TURKISHECONOMY AND POLITICS

From 1923, the Foundationof the Republic until 2002

Prof. Dr. Mkerrem Hiwith Asst. Prof. Dr. Ayen Hi Gencer

Copyright 2009Mkerrem Hi

Beykent UniversityDepartment of Economics

Istanbul, Turkey

http://www.beykent.edu.tre-mail: mukerrem@ahg.name

Published by Beykent University PressEdited by Alp H. Gencer

Typeset in Times and Bitstream Vera

ISBN 978-975-6319-09-3Certificate No. 11374

All rights reserved.

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Contents

TURKISH ECONOMY AND POLITICS:1923-2002

Foreword...............................................................................................................................ixIntroduction............................................................................................................................x

CHAPTER 1 ATATRK PERIOD: 1923-1938............................................................................................1

1.1. PERIOD OF LIBERAL ECONOMIC REGIME, 1923-1933....................................1 1.1.1.Economic Development........................................................................................1 1.1.2.Political Reforms and Developments....................................................................3

1.2. THE GREAT DEPRESSION OF 1929 AND TATIST ECONOMIC REGIME, 1933-1938.....................................................................................................................5

1.2.1.Brief Review of Developments in the World Following the Great Depression....5 1.2.2.Developments in Turkey: Atatrks Choice of tatist Economic Regime ...........7

1.3. PERFORMANCE OF THE ECONOMY DURING 1923-1938...................................9

CHAPTER 2 NN PERIOD: 1939-1950................................................................................................11

2.1. NNS STANCE IN WORLD WAR II..................................................................11 2.2. NNS ECONOMIC REGIME AND WAR CONDITIONS.................................13 2.3. PERFORMANCE OF THE ECONOMY DURING 1939-1949.................................14 2.4. ENTRY INTO MULTI-PARTY SYSTEM OF DEMOCRACY................................15

CHAPTER 3 DEMOCRAT PARTY PERIOD: 1950-1960........................................................................19

3.1. ECONOMIC REGIME AND DEVELOPMENT STRATEGIES IMPLEMENTED BY DP.........................................................................................................................19

3.1.1.Liberal Economic Regime, Encouragement of the Private Sector, Closed Economy, Import-Substitute industrialization..................................................19

3.1.2.The Strategy of Agricultural Development.........................................................22 3.1.3.Foreign Aid and Credit, and Encouragement of Foreign Private Capital Flow

(DPIs)...............................................................................................................23 3.1.4.August 3, 1958 Devaluation...............................................................................24 3.1.5.Application to the EEC for Associate Membership............................................24

3.2. MAJOR INTERNATIONAL POLITICAL RELATIONS..........................................25 3.3. PERFORMANCE OF THE ECONOMY DURING 1950-1959.................................26

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3.4. A SOCIO-POLITICAL EVALUATION OF THE PERFORMANCE OF DP...........28

CHAPTER 4 MILITARY INTERVENTION PERIOD: 1960-1961 ........................................................33

4.1. POLITICAL REPRESSION OF THE DP GOVERNMENTS THAT LED TO THE MILITARY INTERVENTION..................................................................................33

4.2. THE NEW CONSTITUTION, POLITICAL CHANGES AND PLANNED ECONOMIC DEVELOPMENT................................................................................36

4.2.1.Major Changes Introduced in the New Constitution for the Better Working of Democracy........................................................................................................36

4.2.2.Changes in the Economic Regime: Mixed Economy and Planned Economic Development.....................................................................................................39

4.3. PERFORMANCE OF THE ECONOMY DURING 1960-1961.................................40

CHAPTER 5 AFTER THE MILITARY INTERVENTION: 1962-1973..................................................41

5.1. COALITIONS, MINORITY GOVERNMENT LED BY NN AND CHP, 1961-65....................................................................................................................................41

5.2. POLITICAL DEVELOPMENTS DURING THE AP (JUSTICE PARTY) PERIOD, 1965-71.......................................................................................................................44

5.3. MARCH 12, 1971 MILITARY MEMORANDUM: REFORM GOVERNMENTS AND REFORM LAWS..............................................................................................50

5.4. ECONOMIC POLICIES AND DEVELOPMENT STRATEGIES PURSUED BY AP GOVERNMENTS, 1965-71.......................................................................................52

5.4.1.Industry: Encouragement of the Private Sector, DPIs and of Assembly Industries........................................................................................................52

5.4.2.Petroleum and Effects of the 1973 Petroleum Reform Law...............................54 5.4.3.Construction Sector............................................................................................54 5.4.4.Agriculture and the 1973 Land and Agricultural Reform Law..........................55 5.4.5.Closed Economy, Import-Substitute industrialization Strategy and 10 August

1970 Devaluation..............................................................................................56 5.4.6.Family Planning, Its Implementation and Implications.....................................58

5.5. TURKEY-EEC RELATIONS: ENTRY INTO THE TRANSITION PERIOD AND THE ANNEXED PROTOCOL..................................................................................60

5.6. PERFORMANCE OF THE ECONOMY DURING 1962-1973.................................62 5.6.1.Growth Performance of the Economy, 1962-64.................................................62 5.6.2.Growth Performance of the Economy, 1965-70.................................................63 5.6.3.Growth Performance of the Economy, 1971-73.................................................63

CHAPTER 6 UNSTABLE GOVERNMENTS AND TERRORISM: 1974-1980 ....................................65

6.1. RESULTS OF ELECTIONS, COALITION AND MINORITY GOVERNMENTS FORMED....................................................................................................................65

6.1.1.Ecevits CHP-MSP Coalition.............................................................................65 6.1.2.Demirels 1st Nationalist Front Coalition..........................................................66 6.1.3.Demirels 2nd Nationalist Front Coalition........................................................67

v 6.1.4.Ecevits Government of CHP + 11 MPs.............................................................67 6.1.5.Demirels AP Minority Government...................................................................68

6.2. MAJOR POLITICAL PARTIES AND THEIR STANDS..........................................68 6.2.1.CHP....................................................................................................................69 6.2.2.AP.......................................................................................................................71 6.2.3.Opposing Philosophies of CHP vs. AP...............................................................72 6.2.4.Dik.P...................................................................................................................73 6.2.5.CGP....................................................................................................................74 6.2.6.MHP....................................................................................................................75 6.2.7.MSP.....................................................................................................................76

6.3. MAJOR POLITICAL AND ECONOMIC DEVELOPMENTS..................................77 6.3.1.Military Intervention to Cyprus..........................................................................77 6.3.2.Economic Developments Up Until 24 January 1980.........................................78 6.3.3.January 24, 1980 Devaluation and Economic program....................................79 6.3.4.Negative Turning Points in Turkish-EEC Relations...........................................82 6.3.5.Mounting Terrorism, Killings, Demonstrations From Both Sides Leading to

September 12, 1980 Military Intervention........................................................84 6.4. PERFORMANCE OF THE ECONOMY DURING 1974-1980.................................86

CHAPTER 7 MILITARY INTERVENTION PERIOD: 1980-1983.........................................................91

7.1. OVERVIEW OF MILITARY INTERVENTION.......................................................91 7.1.1.Historical Overview............................................................................................91 7.1.2.Martial Court Round-ups and Court Sentences.................................................93 7.1.3.Reorganization of Universities and YK...........................................................95 7.1.4.Highlights of International Relations During the Intervention Years................98

7.2. MAJOR ECONOMIC DEVELOPMENTS DURING THE INTERVENTION YEARS.......................................................................................................................99

7.3. PERFORMANCE OF THE ECONOMY DURING 1981-1983...............................100 7.4. THE NEW CONSTITUTION AND GENERAL ELECTIONS................................101

7.4.1.The New Constitution 1982..............................................................................101 7.4.2.New Political Parties........................................................................................103 7.4.3.The New Election Law and Nov. 6, 1983 General Elections............................105 7.4.4.A Comparison of the 1980 Military Intervention with 1960 Military Intervention

and an Evaluation in Retrospect.....................................................................107

CHAPTER 8 ANAP AND ZAL PERIOD: 1983-1991...........................................................................113

8.1. POLITICAL DEVELOPMENTS AND RESULTS OF ELECTIONS HELD..........113 8.2. ECONOMIC POLICIES PURSUED BY ZAL.......................................................119

8.2.1.Liberalization of Trade, Convertibility of the TL, Free Flow of Financial Funds, Encouragement of DPIs .................................................................................119

8.2.2.Privatization, Encouragement of Private Enterprise, Private vs. Public Investments, Impaired Competition ...............................................................121

