Ottoman History Podcast - Turkish Economic Development Since 1820

Episode Date: January 17, 2019

Episode 398 with Şevket Pamuk hosted by Matthew Ghazarian Download the podcast Feed | iTunes | GooglePlay | SoundCloud What forces have governed Turkey's economic growth over the past two centuries? In this episode we speak with Şevket Pamuk about development in Turkey since 1820. In the late Ottoman period, low barriers to trade, agrarian exports, and European financial control defined the limits of economic expansion, while the transition from Empire to Republic brought more inward-looking policies aimed at protecting domestic industries. From the 1980s until the present, the Turkish government came to embrace the set of policy recommendations now called the Washington Consensus, defined by trade liberalization, privatization, and de-regulation. We discuss key moments during each of these periods, comparing Turkey to other countries around the world. We also discuss broader historical debates about Islam in economic history as well as approaches to the economic as an object of study. « Click for More »

Hello, and welcome to another episode of Ottoman History Podcast. I'm Matt Gazarian, recording here in Istanbul with Professor Şevket Pamuk. Welcome to the podcast. Thanks for having me. Şevket Pamuk is Professor of Economics podcast. Thanks for having me. Şevket Pamuk is professor of economics and economic history at Bosphorus University's Atatürk Institute for Modern Turkish History and the Department of Economics. His books include The Ottoman Empire and European Capitalism, 1820 to 1913, A Monetary History of the Ottoman Empire, and most recently, Uneven Centuries, Economic Development in Turkey Since 1820, which is out from Princeton University Press in 2019. We'll draw on Professor Pamuk's work

to discuss the economic history of the late Ottoman Empire and the Turkish Republic, and we'll also go into some broader questions about methods and sources for the field of economic history when studying these regions as well as the broader Middle East. So to start off today, I wanted to ask you about the main argument of your most recent book, Uneven Centuries. In it, you draw on a lot of economic data that you yourself have compiled to show how Turkey's economic growth in the past two centuries has been more or less average when compared with other countries in the developing world, as well as global indexes. And the question you pose is why Turkey has been

so close to these averages? I actually really like this kind of question, because normally, as historians, we're pressured to look for why something is so exceptional. Whereas in this case, it's actually, why is it that this particular country is matching the global averages and the developing country averages. So I'm curious, what did you find? Why is Turkey's economic growth average compared to these indexes that you found? One of the exceptional things, if you look at this period since the Industrial Revolution, is that more or less steady increases in per capita income have become the rule around the world. And all incomes in most regions of the world have been rising since the industrial

revolution, but they've been rising faster in some regions and more slowly than the others. And most of the inequality we see around the world today between different countries has happened in the last two centuries. And within this framework, Turkey has done close to, perhaps a little above, developing country averages. close to, perhaps a little above, developing country averages. Precisely because Turkey has been close to these averages over the last two centuries, I think Turkey is a more representative case that it's a better case for understanding what happens in developing countries than the more successful examples, say, like Korea or Japan or Taiwan. Okay, the other thing I want to say is from the Ottoman 19th century to the present, there has been a lot of institutional change in Turkey. Tanzimat reforms aim to change institutions in law, education, bureaucracy, provincial administration, and so on. These kinds of reforms, more secular reforms,

continued in the early republic and then after World War II. In each of the periods, there are changes in economic policies and economic institutions. And many of these institutional changes were shaped by global rules, free trade, Bretton Woods after World War II, Washington Consensus. So, lots of institutional change. But my argument in the book is that these formal institutional changes, political and economic, are only part of the story. We want to know how these institutional changes interacted with politics, social structure, existing institutions, and so on. And only after we analyze this interaction can we fully understand why Turkey has done so well or why Turkey has done close to average. So my book examines the outcomes of this interaction between the formal changes beginning with Tanzimat, early republic, multi-party political regime, and the existing social structure, including those interest-based identity cleavages between the elites.

