Econ 401 Lecture 2

8/3/2019 Econ 401 Lecture 2

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Structure of Turkish EconomyLecture Notes 2

Alper Duman

October 2011

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Fiscal revenues of the state were as follows in 1910 and 1909:

1909 1910Real Estate Taxes 15,780,892 26,625,980Income Taxes 1,717,755 2,052,256AŞAR 76,568,397 85,718,059

Livestock Taxes 525,435 1,093,004Military Avodiance Taxes 7,190,565 837,726Other Sources 18,484,901 33,050,110Total Revenues 148,314,619 184,944,903

Table: State Revenues in 1909 and 1910

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Amount Annual Return Rate of ReturnRailways 53,310 1,040 1.95Electricity, subway 5,700 170 2.98Ports 4,710 160 3.4Industry 6,500 560 8.61Trade 2,660 – –

Metalurgy 3,580 230 6.42Banking Insurance 8,200 890 10.85Total 84,660 3,370 3.98Public Debt 149,480 13,000 8.70General Total 234,140 16,370 6,99

Table: FDI in Ottoman Empire, 1000 liras

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An economy which could be considered as almost self-sufficient intextiles at the beginning of 19th century ended up importing 80-90% at the beginning of 20th century (Boratav, 2009: 21).

Establishment Workers Average SizeTextiles 20,057 33,316 1.76Leather 5,347 17,964 3.36Metal products 5,273 8,021 1.52Food processing 1,273 4,493 3.52Wood products 704 3,612 5,13Chemicals 337 802 2.38Total 33,058 76,058 2.30

Table: Anatolian Industry, 1921

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1908-1922, Constructing a Nation and a NationalEconomy!

İttihad ve Terakki (İT) were an amalgam of officers,

intellectuals and petty bourgeoise, who were aware that the1908 movement would not have been successful if the projectof nation-state building failed.The members, or at least, the leading cadres of IT understoodthat a ’national economy’ is asin qua non of a nation state.

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In this respect one of the major achievement was to abolish the’millet system’ in jurisdiction. The minorities, members of various

ethnic and religous communities, were subject to their ’own’ lawsand regulations. Furthermore, the foreigners were altogetherbeyond the scope of the Ottoman jurisdiction. CUP, following theessential requirements of a centralized modern state, abolishedsuch pecularities and made every citizen to be subjected to thesame law and regulations. (Ahmad, 1995: 41) [? ]Remember that construcing a modern state in a multi-ethnic and amulti-cultural empire was a very difficult project. The conictsamong the ruling elite could be insurmountable. The strcuture of the rst parliament demonstrates the extent of such a conictualpolitical scene. Out of 288 members of the parliament 147 wereTurkish, 60 were Arabic, 27 were Albanian, 26 were Greek, 14 wereArmenians, 10 were Slavic and 4 were Jews. (Ahmad, 1995: 47)

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The Ottoman economy was ’semi-colonized’ in two senses1. First, the international specialization had forced the Ottoman

economy dependent on imports of industrial goods and exportof agricultural primary goods. This dependency had beendeliberately constructed during the long 19th century. Aneconomy which could be considered as almost self-sufficient intextiles at the beginning of 19th century ended up importing80-90 % at the beginning of 20th century (Boratav, 2009: 21)

2. More importantlynancial indebtness exerted the mainconstraint on any economy policy.The nancing of the wars before 1908 and thereafter required

heavy conditionals (such as Düyun-i Umumiye)1

that keptthe hands of the bureaucracy tied up.

1

The detailed conditionals enforced by IMF after 1980s very much resemblesthis era.

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More importantlynancial indebtness exerted the main constrainton any economy policy. The nancing of the wars before 1908 andthereafter required heavy conditionals (such as Düyun-i Umumiye)2 that kept the hands of the bureaucracy tied up. This institutionbecame so powerful that in 1911 the personnel amounted to 9,931persons. The nance ministry at that time did not employ as manypeople. (Ahmad, 1995: 101)Furthermore, the state could not get any international loanswithout the guarantee of the Düyun-u Umumiye (just like IMF).The nance minister, Cavit Bey, had to visit France and Englandand came back empty handed before making an agreement with

German banks. The loan of 11 million gold liras had a annualinterest cost of 4 percent.