8.2.3.Public Finance and Tax Policies......................................................................123 8.2.4.Inflation: Real Causes and Reasons Given......................................................126 8.2.5.Wages, Employment and Social Goals.............................................................127

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8.3. PKK TERRORISM....................................................................................................128 8.4. INTERNATIONAL RELATIONS DURING ZAL and ANAP PERIOD..............132

8.4.1.Turkeys Relations with the EEC, Application for Membership in 1987.........133 8.4.2.Normalization of Relations with European Council.........................................134 8.4.3.Economic Relations with Islamic Countries and Others..................................134 8.4.4.Turkish Greek Relations................................................................................135 8.4.5.Pressures Exerted on the Turkish Minority in Bulgaria and Forced Migration to

Turkey.............................................................................................................136 8.4.6.Masses of Kurdish Refugees Fleeing From Iraq..............................................137 8.4.7.The 1990 Gulf War and Turkeys Cooperation with the USA..........................137

8.5. PERFORMANCE OF THE ECONOMY DURING 1984-1992...............................138 8.5.1.Growth of GNP, Per Capita GNP, Population and Inflation...........................138 8.5.2.Employment and Unemployment......................................................................141 8.5.3.The Share of Public Sector in Total Fixed Investments....................................142 8.5.4.Privatization.....................................................................................................143 8.5.5.FPC Flow (DPIs)..............................................................................................143 8.5.6.Selected Foreign Trade and Current Account Items........................................144

8.6. AN EVALUATION OF ZALS POLICIES...........................................................147

CHAPTER 9 PERIOD OF COALITIONS: 1992-2002............................................................................153

9.1. DYP-SHP (CHP) COALITION, 1992-1995..............................................................154 9.1.1.Political Developments, Elections, Formation and End of the Coalition........154 9.1.2.Economic Crisis, 1994......................................................................................159 9.1.3.Developments in the GAP (South-eastern Anatolian Project).........................160 9.1.4.Customs Union with the EU.............................................................................161 9.1.5.Turkish-Greek Relations and the Kardak Crisis..............................................163 9.1.6.Increased Terrorism, the Fight Against Terrorism and Reforms During 1992-95

........................................................................................................................163 9.1.7.Terrorism By Religious Mobs and Underground organizations......................164 9.1.8.PKK Terror and Kurdish Separatism...............................................................165 9.1.9.Reforms Accomplished During 1992-95...........................................................167 9.1.10.The Gazi Incident and Alevi uprising Against Terror leveled at Them..........168

9.2. ANAP-DYP (ANAYOL) COALITION, 1996..........................................................169 9.3. RP-DYP (REFAHYOL) COALITION, 1996-1997...................................................169

9.3.1.Formation of REFAHYOL Coalition................................................................169 9.3.2.Economic Agenda of REFAHYOL....................................................................170 9.3.3.Erbakans Early Attempts to Forge Relations with Islamic Countries............171 9.3.4.Turkish-Israeli Relations During the 1990s.....................................................171 9.3.5.Relations with the EU.......................................................................................172 9.3.6.The Susurluk Incident.......................................................................................173 9.3.7.The Sincan Incident..........................................................................................174 9.3.8.The February 28, 1997 Meeting of MGK.........................................................175

9.4. ANASOL-D (ANAP-DSP-DTP) COALITION, 1997-1999.....................................177 9.4.1.Extending Compulsory Primary Education to 8 Years.....................................178 9.4.2.Closure of RP and Opening of SP....................................................................178 9.4.3.Relations With the EU During ANASOL-D Government.................................179

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9.4.4.Fight Against PKK Terror and calans Capture...........................................180 9.4.5.Global Financial Crisis 1997-98 and Turkey...................................................181 9.4.6.Economic Policies of ANASOL-D Government................................................182 9.4.7.Ending of ANASOL-D by CHP and the Results of Early General Elections, 18

April 1999.......................................................................................................185 9.5. DSP-MHP-ANAP COALITION: 1999-2002............................................................186

9.5.1.April 1999 Elections and Forming of DSP-MHP-ANAP Coalition.................186 9.5.2.IMF Stand-by and Failure of the Foreign Exchange Anchor...........................187 9.5.3.February 2001 Economic Crisis.......................................................................192 9.5.4.Turkish-EU Relations; Becoming a Candidate Member..................................195 9.5.5.The End of the DSP-MHP-ANAP Coalition.....................................................197

9.6. PERFORMANCE OF THE ECONOMY DURING 1992-2002...............................198 9.6.1.Growth Rates, Inflation and Breakdown of GNP.............................................198 9.6.2.Employment and Unemployment......................................................................201 9.6.3.Fixed Investments.............................................................................................202 9.6.4.Developments in Turkeys Balance of Payments..............................................204

References..........................................................................................................................207

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Foreword

My experience in teaching Turkish economy courses at stanbul University, Columbia University, as well as at Beykent University has proven that there is need for a compact and concise textbook in English on this subject. The book in your hand tries to fulfill this need.

This book is essentially a shortened version of my book titled "A Survey of Turkey's Economy and Politics: 1923-2007", which was published in the USA. In-depth analysis of the subject as well as the governments in 2002-2008 period are covered by this extended version (Hi, 2008).

Up to date questions, such as the 2008 global financial crisis and its effects on Turkey's economy, can be followed in my book titled "Kresel Ekonomik Kriz ve Trkiye (Global Economic Crisis and Turkey)", which was published by Beykent University Press (Hi, 2009).

Herewith, I wish to express my thanks to Beykent University Administration, faculty and staff, who took on the task of publishing my latest two books. I also wish to express my special thanks to my daughter, Ayen, who contributed section 9.3 based on her previous work published in Germany (Gencer, 1998).

Prof. Dr. Mkerrem HiBeykent UniversityFebruary 2010

x Introduction

An attempt has been made in this book to survey major economic and political developments in Turkey since the foundation of the Republic by Atatrk in 1923 until 2002.

Economic performance and developments are the result of economic regime, economic strategies and policies pursued and these, in turn, depend upon the philosophy and the stand of different governments and political parties. Hence economy, political economy and politics are intertwined and it is impossible to abstract economics from politics. This is particularly pronounced in the case of developing and newly industrializing countries, including Turkey.

Therefore, both political and economic developments are taken jointly and the sub-periods studied in this book follows the developments that has taken place under different governments. It would have proved futile and artificial, for instance, to follow sub-divisions according to Five Year Development Plans (FYDPs) prepared by the State Planning Organization (SPO) since 1963 because economic policies, hence the performance of the economy changes conspicuously not according to FYDP periods but according to governments in power.

The sub-periods studied in the book follow consecutive government periods as listed below: Atatrk Period, 1923-38. nn Period, 1938-50. Democrat Party Period, 1950-60 (led by Celal Bayar as President, and Adnan

Menderes as PM). 27 May 1960 Military Intervention, military intervention period, 1960-62. The Years 60s, 1962-73:

o CHP-AP coalition (CHP led by nn as PM, AP led by Sleyman Demirel), 1962-65.

o AP government (led by Demirel as PM), 1965-71.o 12 March 1971 Military Memorandum and Reform Governments,

1971-73. The Years 70s, Unstable Coalitions, 1973-80:

o CHP-MSP government, 1974 (CHP led by Blent Ecevit as PM and center-left; MSP led by Necmettin Erbakan and radical religious right).

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o 1st and 2nd National Front governments 1975-78, led by AP (center-right; with Demirel as PM) 1st NF government coalition joined by MSP (led by Erbakan, radical religious right), CGP (center-right, pro Atatrk, led by Turhan Feyziolu), MHP (radical nationalist right, led by Alparslan Trke). The 2nd NF government coalition joined by MSP (same), MHP (same) and Dik.P (center-right, in the vein of former DP, led by Ferruh Bozbeyli).

o CHP government, 1978-79 (center-left and Ecevit as PM).o AP minority government, 1979-80 (led by Demirel, as PM, center-

right) supported from outside again by MSP, MHP and Dik.P (all as above).

