The economic history of the modern Republic of Turkey has four eras. The first era's development policy was defined by the transition from an agricultural imperial Ottoman economy into a diversified more industrialized economy. It emphasized on private accumulation between 1923 and 1929. The second era's focus was state accumulation in a period of global crises between 1929 and 1945. The third era focused on state-guided industrialization based on import-substituting protectionism between 1950 and 1980. The final era was the opening of the economy to liberal trade in goods, services, and financial market transactions since 1981.
Since 2018 the Turkish economy has been in a state of crisis. The Middle East institute has raised the possibility that Turkey is currently in a new economic era under President Recep Tayyip Erdoğan. This era is defined by reduced institutional financial independence, negative foreign exchange deficits, and political interference.
Late Ottoman economy The economy of the late Ottoman Empire was characterised by international trade and commerce, silk and textile weaving, agriculture, dairy farming and pastoralism. The Empire's economy began to stagnate in the 18th century, after it lost important territories in Europe. Tthe Empire had also lost its monopoly in spice and silk trade between Asia and Europe, as a result of the discovery of new maritime routes which increasingly replaced the Ottoman-controlled land routes. Several other factors also led to the relative economic obsolescence of the late Ottoman Empire, such as its failure to immediately adapt to the innovative methods in industrial production that were introduced with the First Industrial Revolution in the 18th and 19th centuries, though improvements in industrial production took place with the Tanzimat reforms.
The National Economy (Millî İktisat) program implemented by the Committee of Union and Progress — which involved the expropriation of Christian property and the elimination of Christians from the economy — exerted a major and enduring influence on the political economy of the Republic of Turkey.
Post-Ottoman reconstruction and liberal beginnings rationale (1923–1929)
One distinct characteristic between 1923 and 1985 is that, in large part as a result of government policies, Turkey's economy developed into a complex economic system producing a wide range of agricultural, industrial, and service products for both domestic and export markets. The economy grew at an average annual rate of six percent.
Since 1820, Turkey has experienced economic growth and human development at average levels (compared to the rest of the world) but at higher rates than other developing countries.
After the establishment of the Republic, the new government committed itself to a relatively moderate economic policy. The basic direction of Turkey's economic development has been preliminarily determined, namely, the development of modern national industries, protection of customs duties, encouragement of private investment and absorption of foreign investment. At the same time, Minister of Economy, Mahmut Esat Bozkurt, as a representative of the "New Turkish Economics" illustrates the basic economic policies of the Turkish government in the 1920s, the principle of nationalism and liberalism dual economy, the state-owned economy and non-state economy coexist, and mixed structure of national capital and foreign capital, to raise tariffs and restrict imports, to protect national industry, emphasizing the countries in the credit and dominant position in the field of industry.
The first President of the Republic, Mustafa Kemal Atatürk announced that foreign companies and foreign businessmen would be allowed to invest in Turkey within the framework of the law in 1921. At the beginning of the Republic of Turkey, foreign capital played an important role in Turkey's economic life, with finance, railways, and mining under the control of foreign capital.
From 1923 to 1926, agricultural output rose by eighty-seven percent, as agricultural production returned to pre-war levels. Industry and services grew at more than nine percent per year from 1923 to 1929; however, their share of the economy remained quite low at the end of the decade.
In 1927, Anglo-French controlled Ottoman banks provided about half of Turkey's production credit and even the right to issue notes.
Statism in the shadow of depression and World War (1929–1945)
In 1930, the Turkish government established the Central Bank of the Republic of Turkey, which was responsible for the formulation of monetary policies and the regulation of money supply. At the same time, it recovered the right to issue notes and purchased foreign enterprises and railways and ports operated by foreign capital. The degree of nationalization of the national economy was significantly improved.
In the 1930s, the Turkish government abandoned the relatively moderate liberal economic policies and promoted the radical nationalist economic policies, vigorously developed the state-owned economy, emphasized the principle of giving priority to industrial development, and expanded government intervention and investment in industrial production, aiming at accelerating the process of industrialization. Coping with the negative impact of the western economic crisis from 1929 to 1933 on the Turkish economy is the direct cause of the implementation of the nationalist policy in Turkey. The government stepped in during the early 1930s to promote economic recovery, following the doctrine of statism.
