Turkey From Inward-Oriented Etaism To Outward-Looking Liberal Strategy

1. TURKEY : FROM INWARD-
ORIENTED ETATISM TO
OUTWARD-LOOKING
LIBERAL STRATEGY
Prof.Dr.Coskun Can Aktan
Dokuz Eylul University
Faculty of Economics & Management
&
Social Sciences Research Society
http://www.sobiad.org

2. INTRODUCTION
 From the beginning of the proclamation of
republic in 1923 until the end of 1970' s,
Turkey followed an inward-oriented mixed
economic policy. At the beginning of 1980,
Turkey adopted a comprehensive
stabilization and structural adjustment
program in order to achieve free market
economy in the country. Since then,Turkey
has been implementing some major
economic policies for this end.

3. 1923-1930 Period: The New Republic Years
 Turkey gained its independence under the leadership of
Mustafa Kemal -popularly known as Ataturk - on 23 April
1920 and proclaimed the Republic on 29 October 1923.
At the proclamation of republic,Turkish economy was not
strong enough and infrastructure was destroyed during
the national independence struggle.As a matter of
fact,the Republic of Turkey was founded on the social
and economic heritage of the Ottoman Empire. The
economic problems of the Empire aggravated constantly
during the 19th century and became worse in the first
quarter of the 20 th century. When the Turkish Republic
was proclaimed, it was completely devoid of the
ecenomic means of the empire. Furthermore, it had
inherited a heavy burden of debt and an economic
structure that collapsed completely.

4.  During the national independent struggle years, Ataturk, in his
speech to the Turkish Grand National Assembly on March 1,
1922 focused on the importance of economic development and
one year later, as a chairman of "Anadolu and Rumeli Mudafa-i
Hukuk Cemiyeti" (Association for the Defence of Anatolia and
Territories of the Europian Continent Particularly Thrace), he
issued a statement proposing to take some measures in the field
of importing agricultural machines, production of commodities
with domestic raw materials, construction of railways,
modernization of schools, improvement in health services,
productive utilization of forests and mines etc.
 Ataturk, after the proclamation of Republic called an economic
congress to be convened in Izmir 1923. The new Republic's first
and the most important decisions concerning economic system
were taken at this Congress.

5.  There were mainly two crucial policy issues, which were debated
in length at this congress. The role of the government and the
role of the foreign capital in the development of economy.
Minister of Economy, Mahmut Esat Bozkurt outlined the main
principles of the new government's economic policy at Izmir
Economic Congress as follows:
 " We are not attached to laissez-faire, socialist, communist,
etatist or protectionist schools of thought.We have a new school
of thought, which belongs to the new Turkey and corresponds to
a new economic outlook. I call it the New Turkish Economic
School. ... The new Turkish should follow a new mixed economic
system. Economic enterprises should be undertaken partly by
the state and partly by private individuals. For example, the state
should direct large scale credit and industrial undertakings."
(See: Hole, 1981; 39-40)

6. The major decisions taken at the Congress
were;
 - Extending credit for private entrepreneurs,
 - Selling land to individuals for the establishments of
industrial facilities,
 - Enacting laws concerning the encouragement of
private sector activities,
 - Protecting domestic industry against outside
competition,
 In sum, the main economic role was assigned to
both private and public sectors at this congress. It
was remarked that "the task of the state begins
where the activity of private enterprise ends."
(Hershlag, 1984; 174.)

7.  The Izmir Economic Congress can be
accepted as a first initiative to determine the
Republic's economic policy. Even though, a
Mixed Economy Model was accepted at
Congress, the liberal economic model had
been tried to implement until the end of the
decade. However, some deficiencies
hindered the private sector activities and
compelled government to interfere to the
economy.

8. Mainly the following factors affected
private sector activities negatively in the
first years of the New Republic:
 - lack of capital accumulation of private
sector,
 - risk and uncertainty in some sectors,
 - lack of infrastructure,
 - lack of entrepreneurial skill and experience.
 For these reasons, it was necessary for the
government to take an active part in
economic activities.

