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Economic Revolution – Istanbul Universty(my
notes)
The Turkish economy, influenced by internal and external conditions, followed an outward-oriented liberal path between 1923 and 1929. During this period, the state refrained from making direct investments except in infrastructure and instead chose to support private capital. However, the failure to meet expectations in industry and the 1929 Great Depression led to a shift in preference and brought the statist policy to the agenda. In this section, the economic developments between 1923 and 1929 are examined in terms of their goals and outcomes, followed by an evaluation of the transition to the statist policy and its effects.
Outward-Oriented Liberal Period (1923–1929)
The Economic Legacy from the Ottoman Empire to the Republic
The legacy inherited by the Turkish economy played a primary role in determining the economic policies for the future. Primarily, due to the uninterrupted wars between 1912 and 1922, the population within Turkey's borders decreased by approximately 20%, falling from 16.5 million in 1914 to 13 million by 1924, with a significant reduction in the male population. Consequently, in the 1927, 1935, and 1940 population censuses, the female population was found to be higher than the male population. Estimates show that the literacy rate at the beginning of the 1920s did not exceed 10%.
The Turkey (Izmir) Economic Congress and the Economic
Pact (Misak-ı İktisadî)
The Turkish Economic Congress held in Izmir was a significant turning point in the economic policies followed between 1923 and 1929. The purpose of the Turkish Economic Congress, convened between February 17 and March 4, 1923, during the interruption of the Lausanne talks, was to bring together previously
distant segments of society and gather opinions about the economic policies to be implemented. Mahmut Esat (Bozkurt) Bey, the Minister of Economics (Minister of Finance), summarized Turkey's economic history and stated that neither a liberal nor a socialist policy would be followed in the future. While Turkey would benefit from both of these ideologies in a way that suited the country's needs, it would implement a unique economic policy under the name New Turkey Economic School. General Kazım Karabekir also emphasized the importance of increasing production by preserving the means of production and reducing unnecessary consumption. A liberal tendency emerged, where the state would make regulations in areas such as infrastructure, taxation, credit, and education, thereby paving the way for private capital investments. The support of foreign capital was also foreseen, and with unanimous approval from all groups, the 12 Articles of the Economic Pact (Misak-ı İktisadî) were accepted. These principles, which contained more general statements rather than detailed specifics of economic policy, were as follows: Turkey, within its national borders, is one of the elements of peace and progress in the world. The people of Turkey are loyal to their national sovereignty and to the parliament and government. The people of Turkey are hardworking and avoid wastefulness. The people of Turkey protect their forests, which they consider as wealth, operate their mines for their own benefit, and act in a way that is free from theft, lying, laziness, and fanaticism. Increasing the population, which has decreased due to wars and poverty, and protecting public health is a primary goal. Turks, while being friendly with nations that do not harbor hostility toward them, are not opposed to foreign capital. Turks love to work freely and do not support monopoly systems. Regardless of class or profession, Turks love one another and work together cooperatively. Turkish women and teachers raise their children according to the principles of the Economic Pact (Misak-ı İktisadî) .,
Agricultural Regulations During the period between 1923 and 1929, agriculture was modernized with the aim of establishing a stable production structure. As a result, the tithe tax (a form of agricultural tax) was abolished on February 17, 1925. The Reji Administration , which had previously been controlled by the French, was purchased, and tobacco production was brought under state monopoly. Another key issue was increasing the credit provided by Ziraat Bankası (Agricultural Bank). With the restructuring of the bank, the credit volume, which was 8 million lira in 1923, was raised to 27 million lira by 1929. In 1929, agricultural credit cooperatives were established to help organize production for small farmers and increase credit opportunities. Also, in 1927, efforts were made to reorganize middle and high-level agricultural schools to improve agricultural education. Additionally, to the extent possible, agricultural technology imports were made, agricultural technical schools were opened, and modern farming practices were promoted through model farms. The use of agricultural machinery was concentrated in the southern and western regions of the country, while in other areas, production continued with primitive technology. As a result, during the period between 1923 and 1929, agriculture became the driving force of the economy. Industrial Regulations and the Industrial Encouragement Law (Teşvik-i Sanayi Kanunu) In 1925, the Turkish Industry and Mining Bank was established with the aim of supporting the private sector through credit. The bank was intended to temporarily operate businesses inherited from the Ottoman Empire and then sell them to the private sector; however, it was unable to transfer these operations to the private sector until 1932. Additionally, in 1925, a law providing special incentives and privileges for sugar factories was passed, and sugar factories were established in Kırklareli and Uşak. In 1926, efforts were made to establish the iron industry , which covered about 10% of the national budget at the time. Another regulation concerning industry, which had implications for the entire economy, was the establishment of the Supreme Economic Council (Âli İktisat
