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    9 views21 pages

    Owen R & S Pamuk 1998

    Uploaded by

    fatih
    Owen R & S Pamuk

    Copyright:

    © All Rights Reserved
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    A History of Middle East Economies in the Twentieth Century Roger Owen & Sevket Pamuk LB -Taurs Publishers LONDON ope © Roe Oven are Po Ag rel Ee we union i it a tn ‘inp orn porn epahe Leary Congres clog se “Typemtn Estar Dee Hen Landon al anda Gres anny WDC Lo, ide (dimer Ta leabel and Zeynep Introduction to Part IT Een before the end ofthe Second World Wat, the United States and it Western ales had begun focusing on the design of a new international conomic onde. The structure ofthis order wat geal inflenced by the persed lessons of histor, most nobly the problems ceated during the ints-war period by war debts, reparations, and beggu-m-eighbor pol {es which were istrumental inthe breakdown ofthe world trade and pyments system. The absence of leading power was aso viewed 3629 imporant reson forthe persistence ofthe Great Depression "The 1944 conference at Bretton Woods aimed at creating bers inter rational economic system based upon multiteral, nom diacriminatory trade, The institutions were play hey oles in the implementation of this vision. The Interational Monetary Fund wat sven responsiblity fr ‘antaining the sabilty of new fined exchange rate system withthe {olla the center and for acting international adjustments The IME twas to provide reserves for counties Fcing short-term balance of y= ments difficulties Another institution, the International Bank for Reconstruction and Development, later known a the Word Bank, wat ‘tga designed o help nance postwar reconstruction and co suppor 8 Jong-tem invesments fr productive purposes I ter asumed respon sity for extending loans and id wo developing counties. The chitd inition was the General Agreement on Thrills and Trade (GATT) ‘hich eld its ist session in 1947, Te sough the Hberaliaion of iter ational trae though the rection of tif and non-ai barriers. The GATT remand in eistence until the 1990s a8 an iestrument for pro- _motng simultencou aiff eoncesions tough malslateral negotiations! "The late 1940, cvershadowed bythe escalation of Cald War tensions and the dfcuiesasoiated with the reconstruction of Europe apd its Periohery, was diffe period forthe world cconam. The reeoiery of ‘Westen Europe was encouraged by the Marsal sid program and efforts to pomave greater European tegration were then lie om a ne Footing in 1982 with the eatablihiment ofthe Earopean Cra and Stel Community stich aimed at the reduction of tari andthe gradual sboion of quotas eeween member countries. ‘The outbreak ofthe Korean War in 1950 provided major stimulus tothe world economy by raking demand and Feadng oa shortived, but power, commedity boon which in tur, provided « major boot tothe incomes and balance of payments of the ‘levloping countice By the carly 1980s the fst stage inthe postwar reaaney ofthe word economy ad bee largely complete.” From 1950 uni the Gest prize increase of 1973, the word eonerny experienced an unprecedented period of prosperity and expansion In the Industrie counties ral GDP increted at rats above 45 percent et tnnam and increases in per capita GDP excecded 3 percent per annus, "Thos aes were almost twice a fat sin any previo period since 1820, ‘They were accompanied by similar increases in abor productivity which also roe twice a fas as ever before and increases in ral wages. These frends were supported by an investment boar of historically unparalleled length 2d vigor a8 well stechnolgia progress. "The Keynesian macro conamic polices of the period ndercored the greater importance "ached to fll employment. Another important development with long [ating sipificance waste apd eecvery of Japan whch enabled ell 4 world economic power bythe 197° Rate of gromth in the developing countries were also exceptionally high luring thi same quarter century The average rate of GDP growth in he {deroping countries ae 4 whole was about 55 perent per annum. Due the higher rates of population growth, however pe apts GDP increased * tabout 3 perint per annum, arate quite smile to thse of he ind ‘zed eountien! ‘Stimulated by the deterioration of the term of trade against primary ‘ammo fe the nd ofthe Korean Wat import sabntting iat zation (IS became the most fequetly adopted strategy for ceonomic Alevelopment during the postwar er, epecill in the medium-sized and larger deloping counties. Even in those counties that had not embraced the steategy during the 1980s 1ST quickly demonstrated its ability to gen rate apd growth of oust and employment in the manaactaring sector. With a healy protected domestic market and the establishment infant industries made up of public a well as priate fms ISI found strong allie both domestically and ineratonally, I involved the diversion of resources sway from the traditional raw material exporting produces tnd, more generally the agricularal sector to the merging inti nd a rapily expanding buresveracy crested to administer the ne ‘conomic apparatus The tansion iI pratuly produced more oppo Tunis than cons forthe multinational cmpaics swell In adton to Tcensing and pren arrangements, many were able oS up subsidiaries in the developing counties bein protective buries and exploit the ‘opportunites created by a apie domestic markt In thircay stag, he sewly industraizing counted at seed export naafacticen othe traditional exports of primary commodies conned to pay forthe imported eaptal and intermediate goods en though thee inward looking policies often appeared to bein confit withthe policies favored bythe IMF, the Fed exchange rate systems stall made it posible fo the ISI regimes to coexist with he itermational monetary and wade arrangements of the Breton Woods ert including GATT. Most developing countries raccensaly rested IME pressures to eliminate quota and multiple exchange rte ntl the 1980, By the 1970s, however, the problems and bouenechs of ISL were ‘becoming: more apparent. Even though ISI simed to reduce Foreign xchange botlenechs, in practice the result was often the opposite ‘Typaly import of consumer goods detned, but the need to import rw ‘matral,itermedite, and capital goods icressed due to the growing Yelume of domestic production of manufactures. Moree, domestic industry was unable to compete i the intermational markes because of ineciencies and overvalued exchange aes, While this was not problem for the iexprters pursuing ISL, countries without age and steady export revenues often faced chronefrsgn exchange sears. In aition, the ISI atrategy often contributed to inflation, neplec of agicultur, and unequal disibution of income 98 “THE END OF BRETTON WOODS AND THE ERA OF STRUCTURAL, ADJUSTMENT PROGRAMS “The fixed exchange rate regime which sustained the postwar expansion came under considerable pressure inthe Ite 19405 