1 From National Economy to Economic Nationalism

As a general rule, the development of manufacturing in peripheral economies is fuelled by the export of primary materials. This means that it is circumscribed by the interests of commercial capital. In Chapter 1, I explained how the unfavourable balance of trade and the lack of state capacity to protect local manufacturing hampered industrialisation in the Ottoman Empire. The last Ottoman attempt to bypass this arrested development was orchestrated during the Young Turk regime under the Committee of Union and Progress. The Ottoman bourgeoisie was a predominantly non-Muslim class that engaged mainly in commercial activity and enjoyed foreign protection.⁶ Increasingly seen as the agent of an undetermined foreign power, the non-Muslim bourgeoisie came to be perceived as a threat to the very survival of the Ottoman state.⁷ Between the Constitutional Revolution of 1908 and the First World War, a strong nationalist and corporatist industrial discourse gained ground. Within the paradigm of national economy, known as “milli iktisat” or “devlet iktisadiyatı,” the Young Turk’s policy of “Turkification” aimed to end foreign control of the Ottoman economy and create a national bourgeoisie through capital transfer from the non-Muslim to the Turkish-Muslim population.⁸

The Muslim boycott of 1913 boosted the number of Muslim commercial pursuits to a certain extent, but the decisive turn came with World War i. The Young Turk government abolished capitulations and the privileged status of foreign firms, bringing the latter under Ottoman jurisdiction and tax legislation. The government introduced new customs tariffs to protect the infant industries and local products. It also enforced Turkish as the imperative language in all business correspondence.⁹ To encourage local industrial development, the Young Turks eased land acquisitions and granted private investors customs tariff exemptions for importing raw materials and machinery. There was also a legal obligation that Ottoman products should be preferred even if they were as much as ten per cent more expensive than the imported equivalent.¹⁰ According to the 1913 industrial census, which covered manufacturing located in a few industrial centres and included only those establishments employing more than three workers, there were only 269 establishments working with machines across the whole of Ottoman Turkey. Almost half of these were in the food and textile industries. The size of the industrial workforce was seventeen thousand.¹¹ In the end, these measures did not prove effective in boosting local private industrial investment. However, they had an equally, if not more, important effect on local industrial structure.

In 1915, Muslim-owned industrial enterprises made up fewer than twenty per cent of all industrial enterprises. Two years later, Muslim control over industrial enterprises had increased to more than fifty per cent.¹² Minorities furnished eighty-five per cent of the industrial workforce, meaning that their exodus in the following years would leave a difficult void to fill. After 1915, industrial activity was restricted due to military mobilisation and the Greek occupation of the relatively advanced Smyrna region. By the time of Ferid Bey’s speech in 1921, Turkey “was reaping industrially the whirlwind, the seeds of which were sown by its former rulers.”¹³ Traditional craft production dominated the manufacturing sector, and two thirds of the capital held by manufacturing firms incorporated in the 1920s was of foreign origin.¹⁴ In March 1922, Mustafa Kemal pointed to the free trade policies of the Tanzimat reformers as the culprit behind the government’s relegation to the status of “the gendarmes of the foreign capital” and the empire to “a colony of foreigners.”¹⁵ The Young Turks may have failed in their attempt to remedy the underdevelopment of late Ottoman society, but the national economy paradigm they institutionalised would continue in the republic’s economic policy.¹⁶

Turkey of the 1920s amounts to a near-perfect example of a dependent economy with minimal state intervention. Partly to secure international recognition, the new regime was forced to accept a free trade regime at the 1923 Lausanne Conference, with the guarantee that it would pay off approximately two thirds of the Ottoman debt.¹⁷ The economy remained agriculture-based with the share of agriculture in the national income at fifty per cent and the share of the population engaging in agricultural production carried out by simple methods at eighty per cent.¹⁸ The urbanisation rate was quite low: of a total population of thirteen million in 1927, only sixteen per cent was living in urban centres. Agricultural products made up the biggest share of the export trade, the final stage of which was monopolised by foreign merchants. Industrial production amounted to between ten and eleven per cent of the national income, the rest of which derived from service sector activities.¹⁹

Foreign capital quickly capitalised on the free market economy and played an important role in the encouragement and organisation of export-oriented agriculture through mechanisms such as trading ventures, merchant houses, banks, and direct participation in the distribution of credit. Foreign direct investment also increased with the liberalisation of the conditions of property ownership in January 1924. Between 1923 and 1929, foreign capital investment in manufacturing corporations doubled the contributions of Turkish capital. Plus, certain foreign firms acquired monopoly rights to import and sell particular goods. To take another indicator, the state budget comprised only eight to nine per cent of the total national income, whereas the total capital of ninety-four foreign companies in 1924 amounted to one third.²⁰

Mid-way into the decade, the state enacted a series of laws to further nationalise the economy. The abolition of tax concessions, the enforcement of correspondence between firms in Turkish, the obligation to employ Turkish personnel, and the nationalisation of foreign railway companies were among these legal changes.²¹ The ethnoreligious composition of the labour force in the major economic sectors was rapidly changing in favour of Muslim workers.²² On 11 June 1932, a new law specified the crafts and services that could only be done by Turkish citizens, giving foreigners one year to leave their jobs in these designated areas. In the banking sector, the number of deposits controlled by national and foreign banks changed in favour of the former. In the greater scheme of things, however, the laissez-faire policy reigned supreme, and the commercial bourgeoisie continued to benefit from the economic reconstruction of the 1920s.²³

Political power was now based on an alliance between the military-bureaucratic and the socioeconomic elite. The former needed the latter’s support for the top-down reforms, which it secured through protecting their class interests.²⁴ “The civilian and military bureaucracy,” Yerasimos argued, “granted the urban bourgeoisie and the rural notables representation of the vital forces of the nation, thus turning over to their discretion workers and peasants.”²⁵ At the 1923 Izmir Economic Congress, for example, the Istanbul Workers’ Union, a union founded by an employers’ association, was the entity representing workers. The congress accepted private initiative as the carrier of industrialisation.²⁶ Though the state maintained direct control of a number of monopolies in tobacco, alcohol, salt, matches, sugar, and petroleum, private capital was assigned the role of the main industrialising agency. The government established a publicly controlled but privately owned and financed savings bank, Business Bank (İş Bankası), as well as the Turkish Industry and Mining Bank (Türk Sanayi ve Maadin Bankası) to provide credit for industrial investments. During the industrialisation policy debates in the 1930s, the Business Bank became an influential lobbyist in favour of private interests and a mediator between business and government circles.²⁷