9. 1931 - 1949 Period: Etatism Era
 The period from 1931 until the end of the following decade
constitute a new era in the Turkish economic history. In 1931,
Republican People's Party officially announced at the Third
Grand Congress that, economic growth would be succeeded in
through active governmental interventionism. It was asserted that
government intervention is necessary to " ensure the welfare of
the nation and the prosperity of the state." (Hershlag, 1984;
174).This principle of the Republican People's Party was called
"etatism". Etatism was accepted as a method or a strategy of
economic development in this period. Etatism is understood "the
emergence of the state as a pioneer and director of industrial
activity, in the interests of national development and national
defense in a country where private enterprise and capital are too
weak to do anything effective." (Sayan,1968;1)

10.  A similar definition was given by Bernard
Lewis. He described Etatism "as the
intervention of the state as a pioneer and
director of industrial activity, in the interests of
national development and security, in a
country, in which private enterprise is either
suspect or ineffective." (Lewis,1952;49)

11. On the other hand, Ataturk himself
described the Etatism as follows
 Etatism "is a system peculiar to Turkey,
which has evolved from the principle of the
private activity of the individual, but places on
the state responsibility for the national
economy... to do quickly things, which have
not been done throughout centuries in the
Turkish Motherland by individual or private
activity. It is a system different from
liberalism. " (Hershlag,1984;176)

12. Etatism determined the tasks of the
government as folows:
 the government had to take an active role in
economic activities in which, private sector
investments were inadequate. Government
was charged by the control of mines, forests,
canals, railroards etc. Government also
undertook the activities of public utilities.
(Karal, 1981;21)

13. 1950-1959 Period: Liberalism
Movement
 The years of 1950' s constitute an important period
in the economic history of Turkey. In this period,
etatism has been severely criticized and a liberal
economic policy had been tried to implement. In
1950, first multi-party elections were held in Turkey
and Democrat Party (DP) gained the victory on May
14, 1950. DP was formed under the leadership of
Celal Bayar and Adnan Menderes. This party
opposed government interference in the economic
field and embarked on a liberal economic policy.

14. Democrat Party, immediately after the election, announced
that government's functions should be reduced whereas the
private sector activities should be encouraged. DP Party
Program, which was read in the Turkish Grand National
Assembly on the 29th of May 1950 declared:
 "Hereafter, government will not operate in
the fields, which have not public service
characteristics and the public economic
enterprises established for different purposes
- except those that have been doing a public
service and those operates in the field of
main industries will be gradually sold to the
private sector in a program." (Yasa, 1966;49)

15. The Article 43 of the DP Government
Program determined the tasks of the
government as follows.
 "To undertake the activities, where private capital is
inadequate or the activities, where private
enterprises are not interested in order that they do
not anticipate profit in the short-run; to deal with the
activities related to the defense of the country and
the activities, which will be beneficial for the other
economic activities; to build especially heavy
industry and grant power plants; to construct
railroads, ports and water supply facilities; to
develop the car industry;... to operate the mining
and forestry businesses, which will be beneficial for
the future generation." (Yasa, 1966; 47)

16. On the other hand, the President Celal Bayar, in his
speech to the Grand National Assembly Inauguration in
November 1950 mentioned that:
 " A democratic economic policy can be defined as a
system based on private property, protecting
individual freedom and emphasizing on the
importance of private enterprise. Current
government should be responsible for only some
special tasks related to commercial businesses and
the main duties of the government should be
specially to encourage, regulate and control the
economic activities, at the same time, to provide a
wide and secured field of work for the private
enterprises by preparing the legal and economic
structure." (Kuruc, 1963;144)

17. 1960-1980 Period: Planned Years and
Mixed Economy
 From the beginning of 1960 until the end of 1970' s,
Turkey followed a mixed economic policy. The First
Five Year Development Plan, drawn up in
conformance with the stipulation contained in the
1961 Constitution covered the period of 1963-1967.
This Development Plan outlined the strategy as
follows:
 " The activities of the government will be planned to
achieve a high economic growth and a balanced
economic deveopment." (Aktan, 1987; 39)

