Introduction in Ottoman law, benefited greatly from the expansion of
Western capitalism (Gürcan & Mete, 2017: 39-40). The THE 19TH CENTURY OTTOMAN ECONOMY
was characterized by the opening of trade to Western diplomatic and commercial advantages provided by the
countries and a peak in the weight of large landowners Ottoman capitulations (İnalcık & Seyitdanlıoğlu, 2020:
in relations of production. The opening of trade, which 547) gave further impetus for the expansion of Western
led to the expansion of Western capitalism in the capitalism and its compradore collaborators.
Ottoman market, began after the Baltalimanı Trade The first parliament in the Ottoman era was opened
Agreement, signed between the Ottoman Empire in 1876, with the intervention of bureaucrats and
and the United Kingdom in 1838. This was followed intellectuals known as the New Ottomans, who also led
by the implementation of the Tanzimat reforms for to the adoption of the first Ottoman constitution. This
Westernization (1839), which further increased the event, which went down in history as the declaration
disadvantages of Ottoman manufacturers. The law that of the First Constitutional Monarchy, marked the
restricted the Ottoman trade to the Ottoman citizens was institutional beginning of Turkey’s democratization in
abandoned, and “internal customs” were abolished for the Ottoman era. As such, Turkey accumulated a 50-year
Western investors (Pamuk, 2014: 216). Greek, Armenian tradition of democratization that started with the First
and Jewish merchants, who were already controlling Constitutional Monarchy in 1876 until the foundation
much of the Ottoman trade thanks to their strong of the Republic. On the other hand, the Turks in the
community bonds as part of the “millet system” inscribed Ottoman Empire had not been able to engage in any
economic activity other than being constantly called to the founding cadres of young Turkey to adopt statist
war and working in agriculture in the remaining times measures following the declaration of the Republic in
for about a hundred years (Kuruç, 2018: 299). 1923. Under these conditions, the Kemalist government
concentrated its efforts on accumulating capital (Kuruç, 2018: 309). Mustafa Kemal Atatürk, the founder of the
Kemalist principles bear the mark of republic, defined Kemalism as “the main lines of our
not only the French Revolution, but also projects [those of the Republican People's Party, or RPP]
Eastern European Narodism and the covering not only the next few years but the future”
Soviet Revolution. (Yüceer, 2021: 1). These principles were summarized as
the Six Arrows (Republicanism, Populism, Secularism, Revolutionism, Nationalism, and Statism). The Six
Throughout the 19th century, Western states made Arrows bear the mark of not only the French Revolution,
large infrastructure investments in Anatolia (Pamuk, but also Eastern European Narodism and the Soviet
2020: 104) and shaped the development of the Ottoman Revolution. This being said, Kemalism is also shaped by
market economy. Rather than significantly improve the peculiarity of Turkey’s historical conditions.
the relations of production and productive forces in In 1931, Mustafa Şerif Bey, Turkey’s Minister
the Ottoman Empire, this process led to a lumpen- of Economy at the time, admitted that during the
development that only served to improve the market foundation of the Republic, “our citizens have nothing
share of Western capitalism and tied the interests of the but to work as ranchmen in the economy (Kuruç, 2018:
large landowners to the Western states (Pamuk, 2014: 418).” In the same period, Nurullah E. Sümer, General
216). After the declaration of the Second Constitutional Director of Sümerbank, made similar remarks: “Turkey
Monarchy in 1908, however, the Committee of Union used to have an empirical economy, a medieval economy.
and Progress (CUP) made attempts to raise a national Agriculture was barren, forests were devastated, mines
bourgeoisie. The Industry Incentive Provision, enacted were derelict, benches were broken, and the country was
by the CUP in 1913, formed the basis of the Industry secluded. The Republic destroyed [these impediments] at
Incentive Law enacted by the Kemalist government in once. The state itself took over to create an organic and
1927 (Kasalak, 2012: 73). Taking advantage of the onset planned economy in Turkey (Kuruç, 2018: 374).”