During the Great Depression, Turkey's economy experienced significant fluctuations. However, between 1935 and 1939, the country achieved an average annual growth rate of approximately 6%, attributed to state-led industrialization policies under the doctrine of statism. This period saw the implementation of the First Five-Year Industry Plan (1934–1938), which aimed to reduce foreign dependency and promote domestic production.
In the 1940s, despite maintaining armed neutrality during World War II, Turkey's economy stagnated. The war led to increased military expenditures and a significant reduction in foreign trade. Foreign trade's share of GNP fell from 11.5% in 1939 to around 6.9% during 1940–1945.Guncavdi, Oner. (2012). World War II and Capital Market Development in a Neutral Country: The case of Turkey.
https://www.researchgate.net/figure/Main-foreign-trade-figures-of-Turkey-during-World-War-II_tbl1_259145254 Additionally, the mobilization of the workforce for defense purposes and the halting of state and private sector investments contributed to decreased production in agriculture and industry, leading to economic stagnation.
Planned growth to political turmoil (1950–1980) In the 1950s, the Turkish government emphasized the liberal economic policies, encouraged private capital and foreign capital to invest in the industrial sector, and established the Industrial Development Bank of Turkey to provide loans to private entrepreneurs who invested in industry.
In 1954, the Turkish government promulgated the Foreign Investment Act (Act no. 6224), offering many preferential conditions to foreign investors, opening up the domestic market and attracting foreign investors. With investors from the US, West Germany, France and Italy following suit, the modern industrial sector is the preferred investment for foreign investors.
After 1950 the country suffered economic disruptions about once a decade; the most serious crisis occurred in the late 1970s. In each case, an industry-led period of rapid expansion, marked by a sharp increase in imports, resulted in a balance of payments crisis. Devaluations of the Turkish lira and austerity programs designed to dampen domestic demand for foreign goods were implemented in accordance with International Monetary Fund guidelines. These measures usually led to sufficient improvement in the country's external accounts to make possible the resumption of loans to Turkey by foreign creditors. Although the military interventions of 1960 and 1971 were prompted in part by economic difficulties, after each intervention Turkish politicians boosted government spending, causing the economy to overheat. In the absence of serious structural reforms, Turkey ran chronic current account deficits, usually financed by external borrowing that made the country's external debt rise from decade to decade, reaching by 1980 about US$16.2 billion, or more than one-quarter of annual gross domestic product. Debt-servicing costs in that year equaled 33 percent of exports of goods and services.
The number and size of private enterprises also grew substantially during this period. In 1951, there were 660 private enterprises with more than 10 employees. By 1953, that number had risen to 1,160 enterprises, and by 1960, there were 5,300 enterprises. The average number of workers employed by the private sector also increased from 25 to 33.
Since the 1960s, the Turkish government has taken a series of positive measures, including tax rebates for private entrepreneurs working in emerging industries, and preferential tariffs on imported equipment. Investment in the state-owned economy is mainly concentrated in large enterprises that are technology and capital intensive, such as infrastructure construction, metallurgy, and chemical industry. The private sector of the economy is mainly small and medium-sized enterprises that produce daily consumer goods such as food processing and textiles.
In this period, the mixed economic structure of state-owned organizations and private business coexisted for a long time, and state-owned companies and private enterprises were divided equally. State-owned organizations were few in number but large in scale, whereas there were a great number of small companies that were owned by private businesses. State-owned enterprises benefited due to increased capital and a larger scale of production, whereas private enterprises were more effective and competitive in the market. The input-output ratio of national enterprises was lower than the private sectors. The size of organizations owned by the state and their proportion in the total value of industrial output showed a trend of a gradual decline, while the size of private enterprises and their proportion in the total industrial output value showed an increasing trend. Still, the state sector has long dominated Turkey's industrial production.
By the late 1970s, Turkey's economy had perhaps reached its worst crisis since the fall of the Ottoman Empire. Turkish authorities had failed to take sufficient measures to adjust to the effects of the sharp increase in world oil prices in 1973–74 and had financed the resulting deficits with short-term loans from foreign lenders. By 1979 inflation had reached triple-digit levels, unemployment had risen to about 15 percent, the industry was using only half its capacity, and the government was unable to pay even the interest on foreign loans. Many observers doubted the ability of Turkish politicians to carry out the needed reforms.Onder, Nilgun (1990). Turkey's experience with corporatism (M.A. thesis) Wilfrid Laurier University
Fourth era: Neoliberal transformation (1980–present)
Özal years