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Xerox University Microfilms 300 North Zeeb Road Ann Arbor, Michigan 48106 MASTERS THESIS 13-11,312

BAYAR, Yllmaz A ll, 1929- TURKEY'S ECONOMIC POLICIES: FROM STATISM TO A "MIXED ECONOMY" (1923-1973).

The American U n iv e rs ity , M .A ., 1978 Economics, general

University Microfilms Intemational, Ann Arbor, Michigan 48 ioe TURKEY'S ECONOMIC POLICIES: FROM STATISM TO A

"MIXED ECONOMY" (1923-1973)

by

Yllmaz A ll Bayar

Submitted to the

Faculty of the College of Arts and Sciences

of The American University

in Partial Fulfillment of

the Requirements fo r the Degree

of

Master of Economics

Signatures of Committee:

Chai rman :

Dean of the CdTlege /y. /f77 Date

The American U niversity

Washington, D.C,

1977

the AMEfilCAIf LflM /.r.- TABLE OF CONTENTS

INTRODUCTION ...... 1

Chapter I . HISTORICAL BACKGROUND ...... 3

A. The Ottoman Economic Heritage ...... 3 B. The Kemalist Revolution ...... 5

I I . THE FIRST TURKISH REPUBLIC (1923-1960) ...... 6

A. The Kemalist Economic Reconstruction ...... 6 B. Statism as a New Economic Policy (1933-1938) ...... 9 C. President Inonu's Economic Policies during the War Years (1939-1945) 10 D. President Inonu Continues Statism with Modifications (1945-1950) ...... 12 E. The Democratic Party Pushes Economic Development and Private Enterprise (1950-1960) ...... 13

I I I . THE SECOND TURKISH REPUBLIC AND THE CONCEPT OF A "MIXED ECONOMY" (1961- ) 22

A. The May 27, 1960 Revolution and its Economic Implications ...... 22 B. Economic Policies of the Inonu Coalition Governments (1961-1965) 25 C. The Justice Party and Prime Minister Demirel's "Progressive-Conservative" Policies (1965-1971) ...... 26 D. The Political Crisis of 1971-1973 and its Economic Consequences ...... 28 E. The Republican People's Party and Prime M inister Ecevit's "Left-of-Center" Economic Program (1973-1974) ...... 29 F. Prime Minister Demirel's New Economic Policies (1975- ) ...... 31

IV . THE TURKISH ESTABLISHMENT AND THE EMERGING STRUCTURE OF MODERN TURKISH SOCIETY ...... 33

A. The Ottoman H e rita g e...... 33 B. The First Turkish Republic ...... 34

n m

C. The "Establishment" T o d ay...... 35

1. The E lites ...... 35 2. L a b o r ...... 36 3. The Rural Areas and the Pe a s a n tr y...... 37 4. General Observations about the New E lite s...... 38

V. MAJOR ECONOMIC AND SOCIAL SECTOR DEVELOPMENT ...... 39

A. The Development Plan— Economic Sector ...... 39

1. Agriculture ...... 36 2. Industry, Mining, Power ...... 59 3. Transportation...... 63 4. Communications ...... 67 5. T o u r is m ...... 68 6. Urban Development ...... 69

B. Development Plan--Social Sector ...... 70

1. Population...... 70 2. Employment...... 71 3. Education ...... 72 4. Health and W elfare...... 74

C. F in a n c e ...... 75

1. The Financial System, Money and Prices ...... 75 2. Currency ...... 77 3. Domestic C r e d i t ...... 77 4. Financial Institutions and Banks ...... 78 5. National Budget...... 79 6. Foreign A id ...... 80 7. Balance of Payments...... 82

V I. THE FOREIGN TRADE REGIME...... 86

A. General Observations ...... 86 B. Principal Imports ...... 87 C. Principal Exports ...... 89 D. Trade Policy ...... 92 E. Trade P r o s p e c ts ...... 92 F. Economic Outlook ...... 92

V II. INVESTMENT IN TURKEY...... 94

A. Foreign Investment Encouragement Law ...... 94 B. Foreign Investment Climate ...... 96 C. The Petroleum L a w ...... 98 D. Extent of U.S. Investment...... 99 IV

V III. TURKEY'S BASIC ECONOMIC POLICIES— SUMMARY AND CONCLUSIONS...... 104

APPENDIX A. KEY ECONOMIC INDICATORS—TURKEY ...... 116

APPENDIX B. TURKEY AND THE EUROPEAN ECONOMIC COMMUNITY .... 118

CRITICAL BIBLIOGRAPHY...... 121

SELECTED BIBLIOGRAPHY...... 125

MAP OF TURKEY TABLES

1. Medium- and Long-term Growth Strategy (in % )...... 41

2. Macroeconomic Targets and Achievements, First (1963-67), Second (1968-72) Five-Year Plans (in %).... 42

3. Macroeconomic Targets of the Third Five-Year Plan (1973-77) (in % ) ...... 44

4. Number of Tractors, Selected Years ...... 53

5. Percent of Total Traffic (Rail and Road) ...... 65

6. Third Plan T ra ffic Forecasts ...... 66

7. Distribution of the Economically Active Population (15-64 y e a rs )...... 73

8. Growth of Employment 1962-1972 Rates (% per year) ...... 73

9. Balance of Payments (1970-1974) ...... 84

10. Turkey's Imports by Commodity (1970-1974) 88

11. Turkey's Exports by Commodity (1970-1974) 89

12. Turkey's Foreign Trade by Areas (1970-1974) 90

13. U.S. Exports to Turkey (1970-1974) ...... 91

14. U.S. Imports from Turkey (1970-1974) ...... 91

15. Firms Operating under Law 6224 with O rig in o f Foreign Capital (December 31, 1974) 102

16. Firms Operating under Law 6224, Capital by Sector (December 31 , 1 9 7 4 ) ...... 103

17. Approval of Foreign Investment Applications for Selected Years ...... 103 INTRODUCTION

On October 29, 1973, the Turkish people celebrated the 50th anniversary of the founding of the Turkish Republic. This was a time fo r evaluating the achievements of the Republic and assessing the prospects for the future.

This survey of Turkey's economic policies since 1923 stresses the fact that Turkey's economic policies over the past fifty years have been determined largely by pragmatic rather than ideological issues.

In the la s t f if t y years Turkey's basic economic po licies have changed from one of statism, which applied in an underdeveloped largely agricultural country, to a more suitable policy called "a mixed econoniy" more in keeping with the requirements of a developing nation with a rapidly growing industrial and commercial sector. The structure of Turkish society and Turkey's economic institutions have changed during the course of the last few decades so that today

Turkey has the infrastructure to support the requirements of a modern state.

This writer will try to trace the development of Turkish economic policy from 1923 to the present based on primary and second­ ary sources. In addition to public pronouncements and official documents such as the Five-Year Plans, a large number o f Turkish and non-Turkish sources were consulted. In order to understand the

1 2 changes in economic policy the writer has attempted to study the different sectors of Turkish econoitiy and has divided the study into eig h t main chapters.

Chapter I presents a brief historical background to show how economic policies developed in the formative period of the Republic and the effects of the Ottoman economic heritage. Chapter II describes economic developments during the f ir s t Turkish Republic

(1923-1960), and Chapter I I I discusses developments since the May

1960 Revolution. Chapter IV describes the Turkish Establishment and the Emerging Structure of Modern Turkish Society. Major economic and social sectors are described in Chapter V, and Chapter VI deals with the Turkish Foreign Trade Regime. Chapter VII discusses

Investment in Turkey. Recently hitherto unavailable information on

the role of foreign capital in Turkey was published by the Associa­

tion of Turkish Industrialists and Businessmen, dated April 1975

and available only in Turkish at this time. This writer has made

full use of the source in his chapter on investment. Chapter V III is

a summary and conclusion about Turkey's basic economic policies.

There is a critical bibliography, a selected bibliography, and

appropriate appendices and tables.

It is hoped that this preliminary study of Turkey's economic

po licies presented against the background of developments in the

la s t f i f t y years w ill show why a "mixed economy" is the most

appropriate economic system for the Turkey of today. Despite the

serious p o litic a l and economic problems facing Turkey today, the

present writer is cautiously optimistic about Turkey's prospects. CHAPTER I

HISTORICAL BACKGROUND

A. The Ottoman Economic Heritage

The Ottoman Empire which lasted from 1300 to 1922, reached its

zenith during the sixteenth century. The period of greatness was

followed by decline due to external and internal causes

The importance attached to economic policies during the

formative years of the Turkish Republic was due in large measure to

the economic heritage of the new Turkish leaders. Thus, in order

to understand the attitude of the Kemalist nationalist leaders, the

economic and social conditions inherited from the last days of the

Ottoman Empire must be considered.

The Ottoman Empire developed a rather comprehensive guild

system and handicraft industry which declined after flourishing

several centuries.^ Turkish manufactures such as textiles had been

^The term Ottoman Empire, Turkish Empire, and Turkey are used interchangeably in this study.

Zpor a study of the economic problems of the Ottoman period see: Afet Inan. Aperçu general sur 1'histoire économique Turc- Ottoman (Istanbul : Turk Tari h Kürumu, Ziya Karamursai, Osmanli D evletinin Kurulusundan XlXuncu asrin yarisin a kadar mali ta rih in e bir bakis [A survey of Ottoman financial history from its origins to the middle of the 19th century]; Omer Celal Sarc, Tanzimat ve Sanayimiz [The Tanzimat and our industry] in Tanzimat (Istanbul: Maarif Matbaasi, 1940). A useful work on the economic history of the Middle East which includes Turkey is Charles Issawi, ed., The Economic History of the Middle East, 1800-1914 (Chicago: University 4 in great demand in Europe during the seventeenth and eighteenth centuries, but as production costs were lowered through machine production in Europe, and as the Turks fa ile d to keep pace with in d u s tria l developments of the West, Turkish han dicraft was swept o ff the market and the country returned to a la rg e ly a g ric u ltu ra l economy.

The Commercial and Industrial Revolutions in the West resulted

in the rise of the middle classes. The Ottoman Empire failed to participate in the industrial revolution to any important extent, and

the process of the rise of the middle classes was much slower in the

Ottoman Empire.

Turkish history books emphasize that the decline of the

Ottoman Empire was due to external and internal causes as summarized

below: 1) The institutions upon which the organization of the Empire

had been built either ceased to function or became outmoded, 2) the

emergence of more powerful empires, 3) the ris e of n a tio n a lis t and

separatist movements, and 5) the increased interference of the Great

Powers in the internal affairs of the Empire through the instrumen­

tal ity of the capitulations and concessions.^

of Chicago Press, 1966). See also Orhan Conker, Redressment économique et industriel de la nouvelle Turquie (Paris: Recueil Sirey, 1937).

Spor the history of the capitulations see: Nasim Sousa, The Capitulatory Regime of Turkey (Baltimore: Johns Hopkins University Press, 1933); AT C. Blaisdell, European Financial Control in the Ottoman Empire (New York: Columbia U niversity Press, 1929); and Osman Nebioglu, Yabanci Imtiyazlarln Turk iktisadiyantina tesirleri [The influence of foreign concessions on the Turkish economyJ (Ankara: Turk Iktisat Cemiyeti Yayinlari, 1944). 5

This b r ie f h is to ric a l background w ill explain why the modern

Turks are so sensitive to any foreign influence whether political or economic. Later in th is study i t w ill be seen how these attitudes colored the thinking of Turkish leaders regarding foreign aid and investment in Turkey.

B. The Kemalist Revolution

Following the collapse of the Ottoman Empire after the First

World War (1914-1918), and the War of Turkish Independence (1919-

1923), a smalter but more homogeneous Turkish Republic emerged under the leadership of Mustafa Kemal Ataturk.^

In the early stages of development, the Kemalist regime was faced with the difficult task of reconstruction after over a decade of war that had wrecked the economy of the country. The initial

Kemalist period (1923-1933), which will be discussed in the firs t p art of Chapter I I , saw slow economic growth because o f lack o f local capital, and shortages of executive, administrative, technical, and scientific personnel. Also, the Kamalist Westernization and

Modernization program had to be carried out in gradual stages as there remained strong opposition to the Kemalist reforms on the part of traditionalist elements. This was a period of consolidation at home and the development of a new Kemalist diplomacy for survival.^

^Tarih (Istanbul Matbaasi, 1934), four volumes (a history prepared by a Turkish Historical Commission).

^For a discussion on events during the early days of the Kemalist period see: Elaine D. Smith, Turkey: Origins of the Kemal­ is t Movement (Washington, D.C.: Judd & Detwei1er, 1959) and Donald E. Webster, The Turkey of Ataturk (Philadelphia: American Acadeny of Political and Social Science, 1939). CHAPTER I I

THE FIRST TURKISH REPUBLIC (1923-1960)

A. The Kemalist Economic Reconstruction

During the in it ia l Kemalist period economic growth was slow.

However, despite the fact that the Turkish leadership had to follow a policy of gradualism, certain trends were discernible from the beginning of the Kemalist regime.

Since the establishment of the Republic in 1923, Turkey has pursued a remarkable consistent development strategy which has followed the lines defined by Ataturk."

While this is true, one must not forget that the Kemalists at first were careful to follow a gradual policy. The main objectives of the in itia l Kemalist economic planners were the obtaining of a balanced econonw by developing both the agricultural and industrial sectors,

raising the standard of living, protecting national security and

enabling the new Turkey to have unqualified control of its own

resources and finances. These were d if f ic u lt tasks and the program was only partially successful.^ Ataturk's economic policies

developed slowly and went through several stages. For one thing,

Ataturk decided to build the new Turkey with a minimum of foreign

^Turkey: Prospects and Problems o f an Expanding Economy (Washington, D.C.: A World Bank Country Economic Report, 1975), p. 1

^See Firouz Bahrampour, Turkey: P o litic a l and Social Trans­ formation (New York: Theo. Gaus' Sons, In c ., 1967), Chapter V II, “Problems^ o f Social and Economic Development," pp. 71-77. assistance.®

When the Turkish Republic emerged in 1923 a fte r long wars the country's limited infrastructure was in ruins. Turkey's industry consisted of a few textile and carpet factories. There was an out­ moded railway system, the Zonguldak coal mines, and the usual public utilities and trolley car services in such larger cities as Istanbul and Izmir. Due to poor transport facilities, inadequate communica­ tions, outmoded marketing and credit systems, and primitive agri­ cultural methods, Turkey's industrial and agricultural production costs were high and noncompetitive.

The most important document of Kemalist economic policy was the product of the findings of the Economic Congress held in Izmir in 1923.^® The Congress recommended th at the government should aid the agricultural producer, promote exports, protect national industry, develop and train labor, and establish a modern railroad system.

During this fir s t phase of development the Turkish economic planners envisaged economic development as carried out primarily by private

Turkish capital. In order to provide the financial means to carry out the new economic policies, the Turkish Government established a

®Osman Okyar, "Ataturkun iktisadi gorusu"[Ataturk's economic views]. Forum, November 1963.

^For a detailed survey and analysis of economic developments during the early period of the Republic one can consult the World Bank mission report by J. M. Barker et a l.. The Economy of Turkey (Baltimore: The Johns Hopkins University Press, 1951). See also Elaine D. Smith, Some Observations on Turkish Industrial and Economic Development (Washington, D .C .: Department of S tate, Foreign Service Institute, May 15, I960). 8

number of fin an cial in s titu tio n s . In 1924 the Is Bankasi (Business

Bank) was established.^^ This was followed by the Sanayi ve Maden

Bankasi (Bank fo r Industry and Mining). In 1927 the Grand National

Assembly adopted a law to encourage industrial development. This was

an important indicator of future trends made prior to the intro- 1 ? duction of statism.

During the period 1923 to 1933, the econon\y underwent con­

siderable change, brought by the adoption of Western laws, the develop­

ment of Ankara as the new c a p ita l, the growth of provincial c ap itals,

the repair of railroad rolling stock, the building of new railroads,

and a modest public investment program. However, the Turkish leader­

ship decided that reliance solely on private capital did not result

in rapid economic development necessary to meet the requirements of

a growing population. The dearth of trained s c ie n tific personnel

and enlightened private management also retarded economic growth.

According to the IBRD study, increases in cultivated land and

the lack o f easy communications between rural d is tric ts and c itie s

lim ited rural-urban migrations which were to become a problem in the

future.

In spite of some changes for the better, the economic situation

l^This bank was established as a semi-private institution in order to assist private industrial enterprises.

^^Robert W. Kerwin, Etatism and the Industrialization of Turkey (Unpublished doctoral d issertatio n , Washington, D .C .: School of Advanced International Studies of the Johns Hopkins University, 1958). The term etatism, statism, or state capitalism are used interchangeably in this study. See also Robert W. Kerwin, "Private Enterprise in Turkish Industrial Development," Middle East Journal, Winter 1951. le ft much to be desired.

The pattern of growth increased the marked imbalance in the country, some parts of the country remaining undeveloped with most of the growth being concentrated in the regions of Istanbul, Izmir, and Ankara. Only a small portion of the total population benefited from the increases in production.*3

B. Statism as a New Economic Policy (1933-1938)

The firs t decade of the Republic (1923-1933) did not see as rapid an economic growth as required by the new emerging modern

Turkey. Consequently, Ataturk decided to follow a statist policy for pragmatic rather than ideological reasons in order to achieve more rapid development. The theory behind this move was that government- directed development would re s u lt in more concrete res u lts . Thus, the Government entered the second phase of economic development in

1933 with the adoption of statism.

This new policy involved direct and indirect government participation in industrial, agricultural, and other sectors of the econoiny. There always was some government d irectio n but this would be in te n s ifie d .

The First Five-Year Plan (1933-1938) was initiated at this time, and went into effect in 1934. Ever since that time views have differed as to whether statism or private initiative was the best

^^Turkey: Prospects and Problems of an Expanding Economy (Washington, D.C., IBRD, 1975), p. 1.

T^The six principles of the RPR included: Republicanism, nationalism, populism, statism, secularism, and reformism. In 1935 the RPR adopted the six principles as the Party's program, and these principles were incorporated into the 1924 Constitution by amendment in 1937. 10 policy for Turkey, with various shades of emphasis.

The purpose of the Plan was to make Turkey as self-sufficient as possible. I t was planned to develop industries which would produce both consumer and capital goods. The Sumerbank was organized in 1933, to d ire c t industrial development. The Etibank, established in 1935, was to direct mining and development o f e le c tric a l power.

C. President Inonu's Economic Policies during the War Years (1939-

1945)

On November 11, 1938, Inonu was elected second President of

Turkey. He continued the Kemalist modernization reforms.

During 1939 a new Plan was being considered for the develop­ ment of a number of specific enterprises but the plan did not go into e ffe c t because of the War.^®

The War affected even the neutral nations and necessitated governmental price controls, requisitioning of certain private te x ­ tile factories, and a number of other wartime restrictions.

During the war years (1939-1945), deteriorated machinery, old railroad rolling-stock and public utilities equipment suffered from lack of spare parts and repairs.

ISpor this period see J. M. Barker et a l.. The Economy of Turkey (Baltimore: The Johns Hopkins University Press, 1951).

T®A1though Turkey remained neutral during most of World War I I the war affected Turkey's economy. It created shortages and in fla tio n and governmental res tric tio n s . Eleanor Bisbee, The New Turks (Philadelphia: University of Pennsylvania Press, 195TT1 Chapter 17, p. 185. See also Bernard Lewis, The Emergence of Modern Turkey (London: Oxford University Press, 1961), pp. 288-298, and Kemal H. Karpat, Social Change and Politics in Turkey (Leiden: B rill, 1973). 11

This was a period of far-reaching government interference in all fields of economic activity. While inflation and shortages were serious, preemptive buying by the Allied Powers helped the Turkish econony. This was especially true o f Turkish chrome and to a lesser extent o f other minerals such as copper and manganese.

The various Five-Year Plans introduced prior to the war, although affected by the war, were important in setting the stage for Turkey's economic policies of the future. The main aim of these

Plans was to establish and protect Turkish industry. Speaking of the

First Plan, 1933-1938, and the Plan that started in 1939 but had to be modified, an authority stated that:

Its main aims were the establishment or protection of industries which used raw materials produced in Turkey fo r goods in which domestic production was not sufficient for the needs of the country, for processing plants using raw materials for export, and for the production of goods of high demand which used import­ ed material s.

Among the industries covered were the chemical industry,

ceramic industry, iron and steel, paper, mining, and textiles.

Discussing the real significance of these Plans the same

specialist on Turkey stated that:

The important fact about these plans was not their provisions and aims, but how the state economic organizations functioned and how state activity and intervention affected the functioning of private enterprise during this period.

During the war years the Government tried to control

l^Elaine D. Smith, Some Observations on Turkish Industrial and Economic Development (Department of S ta te , Foreign Service Institute, May 15, 1950), p. 5.

l®Ibid., p. 5. 12

profiteering and rising prices, and consequently statist policies were strengthened.^^

Another development during the war years was the fact that

Turkey was able to build up a foreign exchange reserve.

D. President Inonu Continues Statism with Modifications (1945-1950)

The American Aid program was in itia te d in 1947, and American

o ffic ia ls and businessmen advised the Turkish Government to reduce

bureaucratic controls and state intervention in favor of a more

liberal program.20

During December, 1949, a special commission of the Istanbul

Merchants Association was appointed by the Government to examine

possibilities of bringing about greater participation of private

capital in industrial development. Plans for the extending of credit

to private industrial investors and the policy toward foreign capital

investment was in process of being modified.

l^See Osman Okyar, "The Concept o f Etatism," The Economic Journal, March 1965, pp. 98-111.

2®For information on aid to Turkey see: U.S. Public Law 75 (Aid to Greece and Turkey). See also Joseph M. Jones, The Fifteen Weeks (New York: Viking Press, 1955).

