TURKISH ECONOMY AND POLITICS

Transcription

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2 TURKISH ECONOMY AND POLITICS From 1923, the Foundation of the Republic until 2002 Prof. Dr. Mükerrem Hiç with Asst. Prof. Dr. Ayşen Hiç Gencer

3 Copyright 2009 Mükerrem Hiç Beykent University Department of Economics Istanbul, Turkey Published by Beykent University Press Edited by Alp H. Gencer Typeset in Times and Bitstream Vera ISBN Certificate No All rights reserved.

4 iii Contents TURKISH ECONOMY AND POLITICS: Foreword...ix Introduction...x CHAPTER 1 ATATÜRK PERIOD: PERIOD OF LIBERAL ECONOMIC REGIME, Economic Development Political Reforms and Developments THE GREAT DEPRESSION OF 1929 AND ÉTATIST ECONOMIC REGIME, Brief Review of Developments in the World Following the Great Depression Developments in Turkey: Atatürk s Choice of Étatist Economic Regime PERFORMANCE OF THE ECONOMY DURING CHAPTER 2 İNÖNÜ PERIOD: İNÖNÜ S STANCE IN WORLD WAR II İNÖNÜ S ECONOMIC REGIME AND WAR CONDITIONS PERFORMANCE OF THE ECONOMY DURING ENTRY INTO MULTI-PARTY SYSTEM OF DEMOCRACY...15 CHAPTER 3 DEMOCRAT PARTY PERIOD: ECONOMIC REGIME AND DEVELOPMENT STRATEGIES IMPLEMENTED BY DP Liberal Economic Regime, Encouragement of the Private Sector, Closed Economy, Import-Substitute industrialization The Strategy of Agricultural Development Foreign Aid and Credit, and Encouragement of Foreign Private Capital Flow (DPIs) August 3, 1958 Devaluation Application to the EEC for Associate Membership MAJOR INTERNATIONAL POLITICAL RELATIONS PERFORMANCE OF THE ECONOMY DURING

5 iv 3.4. A SOCIO-POLITICAL EVALUATION OF THE PERFORMANCE OF DP...28 CHAPTER 4 MILITARY INTERVENTION PERIOD: POLITICAL REPRESSION OF THE DP GOVERNMENTS THAT LED TO THE MILITARY INTERVENTION THE NEW CONSTITUTION, POLITICAL CHANGES AND PLANNED ECONOMIC DEVELOPMENT Major Changes Introduced in the New Constitution for the Better Working of Democracy Changes in the Economic Regime: Mixed Economy and Planned Economic Development PERFORMANCE OF THE ECONOMY DURING CHAPTER 5 AFTER THE MILITARY INTERVENTION: COALITIONS, MINORITY GOVERNMENT LED BY İNÖNÜ AND CHP, POLITICAL DEVELOPMENTS DURING THE AP (JUSTICE PARTY) PERIOD, MARCH 12, 1971 MILITARY MEMORANDUM: REFORM GOVERNMENTS AND REFORM LAWS ECONOMIC POLICIES AND DEVELOPMENT STRATEGIES PURSUED BY AP GOVERNMENTS, Industry: Encouragement of the Private Sector, DPIs and of Assembly Industries Petroleum and Effects of the 1973 Petroleum Reform Law Construction Sector Agriculture and the 1973 Land and Agricultural Reform Law Closed Economy, Import-Substitute industrialization Strategy and 10 August 1970 Devaluation Family Planning, Its Implementation and Implications TURKEY-EEC RELATIONS: ENTRY INTO THE TRANSITION PERIOD AND THE ANNEXED PROTOCOL PERFORMANCE OF THE ECONOMY DURING Growth Performance of the Economy, Growth Performance of the Economy, Growth Performance of the Economy, CHAPTER 6 UNSTABLE GOVERNMENTS AND TERRORISM: RESULTS OF ELECTIONS, COALITION AND MINORITY GOVERNMENTS FORMED Ecevit s CHP-MSP Coalition Demirel s 1st Nationalist Front Coalition Demirel s 2nd Nationalist Front Coalition...67