And these could be between seculars, conservatives, Muslims, non-Muslims, Alevis, Sunnis, and so on. But these cleavages also explain a good deal of this pattern. So it's the political situation and the structure of politics in the country that you see as a reason that the economic growth wasn't faster on the scale of someplace like Korea or Japan. It was not because it was not any higher, but it up and down, but it remained close to the averages. Okay. When you start in the 19th century, it's the late Ottoman period. The Ottoman Empire in this period

is basically an open economy defined by agrarian activity, European financial control, and the lack of protective taxes for manufacturers. And a defining moment for the Ottoman Empire in this period is in 1881, when the Ottomans, who have defaulted on their foreign debt, they agreed to the creation of this Ottoman Public Debt Administration, this European-owned administration, which comes to control, you say in your book, one-third of imperial tax revenues. In a previous interview on our podcast, we spoke with Coşkun Tuncer, and he discussed the shifting ways that historians have talked about this public debt administration.

If it's all right, I'd like to play the clip for you here. If you look at the traditional Ottoman historiography, Ottoman public debt administration was seen as a tool of imperialism. Here, the foreign creditors dictated the terms and they imposed foreign control over the Ottoman finances. So it is their gain and it is the loss of the Ottoman government. And this view was only revised in 1980s. You see a turning point in the Ottoman historiography.

Actually, this was a mutually beneficial process because as a result of foreign control, Ottoman government gained cheaper access to international financial markets. So what Tuncer is saying here is that, right, on one hand, people see this European financial control as basically imperialism. The Europeans come in, they're controlling things, but then there's a view that Tuncer talks about in the 80s, when people say, well, actually, this is more of a negotiation, and it was mutually beneficial in some ways. The Ottomans were borrowing at better rates than, say, Greece or Serbia during this period, who also were deeply in debt. say, Greece or Serbia during this period, who also were deeply in debt. Okay, so Joshkun is right about the fact that from the 1880s onwards, the Ottomans were able to borrow at significantly lower interest rates as compared to the period before 1880.

However, if you look at the whole episode, the Ottoman experience with borrowing in the 19th century up to World War I, it is ultimately a difficult and a bitter experience for the Ottomans. Coming in, in the 19th century, this empire has difficulty collecting taxes, so the state finances are always fragile. The institutions are not very strong. These things all sound like the experience of many developing countries in the 19th century, in the 20th century, even more recently. And they borrowed heavily in the 1850s, 1870s, and they didn't use the funds well, and they ended up paying for it. When you say not using the funds well,

what do you mean exactly? They did not use these funds for productive investment. They used these funds to cover current expenditures, for an expensive Navy, military expenditures, wars, and so on. So their capacity to pay back was not significantly enhanced as a result of the borrowing. They borrowed the money, but they didn't put the money towards anything that was going to help them pay back the money. Especially in the earlier period. In the later period, a lot of the borrowed funds went to railroad construction, and that helped them collect more taxes and so on. In addition to the burden to pay back, this indebtedness created huge dependencies in Ottoman foreign policy.

In the end, Ottoman foreign policy was dictated by whichever European state was willing to lend to the Ottoman government, especially in the years leading up to World War I, but also earlier periods. So on the whole, this was not a very good experience for the Ottomans. So I think one lesson to draw from this is that financial globalization, this is really what it is. You open up these systems and allow borrowing. It's not necessarily good if you don't know how to handle these instruments. And the Ottomans were not in a position to use this new possibility well, and it ended up badly. So when you talk about the transition from empire to nation state, starting in the 1920s and the 1930s, you describe how the government was finally free to set tax and trade policies that focused on developing domestic industry and the main drivers you write were strong protectionism

and industrialization combined with the creation of a muslim turkish private sector now these goals sound a lot like the goals of the late Ottoman period, especially after the Balkan Wars, when the dominant party of that period, the Committee of Union and Progress, or CUP, sought to implement protectionism and industrialization and the creation of a Muslim Turkish bourgeoisie, sometimes even resorting to campaigns of dispossession or violence against non-Muslims to bring about these goals. So I'm curious to what extent you see the interwar years as a period when these late Ottoman goals of protectionism, industrialization, and a Muslim-Turkish bourgeoisie are just finally realized, or if you also see some contrasts or some changes that come up

after the experience of the war and the rise of the republic. Yes, I see a lot of continuities because I would say that the leaders of both the CUP and the Republican People's Party in the early Republican era. They were educated in the same schools. They shared a lot of things. They were ultimately nationalists, Turkish nationalists, and they thought of national economic development as the long-term goal, and industrialization was the key process through which they would not only develop the economy but also help develop this Muslim Turkish middle class and both CUP and obviously to a lesser extent but Republican people's leadership also favored the Muslim Turks and discriminated in various ways against the non-Muslims. These are the continuities, but there are also differences,

and I think the differences are ultimately because the world changed. The CUP was in government during World War I, and that's a very difficult period, a lot of destruction. I mean, obviously, the long-term goal there was not economic development. Now, in the 1920s and 1930s, the new leadership at Ankara is trying to build the national economy. The non-Muslims are mostly gone. They have departed. They died. And they are searching. Until 1929, they don't have the right to impose tariffs on imports. And this is a holdover from Ottoman policies, right? Yes. After 1929, they have the right to adopt protective tariffs, but then comes the Great Depression.

