1950s-1960s Ffyip Was Implemented Succesfully.

1940s and 1950s

FFYIP was implemented succesfully. 1936: the preparation of the second plan was initiated. The second plan’s target was to produce machinery and equipment, the construction of ports, establishing food and chemical industries. But because of the WW2 second plan could not be implemented.

Role of PEEs in Turkey:

Kepenek refers to the reports of Ministry of Economy. Reports counted privatization of PEEs as a final vehicle for supporting the private capital accumulation. Privatization of the gov’t companies would serve for capital accumulation in private sector. In the reports it was stated that etatism would be the “milk mother” of the private business. Reports stated that etatism would provide stimulus for private sector in 4 ways:

1. by enlarging the domestic market (PEEs created employment, employment generated incomes for people, incomes of people created effective demand)
2. by supplying raw materials under favourable conditions
3. by providing a qualified workforce
4. by transferring capital via establishing joint ventures

Kepenek says etatism can be defined as the first stage of import substituting industrialisation. Via etatism, Turkey constructed consumer goods industries (first stage of import subst. indust.) and also plants, such as iron and steel factories, paper factories…

Among PEEs: Sumerbank, Etibank, Halkbank, Emlak Kredi Bank, Maden Tetkik (General Directorate of Mineral Research and Exploration), SIS (state ints. of statistics), Hıfzısıhha (Health inst.).

Etatist industrialization continued until the beginning of WW2. Negative effects of WW2 on Turkish economy:

1. Etatist period came to an end.
2. Remember trade surpluses and balanced budget were the main policy features of the 1930s. During the war, it became hard to keep those conditions. To keep the budget deficit in control, new taxes were introduced.
3. Labor and capital were allocated for defense purposes. It made output and agricultural output to decline. Because of war, importing became difficult. It created further shortages, esp. in food in cities.
4. Because of food shortages, prices increased, black markets emerged. As a response, gov’t implemented some measures like price controls and rationing on consumer goods.
5. Working conditions of the labourers worsened. Wage controls were implemented.
6. For the first time, very high rates of inflation were experienced.

Wholesale price index:

1938=100 (base year)

1943=590

1945=450

Two negative effects of inflation:

a)        The hyperinflation worsened the income distribution (Speculators earned. Real wages declined. Speculator: people who expect prices would increase in the future)

b)         High prices distorted the allocation of capital resources to production to blackmarket. (Stockpiling, hoarding commodites resulted in high prices. Under these conditions, there was disincentive to invest in capital)

1. Gov’t needed to increase its revenue. Gov’t imposed new taxes.

1. Soil Production Tax: The implementation of the tax lasted for 2 years. It meant the reinitiation of Aşar (Ottoman agricultural product tax). As a result of the tax, 10% of gross product (GDP) paid to Treasury.
2. Wealth Tax: Its implementation was problematic. Tax base and tax rate were not formulated in a certain way in law. Their determination were left to the “estimation commissions”. Some arbitrary practices were observed. And the tax were collected mainly from minorities. The tax was fully implemented in 1942. 315 mill. TLs were collected from 114.000 taxpayers. It constructed 45% of the budget. 1200 person didn’t pay and sent to exile to Erzurum.

National Protection Law:

It was put under war conditions but remained until the 1950s. The law gave authority to gov’t interfering with the markets in terms of price and quantity (By the law, gov’t was allowed to make price and quantity controls in the market; that is, gov’t became able to set prices and declare amounts to produce.)

In the 1930s: land reform plans

“The law of distributing land to farmers” aimed  to give farm land to those who were totally landless or had only a very small land. But there were oppositions in the Republican People’s Party to the land reform. This opposition divided the party and there was a transition to a multi-party political process in 1946.

After war, there was a completely new world order. The world became a tripartite world: Capitalist countries, socialist countries, less developed or underdeveloped countries. US became the leader of the first group. Turkey joined the first camp. Turkey tried to be in the founders of the organizations UN, IMF, IBRD (former World Bank). Turkey managed to be accepted as European, accepted in the Council of Europe, became also a member of OECD.

Towards the end of the war, Kadro group prepared the second FYIP. This plan aimed at the continuation of etatism. It aimed at a full scale and total development plan. However, the policy formulations of the plan were not implemented by the gov’t. Domestic and foreign factors simultaneously forced the country to follow a very much different plan:

After WW2, during the reconstruction process of Europe, US gov’t included Turkey in its Marshall Plan. Also, US had an add’l aid package only for Turkey and Greece. This behaviour of US gov’t was called the Truman doctrine.

Marshall Aid and Truman doctrine aid package, both contained very important economic policy proposals.

The economic policy proposals were supported by two reports (written by US officials and IBRD).

In these reports it’s written that:

-Turkey had to specialize in agricultural production.

-Turkey should not insist on further industrialization.

Although the country didn’t participate in the war and had accumulated gold and foreign exchange reserves, US reports said that the country needed foreign aid and capital for development. The reports stated that Turkey must not continue with industrialization in “heavy industries”:

Iron and steel

chemicals

Fertilizers

Paper            

They said Turkey should specialize in agriculture. (Agriculture was needed for the reconstruction of Europe, in supplying food and raw materials)