Received Lots of Military Aid from the US

Turkey

Readings for 9/25

Owen/Pamuk

·  By 1946, many social groups were dissatisfied with the one party regime – Turkey moved to a more open economy and a multi-party electoral system

·  Received lots of military aid from the US

·  Placed a strong emphasis on agricultural development, which coincided with an increase in world demand due to Korean War. The government tried to protect industry with a price support program for wheat – this eventually led to a sever balance of payments crisis. The government became more interventionist and shifted to ISI

·  Required IMF aid, but that required economic liberalization

·  Decline in the standard of living played a large part in the military coup in 1960

·  The military regime established a State Planning Organization which aimed at the protection of the domestic market and the ISI (this is in the 1960s and 1970s) – yet ISI never advanced to the capital goods stage. ISI was successful early on

·  Turkey received large remittances from workers in Europe – yet these aided in the overvaluation of the domestic currency

·  Borrowed in a costly fashion as petrodollars flooded the market. This led to a severe balance of payments crisis in 1978 and 1979. They had to implement a severe stabilization package

·  In the 1960s and 1970s, Turkey had to shift from extensive to intensive agriculture – agriculture was very much supported by government policies

Keyder – State and Class in Turkey: ISI

·  Military coup in 1960 was transformatory – it led to a new administrative mechanism to formulate and implement economic policy

·  The project of the manufacturing bourgeoisie conformed well with the interest of the working class and the bureaucracy – this led to stability

·  The liberal trade regime into which Turkey had briefly been incorporated into was short lived due to external payments crises.

·  The coup promised a rational and planned allocation of scarce resources

·  Establishment of a State Planning Office of technocrats appeared to be a purpose of the coup – they needed to approve everything

·  ISI is tightly staged – substituted domestic production for previously imported commodities and also substituted the products of a modern capitalist sector for those of various decrees of petty production

·  Foreign capital wasn’t prevalent and economic policy didn’t favor exports

·  Working class was allowed a degree of organization and contestation because it became integrated into the system

Readings for 10/30

Turel – Restructuring the Public Sector in Post 1980 Turkey

·  In the last years of the century, expenditure on public investment and consumption has been falling to what may be regarded as bare essentials in a civilized society

·  The secular downward trend in the public investment/GNP ratio is strong and apparent – this trend is also associated with a radial reorientation of public investment across sectors. The government retreated from manufacturing industries and mining in favor of transport, communication, education, health and other public services. The share of agricultural investment also had a general tendency to rise

·  Deficit financing characterized the 1970s, bond financing characterized the 1980s

·  The public sector in Turkey employs an educationally more qualified work force than the private sector

·  Turkey has succeeded in substantially increasing the proportion of population covered by her social security network

Togan – Determinants of Economic Growth in Turkey

·  Policies that increase education levels, achieve more equitable distribution of income and secure high rates of investment are essential

·  Education levels and income distribution are the main factors determining labor productivity in Turkey – a major shortcoming of the education system is its emphasis on general curriculum schools and neglect of technical and vocational schools

·  Rapid urbanization has led to a structural transformation

·  The main source of income inequality is the wide gap between the average incomes of agricultural and non-agricultural households

·  Rapid, long-term economic growth requires large investments in fixed capital

·  Deterioration in public finances during 1987-1992 and the accompanying decline in public savings led to the drop in total domestic savings – excess reliance on foreign savings may lead to unsustainable debt finance and hence to a loss of credit-worthiness

·  Government has placed an emphasis on capital formation in its basic infrastructure system

·  2 factors are key to total factor productivity growth: competition and R&D expenditures

·  During the 1980s, Turkey opened its economy to foreign competition by substantially lowering nominal and effective rates of protection – as a result competitive pressure from abroad has increased

·  Turkey is a signatory of GATT, and is classified as a developing country

·  1970s – ISI was not working; 1980s saw various economic reforms that improved economic performance; 1994 crisis was caused by deteriorating public finances