21 In addition to Kerwin, Etatism, op. c it., the following are useful for this period: Korkut Boratav, Turki.vede Devletcilik [Statism in Turkey] (Ankara, 1962); Z. Y. Hershlag, Turkey: An Economy in Transition (The Hague, 1959); Necdet Serin, Turkiyenin Sanayi1esmesi [In d u s tria liz a tio n of Turkey] (Ankara University, 1963); and Haluk C illo v , Turkive Ekonomisi [The Economy of Turkey] (Istanbul, 1965). Although they discuss the period after 1950, the early chapters refer to the statist period. The single most useful source fo r the views o f foreign advisors to Turkey is Max Weston Thornburg et a l . , Turkey: An Economic Appraisal (New York: Twentieth Century Fund, 1949X Also useful is Omer Celal Sarc, Turkive 13

The so-called Statist Period was to end in 1950 with the victory of the Democratic Party at the polls.

E. The Democratic Party Pushes Economic Development and Private

Enterprise (1950-1960)

This writer believes that the decade after 1950 was signifi­ cant in the development of Turkey's infrastructure and the intro­ duction of new policies which favored rapid industrialization.

In the 1950 national elections the Democratic Party (DP) advocated fu ll application of the 1924 Constitution and emphasized free enterprise as against the RPP's statism. It is admitted that many of the reforms in s titu te d by the DP were already being consid­ ered and partially introduced by the RPP's more liberal-wing during the last year of their administration (1949-1950). However, there were fundamental and substantial differences in the policies after

1950 partly due to the personalities of President Celal Bayar and

Prime M in ister Adnan Menderes who were less conservative in the sense of being tied to past Turkish economic policies. Also foreign aid which had started with the Truman Doctrine of 1947 was now a v a il­ able in la rg e r q u a n titie s from the U.S. American businessmen who vis ite d Turkey a t this time were encouraged by the de-emphasis of statism and advised the Turkish leadership to encourage private in itia tiv e . 22

Ekonomisin Genel Esaslari [General foundations of the Turkish economy] (Is ta n b u l, 1949).

22u,s. Ambassador McGhee, an oilman from Texas, and Clarence Randall, who was chairman of the U.S. House of Representatives' 14

The decision to speed up industrialization required the importation of capital goods which resulted in balance of payments problems.

In the pre-Republican era, agriculture, commerce, and banking were more important, whereas industry was neglected. The commercial classes wield some power in the cities and towns, and landowners in the rural areas.

The Kemalist reforms were based on the modernizing bureau­ cracy, the small commercial middle classes (bankers and merchants), and the landowners. Thus, when Statism became a policy in 1931, it involved primarily the neglected industrial sector, rather than agriculture or commerce.

A fte r 1945, the newly growing business community was dis­ gruntled with the bureaucracy. It took a change in political leader­ ship in 1950 to try to do something to ease the power o f the bureaucracy.

Perhaps the best view of the economic philosophy of the DP can be seen in the words o f President Celal Bayar who stated the following in the speech to the nation at the opening of the Grand

National Assembly on November 1 , 1952:

A democratic economic policy can be defined as a system which is based on private property, which defends the economic freedom of

Commission on Foreign Trade Policy and President of the Chicago Inland Steel Company, had important influence in encouraging private initiative and reducing bureaucratic restrictions. The Turkish news­ papers of this period (1952-1953) also pointed out that President Eisenhower favored private capitalism . However, th is influence was limited and bureaucratic statism remained and has survived to this day. 15

the individual, and which considers private initiative to be important. The present Government, while upholding the above principles, accepts the fact that the State may be given certain tasks in the economic sphere. The Government believes th a t the fundamental duty of the State is to encourage, regulate and supervise economic a c tiv ity , and to create broad and secure working conditions for private enterprise by providing every possible legal and economic opportunity.23

The DP leadership favored the politician over the bureaucratic

adm inistrator. One reason fo r this was th at most bureaucrats favored

the RPP, and the new DP supporters naturally were anti-bureaucracy.

The DP, as a new party, had few ties with the past policies and

favored capitalistic development. For example, Muhlis Ete, a

M in ister o f Economy and Commerce in the Menderes Cabinet, stressed

th a t the Government's economic policy rested on private property and

favored private enterprise, expansion of production, and opposed

bureaucratic obstructionism. Prime Minister Menderes, who had come

into power on the anti-Statism platform, opposed bureaucracy, and

therefore disliked the concept of planning which was attributed to

the RPP bureaucrats. The DP had a program rather than a plan in its

RPP sense of the term.

The U.S. experts helping Turkey also criticized bureaucracy

and preferred dealing with politicians rather than civil servants.

During the DP period the emphasis was on economic projects that would

have favorable political results (get votes). Many cement, sugar and

other factories were built in uneconomic locations for political

considerations.

23zafer, Ankara, November 2, 1952, and other Turkish news­ papers . 16

Prime Minister Menderes claimed that he favored liberal capitalism over the Statism of the RPP. However, effo rts to change the nature of the Summerbank and make the construction, cement, and textile industries available to private capital was only partially successful. In August 1950, the Industrial Development Bank of

Turkey was established to help the private sector. However, the

DP leadership soon found out that the private entrepreneurial sector was weak, that it lacked capital as well as confidence, and could not compete with state enterprises. The DP then reverted to the public sector to carry out in d u strial development programs. Attempts were made to modernize the State Enterprises, and despite the DP philosophy, bureaucracy increased during this period. However, the private sector gained confidence and slowly increased its activities. 2^

The Democratic Party failed to develop a sound economic foundation and emphasized expansion without careful planning depend­ ing on U.S. and other aid to meet their requirements.2®

During 1958-1960, inflation grew worse and shortages of sugar,

2^For example, the state-owned Sumerbank which once met 70 percent of the country's needs, by 1953 only met 30 percent, or more specifically, it used to meet 60 percent of Turkey's textile require­ ments which f e ll to 40 percent.

2®Among the many books and a rtic le s on th is period one may cite a few: Osman Okyar, "Industrialization in Turkey," Middle East- ern Affairs, IV, 1953; Richard Robinson, The First Turkish Republic: A Case Stü3y in National Development {Cambridge: Harvard University Press, 1963); Dwight J. Simpson, "Development as a Process—The Menderes Phase in Turkey," Middle East Journal, Spring 1965; Gulten Kazgan, "Turkiyenin Ekonomisinde Strukturel Degisme, 1950-1960" [S tru ctu ral changes in Turkey's econoniy], Ik tis a t Fakultesi Mecmuasi, April-July 1963. 17 coffee, and most consumer goods became accute. The opposition was able to exploit these conditions. Thus, it became natural for the urban elites, including the intellectuals, the bureaucrats, and even the m ilita ry to blame the DP and Prime M in is te r Menderes fo r the i l l s of the nation. The critics of the DP charged that the Administration had brought the country to the brink o f bankcruptcy because of lack of planning, favoritism, and even corruption. In recent years, however, the DP has been somewhat re h a b ilita te d .

The Democratic Party policies (1950-1960) are important, because fo r the f i r s t time a serious e ffo r t was made to deemphasize statism and encourage free enterp rise. As has been shown, the accelerated economic development program and poor planning created serious inflation and balance of payments problems. On the other hand, it was during these crucial years that Turkey received large amounts of foreign aid, and despite the political vicissitudes and the financial crisis, the basic infrastructure of modern Turkey was established.

In order to win the support of the rural and peasant voter, the DP made agriculture an important part of its economic policy. It was believed that by increasing the purchasing power of the peasants, the monetary sector and the market as a whole would b e n e fit. How­ ever, despite this policy decision, not much was attempted in terms of intensive irrigation and the establishment of fertilizer plants, because the DP politicians were only interested in rapid production increases rather than long-term programs to develop agricultural infrastructure. 18

A gricultural production increased from 1950 to 1954 due largely to increased acreage sown and favorable weather conditions rather than to improved techniques. Since the Democratic Party did not want to disturb the structure of land ownership, the Land Reform

Law was not implemented.26

During this period (1950-1960), the Government distrib uted land to peasants, most of which belonged to the State and was already being used for grazing purposes. Since the DP favored the large landlords, absentee landlords continued to flourish. Tenant farming continued about the same and the Improvement in the rural areas was more psychological than r e a l. However, price support and other benefits did improve the lot of the farmer, particularly the large landowners.

During the DP administration the use of tractors, harvesters, and other farm machinery increased. In 1948 there were 1,750 tractors and 994 harvesters. By 1957 the number of tracto rs rose to

44,144 and harvesters to 6,523. This type of equipment benefited the larger farmers.

During this time new land was brought under cultivation, increasing cultivated land from 13.9 million hectares in 1948 to

22,5 million hectares in 1956. (2.471 acres equal 1 hectare.)

26Among useful sources on a g ric u ltu ra l problems and land reform see: John F. Kolars, Tradition, Season and Change in a Turkish Village (Chicago: Chicago University Press, 1963) and CiftcïTiyï Topraklandirma Kanunu - 1945 [Law to make land available to farmers]. A classic on v illag e l i f e appeared in 1950 e n title d Bizim Key, translated as A V illage in A n ato lia, w ritten by a v illa g e school teacher. 19

Turkey became an exporter of grains for a short period (1953-1955) partly due to favorable weather conditions. Again in 1975 and 1976

Turkey enjoyed bumper crops.

The new tractors were used mostly in the southwest of Anatolia, in the Cukurova region, as w ell as the Marmara and the Aegean sea areas. Farm machinery was bought by larger farmers with credit from the Government. Small farmers were unable to purchase farm machinery as easily although some of them managed to form coopera­ tiv e s . At this time many sm aller farmers sold th eir land, tenant farmers and sharecroppers were displaced and migrated to the c itie s in search of work which was not easily available. Gece kondu

(squatter settlements) began at this time in the larger cities.

Thus, despite the announced DP policy of helping the ru ral areas and the peasants neglected by the previous RPP adm inistrations, the small farmers profited only slightly whereas the large land­ owners were able to increase their holdings. An agricultural price support policy also favored the producer, and farm incomes grew and were exempted from ta x a tio n . The Soil Products Bureau bought crops at in fla te d prices (tw ice as high as world p ric e s ). Appease­ ment of the farmer, especially the larger ones, became a necessity in order to win the large rural vote. However, one must point out that in some areas the agas (feudal type landlords) were supporters of the RPP. It is said that very often one brother in a village joined the DP while the other became a member of the RPP so that whichever party won the elections a member of the fa m ily would have an inside to government influence. One observation worth noting is 20 that some of the new rural wealth actually did filte r down to all layers of rural society. New roads, improved communications, country schools, and a money economy were now reaching the v illa g e s . On the other hand, money in the hand of farmers resulted in Increased demand for consumer goods, and this in p art contributed to the in fla tio n afte r 1956. The fa ilu re to solve the in fla tio n problem was one of the major causes for the failure of the DP regime.2?

Most observers are now agreed that the fa ilu re o f the DP administration was due to lack of proper planning, the refusal to tax farmers, the outmoded tax system, and the loss o f confidence of the population. As a result of spiralling inflation and shortages, the

DP nearly lost the 1957 national elections (which the opposition claimed were fraudulent). The DP was fast losing control of the economy of the country, but Prime Menderes believed that the crisis was temporary. The DP was able to convince the Western Powers to provide Turkey with a $359 million stabilization loan in 1958. Among the measures taken to s ta b ilize the economy was devaluation of the

Turkish lira from T.L. 2.80 to the U.S. Dollar to T.L. 9.025 to the

U.S. Dollar. This was only partially helpful and the DP was unable to hold its own against the rising opposition.

27see Economist, London, March 20, 1954; Haluk C illo v , Turki.ye Ekonomisi [The economy of Turkey] (Istanbul: Istanbul uni ve rs itesi , 1969); Economist, June, 1957; Z. Y. Hershlag, Turkey: An Economy in Transition TThe Hague: Uitgeveriy Van Keulen N.V., 1958); and kemal H Karpat, Social Change and Politics in Turkey (Leiden: B rill, 1973), especially Chapter V. Of special in te re s t is a book by former President Celal Bayar, Basvekilim Adnan Menderes [My Prime Minister Adnan Menderes] (Istanbul, 1970). See also Dwight J. " Simpson, "Development as a Process—The Menderes Phase in Turkey," Middle East Journal, Spring 1965. 21

Opposition attacks were met by increasingly repressive methods, which fin a lly led to the overthrow of the DP regime by a military coup in May 1960.

The new regime was to try to restore constitutional government and work fo r the improvement of the economy of the country. Again, despite a ll the e ffo rts of the Committee of National Unity (GNU), and despite the 1961 elections, a new Constitution, and attempts at forming co a litio n governments the major problems of Turkey, both p o litic a l and economic, remain to be solved. CHAPTER I I I

THE SECOND TURKISH REPUBLIC AND THE CONCEPT

OF A "MIXED-ECONOMY" {1961- )

A. The May 27, 1960 Revolution and Its Economic Implications

The May 27, 1960 Revolution and its economic implications are

important for the understanding of today's developments.

The Committee of National Unity (CNU) had f u ll powers to

introduce new economic policies during its period of rule (1960-

1961). The CNU, however, decided to follow a middle-of-the-road

policy, and tried to reconcile the differences between the statist

bureaucrats and the private enterprise oriented new politicians.^®

The CNU governed from May 1960 to October 1961. During this

period, a new Constitution was promulgated, a referendum was held

approving the Constitution, and elections were held under a new

electoral law. A return to civilian rule came with the convening of

the Grand National Assembly (GNA) on October 25, 1961.^9

During the period of CNU rule, the economy of the country at

ZBgrgun Ozbudun, The Role of the M ilitary in Recent Turkish Politics (Cambridge: Harvard University Press, 1966), Sydney N. FisherT ed., The M ilitary in the Middle East (Columbus: Ohio State University, 1963), and George S. Harris, "The Role of the Military in Turkish Politics," Middle East Journal, Winter-Spring, 1965.

29walter F. Weiker, The Turkish Revolution, 1960-1961 (Washington, D.C.: Brookings Institution, 1963) and Richard D. Robinson, The First Turkish Republic (Cambridge: Harvard University Press, 196TT

22 23 first stagnated. Loss of confidence on the part of business, un­ certainties about the future, and the disruption resulting from arrests, trials, and indictments of the DP leaders created an atmosphere not conducive to smooth development.

A problem arose at this time because of the attitude of some of the younger officers in the CNU who tended to favor socialist reforms and advocated postponement of return of power to the c iv ilia n politicians. However, the older and high ranking officers prevailed and c iv ilia n ru le was restored w ithin eighteen months. The business community and the landowners were reassured, when the economic policy adopted by the CNU and the co a litio n governments that followed agreed on a mixed-economic system rather than a return to statism or the establishment of socialism. The policy of a mixed econon\y was even written into the new 1961 Constitution.

What did the CNU do regarding economic policy? This is a question which has been asked by both those who favored the CNU's policies and also by those who opposed it. The bureaucrats who favored the CNU's policies and actions felt that it did not go far enough in restoring control of the old elites and the bureaucracy.

Those who opposed the CNU policies voiced their fears of a return to statism and the weakening of private enterprise. Both groups were wrong in th e ir fears as the CNU and the co alitio n governments did not make any d rastic changes in Turkey's p o litic a l and economic p o lic ie s .

When the CNU came to power the firs t thing that they tried to do was to apply the 1958 economic s ta b iliz a tio n program more s t r i c t ­ ly. They also faced the necessity to restore confidence, especially 24 of the private sector, by issuing declarations assuring business that they would not return to s ta tis t p o lic ie s.

Among the decisions taken by the CNU were several important ones dealing with economic problems summarized below:

1. They established a planning bureau fo r investments which later developed into the State Planning Organization (SPG).

2. Fiscal reform without resorting to increased taxation was advocated and carried out.

3. The Government issued "Freedom Loans" bonds to finance their program, and attempted to stay away from deficit financing.

4. Afforestation became one of their pet projects, and the provision on this subject was actually written into the Constitution.

The planning bureau which developed into the State Planning

Organization (SPG) was faced with opposition from the conservative business community and conservative p o litic ia n s . However, although planned economic growth policies were back, an attempt was made to take into consideration the wishes o f the businessmen, landowners, and other elements in the private sector. In any case, the SPO was involved mainly with the public sector.®® The SPO was established

September 30, 1960 by Law No. 91. I t was to be an advisory body under the Prime M in istry. There was a High Planning Council and a

Central SPO which was to implement the plan through three departments:

1) Economic Planning Department, 2) Social Planning Department, and

3) Coordinating Department.

3®See Nuri Eren, Turkey Today and Tomorrow (New York: Praeger, 1963). 25

The p rin cip le of planned economic development was inserted

into the Constitution.®^ The SPO envisaged an increased GNP but with more equitable distribution of wealth. The reference to social

change scared the business community and landowners and some observers say that stagnation and recession continued into 1961 because of these fears. However, by 1962 economic conditions

improved as confidence was gradually restored.

B. Economic Policies of the Inonu Coalition Governments (1961-1965)

In the national elections of October 1961, no party won a

dominant position because of the new electoral law designed to prevent

any one party gaining too strong control. However, the RPP led by

the veteran political leader Ismet Inonu, who was allegedly accused

of being backed by the M ilitary, was able to form several coalition

type governments (October 1961 to February 1965). This was a

period of sustained and gradual economic growth despite political

uncertainties. The RPP itself was split regarding economic policies

between the traditional RPP leaders and the new "left-of-center"

younger groups who later gained control of the RPP leadership led

by Buient Ecevit.

During this time the First Five-Year Plan (1963-1967) was

inaugurated. A 7 percent rate of growth was accepted for the plan

®^Article 41, Regulation of Economic and Social Life. An interesting article by a Turkish pharmaceutical industrialist discusses the new concept of a mixed economic system in Nejat Eczacibasi, "Turkey Discovers a Satisfying Blend," Columbia Journal of World Business. 1/2 (1966). See also Nuri Eren, "The Turkish Experience in the Light of Recent Developments," Middle East Journal, xxvi/3, 1972, pp. 245-252. 26 period. By 1964 the economy improved fu rth e r. I t was obvious that the State bureaucracy even under the RPP could no longer reestablish statism. The private sector gained confidence as the public and private sector began working together rather harmoniously for the firs t time in many years.

Several attempts by the RPP leadership to introduce new land reform legislatio n was frustrated when conservative elements in the

RPP collaborated with the Justice Party leadership. Inonu actually tried to win the confidence of the private sector and it was obvious that in actual practice the public and private sector were not opposed to each other but were getting used to cooperation under the new economic policy of a mixed economic system.®2

C. The Justice Party and Prime Minister Demirel's "Progressive-

Conservative" Policies (1965-1971)

The RPP went through a leadership c ris is between the tra d itio n ­ al and new "le ft-o f-c e n te r" groups. As a re s u lt an independent senator was asked to form a coalition government. Suat Hayri

Urguplu's coalition cabinet lasted from March 4, 1965 to October 10,

1965.

The October, 1965 elections were won by the Justice Party

(JP), headed by Prime Minister Suleyman Demirel. During the period

1965 to 1969 Turkey's economy improved. The Second Five-Year Plan

(1968-1972) was carried out vigorously during this period.

®^Kemal H. Karpat and contributors, Social Change and Politics in Turkey (Leiden: B rill, 1973), pp. 258-262. 27

Although the JP won the October 1969 elections, it was returned with a reduced percentage of the popular vote but with a sizable majority of National Assembly seats. One reason was that the

JP developed a crisis between the ultra-conservative-wing and

Demirel's more liberal leadership.

During 1968 disruption of public order began with radical agitation. The next three years (1968-1971) saw extremists of the left taking to streets in opposition to the populist Justice Party.

A countermovement of extremists on the rig h t emerged. Clashes between the small l e f t i s t and r ig h tis t groups became more frequent. In March

1971 the apparent in a b ility o f the JP government to bring a h a lt to the continuing incidents of violence, and the Turkish m ilitary's dissatisfactio n with the fa ilu re of the JP government to pursue reforms with speed and vigor, which they deemed as necessary, led to a political crisis.®®

During 1970 through 1973 m artial law was declared in several provinces. Conditions became so unsettled that on March 12, 1971, the M ilitary presented President Cevdet Sunay with what has come to be known as the "March 12 Memorandum" asking fo r the replacement of

Prime M inister Demirel and the JP government by one which could introduce necessary reforms.

Under the Demirel Administration (1965-1971) there was sustained economic growth, but by the end of 1969 economic conditions deteriorated.

^^Turkey: Background Notes, U.S. Department of State, publication 7850, January 1976, p. 3. 28

While the JP was the representative of the capitalists in

Turkey, Demirel has oftened stressed the fact that his Party is not the old style 19th century capitalist party. The JP is a populist party with broad support from the business community, the rural areas but also from many other segments of Turkish society. The JP has been characterized as a "Progressive-Conservative" party which aims at developing Turkey's economy as rapidly as possible.®4

D. The P o litic a l C risis of 1971-1973 and its Economic Consequences

Despite the political crisis of 1971-1973, the econonw of the country continued to expand.

After the fall of the JP government, a number of "above party" cabinets were formed. In March 1971 Professor Nihat Erim was designated by the President to form a nonparty (above party) govern­ ment composed of independents and members of the GNA from the three largest political parties.

Prime Minister Nihat Erim resigned in May 1972, but "above party" governments continued, f i r s t under the premiership of F e rit

Mel en (May 1972-April 1973) and then Naim Talu (April 1973-

October 1973). Despite governments composed of independents, technocrats, and members of smaller parties, the complex political and economic problems remained largely unresolved.

During this time the Third Five-Year Plan (1973-1977) was inaugurated. The 50th anniversary of the Founding of the Turkish

S^For recent economic developments see: Vignettes of Turkish History (Economic and Commercial A ffa irs ) (Washington, D.C.: K. Key Publications, P. 0. Box 4805, January 1977). 29

Republic was celebrated on October 29, 1973, and most observers fe lt quite optimistic about the country's prospects. The Bosphorus bridge was opened a t th is time linking Europe and Asia.

