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THE ROLE OF THE STATE IN THE NEOLIBERAL RESTRUCTURING IN TURKEY -3-
Opinion(A. H. Yalaz)

Chapter 2
Legacy of the Ottoman Empire and the emergence of state capitalism

The 1930s were a turning point in the history of Turkey in general and in the capitalist development of the economy in particular. As far as the economic model is concerned that decade was characterised by two things: protectionism and etatism or state capitalism. The import-substitution industrialisation or semi-independent industrialisation was introduced as an economic strategy and as the mode of capitalist accumulation. As the subject matter of this thesis witnesses, the events of the 1930s and the state’s role in the economic life of the society
had long lasting effect on the future developments of the society as a whole. Why did the Turkish state embark on the import-substitution industrialization? To find out why it did so let us first examine the historical developments that led to the state-led industrialization in Turkey.

2.1. The economic situation after the First World War and the national liberation war
Long before the establishment of the Turkish ‘nation-state’ after the Turkish War of Independence (the ‘Turkish Republic’ was proclaimed on 29 October 1923), the geographical area in which the new state was established was economically incorporated into the capitalist world economy. The Ottoman Empire became a semi-colony of capitalist European powers in the 19th century. In the context of the international division of labour the Empire provided the capitalist economies of the Western Europe with the primary and agricultural produce in exchange for industrial products. The emerging Ottoman industry at its crawling stage was in no position to compete with the capitalist industry of the big capitalist powers and in a short time it was destroyed (Kongar 1985: 259). The Empire was relegated to raw materials production geared to the needs of the European-dominated world economy. ‘Thus, instead of using its agriculture as a base for internal industrial expansion, as to some extent had been the case up to the 19th century, the Ottoman Empire, with its native industry destroyed, was transformed into an agrarian reserve of the expending [sic.] European capitalist economies’ (Berberoglu 1982: 4). Thenceforth the development of capitalism in the former Ottoman Empire, and in the Turkish Republic that followed for that matter, was the history of the dependent capitalist development.

The most striking feature of the semi-colonial nature of the Ottoman Empire was the economic and to a great extent political and military domination of the Empire by different European capitalist-imperialist powers (Boratav 1989: 12-13). The Ottoman Empire also became financially dependent on the European capital. Because of the accumulated foreign debt and the fiscal crisis, the Empire was forced to accept a European-controlled organisation, the Ottoman Public Debt Administration, that was set up in 1881 and it represented the European creditors. The Ottoman Public Debt Administration ‘subsequently acted as an intermediary with European companies seeking investment opportunities in Turkey and in this way was instrumental in facilitating the further penetration of European capital into the Ottoman economy' (Berberoglu 1982: 4). In the process this administration had become a huge organisation that confiscated a third of the revenues of the Empire.

The leaders of the Committee of Union and Progress (CUP) inherited a semi-colonial social structure in 1908. (9) The Ottoman economy was principally an agricultural, industrially backward and commercially foreign-dependent economy. According to Boratav, the 1908-1922 period represented the first and timid steps towards a national capitalism (1989: 13). The Ottoman bourgeoisie was primarily engaged in trade and especially in the foreign trade and not in the industry and was comprador (10) and to great extent non-Muslim. The Muslim-Turkish elements of the Ottoman bourgeoisie were very weak, unorganised and to a great extent dependent on the non-Turkish and non-Muslim fractions of the bourgeoisie (Boratav 1989: 15). Until the World War I (WW I) the private industry and trade were almost exclusively in the hands of the minorities (Greek, Armenian, Jewish, Levantine) that acted as the representatives of the European capitalists. In other words, the Ottoman Empire was dependent on non-Muslim elements of the commercial bourgeoisie.

Because of the Balkan Wars, WW I, and the Turkish War of Independence, ‘from 1912 to 1922, the population of Anatolia fell by 30 per cent. Approximately 10 per cent of the Anatolian population emigrated and 20 per cent died’ (McCarthy 1983: 140). During WW I and the Turkish War of Independence and immediately after, the vast majority of the non-Muslim merchants and industrialists emigrated, were liquidated or expelled from the country. Emigration, expulsion or liquidation of most of the non-Muslim elements of the Ottoman bourgeoisie from Anatolia and Thrace created a Turkish middle class. The new Turkish state ‘inherited’ only a small part of the bourgeoisie from the former Ottoman Empire. An essential element of reform, according to McCarthy, is commercial participation by the majority group of the population and in Turkey ‘the change from minority group to majority control of production was brought about by the wars’ (McCarthy 1983: 143). As a result, the state stood centre-stage in the economy (Bromley 1994: 123).