In the political sphere of the 1920s, the government was busy with superstructural reformism and overcoming threats to territorial integrity, especially the 1925 Kurdish rebellion, a full-scale insurrection with religious and separatist overtones (see Chapter 6). In the aftermath of the violent repression of the rebellion, the government enacted the Law for the Maintenance of Order, endowing itself with powers to prohibit and abolish “any institution, behaviour, and publications which disrupt the country’s social order, calm, security, and safety.” This law laid the basis for the chp’s authoritarian rule that would eliminate all possible channels of opposition until the end of the 1940s. The single-party regime was now in full swing.²⁸

2 Industrial Structure in the 1920s

The first industrial census of the republic was carried out in 1927, reporting a total of 256,855 workers employed in 65,245 industrial establishments, a third of which belonged to self-employed artisans. Each establishment had, on average, 3.9 workers, with seventy-nine per cent of all establishments employing three or fewer workers, and three per cent employing more than ten. Geographically, the larger manufacturers were located in the larger cities. For example, forty per cent of firms employing more than ten workers were based in either Istanbul or Izmir. The industrial workforce in these two cities also accounted for one fourth of the entire industrial workforce. In terms of sectoral concentration, enterprises in the textile and food sectors made up sixty per cent of the total. Due to low levels of industrial productivity, the country was dependent on imports and thus suffered from a chronic trade deficit and the accompanying devaluation of the Turkish lira.²⁹ In 1927, every fourth lira spent on manufactured goods was being spent on imports.³⁰

The government amended the 1913 Law for the Encouragement of Industry (Teşvik-i Sanayi Kanunu) in 1927. The new law explicitly called for the building of “industrial plants for mass production with the assistance of advanced machines, tools, or mechanical equipment.”³¹ In the range of subventions and incentives it provided for new industrial establishments, the law, argues Boratav, is without parallel in the history of republican Turkey.³² The government was now backing private industrial investment through customs duties and profit tax exemptions, provision of free land, a thirty per cent reduction in rail and sea shipping rates, monopoly rights, and other mechanisms. Within the first five years of the law’s enactment, 1,473 firms had made use of these concessions, with fewer than a quarter of these companies predating 1923. The law was planned to remain in effect until 1942, giving private entrepreneurs fifteen years to increase their levels of capital accumulation.³³ With the Law for the Protection of Industry (Sanayi Koruma Kanunu) in 1929, the chp enacted further protectionist policies.³⁴

After 1930, the number of enterprises benefiting from the industrial encouragement law fell in number, but their scale grew, and the gross output per firm was 2.4 times the 1932 value by 1939.³⁵ In 1933, a total of 1,397 industrial establishments employing a workforce of 64,926 workers were beneficiaries of the law. By 1934, the number of establishments had fallen further to 1,310, while the number of workers increased to 69,150.³⁶ Five years after the law’s enactment, the average number of workers per enterprise was thirty-eight for qualifying firms. The striking difference in this metric compared with the 1927 figure for all enterprises suggests that the approved firms had come close to becoming modern factories.³⁷

Başar’s sardonic account points to both the primitive state of industrial production and the continuing dominance of foreign industrial investors. About one third of the corporations established between 1920 and 1930 were partnerships entered into by Turks with foreign capital.⁴⁰ The newspapers were frantically reporting tax evasion attempts and the misuse of concessions by private industrialists.⁴¹ While private industrial capital benefited from the protective environment, the state’s direct involvement in production was limited to the operation of the four state factories inherited from the Ottoman state and the establishment of two sugar-processing plants to lighten to burden of sugar imports.⁴² The Great Depression paralysed the country’s already hampered industrial development.

3 The Search for a Post-depression Economic Policy

The Great Depression hit the Turkish economy with catastrophic force. The plummeting returns from the agricultural products, Turkey’s primary exports, aggravated the trade balance deficit. The trade deficit reached fifty million dollars in 1929, a figure that clearly exposed the new regime’s economic vulnerability. The ensuing currency exchange crisis and the devaluation of the Turkish lira caused bankruptcies in the commercial sector, highlighting its excessive dependency on foreign markets. Domestic trade also remained stagnant from 1929 to 1932. The crisis of the commercial bourgeoisie required new economic policies; 1930 and 1931 were marked by economic innovation and zealous debates on the role of the state in the economy. Both statesmen and the intelligentsia were increasingly giving voice to the need for at least some level of insulation from international markets to create an integrated national economy.⁴³

If the worldwide economic circumstances were not pressing enough, there were also more than purely economic considerations behind the Turkish government’s policy choice to move away from an open economy. The chp was coming under increasing criticism for its high taxes and deflationary policies, and its growing networks of corruption and nepotism. Added to these economic grievances were the outbursts of reactionary incidents such as in Menemen, as well as ethnic rebellion in the province of Ağrı.⁴⁴ The growing discontent resulted in the establishment of an opposition party that added the adjective “Free” before the ruling “Republican Party.” Initially an Ersatz party designed by Mustafa Kemal himself to ease tensions, the party became a serious contender in the 1930 municipal elections, exposing the chp’s waning popular support and intensifying the struggle and debate over economic policy.⁴⁵ By the end of the decade, it was clear that the regime would not be able to succeed in forging central authority either economically or politically. The Kemalist leadership’s strategy of increasing state control was as much a result of securing political stability as achieving economic development. A politically directed national economy therefore emerged in response to the economic problems created simultaneously by the Great Depression, at the global level, and by domestic developments in the Turkish political economy.

Initially, protectionism functioned as an economic policy instrument to combat dependence on foreign commercial capital in the context of escalating hostility toward foreign merchants speculating against the domestic currency. Until 1931, policy measures had concerned the control of foreign trade and exchange transactions, and did not include directly interventionist elements.⁴⁶ In December 1929, the government founded the Association for National Economy and Parsimony (Milli İktisat ve Tasarruf Cemiyeti) “to promote frugality, to reduce the consumption of commodities by encouraging the production and consumption of local products, and to promote the idea of economic self-sufficiency.”⁴⁷ When the era of low tariffs, mandated by the Treaty of Lausanne, ended in 1929, tariffs were increased first from thirteen per cent to forty-six per cent, and then to over sixty per cent by the latter part of the 1930s.⁴⁸ In 1930, the government established a central bank to control national monetary policy, and introduced custom duties. Together, these two measures improved the trade balance, decreasing the volume of imports by forty-two per cent between 1928 and 1934.⁴⁹ Despite various disagreements, economic planning and protectionism were on the rise, but the extent of state intervention in the economy remained an open and heated debate, creating significant intra-elite conflict.

