on internally financed industrialisation was shouldered by the masses. On the other hand the private sector was given every encouragement in their capital accumulation process.

Various class interests were represented in the newly established national assembly and big landlords were still a powerful group within the state. However, due to the state’s encouragement and support of private investment between 1923 and the 1950s, the industrial bourgeoisie did increase its strength, though not becoming a dominant force within the state. A significant point to make is that the governments since 1923 have had no intention of eliminating the entrenched interests that had been instrumental during the independence war (1918–22) instead they have followed strategies that help the nascent bourgeoisie to accumulate wealth and capital and take a leading role in industrialisation and development. It must also be emphasised that there was no unified interest among the various sections of the bourgeoisie. The different class interests represented within the state were a significant factor, among others, in the abandonment of a single party system in favour of a pluralistic democratic system in 1950.

The Second World War represents a watershed in the history of the new Republic. During the war years, a new mercantile bourgeoisie emerged through black marketing, profiteering and corruption allowed by the shortages of goods and increasing prices (Kazgan 1999:94). The new bourgeoisie consisting of rich landlords and merchants played a significant role in the opening up of the Turkish economy, which had remained largely closed to external influences since the Great Depression of the 1930s. The landlord and merchant power block that gradually came to control the state hoped that western capital and technology would further intensify their interest and power.

Turkey faced a major dilemma in the aftermath of the Second World War: how to reconcile the aims of nationalistic industrialisation necessitated by the Kemalist principles which had governed the state since the 1920s with the pressures put on the country by the designers of the new world order to integrate with the world economy through the liberalisation of its international trade. Though very appealing, the adoption of trade liberalisation meant compromising the efforts to reduce the country’s dependence on foreign sources of finance. For about four decades after the Second World War Turkey struggled between the opposing choices of trying to keep its relatively independent course of industrial development and further integration into the global economy through liberalisation. Policy-makers found it very difficult to completely relinquish the idea of an ‘organically integrated national economy’ which was deemed to be a sine qua non of an independent economy. However, Turkish policy makers were not in a strong position to pursue the notion of the organically integrated economy; a child of the first Five Year Development Plan of 1933 (Tekeli and İlkin 1982).

The 1950s witnessed the strengthening of Turkey’s integration into the world economy. The new government elected in 1950 made every effort to take advantage of the aid bonanza in relation to the reconstruction of Europe. This desire was facilitated by the international conjuncture of the post-war period in which the US attempted to establish its hegemony at the expense of the Soviet Bloc. The fact that the Soviets demanded land from Turkey in the aftermath of the Second World War forced the Turkish State to seek western aid. At any rate, the US wanted Turkey to be part of the New World economic order being created. It was not a coincidence that Turkey was allowed to take advantage of military aid within the framework of the Truman Doctrine and economic aid through the Marshall Plan. Despite the fact that Turkey had not been actively involved in the Second World War, the US did not hesitate to let Turkey benefit from the money allocated for the reconstruction of Europe. In the same vein, Turkey joined the IMF and the World Bank in 1947, the IFC in 1956 and the IDA (International Development Association) in 1960. Other International institutions Turkey joined following the Second World War include the ILO (International Labour Organisation), GATT, OEEC (Organisation for European Economic Co-operation) and OECD.

By joining western institutions, Turkey was gradually moving away from the étatist policies which had marked the period between the world recession and the end of the Second World War. Both internal and external pressures existed to gradually relinquish étatist policies. The desire of the big merchants and landlords to have access to foreign capital could not have been met as long as the state continued to have strong control over the economy. This preference was partly the result of the economic and political expediency that forced the state to follow policies that adjusted the economy to the changing international conditions, and partly due to the influence of the US and the World Bank on the state. The Soviet threat for Turkey’s security coupled with the US’s desire to contain the expansion and the influence of the Soviets in eastern Europe were quite conveniently in place for Turkey who was suffering from severe balance of payments problems. Turkey’s strategic importance for the US was the main factor behind the leniency with which aid was provided to Turkey through bilateral and multilateral channels. However, the US administration would not play into the hands of the Turkish Government by providing funds for industrialisation. Instead both the US and the World Bank insisted that priority should be given to agriculture, in order to take advantage of Turkey’s comparative advantage. Furthermore, the US and the World Bank strongly recommended that the role of the state in the economy should be reduced and measures should be taken to lure foreign capital into the country (US State Department 1948; Thornburg et al. 1949; World Bank 1951).¹

Obviously the recommendations of the US and the World Bank would not have mattered at all if there were not political and economic groups in Turkey who were already against heavy state involvement in the economy and thus were prepared to introduce changes to lead to the liberalisation and privatisation of the economy. From the early 1950s onwards, the Democratic Party Government shelved the industrialisation policies envisaged by the 1946 Five Year Development Plan and introduced a set of policies to pave the way for the liberalisation of the economy and to emphasise agricultural development as the engine of the economy. As a result, Marshall Aid came to Turkey and ensured that Turkey played the role of food and raw materials supplier in the new international division of labour.