After the Turkish War of Independence the ‘new’ political rulers (11) inherited an economic structure from the Ottoman Empire that can be characterised as semi-colonial economic structure. The inherited economy was an economy that was an exporter of mainly primary products and importer of industrial products. There was almost no industry in the hands of the Turkish bourgeoisie. Moreover the economy was dependent on foreign capital and technology. It was a devastated economy, especially regarding the labour force. ‘The agricultural labour force decreased by more than 20 per cent’ (Keyder 1987: 91). This was a heavy blow to an overwhelmingly agricultural economy. As a result of the disruption to agriculture brought about by the wars the cultivated land and production decreased.

2.2. The economic strategy in the 1920s: promotion of private capitalist sector
As a result of emigration, expulsion or liquidation of the vast majority of the commercial and industrial bourgeoisie ‘the state stood centre-stage in the economy of what became the Turkish republic’ (Bromley 1994: 123). In the 1920s, as the leaders of the Committee of Union and Progress did try between 1908-1918, the new political rulers or the state bureaucracy of the new state pursued an economic strategy that aimed at creating a national bourgeoisie - an industrial bourgeoisie as well a commercial bourgeoisie. This strategy can be called as an economic strategy of creating the ‘state-sponsored national or Turkish bourgeoisie’.

In the 1920s there took place an economic reconstruction in relatively open economic conditions. The state pursued an economic strategy that favoured the commercial capital and rich farmers. The private sector was promoted. In 1924 the İs Bankası (Business Bank) was founded to finance private enterprise. ‘State intervention in favour of local capitalists accelerated throughout the late 1920s in line with the Kemalist leadership’s hope of building up the economic base of the nation through state encouragement of capital accumulation by the local bourgeoisie.’ (Berberoglu 1982: 24). Maintenance of the anti-labour regulations that were designed before the war was amongst those measures that favoured the private sector. ‘During the 1920s Mustafa Kemal required a viable business sector while he embarked on his several social reforms. Agriculture and commerce particularly thrived during that decade’ (Singer 1983: 307). Over the 1920s Bromley writes:
‘Given the destruction of the old mercantile and bourgeois forces, in the first decade of development, during the 1920s, an indigenous bourgeoisie scarcely existed. At this time, there was no attempt to isolate the economy from the world market: inward flows of foreign capital accounted for the bulk of investment in manufacturing, ‘the bourgeoisie did not constitute an autonomous political force, and the economy did not emerge as an autonomous sphere with its own institutionalised rules of conduct’ (Keyder 1987: 83) (...)’ (Bromley 1994: 124).
The Turkish War of Independence was waged not only against the occupying Greek forces, but also against Britain, France and Italy, especially against the British imperialism that masterminded the colonial war against what became Turkey after WW I. One of the striking phenomena after the Turkish War of Independence regarding the economy was the inflow of foreign capital and close trade relations with the countries of Western Europe. That is one of the reasons why the War of Independence is called a war that being an anti-imperialist without becoming an anti-capitalist. Let us not forget that the war led by a section of the Ottoman bureaucracy (12) and the leadership wanted to promote capitalist mode of production and private capital accumulation. The political rulers of the new state were heir to the Ottoman tradition of state intervention in economy. That is why having a clear insight into the role of the state in the economic life of Turkey is of vital importance in order to understand the dependent position of the Turkish economy in the international division of labour.