12 September 1980 Military Intervention, and military intervention period, 1980-83.

ANAP and Turgut zal Period, 1983-1991. The Years 90s: Coalition Governments till 2002 General Elections: 1991-2002:

o DYP-SHP coalition, 1992-96 (DYP initially led by Demirel, center-right, SHP initially led by Erdal nn, center-left).

o Short-lived ANAP-DYP coalition, 1996, (ANAP center-right led by Mesut Ylmaz as PM, DYP center-right led by Tansu iller).

o RP-DYP coalition, 1996-97, (RP radical religious right led by Erbakan, as PM and DYP center-right led by iller).

o The collapse of RP-DYP coalition government following warnings about religious reactionary threat in the National Security Council, 28 February 1997.

o ANAP-DSP-DTP coalition, 1997-99 (ANAP center-right led by Ylmaz as PM; DSP led by Ecevit center-left; DTP led by Hsamettin Cindoruk, center-right; coalition supported from outside by CHP (led by Deniz Baykal, center-left).

o DSP-MHP-ANAP coalition 1998-2002, DSP center-left led by Ecevit as PM; MHP radical nationalist right led by Devlet Baheli; ANAP center-right led by Ylmaz.

Despite its wide expanse, in order to shorten the book as much as possible, I have refrained from giving all the relevant economic, social and political statistics in detail and have contended only with the most basic indicators. All the statements, arguments and evaluations made in the book, however, are based on detailed data, statistics and quantitative analyses that are readily available from conventional sources. These include SPO yearly programs and FYDPs, State Institute of Statistics SIS; presently called the Turkish Statistics Institution TIK), Turkish Central Bank, and the Ministry of Public Finance reports and publications. Second-hand and systematic data are also available in the yearly reports by the Union of Chambers of Commerce, Industry and Stock Exchanges (TOBB) in Ankara; and the Turkish Industrialists and Businessman's Association (TSAD) in Istanbul, as well as others.

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Turning once more on the sub-divisions which follows different government periods, even the short listing of the succeeding governments given above could raise eye-brows because there are so many short-lived government coalitions, many between parties with different philosophies. Tracing Atatrk, nn, DP (Menderes), AP (Demirel) and ANAP (Turgut zal) could be straight-forward. Atatrk was already mentioned above, nn implemented a more intensive tatism; DP, AP and ANAP were all center-right and liberal in the sense that they encouraged private enterprise and DPIs. But what about coalitions of political parties with different philosophies? Both CHP and MSP in 1974 were anti NATO, anti USA. etc. in rhetoric; but the CHP-MSP coalition government was too busy with the Cyprus operation. NF governments in the 70s (1975-77) pursued center-right economic policies favoring private enterprise. In the 90s, DYP-SHP (1992-95) was again center to center-right in economic policy, so were RP-DYP (1996-97) and ANAP-DSP-DTP (1997-98). DSP-MHP-ANAP (1999-2002) was de facto also center in terms of economic policies, busy to fight the economic crises, and also busy to attain for Turkey the status of candidate member to EU. The AKP presently in power also follows center-right economic policies.

Single governments commanding absolute majority in the parliament and implementing center-right economic policies generally fared better than coalition governments with different philosophies and actually implementing center-right or centrist economic policies.

Turkey started with rapid economic development under tatism during the Atatrk period. But in the subsequent periods intensive tatism or policies not favoring private enterprise generally caused a lower GNP growth while center-right economic policies fared better in terms of growth. These policies progressed over time from a closed economy to opening to world markets or outward orientation since 1980, to market economy since 1983, and Turkeys entry into globalization process accelerated particularly during the recent years. Growth performance was markedly poor during the nn period, partly due to war conditions. It was also low during center-left CHP under Ecevit. He faced economic difficulties during 1977-79; and the Ecevit-led coalition DSP-MHP-ANAP 1999-2002 had to fight serious economic crises.

The author of this book wants to underline at this point that amongst leaders only Atatrk stands incomparably tall, with a very grand vision and its implementation. He had already shown his military genius in the defense of Dardanelles; he showed it once again in the War of Independence. He carefully set the target for new Turkey and its limited boundaries and won the War of Independence with scarce arms and ammunition against very well-supplied invaders. The only strong point on his side was the natural impulse of the people to throw the invaders off their homeland. It was only because Atatrk had saved Turkey that he was able to set an entirely new course for the new state as secular republic by abolishing both the sultanate and the caliphate. Turkish people at the time were overwhelmingly (nearly 100%) pro sultanate and pro caliphate. Many of Atatrks

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colleagues were also in favor of keeping at least the caliphate in Turkey. His reforms for the westernization of Turkey, his attempts at multi-party democracy further sheds light in the direction of the new republic Atatrk envisioned.

Laicist (secular) republic, westernization, multi-party system of democracy should have been owned by all shades of movements and political parties from left to right; excepting only the most radical religious right which aims at a religious state, the most radical nationalist right which is racist and bent on uniting Turks all over the world, and also excepting communism. It should be underlined that not all those who voted for radical parties at the nationalist right and the radical religious right in the later years were radicals in the narrower sense mentioned above. Similarly only a few at the left were adherents of communism and Marxism.

Atatrks followers, both in intellectual fields and in politics, should range from center-right to center to center-left but even a number of radical left thinkers have accentuated only his fight of independence against imperialist powers and have tried to own him on their side. On the other hand, only the more religious and those politicians who played for their votes considered laicism and Atatrk as against Islam. This was a grotesque misinterpretation of Atatrk as well as of Islam and the move was always most harmful and a threat to Turkeys political hence economic stability in the long run. And more recently we have another group of self-proclaimed Kemalists who interpret him so rigidly that such a regime cannot have any chance of allowing Turkey to progress both economically and politically in the world of today.

nn as a statesman also has a number of unique achievements; first as representing Turkey in the Lausanne negotiations, secondly he was most careful not to drag Turkey into W.W. 2 despite heavy pressures from both sides. He also did the right move, siding with allied countries towards the end of the War upon territorial claims of USSR under Stalin. nns introduction of multi-party democracy is another benchmark.

nn also played a critical statesmanlike role during and after the 1960 military intervention. The signing of Ankara treaty with the EEC to make Turkey an associate member was still another benchmark. But economic growth during his period 1938-50 was poor, in fact, negative and his implementation of tatism too intensive.

Although economic growth was faster generally during the period of center-right parties or coalitions implementing center-right policies this does not mean to say that the over-all governance of Turkey by center-right parties was superior. Some of the gravest mistakes of center-right political parties was to play on and hence strengthen both radical nationalist and, in particular, radical religious right. This fault accelerated over time and eventually radical religious right (called moderate Islamism by many Europeans and Americans who compare it only with Middle Eastern and North African Islamic countries rather than within the context of Atatrks secular republic) became mainstream and center-right parties were

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marginalized. Another major defect of particularly those political parties at the right was corruption which again seems to have accelerated over time.

The center-left parties, on the other hand, particularly in the earlier years assumed an intensively tatist stance; they had been generally anti private enterprise, anti DPIs, anti Turkish-EEC (EC and later EU) relations, and anti USA. Hence, though professing to be center-left this stand was near to radical left rather than center-left. Their economic and political stance became more moderate over time, hence more applicable in the world of today. One great disadvantage of center-left in Turkey was that it did not start as a mass movement. Left-of center stance was owned from the top by CHP in the second half of 60s. By that time the center-right DP and later AP had already captured with economic growth and political rights the majority votes of workers, small businessmen, and farmers including those with smaller land. For the rural Turkish population, in addition, any pronunciation of left brings to mind hostilities with Russia; more recent example had been Stalins claims after World War II on Kars, Ardahan, Artvin and the straits.

In Europe, in contrast, the left had been a mass movement of workers and the poor who were joined by intellectuals. Over time the left in Europe first dispensed with many of Marxist maxims, became democratic and eventually moved to center-left in the more recent times. In Turkey since it was movement from the top it was always under exceptional conditions that a left-of-center party became a convincing alternative to come to power, leaving this opportunity to the radical right. And the cause is not merely fragmentation of political parties, because both the center-left and the center-right are split just as much. Fragmentation stems from the 1982 law on political parties that assigns too much power to the chairman of the party, lack of experience of the politicians to live by consensus, plus opportunities of receiving large sums of money from the Treasury. Intra-party democracy is also generally absent.

Chapter 1

ATATRK PERIOD:

1923-1938

1.1. PERIOD OF LIBERAL ECONOMIC REGIME, 1923-1933

1.1.1. Economic Development

Mustafa Kemal Atatrk has laid firm foundations for the economic regime of the new Republic just as in all other fields. The mistakes made by leaders, governments and political parties following him can, in no way, be traced down to him. Despite its importance, Atatrk period will be treated here in summary because there are many studies available on Atatrk by myself, other Turkish writers as well as well-informed foreign experts.