Turkey was not alone in its search for a new economic regime in the 1930s. Following the Great Depression, economic nationalism arose as a reaction to the reigning liberal doctrines of the previous half-century in East-Central Europe, South America, and the Middle East (particularly Iran).⁵⁰ Used for the first time in 1928, the term economic nationalism gained currency after the Depression.⁵¹ Tainted by a dislike for foreign capital, the building blocks of economic nationalism were protectionism, autarky, and industrialism.⁵² The first three elements had already been strengthening in Turkey. It was the last element, industrialism, and the state’s role in it that created fissures among the ruling elite. The decades-long oscillation between the two developmental models of agriculture and industry was finally resolved in favour of the latter.⁵³ As one of the earliest examples of a planned economy in late industrialisation, etatism had become the Turkish version of a wider trend of nationalist movements with a developmentalist agenda. As in other comparable nationalist regimes such as Mexico, Argentina, Egypt, Indonesia, Brazil, Thailand, and India, the Kemalist elite adopted a common agenda of state-led industrialisation, political modernisation, and a non-aligned foreign policy; they were pioneering post-colonial state strategies long before the dismantling of the colonial world after the Second World War.

In hindsight, state-led industrialisation could be seen as an inevitable economic policy choice for a regime in search of economic development and political stability. Yet, the implementation of etatism was a contentious political process. The majority of the disagreements on the definition of the term centred on the protection of the investment rights of private capital. Initially coined in France in the 1890s by protectionists and socialists, by the 1920s the term etatism had come to mean direct state intervention in economic life. In 1930s Turkey, definitions of etatism oscillated between “a preferable alternative to capitalism” to “the nursemaid for capitalist development.” Often, the government elite preferred to reject both definitions, presenting etatism as a peculiar policy to address the country’s specific problems.⁵⁴ As might be expected, the effort to dissociate etatism from socialism was much stronger. In 1954, Hanson described the ambivalence around the term as follows: “Turkish publicists are usually at some pains to emphasize that ‘etatism’ in this country is not the product of preconceived or ‘doctrinaire’ socialistic theories, but of certain practical necessities confronting the Government of the young Republic.”⁵⁵ They repeatedly underlined this difference so as to reassure private capital that a state-led approach to industry would benefit the private sector in the long run. By 1935, private enterprise was positioned as the “basic idea” in the party programme and the “principle means” in Civil Knowledge for the Citizen (Vatandaş İçin Medeni Bilgiler), a reference book authored by the adopted daughter of Mustafa Kemal under his close supervision.

More often than not, the emphasis was on the pragmatic and practical qualities of etatism as a quick remedy for underdevelopment. In 1933, when international conferences were yet to find solutions for economic and disarmament issues, Mustafa Kemal argued that Turkey had to take its own measures and set out its own path to development.⁵⁶ He repeated the exceptionalism argument in the preface to the second five-year industrial plan. William Hale summarised the official definition of etatism as “a home-grown plant” that “specifically evolved for Turkish conditions.”⁵⁷ The contemporary economist Ömer Celâl Sarc doubted the possibility of a satisfactory definition of the term since its content had changed through its application.⁵⁸ In the end, Turkish etatism had more of a haphazard nature than involving a set of clearly designed and executed policy decisions.

From the very beginning, the government underlined its preference for a complementary, instead of oppositional, relationship between state and private investment. True, the industrialisation programme was inspired by German, Italian, and Soviet models, but it would not go so far as following a fascist or a collectivist ideology. Economic analysts looked up to Germany with admiration, especially with regard to its temporary protection of infant industries. Simultaneously, the success of Soviet industrialisation in the 1920s sparked serious debates around the state’s ability to manage and transform the economy.⁵⁹ Still, the state’s involvement in the economy was presented as a last pragmatic solution aimed at jump-starting industrialisation. The given rationale for heavy state intervention was that the state had to undertake what undercapitalised private actors could not. “Our statist policies are essentially based on private individual enterprise,” Mustafa Kemal declared in 1931. However, he continued, the state would directly intervene in the economy “in order to bring welfare to the people and develop the nation as soon as possible.”⁶⁰ A strong sense of urgency for development characterised both policy documents and public opinion, which, the liberal opposition protested, put the entire burden of national development onto the shoulders of one generation.⁶¹

Although empiricism guided the implementation of etatism, one principle remained constant: state intervention was a must to speed up development. But because the country lacked the technical know-how to jump-start development, it needed foreign assistance. Against the background of the chronic instability facing interwar international relations, disagreements within the ruling elite on the scope and ultimate goal of etatism would complicate the question of whom to turn to for loans and technical know-how.

4 Etatism and the Politics of Foreign Expertise

The Turkish state sought the help of foreign experts in its search for a post-1929 economic policy that would depart from economic liberalism and set out toward a planned economy.⁶² The two earliest foreign expert reports were written by a German financial expert, Karl Müller, who advised against establishing a central bank, and a French professor of economics, Charles Rist, who advocated for direct foreign financial control and advised against the nationalisation of the railways and ports and, in general, any state intervention in the economy. Both reports intensified the political infighting about the pace of industrialisation within the ruling bloc. In his opening speech for the Sivas railway in August 1930, Prime Minister İnönü criticised both foreign experts and the liberal opposition for failing to see the absolute necessity of nationalising the economy.⁶³ The chp was determined to follow this line, he reassured, but with careful consideration to the interests of private capital, he chose his words to describe the new economic policy carefully: moderate etatism.⁶⁴ The following year, after Mustafa Kemal had positioned etatism as a party principle, it was written into the chp’s programme.⁶⁵ The disagreements over the meaning and scope of etatism, however, were far from over. There were two factions within the ruling party. The first camp argued for active state involvement and government regulation over private enterprise, and was led by the minister of economy, Mustafa Şeref Özkan. As a liberal-oriented interest group, the second camp argued in favour of limiting the state’s role in the economy and preferred to define etatism as a transitionary phase to be followed by private industrial activity. Celal Bayar, the first general director of the Business Bank, around which the private sector was constantly growing and increasing its political influence over, led this second group.⁶⁶