Meclisi) in 1927. This 24-member council, composed of government representatives and members from professional chambers, was tasked with conducting research and preparing programs to support economic development. The council, which operated until 1935, contributed to the economic policy of the period by preparing reports on issues such as the cost of living, balance of payments, agricultural credit, and industrial development. Moreover, in 1927, the Industrial Encouragement Law (Teşvik-i Sanayi Kanunu) was passed. This law was an extension of the 1913 law. Under this law, various privileges were granted to businesses, including land allocation ( hectares), exemption from customs duties, discounted sale of public goods to be used in newly established enterprises, a 10% sales guarantee by the state on annual production, and discounted transportation of imported machinery and equipment. Undoubtedly, these supports assisted both the two sugar factories mentioned earlier and the investments of both foreign and Turkish companies. Between 1926 and 1929, a total of 31.8 million lira worth of new foreign capital investments were made, and foreign capital also formed partnerships with Turkish companies. In this context, 43% of the 71 million lira paid-up capital of the joint-stock companies established between 1923 and 1930 came from foreign capital. The companies established during this period concentrated their investments in textiles, food, cement, and construction sectors. Regulations in Trade During this period, in order to ensure price stability and increase public revenues, the import and trade of products such as tobacco, matches, alcohol, spirits, petroleum, and sugar were left to monopolies. In 1925, Chambers of Commerce and Industry were established. In 1928, the Real Estate and Orphan Bank was opened with the aim of institutionalizing housing loans. Later renamed the Real Estate Credit Bank , this institution particularly assisted in financing private housing projects in the capital, Ankara. Transportation Sector and Cabotage Day Building infrastructure was crucial. To achieve this, the nationalization of railway lines operated by foreigners and the construction of new lines were necessary. In 1929, the General Directorate of State Railways and Ports was established under the Ministry of Public Works (Nafıa Vekâleti). In this context,
From Liberalism to State Intervention: The Statism Period (1930-1939) With the 1929 World Economic Crisis , Turkey, a country with underdeveloped industry and dependent mostly on agriculture, faced a crisis where agricultural products were affected, the foreign trade deficit increased, unemployment rose, and the Turkish lira lost much of its value. Following these developments, the National Economy and Savings Society was established first, followed by the establishment of the Central Bank , and the Law to Protect the Value of Turkish Currency was enacted. In 1931, in the light of the CHF (Central Bank of the Republic of Turkey), the principle of statism was adopted. Statism, in this context, meant that, in addition to private capital, the state would actively participate in large and strategic investments in the economic field. This definition was expanded at the 1935 Congress , with the addition of a provision that the state could take over a business from private capital if necessary. In 1937, statism was incorporated into the 1924 Constitution along with the other five principles. Although statism was a subject of various debates during this period, it was applied in line with the definition in the 1931 Congress, not as an anti-private sector approach, but in a manner consistent with the mixed economy policy as understood today. First Five-Year Industrial Plan and Developments in Industry The statism policy began in 1932 with the establishment of the State Industrial Office and Turkish Industry and Credit Bank. However, these two institutions were quickly shut down due to the public backlash against provisions in their regulations that sought to place private capital under state control. In their place, Sümerbank was established on July 11, 1933. Following this, the First Five-Year Development Plan was adopted, with the aim of utilizing raw materials and reducing the outflow of foreign currency. The first factory opened under this plan was the Kayseri Textile Factory. The plan was successful, leading to the creation of the Second Five-Year Development Plan , which focused on mining developments, but it was eventually discontinued due to financing difficulties. In 1935 , the Turkey Sugar Factories Corporation was established based on equal partnerships between Sümerbank , İş Bank , and Ziraat Bank , and by the end of these plans, four sugar factories were operational. Mining activities were carried out through the Etibank and
Institute for Mineral Exploration (Maden Tetkik ve Arama Enstitüsü), both established in 1935. Developments in Agriculture and Trade During the statism period, the area of land cultivated in agriculture was also doubled. The Ziraat Bank , which supported farmers, was a private entity at the time but was transformed into a state-run institution in 1937. Other changes in the agricultural sector during this period included: The establishment of the Higher Agricultural Institute in Ankara. In 1938 , the creation of State Agricultural Enterprises to introduce modern systems into agriculture. In 1934 , the most striking result in foreign trade was the establishment of the Foreign Trade Office , which facilitated imports in exchange for exports to Germany and many other countries. Transportation Sector and Financial Structure During this period, several railway lines were nationalized, and new highways were constructed. In maritime transport, shipyards in Istanbul were repaired, and to develop the maritime sector, the Istanbul Port Authority was established. Additionally, in 1937 , another bank, Denizbank , was founded. Summary
- Turkey pursued an open liberal economic policy between 1923-1929 , influenced by both the economic resources inherited from the Ottoman Empire and the economic provisions of the Turkey Economic Congress and the Lausanne Peace Treaty.
- During the 1923-1929 period, while there was a focus on railway investments, the establishment of fiscal balance, and economic development led by agriculture, the expected success in industrialization was not achieved. As a result, the chronic foreign trade deficit could not be closed.
- The negative situation worsened with the addition of the 1929 World Economic Crisis , which led to the transition to a state-driven economic policy in the 1930s. The statism policy was implemented in a manner