So the big difference in the new era, the leadership at Ankara thought that private sector is weak. They needed greater control of the economy. So they adopt a new strategy of state-led industrialization, which the CUP did not envision in the earlier era. So that's also, in terms of the economy, that's also a big difference. also a big difference. State factories, new factories established by the state led the industrialization drive in the 1930s. But there is this kind of state-led attempt at industrialization in the Ottoman past as well. In the mid-19th century, the Ottoman state also embarked on a drive to establish state factories for state purposes. And in the 19th century, Mehmet Ali Pasha in Egypt, Nasser in Egypt, and other countries in the Middle East would do similar things,

state-led industrialization. We'll be back after a short musical break. Welcome back to Ottoman History Podcast. I'm Matt Gazarian, speaking here in Istanbul today with Professor Şevket Pamuk about economic history of Turkey and the Ottoman Empire. So in the post-World War II period, when the Turkish government is adopting this import substitution industrialization, basically trying to produce what would normally be imported, basically trying to produce what would normally be imported. For example, we import cars, let's build cars. We import sugar, let's produce it ourselves. This kind of approach. These were the same policies that were pursued in countries that have been called economic miracles, like Japan and South Korea and Taiwan. We mentioned these a little bit earlier. And you say that the sort of rapid

economic development seen in East Asia didn't take place in Turkey because of the structures and relationships between the bureaucracy and the private sector. I was wondering if you could talk about some examples from Turkish history that show how this relationship between business and government shaped the horizons of Turkey's economic development compared to other countries in this post-World War II period? In the successful industrialization of many East Asian countries, government interventionism played a key role. Well, in Turkey too, not only in the 1930s, but from 1960s as well.

State industrialization was seen as the key to successful industrialization. But state industrialization did not unfold in the same way in Turkey as it did in East Asia. Lots of different reasons, but ultimately it comes to the relation between the state and the various segments of the private undermining the effectiveness of state interventionism in Turkey from the 1960s on. And rather than supporting what would be successful industrializers, governments chose to support companies, firms that were politically close to them, that would support them in return. And when you're talking about the political cleavages, the identity cleavages, are there key moments or key examples that you think illustrate this, how government was split along particular lines and so certain businesses won out and other sectors struggled?

I would go back to the 19th century to talk about these cleavages. Already in the 19th century, in the aftermath of the Tanzimat reforms, you have cleavages developing. One cleavage is between the Muslims and the non-Muslims leading up to all the way to World War I. There is the perception amongst the conservative Muslims, especially in the interior, that Tanzimat benefited the non-Muslims first. That's the one cleavage. There is another one between the, let's say, the more secular elites of the center, reformist elites, and again, the conservative Muslims in the interior. So these cleavages continue to World War I and then continue in the early republic, in the interwar period. These cleavages are often seen as like a cultural disconnect, but I think they are also motivated and supported by interests, economic interests. The secular elites adopted during the interwar a policy of industrialization that favored the urban areas, but the conservative Muslims were in the provinces, in the rural areas,

and they lagged behind also in part because of the Great Depression. So then, if I'm hearing what you're describing correctly, this realm that people would often relegate to identity or something, or whether you're a secular person or you're Muslim or religious in some other way, these actually were also readily visible in economic interest, that most of the secular people lived in urban areas and favored industrialization that would favor urban areas whereas muslim people of the interior for example may favor more investment in mechanization of agriculture or something to

support the areas where they live do you see the economic interest mapping on to these things that might be called cultural yes especially in the developed countries today, we see what appears to be identity cleavages, but they overlap with economic cleavages. And in fact, these identity cleavages are often taken up by these elites in opposition. The Justice and Development Party today took up these cleavages. They tried to benefit by emphasizing these cleavages and oftentimes in order to stay in power and consolidate their rule. So for you as an economic historian,

the categories of the economic and the non-economic are crucial. They're central analytical categories for your work. But some authors have questioned the motivations for talking about an economic sphere that's somehow separate from the political or the social. For example, when we interviewed Shireen Sightly, she spoke about Palestinian businessmen during the mandate period. One of the Palestinian businessmen that she studies is named Fuad Sabah. You know, Sabah is basically, he's the first licensed accountant in the mandate period. He runs a company, he establishes a company called Sabah and company that continues to exist today internationally. And he edits this journal, which I spend my first chapter engaging called Al-Iqtisadiyat Al-Arabiya. And what's fascinating about him is that he is basically funding the rebels of the 1936-1939 revolt.