However, the fa ilu r e o f the JP and la te r the "above party" governments to solve Turkey's economic problems gave the RPP a chance to show what it could do. The national elections held in October

1973 were won by the RPP, led by Bulent Ecevit. Ecevit became Prime minister of a coalition of the RPP and the rightist National

Salvation Party (NSP). In September 1974 Prime Minister Ecevit resigned because of differences with the NSP,

E. The Republican People's Party and Prime Minister Ecevit's "Left- of-Center" Economic Program (1973-1974)

Prime M in ister Bulent Ecevit's government which won the

October 1973 national elections took office on January 26, 1974 and lasted to September 18, 1974. Ecevit became a national hero when

Turkey landed troops in Cyprus on July 20, 1974 in "conformity with

1960 Treaty of Guarantee" to protect the Turkish-Cypriot community.

On February 1, 1974 the Program of the RPP Coalition govern­ ment was announced. The program pledged the government to l i f t a ll restrictions that hinder economic and social progress, to better the lot of the people and up living standards, provide state guarantees for the future of the citizens and ensure the just distribution of wealth within democratic principles.®®

®®Turkish Embassy Press Release, Washington, B.C., February 1, 1975, The Program of the New Government, pp. 1-2. 30

The program stated that the State Economic Enterprises would be reorganized to ensure their effective and productive operation.

The RPP also stated that it favored increasing agricultural produc­ tion, and in the distribution of agricultural products

. . . agricultural machinery and implements, emphasis w ill be shifted to co-op's and other upper-echelon organizations. All speculative price increases in agricultural inputs will be prevented and base prices w ill be kept at a level to stimulate agricultural efficiency. All measures necessary w ill be taken for the increased domestic manufacture of agricultural machinery and implements.

As for industrialization it was stated that:

Industrialization efforts will be evenly spread to all regions of the country. All concrete measures w ill be taken to secure even distribution of all advantages of industrialization to include employment and other benefits.®"

Among other subjects of interest in the program were the following:

Exploration of o il, natural gas and other basic energy sources such as coal will be expedited. The petroleum act which is far from meeting national interests and current world conditions w ill be revised and provisions therein which do not comply with national interests will be revised.

In connection with foreign trade, the program stated that:

Due importance w ill be attached to the promotion of mutual trade and economic relations with the Middle East, Africa and Asian countries. As to the relations with the European Economic . . . conditions while pursuing a policy on the direction of the main agreements, the protocols arranging the conditions for the traditional period w ill be reviewed and everything needed will be done to secure the most advantageous conditions fo r Turkey, by keeping under consideration the conditions applied by the community to other noncommunity countries.®7

®®Ibid., p. 2.

® ?Ibid., pp. 2-3. 31

The RPP was not in power long enough to carry out any of its announced reform programs. I t was impossible for Ecevit, a le ft - o f - center leader, to cooperate with the ultra-conservatives in the

National Salvation Party.

After Ecevit's resignation in September 1974, an interim government under Dr. Sadi Irmak (Independent Senator) took over until April 1975, when head of the Justice Party and a former Prime

Minister (1965-1971) Suleyman Demiral formed a coalition consisting of the JP, National Salvation Party, and several other smaller conservative parties.®®

F. Prime Minister Demirel's New Economic Policies (1975- )

Prime M inister Demirel formed a coalition government on March

31, 1975 with the JP, the NSP, and several smaller conservative parties. Demirel was able to obtain a vote of confidence on

April 12, 1975. Deputy Prime Minister Erbakan, head of the NSP, is very conservative, nationalistic, and has been difficult to deal with in the c o a litio n . I t is obvious that the JP with a narrow margin and in co alitio n with smaller parties cannot always work harmoniously. This makes it difficult to carry out economic measures which are criticized both by his own coalition partners as well as the opposition. As the time for elections approach, scheduled in October 1977, i t is hard fo r the JP leadership to implement e ffe c tiv e economic measures re s tric tin g imports of non-

38Turkey: Background Notes, U.S. Department of State, op. c i t . , pp. 3-4. 32

essential luxury goods, and to resist pay raises for the civil

service.

The JP government is in process o f stim ulating the expansion of exports in order to earn the foreign exchange necessary to import the capital investment items and raw materials required to sustain a high rate of growth. It also recognizes that high-cost, pro­

te c tiv e industry must undergo major adjustment i f i t is to be

competitive as Turkey moves toward f u ll membership in the European

Community.

Despite the unresolved Cyprus, Aegean, and U.S. arms embargo problems, the JP has been able to obtain satisfaction by the good economic growth rate fo r 1976 which is 7.2 percent. On the other hand, in fla tio n , unemployment, and balance of payments d e fic its are admitted to be serious problems.®®

The JP and Mr. Demirel should be happy with the economic situ atio n but again p o litic a l problems are besetting the Party.

Extremists of the le ft and right again are causing trouble and the

Justice Party is trying hard to cope with this problem. The JP calls

itself and the coalition partners the National Front Government. The

RPP and other left-of-center parties are strongly in opposition to the National Front as partisan politics appear again to be the order of the day.

®9prime M in ister Dem irel's Seventh Press Conference, December 18, 1976. CHAPTER IV

THE TURKISH ESTABLISHMENT AND THE EMERGING

STRUCTURE OF MODERN TURKISH SOCIETY

A. The Ottoman Heritage

The ru lin g in s titu tio n s of the Ottoman Empire had a t th e ir apex the Sublime Porte (S u ltan -C alip h )T h e social structure included the bureaucracy, the ulema (religious leaders), the military, the notables (feudal lords, tribal chiefs, landlords), merchants and traders (mostly non-Muslim minorities and foreigners after 1800), a small Turkish middle class consisting of officials, officers, teachers, intellectuals, and the 1ite ra ti, most of them becoming slowly more secular, nationalistic, and modernist. The large peasantry which remained at the base of the social ladder and who lived at a near subsistence level was the real core of the nation but was sadly neglected. There were also tribal and semi- nomadic elements over which the central government had only lim ite d control .41

For a discussion of Turkish elites see; Bernard Lewis, The Emergence of Modern Turkey (London; Oxford U niversity Press, 196T)T Chapter X I I I ; F. W. Frey, The Turkish P o litic a l E lite s (Cambridge: M .I.T ., 1965); R. E. Ward and D. A. Rustow, eds., PoTTtical Modernizations in Japan and Turkey (Princeton: Princeton University Press, 1964).

4lFirouz Bahrampour, Turkey: P o litic a l and Social Trans­ formation (New York: Theo. Gaus' Sons, Inc., 1967), pp. 62-63. See also Walter F. Weiker, "The Ottoman Bureaucracy: Modernization and

33 34

B. The First Turkish Republic

After the collapse of the Ottoman Empire in 1918 and the War of Turkish Independence (1919-1923) a new Turkey arose under the leadership of Ataturk. During the period 1923 to 1950 the elites included 1) the Kemalists who fought in the War of Independence,

2) government bureaucrats, 3) the m ilita ry , 4) landowners, 5) intellectuals and 1ite ra ti, 6) the small new entrepreneurial groups, a t f i r s t mostly bankers and merchants who replaced the non-Turkish minority groups and foreigners, and 7) the large peasantry and nomadic and semi-nomadic trib e s . Ind ustrial workers were few.

Communism was banned and remained in s ig n ific a n t. Peasants remained largely in their villages and the urban population was small in comparison to the rural inhabitants.

With the victory of the DP at the polls in May 1960 a new phase developed. 1) Entrepreneurial classes: the process of urban­ izatio n was accelerated by development of roads and the beginnings of industrialization, which saw the rise of the new entrepreneurial groups. 2) Landowners continued to be influential and were able to prevent meaningful land reforms. 3) The DP encouraged reactionary groups such as the Nurcu, T ic a n i, and the once banned Dervish orders by relaxing secularism to win support of Islamic reaction­ ary elements. 4) The Kemalist elites s till retained some power.

They included some of the intellectuals, most of the bureaucrats and

Reform," Administratiye Science Quarterly, Vol. 13, no. 3, December 1968, pp. 451-470, and HaliT Inalcik, "Capital Formation in the Ottoman Empire," Journal of Economic H istory, March 1969. 35 officers, and some of the professional and business groups. By

1960 there was a hard core of DP supporters while a hard core of

RPP supporters continued to exist, with independents holding the balance.42

C. The "Establishment" Today

1. The Elites

The Kemalist elites have been described as consisting of the public bureaucracy, the m ilitary, and the intellectuals. Of course, the category of elites were not rigid but fluid. Many officers who retired became officials or deputies and were also involved in the educational and intellectual life of the nation. Many professional c iv ilia n s such as c iv il servants, doctors, lawyers, businessmen, bankers, etc. served as reserve officers in the Armed Forces.43

During the period 1950-1960, as it has been already mentioned, new elites emerged as industrial development and free enterprise gave rise to the new entrepreneurial classes. An understanding of the composition of the elites in modern Turkey may help clarify some of the obscure problems arising from attitudes of the various groups in Turkish society.

There is a tendency of writers on Turkish events to under­ estimate the role of the landowners both in the early Kemalist period

42Kemal H. Karpat and Contributors, Social Change and P o litic s in Turkey (Leiden: B rill, 1973), Part II, "The Social Groups and Change in Roles."

43Kemal H. Karpat, op. c it., pp. 123-223. For a discussion of the Middle Classes see in the same book section written by Nezih Neyzi, "The Middle Classes in Turkey," Karpat, op. c it., pp. 123-150. 36

and today. The rural landlords are s till powerful and influence

le g is la tio n . They also belong to both the major p o litic a l parties

as well as the smaller conservative groups.

Education is very important in a society where rig id class

structure does not exist. Education is free including university

tra in in g . Thus, the son of a poor peasant who is able and ambitious

can become a college graduate, become a reserve officer, and break

into the professional field or join the public bureaucracy.

2. Labor

Industrial workers still play a minor role in Turkey today,

but their influence is rapidly increasing. In the early days, the

Kemalists followed a paternalistic labor policy. During 1936, new

labor legislation was introduced although strikes remained illegal.

The 1961 Constitution was a step forward for labor. Today, the

right to form unions without prior permission exists, and labor has won the right not only to organize but to strike. Provisions for

adequate working conditions, fa ir wages, and collective bargaining

are gu aranteed.In recent years, these constitutional guarantees

are being implemented by the passage of more s p ecific labor

legislation.45

Labor unions in Turkey are new and th e ir leadership is

generally responsible. Turkish labor is patriotic and has not been

44Article 41 of the Constitution.

45see Bulent Ecevit, "Labor in Turkey as a New Social and Political Force," in Kemal H. Karpat and Contributors, Social Change and Politics in Turkey (Leiden: B rill, 1973), pp. 151-lFT 37 influenced by foreign ideologies such as communism. There are several labor unions. The majority belong to Turk-Is which is responsible. Smaller and more radical unions exist such as D I S K . 4 6

For a few years a Turkish Labor Party was allowed to e x is t but i t was banned as its leadership followed Marxist ideals. Communism which was banned in 1925 s till remains illegal in Turkey.

The total Turkish labor force today is over 15 million’, but the industrial labor force is s till relatively small. In 1945, the industrial labor force was about 600,000, reached one million in

1955, and is now well over 2 million. Over half a million Turkish workers who are employed in West Germany and other parts of Europe send home about one billion dollars in workers' remittances.

3. The Rural Areas and the Peasantry

The peasantry was the lowest group in the social stratifica­ tion of Turkey in the past. Ataturk called the peasants "the gentlemen of Turkey," and tried to better the position of the farmers

However, not much was achieved during the early Kemalist period which concentrated on industrialization and urban development. The rural areas and the peasantry fared better under the DP administra­ tion (1950-1960) since the DP politicians tried to gain support of the rural areas and the peasantry which formed a large part of the electorate. The road program, better communications, and universal

46Turk-Is (Turkiye Isci Sendikalari Konfederasyonu) or the "Confederation of Turkish Trade Unions" is the largest union. DISK (Devrimci Isci Sendikalari Konfederasyonu) or "Confederation of Revolutionary Trade Unions" is smaller (about 20,000). 38 free education has been gradually transforming the traditional rural areas of Turkey. Of Turkey's 15 million labor force, 56 percent is engaged in agriculture. Landowners remain influential in Turkish l i f e .

4. General Observations about the New Elites

There is no major class distinction in Turkey, except that based on education. The educated classes are mainly in the cities while the traditional peasantry in the rural areas have little or no education. There is a trend from the rural areas to the cities.

There is a constant flow upwards in Turkish society through educa­ tion and through the military service. Today, the elites still consist of the public bureaucracy, the new entrepreneurial groups, the new professional technocrats, and the landowners. The m ilitary s till play an important role in Turkish society.47

47Karpat, Social Change and Politics in Turkey, op cit., pp. 363-366. For politics in rural areas see: Joseph S. Szyliowicz, "The Political Dynamics of Rural Turkey," Middle East Journal, Fall, 1962. A recent interesting article is: Metin Heper, "The Recalcitrance of the Turkish Public Bureaucracy to 'Bourgeois Politics': A Multi-Factor Political Stratification Analysis," Middle East Journal, Autumn, 1976, pp. 485-500. CHAPTER V

MAJOR ECONOMIC AND SOCIAL SECTOR DEVELOPMENT

A. The Development Plan— Economic Sector

In order to understand Turkish economic policy this w riter has followed the methodology of examining the major economic and social sector developments in the la s t decade against the background of the

Five-Year Plans which reveal some of the thinking of the Turkish economic planners.4®

Since 1960 the Turkish leadership appears to pursue a strategy which aims to be less disrup tive than the system used in the 1950's .

Economic planning was made a requirement in the 1961 Constitution.

An economic development plan was envisaged which despite p o litic a l and external pressures has been at least partially successful. The growth rate of over 7 percent compared to 5 percent in the 1950's was achieved.

The new planners gave greater emphasis to social aims, more equitable income distribution and better regional balance. Efforts were made to cope with problems of economic organization, and the uncoordinated and widespread system of government regulations.

Despite these e ffo rts the problems remain and the efficiency of the

State Economic Enterprises has not improved much. Land reform,

4®The First Five-Year Plan (1963-1967), Second Plan (1968- 1972), Third Plan (1973-1977).

39 40 reform of the administration (bureaucracy), tax reforms, and the reorganization of the State Economic Enterprises s till remain as problems difficult of solution. A brief discussion of the Five-

Year Plans follows before the economic and social sectors of the country are examined.

Five-Year Plans and the Development Program w ill be summarized here. The development plans were envisaged as a 15-year program divided into three five year stages. A population growth rate of

2.9 percent, and an economic growth rate of 7 percent per annum were defined as targets. While the growth target was not achieved they were fairly close. During the First and Second Plan periods the traditional strategy of modernization and industrialization in a mixed economy was the policy pursued.49

The Plans are prepared by the State Planning Organization and involve the public sector. The general objective of the plan has been to increase the welfare of the population through rapid industrialization, and to reduce dependence on foreign supplies.®®

Although public and private sector enterprises operate side by side in the Turkish economy, the public sector appears to be the main instrument of public development policy overshadowing the developments in private enterprise.

49see Table 1 fo r medium- and long-term growth strategy in percentage, and Table 2 for macroeconomic targets and achievements of the development plans. Turkey: Prospects and Problems of an Expanding Economy, A World Bank Economic Report (Washington, D.C., 1975), pp. 24-31.

5®See State Planning Organization: A Summary of the Third Five-Year Plan, 1973-1977 (Ankara. 1973). 41

TABLE 1

MEDIUM- AND LONG-TERM GROWTH STRATEGY (in %)

1972-1977 1978-1995

Sectoral Growth

Agriculture 3.7 4.8 Industry 11.2 11.2 Services 7.7 9.0 GDP at market prices 8.0 9.0

Growth Structure {% o f GDP at factor cost)

Agriculture 23.0 12.0 Industry 27.0 37.0 Services 50.0 51.0

Investment Pattern (as % of total investment)

Agriculture 12.0 8.0 Industry 45.0 50.0 Services 43.0 42.0

Consumption and Savings Growth Rate

Per capita consumption 3,9 5.6 Domestic savings 13.6 11.2 , , . ... SOURCE: Third Plan. 42

TABLE 2

MACROECONOMIC TARGETS AND ACHIEVEMENTS FIRST (1963-67), SECOND (1968-72) FIVE-YEAR PLANS (in %)

F irs t Plan Second Plan

Target Actual Target Actual

Sectoral Growth Rates

Agriculture 4.2 3.7 4.1 3.6 Industry 12.3 10.6 12.0 9.9 Construction 10.7 8.0 7.2 5.0 Transport 10.5 7.8 7.2 8.8 Housing n .a. 3.5 5.9 6.8 Services 6.2 7.5 6.3 7.7 GDP factor cost 6.9 6.5 6.8 6.6 GNP market prices 7.0 6.7 7.0 7.1

Fixed Investment

Structure

Agriculture 17.7 14.9 15.2 12.2 Industry 30.9 31.1 34.1 37.1 Transport 13.7 15.7 16.1 16.7 Housing 20.3 22.3 17.9 20.3 Social sector 9.4 8.1 8.5 6.2 Other services 8.0 7.9 8.2 7.5 Total 100.0 100.0 100.0 100.0

Ownership

Public 59.9 52.0 52.7 52.4 Private 40.1 48.0 47.3 47.6 Total 100.0 100.0 100.0 100.0

As % of GDP (average in plan period) 18.3 16.2 21.3 19.3

Consumption growth

Public 8 .7 7.7 8.8 12.3 Private 5.4 4.8 5.1 5.5 Total 5.7 5.2 5.8 6.6 continued 43

TABLE 2, cont.

F irs t Plan Second Plan

Target Actual Target Actual

National Savings

Yearly growth rate 13.4 16.2 12.2 9.1

As % of GNP (average in plan period) 14.8 16.3 20.8 18.2

Marginal savings rate (on national savings) 26.0 18.3

SOURCE: F irs t and Second Plan documents. 44

TABLE 3

MACROECONOMIC TARGETS OF THE THIRD FIVE-YEAR PLAN (1973-77) (in percent)

Target Sectoral Growth Rates

Agriculture 3.7 Industry 11.2 Construction 11.9 Transport 8.2 Hous i ng 5.0 Servi ces 7.1 GDP factor cost 7.5 GNP market prices 7.9

Fixed Investment

Structure Agriculture 11.7 Industry 45.4 Transport 14.5 Housing 15.7 Social sector 6.4 Other services 6.3 Total 100.0

Ownership Public 56.3 Private 43.7 Total 100.0 As % of GDP (average in plan period) 23.4

Consumption Growth

Public 8.0 Private 5.9 Total 6.3

National Savings

Yearly growth rate 13.6 As % of GNP (average in plan period) 23.3 Marginal savings rate (on national savings) 38.0

SOURCE: Third Five-Year Plan documents 45 The State Planning Organization was established in 1960 to study the Turkish econon\y and to formulate plans for long-range economic development. The 7 percent real annual growth rate was to be in a context of price s ta b ility , was to decrease unemployment, reduce dependence on foreign aid and imports, improve education, and reduce income disparities. The plan provides for sector allocations, lists growth targets, and is investment oriented.

The First Five-Year Plan (1963-1967) saw an average annual GNP growth rate of 6.7 percent (GNP at market prices), close to the 7 percent goal. Total investment over the plan period reached $7.2 b illio n .

The Second Five-Year Plan (1968-1972) also featured the 7 percent annual GNP growth rate, and total investment during this plan period was estimated at $12.4 billion. The growth rate was 7.1 percent (GNP at market prices).

The Third Five-Year Plan (1973-1977) gives priority to the intermediate and investment goods industries, mining, energy, and transportation. The above account for 70 percent of the planned investment in the public sector. In particular, production of petrochemicals, fertilizers, ferrous and non-ferrous metals, cement, pulp and paper, plastics, diesel engines, heavy machinery, transport equipment, and electronics are to be increased. The growth rates in 1973 and 1974 were below the average growth rate of 7.9 percent, the target for the Third Five-Year Plan period. In 1973 GNP rose by 46 5.2 percent, and in 1974 by 7.5 percent.

The GNP at current prices was $22.04 billion in 1973, $30.51

billion in 1974, and $36.66 billion in 1975. The estimated figure

for 1976 is $40.6 billion. The per capita GNP in 1975 (at current

prices) was $912.00.^2

1. Agriculture

Agriculture plays a major role in Turkey's economy and

"continues to be the mainstay of the Turkish economy.Of Turkey's

40 million people today, over 60 percent reside in rural areas. Two- thirds of the population is engaged in agricultural and pastoral pursuits, the bulk of the country's foreign exchange earnings amount­ ing to about 70 percent, and much of industry's raw materials are derived from agriculture.^^

In the last decade agricultural production increased on the average by only a little over 3 percent. Cereals and livestock accounted for half the value of output. The other half included industrial crops (cotton, tobacco, sugar beets) and fruits and nu ts.55 I t is generally acknowledged th at agriculture w ill continue

51 Latest revised figures for GNP growth rates are: 5.4 percent for 1973, 7.4 percent for 1974, 7.9 percent in 1975, and a provisional 7.2 percent in 1976.

52por more d e ta ils on GNP and other economic indicators see "Key Economic Indicators—Turkey," Appendix.

53oddvar Aresvik, The A gricultural Development of Turkey (New York: Praeger, 1975), p. 185.

5^Turke.y: Prospects and Problems o f an Expanding Economy (Washington, D.C.: IBRD, 1975), p. 181.

55jn 1972 30 percent of agricultural production was accounted 47 to be important in Turkey's economy.