The tension between the two factions crystallised over the investment plan for a paper factory. While the first camp wanted to establish the factory as a state enterprise, the second pushed for a private enterprise funded by the Business Bank. In the end, the state invested in the paper factory, but Mustafa Kemal resolved the dispute by replacing Özkan with Bayar as the economy minister. This bureaucratic change signalled a shift from a more radical etatism and extensive economic planning approach to a model involving a mixture of state and private investment.⁶⁷ By then, parliament had passed two new laws on the institutional arrangements for the implementation of the planned industrialisation. Accordingly, the Industrial Credit Bank (Sanayi Kredi Bankası) would provide credit for both state and private industries, and the State Industrial Office (Devlet Sanayi Ofisi) would manage the state enterprises.⁶⁸ The liberal faction in the chp was heavily critical of this dual institutional structure. The law governing the Industrial Credit Bank abolished the customs exemptions for industrial imports that the private sector had enjoyed since the 1927 Law for the Encouragement of Industry. The bank, liberals further lamented, would end up mainly financing state industries. The Industrial Office was designed to permanently own and manage the state industries. This led a member of parliament who was a self-described etatist to ask if forced collectivisation would be the next step. Others joined him in his worries over Turkish etatism turning into a Bolshevik project.⁶⁹

The performance of the Soviet planned economy had indeed impressed the Kemalist ruling elite. Moreover, Soviet support for the Turkish national resistance movement was fresh in the national memory. The two countries signed a Treaty of Friendship and Neutrality in 1925. In his December 1929 visit to Turkey, the Soviet vice foreign minister Lev M. Karakhan declared Soviet support for the Turkish economic struggle; he advised Turkish officials to adopt a five-year plan and offered technical help.⁷⁰ By then, the Turkish statesmen and economic analysts were specifically in awe of the extraordinary growth of Soviet heavy industry and the technological development of its textile industry. Indeed, the interest was mutual. In 1932, Turkish industrialists accompanied the Turkish prime minister and foreign affairs minister during their visit to Moscow and Leningrad. The visit proved to be successful in initiating economic cooperation.⁷¹ In the meantime, the American embassy in Ankara was vehemently warning the secretary of state about the “strings attached to the generosity” of the Soviet Union toward Turkey. The planned productive enterprises offered a market for a considerable amount of capital goods, the ambassador wrote, encouraging the American contracting firms to participate in the industrialisation of Turkey.⁷²

One of Bayar’s first moves as the minister of economy was turning to the United States for foreign expertise to counterbalance the predominance of the Soviet experts in economic policymaking.⁷³ By the end of 1932, he launched a search for six American experts, four experts in commerce and mining, an economic specialist to supervise the preparation of a detailed economic survey report, and a general economic advisor to implement the recommendations.⁷⁴ Walter D. Hines wrote a report advocating an agricultural development policy, to the dissatisfaction of the pro-industrialists. “Foreign observers are more inclined to criticize this branch of the Government’s program than any other,” the American embassy reported in August 1934, “on the ground that too much is being undertaken at once and that there is not sufficient technical skill in the country to make all of these industries successful.”⁷⁵ But the government was determined to continue. At the press conference for the first five-year plan earlier the same year, Bayar had referred to the proponents of an agricultural development model as “old-fashioned” thinkers who wanted to maintain international trade based on unequal exchange.⁷⁶ The Kemalists had made up their mind, they would break through the largely agrarian economic structure and pull the society toward an industrial future.

The Soviet experts and ruling elite agreed with the Kemalists. Izvestia, a daily newspaper that expressed the official view of the Soviet government, accused the European experts who were advocating an agricultural development strategy for Turkey of imperialism. Following the Turkish prime minister’s 1932 visit to Moscow, a group of Soviet experts led by Professor Orlov came to Turkey for a preliminary study on the establishment of textile factories. Orlov’s report concluded that the development of Turkish industry was not only possible, but also absolutely necessary.⁷⁷ On 21 January 1934 the two countries signed a protocol that granted Turkey Soviet industrial credit of eight million gold American dollars without interest, mechanical equipment, help with drawing up industrial projects, setting up machinery, and training specialists, and other technical cooperation.⁷⁸ In 1935, two large pictures of Mustafa Kemal and Lenin faced each other on the canteen walls at the Kayseri Factory, and between them hung broad red streamers with an inscription in Turkish and Russian: “Long live the Turkish-Russian friendship.”⁷⁹ A council of Soviet planning experts were involved in the preparations for the first five-year industrial plan in 1933. The basic principles of Turkey’s development policy were now official: an industrial development plan in which the state would take the lead. The parliament approved the first five-year plan on 8 January 1934 and implemented it three months later on 17 April 1934.

5 The First Five-Year Industrial Plan

In his 1940 book on etatism, a contemporary bureaucrat described the policymaking atmosphere of the early 1930s as imbued with anti-capitalist sentiment.⁸⁰ The analysis of Turkish underdevelopment in the preface of the first five-year industrial plan is the strongest expression of this sentiment. Foreshadowing the basic premises of the dependencia school, the preface explains the historical conditions under which core countries underwent industrialisation at the expense of the periphery and defines the relation between the two categories as a political relation of dominance and an economic relation of dependence. By weakening the ties between the core and the periphery of the capitalist world economy, the crises wrought by the Great Depression presented a window of opportunity for underdeveloped nations to break free from this unequal exchange. Turkey needed to seize this opportunity quickly since the industrialised nations would reinstate the terms of the international division of labour once they recovered.⁸¹

The plan focused on manufacturing previously imported simple consumer goods for which internal markets and local raw materials existed and labour-intensive production methods could be employed. This import substitution model of industrialisation was expected to improve the trade balance, provide an impetus to the development of an industrial base, and stimulate an internal market by boosting agricultural production and opening new areas of employment. To address the significantly different levels of economic development between the old industrial centres, that is, especially Istanbul and its hinterland, and to a lesser extent cities in western Anatolia such as Izmir and Bursa, the planned industrial investments were geographically dispersed to medium-sized urban centres along the existing railway networks. In the next chapter, we will delve into the politics of industrial site selection and their long-term effects on national development and working-class politics.