18. Post- 1980 Period: Towards Free
Market Economy
 Turkey moved from an inward-oriented etatist strategy, which is
called "Mixed Economy" to an outward- oriented "free market
economy" during the 1980' s. On January 24, 1980, the
government introduced a comprehensive set of economic
stabilization and structural adjustment measures. Economic
stabilization program primarily aimed to curb inflation, to
overcome the scarcities that hindered production and
bootlenecks in inputs, to reduce the foreign trade deficit through
export promotion and trade liberalization etc. Structural
adjustment program, on the other hand, aimed both to stabilize
the economy and to achieve restructuring the economy through
the principles of a free market strategy in the long- term. In the
following, we will summarize January 24, 1980 measures and
after that, continue to explore other structural adjustment
policies.

19. Major Free Policies
Implemented in the Post
1980 Era

20. 2.1. Privatization and Deregulation
 Privatization, in broad meanning refers to the
transfer of the role and the functions of
government to the private sector. In this
concext, several policies have been
implemented in Turkey, since the beginning of
1980. Deregulation, imposing user charges for
public goods and services, contracting-out, joint
venture are some examples. On the other hand,
the sale of public economic enterprises assets
or shares to the private individuals and firms
constitute the other aspect of privatization. This
has been one of the major economic policy in
Turkey in the 1980' s.

21. 2. 2. Deregulation in Banking
 Until July 1980, deposit rates and, to a large extent lending rates
of the banking system were determined by the Central Bank.
During the 1970' s, only modest increases were granted and with
the acceleration of inflation rates, interest rates became
increasingly negative in real terms. In Turkey, banking and other
financial services has been deregulated a great deal, during the
1980' s. In July 1980, interests rates paid for time deposit and
bank loans were freed. Although, initially a " gentlemen' s
agreement" enforced by the cartel of commercial banks limited
the extend of the increases, interests rates subsequently rose to
a considerable extent on both deposits and loans as the pressure
of competition rendered the agreement largely ineffective. The
Decree 8/909 which was effective as of July 1, 1980 became a
first step for full deregulation in financel services. Following these
measures, in October 30, 1986, interest rates paid for demand
deposits were also freed to some extend.

22. 2. 3. Foreign Exchange Policy
 Following January 24 Measures, new
measures to foster and initiate free market
economy have been put into effect in the
following years. One of the most important
reform was the termination of Decree 17,
Concerning Protection of the Value of Turkish
Currency.

23. Foreign Trade Policy
 In the post- 1980 period, trade liberalization has
been one of the fundemantal objectives of market
economy, which has been tried to implement in
Turkey, As known, import substitution was adopted
to assure Turkey' s " economic independence" and
to protect domestic " infant industries" against
outside competition since the proclamation of
Turkish Republic. Until 1980, all foreign trade policy
instruments such as quantitative restrictions, tariffs
etc. were used to support import substitution.

24.  Turkey' s structural adjustment program emphasized on
the liberalization of foreign trade regime in the post-
1980 era. Both import and export regimes have
undergone a substiantial transformation during the 1980'
s. The import regime of 29 December 1983 constitutes a
major step towards liberalizing foreign trade and
eliminating red tape in imports. Prior to 1983, the import
regime was determined by a decree drafted each year,
and the regime was generally valid for only one year.
Under the new, more liberal arrangement, however, this
annual decree has been eliminated and the import
regime set forth at the end of 1983 has been given
permanent validity.

25. Foreign Investment Policy
 One of the major policy decisions in 1980 was the
adoptation of open and flexible foreign investment
policies. On March 13, 1986, a new decree (Foreign
Capital Framework Decree) was put into effect
concerning foreign capital as a supplement to the
present Law Concerning the Encouragement of
Foreign Capital. (Law No:6224), which was enacted
on January 18, 1954.
 Since the beginning of 1980’s, governments have
taken measures and implemented policies to
encourage the inflow of foreign capital.