In conjunction with western aid and Turkey’s participation in liberal organisations like the GATT, some of the principles of the ‘integrated national economy’ were compromised but not entirely abandoned. Protectionism still continued to be fairly strong until the 1980s in the form of import substitution. The state oscillated between liberalisation and protectionism for about three decades from the late 1940s. Even liberal business people did not see any problem with protectionism as long as it facilitated capital accumulation in the private sector (Sunar 1974). To a large extent it was the US defence considerations during the cold war that forced the US to be lenient in giving aid to Turkey, in conjunction with the Marshall Plan, and giving Turkey room to continue to follow protectionist industrial policies (Hershlag 1968:150–160). The fact that throughout the 1950s Turkey aimed at obtaining as much foreign financial help as possible without due considerations for a ‘sound fiscal policy’ was to get the country into trouble with the international finance institutions. The IMF and the World Bank in particular were concerned that Turkey was using foreign funds to avoid adjustments to achieve economic stability (Yalman 1984). In the World Bank’s view, the resultant decline in saving rates, chronic budget deficits and over-valued exchange rates were signs of using foreign funds for postponing adjustment rather than facilitating it (World Bank 1985). The resistance of Turkey to implement liberalisation policies to the letter led to the deterioration of relations between the country and the Bretton Woods institutions in the middle of the 1950s, yet these institutions did not have sufficient power at the time to impose their policy preferences on Turkey. The attempts to reconcile the objectives of industrialisation and adjustment in the late 1940s and the 1950s produced incoherent policies as far as reliance on foreign resources and liberalisation were concerned. The prerequisites of the regime’s desire to westernise clashed directly with the aim of reducing dependence on foreign economic resources. Therefore the attempts to speed up industrialisation were of an ad hoc nature and justified the label ‘planless industrialisation’ (Yalman 2001:147).

As the 1950s were a period of expansion of world capitalism, foreign capital came to invest, in co-operation with Turkish capital, in luxury consumer goods. A highly protected and thus profitable internal market contributed to the development of assembly industries in Turkey. In proportion with the rise in importance of the domestic market, the private sector moved into the industrial sector while the state sector concentrated on the production of intermediate commodities as inputs for the private sector (Gülalp 1983:51).

Despite the growing importance of the industrial classes within the state and political parties, the exigencies of the Turkish election system forced governments to follow populist policies, through which the state attempted to please various interests that were in conflict with each other at times. This is very clear in the agricultural pricing policy. Although in the long run the state tried to ensure a transfer of resources from agriculture to industry, short-term political considerations prior to elections resulted in high floor prices for certain crops. In short, the class configuration in Turkey did not allow the state to follow a coherent industrial policy as no single class could control the state on its own. This was also reflected in the composition of the state bureaucracy. The Turkish bureaucracy, particularly in its higher echelons, was not free from the influence of various factions of the dominant classes. With every change in government, high level bureaucrats would be changed thus preventing the formulation of long-term policies.

ECONOMIC POLICIES IN THE 1950s

A string of economic measures introduced in the 1950s included: the devaluation of the Turkish Lira, the slackening of import quotas, the importation of agricultural technology, the encouragement of foreign capital investments, state guarantees for external borrowing by the private sector, permission to foreign companies to search for oil and refine it within Turkey, the establishment of the Turkish Industrial Development Bank to extend cheap foreign currency credits to private investors, the liberalisation of imports by 60 per cent, and attempts to privatise some of the state economic enterprises.

The economic programme of the Democratic Party in the early 1950s was geared to attract foreign capital through a series of measures aimed at opening up the economy. Some of the measures introduced did not seem to work, as investment capital failed to come in to the country in significant amounts. However, the amount of foreign capital in the form of short or long-term credit lending did reach such levels that a financial crisis emerged in 1958 which necessitated a request to the IMF to start a rescue operation (Kazgan 1999:97–108). The stabilisation programme aimed to control inflation and increase exports through monetary measures, price controls and reorganisation of the trade regime. However, the ensuing devaluation did not increase the export earnings, and the availability of short-term trade credits further exacerbated the balance of payments problems.