When he founded the new Republic, Atatrk had inherited a nation which had not entered the age of enlightenment and a backward economy torn by wars. A nation-state was lacking both in spirit and in organization. At a time when the negotiations in Lausanne were discontinued, Atatrk organized the 1st zmir Economic Congress in 17 February 4 March 1923 in order to make advisory decisions on the economic regime and economic policies to be pursued by the new Republic. In this Congress, the delegates advised that private enterprise and its encouragement should be taken as the basic principle. Despite the adverse experience with capitulations during the Ottoman period, the Congress also accepted that Foreign Private Capital (FPC, or Direct Private Investments DPIs in todays preferred terminology) be also encouraged if it is useful for the economy. The advisory decisions of the Congress were of strategic importance. During the War of

2 TURKISH ECONOMY AND POLITICS

Independence, the Soviet regime established in Russia in 1917 in World War I years had lent some material support to Atatrks national struggle. The Soviets were well aware that Turkey was not experiencing a communist revolution while Atatrk was also careful to keep Soviet aid within safe limits. Nonetheless, many European delegates at Lausanne had doubts and anxieties as to what economic regime and political relations the new Turkish Republic would follow. The 1st zmir Economic Congress organized at a time when Lausanne negotiations were stalled dispelled such fears. In the second phase of negotiations, started after the zmir Congress, major questions including Mosul petroleum, capitulations, the debts of the Ottoman Empire were all solved and Lausanne Peace Treaty was signed on July 24, 1923.

The new Republic established on October 23, 1923 went about implementing the liberal economic principles accepted in the zmir Congress. It was decided that FPC firms operating in the defense and transportation sectors were to be nationalized, i.e. turned over to the government, by means of paying their worth. But those in other fields, such as banking and commerce were allowed to operate, stripped, however, of capitulations. Nationalization proceeded very slowly during the Atatrk period due to lack of financial means whereas it was speeded up during the nn period. According to the Lausanne Treaty the government had to keep the low-rate specific customs taxes on imports unchanged up until 1929 while it also had to start paying the General Debts (Dyunu Umumiye) of the Ottoman period from 1929 on. In 1924, the bank was established by mixed capital in order to develop private industry both by credit financing and also by means of direct bank participations. In 1925 the Industry and Mining Bank (Sanayi ve Maden Bankas) was founded in order to finance the investments of the public enterprises to these sectors. In 1927, the government issued the Law for the Encouragement of Industry intended to encourage the private sector with the limited means available, such as subsidies on transportation fees, etc.

In the field of agriculture, the new Republic abolished in 1925 the tithe (aar), i.e. the 10% flat tax on agricultural produce, implemented during the Ottoman period and subject to much complaint.

On 1929, according to the stipulations of Lausanne Treaty, the Turkish government became free to establish new customs taxes, scrapping those left over from the Ottoman Period. With the Lausanne Treaty debt payments organization had already lost its overall political influence and had become a mere transfer agency. Yearly debt payments were also reduced. In 1929 they were further reduced and final payment was made in 1954.

As the following section will indicate, the new Republic had its hands full with the institution of very radical political reforms in these initial years. But despite the serious political questions as well as uprisings or religious resurrections of reactionary groups and forces, economic growth was remarkably high during these first years. Indeed, according to SIS statistics GNP rose from 11,378.8 million TL in 1968 prices in 1923 to 21,274 million TL by 1930, an average yearly growth rate of 9.4% for the first seven years. One reason for this high rate is obviously the very low GNP in 1923 due to the destruction and disruption of production during the war.

ATATRK PERIOD: 1923-1938 3

There was scanty manufacturing capacity left over from the Ottoman period while the war of independence must have severely affected agricultural production.

On October 28, 1927 the first population census was held and it showed the population was 13.6 million, very high birth and death rates and child birth, and a very low life expectancy.

1.1.2. Political Reforms and Developments

Political developments, radical political reforms undertaken during the Atatrk period are so profound that a mere listing attempted here can do little justice to their importance. The subject, however, is dealt in depth and in detail in very many studies published on Atatrk. Even the summary or listing below would prove that Atatrks political reforms have paved the future of the new Republic as regards both the political and the economic regime. And this is why Atatrk is very much alive today while Hitler, Mussolini, Stalin all died.

During the first years of the New Republic, the government decidedly gave the priority to the carrying out of the major political, social and cultural reforms, as well as the prevention of uprisings and insurrections of religious reactionary groups who were more against laicism than the Republic, and against the abolishment of caliphate and acceptance of European codes.

It was a tremendous task, and nobody little less than Atatrks caliber could have achieved it. Luckily, his military genius in the Dardanelles and later in the War of Independence was supplemented with his genius in choosing the right political vision and in laying sound political strategies and tactics to attain his goal (Lloyd George, British PM at the time of War of Independence had also referred to Atatrk as a genius). He had to accomplish this goal in the context of a one-party system. Any move in the way of multi-party system of democracy backfired because reactionary forces seized the opposition parties established. He also had his hands full subduing insurrections of reactionaries.

Just before the new Republic was established on October 23, 1923, Atatrk first founded in September 1923 the Republican Party (Halk Frkas; Cumhuriyet Halk Partisi; CHP: Republican Peoples Party as it was later called). As he visualized it, this party was to represent and work for the welfare of all the social classes of the nation. The former regional groups which had carried on the War of Independence formed the backbone of the party. Its formation and aims, that is, Atatrks vision was manifest; he never had in mind the Bolshevik model based on social class. He envisioned a secular republic and a nation-state based on the Western civilization. He had to abolish the sultanate and the caliphate and carry out several radical reforms to westernize Turkey.

It must be underlined that abolishing the Sultanate in Nov. 1, 1922 and declaration of the new Republic in Jan 20, 1923 was a gigantic step by itself. The first parliament had convened on 23 April 1920 as the political body behind the War of Independence. It had already accepted in 1921 the principle sovereignty unconditionally belongs to the people as a first step towards the future Republic. The Lausanne Treaty was signed on 24 July 1923, and the new parliament that

4 TURKISH ECONOMY AND POLITICS

convened in August 23, 1923 declared on 29 Oct. 1923 that the state was a Republic. Atatrk was elected President, and smet nn was elected Prime Minister. This step was then followed by abolishing the caliphate on March 3, 1924 and concomitantly the Law of the Unification of Education was accepted.

Following, in April 1924 a New Constitution was accepted that still retained the statement that Turkey was an Islamic state, but the abolishment of the caliphate required the abolishment of the Sharia Ministry and the religious courts while the acceptance of the Law of Unification of Education required that madrasahs (medrese: theological higher school of learning) should be dismantled. Ottoman dynasty was sent abroad. To fill the void, faculties (departments) of theology were to be opened up in universities and new intermediate schools for training imams and preachers would be tied to the new Ministry of National Education. Foreign schools were also brought under the control of the said Ministry.

But abolishing the caliphate on top of the Sultanate naturally caused deep and widespread resentment among the religious conservatives who were an overwhelming majority at the time. Even many of Atatrks former close and prominent co-operators and supporters, both military and civilian (including Kazm Karabekir, Ali Fuat Cebesoy, Refet Bele, Adnan Advar and H.Rauf Orbay), left ranks. Atatrk allowed them to establish another party: Terakkiperver Cumhuriyet Frkas (Progressive Republican Party) on Nov. 17, 1924 to give vent to the rising opposition and elected Fethi Okyar, a moderate as Prime Minister instead of smet nn. But the said party was swelled by antagonistic religious ultra-conservatives. At about the same time, on February 17, 1925 Seyh Saids religious uprising started and immediately gained ground in Eastern provinces. smet nn was re-elected as Prime Minister and the government accepted on March 4, 1924 a very severe disciplinary legislation called Takriri Skun Kanunu (Law Concerning Order). Martial law was instituted in the Eastern region. The above-mentioned law gave the government vast powers including the use of military force and institution of special courts to suppress the anti-secular uprisings. Seyh Said uprising was wiped out by April and Seyh Said and other leaders of the insurrection were executed. Shortly before, on June 3, 1925 the Progressive Republican Party was closed down by the government on grounds it provoked religious reactionary movements. An attempt on Atatrks life, again by a reactionary group in June 1926 had shown that the severe disciplinary measures were necessary to protect the newly established secular republic.

It was under the umbrella of such a strict and severe legislation that Atatrk launched his subsequent radical reforms. These included the closing down of religious orders (tarikat), lodges (tekke) and cells (zaviye) on Sept 2, 1925; acceptance of the law that outlawed the fez and introduced the European hat on Nov. 25, 1925; acceptance of the international calendar and hours on Dec. 26, 1925; acceptance of the new secular Civil Law on February 17, 1926; and the Criminal Law on March 1, 1926. The new civil code based on the Swiss introduced equality for citizens of different races, religions and sex. This was a great step forward for womens rights and introducing monogamy, divorce, equality of women and men in

ATATRK PERIOD: 1923-1938 5

inheritance and as witnesses in courts, etc. It also laid the ground for women to seek professions. Later, in 1931 women were granted the right to vote and to be elected in the municipality elections. In 1934, a law was passed that recognized the women to vote and to be elected as parliamentarians. Accordingly, in the 1935 general elections 18 women entered the Parliament.