But he and his cohort are choosing not to cover the rebellion in the journal. So those Palestinian businessmen that she was talking about tried to pursue their economic goals independent of politics. Right. They're engaged. They're engaged in this, you know, very modern project of distinguishing the social from the economic from the political and really trying to say that we can have a project that's just about economics and not about politics, which is absurd. that's just about economics and not about politics, which is absurd. This division that these Palestinian businessmen are posing between the economic and then other spheres of life, it's difficult to maintain when you see the same man editing the economics journal and funding the rebellion.

How do they talk about politics and somehow divorced from economic policy? And what are the ramifications? What are the political ramifications? In her words, profoundly exclusionary class projects. I'm curious about your response to such critiques as an economic historian. How do you navigate this boundary between the economic and non-economic? And when do you struggle to decide whether something falls within this economic sphere? More generally, from this book, I come with the conclusion that you can't really fully understand long-term economic development without the political, without the non-economic.

political, without the non-economic. You can perhaps understand more narrow questions without resort to the non-economic, but long-term economic development, you can't really understand without referring to the political, social, cultural. And let me also say that by the same token, I think this is true for the modern period, but also for the early modern era. You can't understand many of the non-economic issues without some reference to the economic. Let me just give one example from the Ottoman era, me just give one example from the Ottoman era, earlier Ottoman era. The growing difficulties Ottomans had in warfare, especially against Austria and Russia in the West. Ottoman historians talk about Ottomans lagging back in technology, but they don't talk about Ottomans' weaknesses in finances, the Ottomans' inability to collect taxes. You can't really understand why these wars

were less and less successful without realizing how Ottomans were unable to collect taxes from the elites in the provinces, from the Aya. So that, in some ways, it's both for you, the economic, in some ways, helps explain these so-called non-economic spheres. You have to, yeah. It goes both ways. Both ways. So starting in the 1980s and until the present, the Turkish government came to embrace a set of policy recommendations called

the Washington Consensus. These were defined by policies like trade liberalization, privatization, deregulation, lower marginal tax rates. Some authors have said that the Washington Consensus would bring prosperity, and others argued that, in fact, it appeared to do just the opposite. How did Turkey come to embrace these policy recommendations in the 80s, like privatization, trade liberalization, deregulation, and what had been the major results? There are two cycles in Turkey of the Washington consensus. One cycle began in 1980, as you said, and these policies in the 1980s were led by Turgut Özal. He began with the military regime and then he established his own party and so on, and he led these policies. The second cycle begins in 2001 with the economic package prepared by

Kemal Derviş together with the IMF. Now we have had almost four decades of the new era. And what emerges is that in areas that define Turkey's relations with the rest of the world, economy, trade, globalization, financial globalization, yes, Turkey adopted the new policies. But when it comes to policies that are linked to the internal workings of the economy, are linked to the internal workings of the economy. Governments in Turkey have been very selective. They picked and chose some of the Washington Consensus policies, but rejected many of the others, including the Justice Development Party today. Financial globalization, trade liberalization continues today, but when you look inside, governments in Turkey today and also in the 80s and 90s did what was best for them. They did not continue necessarily with those Washington consensus policies, neoliberal policies and so on.