Western recommendations concerning the priority to be given to agriculture and the minimisation of the state in the economy were not followed in a systematic way, as the state did not hesitate to abandon them when it deemed it necessary. The striking thing about the so-called ‘free market economy’ policies of the 1950s was their haphazard and ad hoc nature. Policies were introduced but were not followed through. Only the external borrowing aspect of the ‘free market’ programme seemed to be working. The opening-up of the economy became limited to official aid, import credits and other commercial credit, which fuelled imports. In the 1950s, Turkey’s integration into the world economy was largely limited to partial liberalisation of the import regime based on short-term borrowing. Increased debt servicing from 1954 onwards started to wipe away a large chunk of the meagre export earnings.

Productive investment by foreign capital remained very limited following the measures taken to attract foreign capital in the 1950s. Although the optimists argued that the TNCs, which came to Turkey through licensing and know-how agreements, helped their Turkish partners to overcome their difficulties in technological, organisational and capital problems, direct foreign investment was restricted only to certain sectors. The incoming capital was mainly directed to joint ventures with Turkish partners. Foreign companies who invested in conjunction with law number 6224 (the 1954 Foreign Capital Incentives Law), in pharmaceutical, electrical, agribusiness, transport, consumer durables, petrol and petro-chemicals and banking helped their local partners in technology, capital formation and organisational problems. Well known TNCs like General-Electric, Pfizer, AEG, Sandoz, Pirelli, Unilever, Mobil, BP and Shell went into joint ventures with Turkish partners (Bulutoğlu 1970; Hershlag 1968; Kazgan 1999) but this represented only a small step in terms of the diversification of the economy.

Given that Turkey was not able to diversify its economy to increase export earnings, which had been based on a few primary commodities (cotton, tobacco, hazelnuts, raisins and figs) since the 1920s, a free market economy meant increasing debts. The foreign trade deficit, which stood at US$22.3 million in 1950, shot up to US$193 million in 1952, and by 1958 Turkey’s overdue debt was US$256 million (Kazgan 1999:101). The country’s inability to service its debt generated a crisis of confidence, which in turn reduced the amount of programme credits necessary for vital development needs. Turkey was forced to accept an IMF stabilisation programme in 1958, which extended a further US$359 million credit as well as postponing the overdue debts of US$420 million.

Although the ‘free marketeers’ came to power in 1950 they were not powerful enough to ensure a comprehensive liberalisation of the economy. Not only were étatists still a powerful force in the parliament, but also the nature of the economy did not lend itself to a wide-ranging liberalisation. To begin with, the economy was agrarian in nature and based on primitive technology. Second, the few state run industrial units in existence were not profitable enough to attract foreign take-over. Furthermore, these establishments were Kemal Atatürk’s legacy and no one would dare to completely transform them, as Kemalist ideology was deeply entrenched in Turkish society. In addition, the Government taken over by the Democratic Party in 1950 was not financially sound enough to carry out extensive reforms, which would have disrupted the already troubled economy. Therefore, throughout the 1950s, the Democratic Party oscillated between state intervention and ‘free marketism’. Despite attempts to liberalise the economy, state intervention in the economy still remained very strong. For one thing, the state was not able to sell most of the state economic enterprises to the private sector, as it lacked sufficient capital to buy. Furthermore, the private sector had become used to obtaining cheap goods and services from the public sector. The state was also expected to invest heavily in infrastructural development. Consequently, state involvement in economic investments did show a significant increase in the 1950–60 period.

State intervention in price formation, the rate of profits and foreign currency allocation and distribution became a daily event as a consequence of the failures in short-term debt servicing and in securing further external funds. The haphazard nature of state intervention generated a general instability in the economy. The envisaged plans and programmes were quickly shelved and newly introduced ones also suffered the same fate. In this vein, the promise to emphasise agricultural development in congruence with the principle of comparative advantage was soon replaced with policies giving priority to industrialisation. In this period of ups and downs only one thing was constant; the reliance on short-term external borrowing from both official and private sources. The US$1882 billion borrowed between 1950 and 1960 stimulated imports and further added to th...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Contents
• Acknowledgements
• Introduction: Globalisation, capitalist crises and Turkey
• 1 The state
• 2 Democracy, development and good governance
• 3 Cyclical crises since 1980
• 4 Agrarian crisis
• 5 Political Islam in Turkey
• 6 The Kurdish question
• 7 Conclusion
• Notes
• Bibliography
• Index