with the American balance of payments dei of the Vietnam er and the accompanying teakesies of the dell. In the absence of strong nature bythe United ‘States adjusts talznce of paymens, the Breton Woods system came to-an end in the eatly 1970x The innovations that ocurred in the ely 1970s can hardly be called» concious redesigning of the international monetary sates, however. ‘The wantin to floating fates ook place fradually through improvisations tha Bite together a roaph and ready tray. Managed floating remained the norm and the dominance af the Ale continued ‘The weakened international monetary and trading system recived 8 tnsjoe shock when the oil producers of the Middle East within OPEC. ‘cde to demonstrate ther recently sired power by bringing bout =| substantial rane inthe pie of rd i, Goverment ofthe industized ounces chose wo respond to the pice inereses of 1973 and 1979 by con- acting domestic demand. ‘The gloal recession that followed brought shout the end of along period of expansion ofthe world economy. These fantractive pois fled, however, to bringiflation under conto. The futcme,intad, was the worst of oth worlds, «combination of tg ‘ation and inflation, accompanied by low-down in producivity growth nda leveling off fel wae, which lasted wel ito the 1980s, In the aftermath ofthe ol price increases, the lage trade surpluses af the oil exporting countries crested ne gud in the interstinal mar lets and these so-iled pewodollars wet offered to potential borrowers a low interest rates often eo he ees of dlr infin. Many developing cunts attempted to ake advantage of this new iguidity and borroed large amounts in order to extend the IST elated bom. This tatey could notte ststine for lng, however The second round of inreaes in i ‘rice brought abou severe monetary tightening inthe United States and pushed interest ates dharply higher "The rapid escalation of the oustanding debt and the growing dif cakes of evicing and repayment in many developing countries ths ave the IMP and the Worl Bank renewed power for bringing about long term ‘eacaral change in these economies. “Thesbization and suuctral adjustment programs advocated by these insiuons prometed greater international iatgtation and openness, well atthe Hberaiaion of trade and payments regimes and of nancial 9% smarks, greater emphasis on exports and more generally grt reliance ‘om marley, both interational and dome fr resource alcation Tn most exes, oever, the abandonment of ISI and the adoption of new Tang-ierm steaezy cannot be explained by the increased leverage ‘of the imernationaloreanzations alone. The slow and often painfl ‘hi wards new polices ma lode othe growing resanition on the fart of governments that the ear model could not be sustained any ‘more: Demands for change als came from those segments af the priate Sector that stood to gan om the ew polices and fam chose who had ‘benefited frm the ISI polices but now rengnied that these hal Been Tis thus sft sty tha, since the mid-170 the mature ofthe Hinges ‘etwcen the developing countries andthe rest f the world economy as ‘been undergoing changes a fundamental a those hat ban inthe ety 190s and were consoled during the 1950s Wheres the peso afer 1928 winced & tne towards inwar-lookng polices and gests gov cement itervenionism, the shift in the recent peviod hasbeen in the ‘opposite direction, tomar greater incegration withthe word markets and (eer elance oe werk per "Another important tend since the 1970s has been the incresing ierenation between the developing countries andthe emergence of sucesfl industrialists who were able adjustto the changing conditions tnd tachi high tes of per capita growth, Most nota the developing Counties in East and Southest Av, including China, have combined ‘export-oriented polices with goverment interventions in wade indus ‘wal pole, and technology co transform thi res into the most dynamic economic region of the word since the ery 1970" As resi hs Ubcreeincresingly ficult oe about the weld econ intr of simple cleavage between a developed metropolis and an undetdeseloped Perper in eecent decades, Daring he half entry snc the Second Worl War the popslation of he Middle Est has grown more rapidly thn eer ble The nual growth sate averaged approximately 1-5 percent in the inter-war eas and consid erably less during the Second World War. In coma, it rose abore 2 ‘erent fom the end ofthe war uni 1960 and abore 3 percent daring the {960 and197s, hough then i decined somewhat during the 198s, veraging 2.9 percent fom 1960 to 990 2 who, Asa ely the total ” population ofthe region under sudy in this Yolume has almost eile fom pprosimatl 63 lion i 1950 to 184 milion by 190 Despite rapid overal growth, the two large counts ofthe region, yp and Turkey, conned to acount fer ell above af ofthe tral population although thir share declined somewhat from 69 percent in 195061 perce 190, While rates of growth have been loving down in Egypt and Turkey, populaion has gown most rapidly nthe sland ‘medium-sized oil exporting counties wbich have atacted considers mounts of immigeatin since the early 19705" “The population increases of the postwar period can be explained in terms ofa patter well known tvoughout the developing world, Overall tromth in population was alos emrely de tothe decline in the death Fate while birth rates fll only made, though there ere seneant "arations in this respect between counts of he region, ‘By contrast, migration itn and out ofthe region ha layed a al cle in the overall changes of aumier. Turkey received cles to hla milion Smnsgrants om Bulgari, while amc lager numberof Turks 2 ra 2Zailion, emigrated to Esrope in seach of ob rom the erly 160s un {the exsion of 1974-75 when European goverment placed severe restric- tions on these lor ons. Syrians and Lebanese continued o migrate to the New Warld ata modest pace af about 4,00 per annus, Irae tracted ssmany 2 5 milion Joris immigrants ram ots the region unt 990 ination w the several hundred thousand who came from Iraq, Yemen, Egypt, andclsewherein the region, although appronimaey 50,00 sac let the country during the same period to lve in Europe and North Ameria Beginning in the 1960s but expel afer theo price erases, ‘he Gulfcounees and Saudi Arabia resived a many a four milion Asian workers, most importantly rom Ind, Pakistan, and the Philipines" A considerable amount of migration has also occured within the ‘region since the Second World War and thee flows acolerated consider Ahly after 1973. Most important were the departure of 1 Palestinians from their homeland after 1948 and then flows of uns and shill vorkers, including profesional from elewhere in the region and the Maghreb towards the ol exporting countries. These later flows increased substan ater 1973 withthe developmen of mor constuction boom in the Gulf countries, Saudi Arabia, and Iraq, Most migrating workers vere from Egypt, Yemen and Jordan Is dificult estimate the numbers ‘ot