The economic performance of the Turkish Republic

Abstract

On 29 October 1923, Turkey emerged as a republic following the destruction of the Ottoman Empire in World War I. At the time it was a low-income, underdeveloped country. Since then it has evolved into a semiindustrialized, 'middle-income' nation that is among the most economically advanced countries of the Middle East, its oil-importing status notwithstanding. At the same time, its economic advance has, of course, been flawed. Given this record, it is worthwhile to summarize the nature of Turkey's economic performance in the interim 60 years. Much of the attention in this paper is directed to Turkey's growth. Among other things, consideration is given to the roles of the public and private sectors in the country's economic advance. Thereupon, the paper discusses other aspects of Turkey's economic performance, such as its balance of payments position or its inflation. Finally, the paper offers some conclusions regarding Turkey's overall economic performance. During the 1920s and 1930s, Turkey was fortunate to have as its leader the great Mustafa Kemal, later surnamed Ataturk. Heir to the Ottoman tradition of state intervention in economic activity, witness to the state economics' of the young Turks, committed to the idea of Turkish economic growth, Mustafa Kemal was undoubtedly prepared to use government to ignite his country's economy. During the 1920s, however, he required a cooperative and viable business sector while he turned his attention to the most pressing needs of the time, namely the introduction of various social reforms, most of them designed to promote the secularization of the new nation. Hence, Kemal's government initially made little attempt to alter the composition of output or the distribution of income. According to a comparatively recent study, Turkey during 1923-9 was the epitome of a peripheral or dependent economy which possessed an agricultural base, engaged in internal and external trade, and exported 'primary' commodities and imported manufactured items, including even textiles.2 The modest legislative efforts to assist private industry during the decade included the exemption from duty payments of raw materials used by export industries (1924), various tax and duty exemptions as well as subsidies for the sugar industry (1925) and the rather celebrated Law for the Encouragement of Industry (1927), which offered incentives to private industrial firms to expand by affecting the costs and availability of their inputs and their profits after taxes.3 These measures tended to be abortive, in no small part because the required inputs and markets were still too scarce and profits in industry still too uncertain to allow a substantial industrial advance. All told, during the 1920s Turkey experienced some economic growth but with very little structural change.4 By the end of the decade, the introduction of the social reforms had largely been completed and the Great Depression had begun, thereby