·  Since 1967, the government has granted a number of incentives to promote investment in production activities – while these are intended to overcome the barriers to entry into industry imposed by capital market imperfections, they have become a barrier to competition and structural change

·  Public sector is very large

Hakimian – From MENA to East Asia and Back

·  MENA states have been viewed as inward-looking, interventionist, over-reliant on natural riches and hence vulnerable to large external shocks

·  MENA has been performing below potential – need to diversify their economic structures rather than merely improve their growth record

·  These economies have small population bases and high per capita incomes

·  MENA countries have a poor record in attracting FDI; integration tempo has been largely dictated by oil exports. Alongside domestic reforms, adopting outward-oriented policies has been seen as crucial to MENA’s ability to meet the challenges of globalization

·  Lessons from the Asian crisis:

o  Reflects inherent characteristics and contradictions of globalization experience

o  Can’t be reduced to internal or domestic weaknesses

o  Has very strong regional characteristics – suggesting the need for region-wide crisis prevention

o  State needs to soften the social impact of crisis

o  Should lead to more realistic view of globalization

·  Globalization is not a panacea

·  To make the most of globalization, MENA countries will have to promote increased economic relations within the region

Eder – Challenge of Globalization

·  Turkey is still quite isolated from effects of global capital flows and FDI

·  Premature liberalization without institutions able to deal with the resulting distributional conflicts worsened populist pressures

·  Globalization is associated with

o  Intensification and deepening of trade liberalization

o  Enhanced mobility of capital

·  Turkey’s membership application to EU reflected its growing anxiety and threat of marginalization

·  Trade with Middle East didn’t do well because it relied on construction services and this expansion didn’t continue into the 1990s

·  Turkey-US trade has lagged behind expectations

·  Turkey hasn’t diversified exports. It relies heavily on textiles and agriculture – and geographic dispersion has been limited

·  Stagnant FDI performance has occurred in the midst of significant liberalization of FDI regime

·  Limited FDI inflow because: macroeconomic instability, political uncertainties, lingering implementation problems in FDI regulatory frameworks

·  Banking, trading and tourism are top 3 industries in service sector in terms of foreign investment

·  Hass lagged behind in non-FDI private capital flow

·  Economic liberalization during the 1980s was unorthodox – it proved more difficult to undertake long-term structural reforms such as privatization and achieving so called retreat of state. Liberalization was accompanied by expansion and concentration of state’s economic power

·  Liberalized its economy without complementary investment strategies and without setting necessary institutional framework

Yeldan and Cizre – Turkey Post Crisis

·  2001 was a sever crisis – GDP shrunk. Turkey received loans from IMF and had to implement a stabilization program

·  Official view is that crisis was result of failure of public sector to maintain IMF-set austerity targets. The authors argue the crisis was the end result of a set of cumulative processes set in motion by premature attempt to liberalize and deregulate economy. The fragile and shallow domestic asset markets of Turkey’s peripheral capitalism were prematurely exposed to foreign competition. This fragility was generated by the uncontrolled and excessively volatile capital flows which were characterized by a high level of speculation.

·  Underlying characteristic of domestic debt management was its extreme short-termism

·  3 features defining political structure post crisis

o  Economic crisis has served to reinforce the political status quo rather than change it

o  Crisis is accompanied by a contradictory trend in politics; while the political eminence of the civil-military bureaucracy has risen, the relevance and weight of representative institutions receded

o  Given heavy load conditionality, the economic and political decision making process was transformed to a level where international financial organizations achieved ultimate veto power

Owen/Pamuk

·  Policy of stabilization and liberalization in the 1980s – a military coup was needed to install it

o  Needed to improve balance of payments, reduce inflation and create a market based, export oriented economy

·  Experienced success in export growth achieved by reorienting existing capacity of ISI industries towards external markets

·  Experienced a limited transition back to multi-party politics. The end of the 1980s, the government resorted increasingly to old-style populism

