Tekel is the government tobacco monopoly and each year sets minimum prices for leaf tobacco-usually above the price that merchants are willing to pay. Often Tekel must resort to support buying in excess of immediate requirements. Surplus stocks are later sold on the market or exported.

The General Directorate of Monopolies of the Republic of Turkey (Türkiye Cumhuriyeti Tekel Idareşi-TCTI) annually purchases all tea output. In an attempt to make the country selfsufficient in tea production, prices for tea leaves are fixed to cover both production costs and a reasonable profit. Generally these are well above world market prices and Turkey can export tea only at a loss to the Ministry of Monopoly and Customs. The Department of Standardization establishes standards for commercial farm products, particularly those intended for the export market.

Other Programs

The largest expenditures for irrigation are made by the state. Irrigated area in 1962 was estimated to be about 2.8 million acres and it was expected that this would expand to about 4 million acres by the end of 1967. This would mean that the percentage of irrigated land would rise from 4.4 to 6.5 percent of total agricultural land. The First 5-Year Plan provided for investment in agriculture of LT10.5 million, a figure totaling nearly 18 percent of the entire planned investment. It was projected that agricultural production would rise at a rate of 4.7 percent a year. This was to be realized through more intensive crop production, soil conservation, irrigation, increased mechanization, greater use of fertilizers, improved seeds, and the use of insecticides.

The emphasis of the government's policy during the First 5Year Plan was to subsidize the prices of inputs such as fertilizers, feed and seed rather than to underwrite the prices of farm products. Monopolies and government agencies continue to regulate market prices, however. The plan stipulated that LT341 million was to be devoted to the establishment of agricultural training schools, and between 1963 and 1965 five regional schools were established. Although extension activities are fragmented, much of the improvement in agricultural yields can be attributed to extension workers.

Agricultural activities over the period of the First 5-Year Plan have been experimental and the results, uneven. The programs established by the government in this period have improved agricultural production in Turkey. Further improvements in all aspects of agriculture will be needed to meet further targets of the plan.

CHAPTER 20
INDUSTRY

As of 1968, the economy could be described as being in an intermediate stage, neither underdeveloped, nor advanced. It had reached this point of development largely as a result of the energy and hard work of the people, but also as a consequence of foreign assistance, particularly after World War II. Approximately onethird of industrial production is government-owned, mainly through such official agencies as the Sümerbank.

The Kemalist revolution rooted itself in a ruined and impoverished country. During the Ottoman period, economic progress had been slight, and the cumulative effect of successive wars had left the economy in a backward state. In this environment the Kemalist government projected a policy of rapid expansion and planned industrialization based on a mixed pattern of protectionism and private ownership. To accelerate this expansion in the 1930's, the government instituted two 5-year plans which marked the beginnings of statism, one of the "Six Arrows" of the Kemalist principles (see ch. 14, Political Dynamics). World War II interrupted the expansion of the economy because of the difficulty in acquiring critical imports, spare parts and construction materials.

In 1947 United States aid began and industrial development quickened, with emphasis on major projects for road construction, ports, electric power stations, dams, and mines. When the Democrat administration took office in 1950, it reduced previous emphasis on statism. By 1954 the government resumed a heavy interest in the economy with the establishment of the Industrial Development Bank. In large degree the 1950's were characterized by uncoordinated expansion of industry and high inflation which resulted in excess plant capacity and wastage. The government resorted to controls in 1958, causing many factories to shut down for lack of supplies.

The effect of uncoordinated industrial expansion was a contributing cause for the entry of the military into politics in May 1960. One consequence of 18-month army rule was the setting up of the State Planning Organization to check the economic drift. The revolution initially undermined business confidence, and the

economy encountered difficulties. The years following showed more satisfactory progress.

The Demirel government, which came to power in 1965, inherited the First 5-Year Plan covering the period 1963-67 and applied it with success. The government announced the Second 5-Year Plan (1968-72) in August 1967. Like the First 5-Year Plan it specified a goal of a 7-percent growth rate, and indicated an investment of an average of more than 21 percent of the expected gross national product. The plan also makes a further effort to come to grips with the structural reforms still needed in the economy. The Second 5-Year Plan places more stress on the importance of private enterprise, and is cautious about broadening the government sector. The plan does, however, permit more official activity in social and educational activities.

In 1967 industrial output grew 11.8 percent in real terms. Since the elections of October 1965, industrial output has grown faster than before and, notwithstanding a shortage of foreign exchange for the purchase of capital equipment and the absence of an organized capital market, the conditions for investment have improved.

Turkey is an associate member of the European Economic Community (EEC) and receives tariff benefits for agricultural exports and financial aid (see ch. 23, Foreign Economic Relations). The country is a member of the Central Treaty Organization (CENTO), and is particularly interested in the economic potential of that regional grouping. The Organization for Regional Cooperation and Development (RCD) comprising Turkey, Iran, and Pakistan has developed a working record and, in the view of some observers, could be a potential "Islamic Common Market."