people who have moved within the region ince the eely 1970s ba the Figure may be of the oder oS malion, “Much more important chan thee flaws terms of heer numbers, has ‘been the rural o urban migeatin within the indivi countries In 1950, 6 lone t 80 percent ofthe poplin ofthe region ved in ural areas. By 1960, the shat fra population nthe otal ad deeind below 50 pe cent’ These flons were absorbed not oaly by Cao and Istanbul the largest metropolitan centers whose popultions reached 13 and 7 milion respetvely by 1990, but albo by the second-tier urban centers of the region, Wheres no cy nthe epon hal a population excouding | milion in 1925,and only two in 1950 (Caio and Istanbul even ces had popu- Iasions of oer this see hy 199, Froman economic perspective rura-to-aran migration has meant the ‘movements of people and resources rom agriculture to other sectors ofthe ‘conomy, that i longer structiral change nthe aicrath of the ‘Second Word War, agriculture was the mastmportant ceonomiesctor in the Middle Fat, employing close to 75 percent of the labor force. ‘Tit Share has steal declined ver since, to below 40 perznt by 1990, The ‘share of agriculture in toa GDP has ase declined, from approiately SO peeent of lower to les than 20 percent during the sume pio.” These Srsreat gures conceal, ofcourse, the lage difeences thin thereon ‘eter the salland medium sed i exporters on the oe andy and the sodium and age countries tht are not major exporters fe, on the ter In the urban economy, IS was the mast commonly adopted steategy of ‘conomic deelopment in counties without sigoifcant amounts of el Manafictring industry typically began itsascent in textes and food pro- cxsing and soon spread t intermediate goods and consumer durables In thee exporting countries, in contrast, by far the most inpartant industry ssi extraton for exporalkhough dd not rank ver high in terms of| «ral and open economy. Perhaps the mat influential intervention as the ‘port prepared forthe Word Bank by «cutusson of American experts led by the industrialist Mat Thornburg, which lle for the dismantling fof large numberof the etait manuacring establishments inching he country’s only iron and sel comple a well as grate emphasis lon private enterprise, encouragement of foreign capital, a moe bral foreign exchange and trade regime, and greater sence on agricultural 0s evelopaent. Thee change the eport stated, were necessary if Tukey fvas to benefit fom United Sates ad and the inflow of private American ‘ita inthe postwar ea” hasbeen argued by many tat the electoral vitryof the Democrats in 1950 was the major turning point fer the economy. In fact in terms of toh ple and performance, th tre turing point came in 1947 when the Republican People's Paty desided to set aside the eats third five dear plan, which had been prepared during the previous summer, and ian to ave inthe distin of getter reliance on patate capital and tests emphasis on ariuture. Italo fered anew deiiton of eatsm Stich sil eerved forthe nate such actives as pu work, mining, Tren and itary industry, and energy bu aesumed the tanaer of ll ter enterprises to private capital, Even before the elections of 1950, therefore, the singe-parey regime tad begun to adopt some of the baie postions ofthe opposition, But the Democrats pursued the sume tail wth greater enthusiasm once they ‘ame to power. One important change by the Democrat Party as the liberalization of import especially of consumer goods" In this, the ‘ew government ws aided bythe substan volume of fregn reserves Sccumuated during the austerity years of the Second Wor War, the Jmprovements inthe external er of tae which began in 1947, nd the [anna world mathe condons ofthe Korean War boom tht supported {strong expansion of Turkish exports unl 1983, The Democrat Party Plstform had alo called for the le of sate economic enterprises 0 the Private sector This goal as soon abandoned, however, beeuse inthe {ely 1950s the private sector was not interested in acquiting these enter prises Table 5.1. Another important change instiuted by the Democrat Party mas the "trong emphasis paced on agrcukuraldevlopment, Oficial tai how ‘har agricultural output more than doubled fom 1947, when the pre-war levels of ouput had already been atsined through 1983. The most impor ‘untreson fr thisttong performance man ners the culated ar by 58 percent shanks othe avait of marginal land! The expansion of the apicltural frontier was supported by two complementary govern= ‘ment pies, one fr the smal peasants a the othe fer large farmers. First, eventhough the Land Distbaton Law of 1946 included a clause forthe redistribution of lage holdings, was wed instead to distebute state owned lands and open up communal pastures o pessnts with Kile ‘roland. The land distribte under this ny and the rane of im ‘anal pastures to pesants and village cooperatives, together acount fr shout half the postwar nereasin the are under clivation Thinaspect, ‘of government poley slo served to strengthen small ownership arose “Anaoi, excep for the southeast, where the Kush landlords and eal leaders were dominant. Secondly the Democrat Paty government used the Marsal Plan aid oBnacethe import ofagrcutral machinery and ‘specaly actors, hose number jumped fram fewer hen 10,08 in 146 {0 2,000 atthe end of the 1950. Moat ofthese were purchased by the [prosperous farmers who wee given favorable credit erm through the [Agrcaltral Bank, and were sed to expand the afc unde cutaton According wa rule of thumb ofthe period wil pair of oten could cal tate 510 hectares (12.5 to 28 ates) im sve year, actor ried that, figure to 75 hears (185 aces) The actors were als rented by sll holders who pa fo thie we by sharcropping Agrcaltral producers alo benefited fom favorable weather cond ‘ions inereasing demand, and improving terms of trade during this period, Domestic pices ban to move in favor of aricalre inthe ae 1940s, snd the countrys enteral erm of trade npr by as mach a4 pe ent from 1948-50 to 1951-53 ax world demand fr whet, chrome, and ber export commodiies rose ara result of Americ’ stockpiling programs during the Korean War! Ina country where three-fourths of the pop lation fved in the rural areas, the agree ed boom ofthe ery 95 rmeane good times and rising incomes fr all ectors of the economy. I Seemed in 1953 that al would go wel and tit the promise ofthe bral Imodel of economic development would be quickly filled, GNP increased by an average annual rte 87 percent frm 1947 through 1953, Urban group shared inthis growth evidenced bythe increases wager sd alain face Tables 5) and 4) “These golden years did not lst very long, however. Te favorable con- junctare quickly disappeared after 1953. With the end ofthe Korean War international demand slackened and the prices of export commodities ‘xan to decline At the same time, the weabnescs ofthe arieltur sector began to asser themselves. The Anatolian counts continued ‘ely on dey faring