As Keyder pointed out, ‘the bourgeoisie in the Ottoman empire, despite its structural location as intermediary between foreign capital and domestic production, still constituted a local bourgeoisie, well placed to capture the lucrative fields of enterprise. As such, it was an obstacle to greater involvement of foreign capital in the local economy’ (1987: 93). The local merchant bourgeoisie, according to Keyder, contains the potential for independent development and therefore represents a historical alternative to imperialism with foreign capital (1987: 93). The expulsion of the vast majority of the non-Muslim elements of the local bourgeoisie invited greater involvement of foreign capital in the Turkish economy. In the 1920s, foreign capital became instrumental in encouraging and organising export-oriented agriculture. Foreign capital replaced the ‘Christian bourgeoisie’ in banking sector as well as in industry. Certain firms obtained monopoly rights to import and sell particular goods in the domestic market through concessions given by the Turkish state. ‘All this activity pointed to a greater and substantively different involvement of foreign capital in the economy, as compared to the Ottoman period which was characterized by a much stronger local bourgeoisie’ (Keyder 1987: 94). The 1923 İzmir Economic Congress that was organised under the auspices of the state invited foreign capital to Turkey. As Keyder pointed out, the ‘modern’ sector in the 1920s was mainly developed through foreign direct investment (1982: 74).

A rapid development of a ‘Moslem commercial class’ took place in the 1920s. Because the emigration, expulsion and liquidation of the non-Muslim elements of the Ottoman bourgeoisie there was a vacuum to fill and from the point of view of material accumulation, ‘the physical property that was left behind was made available and seized by a Moslem bourgeoisie-in-formation. Thus the original accumulation of the previous period (1913-23) served to provide greater profit and expansion’ (Keyder 1987: 94). Turkey during 1923-1929 was the epitome of a peripheral or dependent economy which possessed an agricultural base, engaged in domestic and international trade, and exported ‘primary’ commodities and imported manufactured items, including even textiles (Keyder paraphrased in Singer 1984: 155). The status and weight of foreign capital increased during the 1920s.

In order better to understand the dependent development of capitalism and the economic strategy and the involvement of the state in economic activity in the 1920s, it is important to draw attention to a clause in the 1923 Lausanne Peace Treaty according to which Turkey had to live under the Ottoman trade regime until 1929. (13) Moreover, the Turkish state had to pay a part of the Ottoman debts that was proportional to the geographical area under the control of the new state (Kongar 1985: 263). ‘The expiration of the Treaty in 1929 thus marks an important turning point for increased state intervention in the Turkish economy (Berberoglu 1982: 29).

During the 1920s, due to the general absence of incentive for large-scale investment by the private sector, the state focused its attention on domestic concerns, largely in the railway communications sector of the country’s infrastructure (Finefrock 1981: 383).

We can conclude that during the 1920s Turkey experienced some economic growth (14) but with very little structural changes. The economic strategy of the 1920s was an economic growth strategy based on private capital accumulation: the private-sector strategy. As Richards and Waterbury pointed out ‘the republic’s strategy was to rely on private-sector initiative and to avoid taxing the peasantry in order to finance industrial growth’ (1996: 177). This strategy proved to be unsuccessful.

In his essay entitled ‘On State Accumulation in Latin America,’ E.V.K. Fitzgerald pointed out that ‘there were two fundamental types of state intervention and capitalist accumulation. Both aim at structural transformation of the economy.’ (Fitzgerald paraphrased in Richards and Waterbury 1996: 201). As Richards and Waterbury argued these two types of state intervention and capitalist accumulation are not mutually exclusive and, as the Turkish case has shown, may oscillate over time. The first is a process whereby the state helps promote a private sector. In the second process of state intervention and accumulation, the state undertakes all the resource mobilisation and infrastructure development functions. It seizes the surplus of its own activities, of a substantial portion of private-sector profits, and of external rents in order to finance its own expansion. The state aims to dominate all aspects of resource allocation and to seize the commanding heights of the economy (1996: 201-202). While the first one was the strategy in the 1920s, the second one was the strategy in the 1930s in Turkey. It should, however, be said that the period from 1922 to 1932 cannot be characterised as laissez-faire liberal. It would be entirely misleading, for, in fact, the Turkish state simply failed to produce its own development program (Finefrock 1981: 384).