·  Post 1980, virtually eliminated subsidies and price supports for agriculture

·  Persistently large differentials between agricultural sector and the rest of the economy

·  Large regional inequalities

Lecture on 9/25

·  Turkey and Israel are non-Arab and non-oil countries yet are affected by oil through pipelines and pipeline rents, labor migration. There is a tradeoff between small desert states and large states in trying to form relationships

·  Spur from backwardness and desire to catch up – there is a concern with balance of investment between private and state. One promoted exports, the other promoted imports. Post 1945, it was favorable to dev elopement because of new international institutions (World Bank and IMF) which tried to help developing countries first through technology transfers and then through capital transfers. In the late 1940s, early 1950s, competition of Cold War for friends/influence in non-European world. There was a competition to assist and at first, there wasn’t a big difference in what was being offered. Lots of planning and providing technical assistance. Also, there was quite a lot of military aid. The Middle East was a Cold War “hot spot”. Middle East leaders would try to play an intermediary role – called positive neutralism which the notion of not identifying with either bloc

·  Turkish experience – in spite of military intervention, it is an example of a move from exports to imports to exports. Industrial and agricultural sectors grew together and supported each other. In the 1960s, Turkish national income doubled. There was great growth accompanied by shifts from rural to urban areas. By the end of the 1960s, there was a migration of workers to Germany

·  Post WWII, population of 18 million, and was largely rural

·  Little government intervention until the 1930s and the Depression. The government developed the economy under etatisme. The government met with industrialists and planned what would happen and new enterprises were 50% private and 50% state owned.

·  The new state of Turkey was created in 1923. This was accompanied by a massacre of Christian Armenians in WWI. The Greeks of Anatolia went to Greece and Muslim Greeks went to Turkey. Most Christians were expelled or massacred. Christians were the entrepreneurs and the state now had to bring up a Muslim class of entrepreneurs. One of these was the Koc, which is a great Turkish industrial group.

·  Turkey was neutral during WWII – suffered greatly economically. After the war, Turkey had a seat at the UN. In 1947, it joined NATO and identified itself with the West. It was given Marshall Aid and fell very much under Western influence. Because Turkey was supposed to be a democracy if it was part of NATO, it became a 2 party system. The opposition Democrats won the election in 1947, and they came in with a development plan of developing the agricultural sector and relying on agricultural exports

·  The 1950s were a good period of progress under the Democrats and helped by US aid and by the Korean War boom. Until about 1953-4, US and allies stockpiled all sorts of resources because many thought it would lead to WWIII because of the confrontation with China in the north. The crisis in the mid-50s was very characteristic of developing countries: there was a foreign exchange crisis, lots of inflation. Turkey turned to the IMF for support, who imposed economic orthodoxy.

·  This led to the first military intervention in 1960 – officers handed over power to economic technicians. The new constitution and creation of the State planning Organization was to formulate and implement plans. It was now concentrating on industry – it would have protection and capital deepening. It was going to eventually try to move to manufacturing heavier products. This sustained an industrial boom through the 1960s

·  There was a nice combination of the private and public sector. Workers received reasonable wages. There was trade unionization and migration of workers to Germany. This migration was led by the governments – it would be a temporary migration and then the workers would come back with skills. The boom began to end in 1971 with lots of military problems

·  This led to the 2nd military intervention. In 1973-4, oil prices exploded, and things deteriorated rapidly. Turkey was heavily dependent on oil for fuel. There was a fall in remittances because Europeans became worried about the influx of non-European workers. Ii became harder for Turks to go to Germany, so remittance fell. Turkish labor export peaked in 1974 when 5% of the labor force was abroad.

·  There was a loss of US support when Turkey invaded Cyprus. It was now more difficult to go to international organizations and ask for aid. There were lots of social and industrial problems. Rural migration continues but urban social services were not up to the task. By the end of the 1970s, there were lots more strikes. This led to a political crisis.