Being lighter, labour-intensive industries that did not require highly developed technology, textiles and leather formed the centrepieces of the plan. Together with mining, textiles constituted the biggest share in imports at the beginning of the 1930s. Accordingly, these two sectors received the biggest share in the total expected investment, at 50.7 and 26.9 per cent, respectively.⁸² Cotton and woollen goods in 1932 made up thirty per cent of Turkey’s total imports.⁸³ Within textiles, cotton received the biggest share, with 42.2 per cent of the total investment.⁸⁴ By the early 1930s, fifty-seven per cent of Turkey’s cotton textiles were imported; by the end of the decade, local cotton production was suppling eighty per cent of the demand “primarily by production of cheaper goods from local low grade fibres.”⁸⁵ In 1935, the mouthpiece of the regime summarised the industrialisation programme as the production of “three whites”: flour, sugar, and cotton, and “three blacks”: coal, iron, petroleum. The production of the blacks was slow, but the first two whites, the newspaper claimed, would be entirely produced locally, and the country would eventually be self-sufficient in the third.⁸⁶

Despite the strongly worded preface, the plan amounted to nothing more than a detailed list of investment projects.⁸⁷ Furthermore, even without the complete fulfilment of the programme, the actual cost was more than double the initial estimate. It would eventually take fourteen years to complete the programme, because of war, on the one hand, and the lack of adequate planning machinery, on the other.⁸⁸ Work on the second five-year plan began as early as 1936, and in 1938 the plan, which focused on the development of intermediate and capital goods industries such as steel and machinery, was adopted. However, it was soon abandoned due to the difficulties in securing financial means for the first five-year plan and the threat of a new world war. In its stead, a four-year plan was approved in September 1938, but with the outbreak of the war, many planned investments had to be dropped.⁸⁹

The Soviet Union was the main source of professional instruction, financial aid, and equipment during the execution of the first plan. In the mid-1930s, however, Turkish-Soviet relations started to deteriorate. The tensions escalated in 1936, when the Soviet Union refused to support the Turkish cause in the Montreux Convention, which gave Turkey control over the Bosporus and Dardanelles straits. For the second plan, Turkey turned increasingly to British advisers and firms. The United Kingdom granted Turkey credit of close to three million pounds sterling for the construction of an iron and steel works in Karabük. In 1938, further credit of 10 million pounds and 150 million Reichsmark were secured from the United Kingdom and Germany respectively for the purpose of increasing the country’s capital equipment.⁹⁰

The government established two new development banks to execute the industrial investments and manage state enterprises. Founded in 1933 as a public holding company, Sümerbank was responsible for the promotion and management of industry. Two years later, Etibank was founded to establish state control over mining and ore processing. The name choice for the two holdings asserted nationhood by referring to an imagined continuity between the pre-Ottoman Anatolian civilisations and the newly independent Turkish republic. The idea was rooted in the Turkish History Thesis, which based its claim to a national identity on excavating a pre-Ottoman past, situated Turks in Asia Minor at the outset of history, and fabricated ties with ancient tribes of Anatolia. The tension between archaism and futurism, Mary Matossian argues, is a common ambiguity in ideologies of delayed industrialisation because at the start line “the West is ‘the new’ and the native culture is ‘the old’.” The Turkish references to a remote and mythical past is but one example of glorifying an imagined “golden age,” which Matossian compares to Mussolini’s reinvention of Imperial Rome and Gandhi’s urge to return to the age of “Rama Raj.”⁹¹ By naming the two industrial holdings after the claimed pre-Ottoman forebears, the Sumerians (Sümerler) and the Hittites (Etiler), the government effectively distanced the republican present from the bleak legacy of the Ottoman past.⁹² The erasure of the Ottoman past from the historical narrative sat at ease with the (re)birth of a Turkish nation breaking free from the chains of underdevelopment.

The legislative intention behind the establishment of Sümerbank was to replace the dual institutional structure of the Industrial Credit Bank and State Industrial Office, which, the law’s preamble argued, “instead of helping the development of national industry, [had the effect of] worrying the industrialists.”⁹³ The new institutional arrangement was a response to the criticism of the liberal camp led by Bayar, and signalled a shift to a more moderate form of etatism, meaning the state would undertake only those investments that private capital could not afford. Besides establishing and managing state factories, Sümerbank would co-finance large industrial ventures with private capital, which was expected to flourish. The holding would also establish schools to train industrial personnel for both the state and private industrial sectors. A contemporary economics journal aptly summarised the function of Sümerbank as creating an industrial army for the national industrial development project.⁹⁴

Sümerbank took over the financing, construction, and operation of such diverse production units as textiles (cotton and wool), steel, paper, rayon, ceramics, caustic soda and chlorine, and cement plants. By the end of the decade, Sümerbank’s share in cotton production was thirty-five per cent (see Table 1). By 1943, the workforce at the Sümerbank factories amounted to 23,023, that is eight per cent of all workers employed in industrial enterprises employing five or more workers.⁹⁵

6 “A Classless, Fused Mass”: Populism and Industrial Labour

For the young republic, the 1920s had been a decade of crises at both the national and the international levels. The following decade witnessed the solidification of state power and consolidation of the Kemalist regime, which social scientists described as “Kemalism par excellence”, or “High Kemalism”.⁹⁶ From 1931 onward, the Republican People’s Party consolidated its monopoly of power, resulting eventually in the merger of the party with the state. Kemalism attained its most succinct definition in May 1931 when the chp adopted six “fundamental and unchangeable principles” of republicanism—nationalism, populism, secularism, populism, revolutionism, and etatism—in its programme. On 5 February 1937, these principles were incorporated into the constitution.