with vray no we of chemi fliers during he 198 eigtion did at yet rank high onthe lst of government iver rents Only 5.8 percent ofthe ttl eropped area wat bing ieigated a the end of the decade. With the disappearance ofthe Favorable weather conditions, agricloral yi epan to stagnate and even deine. Moroes, {he rate of expansion in clivsted area slowed down considerably in the 7 second half of the 19506 a6 the bounds of profitable culation were ‘approached. Agricultural production levels thus fctstd and didnot ‘how an upward tend until the cary 1960s, For sustained increases in ies Terkish agriculture had to wait unt after the mid-1960s when he Fri of nd avaaility encouraged a ht to more itesive techniques of production, including the use of friizers and high yielding varieties of Seeds Tiles 52 and 83) Te as at this juncture tha, eather dan accep lower incomes for the agricultural producers who made up mare than two-thirds of the elec torte, the goverment decided to shield them from the adverse pre ‘movements by inating pice support program fr wheat. Such support Tecame, ater 1984, the most important goverment program affecting agricultural incomes. They were no fnanced diet ut ofthe budget thc by Central Bank ezedis to the Sit Products Office, he state agency response forthe purchase of low pried hes, as welts distribtion 0 turban areaa. The etent to which thse subsides cay have cased the infationary wave that began in the mid1950s has been the subject of rnuch debate. Earle observers point out that the outstanding Cente Bank edits othe Sol Produc Office acount for most a the increase in the money supply in this period? More rece however Bent Hansen fas argued tha che main culprit was the edit extended from deposit, tans tothe priate sect, including the cooperatives! "Through the continued expansion of domestic demand, the govern ‘mene was able omni economic gro for seerladiinal years Ta the meancime, however, exports dectined evn further owning to the ove saluason of the currency and foreign exchange reseret were quickly fshasted under the iberalzed import regime. As imports began to be ‘tiled, the economy moved from the relative abundance of the erly 1950s ino severe balance of payments rss, characterized by shortages lof may items uf bac consumption ‘One csty ofthe rss was the pls and economic liberalism of ‘he Democrat Par Just as responded wo groning poital opposition vith the escalation of politcal tensions and restrictions on democratic freedoms, in mast economic sues the government was forced to change ‘eater stand and adopt» more interventionist approach. Quanstaive restrictions on imports were generalized and contol on the us of farign xchange wer tightened Inthe domestic markt, price and pofccontras Sneed and eet began to be allocated through non price mecha ‘ian The goverment alin reisarered the state exnomic enterprises 1 usefil instrument fr elicvng some ofthe botlenecks and for cpt formation in manafictutng instruct, and mining 108 With the talanc of payments crisis ofthe mid 1950s, the experimental ‘move tovardsa more open economy came tan end. Amidst the shores tnd boenecks induced by the sever restrictions on imports, dametic industry began to produce some ofthe gods which had been niportel in Tage volumes onl fe ears earier ‘There ths emerged a return to 1S, not yetas explicit government policy but as deat shift that arse out of necessity Even though the annual rata of growth for manulactaring Industry were not very diferent fora wo sub-perios at 5 erent fr 1947-1953 and 7.6 percent for 1954-1962, there was in Tact «qualitative Aliference been the two (se Table 5.3), The former mas charstrized by high races of growth of primary exports, came, and imports The imereases in vale aden manufacturing were duce ners in demand hd the talueof output. The later pri, by contrast, mas characterized by strc import restriction, which crested more stable condcons for Increasing the value added per unit of output in manufacturing ‘The government negated withthe lternational Monetary Fund (AM) and the Organisation for Eoonomic Cooperation and Development (CECD) for loans and foreign exchange rele from 1956 nil 1958, but ‘efased to undertake the major devaluation they demanded uni ae he etions of 1957. As 2 esl, the cis sted for several years The mag tude ofthe devaluation of 1958 reflected the extent ofthe nerauation ofthe cureeney, the value ofthe Turkish ira being reduced fromm 280 to 5.00 co the dol: In addition to the devon, the sbilizaton program ts included most elements af samething which ter came o be refered {oat the IMF package: import iberaliation, changes th export segine, Femoral of price conto, inerese inthe prices of sate economic enter prises and consoldation and scheduling ofthe external debt" Wri the lalanc of payment pctre improved andthe rae filam declined as 2 result of thee measures, the economy plunged into a severe eeesion Iwhich was prolonged bythe military enup af 1960 and lasted wal 196 ‘The annual ate of gonth of GNP declined to 4.0 percent per annam snd that of per capita GNP to 1.3 percent per annum betmeen 1984 and 1962 (sce Table 53. Foreign dee investment remained limited during the 19505 a well, below $10 milion pe year, despite ocesional modifetions of he existing laws to provide more iit for prof transfry andthe repatton ofthe ‘rigina investment, United States ms acounted fr abou 49 percent of the wot, followed by Switzerland, Germany, and Halland. In coms “Turkey recived satan amounts of pub ands in the farm of ile tary and economic aidin the postwar period, binning wth the Marshal lan and continuing with other bistral Binds Irom the United Sates, NATO assistance, and some mulitral lans, These public capil Snows averaged over $100 milion pr ear, of mor han one-hid of the Country's annual export earings dng the 1950. ‘Despite the stagnation in agrcltral output and he decline in ite rational pices after 1954, che domestic rms of tae remained favorable to agriculture Beease ofthe government price support polis, alloning the rural producer o hold on to their gains wl 1987. ‘The countryside vas ths he real beneficiary of the Democrat Party va, although itis i Fait t establish bow eis affected the disebution of wealth within the rural economy, In contrast, inflation squeezed wages and salaries in the tan area” The decline in the standart of ving and sacl tts of ci ‘Scrantscspecialy of military personnel, played an inportan ole inthe ‘neanizaton ofthe armed ores against the government and the military ‘coup of 1960. "The Democrat Party thus emerges asthe fist example of 2 populist svernent in ewenieh century Turkey: Not omy id target large Eonstweney and temp to redrbate ome towards it but tao red to mistin economic grovdh with shorcierm expansonse pois, with predicate longer-term consequences. To this day, the Democrat Party ferment and especialy its adr, Prime Minister Adnan Menderes, brigmly tre landowner, continue