Although structural and other sources o f change can be expected, the perspective which these characteristics reveal is unlikely to change in any substantial way over the medium term .56

According to an agricultural economist who works fo r in te r­ national organizations who made an in-depth study of Turkey's agricultural sector:

Agriculturally Turkey is a sleeping giant. Through full use of water resources for irrigation and development, and through the introduction of highly adaptive, improved technology for irrigated as well as rainfed agriculture, production can be increased tremendously.57

While the present writer feels that the above statement may be somewhat over-optimistic, there is no doubt that increased technology and a higher p rio rity fo r agricultural development than has been the case to date would raise agricultural production substantially.55 ^

The total land area of Turkey is estimated at 78.1 million hectares of which 54 million hectares are devoted to agricultural activities (excluding forestry). Cereal production accounts for more than half of the area used for crops but contributes only one fourth of the value added by agriculture. Whereas, fru it and vegetable for by livestock, 28 percent by cereals, 18 percent by industrial crops, and 14 percent by fruits and nuts.

56Turkey, IBRD, op. c i t . , p. 181.

5^Aresvik, op. c it., p. 195.

55According to the la te s t information Turkey had two good harvests in 1975 and 1976. See Prime M inister Demirel's Press Conference, December 18, 1976, and "Turkey's Bumper Crops Turn i t into a Food Oasia," Christian Science Monitor. December 1, 1976. 48 production contributes almost as much on a fraction of the agri­ cultural land.59

Agricultural development is affected by climatic conditions over which the farmer has l i t t l e control. For example, wheat crops were particularly good in 1952 and 1953, but unfavorable climatic conditions resulted in smaller harvests in the following years. While irrigation and the planting of special hardy crops have been trie d the weather s t i l l remains an important unpredict­ able factor.

Despite the importance of agriculture to Turkey's economy, the agricultural sector has not received the priority it deserves. This is a condition which obtains in other developing countries. The leadership of developing nations are anxious for rapid industrializa­ tion and are often impatient with the advice of foreign specialists who advocate emphasis on a g ric u ltu ra l development. However, irrigation and power potential are being increased by dams in south­ western Anatolia as well as the project in eastern Turkey at

Arpacay.GO

Industrial crops provide another important element and have benefited from irrigation. The area under meadows and pastures for livestock is of about the same order of magnitude as that for

59Turkey, IBRD, op. c i t . , p. 181 (2.471 acres equal 1 hectare)

5®An excellent study of Turkey's geography which includes inform ation on economic and a g ricu ltu ral development is : J. C. Dewdney, Turkey: An Introductory Geography (New York: Praeger, 1971). See also $. Érinc and N. Tuncdilek, The Agricultural Regions of Turkey," Geographical Review, x lii, 1952, pp. 179-203. 49 crops, but the trend is downward as cultivated lands are encroaching on traditional livestock grazing areas. Forestry, covering 18 million hectares, has not been used productively to date. In recent years afforestation has been undertaken.

Production patterns vary according to geographical regions.

Coastal regions tend to be most productive where rainfall is generally adequate. The central Anatolian plateau which covers one- third of the total area, has limited rainfall, and it is here that dry-1and cereal cultivation has been developed.^^ The eastern high­ lands contain much of the livestock production.

According to Aresvik, Turkey has a great potential for agricu ltu ral development:

Turkey has considerable water resources that can be further developed. Irrig a tio n can be expanded, cropping in ten sity can be increased.62

He also states that the country can achieve self-sufficiency in food and fibers, plus considerable exports of fruits and vegetables, even i f the population rate continues at the present le v e l. However, he favors family planning programs to reduce the present high rate of population growth of over 2.5 percent annually.

Compared to many developing countries economic planning is well advanced in Turkey, except in the agricultural sector:

Economic planning is relatively well developed in Turkey. However, in spite of improvements over the la s t decade.

G^Aresvik, op. c it.. Chapters 12 and 13, discuss introduction of Mexican wheat va rie tie s in Turkey.

62ib id ., p. 195. 50

agriculture planning is s till inadequate to achieve rapid agricultural development.63

Despite the low priority given to agricultural development, there are some incentives which have been introduced, p a rtly fo r political reasons. These include minimum price support for various crops, as well as subsidized supply of inputs such as water for water irrigation and agricultural credits. Also, efforts to tax farm incomes have been consistently defeated in the Grand National

Assembly as politicians have sought to win the support of the large rural vote as in many other countries.

Despite the land reform program of the Kemalist period, not much has been achieved in this field. A draft of a new Agri­ cultural Reform Law was published in 1972, calling for sweeping reforms. However, a series of m odifications watered down the program by allowing larger holdings. The political power of the large landlords is s till considerable and they have support in the

Grand National Assembly among the more conservative deputies. One argument against land distribution to landless peasants is that breaking down holdings may reduce the efficiency of agricultural production. In any case, the Land Reform B ill was passed by the

Grand National Assembly on June 13, 1973, but in a s till further watered-down form. Politically, the right-of-center Justice Party finds its support in the rural areas and from business, while the

63Aresvik, op. c it., p. 195. See also John F. Kolars, Tradition, Season and Change In a Turkish Village (Chicago: U niversity of Chicago Press, 1963), and Paul S tir lin g , Turkish V illag e (London: Weidenfield & Nicholson, 1965). 51

left-of-center Republican People's Party is backed by urban and

labor groups but in recent years has sought to gain support of

smaller farmers and small business since the Justice Party has strong­

er support in the area of bigger business and larger landowners. How­

ever, the leaders of both parties have more in common as they are

modernists, and have to contend with the traditional conservative

smaller parties. In fact the differences of the two main parties

have become quite blurred and involve more personality problems

that lead to political partisanship.^4

A few words about the agricultural and land tenure policies

of the major political parties may be in order here. It is generally

recognized that one of the unsolved problems in Turkey is land

tenure reforms. Both major parties are aware of this and have

trie d to do something about i t .

The Democratic Party - DP (1950-1960) and later the Justice

Party - JP have been characterized as conservative compared to the

Republican People's Party - RPP. Both the former DP and the present

JP parties have generally favored big business and large landowners

although they have introduced other liberal reforms and have helped

the peasants and the entrepreneurial classes. But they have been

slow in acting on land reforms. The formerly etatist and now "left-

of-center Republican People's Party - RPP has also not been able to

64This is not an essay on Turkey's politics and only s u ffic ie n t background is presented to make economic policies better understood. The reader is directed to the books and articles on Turkish politics of Kemal H. Karpat, especially Social Change and Politics in Turkey (Leiden: E. J. B rill, 1973). 52 introduce rural taxation or implement land reforms already on the books.

Thus it is seen that agriculture is the most difficult sector to modify and modernize. There is a large rural vote and the peasants are courted by a ll parties but the landlords s t i l l are an important pressure group affecting decisions of the Grand National

Assembly. In the 1961 GNA about 40 deputies were landowners them­ selves and another 158 listed as jurists or lawyers also owned large holdings out of a total of 450 deputies.

It may be noted here that in the early 1970's, 87.3 percent of the farmers owned 51.3 percent of the land, while 12.7 percent owned 46.3 percent. The rural population declined from 75 percent in 1965 to less than 70 percent in 1970, and this trend continues as more and more landless peasants d rift to the provincial towns and the larger cities.

The land tenure system during the sixties has been charac­ terized as follows: 1) In the south-east, the old feudal land ownership s t i l l p revails, 2) in the west and northeast, modern management type of large absentee ownership, under wage relations predominates, 3) in central Anatolia and in the Adana region, small and medium ownership p re v a ils , with a growing tendency toward larg er ownership, and 4) the main reservoir of rural wage earners all over the country characterized by small fractioned and poor villages.65

65Hershlag, Turkey, pp. 207-215. See also A. J. Meyer, "Turkish Land Reform,'* in Middle Eastern Capitalism (Cambridge: Harvard University Press, 1959)! 53

TABLE 4

NUMBER OF TRACTORS. SELECTED YEARS (in thousands)

Year Tractors

1940 1 1948 2 1950 17 1952 31 1955 40 1957 44 1960 42 1962 44 1963 51 1964 52 1965 55 1966 65 1967 75 1968 86 1969 96 1970 106 1971 119 1972 136

SOURCE: State Institute of Statistics, Statistical Yearbook of Turkey (1973). Details on other farm machinery available in Yearbook but was omitted to keep table simple. See also K. H. Karpat, "Social Effects of Farm Mechanization in Turkish Villages," Social Research, xxvii. Spring 1960, pp. 83-103. 54

Despite the importance of agriculture not much change has

occurred in the land tenure system, partly because many important

politicians who may be lawyers or members of other professions are at

the same time large landowners. Agricultural production may increase,

tractors are used more extensively, but land reform legislation even when passed has not been implemented e ffe c tiv e ly .66

There is a great deal of literature on land tenure and land

reform problems in Turkey but the Turkish peasant is re la tiv e ly well

off and in the period since 1950 much progress has been made result­

ing from b etter transportation and communication f a c ilit ie s and

improvement in educational and health services in nearly a ll areas fi7 except the very remote.

A fte r the m ilita ry coup of May 1960, the Committee of

National Unity - CNU introduced a land reform bill during 1961. In

fa ct the land reform views of the CNU were included in the 1961

Constitution. Article 37 of the new Constitution reads:

The State shall adopt the measures needed to achieve moderniza­ tion of land and to provide for the farmers who have no land, or insufficient land . .

GGgee Table 4 fo r number of tracto rs.

G^For information on land reform see: Resat Aktan, "Problems of Land Reform in Turkey," Middle East Journal, Summer, 1966, pp. 317-324; W. H. Pine, "Some Land Problems in Turkey," Journal of Farm Economics, May, 1952, pp. 263-267; Suat Aksoy, Turkiyede Toprak Meselesi [Land problems in Turkey] {Istan b u l, 1970); and Muzaffer Sencer, Turkiyede Kqylulugun Maddi Temelleri [The material foundations of the villagers] (Istanbul, 1971).

6®The full text of the 1961 Turkish Constitution is avail­ able in English in the Middle East Journal. Spring 1962 with commentary by K. Key. 55

In spite of the fact that the CNU favored such a reform nothing came of it. In 1962 the Grand National Assembly rejected the proposal put forward by Prime Minister Inonu to tax farmers. The farm lobby was apparently too strong.

One has to stress that the transformation of agriculture is a basic problem in developing countries such as Turkey. Overemphasis on industrialization to the neglect of agricultural development may create imbalances in the economy. For example, if the farming system cannot be made more productive, this w ill prevent the achieve­ ment of a sound balanced economic growth. While i t is true that

Turkey is now nearly self-sufficient as far as foodstuffs are concerned, except wheat, the growing population and the trend toward urbanization may create problems in the fu tu re.

Compared to agricultural production proper, the value of forestry and fisheries is in s ig n ific a n t. However, in the past decade improvements took place in both forestry and fisheries, the value added by forestry was 2.3 percent and fisheries 0.7 percent, of agricultural production in 1972.6®

In order to remove the major obstacles inhibiting a more rapid development of Turkey's agricultural productivity, the following recommendations are p r e s e n t e d :

1. Giving higher p rio rity to improved technology which w ill help nearly 4 million farmers living in over 40,000 villages.

6®Turkey, IBRD, op. c i t . , p. 182.

^^Aresvik, op. c i t . , pp. 185-197. (The above recommendations have been summarized.) 56

2. Assisting smaller farmers by helping them with packages of improved high-yielding technology with a low ris k r a tio , increasing credit facilities, and making crop insurance more readily available.

3. Making general and technical education more easily avail­ able to small farmers.

4. Improve the present unsatisfactory agricultural credit system.

5. Improve transportation f a c ilit ie s , develop feeder roads to keep villages located in remote areas accessible. This would involve 30 percent of Turkey's villages.

6. Improve the marketing system which is presently inadequate.

7. Reforms in land tenure law are necessary, especially in southeast Anatolia where absentee landlords are s till common. (On the other hand, this writer realizes that output may be reduced by fragmentation of land holdings).

8. The Ministry of Agriculture and other related institu­ tions should be reorganized with a view at more effective adm inistration o f Turkey’ s ag ric u ltu ra l development program.

9. The majority of agricultural students in Turkey have been selected from urban areas. More students from rural areas with practical experience should be admitted. Practical modern training should be emphasized.

10. Improved technology and more ag ric u ltu ra l research are advocated. (Improved cotton and wheat varieties were not introduced 57

as a result of public research but by innovative farmers them­

s e lv e s ).71

11. More effective agricultural extension services are

needed.

12. I t is believed th at a "kick-o ff" approach may be more

effective by staging national and regional production campaigns for

one key crop a t a tim e, such as was done fo r Mexican wheat.

13. Better water management is needed in irrigated areas.

Technical assistance to farmers fo r improved water use practices is

required.

14. The Planning Economic Research Department of the M inistry

of Agriculture should be further strengthened.

15. Higher priority should be given to agricultural development.72

Despite the fact that Turkish leaders generally feel that

rapid industrialization is essential to make Turkey a modern State

which can meet its national goals and a tta in fu ll employment fo r a

growing population, nevertheless a balance must be maintained between

industrial and agricultural development in order to have a smooth

71This w rite r believes th at whether improvements are the result of public or private endeavor is not important as long as progress is made. However, public sector support may s t i l l be necessary at this stage of development.

72yhe Second Five-Year Plan indicated that 8,5 m illio n hectares of land could be irrigated instead of the present 1.5 million hectares. The Third Five-Year Plan has taken this into consideration due partly to Turkey's desire for ultimate full membership and integration into the EEC, which requires a higher per capita GNP. 58 transition from a developing to a more developed nation. Apparent­ ly, one of the main obstacles to agricultural development is the problem of land tenure and land reform implementation which s t i l l remains larg ely an unresolved issue.

In concluding the discussion on the agricultural sector recent figures on agriculture may be helpful.

Agriculture accounted in 1974 for about 58 percent of the to tal employment, 27 percent of the GDP and 60 percent of export earnings. Despite an overall increase of production by 6.9 percent, exports of cotton and dried fruit decreased. Because of price support policies domestic prices exceeded prevailing market prices.73

I t is this w riter's view that economic development would be accelerated and a suitable climate would be created for economic development if the agricultural sector were transformed from a large­ ly static to a more dynamic condition in proper balance with ind ustrial development.

To what extent has the statist policies of the past and the mixed economic policies of the present affected agricultural develop­ ment? In the period prior to 1950 the rural areas were neglected to a large extent. After 1950 the Democratic Party sought the support of the rural areas for p o litic a l reasons and because they realized the importance of modernization of the farms. However, land reform was not encouraged. Since the 1960 Revolution, the mixed

73"Market Profile—Turkey," QBR 75-36, U.S. Department of Commerce, September 1975, p. 20. 59 economic policies of recent governments have given the agricultural sector increased p rio rity although agricultural development lags behind ind ustrial development even in the present Third Five-Year

Plan.

2. Industry, Mining, Power

Industry: In 1974, industry accounted fo r 11 percent of the labor force and contributed 24 percent to the GDP. Industrie’ production increased by 8 percent in 1974. Most of the production is directed toward the domestic market, although some exports are now being generated. The public sector owns 40 percent of the manufacturing and 80 percent of the mining industry.

In 1950, the industrial sector was small. During 1950-1962, emphasis was on industrialization aimed at import substitution.

During 1963-1970, the emphasis on import substitution continued, but export promotion measures were started, and the inefficiency of the

State Economic Enterprises created concern. Again in 1975-1976 emphasis is on export promotion.

A fter 1970, a th ird stage has developed of greater outward orientation. This was partly due to the 1970 devaluation, which, coupled with the inflow of workers' remittances from West Germany, eased the traditional foreign exchange constraints (1970-1974). The

Government has recently expanded incentives fo r exports. However, in 1975 foreign exchange reserves again began to decline but apparently the foreign exchange situation while serious is in the process of being s ta b ilize d . 60

Industry (including mining and power) has grown at a rapid rate, accounting for 13 percent of GDP in 1950, 17 percent in 1960, and 23 percent in 1972.

Of the total, manufacturing accounted for 85 percent of value added and mining 8 percent in 1972. The main manufacturing activities have been in the traditional consumer goods area: food, beverages, and tobacco processing, and textiles. During the 1960's modern industries developed, mainly involving basic metals, metal products, machinery and petroleum products, which now account for

40 percent of the manufacturing production.

The important industries include 1) iron and steel: Karabuk

Steel M ill, Erdemir Steel M ill, and the new Iskenderun complex

(USSR financed); 2) chemicals, petrochemicals, and fertilizers: in

1972, the above industries accounted for 8 percent of the value added in manufacturing; 3) textiles: textiles, clothing, and footwear accounted for 20 percent of manufacturing output and one-third of manufacturing employment; 4) forest industries: contributed 5 percent of the net manufacturing output, and 3 percent of GNP;

5) motor vehicles and tractors: essentially an assembly operation is highly fragmented.

The First and Second Plans aimed at rapid industrialization as the leading facto r in sustained economic growth and as a means to absorb surplus manpower from agriculture and reduce dependence on foreign aid. Turkey has achieved a high degree of self-sufficiency.

. . . industries, such as cement, oil, refining, steel. 6 1

fe r t iliz e r s , paper and road vehicles, have developed f a s t .74

Inward-oriented policies have led to slow growth of industrial exports, but in 1975 a new trend can be noted. Despite incentives for exported-oriented industries which started in the mid-1960's, exports s t i l l accounted fo r only 2.6 percent o f the value of manufacturing production in 1972. It is likely that this percentage will double in the near future if present policies are implemented. Exports o f industrial products in 1951 in m illio n of

US$ reached 56.7, in 1962 rose to 72.8, and in 1967 increased to

81.2. But in 1972 th is figure jumped to 237.1 and must have increased further but this writer was unable to get the required data at this writing.

Prospects for the future are good as the Third Plan con­ stitutes the first stage of a long-term strategy in which industrial growth is emphasized.

Mining; Turkey's mineral resources include coal, lignite, iron, chrome, copper, mercury, magnesite, manganese, sulphur, boron, and antimony. Turkish mineral production is handled mainly by the

State Economic Enterprises.

Chrome is one of Turkey's exports, while the country is nearly self-sufficient as far as coal and lignite are concerned. Turkey's crude petroleum production takes care of one-third of domestic consumption requirements.

The Etibank controls two-thirds of the country's mineral

74Turkey, IBRD, op. c i t . , pp. 216-227. 62 production. As a State Economie Enterprise its policies have been

criticized for not leading to effective exploitation and exports of

Turkish minerals.

Mineral production today accounts for about 1.7 percent of the

GNP. Mining production (T.L. million at constant 1971 prices) increased by an average of 11.5 percent per year in the 1962-1972 period. However, since 1973, there has been a decline in crude petroleum, copper, and chrome ore production with an increasing domestic demand, especially for crude o il. Turkey's demand for minerals is increasing steadily, particularly for crude o il, iron ore, and phosphate rock.

The slow development of the mineral industry in Turkey (other than coal and lignite) reflects insufficient exploration, obsolete mining laws, management and staffing problems, and high transportation costs.75

It is obvious that one solution is to increase the private sector's share in the field of mineral production. In the past, many of the smaller mines were in the private sector but in recent years their activities declined.

Power: There is a great demand for power in developing Turkey.

In 1973, 39 percent of Turkey's population had access to e le c tr ic ity .

In 1972, petroleum accounted for 46 percent of the total energy consumption, electric energy for 11 percent, coal 8 percent, while the remaining 34 percent was covered by fuelwood and animal waste.

Hydropower is just becoming important. Substantial investments have been allocated for construction of hydro-electric power plants.

75juHcey_, IBRD, op. c i t . , p. 233. 63

Gas is available in large cities only. Gas may play a more important role in the power area in the future. A natural gas pipe­ lin e from Iran is under consideration.

Oil drilling in the Aegean Sea is at present hampered by problems concerning the boundaries of the Aegean continental shelf between Turkey and Greece. However, Turkey may s ta rt exploration in the Aegean soon. The issue may end in the World Court i f a compromise solution is not possible soon.

Domestic and imported crude petroleum is refined in fiv e refineries, three of which are owned and operated by the Turkish

National Petroleum Corporation (TPAO). The construction of two crude oil pipelines, one from Iran and the other from Iraq are currently under consideration.

The Third Plan provides for expenditures of T.L. 12 billion

(US$ 1.6 million) for capital projects in electrical energy in the public sector. There is also a plan for village electrification.76

Public works, public utilities have also received attention in Turkey's economic planning.

3. Transportation

The Third Five-Year Plan investment in transportation is broken down as follows: road transport T.L. 17.6 billion, railways 7.6 billion, shipping 4.2 billion, aviation 4.4 billion.

Road tra ffic : 95 percent of all land passenger use road traffic. The road program involves maintaining and upgrading and

76The Third Five-Year Plan (1973-1977). 64 expanding present road network. A ll principal c itie s are connected by well maintained roads. There are 59,448 miles of roads of which

22,259 miles are paved, 27,821 miles improved, and there are a total of 431,400 motor vehicles, and 205,000 passenger cars. Truck­ ing has become the principal mode of land transport. There are

179,900 trucks and 46,500 buses (1972).

Sea transport: Program underway to modernize handling equip­ ment in ports and to increase length of wharves to accommodate larger ships. The main ports are Istan bu l, Izm ir, Zonguldak,

Eregli, Samsun, Trabzon, Iskenderun, Mersin, and Izmit. Istanbul is the most important port. Shipping: Expansion and modernization of Turkish merchant marine is being carried out. DWT are expected to increase 64 percent from 1.1 m illio n to 1.6 m illion tons in

1977. For shipping details see following tabulation: Public sector: cargo ships: 351,906 DWT; passenger ships: 33,763 DWT; tankers:

141,688 DWT; totaling 527,357 DWT. These are government-controlled

Maritime Bank. There are also p riv a te ly owned ships: cargo ships:

293,106; tankers: 194,956 DWT; totaling 488,062 DWT. There are also

48,000 DWT of ferryboats.