of World War I, capitulations were abolished unilaterally, The Republic of Turkey, founded in 1923, was built
and customs tariffs intended for sector protection on an agricultural economy using medieval production
were imposed (Pamuk, 2020: 164). However, from the methods in a market regulated according to the interests
Balkan Wars that started in 1912 to the Turkish War of of Western capitalists. Inheriting the institutional
Independence in 1923, the continuous wars interrupted and social accumulation of the Ottoman Empire and
the construction of a national capitalism and the full-scale the democratization and nationalization experiences
implementation of industrialization policies (Gürcan & that started with the First Constitutional Monarchy,
Mete, 2017, 40-41). It is therefore safe to argue that the the Republic undertook the task of transforming this
Republic of Turkey has inherited a weak industrial base, agricultural economy into a modern national industrial
even though the CUP era provided a strong inspiration economy. This study uses a descriptive case study
for young Turkey’s future endeavours. method, understood as “one that is focused and detailed
The lack of an endogenous industrial base led in which proportions and questions about a phenomenon
are carefully scrutinized and articulated at the outset” Figure 1. 1923-1938 Turkey's Foreign Trade
(Tobin, 2010: 288), to examine the economic policies of the Kemalist government and the practices of “statism” from the establishment of the Turkish Republic to the beginning of World War II. The study aims to reveal the target and direction of these policies, which developed in two historical phases. The first began with the Izmir Economic Congress, whereas the second occurred in the Great Depression era. The first period was characterized by Turkey’s efforts at developing an endogenous private sector through government incentives and
public expenditures directed towards infrastructure Source: TÜİK, 2012.
investments. In the second period, Turkey adopted
an economic model driven by state-led industrial decisions took account of the predominantly agricultural
investments with an even stronger thrust. The weight character of Turkey, where two-thirds of the population
of public investments gradually increased in the Great were peasants. Therefore, the decisions mostly focused
Depression era. In the final analysis, one could argue that on easing the peasants’ tax burden, improving agricul-
these two historical phases reflect the implementation of tural production, increasing domestic industrial produ-
a statist model of economic development with Turkish ction, and constructing a stronger railway infrastructure
characteristics, otherwise known as the economic (Kuruç, 2018: 251).
policies of Kemalism in the early Republican period. The first action of the Kemalist government in agri-
Izmir Economic Congress and culture was the abolition of the “tithe” (aşar) in 1925, a
Subsequent Practices medieval tax collected from 10% on the peasants’ gross
The Izmir Economic Congress of 1923 convened to draw yield (Şenses, 2018, 238; Toprak, 2019: 243). The aboli-
an economic framework and determine the method tion of this tax, which used to account for approxima-
leading to the establishment of the Republic. Farmer, tely 25% of state revenues, meant that land ownership
merchant, laborer, and industrialist groups represented passed from the sultan to the nation (Kayra, 2018: 77).
the Turkish nation at the Congress. Each class made It created a favorable environment for the development
their own proposals to advance their material interests of an efficient agricultural sector. This was followed by
(Pamuk, 2020: 181). Despite the diversity of class inte- Ziraat (Agriculture) Bank, which had been established in
rests, the common attitude of each group was in favor the Ottoman era, initiating corporatization in agricultu-
of nationalism and protectionism. Most of their claims re (Kuruç, 2018: 453). In addition, a separate Ministry
expressed a strong desire to be treated as equals with of Agriculture was established. These conditions led to a
foreign investors, to benefit from the state’s protection, 2.5-fold increase in wheat production, the most impor-
and to encourage the consumption of local products tant crop in Turkey's agriculture between 1925 and 1930,
(Kuruç, 2018: 306). Turkey’s first decisions on state-led while the yield per hectare tripled (Kuruç, 2018: 458).
industrialization and economic nationalizations were ta- In the meantime, the government worked to reorganize
ken during the Izmir Economic Congress. Much of these land ownership. In 1927, it forced the large landowners
Figure 2. 1923-1938 Budget Balance (Hundred Thousand TL) a market economy and a stronger industrial base (Ku-
ruç, 2018: 297). At this point, it is worthwhile to recall that most of the railways and ports had been controlled by Western states since the middle of the 19th century. However, the new republic turned infrastructure investments into a “national issue” and undermined the Western control in this area (Pamuk, 2019: 179). Maritime transport was nationalized with the enactment of the Cabotage Law in 1926. Trade and Exchange Policy of the Republic The underdeveloped state of the Ottoman market economy had facilitated the continuation of the Istanbul-cen-
Source: DİE, Statistical Indicators 1923-1990. tered foreign trade policy that undermined local produ-
cers. In the 19th century, the Ottoman Empire suffered
to migrate to the West from Eastern regions where tri- continuous foreign trade deficits. Consequently, the bu-
balism was more pronounced, as well as in Konya and dget deficit was deepened to the point where domestic
Muğla. In return for a compensation fee, it seized their and foreign debts became unpayable. On the contrary, the
lands and distributed them to landless peasants. The go- Republic built its policy on “balanced budgets” (Kuruç,
vernment’s declared intention was to free the peasants 2018: 273) and “avoiding external deficits”. In implemen-
from captivity and motivate them to work (Kuruç, 2018: ting a balanced budget policy, the Kemalist government
470, 471). followed two different methods: a) avoiding closing the
In this environment, agriculture became the loco- budget deficit through foreign debts and b) restraining
motive of the Turkish economy after 1925 (Kuruç, 2018: the government's ability to expand the budget by placing
254). Critical developments in this period included the the financial affairs under absolute parliamentary control.