6 6.1.4.Ecevit s Government of CHP + 11 MPs Demirel s AP Minority Government MAJOR POLITICAL PARTIES AND THEIR STANDS CHP AP Opposing Philosophies of CHP vs. AP Dik.P CGP MHP MSP MAJOR POLITICAL AND ECONOMIC DEVELOPMENTS Military Intervention to Cyprus Economic Developments Up Until 24 January January 24, 1980 Devaluation and Economic program Negative Turning Points in Turkish-EEC Relations Mounting Terrorism, Killings, Demonstrations From Both Sides Leading to September 12, 1980 Military Intervention PERFORMANCE OF THE ECONOMY DURING CHAPTER 7 MILITARY INTERVENTION PERIOD: OVERVIEW OF MILITARY INTERVENTION Historical Overview Martial Court Round-ups and Court Sentences Reorganization of Universities and YÖK Highlights of International Relations During the Intervention Years MAJOR ECONOMIC DEVELOPMENTS DURING THE INTERVENTION YEARS PERFORMANCE OF THE ECONOMY DURING THE NEW CONSTITUTION AND GENERAL ELECTIONS The New Constitution New Political Parties The New Election Law and Nov. 6, 1983 General Elections A Comparison of the 1980 Military Intervention with 1960 Military Intervention and an Evaluation in Retrospect CHAPTER 8 ANAP AND ÖZAL PERIOD: POLITICAL DEVELOPMENTS AND RESULTS OF ELECTIONS HELD ECONOMIC POLICIES PURSUED BY ÖZAL Liberalization of Trade, Convertibility of the TL, Free Flow of Financial Funds, Encouragement of DPIs Privatization, Encouragement of Private Enterprise, Private vs. Public Investments, Impaired Competition Public Finance and Tax Policies Inflation: Real Causes and Reasons Given Wages, Employment and Social Goals v

7 vi 8.3. PKK TERRORISM INTERNATIONAL RELATIONS DURING ÖZAL and ANAP PERIOD Turkey s Relations with the EEC, Application for Membership in Normalization of Relations with European Council Economic Relations with Islamic Countries and Others Turkish Greek Relations Pressures Exerted on the Turkish Minority in Bulgaria and Forced Migration to Turkey Masses of Kurdish Refugees Fleeing From Iraq The 1990 Gulf War and Turkey s Cooperation with the USA PERFORMANCE OF THE ECONOMY DURING Growth of GNP, Per Capita GNP, Population and Inflation Employment and Unemployment The Share of Public Sector in Total Fixed Investments Privatization FPC Flow (DPIs) Selected Foreign Trade and Current Account Items AN EVALUATION OF ÖZAL S POLICIES CHAPTER 9 PERIOD OF COALITIONS: DYP-SHP (CHP) COALITION, Political Developments, Elections, Formation and End of the Coalition Economic Crisis, Developments in the GAP (South-eastern Anatolian Project) Customs Union with the EU Turkish-Greek Relations and the Kardak Crisis Increased Terrorism, the Fight Against Terrorism and Reforms During Terrorism By Religious Mobs and Underground organizations PKK Terror and Kurdish Separatism Reforms Accomplished During The Gazi Incident and Alevi uprising Against Terror leveled at Them ANAP-DYP (ANAYOL) COALITION, RP-DYP (REFAHYOL) COALITION, Formation of REFAHYOL Coalition Economic Agenda of REFAHYOL Erbakan s Early Attempts to Forge Relations with Islamic Countries Turkish-Israeli Relations During the 1990s Relations with the EU The Susurluk Incident The Sincan Incident The February 28, 1997 Meeting of MGK ANASOL-D (ANAP-DSP-DTP) COALITION, Extending Compulsory Primary Education to 8 Years Closure of RP and Opening of SP Relations With the EU During ANASOL-D Government...179

8 9.4.4.Fight Against PKK Terror and Öcalan s Capture Global Financial Crisis and Turkey Economic Policies of ANASOL-D Government Ending of ANASOL-D by CHP and the Results of Early General Elections, 18 April DSP-MHP-ANAP COALITION: April 1999 Elections and Forming of DSP-MHP-ANAP Coalition IMF Stand-by and Failure of the Foreign Exchange Anchor February 2001 Economic Crisis Turkish-EU Relations; Becoming a Candidate Member The End of the DSP-MHP-ANAP Coalition PERFORMANCE OF THE ECONOMY DURING Growth Rates, Inflation and Breakdown of GNP Employment and Unemployment Fixed Investments Developments in Turkey s Balance of Payments References vii

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10 ix Foreword My experience in teaching Turkish economy courses at İstanbul 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: ", which was published in the USA. Indepth analysis of the subject as well as the governments in period are covered by this extended version (Hiç, 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 "Küresel Ekonomik Kriz ve Türkiye (Global Economic Crisis and Turkey)", which was published by Beykent University Press (Hiç, 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, Ayşen, who contributed section 9.3 based on her previous work published in Germany (Gencer, 1998). Prof. Dr. Mükerrem Hiç Beykent University February 2010

11 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 Atatürk in 1923 until 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: Atatürk Period, İnönü Period, Democrat Party Period, (led by Celal Bayar as President, and Adnan Menderes as PM). 27 May 1960 Military Intervention, military intervention period, The Years 60s, : o CHP-AP coalition (CHP led by İnönü as PM, AP led by Süleyman Demirel), o AP government (led by Demirel as PM), o 12 March 1971 Military Memorandum and Reform Governments, The Years 70s, Unstable Coalitions, : o CHP-MSP government, 1974 (CHP led by Bülent Ecevit as PM and center-left; MSP led by Necmettin Erbakan and radical religious right).