BACKGROUND OF CURRENT DEVELOPMENT

There was no real industrial development under the Ottoman Empire and manufacturing was practically all confined to smallscale handicraft. The first law to give any impetus to industry ("The Provisional Law for the Encouragement of Industry") was enacted in 1913 during the last years of the Ottoman Empire. A 1915 industrial assessment counted only 164 industrial establishments of all sizes in Istanbul, Izmir, Bandirma, Bursa, Usak, and Munsia. In the early stages of World War I, the capitulations were abolished and protective customs duties were put into effect. However, the war itself and its results prevented any satisfactory growth of industry.

After the war industrialization began to spread, and by 1921 the number of industrial establishments increased nationwide. In 1923 the First Economic Congress was convened in Izmir and its

first tangible result was the revision of "The Provisional Law for the Encouragement of Industry." A New "Law for the Encouragement of Industry," enacted in 1927, stipulated the stateowned land would be given free, under certain conditions, to those who would make industrial investments. It further provided that no customs duties would be assessed on imports of industrial machinery and materials needed by industrial plants. In addition special rates were to be applied to railroads, and the products of state monopolies needed by industry were to be subject to discounts. Manufacturers were to receive subsidies during the first year of operation and domestic products would get priority in state purchases. Extensive tax exemptions were allowed in certain regions, and people with technical backgrounds were discharged from the army to work in industry.

In the early 1930's the Kemalist government decided that previous measures were inadequate to provide for rapid industrialization and the Republic embarked on a statist policy of government operation and ownership through the State Economic Enterprises. Among these, Sümerbank and Etibank were organized separately to replace the Bank of Industry and Mines, which had been founded for the purpose of making industrial loans.

This policy was embodied in two 5-year plans that emphasized the development of heavy industry. Under the First 5-Year Plan in the 1930's the Institute for Mineral Research and Exploration and the Institute for the Study of Energy and Electrification were set up as investment enterprises. In addition, the steel, textile, chemical, sugar, paper, and cement industries, among others, were founded. During the latter part of the 1930's state investments were fully implemented but private investments failed to keep pace. The state concept was also written into the constitution, expressing conviction that only the state could combine initiative, resources, organization, and planning capacity to expand industrial production. The constitution also reflected suspicion of foreign capital in domestic industry.

World War II prevented the implementation of the Second 5Year Plan and curtailed state investments. Difficulties encountered in importing machinery, materials, spare parts, and certain raw materials slowed new industrial construction. However, industries already developed, such as textiles and pharmaceuticals, continued to expand.

In 1947 the government began to accelerate industrial development, particularly the sugar, textile, and building materials industries, because raw materials for them could be obtained locally and their products could replace imported goods. New investments were made in private enterprise as the government encouraged

private ventures by expanding credit facilities through the banking system, establishing the Industrial Development Bank, and offering guaranteed returns on those enterprises considered desirable from the standpoint of national welfare.

Foreign investment was not encouraged extensively until the revision of the foreign investment law in 1951. Thereafter a number of foreign firms, primarily United States, West German, and Dutch, made substantial investments in new industries. Such investments were impeded after 1955, however, when the government imposed heavy economic controls on the import, production, and sale of most consumer goods as a result of the shortage of foreign exchange and the rising cost of living.

Current Development Planning

During the mid-1960's the approach to development was evolving into a concept of expanding industry through private enterprise. The pioneers of heavy industry-iron and steel works, petrochemical products, industrial and chemical products, cellulose and paper-were the State Economic Enterprises, but mixed economic enterprises became more important and the private sector began to shift investments into heavy industry. In 1967 the Industrial Development Bank (Sanayi Kalkinma Bankasi—SKB) announced new and facilitated procedures under which it will extend medium-term loans for private industrial investments. In addition the resources of the Industrial Development Bank were to be increased substantially in 1968 through the Consortium for Aid to Turkey of the Organization for Economic Cooperation and Development (OECD) (see ch. 23, Foreign Economic Relations).

The country's projected efforts through 1972 are designed to achieve more rapid industrial development. In particular the produtcion of intermediate goods is necessary in order to lay the foundation for the installation of capital goods during the Third 5-Year Plan period (1973-77). Mining, manufacturing, and power will absorb 34 percent of the total planned investment during 1968-72; this effort involves increasing emphasis on private sector investment, especially in the manufacturing industries (see table 20).

Role of Government

To industrialize and modernize the economy, the government operates a public industrial sector. In this way the government exercises direct control though official agencies or indirect supervision through semiautonomous enterprises in which the state has a majority financial interest.

The government owns approximately 30 percent of all industrial