Is it possible to industrialize before industrialization the turkish case

The military regime that came to power after a coup in September of the same year endorsed and continued the new programme. The aims of the new policies were threefold: to improve the balance of payments, to reduce the rate of inflation in the short term, and to create a market-based, export-oriented economy in the longer term.

The package began with a major devaluation followed by liberalization of the trade and payments regimes, elimination of price controls, substantial price increases for the products of the state economic enterprises, elimination of many government subsidies, freeing of interest rates, and subsidies and other support measures for exports. Privatization of the state economic enterprises was delayed until the s and even later, as this proved to be a very contentious issue politically.

Reducing real wages and the incomes of agricultural producers was an important part of the new policies. The parliamentary government of Demirel had little success in dealing with labour unions due to strikes and other forms of labour resistance, but the military regime prohibited union activity and brought about sharp declines in labour incomes Aricanli and Rodrik, ; Boratav, Equally dramatic was the rising share of manufactures in total exports, from about 35 per cent in to more than 95 per cent in Exports were encouraged by a more realistic and managed exchange rate and direct subsidies in the early s, though the subsidies were soon abandoned.

The expansion of exports was accompanied by the rise of new industrial centres across Anatolia. The industrial enterprises in these emerging centres were mostly small to medium-sized family firms with limited capital, employing few professional managers.

They began production in low-technology and labour-intensive industries: textiles and clothing, food processing, metal industries, wood products, furniture, and chemicals. Labour productivity in manufacturing in these new districts remained below the level in more established industrial areas such as the Istanbul region; the rise of these centres was closely connected to their low wages Filiztekin and Tunali, ; Yilmaz, Manufacturing wages in Turkey rose between and , but by less than per capita incomes in the urban sector and the economy as a whole.

Beginning in the late s, the growth of Turkish manufacturing based on market- and export-oriented policies began to stall. The movement of relative prices against Turkish manufactures contributed to this trend. This appears to be an example of the premature de-industrialization observed in many developing countries in recent decades Rodrik, One problem for Turkish manufacturing is that it continues to produce mostly standard goods, attempting to take advantage of low wages and costs.

As a result, firms have been increasingly forced to compete with Chinese and Southeast Asian manufacturers enjoying even lower wages. One cause of this problem is that manufacturing companies have been reluctant to invest in product development and innovation ever since the s.

This is at least partly related to the shortcomings of the education system, which has not delivered a labour force with the skills necessary for a more diversified and technologically more advanced industrial sector.

In addition, government policy for the support of manufacturing industry has been very weak, if not non-existent Taymaz and Voyvoda, Manufacturing growth in the two countries was broadly similar during this period, close to that in Asia excluding Japan and above that of Latin America Table 7. At the same time, however, the manufacturing and GDP per capita records of the two countries diverged considerably during these three decades.

One striking example of the growing contrast is the ratio of manufactured exports to GDP, which averaged below 5 per cent in Egypt but was slightly above 15 per cent in Turkey during the first decade of the twenty-first century. Oil exports and Dutch Disease effects were not the only reason for the slower growth of manufacturing and manufacturing exports in Egypt. A weak private sector, a poor institutional environment, and low investment in schooling also played important roles.

In Turkey, manufacturing industry was supported by a stronger private sector, a stronger manufacturing base from the ISI era, and easier access to EU markets after This chapter has examined the industrialization experiences of two large countries in the Middle East from to Trade and industrialization policies in Egypt and Turkey were strongly influenced by global forces and were broadly similar in each of the four periods studied here.

Since neither country had tariff autonomy during the nineteenth century, industrialization remained limited before the First World War. It was only after gaining tariff autonomy in Turkey and Egypt that they could adopt protectionist policies and increase manufacturing output. The degree of protectionism, and consequently of industrialization, was stronger in Turkey during the s. Manufacturing output in both countries was further behind that of the early core industrializers in than it had been in or Manufacturing in Turkey and to a lesser extent Egypt grew faster than in the core countries between and , a period of unprecedented economic growth and rising living standards in both countries.