2

The detailed conditionals enforced by IMF after 1980s very much resemblesthis era.

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IT was divided in terms of the long-term vision of a ’nationaleconomy’.The liberals (Prens Sabahaddin, Cavit Bey, etc.) argued thatinternational integration and liberal state would be best.Pragmatists like Celal Bayar won.

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The identity of the bourgeoise to be ourished did not matter forthe liberals.However, the nationalists (Ziya Gökalp, Ahmet Mithat, etc.)adamantly opposed such a policy. Their target was a nationalmodel of industrialization led by a ’native Turkish bourgeoise’coordinated and helped by an active state agency.The score is mixed; though the institutional setting was tiltedtowards the nationalists. First, the wars and ’political initiatives’such as population exchange and ’Armenian Massacre’ moreorlessexpelled all but a very small minority of non-muslim population.Their assets were seized up by the to be native nationalbourgeoise. Secondly during the war years, especially the WWI and

the Independence War, the provision of metropolitan cities such asIstanbul and Izmir created huge protable opportunities for middleor large merchants and graft for the IT bureacrats. Due to the warthe international trade routes that sustained the provision of thesecities were blocked.

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The only way was channeling the agricultural products of Anatolia,hence domestic trade.3 These two aspects might have caused a

mutation on the DNAs of the native bourgeoise. Instead of capitalist dynamic accumulation, the emerging class had found’accumulation by dispossession’ and ’simple rent-capturing’ as themost common way of wealth accumulation.Thirdly, Sanayi Teşvik Kanunu partially had been successful interms of decreasing dependency on imported industrial goods.About 30 percent of the enterprises covered in 1915 Industrysurvey had been established after 1908 (Boratav 2009). Theindustrial and service oriented enterprises faced a ’capital friendly’labor relations thanks to the Law of Tatil-i Eşgal.

3 The transaction cost of using Anatolian grains was 75 percent higher thanof importing from US or Europe. Those merchants who were sufficiently

connected could reserve monopoly positions to transport the Anatolian graincould charge monopoly prices and capture enormous ren ts

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Nevertheless, the economy suffered enormously from thedestruction of the capital stock as well as the labor power. Withinthe years from 1912 to 1922, 2 million person, civilian or military,died . The total population declined from 17 million in 1914 to 14million in 1924.

Agriculture, industry and mining were all affected adversely by the loss of human lives and by the deterioration and destruction of equipment, draft animals and plants during the war years. GDP per capita in 1923 was approximately 40 percent below its 1914 levels.

(Pamuk, 2007)

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The classes who gained mostly are the merchants.

Then came the upper echelons of the landowners who couldproduce a surplus for the provision of the metropolitan cities.Some of the IT bureaucrats collobrating with the aforementionedmerchants also could accumulate substantial wealth.The workers lost. Their number was not much. Mostly they wereemployed in the construction, municipalities and basic industrialactivities. Within this period, the officers were the major losers.Their real purchasing power had declined by almost 80%. With thebeginning of the WWI, all of the salaries were cut by 50% and did

not get a remarkable raise while the general price level has beenincreasing real fast.

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The national economy required a unied market with ’citizens’sharing a common language and a common base for conventionsand norms that would make exchange transactions enforcable. Thedecline in non-muslim population might be an important steptowards the unied market framework, however neither the normsnor the perception of ’citizenship’ could not rmly estabishedamong the common people.

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Questions

1. To what extent the wars in 18th and 19th century, hence theirnance were the causes of ’nancial indebtedness’ that the İTand Republic of Turkey inherited?

2. Why could not domestic textile producers compete with the

imported goods during the 19th century? What would be theeffect of small-scale and egalitarian landownersip structure?3. Who were Cavit Bey and Kara Kemal Bey? What does Kemal

Tahir think and write about them?4. What were the real connections (persons, companies,

organizations) between the merchants exploiting the blockageof trade routes during the war years and the IT bureaucracy?

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Econ 401 Lecture 2