12 o 1 st and 2 nd National Front governments , led by AP (centerright; with Demirel as PM) 1 st NF government coalition joined by MSP (led by Erbakan, radical religious right), CGP (center-right, pro Atatürk, led by Turhan Feyzioğlu), MHP (radical nationalist right, led by Alparslan Türkeş). The 2 nd 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, (center-left and Ecevit as PM). o AP minority government, (led by Demirel, as PM, centerright) supported from outside again by MSP, MHP and Dik.P (all as above). 12 September 1980 Military Intervention, and military intervention period, ANAP and Turgut Özal Period, The Years 90s: Coalition Governments till 2002 General Elections: : o DYP-SHP coalition, (DYP initially led by Demirel, centerright, SHP initially led by Erdal İnönü, center-left). o Short-lived ANAP-DYP coalition, 1996, (ANAP center-right led by Mesut Yılmaz as PM, DYP center-right led by Tansu Çiller). o RP-DYP coalition, , (RP radical religious right led by Erbakan, as PM and DYP center-right led by Çiller). o The collapse of RP-DYP coalition government following warnings about religious reactionary threat in the National Security Council, 28 February o ANAP-DSP-DTP coalition, (ANAP center-right led by Yılmaz as PM; DSP led by Ecevit center-left; DTP led by Hüsamettin Cindoruk, center-right; coalition supported from outside by CHP (led by Deniz Baykal, center-left). o DSP-MHP-ANAP coalition , DSP center-left led by Ecevit as PM; MHP radical nationalist right led by Devlet Bahçeli; ANAP center-right led by Yılmaz. 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 TÜIK), 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 (TÜSİAD) in Istanbul, as well as others. xi

13 xii 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 Atatürk, İnönü, DP (Menderes), AP (Demirel) and ANAP (Turgut Özal) could be straight-forward. Atatürk was already mentioned above, İnönü implemented a more intensive étatism; 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 ( ) pursued center-right economic policies favoring private enterprise. In the 90s, DYP-SHP ( ) was again center to center-right in economic policy, so were RP-DYP ( ) and ANAP- DSP-DTP ( ). DSP-MHP-ANAP ( ) 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 étatism during the Atatürk period. But in the subsequent periods intensive étatism 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 Turkey s entry into globalization process accelerated particularly during the recent years. Growth performance was markedly poor during the İnönü period, partly due to war conditions. It was also low during center-left CHP under Ecevit. He faced economic difficulties during ; and the Ecevit-led coalition DSP-MHP-ANAP had to fight serious economic crises. The author of this book wants to underline at this point that amongst leaders only Atatürk 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 Atatürk 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 Atatürk s

14 xiii 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 Atatürk 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. Atatürk s 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 Atatürk as against Islam. This was a grotesque misinterpretation of Atatürk as well as of Islam and the move was always most harmful and a threat to Turkey s 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. İnönü 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. İnönü s introduction of multi-party democracy is another benchmark. İnönü 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 was poor, in fact, negative and his implementation of étatism too intensive. Although economic growth was faster generally during the period of centerright 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 Atatürk s secular republic) became mainstream and center-right parties were

15 xiv 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 étatist 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 Stalin s 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 centerleft 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.

16 Chapter 1 ATATÜRK PERIOD: PERIOD OF LIBERAL ECONOMIC REGIME, Economic Development Mustafa Kemal Atatürk 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, Atatürk period will be treated here in summary because there are many studies available on Atatürk by myself, other Turkish writers as well as well-informed foreign experts. When he founded the new Republic, Atatürk 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, Atatürk organized the 1 st İzmir 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 today s 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

17 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 Atatürk s national struggle. The Soviets were well aware that Turkey was not experiencing a communist revolution while Atatürk 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 1 st İzmir Economic Congress organized at a time when Lausanne negotiations were stalled dispelled such fears. In the second phase of negotiations, started after the İzmir 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, The new Republic established on October 23, 1923 went about implementing the liberal economic principles accepted in the İzmir 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 Atatürk period due to lack of financial means whereas it was speeded up during the İnönü 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 (Düyunu Umumiye) of the Ottoman period from 1929 on. In 1924, the İşbank was established by mixed capital in order to develop private industry both by credit financing and also by means of direct İşbank participations. In 1925 the Industry and Mining Bank (Sanayi ve Maden Bankası) 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 (aşar), 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 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.