In state discourse, it was this narrative of exceptionalism that would insulate the party-state from the infiltration of any class interests. “Privileges and classes never existed in our case,” claimed Prime Minister Şükrü Saraçoğlu: “We have been populist, are populist, and will remain populist. The fact that we have formed a single-party state is mainly based on this fundamental reality. We want no reign of court, of capital, or of classes. All we want is the sovereignty of the Turkish people!”¹⁰¹

It was the combination of their biographical stories, the epitome of which was the rise of Mustafa Kemal as the saviour of the nation, and their successful manoeuvring of collective memory and national sentiment that legitimised the ruling elite’s self-presentation as the trustees of the people. This image aided the proponents of etatism in propagating nationalism as the dominant discourse of development and refuting the liberal critique of state intervention into the economy during the economic policy debates of the early 1930s. “The radical-reform nationalist,” argues William Hale, “saw etatism as a permanent alternative to capitalism and … linked its principles to the belief in social solidarism labelled as ‘populism’.”¹⁰² The appeal to populism, however, was much wider than he recognised. The assumed unity between the Turkish state and the nation, and the idea of a “Turkish people” as a classless, fused mass underlined the entire official discourse and extended its hegemonic capacity to both the external and internal regulation of labour, as we shall see later in this book. During the time of rapid industrialisation, the state and employers resorted to these discourses to avoid what they described as the awfully familiar malaise of industrial societies.

The programme also contained the blueprint for the labour code that would be enacted the following year. In an effort to ease concerns over a possible “poisoning of the Turkish worker” with ideas of class conflict, the party secretary, Recep Peker, announced a ban on strikes and lockouts. Congress participants replied with an enthusiastic “Bravo!” But, he added, the party would also not allow a capitalist to pressure a worker unfairly, because, after all, populism dictated that they were both sons of the country.¹⁰⁷

In 1936, that is, four years after industrialisation became official economic policy, the ruling party formalised the industrial employment relations of a core workforce in large industries with an authoritarian labour code adapted from the Italian equivalent. In total, it had taken the Kemalist regime fifteen years to enact a labour code. This is a strikingly long period for a regime that had impressed both its own citizens and the international community with the speed of its superstructural and legislative reforms. As the developments leading to that formalisation of industrial relations demonstrate, the delay was due to the contentious class politics behind the making of etatist policy.

7 The Labour Code: Fifteen Years in the Making

“Aside from industry, transport, and banking,” wrote Richard D. Robinson in 1963, “Turkish etatism likewise invaded the field of labour-management relations.” The advancing of industrialisation gave rise to a growing necessity for the codification and enforcement of basic labour regulations, which, in the absence of labour organisation, required “some sort of state administrative machinery.”¹⁰⁸ Robinson’s claim that etatism and its accompanying nationalist populist discourses shaped the labour code may be true, but the attempts to codify labour relations certainly go much further back than the beginning of etatism.

The first attempt at a labour code was during the war, shortly before the adoption of the first constitution of the republic in January 1921 under the Ankara Government. The attempt failed even before reaching the draft stage, and according to a contemporary journalist and trade unionist, Kemal Sülker, the pro-worker stance of the minister of economy, Mahmut Esat, cost him his seat.¹⁰⁹ Following a wave of strikes in 1924, the government presented a draft code to the parliament with a message underlining the need to “prevent conflicts between capital and labour.”¹¹⁰ But the feared conflict came in a different form. In 1925, the government bloodily suppressed the first large-scale nationalist rebellion by the Kurds, commonly referred to as the Sheikh Sa’id Uprising, declared martial law, and enacted the Law for the Maintenance of Order, granting itself sweeping powers. In the turmoil of the time, the attempt to enact labour legislation failed once again.

Although martial law suppressed all legal labour activity, it could not eliminate strikes and worker associations, and thus increased the pressure on the government to enact a labour code. When the third draft came in 1927, a newspaper covered the reaction of both employers and workers.¹¹¹ Employers strongly opposed the doubling of overtime pay, the obligation to give notice of contract termination to employees with at least three months of service, and the obligation to pay wages and medical expenses in the event of a work accident. Workers, organised under the Society for the Advancement of Turkish Workers (Türk Amele Teali Cemiyeti), prepared a list of what they wanted to see. In addition to the more predictable demands concerning the working day, minimum wages, overtime pay, and the protection of child workers, two of the demands would become points of contention throughout the following decades. First, they demanded the expansion of the definition of worker to include agricultural workers. Second, they objected the centrality of the individual employment contract as the hub of employment rights, and demanded a trade union law. The third attempt at a labour code also fell through, and, as we shall see below, both of these demands remained unfulfilled.

The search for an economic policy direction delayed the codification of labour relations, while the increase in unemployment and wage losses following the Great Depression provided further momentum for labour unrest. The 1930 Public Health Law (Umumi Hıfzıssıhha Kanunu) stipulated rules for the protection of child, juvenile, and female workers, issued regulations concerning the health and safety of all workers, and introduced medical services in larger enterprises. The economic programme put forward by the minister of economy that same year, however, ignored labour issues, except to report on Turkish workers’ complacency and the benefits of the low cost of living in the country. A new draft labour code came after the success of the oppositional Free Party caught the government off guard in 1930.¹¹²

The Free Party found unexpected support in the rich farming areas of western Anatolia and coastal towns such as Izmir and Samsun, where labour unrest was on the verge of taking a violent turn.¹¹³ The government responded with repression, suppressing the strikes and closing down worker organisations. But it also promised to give special attention to labour issues, including by creating a labour code.¹¹⁴ The draft labour code was ready by February 1931. Two other changes in the chp’s labour policy in this period included the search for suitable workers to become parliamentary representatives, and the establishment of party-controlled workers’ associations; this was in perfect alignment with the allegedly class-conflict-free etatist development model.¹¹⁵ Slowly but steadily, labour was becoming a political category, one that needed to be controlled and contained in the eyes of the ruling elite.

In its 1931 programme, the chp rejected the idea of a class-based society and promised to defend the rights of the “nationalist Turkish worker” with a labour code based on the idea of harmony between employer and employee. By then, the draft code was circulating government offices with no sign of its fate in sight. In December 1931, former minister of economy Mahmut Esat criticised the ten-year delay in the making of a labour code. “Children who were born when the preparations started are now workers,” he lamented, claiming that the republican regime may have almost achieved the modernisation of the country, but had failed in enacting a labour code.¹¹⁶ The delay in labour legislation also presented a political danger, he continued, because Turkish workers had fallen prey to foreign propaganda, which labour protection would better fight against than state repression. Meanwhile, unemployment soared and labour unrest continued. Press reports from 1931 claimed that there were one hundred thousand unemployed in Istanbul, a city of eight hundred thousand people. In the first half of 1932, there were eighteen strikes in Istanbul alone. Complaints about the employment of foreign workers were also on the rise. In June 1932, the government responded with a law banning foreigners from certain professions.¹¹⁷

Two months before the submission of the draft labour code to parliament, a newspaper conducted a survey on workers’ and employers’ expectations for the labour legislation.¹¹⁸ Workers wanted, first and foremost, the right to organise. Employers wanted an extension of the workday, arguing that the eight-hour working day harmed both capital and labour. Unlike their European counterparts, Turkish workers were mostly unskilled and very poor, and thus had to work longer hours to earn a living wage. Two additional employer demands comprised stipulations against skilled workers’ deserting their workplace, and exemptions from employer contributions to social provisions. Last but not least, employers claimed that it would be a mistake to model the Turkish labour code on European versions; the best examples to follow were countries such as Bulgaria, Greece, and Romania.