Following the War of Independence the political structure underwent substantial changes, but the fundamental features of the social and economic structures remained unchanged. The economy in the period from 1923 to 1929 can be seen as relatively open economy. The economy had depended on the flow of traded commodities and the procurement of funds for this flow. The economic strategy of the Turkish state in the 1920s aimed at further integration with the world economy as a supplier of raw materials and agricultural produce and importer of finished manufactured goods and capital goods. Turkey remained a dependent part of the world capitalist economy. The dependent position of the Turkish economy in the international division of labour subjected Turkey to the dynamics of development at the core countries of the world capitalist economy. That is why the Great Depression of 1929-30 had an immense impact on the Turkey’s economy. The currency crisis of 1929 clearly showed, inter alia, what Keyder calls ‘the external dependence of the internal market’ (1987: 97).

2.3. The emergence of state-led import-substitution industrialisation.
I am of the opinion that for a proper understanding of the neo-liberal transformation process in general and the role of the state in this process in particular, it is necessary to have a clear insight into the protectionist industrialisation through an autarkic state capitalism in the 1930s. The import-substitution industrialisation is an economic, or rather an industrial, strategy which aims at building national industrial capacity behind protectionist walls to replace imported goods with locally produced ones. It is an inward-looking economic strategy based on domestic mass production and consumption. The import-substitution mode of capital accumulation requires a protected domestic market.

What made the Turkish state embark on a course that it did in the 1930? In order to understand this, it must be borne in mind that the economy of Turkey was an integral part of the capitalist world system. Capitalist development in Turkey was and still is financially, technologically, scientifically dependent on the advanced capitalist economies of the dominant forces of the international politico-economic order. That is why the events in the core, the most advanced capitalist-imperialist countries, had immense impact on the Turkish economy. The financial collapse in the core countries of the world capitalist economy that started in 1929 effected the Turkish economy largely through international trade. There was a drastic drop in foreign demand for Turkey’s exports of raw material and agricultural produce on the one hand, a major cut in the supply of manufactured goods to Turkey on the other. In the 1930s, the dependency of the economy of Turkey on the world economy decreased. However, the situation changed dramatically after WW II.

Under the unfavourable international conditions the Turkish state bureaucracy took decisive steps in moving the state to the forefront in the economy. The state assumed the role of entrepreneur and took on many tasks traditionally performed by the industrial fraction of the capitalist class. The state began to assume the commanding heights of the economy in the early 1930s. Turkey thus entered a unique period of capitalist development, which was later to be called ‘devletcilik’ or ‘statism’. This development marked the beginning of the period of consolidation of state capitalism in post-independence Turkey (Berberoglu 1982: 31). Regarding the economic policies of the state, the 1930s were characterised by protectionism and etatism. This decade can be seen as the decade of industrialisation through state intervention: protectionist-etatist industrialisation (Boratav 1989: 45). The state capitalist model of capital accumulation was seen as an alternative to a national capitalist development based on private capital accumulation.

State capitalism began with the announcement of the so-called First Five Year Plan in 1933. Before that important changes took place at the economical and political levels. 1923-1931 was a period of establishment of the single-party system in which the state bureaucracy enhanced its position with regard to other economically and socially powerful social forces. The enmeshing of the state and the RPP was a characteristic feature of the single-party period (1923-46). RPP was an arm of the state and, high level of fusion between personnel in RPP and the state strengthened Italian type state corporatism. ‘(...) The years 1930 and 1931 were periods of feverish economic innovation; they also became years of major transformation in the political regime. On the one hand, after years of internecine strife, the bureaucracy had once again found the wherewithal to instal [sic] itself in the class equation - this it did through changing the dimensions of state administration - while on the other hand the crisis and the difficulties faced by the commercial bourgeoisie invited the formulation of a new set of economic policies. It was the intersection of these two developments which determined the character of Turkey’s political economy in the 1930s.’ (Keyder 1987: 96-97).