The Criminal Law, on the other hand, was modeled after the 1930 Italian Code and included clauses that protected the regime. The new alphabet using Latin letters and numbers instead of the Arabic was accepted in May 20, 1928. The 1924 Constitution had stipulated an Islamic (Republican) State. In April 1928 the word Islamic was deleted as a sign of true laicism. Consequently, further minor consequent changes were also made. It was, however, in 1937 that the word laicism was explicitly introduced into the Constitution.

Once reactionary uprisings were prevented and the reform steps completed the government slackened the strict disciplinary measures; special (independence) courts were closed in 1927 and the Law Concerning Order was discontinued by March 4, 1929.

All of the above reforms had an enormous influence in modernizing Turkey and in carrying her up to the present times, including attempts at the implementation of multi-party democracy. But even this cursory listing proves that the establishment of a truly secular republic could not be achieved if full-fledged democracy had been implemented under the conditions prevailing in Turkey at the time simply because an overwhelming percentage of people at the time, including Atatrks many prominent associates who took part in the War of Independence were in favor of the sultanate and, at least, the caliphate. Though only Seyh Said uprising is mentioned above, all throughout the years many other reactionary uprisings, bloody protests against reforms had also taken place.

To safeguard his political reforms along contemporary Western civilization, Atatrk had to be wary not only of religious reactionary movements but also of communism. Hence communists, including the famous poet, Nazm Hikmet had also had to be persecuted. Atatrks reforms, once having taken ground, however, would pave the way towards full-fledged democracy. This, obviously was also Atatrks long-range vision, given the experiences first with the Progressive Republican Party in 1924, and later with the Free Republican Party in 1930.

1.2. THE GREAT DEPRESSION OF 1929 AND TATIST ECONOMIC REGIME, 1933-1938

1.2.1. Brief Review of Developments in the World Following the Great Depression

The Great Depression 1929-31 ushered in major changes in economic philosophy and in economic and political regime throughout the world. Classical macroeconomics which contended that the economy would attain full employment

6 TURKISH ECONOMY AND POLITICS

automatically and advised complete laissez-faire fell from favor with Keynes in 1936. Instead, Keynesian demand management or state interventions at the macro-level to prevent unemployment and business cycles gained wide acceptance, starting in the United Kingdom. According to Keynes system, adverse cost effects of a wage rise on unemployment were partly offset by the resultant increase in consumption expenditures. In the developed countries, in fact, even long before Keynes, the states had intervened to solve the social, that is, the workers problem by means of legislation concerning child labor, work hours, work conditions, minimum wages, the social security system, labor unions and collective bargaining. Agriculture was another subject of government intervention at the sectoral level with the purpose of raising and stabilizing the income of farmers. In the USA, with the Great Depression the Democrat Party came to power the first time in 1933 and Franklin D. Roosevelt launched a program called the New Deal which provided social welfare to the workers and the unemployed. This was even before Keynes 1936 General Theory.

But far more radical changes occurred in Germany and Italy. In Germany widespread unemployment brought about by the Great Depression and Communist threat, on top of heavy reparation payments from World War I all combined to give rise to political upheavals which brought Hitler and his National Socialist Party to power in 1933. This was the first big step towards the World War II. In Italy, Mussolini and his Fascist movement had already made progress by 1929. Mussolini had strengthened his dictatorship during 1922-27. Fascist Italy became a satellite of Germany in the depression years. The Fascist and the National Socialist dictatorships allowed the existence and operation of the private sector. But the state retained the right to intervene to its operations at any stage. Of paramount importance, the private sector had to be politically subservient to the regime and the state. The dictatorship of the two axis countries was in direct contrast to the deeply rooted democracy prevailing in Great Britain and the USA.

Another radical development was the Marxist-Leninist Revolution and the establishment of communist dictatorship in Russia. This had already occurred in 1917, even before the end of World War I in a milieu of weariness on the part of Russian, soldiers, workers and the people. After Lenins death Stalin had taken on the leadership in 1924. Despite the ruthlessness of the political regime, Russian industry and economy seemed to be making significant strides under the New Economic Plan (NEP) and the first 5-year central plan implemented in 1928. Thus, at a time when the rest of the world faced a severe depression Russia was giving, at the time, the image of steady economic progress.

The above tedious summary of world events is intended to stress the examples Atatrk had before him and his wisdom. Atatrk studied Russias Communism, Germanys National Socialism, Mussolinis Fascism as well as the USA and UK models before laying the foundations for the economic regime he would select for Turkey.

ATATRK PERIOD: 1923-1938 7

1.2.2. Developments in Turkey: Atatrks Choice of tatist Economic Regime

With the onset of the Great Depression in 1929, its indirect negative effects began to hit the Turkish economy. Balance of payments deficit, in particular, forced the government to issue in February 1930 the Law on the Protection of the Value of the Turkish Lira which introduced barter and clearing to foreign trade. The Law on the Turkish Central Bank was passed on June 11, 1930 and the Central Bank was established on Oct. 3, 1930 to take over its functions from the Ottoman Bank. The decline in domestic sales due to the depression left the commercial private sector with unsold inventories, hence with financial problems. Just at that time many in the government circles led by Prime Minister smet nn, expressed dissatisfaction with the results obtained under the liberal economic regime, although despite the depression Turkey had experienced an average yearly growth rate of 7.5% during 1929-33. nn first pronounced tatism explicitly in the speech he gave in Sivas. His philosophy was shared by another heavy-weight, Recep Peker, secretary general of CHP at the time.

In 1931 the general assembly of the CHP accepted the principle of tatism and included it in the six arrows or principles. These developments had given vent to serious suspicions and anxiety among the private sector. To quell such fears, Atatrk allowed Fethi Okyar, a close associate and an economic liberal to found a new party, the Free Republican Party (Serbest Cumhuriyeti Frka) in August 1930. But this party, as in the case of the former experience, fell prey to religious reactionary forces and Okyar himself took the initiative to close it by November 1930. Meanwhile, smet nn visited Moscow in 1931 to obtain technical aid and credit. He then visited Italy.

There were, in fact, three distinct movements or philosophies in Turkey at the time concerning economic regime, of which one was in the minority and was soon repressed. This was the so-called cadre (kadro) movement. Its leader, evket Sreyya Aydemir was an internationally well-known intellectual educated in Moscow University. So were many other prominent members of the movement. They had studied in Russia the implementation of the communist regime in the developing countries that had not yet reached the mature industrialization stage and, rather, were in the feudal stage. The cadre people did not propose communism outright for Turkey but interpreted Kemalism (implying the doctrine of following up Atatrks principles) as the Third Way, in between socialism and capitalism and as a defiance against the imperialist west. The cadre movement did not spread much in Turkey because Russia and ipso facto communism was abhorred by the masses of Turkish people. Nonetheless, the government of the newly established Republic, sensitive against both religious extremism and reactionary forces as well as communism, fearing the consequences of the cadre movement, suppressed it.

Aside from the cadre movement, there were two major rival movements. One was led by smet nn and followed by bureaucrats as well as a part of CHP parliamentarians. They advocated an intensive and permanent participation of the

8 TURKISH ECONOMY AND POLITICS

government in all economic activities, both as public investments and production, and as government interventions and controls, including intensive protectionism in foreign trade. This can be termed as the doctrinaire or an intensive version of tatism. It should be noted that such an interpretation of tatism, if left unchanged, would not quite accommodate the present day movement towards the market economy, outward orientation and globalization.

The second movement was led by Celal Bayar, director of the bank at the time, and was followed mostly by businessmen. They had advocated liberal economic regime in the past years. This time, under the conditions of the Depression, the proponents of this movement saw the role of the state and public investments as a temporary measure, in order to achieve a more satisfactory growth rate and industrialization. Their motto was public investments should go to those fields in which private sector is lacking. This version could be termed the moderate version of tatism; it is pragmatic and dynamic. As such, it should again be noted here, it is compatible with the present day movement towards the market economy, outward orientation and globalization. Apparently, Atatrk accepted this second version of tatism. In 1932 Atatrk forced the resignation of the then minister of economics and installed Celal Bayar instead to implement tatism; nn was retained as Prime Minister. In later years, however, Atatrk forced the resignations of some of the other ministers, leading to a strained relationship with smet nn. Finally, in September to October 1937 Atatrk forced nns resignation and appointed Celal Bayar as Prime Minister.