18 ATATÜRK PERIOD: 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 Political Reforms and Developments Political developments, radical political reforms undertaken during the Atatürk 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 Atatürk. Even the summary or listing below would prove that Atatürk s political reforms have paved the future of the new Republic as regards both the political and the economic regime. And this is why Atatürk 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 Atatürk s 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 Atatürk 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, Atatürk first founded in September 1923 the Republican Party (Halk Fırkası; Cumhuriyet Halk Partisi; CHP: Republican People s 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, Atatürk s 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

19 4 TURKISH ECONOMY AND POLITICS convened in August 23, 1923 declared on 29 Oct that the state was a Republic. Atatürk was elected President, and İsmet İnönü 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 Atatürk s former close and prominent co-operators and supporters, both military and civilian (including Kazım Karabekir, Ali Fuat Cebesoy, Refet Bele, Adnan Adıvar and H.Rauf Orbay), left ranks. Atatürk allowed them to establish another party: Terakkiperver Cumhuriyet Fırkası (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 İsmet İnönü. But the said party was swelled by antagonistic religious ultra-conservatives. At about the same time, on February 17, 1925 Seyh Said s religious uprising started and immediately gained ground in Eastern provinces. İsmet İnönü was re-elected as Prime Minister and the government accepted on March 4, 1924 a very severe disciplinary legislation called Takriri Sükun 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 Atatürk s 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 Atatürk 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, 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 women s rights and introducing monogamy, divorce, equality of women and men in

20 ATATÜRK PERIOD: 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, 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, 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 Atatürk s 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, Atatürk had to be wary not only of religious reactionary movements but also of communism. Hence communists, including the famous poet, Nazım Hikmet had also had to be persecuted. Atatürk s reforms, once having taken ground, however, would pave the way towards full-fledged democracy. This, obviously was also Atatürk s long-range vision, given the experiences first with the Progressive Republican Party in 1924, and later with the Free Republican Party in THE GREAT DEPRESSION OF 1929 AND ÉTATIST ECONOMIC REGIME, Brief Review of Developments in the World Following the Great Depression The Great Depression 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

21 6 TURKISH ECONOMY AND POLITICS automatically and advised complete laissez-faire fell from favor with Keynes in Instead, Keynesian demand management or state interventions at the macrolevel 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 This was the first big step towards the World War II. In Italy, Mussolini and his Fascist movement had already made progress by Mussolini had strengthened his dictatorship during 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 Lenin s death Stalin had taken on the leadership in 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 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 Atatürk had before him and his wisdom. Atatürk studied Russia s Communism, Germany s National Socialism, Mussolini s Fascism as well as the USA and UK models before laying the foundations for the economic regime he would select for Turkey.

22 ATATÜRK PERIOD: Developments in Turkey: Atatürk s Choice of Étatist 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 İsmet İnönü, 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 İnönü first pronounced étatism 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 étatism 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, Atatürk allowed Fethi Okyar, a close associate and an economic liberal to found a new party, the Free Republican Party (Serbest Cumhuriyetçi Fırka) in August 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 Meanwhile, İsmet İnönü 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, Şevket Süreyya 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 Atatürk s 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 İsmet İnönü and followed by bureaucrats as well as a part of CHP parliamentarians. They advocated an intensive and permanent participation of the

23 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 étatism. It should be noted that such an interpretation of étatism, 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 İşbank 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 étatism; 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, Atatürk accepted this second version of étatism. In 1932 Atatürk forced the resignation of the then minister of economics and installed Celal Bayar instead to implement étatism; İnönü was retained as Prime Minister. In later years, however, Atatürk forced the resignations of some of the other ministers, leading to a strained relationship with İsmet İnönü. Finally, in September to October 1937 Atatürk forced İnönü s resignation and appointed Celal Bayar as Prime Minister. As had been pointed out above, before accepting the moderate version of étatism Atatürk 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. étatism as Atatürk envisioned it, first appeared in CHP s program in 1933 during which year the 1 st Five Year Industrial Plan was prepared to become effective étatism also entered the Constitution in 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 Sümerbank for financing public enterprises in the manufacturing sector, and Etibank for those in the mining sector.

24 ATATÜRK PERIOD: 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 Atatürk 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 Sümerbank credits. The İşbank, 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 Atatürk 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. Atatürk s education drive had incalculable positive effects on Turkey s longer run development. Since population was scanty and had been broken during the incessant wars (only 16.1 million in 1935) Atatürk encouraged childbirth. The motto was: one child for the mother, one for the father and one for the country. Throughout the Atatürk period as well as İnönü 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 PERFORMANCE OF THE ECONOMY DURING Yearly GNP rates during the Atatürk 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 %, * % 12.9% 16.2% -12.6% 11.0% 21.6% 2.2%