As Keyder maintains, ‘turning points of the world economy are crucial, because at such junctures particular local social groups and their political projects gain greater importance and help to determine the subsequent balance of forces.’ That was what happened in the world of the 1930s and in Turkey: ‘it was due to the 1930’s depression that economic reconstruction and the momentum of the merchant bourgeoisie were arrested, allowing bureaucratic control to achieve centrality.’ (1987: 3). In the 1930s, especially between 1932-1939, the state played a central role in the industrialisation and capital accumulation process by replacing small and weak national or local industrial bourgeoisie. The economic strategy of the state in this period favoured industry and thus industrial fraction of capital. The state placed major stress on the rapid development of local industry and gave less attention to agriculture. Keyder is right when he writes that
‘ (...) Under the guise of a novel social system, a political elite and a nascent bourgeoisie joined forces to isolate a national economic space for themselves in which heavy oppression of the working class and exploitation of the agricultural sector would allow for rapid accumulation - all this achieved under an ideology of national solidarity, more or less xenophobic, which denied the existence of conflicting class interests in favour of a corporatist model of society. In the case of Turkey, the model, its administrative structure and ideological underpinnings, derived directly from the contemporaneous experience of European fascism (...)’ (1987: 107).
Nationalisation of the foreign own economic enterprises was a part of the economic strategy of the Turkish state. The political rulers of Turkey regarded nationalisation as a means in order to resolve the balance of payments crisis that was the result of the deteriorating terms of trade following the depression in the imperialist centres of the world capitalist economy. The main railways, utilities, transportation, port facilities, dozens of mines and factories owned by foreign capital were nationalised during the 1930s and early 1940s. ‘The nationalization policy of the 1930s and early 1940s played an important role in strengthening the Turkish economy. It virtually ended the outflow of capital, hence improving the country’s balance of payments, and, with the expansion of the state into different branches of the nation’s industrial economy, it opened the way to state planning to increase production and to accelerate the process of independent capitalist industrialization’ (Berberoglu 1982: 37). As a result of the economic policies there was an export surplus from 1930 until 1938. After 1933, with Germany’s share increased in Turkey’s foreign trade and with the strengthening German connection, state involvement in the export trade became important, to the detriment of the commercial sector (Keyder 1987: 102).

Etatism in Turkey was not a product of some theoretical discussions or some predetermined political ideas that were put into practice. It was mainly a product of the crisis of capitalism that broke out in the advanced capitalist economies of the world capitalist system. It could also be seen as the continuation of the state-led economic strategy of the Committee of Union and Progress (Kepenek 1996: 53-54). The étatist economic policy in Turkey was implemented in two forms. The state was engaged in direct entrepreneurship on the one hand and it regulated the economic life through controlling the price mechanism, external trade, etc. on the other. The policy of transferring some state monopolies to privileged firms, as it happened in the 1920s, was abandoned. State entrepreneurship mainly took the form of establishment of new productive enterprises, but from time to time there took place some nationalisation of the privately owned enterprises (Boratav 1982: 97).

State capitalism is a form of capital accumulation, namely a monopoly form of surplus appropriation. The capitalist state functions, inter alia, as a collective or aggregate exploiter on behalf of the capitalists as a social class. State capitalism is an attempt to solve the contradictions of production for profit. It is also an attempt to solve the contradiction between social production and capitalist appropriation which leads to economic crisis. As Anderson maintains, state capitalism is ’the compensatory reaction of a ruling class in deep economic trouble’ and ‘the aim of state capitalism is to socialize costs and privatize profits, (15) to make working class pay for ruling-class prosperity.’ (Anderson 1974: 234 and 240).

While the industrial sector benefited from the crisis, the same cannot be said for the commercial sector. In the 1920s, merchants had relatively easy access to credit, but in the 1930s the industrialists had easy access to credit to the detriment of the now disadvantaged merchants. The working class was subjected to a greater exploitation to increase the profitability of industrial capital. Since the price of the principal wage good, wheat, declined, the industrialists could afford to lower the wages. In the 1920s there was a real shortage of labour, but, after 1929, unemployment increased with the absolute decline in trade. The bureaucrats were also beneficiaries of the crisis. ‘Between 1929 and 1934 state revenues increased from 10.8 per cent of GNP to 18 per cent of GNP. In other words, within the great distribution of the crisis, bureaucrats were acquiring a larger command over the national product’ (Keyder 1987: 105).

During the 1930s there was a substantial economic growth and, in comparison with the 1920s, the economy experienced major structural changes. State’s intervention in the economy, not only as regulator but also as producer, grew substantially. A number of State Economic Enterprises (SEEs) were established. This decade witnessed to the introduction of the state-led import-substitution industrialisation in a basically agrarian society.