Total of Both Sectors

Cargo ships 645,012 DWT Passenger 33,763 DWT Tankers 366,644 DWT Total 1,015,419 DWT

Railroads : The Turkish State Railways (TCDD) network system is about 8,000 miles and growing. Nearly 50 percent of the network has become overaged and therefore is being modernized. Freight 65 accounts fo r the largest ra il t r a f fic ; trains have become long distance bulk carriers although there s t i l l is passenger service.

TCDD operates at a loss and is financed out of the national budget.

In recent years the emphasis has been on rapid expansion of the highway system. The following table w ill show this trend.

TABLE 5

PERCENT OF TOTAL TRAFFIC {RAIL AND ROAD)

1950 1960 1970 1973

Freight

Rail 76 56 25 28

Road 24 44 75 22

Passenger

Rail 51 25 8 6

Road 49 75 92 94

A viation: Rapid increase of a ir tr a ffic both domestic and international has been the recent pattern. The Turkish State

Airways - THY (Turk hava Y o lla ri) is an independent Government enterprise. There are international airports in Ankara and

Istanbul. Total appropriation for airports and THY is of the order of T.L. 4.4 billion (314 million).

^^Turkey, IBRD, op. c i t . , pp. 263-276, and S ta tis tic a l Year­ book of lurkey. 66

TABLE 6

THIRD PLAN TRAFFIC FORECASTS

Annual 1972 1977 rate of Unit Actual Planned increase (%)

Roads

Passengers b illio n pass/km 61.4 131.4 16 Freight billion t/km 25.7 60.6 19

Railways

Passengers b illio n pass/km 4.9 5.9 4 Freight billion t/km 6.6 10.1 9

Sea

Passengers b illio n pass/km 1.9 2.6 6 Freight billion t/km Domestic 7.4 12.8 12 International 24.2 39.0 10

A ir

Passengers m illio n pass/km Domestic 498.0 1,236.0 20 International 683.0 1,697.0 20 Freight million t/km 6.1 8.8 7

SOURCE: Turkey, IBRD, op. c i t . , p. 273. 67

4. Communications

Postal, telephone, and telegraph facilities are operated by the General Directorate of Posts, Telegraph and Telephone (PTT), a s tate economic enterprise, under the ju ris d ic tio n o f the M inistry of Communications.

Surface mail is provided throughout the country and air mail to major cities and adjacent areas.

The telephone system is inadequate for the demand. Inter­ national telephone service is available between Turkey and the principal countries of Europe and the U.S. In 1969 a satellite circuit to the U.S. was opened via cable to a ground station in Italy.

The construction of a Turkish ground station is planned.

Telegraph service is available to all parts of Turkey and radio as w ell as cablegrams are accepted fo r a ll countries. The number of telex subscribers has increased.

The CENTO microwave telecommunications system, which links

Turkey, Iran, and Pakistan by microwave system, was completed in 1965 and is operated by the PTT.

Radio and television stations are operated by the Turkish

Radio and Television Corporation and are administratively under the the General Directorate of Turkish Radio and Television. At the end of 1972 radio service provided by 17 stations provided most of the country. Television was first introduced in Ankara in 1968. In 1975 the 32 stations service 60 percent of the population. The increased population, industrialization, and growth of Turkish cities requires 6 8 expansion in communications services.78

5. Tourism

Turkey offers a wide range of opportunities for tourism. How­ ever, tourism until recently has played a minor role in the develop­ ment of the country. During 1950-1972, only modest efforts were made by the Government fo r the promotion of tourism. However, tourism is considered a potential source of income and foreign exchange.

The Third Plan emphasizes the need fo r planning to prevent the unregulated development of tourist facilities and the need to coor­ dinate the development of superstructure and infrastructure investments.79

Over 1.3 million tourists visited Turkey in 1973. In 1974 about $176 million was earned from the over 1 million foreign tourists visiting Turkey. It is expected that in the near future tourism receipts w ill reach $200 million annually when new facilities are completed and present hotel and resort capacity is used more e ffe c tiv e ly and expanded.

The following tabulation will give the reader a picture of the gradual rise of receipts from tourism as the numbers of foreign visitors increase.

78u.S.,Department of Commerce, Marketing in Turkey, OBR 75- 36 (Washington, D.C., 1975), p. 11.

79Turkey, IBRD, op. c i t . , p. 279, and U .S ., Department of Commerce, Commerce America [Washington, D .C ., January 5, 1976), pp. 26-27. 69

Year Gross Receipts Number of Foreign Tourists

1970 $ 50 million 446,000

1971 60 million 494,000

1972 104 m illio n 1,035,000

1973 172 million 1,342,000

1974 176 million n.a.

6. Urban Development

Like most developing countries, Turkey is experiencing rapid urbanization, especially since 1950. The population is shifting from the rural sector to the cities and towns.

The 1975 census registered a population of 40.2 million of which over 38 percent were urban. The population annual rate of increase is about 2.5 percent.

The proportion of population in urban units over 10,000 rose from IB percent in 1950 to 35 percent in 1970.80

Urban annual growth rate (1970-1975) was 4.6 percent, compared with rural growth rate of 1.6 percent and an overall rate of 2.4 percent. Urbanization rate of 5.2 percent (1960-1965) and 6.2 percent (1965-1970) has stabilized at about 6 percent.

Since 1950 a large number of workers have gone abroad (mostly to West Germany and Europe, but some to A ustralia and Libya), thus relieving some of urban pressures. Urbanization is also creating changes in trad itio n al social and economic patterns.

^^Turkey, IBRD, op. c i t . , p. 169. See also Rusen Keles, Urbanization in Turkey, Ford Foundation study, 1972. 70

At firs t most of the migrations were to the largest cities such as Istanbul {population 2,534,839 in 1975), Ankara the capital (1,698,542), and Izmir (636,087), but recently some of the migration has been to some twenty provincial cities and towns.

Istanbul is especially crowded and problems of housing, p o llu tio n , and underemployment exist. The Bosphorus bridge has also created traffic jams as increased transportation linking Europe and Asia has expanded. I t is reported that the bridge to lls have nearly paid for its construction.

B. Development Plan—Social Sector

1. Population

Turkey has a sturdy healthy population of 40 million. In the postwar period Turkey has had a high natural rate of growth of population, which has nearly doubled in the last twenty-five years.

The average annual rate was 2.9 percent (1955-1960), 2.5 percent

(1955-1960), 2.4 percent (1970-1975). The population is now nearly

40 percent urban.

Since censuses exclude Turks liv in g abroad, the heavy emigration during 1970-1975 results in underestimating the rate of growth.There are about 800,000 Turkish workers in West Germany and Europe and probably a total of some 1 million Turkish living abroad a t th is time.

81 Turkey. IBRD, op. c i t . , pp. 145-150, and Turkish census figures, October 1975. 71

The city of Istanbul has 2,534,839, Ankara (the capital)

1,698,542, Izmir 636,087, and Adana 467,122 according to the 1975 census. In 1923 Turkey's population was estimated at 10 million.

The firs t census was in 1927. The following tabulation w ill show the population growth as registered in the census of each year:

Turkey: Population Growth

(in millions)

1927 13.6 1955 24.0

1935 16.2 1960 27.5

1940 17.8 1965 31.2

1945 18.8 1970 35.2

1950 20.9 1975 40.2

The October 1975 census figure was 40,197,669. Ultimately problems of population control will have to be faced by the authorities.

2. Employment

The labor force is over 16 m illio n o f which 11 percent were unemployed in 1975. In add itio n, some 800,000 were employed abroad, mostly in West Germany.

The growth of the labor force depends on the changing age structure, as well as the rate of population growth, and on changes in the participate rate. The proportion of the population in the age group 15-64 f e ll from 58.3 percent in 1950 to 54.1 percent in

1965 and remained 54.3 percent in 1970. The SPG expects this proportion to fluctuate between 55 percent and 56 percent until 72

1985.82

Employment figures for 1973 totaled 15.30 m illion, 1974,

16.27 million, and for 1975 the figure was 16.30 million. The rate of unemployment has been about 10 percent. In 1973, the rate of unemployment was 10.80 percent, in 1974 it rose to 11.70 percent, and in 1975 i t was 11.40 percent. There is also the problem of 83 underemployment.

The participants of the 15-64 age group in the labor force fell from 44.4 percent of the total population in 1970 to 38.5 percent in 1970. The Plan expects this participation rate to remain at about 38 percent in the period 1972-1977. One of the problems of the Government is to find new jobs fo r young people who are ready to join the job market every year.

3. Education

The Turkish Government has emphasized the extension and improve­ ment of the educational system as one of the country's main social needs. Despite the progress made in reducing illite r a c y and increas­ ing the number of technical personnel, the demand for education and skilled manpower is greater than the existing system can meet.

Literacy rate is 55 percent.

In 1970 male literacy rate (in percent of population over 6

8^Turkey, IBRD, op. c i t . , pp. 150-157.

88poreign Economic Trends, FET 75-145, December 1975, p. 2, Note that active labor force includes workers abroad and the military/gendarmerie in above figures. See Chapter IV, page 36 of this study regarding labor unions. 73

TABLE 7

DISTRIBUTION OF THE ECONOMICALLY ACTIVE POPULATION (15-64 YEARS)

1962 1967 1972

Agriculture 77.1 71.3 65.0 Manufacturing 8.3 9.2 11.3 Construction 2.6 2.9 3.2 Commerce 2.7 3.1 4.5 Transportation 2.2 2.5 3.3 Services 6.4 8.3 11.7 Unknown 0.2 2.7 1.0

Total 100.0 100.0 100.0

SOURCE: Third Five-Year Plan, p. 658. The above figures exclude the armed forces.

TABLE 8

GROWTH OF EMPLOYMENT 1962-1972 RATES (Percent per year)

F irs t Second Plan Plan Average 19

Agriculture -0.4 -0.7 -0.5 Industry 3.3 5.4 4.3 Construction 3.8 3.2 3.6 Commerce 2.3 8.0 6.3 Transport 4.6 6.8 5.7 Services 10.5 4.1 7.5

SOURCE: Third Five-Year Plan, p. 658. 74 years old) was 69.0 percent, but female literacy rate was only 40.0 percent, and total literacy rate was of the order of 54.5 percent.

Universal primary education is a constitutional requirement.

In 1970-1971, primary school attendance was 83.6 percent compared to 61 percent in 1955-1956. While the Third Plan envisages 100 percent attendance this ideal w ill not be reached in the near future.

The supply of technical manpower rose during 1960-1970 as shown in the following tabulation:

Engineers from 15,461 to 31,401

Technicians from 27,056 to 54,753

Agronomists 5,555 to 17,923

Skilled Craftsmen from 998,902 to 1.83 million

Turkey has several universities, technical schools, and sends students abroad fo r specialized studies.84

4. Health and Welfare

Turkey has adequate medical facilities in the larger cities and an attempt is being made to service remote rural areas through health stations. In addition to medical schools and hospitals the Red

Crescent (equivalent of the Red Cross) is quite active in helping during disasters and earthquakes and floods. There are charitable organizations which take care of orphans and d es titu te persons, the

Evkaf organization (Pious Foundations), the Green Crescent (anti- alcoholism organization) are among the institutions which are involved

B^Turkey, IBRD, op. c i t . , pp. 158-161. 75 in the maintenance and improvement of the health and welfare of the people.

While medical and dental services are adequate in the larger c itie s few doctors are interested in practicing in remote areas. The

Public Health is trying to do a good job with limited funds and facilities. Turkish industrial workers are now covered by social security but this involves some 1 million workers of a labor force of 16 m illion, although private and public insurance and other health and welfare assistance is increasing.

One source of health and welfare assistance is through the labor unions. In 1967 973,055 workers were insured under social security. This figure has surpassed 2 m illio n in 1976.

C. Finance

General Observations: The public sector (public finance) which comprises the Central Government, several levels of local governments, and a large sector of the State Economic Enterprises increased its re la tiv e importance during the past two decades.

The importance of the Central Government in allocating and mobilizing national resources has increased substantially during the past twenty years.

I t should be noted that a fte r 1973, public investments in the field of agriculture, mining, and education which were lagging compared to manufacturing and transportation, are not receiving more atten tion .

1. The financial system, money and prices: According to the 76

IBRD study, the financial system of Turkey is well developed in

relation to the level of aggregate economic activity.

Assets of financial institutions have grown at 7.6 percent per year from 1963 to 1971 at constant p rices, whereas real GNP has grown a t 6 . 8 percent and real investment at 8 . 6 percent.85

An increasing proportion of Turkey's expenditures have been channelled

through financial institutions. Turkish financial institutions are

highly specialized. For a description of financial institutions and

banks see this chapter, page 78.

Interest rate policy; Strict control over the structure of

in te re s t rates in Turkey has been an important instrument of monetary

policy in the last decade, together with reserve requirements.

Money and Credit: Monetary lia b ilitie s of the banking system have grown a t an average annual rate of 18 percent during 1950-1970, at 26 percent during 1970-1972. The rapid growth of deposits in

recent years is partly due to transfers of emigrant workers, higher

interest rates on deposits, and the inflation of money income.

Money supply rose from T.L. 70.5 million in 1973 to T.L. 90.5 m illio n in 1975. External debt (repayable in foreign exchange) rose from $2.7 billion in 1973 to $3.0 billion in June 1975. Gold and foreign exchange reserves f e ll from $2 . 0 billion to $1 .2 billion by

October 1975. Worker remittances fell from $1.2 billion in 1973 to

$1.0 b illio n in September 1 9 7 5 .8 8

85ibid., p. 86.

8 6 Foreign Economic Trends, American Embassy, Ankara, op. c it., p. 2. In 1976 it is estimated that workers' remittances may total about $900,000,00. 77

Price and price policies: During the last twenty years, the

Turkish Government's declared objectives of price policy have been to maintain price stability and to support farm prices. Un­ fortunately, inflation which was contained for periods (17 percent in 1973), rose again in 1974 to 30 percent but by mid-1975 f e ll to about 20 percent. However, consumer prices increased between

25-30 percent.

Numerous factors have contributed to the rapid rate of inflation. The expansion of money supply at a higher rate than real income has had a s ig n ific a n t influence on price movements. Money supply increased 16 percent per year during 1950-1972, and rose further since then. Since 1950, domestic prices have increased faster than world prices. Devaluation and changes in import duties were not sufficient to resolve this problem.

2. Currency: The Central Bank maintains fixed exchange rates which are adjusted from time to time to reflect changes on inter­ national exchange markets. The exchange rate has varied slightly in recent years and is given below for the period 1973-1976.

In 1973, $1.00 = T.L. 14.00. In 1974 $1.00 varied between

$13.50 and $14.00. In 1975, $1.00 = T.L. 14.50, and in 1976 $1.00 =

T.L. 16.00. Since October 1976 the rate has been $1.00 = T.L. 16.50.

3. Domestic C redit: One o f the problems of development involves credits. Most credits to the private sector are controlled by the Central Bank through credit ceilings to commercial banks, reserve requirements on bank deposits, and ceilings on interest rates.

State Economic Enterprises are financed to a large extent by 78 government-owned special banks.

4. Financial institutions and banks: The banking system is quite developed. In 1973 Turkey had besides the Central Bank, 18 commercial banks, seven regional banks, fiv e foreign banks, 11 special banks, and three development banks.

Commercial banks give short-term credits to private industry.

Since 1972, they also provide medium- and long-term credit. The largest are the Turkish Business Bank (Turklye Is Bankasi A .S .), the Guaranty Bank o f Turkey (Turkiye Garanti Bankasi A .S .), the

White Bank (Akbank T .A .S .) , and Turkish Commercial Bank (Turk Ticaret

Bankasi).

Foreign banks are engaged primarily in the financing of foreign trade. They include among others the Turkish Foreign Trade

Bank (Turk Pis Ticaret Bankasi A .S .) , which is owned by the Bank of

America and the Is Bankasi. and the Ottoman Bank (Osmanli Bankasi

A .S.), which was established in 1863.

Government-owned special banks operate as holding companies in financing industries or by operating manufacturing facilities. With the exception of the Agriculture Bank, which has the largest deposits of any bank in Turkey, special banks rely less on deposits than on borrowing from the Central Bank. They include among others the Etibank which controls some 70 percent of the mineral production, the Sumerbank, which has financed the operation of most of the textile m ills , the Maritime Bank ( D enizcilik Bankasi T .A .Q .), which owns and operates ships and shipyards, the Real Estate and Credit Bank

(Turkiye Emlak Kredi Bankasi A .O .), which finances residential 79 construction, and the Bank of Provinces fille r Bankasi) . which gives financial assistance to cities and villages.

Development banks include the private In d u strial Development

Bank of Turkey (Turkiye Sinai Kalkinma Bankasi), and the Industrial

Investment and Credit Bank (Sinai Yatirim ve Kredi Bankasi), as well as the government-owned State Investment Bank. The Ind ustrial

Development Bank of Turkey was established in 1950 by a consortium of private banks with IBRD assistance. It acquires most of its resources through borrowing from abroad and provides medium- and long­ term credit as well as equity capital to industrial enterprises. The

Ind ustrial Investment and C redit Bank, also established by commercial banks, is the smallest of the development banks. The State Invest­ ment Bank draws its resources mostly from compulsory social insurance funds through the sale of bonds and lends them exclusively to State

0 7 Economic Enterprises.

5. National Budget: Like in most other countries the budget is an indicator. The fiscal year runs from March 1 to February 28.

Budgetary deficits are financed by domestic borrowing. In FY 1974/75 supplementary“authorization was needed to meet outlays in support of m ilita ry operations in Cyprus. Such expenditures in excess of $1 b illio n have been financed through a new series of government bonds.

The current fiscal budget (March 1, 1975-February 29, 1976) estimated expenditures of $7.75 billion and revenues of $7.1 billion.

8^U.S., Department of Commerce, Marketing in Turkey, OBR 75-36 (1975), p. 13. ------80

The gap of $650 million was expected to be covered mainly by

domestic bond sales.

A new public employee salary law, additional m ilitary expenditures, and increased subsidies on fertilizers and steel have

raised the budgetary gap to as much as $2 b illio n .

In order to encourage capital inflow, the Government has taken

several steps: 1) the State Economic Enterprises have been authorized

to borrow up to $500 million on the Euro-dollar market in 1975,

2) BOTAS, a wholly-owned subsidiary of the Turkish Petroleum

Corporation, raised $150 million in a syndicated loan offering in which several American banks p artic ip a te d , 3) Turkish banks have also

been authorized access to the Euro-dollar capital market. Inflow of

foreign exchange into the banking system in the form of convertible

Lira deposits have reached $850 m illio n toward the end o f 1975.

6. Foreign Aid; U.S. and other aid was essential fo r Turkey's development. Since 1947, the U.S. has provided Turkey with $6.6 billion in military and economic assistance. U.S. economic aid was being phased out by the end of FY75.88

The mutual Turkish and American aim regarding the aid program was to help Turkey become self-sufficient, but apparently this goal will not be reached within the next decade. Since the end of World

War I I , Turkey has expended nearly 30 percent o f its annual budget on defense, considered essential fo r national s u rvival.

88u.S. aid received (FY46-FY74): Economic, $2.7 billion; military, $3.9 billion. 81

After the imposition of the U.S. embargo on February 5, 1975,

Turkey has sought a lte rn a tiv e sources of m ilita ry supplies and equip­ ment, and reviewed plans for developing its own production capability.

Turkey appears determined to obtain the m ilita ry hardware they believe necessary for national survival even if they must squeeze other sectors of their economy to find the required foreign exchange.

This writer tends to agree that national security and survival should receive top p rio rity .

The OECD Consortium fo r Turkey provides long-term financial assistance. The IMF, the IBRD, the European Investment Bank, West

Germany, and the U.S. have been the main contributors.

U.S. economic and m ilitary assistance to Turkey for FY75 totaled

$102.9 m illion. U.S. assistance for FY76 has been minimal because of continuing U.S. Congressional restrictions on m ilitary assistance and purchases and the phase-out of economic assistance programs.

West Germany has been the major th ird country source of security assistance, providing about $26 million annually (DM 100 million every 18 months).89

Turkey is looking more and more to the European Economic

Community fo r assistance. Vehbi Koc, a well known Turkish industrialist writing in the Turkish newspaper M illiyet on

January 22, 1976 stresses the importance of Turkey's associate membership in the EEC and discusses the result of a recent trip to

89u.s., Department of State, Turkey: Background Notes. Pubn. 7850 (January 1976); Foreign Economic Trends, FET 75-145, December 1975, American Embassy, Ankara; and U.S. Department of Conmerce, Commerce American (January 5, 1976), pp. 26-27. 82

Europe. Also Turkey's economic relations with the Arab world

(chiefly Libya and Iraq), Iran, and other countries are in process of expansion.

According to The Turkish Foreign Policy Report (Ankara:

Ministry of Foreign Affairs, December 1975), Turkey is broadening its economic cooperation with Middle Eastern countries as well as with

Europe.

7. Balance of Payments: After a period of chronic balance of payments deficits, during the period 1970-1974, the balance of pay­ ments position showed signs of improvement p a rtly due to inflows of

remittances from Turkish workers abroad, and also due to increased exports. Unfortunately, the balance of payments position again has deteriorated during 1975.

Turkey's gold and foreign exchange reserves totaled $1.2 billion as of October 1975, a drop of $388 million from the first of that year. A series of capital liberalization measures announced earlier in 1975, however, has led to heavy borrowing from the Euro­ dollar market primarily in the form of convertible Lira deposits.

Medium- and short-term borrowing, including $210 million under the

IMF Oil Facility, has amounted to about $1 billion during 1975.

While Turkey has thus stabilized its foreign exchange reserves

since May 1975, i t has been done a t the expense of additional medium- and short-term foreign debt burden.