When the draft came before the parliament in March 1932, employers found support in the liberal faction, the members of which were severely critical of the draft’s pro-worker stance. Indeed, the draft positioned labour as social category rather than simply a fact of production, and stipulated the right to organise. Its opponents proposed instead the adoption of the 1927 Italian labour code, the Carta del Lavoro. Considered “the fundamental expression of the nature of Fascist work and of the Fascist surpassing of class conflict,” the Italian code promoted the principles of corporatism, banned strikes and lockouts, and would become a source of inspiration for legislators in several countries.¹¹⁹ To counter these criticisms, the minister of economy, Mustafa Şeref Özkan, took advantage of the ongoing negotiations to join the International Labour Organization, and submitted the copies of the draft to the 16th Session of the International Labour Conference in April 1932. Alas, the positive international reception of the draft failed to ease tensions back home. Özkan was forced to resign in September of the same year, to be replaced by the leader of the liberal wing, Celal Bayar. In one of his first statements in office, Bayar assured the public that the government would enact a labour code before the end of the parliamentary year because it was “high time to think of the selfless and hardworking industrial workers who bear all sorts of hardship.” In 1934, after two years of waiting, Özkan’s draft was replaced by another draft that adopted a repressive hard-line approach.

Bayar also underlined the government’s vision of harmony between capital and labour, but specified a new expectation for the code: to bring production costs down. From then on, the rationalisation of industrial production would be a hallmark of his time in office. Private industrial capitalists quickly seized the window of opportunity and lobbied for the annulment of the weekly rest-day to ease the economic whiplash. They based their claims on two sets of comparisons. First, they compared the high production costs of their newly established factories with the old and large state factories such as Defterdar, Hereke, and Bakırköy. Second, citing Japan as a favourable example, they argued that low wages and longer working hours was a way of enabling late industrialising countries to compete with European manufacturing.¹²⁰ Engineers and academics successfully objected by referring to contemporary experiments in Europe showing an inverse relationship between industrial fatigue and productivity.¹²¹

On the labour front, the government adopted a harsher approach to dealing with the continuing unrest. In Istanbul, the police began collecting fingerprints of workers. Following the strikes at the Eastern Railway and the Industrial Tramcar Company in 1928, the chp closed down workers’ associations. In 1933, an amendment to the Turkish penal code prohibited strikes and lockouts. On the eve of etatism, an authoritarian regime of industrial relations was de facto in effect; the labour code would have to wait three more years.¹²² On 12 June 1936, the parliament enacted the labour code, which was described proudly by ex-general party secretary Recep Peker as “a regime law” that would “act as a thick wall against the division of citizens into classes.”¹²³

8 The 1936 Labour Code: A Regime Law

Enacted on 12 June 1936 as law number 3008, the 1936 Labour Code covered enterprises that technically employed ten or more workers on a daily basis, meaning it applied to only 180,000 workers. The code stipulated a number of protective measures concerning conditions of employment, such as hours of work, daily rest periods, night work, and the weekly rest. It also dealt with such matters as protection of wages, employment of women and juveniles, health and safety labour inspections, employment exchanges, and conciliation and arbitration. These protective measures did not remain in effect for long, however, because the government, under the powers conferred upon it by the National Defence Act of 1940, would go on to suspend their operation. The 1940 act overrode the regulations on working hours, permitted compulsory work and overtime, and prohibited workers from leaving their place of employment.

Even before the 1940 act, two stipulations severely limited the code’s protective mandates. First, it applied only to establishments with more than ten workers, which served to exclude around three quarters of the industrial workforce employed in small workshops. In the 1940s, and increasingly after the war, workers outside the scope of the code began to demand its expansion. Second, by prohibiting strikes and lockouts and enforcing compulsory arbitration, the code effectively eliminated collective bargaining; it defined the principal means of industrial dispute resolution as the case-by-case enforcement of individual work agreements through compulsory conciliation and arbitration. The code retained the individual work contract, which the Code of Obligations (Borçlar Kanunu) of 1926 had introduced as one type of European form of contract, as the basis of employer-employee relations, and dealt only with individual rights. To secure adherence to legal requirements in the absence of collective agreements, it prescribed the terms of the contract as well as the penalties for violating these terms, imposed a variety of compulsory provisions, and established administrative techniques for supervising the terms of contracts. The motive behind the protection of the worker as an individual rather than as a collective group was to prevent the development of mass discontent, which the prime minister explicitly stated after the passing of the code: “The new Labour Code will sweep away the clouds which make possible the birth and life of class consciousness.”¹²⁴

The code laid down a compulsory arbitration procedure for the settlement of labour disputes, and defined the main elements of the adjustment procedure as the workers’ representatives, the departmental officials, and the arbitration boards. In each workplace, there would be one to five workers’ representatives depending on the size of the enterprise. In the first stage of a collective dispute adjustment, workers’ representatives and departmental officials were tasked with securing a voluntary agreement between employers and workers. If they failed, the case would be brought before the arbitration board, the final decision of which was binding for both parties. Remarkably, the government had the power to extend a specific decision to others working in similar conditions.

The individual contract remained the exclusive instrument regulating the employment relationship in the absence of trade unions, but, interestingly, the code made no reference to trade unions. A historian of trade unions explains this silence as cautionary to preclude accusations of violating the ilo convention on freedom of association.¹²⁵ In fact, the government used other types of legislation to outlaw trade unions. The penal code declared activities aimed at “establishing the hegemony or domination of one social class over other social classes, or eliminating a social class or overthrowing any of the fundamental economic or social orders established within the country” illegal in 1936, but the final blow came in 1938 with the revised Associations Act, which banned all forms of class-based organisations, thus making it virtually impossible to form a trade union.