Interest representation
In order to create a favourable environment for the capital accumulation and development of ‘a distinct Turkish bourgeoisie’, the Turkish state controlled and suppressed the working class through different instruments. Following an uprising in Kurdish region in 1925, the government outlawed workers’ associations and prohibited strikes. ‘The Labour Code of 1936 [it was based on fascist Italian state’s 1935 law] and the Law of Associations of 1938 were manifestations of this control: trade unions for both employers and workers were banned, and industrial conflicts were subjected to compulsory state arbitration.’ Because there was no autonomous, mobilised, and organised society, in the area of interest representation, the single-party regime ‘did not utilize pluralism, or neo-corporatism, or ‘inclusionary’, or, ‘exclusionary’ variants of state corporatism’ in the 1930s. Instead ‘societal integration was brought about by the superimposition on society of the political ideals of the state bureaucracy entrenched’ in the Republican People’s Party (Cizre-Sakallioglu 1992: 712).

According to the Kemalist ideology, that was the official ideology of the state, there were no social classes in Turkey. Therefore, there was no need for class-based associations in general and no need for organised interest representation on the behalf of labour in particular. ‘The Turkish approach to the issue of labour relations was very reminiscent of the Italian corporative conception. Thus, for instance, in the programme of the Republican Party the nation did not appear as a class-society, but as a community, divided into various occupational groups according to requirements of division of labour.’ (Hershlag 1968: 312).

The beginning of WW II signalled an end to the success story of the state-led import-substitution industrialisation. Only the state economic enterprises were able to continue to produce at approximately the same rate as in the 1930s because the state bureaucracy could exercise readier control over them and thereby ensure the availability of goods which were regarded as necessary in the crisis situation. Because of the insufficient availability of necessary inputs both the industrial and agricultural private production declined (Singer 1984: 156-57).

The years of WW II were a period of interruption or recession. These years functioned as a bridge between the former and later periods. In the first half of the 1940s the state pursued an economic policy by which the political cadres and the higher echelons of the state bureaucracy acquired extensive authority. In conjunction with the existing class structure this caused extraordinary changes in income distribution. These transformations determined the economic, social and political developments after the war. The period of 1940-1945 can be seen as an ‘incubation period’ in which changes took place that led to the emergence of new balance of powers (Boratav 1989: 64-5).

Read more... Chapter 3

(9) In 1889, four students at the military medical college formed the Ottoman Union Society which later become known as the CUP. The CUP aimed at maintaining the Ottoman Empire by reforming it. It staged a coup d’état against the Ottoman government in 1908 known as Young Turk revolution which was a bourgeois revolution from above. In the period 1909-1913 the CUP gradually gained full control of the state and established a virtual military dictatorship.
(10) The term comprador refers to the bourgeoisie which acts as a business agent of foreign company. It can be defined as an auxiliary bourgeoisie.
(11) As Bromley pointed out there was a continuity of the ruling elite from the Ottoman Empire to the Turkish Republic. According to him, ‘93 per cent of staff officers and 85 per cent of civil servants retained their positions under the republic’ (Bromley 1994: 123).
(12) After WW I, there emerged a dual power in the geographical area which corresponded to present Turkey . The Ottoman state in Istanbul was controlled mainly by the British occupying forces. In 1920, a new nationalist state with a new parliament and government was founded led by a section of the Ottoman military and civilian bureaucracy who represented ‘reform nationalism’ or nationalist revolution from above.
(13) According to the Commercial Convention signed at Lausanne on July 24, 1923, the Turkish state undertook to impose customs duties on the goods of the signatory countries according to the Ottoman customs tariff of September 1, 1916. The exchange rate of the Turkish currency was fixed for tariff purposes and the Turkish government undertook not to institute any form of embargo on exports or imports except for some specific purposes (Hershlag 1968: 22).
(14) I agree with those scholars who make distinction between growth and development. As Joseph A. Schumpeter described it, growth is ‘a mere increase in national income (or real, national income per capita) which can take place within the ‘circular flow’ of the economy, given, that is, its social and political institutions and its technological capabilities and demographic realities’. As to development, it is ‘growth of a size and continuity which cannot materalize without important changes occurring previously or concurrently in the technological, social, and political frameworks, in addition to the economic framework itself.’ (Sayigh 1982: 135-36).
(15) In fact, socialisation of costs and privatising of profits is characteristic of private capitalism as well as state capitalism.