Relatively unfavorable prospects for worker remittances from abroad and for exports in the near future, coupled with the rise in

imports affect the outlook for the Turkish balance of payments 83 picture. Even on the basis of relatively favorable projections for imports, exports, invisible transactions and foreign debt service, it appears lik e ly th a t the Turkish current account balance w ill remain in a deficit position for the next few years.

Thus, even w ith sizable loans from intern atio nal in s titu tio n s , and regular aid donors, and from agreements Turkey has signed recently with the USSR, Iran, and Libya, balance of payments problems may p e rs is t.90

OOporeign Economic Trends, op. c i t . , pp. 5-6. 84

TABLE 9

BALANCE OF PAYMENTS (1970-1974) (in millions of US$)

[Program) 1970 1971 1972 1973^ 1974

CURRENT ACCOUNT

Foreign Trade Imports (c if) -948 -1,177 1,563 2,099 -2,550 Exports (fob) 588 677 885 1,317 1,400 Trade balance -360 -494 -678 -782 -1,150

Invisibles Tourism, net 4 21 44 79 95 Interest! -47 -60 -62 -59 -125 Profit transfers -33 -36 -35 -35 -50 Worker remittances 273 471 740 1,183 1,150 Other (net) -16 -30 -47 93 -45 Invisibles balance 181 366 640 1,260 1,035

NATO infrastructure and off-shore receipts 8 6 30 18 15

CURRENT ACCOUNT BALANCE -171 -122 -8 497 -100

CAPITAL ACCOUNT

Private resources 92 72 82 129 150 Suppliers credits Direct investment 58 45 43 79 70 D irect imports (with waivers) 34 27 39 50 80 Commercial credits 1 continued 8&

TABLE 9 , cont.

(Program) 1971 197] 1973 1970 1974

O ffic ia l 337 345 304 337 330 Project assistance 179 219 231 289 300 Program assistance EMA credits: 25 15 - “— Others : 67 59 63 48 30 Debt r e lie f 16 13 10 -- EMA refinancing 50 37 - T.L. grain imports and grants 83 55 16

Gross capital inflow 512 470 402 466 490

Amortization of Public Debt -197 -125 -127 — 125

Net capital inflow 315 345 275 - 365

Overall Balance 144 223 267 - 265 Net IMF position 48 -3 -98 - - SDR's - 5 37 -- Short term capital (net) 18% 61% 332% - Errors & omissions -24 60 28 - Changes in reserves (- increases) -186 -346 -566 -711 -260

^Gross of debt relief.

^Inflows on convertible Lira accounts.

^Provisional. CHAPTER VI

THE FOREIGN TRADE REGIME

A. General Observations

Turkey is s t i l l mainly an agricultural country in process o f rapid industrialization. While in the early days of the Republic the balance of trade was generally.favorable because of the slow process of industrialization, after the 1950 period of industrial expansion imports of capital goods resulted in trade and balance of payments problems. During the period 1970 to 1973 trade balances continued negative but remittances from Turkish workers in Europe helped neutralize the negative balance of payments situation.

Turkey had an export surplus during the Second World War which resulted in accumulation of gold and foreign exchange reserves. Since then and until 1970, the balance-of-payments situation had been characterized by a chronic foreign exchange shortage.91

Since that time things improved somewhat because of increased exports and the inflow of workers' remittances from abroad, but again the situation deteriorated in 1975. As of January 1976,

Turkey is suffering from lowered export revenues and in spite of new export promotion policies and b e tte r export performance during the latter half of 1975, the trade deficit is estimated at close to

$3.0 billion for 1975. Inflows of capital and of convertible Turkish

9!Turkey, IBRD, op. c it., p. 120. See also Anne 0. Krueger, Foreign Trad¥ Regime and Economic Development: Turkey (New York: Columbia University, 1974).

8 6 87

Lira deposits have helped hold foreign exchange reserves relatively steady at about $1.0 billion, and foreign debt has unfortunately gone up to $3.01 billion as of tnid-1975. There is some good news as preliminary reports of the Ministry of Commerce indicate that 1975 exports w ill be substantially above that for 1974.

B. Principal Imports

Turkey's imports and exports per capita are the lowest, while shares of imports and exports of the GNP are the second lowest, among the OECD countries. This is understandable as Turkey is a developing country and cannot be compared to industrial Western nations.

The nature of Turkish society which is s t i l l predominantly rural, the low productivity of the agricultural sector, and the fact that Turkish industry until very recently was directed toward the domestic market, all explain the low export figures. But this is changing. With the development of Turkish industry the import share of consumer goods has steadily declined and w ill decline further.

Import share of consumer goods has constituted less than 5 percent of total imports since the mid-1960's with few exceptions. Turkey's imports in 1974 consisted of: 60 percent raw materials, one-third of investment goods, and only 4 percent of consumer goods. Besides machinery and transport equipment Turkey is dependent on imports for basic metals and chemicals, fertilizers, and petroleum products.

Imports were $3.8 billion, 1974; $2.1 billion, 1973. The principal suppliers were: West Germany, 18 percent; U.S., 9 percent; 8 8

Iraq, 9 percent; Italy, 7 percent; U.K., 7 percent; Saudi Arabia,

7 percent. Major imports included: machinery and equipment, mineral fuels, iron and steel products, motor vehicles, cereals, organic chemical s .92

TABLE 10

TURKEY'S IMPORTS BY COMMODITY (in millions of US$)

1970 1971 1972 1973 1974

Raw materials

Mineral fuels 66.6 121.9 155.7 221.6 762.9 Fertilizers 33.5 35.4 67.3 131.5 101.3 Other 354.2 443.4 484.2 640.1 1,467.3 Subtotal 454.3 600.7 707.2 993.2 2,331.5

Investment goods

Machinery & equipment 390.3 444.2 696.8 886.4 1,092.2 Construction m aterial 55.7 67.0 85.9 116.2 196.9 Subtotal 446.0 511.2 782.7 1,002.6 1,289.1

Consumer goods 47.3 58.9 72.8 90.4 157.1

Total 947.6 1,170.8 1,562.7 2,086.2 3,777.6

SOURCE: T. C. Maliye Bakanligi, Monthly Economic Indicators. Ankara. UN Yearbook of International Trade S ta tis tic s , N .Y ., various issues.

92u.S., Department of Commerce, Market Profi1e—Turkey (1975). It should be noted that Turkey's economic performance has been considerably better than that of other non-OPEC developing countries. 89

C. Principal Exports

Turkey's exports are mainly agricultural products: cotton,

tobacco, and hazelnuts. Their share has declined as industrial

exports grow and in 1974 the above agricultural products accounted

for more than one-third of total exports.

Exports in 1974 totaled $1.5 b illio n as compared to $1.3

b illio n in 1973. The principal customers were: West Germany, 22

percent; U.S., 10 percent; Lebanon, 7 percent; Switzerland, 6

percent; Italy, 6 percent; U.K., 5 percent.

Major Turkish exports consisted of: cotton, tobacco, nuts,

textiles and clothing, dried fruits, livestock. See Table 11 for

Turkey's exports by principal commodities.

TABLE 11

TURKEY'S EXPORTS BY COMMODITIES (in millions of US$)

1970 1971 1972 1973 1974

Agricultural products 429.0 480.1 597.2 858.0 906.3 Mining products 20.3 21.3 16.4 18.9 39.3 Industrial products 139.3 175.2 271.4 440.1 586.6

Total 588.5 676.6 885.0 1,317.1 1,532.2

In addition to the major exports listed, Turkey's exports

include smaller quantities of hides and skins, wool, and olive oil.

U.S. trade with Turkey depended largely on the level of

economic and military assistance. U.S. exports have consisted of 90

TABLE 12

TURKEY'S FOREIGN TRADE BY AREAS (in millions of US$)

1970 1971 1972 1973 1974

Imports by country of origin: EEC 305.0 429.9 622.0 1,114.7 1,708.2 EFTA 166.4 213.0 300.4 188.6 329.4 Si no-Soviet 115.0 113.4 162.9 178.9 264.9 USA 172.0 128.8 174.9 178.2 350.4 Other developed countries 53.7 63.5 78.2 107.3 301.2 Other countries 73.7 139.6 170.0 328.2 822.8 Total 885.8 1,008.2 1,508.4 2,095.9 3,776.9

Exports by country of destination: EEC 239.1 266.6 347.0 611.6 717.3 EFTA 106.8 132.6 164.6 155.9 154.4 Si no-Soviet 84.8 83.5 160.0 132.6 162.8 USA 56.2 68.8 103.5 130.4 144.2 Other developed countries 28.2 25.7 35.3 51.3 66.7 Other countries 73.4 99.4 132.5 235.3 286.6 Total 588,5 678.6 888.9 1,316.9 1,532.0 Imports by country % % % % % of origin: EEC 34.4 39.5 41.2 53.2 45.2 EFTA 18.8 19.6 19.9 9.2 8.7 Si no-Soviet 13.0 10.4 10.8 8.5 7.0 USA 19.4 11.9 11.6 8.5 9.3 Other developed countries 6.1 5.8 5.2 5.1 8.0 Other countries 8.3 12.8 11.3 15.7 21.8 Total 100.0 100.0 100.0 100.0 loo.o Exports by country of destination: EEC 40.6 39.4 39.0 46.4 46.8 EFTA 18.2 19.6 18.5 11.8 10.1 Sino-Soviet 14.4 12.3 11.9 10.1 10.6 USA 9.5 10.2 11.6 9.9 9.4 Other developed countries 4.8 3.8 4.0 3.9 4.4 Other countries 12.5 14.7 14.9 17.9 18.7 Total 100.0 100.0 100.0 100.0 100.0 91 three types: commercial, AID-financed including shipments under

P.L. 480, and special category shipments under m ilita ry assistance programs. The major part of commercial sales involve government procurement financed by Eximbank c red its. U.S. aid is being phased out so future trade w ill be basically commercial sales. U.S. exports to Turkey consist mainly of industrial machinery, transport equip­ ment, and chemicals besides agricultural commodities such as wheat during certain years of poor wheat harvests. See Table 13 fo r U.S. exports to Turkey and Table 14 for U.S. imports from Turkey.

TABLE 13

U.S. EXPORTS TO TURKEY (in millions of US$)

1970 1971 1972 1973 1974

314.6 306.6 300.2 347.0 462.6

TABLE 14

U,.S. IMPORTS FROM TURKEY (in millions of US$)

1970 1971 1972 1973 1974

69.8 66.9 106.0 129.0 141.2

The U.S. purchases the following commodities from Turkey: tobacco, some types of petroleum products, nuts, non-ferrous ores, clothing, and dried fruits. 92

The production of opium has been an issue between the United

States and Turkey in the recent past. The problem has been resolved as Turkey has instituted strict controls as recommended by the United

Nations and the United States. According to the U.S. Department of

State, "No evidence of poppy incision has been found.

D. Trade Policy

Trade policy has been generally restrictive because of past shortages of foreign exchange and the need to protect domestic in d u stries. Turkey is a member of GATT and OECD. Turkey is an

Associate Member of the EEC since 1964.

E. Trade Prospects

Machinery and equipment are needed for petroleum exploration, ore processing, and food processing, and handling as well as for thermal- and hydro-electric power plants, and modernization and expansion of the transportation system. Purchases fo r the Government and State Economic Enterprises are made by public tender.

F. Economic Outlook

Despite inflation, unemployment, rising import costs, lowered export revenues and growing budgetary d e fic its , the basic economy of Turkey is strong. The Government is introducing new export promotion measures, giving incentives to export oriented industries.

93Turkey, Background Notes, U.S. Department of S ta te, January 1976, p. 7. See also "Problems of Narcotics," in Turkish Foreign Policy Report (Ankara: Ministry of Foreign Affairs, December 1975), pp. 17-19, and James W. Spain, "The United States, Turkey and the Poppy," The Middle East Journal, Summer, 1975. 93 and for the firs t time is paying more attention to agriculture which is the mainstay of the economy and a potential foreign exchange earner much larger than at present.

During 1976 in fla tio n a ry pressures appeared to be abating.

GNP in real terms showed a growth of 7.9 percent in 1975, and after a period of crisis worker remittances are now stabilized at nearly

$1.0 billion annually and w ill continue at about this amount in the immediate fu tu re, but most important new government measures are believed to increase exports which at this writing are substantially higher than in the same period last year. Most important, the Cyprus c ris is appears to be reaching a compromise phase which w ill be h elp fu l. CHAPTER V II

INVESTMENT IN TURKEY

A. Foreign Investment Encouragement Law

Government policy regarding foreign investment has generally favored foreign capital participation in certain areas, but foreign private capital investment in Turkey has remained small.

Turkey's economic development program and the expansion of its industry, transportation, and communication facilities required foreign capital investment and "know-how." Thus, Turkey's Foreign

Investment Encouragement Law was passed in 1950, and guaranteed repatriation of profits and equal treatment of domestic and foreign capital. However, the Government was very careful in approving foreign investments despite the existing law which has been amended several times.

There are historical reasons fo r Turkey's caution when dealing with foreign investments. The memory of the Capitulations and Extra-

Territorial Rights of the Ottoman period s till persists in the minds of Turkish leaders.^4 Private foreign investment has therefore not been particularly welcome in bureaucratic circles, and has played only a small part in the country's industrial development. On the other hand, U.S. Foreign Aid during the period 1947-1960 helped

^^Nasim Sousa, The Capitulatory Regime of Turkey (Baltimore: Johns Hopkins University Press, 1933).

94 95 develop Turkey's in fra s tru c tu re . Foreign investment, whether

American or other has remained insig nifican t despite the investment law .95

As early as 1947, the RFP had approved a decree to encourage foreign private investment. In March 1950 the first Law to

Encourage Foreign Capital Investment was passed. The DP liberalized the Law to Encourage Foreign Investment on August 2, 1951. The amended law permitted foreign investment in industry, the exploita­ tion of energy resources and minerals, public works, and communica­ tions. Investors were allowed to transfer 10 percent of their profits annually in foreign exchange of their country of origin.

But apparently this was not attractive enough. The Law to

Encourage Foreign Investment was amended again Jaunary 18, 1954, and the o il law was passed March 7, 1954. Even today foreign investment remains small p a rtly i t is believed because of the investment c lim ate.96

Most foreign investment in Turkey is in the form of jo int ventures with Turkish partners holding a majority interest. Turnpike

S^Law to Encourage Foreign Capital Investment of March 1950 as amendedl The Foreign Investment Encouragement Law No. 6224 of 1954 is presently in force.

GGpor a discussion on foreign investment in Turkey see: U .S., Department of Commerce, Investment in Turkey, Basic Information for U.S. Businessmen (Washington, D.C., 1956). See also U.S., A.I.D. Economic Planning D ivision, Investment Guide to Turkey (Washington, D.C., 1964). A useful study aealing with foreign private capital in Turkey is by Mehmet S e lik , Turkiyede Yabanci Ozel Sermaye (1923- 1960) (Ankara, 1961). See also Clarence B. Randall, "Should We Invest Our Capital in Turkey," Izmir Ticaret Odasi Dergisi Buleteni, December 1953, p. 37. 96

investments are not popular in developing countries such as Turkey

where joint ventures are preferred. Since the mining industry is

under government control i t is an area in which foreign investment

is difficult. See section D, this chapter, for details of the

extent of U.S. investment in Turkey.

B. Foreign Investment Climate

The Foreign Investment Encouragement Law No. 6224 of 1954 is

relatively liberal but is purposely vague as to details. The law

provides that foreign capital investment shall be given equal treat­

ment with local capital which is invested in the same industry. The

law also guarantees transfer of profits and repatriation of capital

based on existing foreign exchange regulations. In practice, how­

ever, foreign firms claim that they are confronted by bureaucratic

obstacles and delays in their operations.9?

According to Law 6224, all types of foreign investment, capital,

tangible and intangible assets, and retained earnings, have to be

approved by the Government. The M inistries of Commerce, Finance, and

Industry and Technology, as well as the State Planning Organization,

have to rule on various aspects of each application consisting of

fairly detailed questionnaires. The processing of applications

97The following were useful fo r understanding problems involved with foreign investment in Turkey: Bulent Yazici, "Turkiyede Yabanci Sermaye" [Foreign capital in Turkey], Istanbul Ticaret Odasi Necmuasi, November-December 1954, pp. 49-53; H. Chenery and others, Foreign Investment and Economic Development, Foreign Operations Administration (Ankara, 1953); Kenan Bulutoglu, Turkiyede Yabanci Sermaye [Foreign capital in Turkey] (Istanbul, 1970); and see also U.S., Department of Commerce, Marketing in Turkey, OBR 75-36 (Washington, D.C., 1975), pp. 14-15. 97 through a cumbersome bureaucracy may take many months and even years, and gives public sector oriented policy-makers an opportunity to delay action on investment applications.

Foreign investors have also experienced difficulties in the application of regulations with regard to price levels, profit transfers, and employment of non-Turkish personnel.

The establishment of branches of foreign firms are covered by Law 2025 of 1914. Branch offices of foreign firms have to be authorized by the Ministry of Commerce and have to be registered in the Commercial Registry. At all times, a responsible manager has to be maintained in Turkey.

According to the Third Five-Year Plan (1973-1977), foreign private investment is to bring in technology that is not available in Turkey, and investments which are export-oriented w ill be preferred. Foreign investments are not to compete with domestic industry, and should prepare Turkish nationals to replace foreign personnel.

No new foreign investments were approved during 1973 and 1974.

This was a period of political changes and international conflict, but conditions appeared to be more settled in 1975. Thus, during

1975, several projects were approved. However, these approvals in

March 1975 have been attributed less to a change in a ttitu d e than the desire of the departing Administration to clear applications which have been pending fo r a long time.®®

GBihe Dr. Sadi Irmak "Interim Government" which has lasted from November 1974 to March 1975 was replaced by the Justice Party 98

It was believed that with the coming into power of the

Justice Party coalition in 1975 which is more favorably disposed

toward foreign investment, a new and clear statement of Turkish

policy with regard to foreign investment would be forthcoming.9®

While foreign investment policy is under review no pronouncements

have been made so fa r.

C. The Petroleum Law

The Petroleum Law of 1954, as amended, w ill become more

important as the oil industry in Turkey expands.^9® Under the

Petroleum Law, all but two of the nine geographic regions, into which the country has been divided, are declared open to foreign

investment. Licenses for exploration and drilling are granted by the

Turkish National Petroleum Corporation (TPAO) for a period of six years. Such licenses can be extended for two two-year periods. In

the case of o il discovery, the license may be extended for five additional years and application may be made for a 40-year lease which can be extended fo r an additional 20 years.

Concessions on the Black Sea and Aegean Sea have been awarded

to TPAO. Turkey's sea bottom claims in the Aegean extend from the

c o a litio n government headed by Prime M inister Suleyman Demirel March 31, 1975, and received a vote of confidence April 12, 1975.

99poreign Economic Trends, FET-75-065, June 1975, American Embassy, Ankara, p. 8.

T9®The Foreign Investment Encouragement Law No. 6224 does not apply for the petroleum industry. There is a Petroleum Law. For a study on Turkish petroleum see: N. H. Neyzi, Turkiyede Petrol Sanayii [Petroleum industry in Turkey] (Istanbul, 1963). 99 natural prolongation of the Anatolian mainland

D. Extent of U.S. Investment

The book value of U.S. investments in Turkey at the end of

1973, was estimated at just under 200 million dollars, about 75

percent of which was in the petroleum industry. Several U.S. companies are engaged in petroleum exploration but only one in petroleum production and refining. Other industrial investments are

in the automotive, machinery, tire, and pharmaceutical industries. In addition, U.S. engineering, business consulting and shipping firms as well as banks, insurance companies and airlines maintain offices in

Ankara and I s t a n b u l .

A U.S.-Turkish Investment Guaranty Agreement is in e f f e c t . 103

According to th is agreement compensation is offered in case of ex­ propriation or confiscation and enables U.S. investors to insure their

investments against losses resulting from restrictions on transfer of profits and repatriation of capital.

E. New Information Released on Foreign Capital Investment in Turkey

In the special section dealing with foreign capital in Turkey,

161jhe Aegean Sea has recently attained importance because of the discovery of o il. Turkey claims that the Greek Aegean islands "rest" on the Anatolian continental shelf, and hence that the eastern portion of the Aegean seabed belongs to Turkey. Greece claims that the Greek islands in the Aegean have their own continental shelves. A possibility is joint exploitation of the oil by the two countries concerned,

lOZu.S., Department of Commerce, Marketing in Turkey, OBR 75-36 (Washington, D.C., 1975), p. 14.

lOSThe Investment Guaranty Agreement of 1951. 100

the Journal of the Association of Turkish Industrialists and

Businessmen has made new information available regarding the role of

foreign capital in Turkey up to the end of 1 9 7 4

Much of the information contained in the tables have been made

available for the firs t time, and involve Law 6224 dealing with

Foreign Investment. However, i t is noted that the information is s t i l l

incomplete because it was difficult for the researchers to get all

^pertinent data from the public sector. As this information is

released a better appreciation of the role of foreign capital in Turkey

will be available. The information and figures appearing in this

study are the resu lt of a comprehensive research project dealing with

the role of foreign capital in Turkey.

According to this study, Turkish officials and businessmen

complain that private foreign investment in Turkey has been disappoint­

ing and is smaller than they had expected. They feel that something

should be done to a ttra c t new foreign capital p a rticip atio n . On the

other hand, foreign investors complain of bureaucratic obstacles and

a less than satisfactory investment clim ate. One problem has been

frequent changes of Governments in the past few years favoring

different policies. Also the ambiguities that have emerged with

regard to some foreign investment issues create has not helped. Many

T04l975 Yilinin Ilkbaharinda Turk Ekonomisi [The Turkish economy in the spring of 1975] (Istanbul: Turk Sanayiciler ve Is Adamlari Dernegi, April 1975), special section on foreign capital, discussion pp. 129-131, tables pp. 132-142. This source will be referred to as "The Turkish Economy in the Spring of 1975." The report contains the name and addresses of some 120 firms operating under the Foreign Investment Encouragement Law 6224 as of December 31, 1973. 101 interested observers both Turkish and non-Turkish believe there is urgent need for a new and clear statement of Turkish policy with regard to foreign investment. It is not essential to amend Law 6224, but an effort must be made to clarify what fields are open for foreign capital, and to assure foreign capital of the continuity of investment policies dealing with foreign investment in Turkey. There are no major obstacles to foreign investment but uncertainties and ambiguities do not help the investment climate. Another problem arises from Law 17 for the Protection of the Value of the Turkish

Currency. Therefore, a review of foreign investment policy is necessary in order to c la r ify any existing problems and create an atmosphere favorable to a ttra c t foreign c a p ita l.