abolition of the tax on sugar in 1925 and the producti- Two policies were adopted to avoid external deficits: a)
on of the first Turkish cube sugar in 1926 (Kayra, 2018: imposing tight controls on foreign exchange and foreign
211). In the meantime, the state adopted a new indust- trade and b) collecting taxes (Kuruç, 2018: 291).
rial policy for promoting private capital accumulation Between 1923 and 1938, the ratio of exports to imports
until the Great Depression era (Boratav, 1994: 12). This showed an increasing trend. Despite direct incentives and
corresponded to a “mixed economy” model, which was investments provided by the government, budget surplus
to acquire a stronger role in the Great Depression era. was the norm for much of the period 1923-1938 (Figure 2).
What characterized this model were and nationalizati- The Kemalist foreign trade policy was essentially ge-
ons and targeted incentives for industrialization rather ared towards industrialization and nationalization. Şe-
than the spontaneous functioning of free markets (Ku- ref Bey expressed the situation as follows: “If a nation is
ruç, 2018: 254). In the period leading up to the Great undeveloped in production, counting on the regulatory
Depression era, the state mobilized infrastructure in- ability of the international market to produce a balanced
vestments for the construction of railways, ports, and economy means turning a blind eye to the collapse of
waterworks with the aim of facilitating the expansion of the country (Kuruç, 2018: 283).” Therefore, the Kemalist
Figure 3. 1924-1929 Growth rates by economic activity (%)
Source: Ministry of Development, 2015.
government took a strong stance at the Lausanne Peace argued that retaining the national character of the priva-
Conference, which led to the abolition of the capitulations te sector's survival depends on the state controlling the
that gave legal and commercial privileges to the Western dominant points in the economy. Otherwise, this would
states. However, the conditions agreed in the Lausanne result in a system driven by “exploitation of man by man”
Peace Treaty forced Turkey to implement customs tariffs (Kuruç, 2018: 313).
in accordance with the rates determined by the CUP go- In the Great Depression era, protectionism began in
vernment in 1916 (Pamuk, 2020: 176), which delayed the foreign trade and the external deficit was ended by nar-
implementation of a new customs policy until 1929 (Öz- rowing down the merchants’ field of action (Kuruç, 2018:
kardeş, 2015: 2; Şenses, 2018: 238). With the onset of the 426). This was supported by a “strong currency” policy
Great Depression in 1929, Turkey began to use customs (Toprak, 2019: 246) by which the government “should not
tariffs in favor of its nationalization and industrialization allow such a delicate matter as the value of the national
policies (Kuruç, 2018: 284). This marked the beginning currency to be left to to chance, apart from its own decisi-
of a new era in Kemalist statism. This era testified to ons and opinions (Kuruç, 2018: 290).” İsmet Pasha stated
mounting discussions on whether the nationalization and that small economic measures are insufficient and that
industrialization policy is to evolve into liberalism or a the economic situation calls for stronger interventions th-
stronger form of statism. While İsmet Pasha, the then Pri- rough the stock market”, which “always presents an unna-
me Minister, stated that it was out of the question to “give tural situation”. In 1930, foreign exchange control began
up statism completely and expect every blessing from to be implemented with the Law on the Protection of the
the actions of capitalists” (Kuruç, 2018: 312), Şeref Bey Turkish Currency (Boratav, 1994: 125; Kuruç, 2018: 425).