So I wanted to shift gears a little bit to talk about a broader historical question about colonization and the colonization or non-colonization of the Ottoman Empire. In the beginning of your recent book, you suggest that the lack of direct colonization is an important characteristic of Turkey's economic history. That Turkey's institutions and economy have not been subjected to wholesale institutional change by an outside power, and instead, formal institutional changes have been introduced from within. But earlier, we discussed how in the 19th century, European financial control was a central part of the Ottoman economic experience. part of the Ottoman economic experience. So how exactly do you see this European control as different from outright colonization? And why is that difference important for understanding Turkey's economic history? Obviously, European powers had a lot of influence on Ottoman economic policies and some of the institutional changes during the 19th century. Not only the Ottoman public debt administration, but also Ottoman adoption of free trade policies were strongly influenced, shaped by European powers. However, at the end of the day,

there are some outcomes that were different from the cases of colonies, especially about Ottoman land tenure, land regime, and the fact that European countries, European companies had so little influence in shaping Ottoman land regime during the 19th century. For example, European settlers tried to buy land in different parts of the Ottoman Empire, certainly in Anatolia, Western Anatolia, Central Anatolia, and promote large-scale farms across Anatolia. Well, this did not work. If we want to understand why it didn't work, we have to look at the Ottoman state and the resistance of the Ottoman state. And in this example, you see that formal political independence did make a difference. Equally, if we want to understand the 20th century Turkish agriculture, the predominance of small-scale family farms, again, is part of the Ottoman heritage.

And those things might have been different if we were talking about a formal colony. So you write how other authors have tried to show that Islam was a primary cause of economic stagnation in parts of the world where the majority of people identify as Muslim. And these other authors claim that features of Islamic law prevented more complex, impersonal, or flexible organizational forms to develop in the 19th century and later. What is your response to such claims that Islam brings economic stagnation? This idea of Islam causing economic stagnation is actually not a new idea. I mean, for centuries, outside observers tried to interpret this region's society, economics, politics, in terms of Islam. There is a broad literature called Orientalism, and this idea is really a continuation of that. It's really a continuation of that.

But I think there is a new strand in this literature which is arguing that it isn't so much Islam per se that's causing economic stagnation, but it is the use of Islam by rulers that's preventing change. My reading of the economic history, when there is demand for change, those changes did happen. Societies, states in the Middle East found ways of circumventing those Islamic rules. I think it's often not Islam preventing these changes, but in cases where these institutional changes did not take place, it's often that there was not strong demand for these changes.

You find in the early modern Ottoman centuries that many of the institutional changes were led, for example, by state elites. They wanted certain things to be done and they were able to circumvent those rules. Especially it seems because Islam could mean many things depending on time and place. And I think if I hear you correctly, what you're saying is that people would find the interpretations to make that possible within their interpretation of Islam. So where there is demand, those changes did take place. So you've compiled and published several sets of historical economic data on the Ottoman Empire and Turkey,

on prices, wages, inflation, trade, GDP. Can you talk a little about the process of compiling these sorts of data? What kinds of sources did you draw on? What kind of compromises or judgment calls were you forced to make? When I was embarking on some of these longer-term projects, obviously there was a field, Ottoman economic history. But I felt that unless we developed a quantitative infrastructure, we wouldn't be able to communicate with economic historians on other regions of the world. I had to think strategically, what are the most important quantitative issues that one, we need to do in the Ottoman Middle East area to insert it into the broader developing field of the economic history of the developing regions. developing field of the economic history of the developing regions. I thought money, prices,

wages was, and then GDP per capita were the key to start with. And there, I think one cannot be very dogmatic about which sources one is using. What I mean by that is that in Ottomanist historiography, there used to be this insistence, if you cannot find it in the Ottoman archives, it's no good. Well, you cannot really say that. Ottoman bureaucracy, Ottoman archives are good for answering certain questions, and the European sources are good for answering other questions. If you're talking about 19th century trade, at the end of the day, Ottoman archives cannot provide you the full picture. You have to rely as much or even more on the European sources. But if you want to do price history, history of wages, history of money, these are all very essential for long-term economic history, then you need to use the Ottoman archives. but there is, in history of prices, wages, money, there is a lot of

international work. Series, quantitative series one builds has to be fully informed by this emerging global literature. global literature. Professor Pamuk, I want to thank you very much for joining us on the podcast today. Thank you for having me. We've discussed key moments in late Ottoman and Turkish economic history, drawing on Professor Pamuk's many publications, including his most recent work, Uneven Centuries, out from Princeton University Press in 2019.

including his most recent work, Uneven Centuries, out from Princeton University Press in 2019. For those of you who would like to find out more, we will post a bibliography on our website, ottomanhistorypodcast.com, where you can find our latest episodes and stay up to date with news about our newest podcasts, as well as join our community of over 30,000 listeners. That's all for this episode, so until next time, take care.