Firms p ro fitin g from the Foreign Investment Encouragement Law

(No. 6224) reached 118 in December 31, 1973 with a total capital of

T.L. 2,069,118,661. In December 31, 1974, the number of firms decreased to 111 and the capital involved was T.L. 1,962,391,105.

About 45 percent of the total capital was of foreign origin and 55 percent Turkish.^®®

165"The Turkish Economy in the Spring of 1975," Ib id ., pp. 132-142. 102

TABLE 15

FIRMS OPERATING UNDER LAW 6224 WITH ORIGIN OF FOREIGN CAPITAL (December 31, 1974)

Foreign capital Percentage of No. of firms Country (in thousands of TL) foreign capital

1. Germany 23 299.9 15.28 2. USA 20 336.1 17.12 3. Austria 7 32.9 1 .67 4. Belgium 5 76.9 3.91 5. Denmark 5 83.6 4.26 6. France 8 215.4 10.97 7. Holland 6 102.7 5.23 8. UK 5 46.6 2.37 9. Sweden 1 0.1 0.02 10. Switzerland 16 294.8 15.02 11. Ita ly 6 193.3 9.84 12. Japan 1 80-0 4.07 13. Canada 1 29.8 1.52 14. Kuwait 1 64.8 3.30 15. Venezuela 1 4.5 0.22 16. Others 6 100.9 5.14

Total 111 1,962.4 100.00

Note: A ll figures are rounded. US$1 = TL 14)

SOURCE: "The Turkish Economy in the Spring of 1975" p. 138. 103

TABLE 16

FIRMS OPERATING UNDER LAW 6224, CAPITAL BY SECTOR (December 31, 1974)

Total Capital Sector No. of firms Foreign Percentage of (TL) Capital (TL) -oreign Capital

1. Industry 92 3,895,723,021 1,711,810,655 43.94 2. Agriculture 1 2,000,000 1 ,020,000 51.00 3. Mining 2 25,000,000 24,030,650 95.85 4. Services 16 548,835,675 225,529,800 41.00

Total 111 4,471,628,696 1 ,962,391 ,105 43.88

Note: A ll figures are rounded. US$1 = TL14)

SOURCE:"The Turkish Economy in the Spring of 1975," consolidated from p. 138.

TABLE 17

APPROVAL OF FOREIGN INVESTMENT APPLICATIONS IN SELECTED YEARS 1970-1974

Percentage Actually Year Approved Actual Participation Participating

1970 152,471 90,550 38.0 1971 67,256 102,917 41.2 1972 145,546 129,125 44.0 1973 136,866 374,000 55.7 1974 6,000 —

NOTE; Foreign investment applications from 1951 to 1951 to 1973 totaled 2,649,278, of these 1,475,767 (or 55.7 percent) actually started operating.

SOURCE:"The Turkish Economy in the Spring of 1975," consolidated from p. 137. CHAPTER V I I I

TURKEY'S ECONOMIC POLICIES— SUMMARY AND CONCLUSIONS

This survey of Turkey's economic policies since 1923 stresses the fact that Turkey's economic goals over the past fifty years have been determined largely by pragmatic rather than ideological reasons.

I t has been shown how Turkish economic policy has evolved from the s ta tis t policies of the e a rlie r years into a mixed economic system today.

Following the collapse of the Ottoman Empire after the First

World War (1914-1918), and the War of Turkish Independence (1919-

1923), a smaller but more homogeneous Turkish Republic emerged under the leadership of Gazi Mustafa Kemal Pasha (Ataturk).

In the early stages of development the Kemalist regime was faced with the difficult task of reconstruction after over a decade of war that had wrecked the economy of the country (1911-1923). The in it ia l Kemalist period (1923-1933) saw slow economic growth because of lack of local capital and shortages of executive, administrative, technical, and scientific personnel. Economic and financial institutions were limited. The Kemalists preferred gradual develop­ ment without foreign aid. With practically no foreign assistance and limited local capital the Turkish Government's economic, monetary, and fiscal policies followed a conservative approach, and evolved gradually, determined by the requirements of the day. The war

104 105

ravaged railroads were rebuilt, the limited industry of a largely

ag'^icultural country was expanded only gradually, and basic economic,

social, and political institutions were introduced. A large m ilitary establishment was maintained because of Turkey's strategic geographical position.

The Kemalist leadership realized that economic growth was too

slow, and by 1933, the Republican People's Party (RPR), the sole party at that time, decided to introduce a series of development plans

in order to accelerate economic growth. Largely in the public sector,

these plans which emphasized industry, were only partially success­

ful as the advent of the Second World War postponed development plans.

During the early days of the Republic, the "Turkish Establish­ ment" consisted largely of the e l i t i s t groups which included the m ilita ry , the bureaucracy, the in te lle c tu a ls , the larg er landowners and a smaller banking and commercial sector. A m ajority of the population consisted of peasants, who lived on a subsistence level.

Ind ustrial workers were few in numbers but a small commercial and trading community was gradually developing replacing some of the non-

Turkish minority elements who played an important role in Turkish business and trade. As a result of the capitulations, concessions were held by foreign firms which gave these groups a privileged position in the Ottoman Empire. With the end of capitulations many of the foreign firms left Turkey after 1923, and a vacuum existed for a short time due to lack of Turkish entrepreneurial groups. This is one reason why Government had to step in to develop the institutions of the new Turkey. 106

The formative years of the Republic (1923-1933) were characterized by gradual development. In the 1930's a policy of state capitalism which was called etatism (statism ) was adopted in order to accelerate economic growth. The economic planning was directed by the Government and emphasized development prim arily in the public sector, devoting the main e ffo rt at ind ustrial development to the neglect of the agricultural sector. The various Ministries and the State Enterprises played an important role. Investment in the private sector remained minimal.

While statism was in itia lly the basic policy, a philosophy of populism was also adopted to win support of the populace, consisting of a large ag ricu ltu ral base with a small commercial and industrial sector. Nationalism was also a basic tenet which acted as a catalyst to gain acceptance and give direction to the Kemalist policies of secularism, westernization, and modernization.

The lack of a well-established middle class and modern financial and economic institutions at firs t forced the Government to be the major actor and directive power, not only in the political and social life of the country, but also in economic and commercial fields of endeavor. Education was stressed as a high priority requirement for the creation of a managerial, administrative, and technical corps essential fo r a developing nation. Tacit agreement existed that ultim ately free enterprise would play a growing role in the destiny of the Republic.

Personalities also played an important role. Ataturk, as the saviour of Turkey, had a strong personal influence which dominated 107 the period of his presidency (1923-1938). After Ataturk's death in

1938, President Inonu (presidency, 1938-1950) continued the previous economic policies. The victory of the Democratic Nations over the

Axis Powers made democratic ideals popular. In 1946, a multi­ party system emerged which in 1950 resulted in the f i r s t free elections in the Middle East. The Democratic Party led by Celal Bayar and Adnan

Menderes won the elections on a platform that advocated the increased application of the Constitution, freedom of the press, and emphasis on private enterprise. Later the dominant figures such as Ecevit of the Republican People's Party - RPP and Demirel of the Justice Party -

JP were to influence the making of policy and giving direction to

Turkey's future.

The significance of U.S. aid should not be overlooked in the development of modern Turkey. U.S. aid which had started in 1947 was increased after 1950, and reached its peak during 1950-1960.

U.S. aid had an important effect in Turkey's economic development, but the accelerated economic development program with poor planning, and political considerations taking precedence over economic criteria, resulted in serious inflation and balance of payments problems, especially during 1955-1960.

The period 1950-1960 under the Democratic Party Administra­ tion was important in Turkey's economic growth. While Bayar and

Menderes have been much criticized, yet Turkey saw important progress during the Democratic Party - DP regime. A new entrepreneurial group developed as economic development in the private sector gradually began to emerge. However, the State Enterprises and the bureaucracy 108 continued to play a dominant role.

The Republican People's Party - RPP leadership had depended on the bureaucracy for carrying out its statist policies and favored planning as seen by the first Five-Year Plan of 1933-1938. Planning continued throughout the RPP's leadership to 1950. The DP preferred a development program (they did not call i t planning), and the DP politicians were suspicious of the pro-RPP bureaucracy. The DP depended on increased foreign aid and favored development projects often politically motivated (in order to get votes) rather than economically sound programs.

Accelerated economic development required the im portation of capital goods. For p o litic a l reasons austerity programs were not favored and consumer goods and luxury items were imported. The tax system was not reformed and agriculture was subsidized in order to gain support of the large rural vote. The resulting spiralling in fla tio n and the mounting criticism of the opposition was met by repressive measures. The opposition RPP claimed that the 1957 national elections were fraudulent. While Turkey was successful in its foreign relations, having joined NATO and CENTO, and had sent a brigade to fight in Korea in 1950, the domestic crisis went from bad to worse. By early 1960, student riots protesting the restrictive measures of the Government led to a political crisis which was only resolved by the intervention of the hitherto apolitical Armed Forces.

The Armed Forces overthrew the Democratic Party Administra­ tion because its repressive measures threatened the Constitution.

The May 27, 1960 Revolution, as the m ilita ry coup was c a lle d , aimed 109 at returning constitutional government as soon as possible. The country was governed by the Committee of National U nity, headed by

General Gursel. The m ilita ry rule lasted less than 18 months. A new Constitution was promulgated in 1961 replacing the 1924

Constitution, and national elections were held. The RPP won the 1961 elections with a narrow p lu ra lity . The new electoral law was designed to prevent the predominance of any one party. During the period 1961-

1965, Prime M inister Inonu led several coalition governments. P o litic a l problems resulted in the neglect of economic issues. However, planning returned with the First Five-Year Plan (1963-1967). During this period the new government followed a policy in conformity with the new

Constitution's "mixed economy" philosophy since the return to statism was no longer feasible or desirable. Also, the emergence of the

Justice Party (JP) at this time, led by Suleyman Demirel, who favored private enterprise and a more conservative policy compared to the

RPP, created a new trend as the party was able to win a popular base leading to victory at the polls in 1965.

Between 1965 and 1969, the JP's economic policies emphasizing private in itia tiv e resulted in unprecedented growth as Turkey approached the "take off stage" in its economic development. Un­ fortunately, the JP economic program led to inflation, and the rise of disaffected leftwing elements created serious political disruption in the country. The JP's inability to contain these disruptive elements again forced the M ilita ry to intervene, but this time without d ire c tly taking over the government. The March 12, 1971 Memorandum of the Armed Forces to the President, Cevdet Sunay, resulted in the no resignation of Prime Minister Demirel, although his party s till held a majority in Parliament. Again political considerations took precedence over economic problems.

During 1971-1973 "above party" technocrats governed in a hold­ ing operation in which conservative economic policies were followed.

While the country faced serious internal problems caused by extreme radical groups of the l e f t and rig h t, and external problems resulted from the Cyprus controversy, the momentum of the previous period carried the economy forward.

The October 1973 elections were won by the RPP led by Bulent

Ecevit (Prime M inister from October 1973 to September 1974). He favored a left-of-center economic policy but did not have time to make any major changes. His co alitio n government with the u ltra ­ conservative National Salvation Party was bound to fa il. The Cyprus problem also complicated matters. I t was under Prime M inister

Ecevit's leadership that Turkish troops landed on Cyrpus. After several interim above party governments, Demirel was able to form a c o a litio n government (JP, the National Salvation and several other smaller conservative parties) during late March 1975. S till in power at this w riting (February 1977) Demirel*s government has a narrow margin and has to cope with domestic and foreign problems which place economic issues second to the international and political r e a litie s .

This study covers the first fifty years of the Republic (1923-

1973) but a few words about more recent developments are necessary to place the discussion in proper perspective, especially as in important new events have recently taken place which may develop new trends in economic policy in the future.

During the period 1923 to 1973 real gains were made in every field of endeavor. October 29, 1973 was the 50th anniversary of the founding of the Republic. During this happy occasion the Turkish people were able to assess the progress achieved in the fifty years of the Republic in many fields of endeavor. The opening of the

Bosphorus bridge joining Europe and Asia was a symbol of Turkey's progress. Turkish writers stressed the fact that despite the day- to-day vicissitudes of p o litic a l l i f e , democratic processes were firm ­ ly established, economic growth was achieved with social justice, and modern institutions were developed. In fact, some writers even stated that the "take off" period in Turkey's economy had arrived.

Since 1973, however, continued external and internal pressures have resulted in increased inflation, unemployment, and decline of

Turkish workers' remittances from Western Europe and Germany re s u lt­ ing from the energy c ris is and the recession. Today, foreign exchange reserves are fast being depleted, tourism receipts are rising more slowly, and serious p o litic a l and economic problems confront the

Turkish nation. However, although there are serious problems, there are counter-balancing factors.

Despite the serious political and economic problems facing

Turkey today, one can s till be cautiously optimistic about Turkey's prospects. With a sturdy and patriotic population of 40 million

(10 m illion in 1923), a per capita GNP approaching $900, adequate natural resources, and proven effective leadership, Turkey has emerged 112 as a significant power in the Eastern Mediterranean and the Middle

East. The economic policies of statism have been replaced by a new

"mixed economy" concept which has made possible an annual growth rate of 7 percent to keep pace with the nearly 3 percent population growth.

Turkey’s main p o litic a l parties are basically in agreement as to national and economic policies except in emphasis and d e ta ils .

The DP in the past and the JP today are more conservative and have favored free enterprise and opposed bureaucratic planning in preference fo r economic programs based on private in itia tiv e and free enterprise. The conservative party favors foreign aid and a more lib e ra l foreign investment program. This is in contrast to the le f t - of-center RPP which stresses planning and favors more stringent controls over foreign investment and wants to follow a more independent policy that does not favor too much reliance on foreign aid. Although differing in detail the principal parties have come closer in th e ir support of a policy fo r mixed-economic development in which both the public and the private sector will be given due atten tion .

Both Turkish and foreign observers are in general agreement that during the period 1923-1973 (and to this day), a moderate middle- of-the-road economic policy has been followed, although it is clear that state control and direction remain. During this period of half a century the Turkish leadership has followed a pragmatic rather than doctrinaire policy, shunning extremes in ideology and economic aims. These writers claim that the Turkish leadership has favored an economic policy which retains the best of capitalism and accepts 113

the best of socialism in the "mixed economic" policies that were

espoused in the last decade.

The economic problems and policies of the period a fte r 1973

deserve a separate study and are not the primary concern of this

paper. However, a few observations about the outlook fo r the future

may be in order.

It is hoped that the future ideological development, whether

p o litic a l or economic, w ill come not from the in itia tiv e of the

extreme rig h t or the extreme l e f t , but from the more moderate elements

and leadership in Turkey, that is, from the center, middle of the way,

emerging middle classes. Only under these circumstances would the

existing democratic system be fu rth e r strengthened and expanded.

Unfortunately, however, many competent observers, both

Turkish and non-Turkish, tend to believe that a "social democratic"

system sim ilar to th at which developed in Western Europe in the la s t

century is unlikely to happen in Turkey. The historical heritage,

the structure of Turkish society, and the many external and internal pressures w ill not allow the smooth transformation of today's multi­

party system, with its extremely partisan leadership, to develop into a more unifying and yet democratic system. Instead, these observers

appear to believe that like the public bureaucracy (transformed in

the last fifty years into a functional elite), the new technocrats will also develop into an authoritarian-technocratic elite. It is

generally conceded, however, that fo r at least the next decade, the

public bureaucracy w ill continue to wield greater power than the

new technocrats and economic entrepreneurial groups. Also, the 114 future role of the m ilita ry remains an unknown facto r.

While it is true that statism has given way to some extent to a mixed-economic system, private enterprise s t i l l remains weak, although i t is growing. Even under the conservative Democratic Party and Justice Party administrations, the statist mentality has persisted.

Also, the State Planning Organization and the State Economic

Enterprises will continue to play an important role in Turkey's economic development plans and in the formulation of economic policy for at least the next decade.

As was discussed previously, the State Planning Organization is assigned the task of planning the Five-Year plans for the public sector. As will be remembered, the general objectives of the plans has been to increase the welfare of the people through rapid industrialization. The plan also aims at reducing dependence on foreign Imports, and is directed to reduce the gap in per capita income between Turkey and the Western European countries. Turkey is associated with the European Economic Community - EEC and is scheduled to become a fu ll member of the EEC by 1995. In the meantime Turkey has to take certain measures to satisfy the EEC requirements for full membership.

Turkey's per capita income was to have equaled that of Italy of 1970. However, in 1970, Turkey's per capita GNP reached $350, whereas Italy's was $1,700. Although Turkey's per capita GNP is approaching $900, i t is s t i l l behind most EEC countries. Growth rates fo r 1973 and 1974 were below the average growth rate of 7.9 115 percent which is the target of the Third Five-Year Plan. Industry's share o f the GDP by 1995 is to increase from 22 percent in 1973 to

37 percent, while agriculture's share is to decline from 26 percent to 12 percent. In view of these projected changes, the proportion of the urban population is expected to increase from 38 percent in 1972 to 75 percent by 1995.

These plans sound fin e but such problems as external pressures, inflation, and rise of world industrial prices including petroleum have a tendency to disrupt the best thought out plans. In order that

Turkey's exports become competitive and its economic growth develop smoothly, several preconditions exist. Tax reform, land reform, a better mix of industrial and agricultural development are needed as well as an end to the partisan politics of the major political parties.

Some say that this can only be achieved with the arrival of another

Ataturk. However, th is w rite r believes th at Turkey's in s titu tio n s are now sufficiently developed, and that there is a strong core of middle management and other executive leadership which may actually be able to cope with the many serious problems facing the Republic in the coming decades. 116

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TURKEY AND THE EUROPEAN ECONOMIC COMMUNITY

Association with the EEC

Throughout its existence the Republic Turkey has looked upon

Western Europe as a model for its p o litic a l and economic develop­ ment. The decision of Greece to become eventually a member of the

EEC also moved Turkey to jo in the EEC since Greece has been one of

Turkey's main competitors in foreign markets.

Turkey applied in 1959 for an association with the EEC and signed the Association Agreement on September 12, 1963, which became effective on January 1, 1964. The terms of association were defined in the Additional Protocol which was signed on November 23, 1970 and became effective on January 1, 1973. Pending ratification of the Additional Protocol its commercial provisions were put into e ffe c t by an Interim Agreement which was signed on July 27, 1971 and became e ffe c tiv e on September 1, 1971. Because of the accession of the United Kingdom, and Denmark to the EEC, a Supplementary

Protocol to the Association Agreement was signed which became e ffe c tiv e on January 1, 1974.

Turkey's accession to the EEC is to be carried out through three stages. The period of preparation lasted from January 1, 1969 to September 1, 1971, the subsequent period of tran sitio n is supposed to end at the beginning of 1985, while the final phase

118 119

should end when Turkey w ill become a fu ll member o f the EEC on

January 1, 1995.

Turkey agreed to eliminate customs duties for group A

commodities (which consist mainly of raw m aterials and intermediate

goods and in 1967 constituted 55% of her imports from the EEC

countries) over 12 years and fo r the remaining group B commodities

over 22 years. The rate of reduction fo r commodities in group A is

10% and fo r these in group B 5%. The f i r s t reduction was made on

September 1, 1971 when the Interim Agreement became e ffe c tiv e , the

next reduction is supposed to take place on January 1, 1976, 3 years

after the Additional Protocol became effective. In addition, Turkey

has to eliminate gradually all quantitative restrictions on imports

from EEC countries over a period of 18 years.

Turkey's customs ta riff with regard to non-EEC countries w ill

be brought in line with the EEC's common external ta riff from group

A commodities in 12 years and fo r group B commodities in 22 years.

However, t a r i f f rates fo r non-EEC countries would not be changed

before 1977.

Turkey does not provide any preferential treatment for

agricultural imports from the EEC countries but has to adopt the

EEC's Common Agricultural Policy within a period of 25 years.

The EEC granted Turkey's industrial products unrestricted

access with the exception of petroleum products, which are subject

to quotas, and for specific cotton yarn and fabrics, and carpets, for which customs duties would be abolished over 12 years. Since

1965 the EEC has eased restrictions on the importation of Turkey's 120 agricultural products. At present imports u, _ '-^co and raisins are completely free, most fruits and vegetables are admitted at reduced t a r i f f rate s , while hazelnuts in excess of the quota are subject to regular duties.

Other provisions of the Additional Protocol deal with the movement of individuals, performance of services, and coordination of economic p o lic ie s .

During the 12-year period 1963-74 the share of the six original

EEC members in Turkey's imports increased from 28% to 38%, while their share of Turkey's exports remained more or less the same at

38% in 1963 and 40% in 1974. In 1974 the three new EEC members provided about 8% of Turkey's imports, and absorbed 6% of Turkey's exports. Turkey has at times claimed that concessions granted her have been eroded by concessions granted to other countries and is therefore expected to ask for more favorable consideration in future negotiations. CRITICAL BIBLIOGRAPHY

The following works were found useful fo r an understanding of the Turkish econony.