Governments played a key role in industrialization, via protectionism, tax exemptions, and subsidies. Public sector enterprises played a major role in industrialization in Turkey from the s and in Egypt after the Second World War. Government policy attempted to transfer resources from agriculture to support manufacturing in Egypt during this period, but less so in Turkey. Protectionism and various other government policies tended to shift the domestic terms of trade in favour of manufacturing.

However, industrialization continued to be oriented mostly towards the domestic market in both countries and exports remained weak.

Moreover, increases in output were achieved primarily by increasing inputs, with TFP growth being limited. Manufacturing growth slowed in both countries after , as they moved in the direction of trade liberalization, privatization, and manufactured exports.

In Egypt, oil created Dutch Disease effects, diverting resources away from manufacturing. On the other hand, more export-oriented policies and freer access to EU markets helped Turkey expand its manufacturing exports after Faster economic growth led to faster growth in domestic demand for manufactures; manufacturing industry both contributed to and was supported by more rapid economic growth in Turkey.

A number of factors can explain the industrial performance of these countries as well as the differences between them. Since economic policies in the two countries were broadly similar, they are not the key to understanding the differences.

Initial differences in resource endowments, namely the relative scarcity of land in Egypt and the abundance of land in Turkey, contributed to the differences in industrialization outcomes from the end of the First World War until the s, when the divergence between the two countries was strongest.

Turkey and Egypt lagged behind countries with similar levels of GDP per capita in Latin America and East Asia when it came to education and human capital, making it harder for manufacturing in both countries to transition towards higher-technology, higher-value-added goods and sectors requiring higher skills.

Low investment in human capital also helps explain, at least in part, why the two countries have not had much success in improving TFP. Finally, an important explanation for the long-term trajectory of industrialization as well as the low rates of TFP growth in both countries lies in the nature of government interventionism and the quality of related institutions. Interventionism spurred economic growth and development in many late industrializers, notably East Asia after the Second World War, by protecting infant industries and more generally by supporting the private sector.

While government interventionism also played an important role in raising manufacturing growth in Egypt and Turkey during the ISI era, its content, goals, and implementation varied greatly over time. The military played an important role in the economy in both countries, especially Egypt, establishing close links with both the state apparatus and private enterprises. Perhaps most importantly, rather than being based on well-defined rules, government support for manufacturing industry or a specific sector often became support for individuals and firms close to the government.

As a result, rent seeking, rather than productivity improvements or competing in international markets, often became the preferred strategy for the private sector. Individuals and firms preferred using their resources to stay close to and seek favours from the government, rather than invest in education, skills, and technology to improve competitiveness in domestic and international markets. The impact of government interventionism on the private sector differed in the two countries.

In Egypt, government policy reduced the size of the private sector via nationalizations and other means after the Second World War, so that the private sector was slow to become an important player in manufacturing, and more generally in the urban economy, after Private firms preferred investing in the p. In contrast, while the private sector was quite weak in Turkey at the end of the Second World War, its economic and political strength has risen steadily since then.

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South European Society and Politics 16, — Yousef, T. Review of Income and Wealth 48, — All Rights Reserved. OSO version 0. University Press Scholarship Online. Sign in. Not registered? Sign up. Publications Pages Publications Pages. Recently viewed 0 Save Search. The Spread of Modern Industry to the Periphery since African democracy coming of age. By Kingsley Ighobor. Africa Watch: South Sudan. By Pavithra Rao.

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After the Great Depression, statism influenced the industrialization policy of Turkey. Two import-substitution industrialization plans adopted in and Nevertheless, the second plan could not have been implemented effectively because of the II.

World War. Baker Report in ? Although outward-oriented growth and export-led industrialization policy had gained importance in s, they could not have sustained properly because of the foreign currency deficit. Turkey began to implement import-substitution industrialization strategy in s. She experienced a structural transformation within her manufacturing industry together with the start of intermediate goods production.

Depending upon neo-liberal policies, Turkey embraced export-led industrialization strategy in s. Along with the export-led industrialization strategy, low exchange rate and low real wage policies increased the competitiveness of the Turkish industry. Customs Union with the European Union and membership duties of the World Trade Organization affected the industrialization policy of Turkey in s.

As a consequence, Turkish industry sector has been integrated with the global economy.