As had been pointed out above, before accepting the moderate version of tatism Atatrk had studied carefully the three economic regimes prevalent at the time: i) The economic regime in Great Britain and the USA that kept the private sector as the basic element and introduced interventions at the macro level to avoid depressions and inflations, plus interventions to raise the welfare and incomes of workers and of farmers, ii) The fascist and national socialist dictatorship in Italy and Germany and iii) The communist dictatorship, public ownership of all means of production and central economic planning in Russia.

tatism as Atatrk envisioned it, first appeared in CHPs program in 1933 during which year the 1st Five Year Industrial Plan was prepared to become effective 1934-1938. tatism also entered the Constitution in 1936. That it was moderate and pragmatic rather than doctrinaire will become evident with a short scrutiny of its main principles, cited below. The private enterprise is basic. Only those industrial sectors not taken up by the

private sector would be developed by means by public investments in order to accelerate growth and industrialization.

The state enterprises would, in principle, operate in industry that is manufacturing, energy and mining. Transportation was also undertaken in major part by the public sector. In addition, two public banks were established to take the place of Industry and Mining Bank since 1932: the Smerbank for financing public enterprises in the manufacturing sector, and Etibank for those in the mining sector.

ATATRK PERIOD: 1923-1938 9

The government would not conduct production activities in the agricultural sector. The public sector farms would carry production not for the market but for research and development purposes, to be passed on to farmers.

When private enterprise grows and matures in any industrial sector, that sector would be left to private enterprise.

The law on State Economic Enterprises (SEEs) put in force in 1934 required the SEEs to operate like prudent businessmen. This meant that Atatrk intended them to take into account profitability as well as social productivity.

With the establishment of SEEs in iron-steel, coal, copper and chromium the mining sector began to be developed. In addition, such import-substitute manufacturing sub-sectors as textiles, sugar, paper and pulp were started. Some SEEs were financed by Soviet credit as the only outside finance available in addition to Etibank and Smerbank credits. The bank, the large commercial bank founded in 1924 with mixed capital participated largely to establish the glass sector.

In transportation, rail roads received priority to be undertaken by the public sector. Most importantly, following the acceptance of the Latin alphabet Atatrk emphasized education, and the literacy rate was raised considerably while universities were drastically overhauled and improved. Many scientists of Jewish origin who had fled Germany took an active part in raising the level of university education. Needless to state that education is the most important ingredient and field of investment for long-run growth and development. Atatrks education drive had incalculable positive effects on Turkeys longer run development.

Since population was scanty and had been broken during the incessant wars (only 16.1 million in 1935) Atatrk encouraged childbirth. The motto was: one child for the mother, one for the father and one for the country.

Throughout the Atatrk period as well as nn later, strict quantitative restrictions were placed on imports. Trade was carried by means of bilateral clearing and barter arrangements in order to keep foreign trade deficit at minimum levels. Foreign trade was a very meager ratio of GNP.

1.3. PERFORMANCE OF THE ECONOMY DURING 1923-1938

Yearly GNP rates during the Atatrk period is given below in table form. It should be borne in mind, however, that though the figures belong to SIS (State Institute of Statistics), the SIS began relatively comprehensive national income statistics since 1948; hence the figures for earlier periods should be understood as no more than estimates.

GNP growth Rates %, 1923-38*1923 1924 1925 1926 1927 1928 1929 1930

- 14.6% 12.9% 16.2% -12.6% 11.0% 21.6% 2.2%

10 TURKISH ECONOMY AND POLITICS

1931 1932 1933 1934 1935 1936 1937 19388.7% -10.7% 15.8% 6.0% -3.0% 23.2% 1.5% 9.5%

* Source: State Institute of Statistics (SIS), Publication No.1883; Statistical Indicators 1923- 1995, Ankara 1996. p. 426, Table 21.4 (Note GNP was calculated in 1948 prices).

This means that during the first phase of Atatrk period under liberal economic regime, 1923-1930 (7 years). the yearly average growth rate was 9.12%. This is quite a high rate, one reason being Turkey started in 1923 with a very low GNP due to the War of Independence. The discontent following the Great Depression about unsatisfactory growth attained under liberal economic regime must, therefore, have been partly speculative and partly influenced by the low rate in 1930. During the years affected by the Great Depression 1930-35 (5 years) the yearly GNP growth rate was 2.94%, the years after the Depression 1933-38 (5 years) the rate was 7.08%, (the overlapping is deliberate). For the entire Atatrk period 1923-38 (15 years) including the years under liberal economic regime and under tatism, the yearly average was 4.16%; obviously influenced by the Great Depression.

The population growth rate for the period 1927-38 was 2.1% (SIS, ibid, pp.15, 16). Population census before 1927 is not available, the first census by the State Institute of Statistics having been made in 1927. This brings per capita GNP growth down to about 2.1% for the entire period 1923-38. Laying the foundations of a new modern Turkish Republic, preventing insurrections of reactionary forces was obviously much more important than economic performance. For economic performance, on the other hand, one should not forget that the new Turkish Republic started in 1923 virtually with no capital, little technology, a broken down population, scarce domestic savings potential, and very limited foreign credit (from the USSR). Even with these handicaps, during the period 1933-38, the years after the Great Depression and under Atatrks tatism, the average per capita GNP growth rate was about 5%. This is evaluated as Turkeys first development effort by many researchers.

When the new Republic was founded, the economy was predominantly agricultural and remained so for some years. But the industrialization drive started with the tatist regime started to change this picture significantly. To wit, in 1927 agriculture was still 53% of GDP, industry 12.9%, services 34.1%. In 1938 the share of agriculture had gone down to 40.2% though still considerable; the share of industry had risen to 16.7% and services had also increased to 43.1% (SIS, ibid pp.398, 401).

According to SPO, The First Five Year Development Plan, 1963-67, p.9, however, in 1927 shares of agriculture, industry and services in national income were 67%, 10% and 23% respectively; and by 1939 the respective shares were 48, 16% and 38%. The author believes the former to be a more accurate estimate.

Chapter 2

NN PERIOD:

1939-1950

2.1. NNS STANCE IN WORLD WAR II

Following Atatrks death on Nov. 10, 1938 nn was elected President the next day, and later, on Dec. 26, as unchangeable chairman of CHP and received the title National Leader (Milli ef). In Jan. 1939 Celal Bayar resigned and Refik Saydam was elected Prime Minister. With the general elections held on March 26, 1936 smet nn liquidated many prominent CHP parliamentarians formerly in Atatrks circle who were anti-nn. But he brought many of the former dissenters, including Kazm Karabekir, Fethi Okyar, Ali Fuat Cebesoy, Rauf Orbay, Refet Bele and others back into fold as CHP parliamentarians. Soon after nn was elected president, World War II broke out, Germany attacked Poland on Sep. 1; Britain and France declared War on Sep. 3. There is common agreement that the greatest achievement of nn was political, not concerned with economics. He kept Turkey away from entering World War II despite very heavy pressures and provocations coming from both sides. Many observers underline that Atatrk had once talked about the possibility of another world war in future and that Turkey should be kept out of such a war.

It was no easy task. Claims by Stalin that the Montreaux agreements concerning the straits be subjected to revision by Turkey with Russia and Black Sea countries prompted nn to sign on Oct. 19, 1939 an agreement with Britain and France. According to this agreement Britain and France would help Turkey militarily in case Turkey is attacked. Turkey, however, was not obliged to enter the war if in

12 TURKISH ECONOMY AND POLITICS

case France and Britain were attacked but if the situation did not need Turkeys participation. Thus Turkey loosely sided with the allies not only against Russia which was not yet close to allies but also against the axes, Germany and Italy. But as the War proceeded and Turkey became encompassed by German and axis forces, on June 18, 1941 Turkey this time signed a non-aggression pact with Germany. Though the move held Turkeys agreement with Britain and France intact, it was still disliked by Britain. The meeting of nn with Churchill in July 1943 in Adana, and with Churchill and Roosevelt in December, same year in Cairo ended up Turkey accepting to enter the War on the side of the allies in principle; but first Turkish army had to be modernized. Only towards the end of World War II, on February 23, 1945 Turkey declared war on Germany and Japan. This allowed Turkey to become a founding member of United Nations, accepted in the August 15, 1945 session of the Turkish parliament. Following the Yalta Conference held on February 11, 1945 Stalin gave a memorandum to Turkey demanding bipartite negotiations between Turkey and Black Sea states to change the Montreaux agreement and also for Soviet military bases for a common defense of the straits. Russians also demanded changes in the Turkish-Russian borders. It implied they demanded Eastern provinces, Kars, Ardahan, Artvin and others, presumably to annex them to Armenia within their sovereignty. Though Turkeys standing with Britain and the USA was weakened because of Turkeys reluctance to enter the war earlier, Russian claims on the straits was disliked even more. The USA and Britain gave a memorandum to Russia on October 9, 1945 declaring that Montreaux agreement concerning the straits could not be changed by bipartite agreements and that Turkey should remain the sole responsible state for their defense. On April 5, 1546, an American warship paid a friendship visit to Istanbul as a gesture of USA support.