tobe viewed mos favorably by the ‘siculurl producers and many oftheir descendants who wow Hive i the trban areas theft administration to understand and respond tthe tspiation ofthe ural population "The 1950s also witnessed the dramatic aceeraton of rural to urkan mi ction in Turkey. Ie has lng been debited whether the Turkish domestic Iigraion wa da push or pull actors There were undoubtedly both, {nde condone prevaling in url ates varied widely across the country. [Nonethless the distribution of and to peasants with sal holding, dhe substantial inereae inland under clinton, and dhe tong increases in ‘riclarl incomes all sugges tha ull factors played the more impor- fant role in the process. ‘The development of the road network abo conubuted wo the migration process" (ne crim fequenly dire atthe Democrats was the abner af ny saordnaion and long-term perspective in the management ofthe c2o- ‘nomy- Hence the miltary regime was quick a establish the State Planing 10 Organization (SPO) in 1960. ‘The ides of development planning was up ported by abroad coalion: the Republican People's Party with ts eas hettge, the bureaucracy the lr industrialists, and even the iter rational agencies, most ataly the OECD. Planning methodology and ‘arget setting were strongly inluenee by Profesor Jan Tinbergen, ho wes invited asthe chief consultant othe SPO to coordinate the preparation of the fra fv-yee plan ‘The economic polices ofthe 1960s and 1970 aimed, aboe al at the protection ofthe domestic market and at industraization through import Subsiution. Within this framework, the five-year plans contited sscempis to coordina vest decisions The planning techniques made hhemey use of resttve trade regime, investments by state economie enterprises and subsided credit key tos in achiving ISI objectives ‘The plans were hased on medium-term models and did not sive much seighe to short-term policy sy mot notably Risa and monetary policy ‘They were binding forthe public sector but any indicative lor the private sector. In prt, he SPO playe an important role in private sector d= Sones well since is samp of approval was required forall private sector investment projects which sought to bene fom subsided credit x ‘remptions and import privileges and to obtain aces to scare Freie ‘achange The agricultural sector, dominated by peasnt ownership, was eft outsie the planing process.” ‘With the resumption of import substtion, the sate cconomic enter prises once gun began to ply an important olin indian. They ccounte for more than 20 percent of the vile added! and about hl of fixed investment in manuficturing indestry ant the end ofthe 1970s ‘Theil, however, was quite diferent in comparison tothe care period Dring the 19905, when the private sector was wen, industrizton wat led by the state enterprises and the state ws abet control many sectors ofthe economy Inthe postr period, contrast, the big Cary hong ‘companies, large conglomerates which included numerous manulactaring ‘nd distribution companies at wll as banks and other series firm merged as the leaders. Some of these, sich as the Kop group, had merged inthe 192s but entered industry in the postwar yeas ether independency ein pint vente with foreign apt ‘The Saban group bea its se manufsctringtexils inthe cotton-erowng Adan egion luring the 19505. Eventually there emerged erude division of labor between the two sectors. The sate enterprises mee dicted to invest in large-scale intermediate goods indatriey while the private firms took ‘vantage ofthe opportunities inthe heavy protected and more profitable ‘onsuer goods sector. From food processing and textiles inthe 1950, the u apa shied nce tao refit, leisin Scar Snd ober consumer dbl, Foreign capa i the 1S indo ‘mained modes Ale part ofthe technology was obtained through fate aden gress thr than diet investment “Pe yes 1907 thu rset or Tsky what Abert Hirschman tase heey sage of ISL." Whe dhe oppotantis povided by ‘age and preted domestic markt were eplted, the IS program ‘ent aed in the chnloialy more il ste of apt Jods indutry ‘The expert entation of manuscuring indus ao ‘mined weik"Forcgn exchange nena for he expansion of Pro ‘Beaon na bieed om nado agli expr and worker? "The Splice were sce in bringing abou econ roth, spel inthe cary sigs, GNP increased tan average anna ate Fes peccne during the psiod 1963-77, Even of the cris eas of 1978-7 arc ncladd nthe clon, the vera tt of GNP growth {a 60 pecent il empares el wth the wo oer periods in she pst Gare toe Table) The eat growth of manufctaring indus was “miery higher, raging re tan 10 erent per annum beeen {913 and 1977 andre than pect between 963 and 179 Since he opulason gonth a wat 24 percent pr smu uring thi period the [Merge et powth of GNP pr capi was 43 pret fr 1963-7 and 315 pee for 1963-7. This porfoane cle othe average ates of percpita roth of 36 percent fr temidle income counties a defined By ine Wrld Dank, ad stove the 8-4 percent forthe iduniined counties and the 4 percent forthe loincme counts daring the sine pv" "Thc role played by the domi markt daring hs prod deserves fener atentor, Despite the sparen neal in nee, lar se tnems ofthe ppulaten, inting the Gl eran worker and oa {emer eaten srclturl produc, wre incorporated int the domestic tore for consumer dale Perhaps mot importa el mans Sion doubled during ths pend ee Tae 5). Behind hs cxepional Tse were ath aks foces and politi and nsttonal changes While inna rot increased the dan fr aor the emiation of more ‘Eovone lion sorters to sop ere 1973 ep condons relate) {icin urban Mtr matte Arte same ine, the ne Fh bined Under the 1961 Conon, incline incensed ay torganie at th nlc an su spre the abr none the ring tale thi pr the rendu which were no unde ee Shrew compete inthe eur ares, reasoned hat they could ford mm ‘ese wage increases as they also served t broaden the demand for thie ‘mn prot By the mid ofthe 197s, however, the industri had tegun to complain abou the high level of wages and an emerging labor aristocracy. Similar; in the eural ares, the small and medium-sized Peasant producers, aswell as the larger landowner, were able share in the expansion ofthe dames mare, thanks to gonernment price support programs and th manipulation of the domestic terms of rae in Favor of eiclure, especialy ring cleton years" “Another important conttbution tothe expansion af dhe home market ‘ame om remitances seat by workers in Europe.” ‘These inflows remained modest during the 1960s when the workers began ating in Europe. After the dealuaton of 1970, however, they jumped to more than 314 billion per year, of § percent of GNP, and begin to exceed the eon tom’ tol earnings rom export But the alznce she fr the reitances Femains mixed. While they supported theblaneof payments and grth inthe shor term the abo contributed tothe avervalation ofthe domes ticeurreney, therehy reducing the competitiveness ofthe tradable sectors The aggregue demand they generated was met