Struture of Turkish Economy Lecture Notes 5

Alper Duman

October 2011

Alper Duman Struture of Turkish Economy Lecture Notes 5

The period between 1940-1945 was an ’interlude’ in which economic regression and sharp changes in economic polices took place. The active labor force declined substantialy due to obligatory drafts. Almost 1 million soldiers were drafted. The production of wheat (the main crop for the majority of the farmers) dropped by 50%. The volume of imports shrank by half in two years. This led to input and capacity constraints in the main state-led industrial activities The military expenditures ’crowded-out’ public investment.

Alper Duman Struture of Turkish Economy Lecture Notes 5

This period was a breakthrough in terms of ’concentration of wealth’. The alliance between the powerful bureacracy and some fractions of the capitalist class provided a basis for accumulation of capital both in terms of economic and non-economic means. The extent and intensity of the state intervention increased enormously. Milli Korunma Kanunu, Varlık Vergisi, Çiftçiyi Topraklandırma Kanunu, Toprak Mahsulleri Vergisi, Toprak Reformu were all symbols of radical institutional changes. These radical changes reflected a major split in the upper echelons of the ruling party, CHP

Alper Duman Struture of Turkish Economy Lecture Notes 5

Refik Saydam and Şükrü Saraçoğlu governments were two different attempts to control the economy and alleviate the ills of the economic regression and poverty. All the policies were geared towards the consequences of the economic decline. There was no real attempt to jump start the production. Saydam’s Milli Korunma Kanunu supplied an overwhelming umbrella for the government to control industrial relations, appropriate private enterprises if necessary, impose ceiling prices in domestic trade and set quotas for the sale of basic goods. Ticaret Ofisi and İaşe Müsteşarlığı on the other hand were used to control the international trade. Just in the case of İttihad ve Terakki the main concern was the provision of the cities.
Alper Duman Struture of Turkish Economy Lecture Notes 5

Saraçoğlu government lifted some of the price controls and let the big farmers sell up to 25% of the surplus in the domestic markets. İaşe Müsteşarlığı was abolished. These policies of course led to a fiscal crises. Tariff revenues (part of the indirect taxes) diminished considerably.

Alper Duman Struture of Turkish Economy Lecture Notes 5

The response was a radical turn in terms of ’taxation’. Varlık Vergisi, imposed in 1942 was a dramatic attack on the bourgeoise, especially on the minorities. Till 1944, 114 thousand taxpayers paid this wealth tax which amounted to almost 40 % of all state expenses in and 3.5% of the GDP in 1943. The total funds collected reached to 315 million TL. Toprak Mahsulleri Vergisi on the other hand was an all encompassing tax on agricultural producers. A 10% tax on output was a blowout for the small and middle scale farmers who had lost their fortunes in 1930s. From 1944 to 1946, 167 million TL was collected via the new agricultural tax.
Alper Duman Struture of Turkish Economy Lecture Notes 5

The volume of imports stayed steady, while the exports could be increased during the war years. The total trade surplus amounted to 250 million dollars. However, the output decreased by 7.1% in agriculture, 5.5% in industry and 6% in overall economy. More importantly, fixed capital formation declined to 8.2%.

Alper Duman Struture of Turkish Economy Lecture Notes 5

Table: Trends in Distribution, 1940-1945 Year Industrial Output Index Industrial Price Index Wheat Output Index Wheat Price Index Tobacco Output Index Tobacco Price Index Cotton Output Index Cotton Price Index Agricultural Output Index Agricultural Terms of Trade Nominal Wage Index Real Wage Index Share of Salaries in GDP Wholesale Price Index Real GDP Index
Alper Duman Struture of Turkish Economy Lecture Notes 5

1938-1939 100 100 100 100 100 100 100 100 100 100 100 100 8.4% 100 100

1944-1945 77 357 63 568 105 490 88 356 69 123 271 45 8.2% 449 75

Commercial capitalist class, mainly trading agricultural goods, were the winners. The bureaucracy could sustain their living standars in an inflationary period. Since the real wages declined, the industrial capitalist could increase their profits. The worker and the small farmers were once again the losers

Alper Duman Struture of Turkish Economy Lecture Notes 5

Questions: 1. Why did the imports decrease dramatically? Were the war policies by the European countries related to such a decline? 2. Could there be a way to limit the military expenditures and continue with the industrialization plans during the war? 3. What were the critical issues in the Toprak Kanunu which led to the split in CHP? 4. What could be long term consequences of Varlık Vergisi? Does the low level of FDI during the coming decades have to do with Varlık Vergisi? 5. How could be the legitimacy of the state sustained while both the workers and the small farmers were alienated by economic policies?
Alper Duman Struture of Turkish Economy Lecture Notes 5

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