Figure 4. 1923-1938 National Income and Growth collective interests were managed by the selfishness of the
individual, which is the real reason behind the depression (Kuruç, 2018: 354).” Şeref Bey believed that “banking and operating a factory are almost incompatible” in terms of profitability. In this environment, the Industrial and Mines Bank was abolished with the intention of creating two new institutions, one specialized in banking and the other on industry (Kuruç, 2018: 355). The task of providing loans to the industry was given to the Industrial Credit Bank of Turkey, and the task of managing and developing all industrial establishments was given to the State
Source: Eğilmez & Kumcu, 2000. Industry Office. Kuruç likens these two institutions to the
operation of two cogwheels meshing in some complex
Industry and Banking Relations piece of machinery, which also constitutes “the essence of
When the Republic was established, around 110,000 wor- the [Kemalist] statism project” (Kuruç, 2018: 404).
kers were employed in the industrial sector. By 1927, this Recovery from the Great Depression
number exceeded 250,000, but more than 70% of busines- In the process of recovering from the crisis, Turkey pur-
ses employed only three or fewer workers. The Industry sued two basic economic policies: a) setting up agricul-
Incentive Law, which exemplifies government efforts at tural cooperatives and b) accelerating direct state inter-
developing the domestic private sector, failed to generate vention in industry and trade. The government followed
the expected results due to the small size of domestic in- an industrialization approach to establish a triple chain
vestors (Gürcan & Mete, 2017: 41-42). Nevertheless, this linking raw materials, production, and markets within
process succeeded in creating a stronger industrial base the country and attempted to mobilize domestic manu-
with the construction of Kayseri and Eskişehir Aircraft facturers accordingly (Kuruç, 2018: 370). In the Depres-
Factories, Kayaş Capsule Factory, Elmadağ Gunpow- sion era, the government capitalized on the central role of
der Factory, and the Industry and Mines Bank (Gürcan merchants in lowering the prices of agricultural produ-
& Mete, 2017: 41). The state conducted investments for cts. In this direction, the government attempted to estab-
building and nationalizing new roads in cities including lish cooperatives with the intention of organizing foreign
Istanbul, Ankara, Konya, Kayseri, Sivas, Samsun, Ada- trade. It aimed to grant each farmer family ownership
na and Mersin (Kayra, 2018: 443). In period 1924-1929, of the land on which they work to increase agricultural
Turkey's GDP grew by 79.1% (Ministry of Development, productivity and establish production methods consis-
2015). tent with state policies by dividing up the approximately
In the Great Depression era, the Republic devised two and a half million properties (Kıvılcımlı, 1965: 149;
a new policy to synchronize banking and industry. Şe- Kuruç, 2018: 475).
ref Bey, Deputy of Economy, stated the following in his The function of the state in the post-1929 economy
speech where he identified the causes of the Depression: went beyond the mere provision of incentives and dire-
“Industrial capital also came under the forcible dominati- ctives. The government thus assumed a stronger role in
on of financial capital. This has created a situation where expanding and developing the productive forces (Bora-
Figure 5. 1930-1939 Growth rates by economic activity (%)
Source: Ministry of Development, 2015.
tav, 1994: 205). Increased production in the Turkish eco- “None of the (private enterprises) established a factory in
nomy was not found in abundance, but in crisis, thanks places designated by the state. However, we are establis-
to policies for state-led industrialization (Kuruç, 2018: hing factories in Kayseri and Ereğli. Of course, if we had
365). In 1932, the First Five-Year Industrial Plan was established these in İzmir, we would have earned more.
prepared with Soviet loans and technical support (Bora- But we had to go (to these regions)” (Kuruç, 2018: 385).
tav, 1994: 154). The plan was put into practice in 1934. Statism, which was first established within the scope of
Within the scope of this plan, which prioritized import small incentives for the private sector and then increased
substitution, production facilities were established in the its weight with the creation of industrial plans, reached its
fields of textiles, mining, cellulose, ceramics, and che- zenith with the establishment of Sümerbank and the State
mistry (Kuruç, 2018: 375). After it became clear that the Economic Enterprises (SEE). The term “fully-state-owned
plan, as the fastest attempt at industrialization in Turkey, factories” emerged for the first time during the planning
could be completed sooner than a five-year period, pre- process for building the facilities to be established by Sü-
parations for the second plan began in 1935. The Second merbank. The prominence of the investor-producer state
Five-Year Industrial Plan, which would be interrupted by model facilitated capital accumulation in the hands of the
World War II, was partially implemented as a new stage state. In this direction, SEEs were established in 1938 with
in Turkey’s industrialization, with special focus on iron a structure that can mobilize, accumulate, and re-invest
and steel, mining, and electricity. In formulating the new capital already accumulated. Indeed, the state was directly
stage of statism in Turkey, Deputy Minister of Economics involved in ensuring the integrity of the internal market
Celal Bayar drew on a distinction between private and as well as the prevalence and depth of industry (Kuruç,
state enterprises and pointed to the inadequacy of Tur- 2018: 413). The direct involvement of the state turned in-
key's incentive policies before the Great Depression era: dustry into the locomotive of growth.