Thus, Stalins claims, particularly about the straits had helped to strengthen Turkeys relations with the Western world after World War II despite the fact that Turkey had not actively participated in the war.

Later, when the rivalry between the West and the Communist bloc came to the fore, US president Truman signed an agreement on July 12, 1947 for military aid to Turkey. The Truman doctrine also enabled Turkey to apply for entry to NATO. Turkey entered NATO on Feb. 18, 1952, after Celal Bayar and the (Demokrat Parti, DP: Democrat Party) came to power in 1950, following her participation in the Korean War.

Thus, nn was able to steer away from entering World War II. Eventually, however, Turkey became an important member of the Western World; nn had also brought to naught Russian claims concerning both the straits and territory from the Eastern region.

Such questions as had Turkey entered the war at an early phase would Russians have refrained from making similar claims or not would be highly speculative and unanswerable. Similarly, had Russians not have made the claims they did, would nn have insisted strongly in becoming a close member of the Western World or would he have preferred to remain neutral between the West and USSR, is also a highly speculative point and unanswerable. Suffice it here that Turkey did

NN PERIOD: 1939-1950 13

remain outside the War, that it became of member of the Western World and repudiated Russians claims about the straits and territory.

2.2. NNS ECONOMIC REGIME AND WAR CONDITIONS

nns record in the field of economics, however, is subject to debate. The War obviously inflicted considerable negative effects on the economy. Therefore, the performance of the economy during the nn period is conspicuously poor; a falling GNP level and rampart inflation during the war years.

Many students attribute this negative performance entirely on the war conditions. But, according to the interpretation of some authors, including myself, nns economic philosophy, implementation of an intensive and permanent form of tatism, rigid controls on economic activities also had a substantive share. It is, of course, impossible to come to a quantitative and definite conclusion on this topic or to estimate, for instance, what the performance could have been in case a moderate economic regime had been implemented. Therefore, only the major economic policies implemented by nn during and after the War will be listed here.

First, due to difficulties of implementation under war conditions, nn felt compelled to cancel the 2nd Five Year Industrial Plan, 1939-43. Again, based on the excuse of war, prevention of black markets, speculation and stockpiling for speculation, he put in force on June 27, 1940 the Law on National Protection. Because of its importance and political implications, the said law will also be mentioned subsequently; suffice it here that it not only defied market forces and economic laws but ushered in bureaucracy, government fiat and harsh controls on production and trade. Going even further, nn repealed the 1927 Law of Encouragement of (Private) Industry in 1942, declaring that private sector had by then already developed and did not need incentives any further. In fact, during the first years of the nn period, and prior to 1942, part of the encouragement measures had already begun to be funneled to SEEs. nn brought a strict government official status to SEE executives and employees with equal salaries depending on their position and seniority and not depending on the profitability of the respective SEEs. Atatrks dictum that SEEs should be run like prudent businesses was thus hollowed.

In Nov. 1942, nn introduced a once-and-for-all Wealth Tax to finance the war, the actual implementation of which heavily disfavored the minorities. Those who could not pay the tax were sent to forced labor in Akale, Erzurum, causing further tragedies and resentment. In fact, when defending the law in the CHP group. kr Saracolu, Prime Minister at the time, had argued that one of the aims of the law was to rid the Turkish economy of foreigners (minorities) and give it to the hands of the Turks. On account of widespread resentment and criticisms also coming from international circles, nn started the liquidation of the law in

14 TURKISH ECONOMY AND POLITICS

September 1943, which ended by March 1944. The unpaid tax debts were all written off.

Atatrk had merely mentioned the need for land reform in his 1936 budget speech but had not taken any concrete steps. In fact, since 1934 and per Law Concerning Settlement attention was given up until 1944 to the distribution of publicly owned land, a total of 4.6 million decares (one decare is 1000 square meters or 0,247 acres) to Turks who migrated to Turkey from Balkan countries in accordance with bilateral agreements. In 1945, however, nn passed a Law on Providing Land to Farmers. He nationalized forests, expropriating those that were in private hands. But he refrained from expropriating the land of big landowners mentioned in the Law on account of the heat of political competition coming from the newly established DP which was openly antagonistic towards land reform but in favor of agricultural reform. When the DP came to power in 1950, they distributed again some of the vast publicly owned lands (1.5 million decares) to farmers with no or insufficient land within the context of the said law.

Obviously, nn had implemented a rigid, intensive and doctrinaire version of tatism that he had defended at the time of Atatrk when faced with the negative effects of the Great Depression of 1929-34. One can easily deduce that this time too, although World War II conditions required increased interventionism, the question here is whether interventionism and controls that nn implemented were excessive, and whether poor GNP growth was the result of war conditions and nns economic regime combined, rather than attributable only to the former cause. Below follows a summary of the GNP performance of the economy during the nn period.

2.3. PERFORMANCE OF THE ECONOMY DURING 1939-1949

GNP growth rates during the nn period according to State Institute of Statistics (SIS) is given below in Table form.

GNP growth Rates %, 1939-1949*

1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949+6.9% -4.9% -10.3% +5.6% -9.8% -5.1% -15.3% +31.9% +4.2% +15.9% -5.0%* Source: SIS, ibid; pp.401-3.

The above figures imply that during the period affected by World War II (1939-45; 7 years) there was a precipitous decline in GNP. The average yearly decline was about 6.6% per year. With an average population growth rate of about 1.4% for the same 7 years, it meant that per capita GNP declined at an average yearly rate of about 8%.

There was a considerable recovery after World War II ended, as the above figures indicate. To wit, during the sub-period 1946-1949 (4 years) the average yearly GNP growth rate was about 11%. With a population growth rate of about

NN PERIOD: 1939-1950 15

2.2%; this means a yearly per capita GNP growth rate of about 8.8%. There should, however, be some reservations to this figure. Firstly, after the precipitous decline of GNP in 1945, 1946 should always show a considerable increase. Secondly, the SIS figures are at best estimates, and one should not attribute too much precision to them. They are useful only if they are interpreted as general tendencies. Thirdly, the absolute level of GNP in 1938 was surpassed only by 1948, and then in 1949 there was a decline. So the high rate of recovery after the war years did nothing more than to bring the level of GNP more or less to about its 1938 level. For the entire nn period 1939-49 (11 years) the yearly average GNP growth rate was only 0.5%. With an average population growth rate for the 11 years at about 1.7% this meant an actual yearly decline in per capita GNP of about 1.2% (i.e. 1.2%).

We should underline here once again that those who argue that nn years were strained only because of World War II conditions cannot use the above GNP figures as definitive proof. Neither can those, including the author, who believe that part of the fault lied with nns strangling economic regime and controls. This is simply because we have no way of calculating what the growth rate would have become if optimal economic policies and strategies had been implemented. Simply stated, no precise quantitative analysis is possible on this point.

Inflation during the war years, on the other hand, was rampant. Price increases were only 1.8% in 1939 but 22.6% in 1940, 38.8% in 1941, 96.8, in 1942, 65.2% in 1943. It showed a slight decrease thereafter from 1944 to 1946, and were again normal, that is, non-inflationary from 1947 on to 1949. The high rate of inflation stemmed from decreased production on account of manpower shortages since millions of men had to leave work and production for military enlistment. Another reason for the inflation was increased military expenditures which gave rise to large budget deficits while public investments had been dwindled. In short, both in production and the budget, defense considerations overrode economic considerations. The high inflation rate during the war years necessitated a large-scale devaluation on September 7, 1946, following a minor one in 1943.

All throughout 1939-49 the economy remained predominantly agricultural. In 1938 the share of agriculture in GDP (in current prices) was 40.2% and in 1949 still 40.3%. The share of industry, on the other hand, had declined from 16.7% in 1938 to 14.9% by 1949. In constant prices, the absolute level of industry had remained about the same (SIS, ibid, pp.401-3).