by the importation of inermediate goods, which ended up busting the import substituon proces The impact was thu very sila tat ofthe ‘Dutch disease frequently observed inthe oi-exporting economics. Remittances began 0 dcline inthe second half ofthe 1970s, however, a immigration ee ictionsin Europe fred the workers orca thee savings behavio ‘The overvaluaton ofthe Turkish ir alo dscoragedremitance, at least, those sent through the ofl channels Wileindustry and goernment policy mined focused on age and stractive domestic mare, exports of manufactures were al but ignored, nd this proved to be the Achilles het of Turkish indus, Throughout the 19408 and 1970, che share af exports in total manufatuing output femained below 12 percent. Sisal the share of industri export in GDP remained below 2 percent nil 1980." shit oman exports would have helped Turkish industry in x numberof rita way Ie would have increased its efficiency and compeitveness, aquired the foegn exchange necstryforan expanding economy, and even supported the imports ‘iuion process ite in establishing the backward linkages tomar the technologically more complicated and tore expensive intermediate and pial pools industries. There existed an oportity fr export promaton| inthe early 1970s, especial in the aftermath of the elately succes devahuation o 1970. By that ime, Tues nda had acquired sulfcent expr be let camper or ae en mp us For that majo sift occur however, new orientation in government iy and the nstiaional envzonment was necessary. No only the ove Tianton of the domestic currency but many oter bases gains exports eed tbe simiated.Istead, the succeses obtained within a protected mironment eee the vested interes forthe continuation ofthe same ‘model Mont of the industria, a well as organied Labor, which fered that export orenaton would pur davaward pressure on wages, favored the domestic marke-oriented mode. Moreover, polital conditions tecame increasingly unstable during the 1970s." eountry was governed by ste of fap coalitions with short-term harizons AS 2 result no [emp was mae to shift awards export-oriented polices or even adjust the maroeconomi balance fer the frst pice shock of 1973." When oil prices rosin 1973, the etal il il was sil small and the bal ance of payment awash wth remittances. The government could this fon wo ignore ol price es without mor short-term consequenes Instead the weak ctlitons chose o continue wih expansions pais a {time when many of the industrialized economies were aking painful Steps toads thee economies Wi the support ofthe fregn exchange eserves and an aecommadating monetary pais, the Turkish publi {Sector embarked on an nesment binge, venta pulling along private Sector investment ae wel As the share of iavestment the GDP ros rom 1.1 percent in 1973 to 280 percent sn 1977; the growth rate ofthe en ron reached its peak a 89 percent in 1975 and 1976." This drive was then sustained by a yer) costly external borrowing seheme Justa the frig exchange reserves were being depleted in 1975, the rightwing craton government of Suleyman Demirel lunched the Sovalled convene Turkish lira deposi project, in which private rms ivere ven exchange ite guarantees the government forall the external Tours they could secur. Under inflationary conditions where the domesic ‘rchange fate was already prev to be oversald, this waa signal the private sector to borrow abrosd and finance it day to dy operations a the east of he reasuy Ines than wo years Beare lear that the gor~ tment wasn no position to honor the outstanding external debt stock, Svhich had pire from 9 percent o 24 percent of GNE® “st a5 striking asthe behavior ofthe government was the wilingnes| ote international banks, adoitedly overflowing with pewodollas, 0 ply along, Tis lar that they di at pay mach attention tthe repayment 14 ‘pacity ofthe uate borrower when they aged to provide ans under terms which must have seemed very atractive at the time, As frign lenders Began ols ther nerve cryin 1977, the tage wa et for a debe Tn 1978 and 1979 Tuhey found iin it moa severe balance ofpay- ‘ments eis of the posta period. The IMP made thee fundamental demands in return for rescheduling Turkey's outstanding debt and giving ‘he ren ight for new rei: the implementation of fll-seae sta lization propram including 2 major devaluation, extensive cutecks in government subsidies, and elimination of contol on imports and exports ‘The Socal Democratied ealton government of Bulent Ecevit was ‘conscious ofthe cots to be burne by ipo consticcie i thee radical measures were adopted atthe same time it was to divided to implement any feasible alternative. A rsingbuget deficits were met ith ‘monetary expansion, inflaion, which had been averaging 2010 30 percent ‘et annum ear inthe decade, jmp to 90 percent in 1979, andthe jovernment responded wih various feign exchange end prie controls Bath investment and exports colaped. The sind sound of ei price increases only compounded the difices Avo Bcune increasingly scare, fequent power cats hurt industrial output av well as daily he Shortages of even the most basic items Became widespread oming tothe Aecining capacity to import and tothe pice contals The eetomie isi coupled withthe continuing poli trmal Brought the count o the Brink af el war Pethaps the basic lesan to be drawa fom the Turkish experience is that an ISI regime becomes difficult to dsldgs,oning to the power of ‘ested interest groups which continue to benef fm the exiting system of protection and subsidies. To shift wards export premio in country with large domestic market required s strong government with long term horizon and considerable sitonamy. Thee were exactly the features king in 2 Turkish pole scene characterized by weak and fragile ‘altos daring the 1970. As result, the economic imtlances and the ‘ots of adjustment increased substantial I then took «ci of major Proportions to move the economy towards geste external orientation, AGRICULTURE AND MIGRATION ‘The agricultural sector reached the lmie fase land nthe 1960s and 1970 For that pint on, a shit had tobe mde fom extensive to inen- sive agriculture Tnereases in ourpur began depend on increases in yes us trough the intensification of cukvtion andthe use of improved plan ‘rites, along wath increased inputs of chem Ferlizers, ieresed ‘mechanization, and some expansion of ierignted lands. AS result, wheat, ede increned by 70 percent snd overall ils in agriculture incsesed ‘byan unprecedented 6S percent during the period 1960-80 (ee Table 5.2) "The intensiction was pry a tespone to markt forces from both small snd medium-sized producers, butt wat also supported bythe government ly of subsidiring inputs trough faverable exchange aes and intrest Fates The most important form of abi was gven chemical etizers whose prices were kept wel Below word prices inte fae of ising petro= eum pies during the 1970s ‘fe the frontier was reached, increases in output beeame more di