Turkey Table of Contents

Turkish modernizers have long struggled to build an industrial system that would help restore the country's economic power. The import-substitution strategy followed until 1980 was designed to make the country an independent producer of manufactured goods. The result was a striking unfolding of industry, especially between 1950 and 1977, when the sector (including energy and natural resources) grew at an annual average rate of 8.6 percent in real terms, expanding its share of GDP from about 12 percent to about 25 percent. Despite the retrenchment of the early 1980s, the recovery of the industrial sector--which registered an average annual growth rate of 5.9 percent between 1987 and 1992--restored the sector to its pre-1980 proportion of more than 23 percent of GDP in 1993. By the early 1990s, industry was broadly based; the only individual industries accounting for more than 5 percent of industrial output were food processing, petroleum, textiles, and iron and steel.

Under the republic, the Turks have vastly improved their country's infrastructure and have achieved the ability to produce a wide range of products. The country's first factories processed food, such as sugar and flour, and nondurable consumer goods, such as textiles and footwear. Next came intermediate industrial products, including iron and steel, chemicals, cement, and fertilizer. By the end of the 1970s, the country was developing capital goods industries and high-technology products. Production of trucks and buses in cooperation with the West German firm Mercedes-Benz, and of F-16 fighter aircraft with the United States firm General Dynamics, indicated Turkey's industrial ambitions.

The press for rapid industrialization minimized the attention given to efficiency, and excessive protection forestalled competition that would have promoted efficiency; selling in the protected home market was much more attractive than attempting to export. Moreover, the rise of montage industries, which assembled such products as motor vehicles, consumer durables, and electronic goods primarily using imported components, meant that industrial growth required ever more imports. Hence, attempts at import substitution paradoxically tended to aggravate the country's trade balance. The capital-intensive nature of many industrial investments, especially those in the intermediate goods sector, caused employment in industry to grow relatively slowly, contributing to structural unemployment. Dependence on imported petroleum made the country highly vulnerable to increases in oil prices.

By the end of the 1970s, industry had reached a turning point. In the short run, the sector needed to overcome shortages of energy, imported machinery, parts, and processing materials that had caused a decline in industrial output during the last years of the decade. In the longer run, to become more efficient and to enable increased exports, the industrial structure had to be adjusted in accordance with the country's comparative advantages. In effect, industry would have to transfer resources out of uncompetitive industries to favor those that could compete in world markets. The difficult adjustment process started during the early 1980s, and substantial progress was made under the Özal team. Under the new outward-oriented development strategy, as under the old import-substitution policies, industry was to be the leading sector of the economy. Industrial performance--especially in export markets--would determine if that strategy would be successful.

Many of the problems of import substitution had not yet been overcome by the mid-1990s. Much progress had been made in spurring private-sector-led industrialization, particularly in light manufacturing and export promotion, however. Light manufactures and iron and steel accounted for an increasing proportion--and since the 1980s, the majority--of exports. Moreover, foreign investment in the industrial sector, made either directly or through the stock market, had begun to have a positive impact on Turkish industry. However, much of industry was still dominated by the public sector in early 1995, and private-sector companies still depended on crucial inputs from public-sector industries.

Industrial Policy

In line with the shift to an outward-oriented development strategy, in 1980 Turkey's policy makers began to revamp the country's industrial policy. The new policy set forth four related goals for industry: upgrading the role of market signals in decision making, increasing manufacturing exports, enlarging the private share in manufacturing, and reforming the SEEs to reduce inefficiency. In the early 1990s, a fifth goal was added: privatization of public-sector entities. Policy makers were also concerned with obtaining adequate energy supplies and providing enough work for the growing labor force.

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Source: U.S. Library of Congress