2.4. ENTRY INTO MULTI-PARTY SYSTEM OF DEMOCRACY

Another major political event during the nn period is entry into multi-party system of democracy and CHP ceding power finally to DP in 1950. The term multi-party system of democracy is used here deliberately to accentuate the basic and first ingredient of democracy; further refinements concerning parliamentary

16 TURKISH ECONOMY AND POLITICS

representation and human rights, or their insufficiency being left in the background. One reason for Turkeys acceptance of multi-party system of democracy during the nn period was that in the bipolar world that emerged after World War II, Western powers insisted on liberal economic regime and on multi-party system of democracy for countries on their side. One-party political regimes had fallen from favor following the examples of Germany, Italy and Russia. Another reason was that in Turkey, due to economic difficulties as well as political pressures, discontent with and opposition to the CHP government had become widespread but there were no appropriate political channels to voice it.

Communist movements as well as Pan-Turanism (Pan-Turkic ideology), that is, those who advocated an early entry to World War II on the side of the Germans and annex the Turkic countries in Caucasia and Central Asia were either persecuted or repressed. Both were, at any rate, marginal movements.

The discontent of the masses of people, on the other hand, concerned the economy as well as political freedoms. One important reason for discontent about the economy was the implementation of the 1940 Law on National Protection as affecting both the tradesmen and the farmers. In addition, enlisting about 2 million to the army out of a population of about 17.3 million in 1939 and 18.6 million by 1945, mostly from rural population and agricultural workforce had truly caused serious declines in agricultural production. Thirdly, at a time when inflation was rampant, in order to implement a low government fiat on, say, wheat, nn government forced the farmers to sell 25% of their produce at low prices to the Soil Products Office, the SEE that buys wheat and soil products. The farmers could then sell the rest of their produce to private tradesmen. Similarly with other agricultural produce. The government finally rationed bread in 1942 which ended by 1944. It also put into practice harsh measures against black marketers, speculators and those who stockpile for black marketing. Many tradesmen were jailed. The farmers suffered both due to low produce and the tax. They were also resentful of the harsh treatment of gendarmes which, according to the government, had stemmed from the need for discipline in war conditions. Thus, nns regime had brought deep discontent to rural population which comprised at the time about 80% of total population.

Tradesmen also suffered from the same law. Implementation of the law was toned down after the end of the war, but this change towards moderation was apparently of little political avail. Private sector in general, including industrialists, tradesmen, small tradesmen, artisans, all fared badly both due to war conditions and also because of intensive interventionism, excessive controls and penalties of the nn period. The minorities had been most seriously inflicted with the Wealth Tax. The workers, on the other hand, had witnessed their wage in real terms decline seriously throughout the war years; they did not enjoy much social security and labor rights either. Thus, the main motivation behind the discontent towards the nn governments was economic and social. Religious reactionary forces may have joined hands, but their thrust was comparatively marginal at the time. In comparison, during the Atatrk period the main threat of discontent, opposition and insurrection came

NN PERIOD: 1939-1950 17

from religious reactionary forces opposed to the abolishment of the sultanate, and particularly the caliphate; it did not have an economic content.

The preferences of the mainstream opposition in Turkey during the later years of the nn period, that is, multi-party system of democracy and liberal economic regime were also in perfect accord with the developments and preferences of the Western World. Thus, in May 19, 1945 nn made a speech to the youth, hinting that as difficulties due to war conditions are reduced, Turkey should move on towards democracy. This hinted that nn would allow the establishment of new political parties. Immediately there was an attempt by Nuri Demira, and his new party was established in July 15, 1945; but it was doomed to failure. The main opposition came from Celal Bayar, Adnan Menderes, Fuat Kprl, Refik Koraltan and others who were prominent CHP parliamentarians. They were liberal, that is, in favor of private enterprise in economic regime. They were also anti land reform, particularly the article which allowed the government to expropriate land from big landowners, and instead preferred agricultural reform and that vast state-owned, unused lands should be distributed instead of expropriation. But land reform was only a small part in their economic and political program. They also criticized the 1945 budget and on June 7, submitted an open statement to the government calling for economic and political liberalism. The call was voted down in the parliament. Therefore, they resigned from the CHP and founded the DP on January 1946. Their ranks were swelled both by former CHP parliamentarians, as well as lower echelon CHP hands, and also with new hands. So the DP began to spread its organization throughout the country very fast. Initially nn had welcomed and supported the establishment of the DP and saw it as a tool to control and tune the CHP. So much so that the DP had to explain to the people that they were not a fictitious opposition party like the former Free Republican Party. Upon the growing popularity of the DP, on 5 June 1946 CHP decided to hold early general elections and thus catch the DP incompletely prepared. The 5 June 1946 election law allowed the multi-party system and for the first time allowed one-phase election directly by voters. In the one-party regime, we had two-phased elections, the voting public first elected those delegates who were then allowed to elect the MPs in the second phase. The general elections were to be held on July 21, 1946. Since its preparations were incomplete, DP hesitated but decided to enter the elections with an incomplete list. The results, on the surface, was a big victory for the CHP; it had won 395 seats out of a total of 465; DP had won 66 seats and there were 4 independents. The system of absolute representation was used. But 1946 elections is claimed as the most foul election in the Turkish history of democracy. Firstly, all the MP candidates of DP and other CHP opponents were followed by the police, and they were held under constant pressure. But more importantly, CHP had decreed open balloting and secret counting, the latter uncontrolled by any objective body or organization. Therefore, no student can be in a position to deduce the true preferences of the voters from the CHP-government-gauged results.

Following the 1946 elections the moderates in the CHP had the upper hand in the party organization and the government; nn as president was also

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conciliatory towards the opposition. Furthermore, after the war, the economy had began to show marked improvements. All, however, were obviously of little avail because when the next general elections were held on May 14, 1950 DP obtained 408 seats out of 450 with 53.3% of total votes cast, thus ending 27 years of CHP governments.

The CHP government, upon DPs suggestions had let a large body of objective institutions to prepare the new election law under which the 1950 elections were carried. In this election, the principle applied was the normal, that is, secret balloting, open counting, Repressions by the police, though still existent, was also minimal. The DP had obtained 53.3% of total votes. But the absolute majority system which was CHPs reference as opposed to DPs preference of proportional representation enabled the DP to obtain an overwhelming majority in the parliament. The CHP had fared better mostly in Eastern provinces. The result of the 1950 elections was labeled as the white revolution.

Chapter 3

DEMOCRAT PARTY

PERIOD: 1950-1960

3.1. ECONOMIC REGIME AND DEVELOPMENT STRATEGIES IMPLEMENTED BY DP

3.1.1. Liberal Economic Regime, Encouragement of the Private Sector, Closed Economy, Import-Substitute industrialization

Having won the 1950 and the subsequent 1954 and 1957 general elections, the DP (Demokrat Parti: Democrat Party) remained in power till May 27, 1960 Military Intervention. All throughout, DP adhered to the principle of encouragement of private enterprise and flow of Foreign Private Capital (FPC), that is, Direct Private Investments (DPIs) in todays terminology. This was crucially different from the intensely tatist economic regime implemented by CHP during nn period, but later had wrongly been attributed to Atatrk. Hence, it was generally said at the time that DP implemented a liberal economic regime. But care has to be taken in interpreting the meaning of liberal in this context and differentiating it from the market economy as it is conceived today.

Truly, the liberal economic regime implemented by DP took the private enterprise as basic and encouraged private investments and production. But it involved intensive government interventions to market forces both at the macro and the micro or sectoral levels, as well as intensive protections in foreign trade. It also had intensive recourse to public investments and SEEs. Therefore, the consistency of these policies needs a short explanation.

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Private enterprise and private investments were still inadequate at that time to achieve a satisfactory rate of growth and industrialization. In fact, when DP came to power, it offered SEEs to sale, following Atatrks dictum that they should be transferred to the private enterprise when the latter has grown sufficiently in that sector. But no sales could be effected. Hence, the DP had to have recourse to public investments and SEEs. But the principle here is that they were complementary to the private enterprise, not competing or substitute. This meant undertaking not only social and productive infra-structural investments but also super-structural fields. The principle, however, was establishment or otherwise expansion of basic and intermediate industrial as well as agricultural goods, such as iron and steel, chemical fertilizers, insecticides, etc. These fields required relatively large capital and relatively high technology that was not yet available by the private sector. These public investments and SEEs actually