ale and cosy. The long-term ted rate of growth of arcu ouput ‘decied from #to 5 percent per year inthe ear decades o 35 percent inthe 196. and 1970 although the aca gure vate according to the ‘act poiod chosen, The share of agiclere in the overall ecomomy also ‘ecined subtantally fron 38 petsent in 1940 to 28 percent in 1980. By the end ofthe 1970s agriculture wae no longer the lading sector in teems of contribution to total growth, Nonetheless, it comtinnd to provide Erpyment for mote than 8D percent of the lor force (se Tables 5.1 and 32)" ‘Despite the slow-down inthe rt of growth of output, she longterm performance of Turkish agriclare has Been impressive. During the hall ‘enzy fom the early 1950s ani the endo the 197 agricultural out ‘put pet person inthe country inresed aan anal rate 6 percent and ‘Soubled forth pesnd ava whole, This performance has maled Turk not ‘only to increase per capita consumption but als to remain sl-suficent in oad arte achievement inthe Mid Fast sce Tables 5/2 and 5/Sand compare wth Tables 1 and 1/2in Chap 1) The aaa of fedionl land unt the 1960s was an roprtnt factor in his outcome. At leat equally important, however, was he succes of sal peasant owner shipand production supported hy government polices ‘Agrarian property relations continued to be dominate by independent pesantonnership exept inthe Kunsh southeast where ial nomads {hve way to rentcllecting landlords. This overall patern made i more "ppeing or che politicians to se government programs as an electoral instrument. With the help of goverment manipulation ofthe intersetoral terms of trade the incorporation of he rural poplation into the national Inatetaecelfated ‘The villages Became important markets for textes, ‘othing and food industries, and gradually Fr consumer durables, “TV sty and ven refrigerators Anos important component of demand 6 care othe dome pode tats wha umes jumped ter {nes han vo decades rem #200019 196 0 4900s PD oe Table 3.2), Remieanes um family members Europe slo contributed tos eed aterm of ral to bn migration wes srngly infeed by the sucagth independent peas ownership. The sap man contd toh in sme and in i ilige mich nasil ete out or Itt faa meters: Moe often hn note cae te urban et ‘ith suice reer o bln icon sent house eto Tera Sand st night) nan are andy eolomsed by the mips {rom sown prvi, or een his own ila After tenia move he sngran and hia il a xl ose coach the vilage. Thy ‘eturned ding the anna vacton seve received sapien a tind oens eampesnton fort cams the dn he ile The sveage migrant th served expand the neal ait teat ‘xen than ot ave en ps athe uraon procs ben Charred primary by he migrant nls peo ‘Only aint ofthe migrants found cmplyent ne ne indus tee howeve Intend, they fed ary of oa they sed in tn areas The unionized se clr job wert the tp oft each nd thisow ofthe each fret gran At he ne eons ere ‘ay ofa in he fra ctor ww ays as wrk a ay Inborero ste end Onlin tne did vm ef h mgentsbein ‘move wp hist adder Mom migrants choo ca inthe Se meet tu yale sd ile op nih he LIBERALIZATION AND INCREASING INSTABILITY DURING THE 16 Aains he background of import and output contraction, commadity shortages, and strained relations with the IMF an ineratonal bank, the ‘nen installed minority government of Séleyman Deitel announce comprehensive and enespectedly radi policy package of sabilration and iberalzation in January 1980. Turgut Oza farmer eit ofthe SPO, tas fo oversee the implementation of the new package. The Demirel tovernment was unable to gain the politial support necessity forthe Sucesfl implementation of the package, bu ee mitiry rege that ‘ame to pone after a coup in September ofthe same year endorsed the new program and made a point of keeping Oza as deputy prime minister responsible for economic sir, 17 “The aims ofthe new polices were threefold: to improve the balance of payment to rece the ate of inflation in the shor erm, and w create rarer based, export-oriented economy inthe longer term, thus puting {he enomy onan outwardly oriented course, a sharp change of direction fiom the previous ere of inwardly oriented roth and industralzaton. Implementation of this package Began with a major devaluation fillowed ‘bycantnaed depreciation ofthe cutenc inne withthe et of inflation, greater libration of trade and payments rege, elimination of price ‘intra substan price increases forthe products ofthe tat economic “rps elimination of many of the government subside, rein of interest rte subsidies, and oer suppore measres for exports and the rometion of foci cpt ringing abou educionsn el wages and the incomes of agricultural producers wae an important pat ofthe new polices. ‘The Demirel gov- ‘semen had file sucess in dealing with the bor unions and strikes and ther form of labor unrest, offen vnlent, became inctesingly common in the summer of 98D, But the malary regime prohibited labor union svt and brought abou sharp declines in labor incomes. Most observers feree that, wth ality rule an elect goverment could not have ‘red out the Januty 1980 package tits conclsion® Improvements were obtsned rather quickly on thre fronts. "The balance ‘of piments improved as the external debt was rescheduled ater nego- fasons with the IMF and the international banks, and Gesh credit was ‘brane, The ate of inltion was rece fom 100 percent in T980 C02 Tow of 50 percent in 1983, and then fluctuated at around 40 percent, although it ore spin to over 70 percent atthe end of the decade: The doubling of exports within two years and sustained increases theres, tot ony improved the Balance of payments but alo helped output level cover from the ital impacto the tabiization measures” ‘With the shit to etrited parkametary regime in 1983, Oral wat lected prime minister a th lade of the Motherland Party which he had formed! He launched s new wave of tiberaization of wade and payments ‘regimes, inchding unprecedented reductions of quantity restctions on Jimpors These messes bepan to open up the existing ISI structure to Competition for the fs tine. The frequent revisions the Uiberalzation Tey he arbizary uannr in which these wore made, 2nd thefts eo sided to groups cls othe government creeds good del of uncertainty repirdng the stability and durability of these changes, however. The response ofthe private sector to impart liberalization was mixed. While ‘xportoriented groupe and sectors supported i the IS industries, espe- Silly dhe large-se conglomerates such asthe Kae group, whose products 8, included consumer durables and automobiles, continued to Tobby fr protection, Te government also introduced measures aimed a farther Feralstion of che Snancl system incling viwaly compete bral ization of capital inflows and outflows, andthe introduction of forign ‘eurrency deposits within she domestic banking Secor” From the very bexinnng, the program of January 1980 benefited fom the lose cooperation and goodwill of international agencies such asthe IMI and the