After fifteen years in the making, the spirit of the labour code reflected a congruence between etatism as economic policy and an authoritarian Kemalism as the ruling ideology. Scholars explained the interconnections between economic policy and the changes in state form and ideology as the emergence of a “new policy” in which “a particular political mode extends itself to previously uncontrolled spheres of a society.”¹²⁶ According to Oscar Weigert, a German expatriate who worked as labour advisor to the Turkish government and assisted in the drafting of the new labour legislation, the prohibition of strikes and lockouts amounted to nothing more than a mere sanctioning of the existing position. By emphasising the solidarity of all citizens and rejecting the idea of rival classes, the political programme of the new Turkey, he argued, already embodied the principle of securing of “a harmonious footing” between employers and workers. As a whole, the new labour legislation aimed at eliminating “proletarian pressure” and a class war, and “introducing a new element of stability in Turkish national life.”¹²⁷ A rhetoric of mobilisation based on national identity effectively repressed politics around the inequalities that had been created in the course of a top-down developmentalist agenda.

The question to ask is how the new legal-institutional framework affected state and private industries. The prevailing contemporary opinion was that state factories had already been implementing the rights and the protective measures codified by the law.¹²⁸ In some cases, managers of state factories claimed that actual practice fared better than the legislation. State workers saw it otherwise. In the second part of the book, the reader will find their testimonies on the incomplete and problematic implementation of the protective legislation. Added to the implementation problems was the delay in the establishment of a state employment service and the submission of bills on social insurance. Although the code enforced their introduction within one year of its application, the government would not take action until after the war.¹²⁹

The shift from the open economy of the 1920s to state-led industrialisation in the 1930s did not pose a threat for the private industrial sector. On the contrary, the Turkish state continued to encourage private capital and private interests. In addition to the 1927 Law for the Encouragement of Industry, private industrial employers benefited from protectionist policies such as favourable price and cost structures and import restrictions. Finally, the legal-institutional framework constructed by the state in the 1930s benefited private industrialists by defining the individual contract as the sole basis of the relationship between employers and employees; it effectively blocked the channels for working-class collective action. The increase in the rate of accumulation during the etatist years was so high that, a prominent economic historian of Turkey argued, “by the beginning of the war the country had already passed the critical first threshold on the difficult road to industrialisation.”¹³⁰ With the outbreak of World War ii, workers lost much of the protections the code had provided for them. The final impetus to private capital accumulation came during the war years, when industrialists benefited from high inflation, scarcity, hoarding, and black markets.¹³¹ In the postwar period, private capital spearheaded the import substitution industrialisation process.

Both the government and private industrialists referred to the relation between the two as a relation of complementarity. A well-known economic journal defined the relationship as one of “guidance,” where state industry would help private industry to secure capital, technology, and workers.¹³² In the pages of a textile engineering journal the relationship was described as one of between siblings, with state industry the elder brother.¹³³ In the words of a prominent bureaucrat and advocate of etatism, the task of state industries was “to set an example and create a tradition” in the fields of modern business organisation and management, full employment, and productivity, as well as to train technical and managerial personnel for private industries.¹³⁴ Indeed, many prominent managers of state factories were transferred to private factories, where wages were higher than the state sector.¹³⁵ Some became private industrialists themselves, as early as 1945.¹³⁶ By fostering the development of the internal market on the one hand, and industrial skills, infrastructure, and habits on the other, the state fostered the emergence of a native industrial entrepreneurial class.

By the end of the war, the intra-elite conflict became impossible to manage. The submission of the Land Reform Bill to parliament in 1945 crystallised the class interests within the ruling bloc. Celal Bayar, the leader of the liberal faction on etatism in the early 1930s, became the spokesperson for rapidly developing private business. He founded and led the Democrat Party, which made its first electoral challenge to the chp in 1946. By 1947, the chp had relaxed some of the etatist policies, and limited the establishment of state enterprises to fields where the private sector could not succeed on its own. It also unsuccessfully attempted to introduce a new five-year plan. The international politico-economic dynamics were changing fast. Turkey was coming under increasing foreign pressure, especially from the United States under the Truman Doctrine. In 1948, the chp came up with a new formulation, “the new etatism,” but by then the interwar winds of economic nationalism had already changed direction.¹³⁷ Etatism slowly faded out, but its legacy, in terms of both the industrial cadres it created and the social change it induced, would shape the course of subsequent developmental policies.

9 Conclusion

Having begun in the wake of a shattering crisis, Turkey’s state-led industrialisation had a dual character. On the one hand, it could be argued to have developed as the natural culmination of the national economy paradigm. On the other hand, its adoption as an economic policy was the result of a long and fierce intra-elite conflict. Though the ambivalences around the concept and practice of etatism portrayed it more as an empirical project than an ideology, at its core was a capitalist project of industrialisation with a very clear vision of class relations.

For a regime that had built its legitimacy on the condemnation of the imperial past, the nineteenth-century Ottoman’s failed attempt at industrialisation provided leverage to present the republican project of industrialisation as a supra-class nationalistic development plan. Labour protectionism was one of the most important elements of the narrative of contrast between the “semi-colonised Empire” and the “independent republic.” Intrinsic to this was also the framing of protective legislation as a bestowal to workers by an enlightened state. In the official publication of the Ministry of Labour, the Turkish state’s labour policy was defined as the product of a “humanitarian perspective.”¹³⁸

A nationalist historiography of development and a patriotic motive attributed to labour constituted the discursive building blocks of industrialisation. As would be expected from any nationalist context, this historiography was quite selective. It successfully erased from the official narrative of recent Turkish history the wave of strikes and labour unrest that took place between the beginning of the second constitutional period in 1908 until the mid-1930s (see Chapter 6). The result being that, in a trade union paper, we find an author comparing workers to women, the two social groups that obtained their rights without having to struggle for them like their European counterparts.¹³⁹ In state rhetoric, class strife and class struggle were part of a Western history that the young republic needed to avoid repeating at all costs. It was this fear that pushed the ruling elite to act as if it faced a large, militant, and organised industrial labour force, and subdue the language of class under language of nation. The resulting regime of labour regulation would have long-term consequences for the structure of industrial relations in Turkey.