The Ottoman Empire established a strong tradition of government direction of the economy. Ottoman economic doctrine ascribed to the state both the right and the duty to control the economy for the common good. The state controlled a large proportion of the land and suppressed power centers, blocking the development of a landed aristocracy. One's position in the imperial hierarchy was the primary determinant of income. Because the sultan confiscated his functionaries' wealth when they died, status could be passed on only by means of education. For example, candidates for positions in the bureaucracy were required to have command of the Ottoman language. Peasants and artisans also claimed and received protection from the state, often at the expense of economic modernization. The bureaucracy had little interest in economic growth, which might lead to the rise of a new class that would challenge its dominance. To ensure control of certain urban-based production and service functions, they were reserved for minority groups.
Republican Turkey inherited attitudes and memories from the Ottomans that continue to play a key role in the country's political economy in the late twentieth century. Republican leaders believe that the state has a duty to intervene in the economy, not only to strengthen the nation against foreign intervention but ultimately to further the well-being of the people.
Scholars traditionally have stressed the significance of state intervention in the economy during the early years of the republic, but more recent research indicates that Turkish economic policy was relatively liberal until the 1930s. The government made significant investments in railroad and other infrastructure projects, but the Law for the Encouragement of Industry of 1927 and other measures encouraged private enterprise. Moreover, Turkey's economy was relatively open to international markets during the 1920s. Under the provisions of the Treaty of Lausanne of 1923, the capitulations were abolished, but Turkey could not introduce protective tariffs until August 1929. As a result, tariffs remained low, and the Turkish lira was convertible and floating. Foreign interests invested in both public and private enterprises, helping to initiate industrial development. During these early years, economic growth was satisfactory, but the country ran chronic foreign trade deficits despite the continued fall in the value of the lira.
Turkish economic development reached a turning point with the Great Depression. By 1930 foreign markets for Turkish agricultural products had collapsed, causing sharp declines in the prices of agricultural goods and a corresponding decline in national income. Dissatisfied with the slow development of industry, Turkey's leaders began to look for alternative policies. During the late 1920s and the early 1930s, economic and political thinkers discussed alternative approaches to national economic development. The interventionist trend in Western economic thinking, represented by works such as John Maynard Keynes's The End of Laissez-Faire (1926), influenced the theoretical debate. The apparent successes of the Soviet Union's drive to develop heavy industry under its First Five-Year Plan (1928-33) also impressed Turkish thinkers, although in the end Turkish policy borrowed primarily from the West.
Data as of January 1995