World Bank, a well the international banks. One resson forhishey support was the increasingly strategic place ateordd to Turkey in the aftermath of the Iranian evolution, The Isic revolution moved ‘Turkey from is daadvantaged poston in inerational politic, and ic ‘became an indispensable ally of NATO. Other reasons were the cose ela tions tetneen Oral and the interastional agencies and the special stats corded to Turkey. For most ofthe decade Turkey was portrayed by thee Sgencies a shining example ofthe valiity ofthe ont stabilization and structural adjustment programs they promoted, and enjoyed their good wll As far a the economy was concerned, this support traraated Into beter terms for rescheduling the external debe and substantia mounts of rew resource inflows, Ae a result the frcgn exchange con- straint disappeared practically overnight and the puble sector had es ‘eed for inatanar nance t home These mere undoubtedly tl ngre- ‘iets or he suc ofthe program ‘One area of success for the new polices was in export growth Merchandise exports rose sharply from a mere 823 billion, of 26 percent Of GNP inthe ers ear of 1939, 10 $8.0 lion in 1985 nd $1.0 bilo, fr 86 percent of GNP in 1990 (Ge Table 5.4. Turkey infact ane Hest in the world in rate of export growth during this decade. Equal dramatic sa the role of manufactures, which accounted for approximately 80 per ent ofthis increase. Among exports, textes, clothing, and iron and steel roduc dominated It thus clear that he sees export growth was fchieved by reorienting the existing apsciy of IST industries towards tteral mares Dering this drive, exporters were supported bya steady Policy of exchange rate depreciation, credits at preferential rats, et Febates, and foreign exchange allocation schemes. The inter mechanisms amounted to 12019 30 percent subsidy on unit yale, hough thee nag nitude gradually dectned during the second half af the decade. Teshould Dbemoted, however, that some of the reported increase in export volume ising the middle of the decade was Geis, doe to overinvicing ‘esgned to ake advantage ofthe incentives The export drive alo benefited fren the war between Iraq and ‘which provided a captive market for Turkey, Between 1982 and 1985, 19 “Tukish exports to the Middle East exceeded those wo the European Community (EC), with lan snd Iraq emerging 36 the biggest markets "Thora, the eater pater re-established ise, andthe EC once agin ‘became the min export markt for Turkey. An econometric stadyby Robin Barlow and Flkrt Senses concludes tht, fom longer-term perpecie, the policy measure, especially the real exchange rate deprecation and ‘export subside and nor dhe external demand conditions merge as the ‘mostimportnt explanations fr Turkey'sstrong export performance during the 1982 Asie am export performance, horeer, the impact of the ne polices, on there economy wa iter aed. Most importantly the new polices ‘ere unable o mobilize the evel of pivat investment neces fr long ‘erm grt. In manufacturing indy, high ners ates and polit inability were the most important impediments Even in the area of exports new investment was conspicuously absent; most of the increase seas achieved with the existing industrial capaci Inthe aftermath of nancial and wade berlin, foreign investments in banking expecially in foreign tade nancing and investment banking, whee the international bunks hae compete advantage, increased considerably On the whale, however, the response of foreign cial othe new policies was not very strong apparently fr reason similar to those ffeting domestic capital” ‘Asa est the growth performance ofthe economy wat le than impresive, GNP inctased a the annual average rae of 46 percent and GNP per capita at 23 percent during the 1980s. Morne, these increases vere onl obtained the cost of accumulating large external debt which limbed more than Gfarm es than $10 bilion i 1980 to mar han 580 bilion in 1990. These rates of growth are lower than those of earlier Ascads but in ine with ods toward dandy ler rates of growth in ther part of the developing world daring the 1980s, with the notable ‘exception of East and Southeast Avia (ee Table 8.3)" “Another important area where the record ofthe new polis was bi tery contested was that of income distouon. From the very beginning, the January 1980 package set out repress labor and agricultural incomes, land hee pois were maintained unt 1987 thanks tthe itary regime Gnd the lmited nature ofthe transition back to mlt-pary pols Rel twaesdecined by as mach as 34 percent and the intersectra terms of trade turned against agriculture by more than 40 percent fom 1977 un although some af his deterioration tok pice ding the ess and igh infltion years jst before the 1980 coup (Tale 58). "The deine in household incomes was nt as drs, howener a wage and sr earners Jonge hours and having other members ofthe household, incu chook se children, find employment within the informal sector Similar there tnasashiftn the countryside twat more intensive techniques and more Iabor tensive crops order to eampensate for declining rp pices Pat of the benefits of wage and agricultural price sepression was captured by ret lenders dvough higher intrest income: In addition, a new clas of ‘nalthyentepreneirs emerged based on exports and international eon "The now pois had ben given much-needed support from two si icant intentions inthe early prt ofthe decade: labor epesion by he tnltar and generous frcgn capita ifs by the intemational natal insiutions, These opportunities were no adequately uilize, however, 0 bring the state Bianees and the pu sector under further contol. With the transition ton more open electoral segs, dhe oppoion began ¢o esteze not so mich the base das athe pices butte arbitrary ran ‘erin which Oral often implemented them andthe growing inequality of income distribution. As the policl system became more competi towards the end of the 1080s, the government sorted incresingly 0 od sole populism and lose much of i room for maneuver. Publ sector ‘wages sarin and agricultural incomes wee raved sharp: Real wages more ote From thee decade low pint n 1957-1980 (ne Table 5.8) In addition, an escalating war agains the Kurdish guerils i the south cast began to eae its toll. These ends, i crn, sharply increased the ‘efits and borrowing requirements ofthe public sector, which began be financed by higher level of internal and external borrowing a well a {he printing of mone. By the end ofthe decade inflation had voce again jumped to levels above 70 percent per annum. One important factor tha inforced the Fink between publi stor debits and iflaion was the Introduction of foreign exchange deposit acount in 184 a part of he policies of financial iberalzation, By reducing the demand for domestic ‘tony; tht mere incre the ifationary pac of Ue puble sector ‘etic By the end ofthe decade, macroeconomic balances had sharply

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