Turkey: Problems and Prospects of an Expanding Economy. A

World Bank Country Economic Report. Washington, D.C., 1975, is of the same high quality as other IBRD studies and should be read in conjunction with a most s ig n ific a n t publication which appeared in

April 1975 e n title d 1975 Y ilin in Ilkbaharinda Turk Ekonomisi [The

Turkish economy in the spring of 1975] published by the Association of Turkish In d u s tria lis ts and Businessmen. In addition to detailed statistical data and analyses there is a special section which deals with foreign capital investment in Turkey, and contains hitherto unavailable information.

Since agriculture continues to be the mainstay of the Turkish economy, Oddvar Aresvik's in-depth study of Turkey's agricultural problems e n title d The A gricultural Development of Turkey. New York:

Praeger, 1975 was found most enlightening. Mr. Aresvik is an agricultural economist who works for international organizations.

An older but s till valid study is by Edwin J. Cohn, Turkish

Economic, Social and P o litic a l Change: The Development of a More

Prosperous and Open Society. New York: Praeger, 1970. Another study which deals with various aspects of the Turkish scene by different authorities is Turkey: Geographic and Social Perspective.

Leiden: B rill, 1974 edited by Peter Benedict and others. This study

121 122 has useful information on rural and urban life in Turkey.

Special mention should be made of Besim Ustunel, Kalkinmanin

Neresindeyiz? [In what stage of development are we?]. Ankara, 1966, one of the best studies on the economy of Turkey by a professional economist.

Among the more recent works on Turkey that should be cited here are: Anne 0. Krueger's Foreign Trade Regimes and Economic

Development: Turkey. New York: Columbia University Press, 1974, and Kemal H. Karpat's Social Change and Politics in Turkey. Leiden:

B rill, 1973 which includes chapters by various authorities on such topics as the rise of the middle classes in Turkey, labor as a new social and political force, the role of the village, and observations on the bureaucracy and new technocrats.

Richard D. Robinson of the Harvard University Business School who is also an authority on Turkey's economy has several works on

Turkey, of which High Level Manpower in Economic Development: The

Turkish Case. Harvard University Press, 1967 is most useful.

Publications of the Economic and Social Studies Conference

Board (ESSCB) with chapters by specialists was consulted and was found helpful. They include studies on the following subjects:

Capital Formation and Investment in Industry. Istanbul, 1963;

Social Aspects of Economic Development. Istanbul, 1964; A gri­ cultural Aspects of Economic Development. Istanbul, 1965; Planning and Growth under a Mixed Economy. Istanbul, 1966; Education as a

Factor of Accelerated Economic Development. Istanbul, 1967; State

Economic Enterprises. Istanbul, 1969; Foreign Trade and Economic 123

Development. Istan bu l, 1970, and Ekonomik ve Sosyal Etudler Konferans

Heyeti, Turk Vergi Sisteminin Ekonomik Gelisme uzerindeki Etkileri.

Istan bu l, 1970 [The effects of taxation system on economic develop­ ment] by the ESSCB.

This w riter has found the OECD Economic Surveys, especially the one on Turkey, Paris: OECD, August 1976 most useful. Other useful sources include Turkiye Is Bankasi A.S., Review of Economic

Conditions. Ankara, September 7, 1976 and e a rlie r reports, and T.C.

Ticaret Bakanligi, Degerlendirme Bulteni. Ankara, January 1976 and earlier issues.

Other pertinent materials include the following types of reports and publications: Organization for Economic Cooperation and

Development. Economic Survey: Turkey. Paris, Annual; State Planning

Organization. A Summary of the Third Five-Year Plan, 1973-1977.

Ankara, 1973; The Central Bank of the Republic of Turkey. Annual

Report. Ankara; Yapi ve Kredi Bankasi, A.S. Review of Economic

Conditions. Ankara (Bimonthly); State Institute of Statistics,

Statistical Yearbook of Turkey. Ankara and similar publications.

In addition, U.S. Department of State, U.S. Department of Commerce,

A .I.D ., and I.M.F. publications were used extensively as were such journals and newspapers as the Middle East Journal, the Economist.

Forum, M illi.yet, Cumhuriyet, Hurriyet, Resmi Gazete [Official gazette], and publications of the Universities of Ankara, Istanbul, and the

Middle East Technical University which contain important information and articles on the economy of Turkey. In addition to the above. 124

United Nations publications are also a useful source for basic statistical and economic information. SELECTED BIBLIOGRAPHY

I . PRIMARY SOURCES

SOURCES IN TURKISH

Ataturkun Soylev ve Demeclerf, 1919-1938 [Speeches and addresses of AtaturlG^. Istanbul: M aarif Matbaasi, 1945.

Kemal, Gazi Mustafa. Nutuk. Istanbul: Devlet Matbaasi, 1938. Ataturk's speech to the Grand National Assembly, October 15- 20, 1927. English translation available.

Turkiye Buyuk Mil let Meclisi Albumu. Ankara: T.B.M.M. Matbaasi. Handbook containing documents about Parliament, deputies, statistical data, one volume per GNA session.

Turkiye Buyuk M illet Meclisi Zabit Ceridesi. Ankara: T.B.M.M. Matbaasi, 1920 to present. Proceedings of Parliament, also known as T.B.M.M. Tutanak D erg isi.

Ilk Turk Ik tis a d i Kongresi Z a b itla r i. Izm ir: Anadolu Matbaasi, 1923. Minutes of the F irs t Turkish Economic Congress.

Kalkinma Plani B irin ci Bes Y il (1963-1967) [The Development Plan, the First Five Years]. Ankara, 1964, State Planning Organization publication. The Second Plan (1968-1972) and the Third Plan (1973-1977), Ankara, 1973.

State of the Nation Addresses by Turkish Presidents and by Turkish Prime M inisters, usually delivered at the opening of the GNA on November 1. Available in a ll Turkish newspapers. Summaries in English available in FBIS.

SOURCES IN ENGLISH

General :

A World Bank Country Economic Report. Turkey: Prospects and Problems of an Expanding Economy. Washington, D.C.: IBRD, 1975.

Organization fo r Economic Cooperation and Development. Economic Surveys. Turkey. Paris, Annual.

125 126

Turkey Exports. Joint Publication of Istanbul Chamber of Industry and Istanbul Chamber of Commerce. Istan bu l, 1973.

Istanbul Chamber of Commerce. Journal Published on Occasion of the 50th Anniversary of the Turkish Republic. Istanbul : Istanbul T icaret Odasi, 1974.

State Planning Organization. A Summary of the Third Five-Year Development Plan 1973-1977. Ankara, 1973.

The Central Bank of the Republic of Turkey. Annual Report. Ankara.

Yapi ve Kredi Bankasi. Economic Bulletin. Istanbul, bimonthly.

Turkiye Is Bankasi. A.S. Review of Economic Conditions. Ankara, bimonthly.

Statistics :

State In s titu te o f S ta tis tic s ; S ta tis tic a l Yearbook of Turkey. Ankara.

State Institute of Statistics. Monthly Bulletin of Statistics. Ankara.

T.C. Maliye B akanligi. Hazine Genel Mudurlugu ve M .I.I.T . Genel Sekreterligi. Monthly Economic Indicators. Turkish Ministry of Finance.

Foreign Trade:

Ministry of Commerce. General Secretariat of Foreign Trade. General Situation of Turkey's Foreign Trade. Ankara, monthly.

State Institute of Statistics. Annual Foreign Trade Statistics. Ankara. Also, Series 1, Imports and Exports by CommoïTtTes and Countries.

U.S. Department of State Publications:

Foreign Economic Trends and Their Implications fo r the U.S. FET-75- 065, June 1975. American Embassy, Ankara. Prepared by the U.S. Foreign Service and released by the U.S. Department of Commerce.

U.S. Arms Aid to Turkey. Current Policy. No. 6. U.S. Department of State. Washington, D .C ., September 1975.

Turkey. Background Notes. Publication 7850, revised. U.S. Depart- ment of State. Washington, D.C., January 1976. 127

U.S. Department of Commerce Publications:

Basic Data on the Economy of Turkey. QBR 71-047. U.S. Department of Commerce. Washington, D .C ., December 1971.

Establishing a Business in Turkey. QBR 73-39. U.S. Department of Commerce, Washington, D .C ., August 1973.

Kuus, Leo. "Turkey: U.S. Equipment Meets Undiminished Demand," Commerce Today. U.S. Department of Commerce. Washington, D.C., August 4, 1975.

. Marketing in Turkey. GBR 75-36. U.S. Department of Commerce. Washington, D .C ., September 1975.

"Turkey Faces Prevailing Problems, but GNP Growth is Holding Up Well," Commerce America (form erly Commerce Today). U.S. Department of Commerce. Washington, D.C., January 5, 1976.

Corro, Anne. "Turkey: U.S. Products Needed for Continued Growth,' Commerce America, U.S. Department of Commerce. Washington, D.C., February 2, 1976.

A. BOOKS IN TURKISH ....

Abadan, Nerim. Bati Almanyadaki Turk Is c ile r i ve Sorunlari [Turkish workers in West Germany and questionnaires]. Ankara : Devlet Planlama T e s k ila ti, 1964.

Aksoy, Suat. Turkivede Toorak Meselesi [Land problems in Turkey]. Istanbul, 1970.

Aren, Sadun. Ekonominin El K itab i: Turkiyenin Ekonomisinde Qrnekler [Handbook on economics: slimples from Turkey's economy]. Istanbul, 1972.

Bayar, Celal. Basvekilim Adnan Menderes [My Prime Minister Adnan Menderes]1 Istanbul : Baha Matbaasi, n.d. (1970). By former President Bayar.

Bulutoglu, Kenan. Turkiyede Yabanci Sermaye [Foreign capital in Turkey]. Istanbul, 1970.

Demirel, Suleyman. Buvuk Turkiye [Great Turkey]. Istanbul, 1975.

Ekonomik ve Soysal Etudler Konferans Heyeti. Turk Vergi Sisteminin Ekonomik Gelisme Uzerinde E tkileri. Istanbul, 1970. Deals with Turkish tax system. 128

Ecevit, Bulent. Ortànin Solu [Left-of-center]. Istanbul, 1960.

______. Bu Duzen Deqismelf. Ankara, 1968. Parliamentary speech criticizing budget.

Cillov, Haluk. Turkiye Ekonomisi [The economy of Turkey]. Istanbul: Istanbul Universitesi, Faculty of Economy, 1965, publication 1123.

Cavdar, Tevfik. M illi Mucadelenin Ekonomik Kokenleri. Istanbul, 1974. Deals with economic problems of the struggle fo r independence.

G i r i t l i , Ismet. Kalkinma ve Turkiye [Development and Turkey]. Istanbul: Izleme Yayin Evi, 1962.

______. Qrtadogu, Petrol , Kibris ve Turkiye [The Middle East, petroleum, Cyprus and Turkey]. Istanbul, 1975.

Inonu, Ismet. Ismet Inonu'nun Iki Qnemli Konusmasi. Istanbul: Yapi ve Kredi Bankasi A .S ., 1962. Two important talks of Prime M inister Inonu.

Kaza ve Vilayet Idaresi Uzerinde bir Ara^tirma. Ankara, 1957. A study on provincial and district administration, prepared by the School of Political Science.

Keles, Rusen. Turkiyede Sehirlesme, Konut ye Gecekondu [Urbanization and Squatters in Turkey]. Istanbul, 1972.

Kucuk, Yalcin. Planlama, Kalkinma ve Turkiye [Planning, development and TurkeyT Istanbul, 1971.

Ozturk, Kazim. 1975 Degisiklerivle Gerekceli Anavasa [The Constitution with amendments of 1975]. Ankara, 1975.

Sarc, Omer C elal. G e lir paqilim i: Disarda ve Turkiyede [Income d istrib u tio n : abroad and in Turkey]. Istanbul, 1970.

Savci, Bahri. "Modernlesmede Devlet Baskaninin Rolu," in Abadan Amaqani [The role of the Prime M inister in modernization]. Ankara: Ankara Universitesi Siyasal Bilgiler Fakultesi Yayinlari, No. 280, 1969.

Sencer, Muzaffer. Turkiyede Koylulugun Maddi Tem elleri. Istanbul, 1971. Deals with villag ers in Turkey.

S e lik , Mehmet. Turkiyede Yabanci Ozel Sermaye [Foreign private investment in Turkey]. 129

Tayane. Tunc. Sanayilesme surecinde 50 Yil [Fifty years of i ndus tria li zati onj. Istanbul, 1973.

Turk Y illiq i 1973 [Turkey, Almanac for 1973]. Ankara, 1973.

Turkdogan, Orhan. Turkiyenin Kalkinma Yolu: Sosyo-Ekonqmik Sistern Tartismalari [The path for development for Turkey]. Ankara, 1973.

______. Yoksulluk Kulturu: Gece Kondularin Toplumsal Yapisi [The culture of poverty]. Erzurum, 1974. Deals with squatters.

Turkiye Isci Sendikalari: Nedir, Ne Yapar, Nasil Calisir? [Turkish labor unions, what they are, what they do and how they function]. Ankara: Turk-Is publication No. 23, 1964.

Turkiye ozel yabanci sermaye yatirim ve tesvik sartlari [Investment of private foreign capital in Turkey and how to encourage it]. Ankara: Odalar B irlig i, 1964.

Turkiye Ticaret Odalari, Sanayi Odalari ve Ticaret Borsalari B irlT g j, Turkiyede Ozel Sektor ve Kalkinma [The private sector in Turkey and development]. Ankara, 1964.

Turkiyede Toprak Reformu Semineri [Land reform seminar]. Ankara: Ankara u n iv e rs ite s i, Hukuk Faku ltesi, 1968.

Yuzuncu Yilda Tarim Kooperatifciligimiz [Agricultural cooperative]. Ankara: T.C. Ziraat Bankasi Coopératif1er Mudurlugu, yayin 16, 1964.

Ustunel, Besim. Kalkinmasnin neresindeyiz? [At what stage of develop­ ment are wejl Ankara, 1966.

Yalcin, Aydin. Iktisadi Politika Uzerinde Dusunceler [Thoughts on economic policy]. Istanbul, 1969.

1975 Y ilin in Ilkbaharinda Turk Ekonomisi [The Turkish economy in the spring of 1975]. Prepared by the Association of Turkish In d u s tria lis ts and Businessmen. Istanbul; Turk Sanayic ile r i ve Is Adamlari Dernegi. Nisan, 1975.

B. BOOKS IN ENGLISH

Aktan, Resat. Analysis and Assessment of the Economic Effects of Public Law 480 T itle I Program: Turkey. Ankara; Ankara University Press, 1966. 130

American University. Area Handbook fo r Turkey. Washington, D.C.: U.S. Government Printing Office, 1973.

Aresvik, Oddvar. The Agricultural Development o f Turkey. New York: Praeger, 1975.

Barker, J. M. et al. The Economy of Turkey: An Analysis and Recommendations fo r a Development Program (IBRD World Bank Mission Report). Baltimore: The Johns Hopkins U niversity Press, 1951.

Capital Formation and Investment in Turkey. Istanbul: Economic and Social Studies Conference Board, 1963.

Eren, Nuri. Turkey Today and Tomorrow: An Experiment in Westerniza­ tio n . New York: Praeger, 1963.

Frey, Frederick W. The Turkish Political E lite. Cambridge, Mass.: M .I.T., 1965.

Hanson, A. H. The Structure and Control of State Enterprises. Ankara: U.N. Institute of Public Administration, 1954.

Hershlag, Z. Y. Turkey: The Challenge of Growth. Leiden: K. J . B rill, 1968.

Karpat, Kemal H. and Contributors. Social Change and Politics in Turkey. Leiden: K. J. B rill, 1973.

Krueger, Anne 0. Foreign Trade Regime and Economic Development: Turkey. New York: Columbia U niversity Press, 197Î.

Lewis, Bernard. The Emergence of Modern Turkey. London: Oxford University Press, 1961, 1968.

Paine, Suzanne. Exporting Workers: The Turkish Case. Cambridge: Cambridge University Press, 1974.

Rivkin, Malcolm B. Area Development fo r National Growth: The Turkish Precedent. New York: Praeger, 1965.

Robinson, Richard D. The First Turkish Republic: A Case Study in National Development. Cambridge, Mass.: Harvard U niversity Press, 1963.

______. High Level Manpower in Economic Development: The Turkish case. Cambridge, Mass.: Harvard University Press, 1967.

Roos, Leslie and Narlou, P. Managers of_Modernization: Organiza­ tions and Elites in Turkey,950-1969. Cambridge, Mass.: Harvard University Press, 10^1. 131

Shorter, F. C ., ed. Four Studies In the Economic Development of Turkey. London: Frank Cass and Co., 1967.

Smith, Elaine D. Some Observations on Turkish Industrial and Economic Development. U.S. Department of State, Foreign Service Institute. Washington, D.C., May 15, 1960.

Szyliowicz, Joseph S. Rural Turkey: Erdemli. The Hague and Paris, 1966.

ARTICLES IN TURKISH

Cinar, Cemil. "Turkiye Ekonomisinde Yapisal Baginlasma ve Input- Output modelleri," Planlama [Input-output models]. Vol. 1, No. 6, July 1966.

Cillov, Haluk and Hatipoglu, Zeyyat. "Turkiye'de Sermaye Piyasasinin Kurulmasi," [The establishment of a capital market in Turkey]. Istanbul: Iktisadi Arastirmalar Tesisi, I, 1964.

Hatipoglu, Zeyyat. "Plan ve Para-Kredi Politikamiz," Banka, Vol. 7, No. 2, October 1964.

Kazgan, Gulten. "Turkiyenin Ekonomisinde Strukturel Degisme 1950- 1960" [Structural changes in Turkey's economy 1950-1960]. Istanbul Universitesi, Iktisat Fakultesi, Maliye Institusu, Iktisat Fakultesi Necmussi April-July, 1963.

Okyar, Osman. "1955 Yilin Ilk Yarisinda Iktisadi Durumumuz" [The economic situation in mid-1955], Iktisat ve Maliye, Vol. 11, No. 4, July 1955.

Talas, Cahit. "Turk Ekonomik ve Politik Sisteminin Tahlili ve Gelisme Istikam etleri" [An analysis of Turkey's economic and p o litic a l system and its d ire c tio n ]. Forum, September 1962.

"Turkiyenin Sermaye Birikimi" [Capital formation in Turkey], Ankara Univesristesi Siyasal Bilgiler Fakultesi Dergisi, June 1962.

Y a zic i, Bulent. "Turkiye'de Yabanci Sermaye" [Foreign capital in Turkey], Istanbul T ic a re t Odasi Mecmuasi, November-December 1954.

Yilmaz, Celal. "Milli Gelir Kavrami ve Turkiye M illi Geliri" [The national income of Turkey], Izm ir T icaret Odasi D e rg is i, October 1965. 132

ARTICLES IN ENGLISH

Aktan, R. "Problems of Land Reform in Turkey." Middle East Journal, XX, 1966.

Alexander, A. P. "Industrial Entrepreneurial ship in Turkey: Origins and Growth." Economic Development and Cultural Change. July 1960.

Bener, Erhan. "Foreign Trade Regime in Turkey," in ESSCB. Foreign Trade and Economic Development, Istanbul, 1968.

Carey, J. P. C. and Carey, A. G. "Turkish Industry and the Five Year Plan." Middle East Journal, XXV/3, 1971.

Eastham, J. K. "The Turkish Development Plan: The F irs t Five Years." The Economic Journal, LXXIV, No. 2, March 1964.

Kazgan, Gulten. "Structural Changes in Turkish National Income: 1950-60," in Taufiq M. Khan, ed.. Middle Eastern Studies in Income and Wealth. London, 1965.

Okyar, Osman. "The Concept of Etatism ." The Economic Journal, LXXV, March 1965.

Simpson, D. "Development as a Process: The Menderes Phase." Middle East Journal. XIX/2, 1965.

Soysal, Mumtaz. "The Policy of Mixed Industrial Enterprise in Turkey and its S o cio -P o litical Consequences." Development and Change, 1 /2 , 1967-70.

Tamkoc, Metin. "Stable Instability of the Turkish Polity." Middle East Journal, XXVI1/3, Summer 1973.

BIBLIOGRAPHIES AND GUIDES

IN TURKISH

Turkiye Ekonomisi B ibliografyasi 1923-1950 [An economic bibliography of Turkey]. Ankara: Turkiye Ticaret Odalari, 1966.

Turkiye Ekonomi Bibliografyasi 1950-1965 [An economic bibliography of Turkey]. Middle East Technical University, Faculty of Administrative Sciences. Ankara: Orta Dogu Teknik Universitesi, Idari Ilim ler Fakultesi, Yayin No. 13, 1969.

IN ENGLISH

Bibliography on the Middle East. Middle East Institute. Washington, D.C., quarterly. 133

FSI (Prepared by Harry N. Howard), Center for Area and Country Studies, Near East and North Africa. A Question Syllabus and Bibliography. Washington, B.C.: FSI, U.S. Department of State, 1972.

Howard, Harry N. The Middle East in Paperback. Washington, D.C.: Middle East Journal, Summer 1974.

PERIODICALS AND NEWSPAPERS

IN TURKISH

Ik tis a t ve Ticaret [Economics and trade].

Turk Ekonomisi [The Turkish economy].

Turk Hukuk ve Ik tis a t Mecmuasi [Turkish law and economics jo u rn a l].

Turkiye Iktisat Mecmuasi [Turkish economic journal].

Resmi Gazate [O ffic ia l g azette].

Cumhuriyet (d a ily , l e f t i s t ] .

Gunaydin (daily, popular).

Hurriyet (daily, popular, largest circulation)

Mi 11 i.yet (d a ily , RPP)

Tercuman (daily, conservative)

IN ENGLISH

Economist, London.

Christian Science M onitor, Boston.

New York Times.

Times, London.

Middle East Economic Digest.

Middle East Journal.

The Pulse (a d a ily review of the Turkish press, Ankara) 1 34

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