Who Are the Small-Scale Actors?

First, we need to discuss terminology. Different terms have been used in different periods to denote the small- and medium-sized businessperson in Turkey: craftsperson and/or merchant (esnaf), artisan-craftsman (zanaatkar), small producer, small industrialist, and small businessperson can be counted among these. Even though most of these terms can stand in for one another fairly readily, one can also see a preference for one or another depending on the time period. In this study, I generally use the terminology that is valid for the period under discussion.

The legal definition of the size of producer (small, medium, large) in Turkey, as elsewhere, is first arrived at through numerical values, countables such as number of employees, annual financial turnover, and energy (horsepower) consumed in production.^{Footnote 1} According to the Second Five-Year Plan, in effect between 1968 and 1973, a small industry in Turkey was one with ten or fewer employees or whose production consumed 10 horsepower or less of motive power. Official definitions additionally required the presence of serial production, technical division of labor, and full-time employment for a workplace to qualify as a small production facility.^{Footnote 2} The legal definition of another small producer group, the esnaf, was the same as that of the small industrialist—that is, producers employing fewer than ten workers. Thus, legal definitions that regarded esnaf, small industrialist, and small producer as belonging in the same economic group are to some extent responsible for the interchangeability among these terms.

In the 1950s, although esnaf referred to the “small” group in its entirety, it is difficult to encounter official institutions’ quantitative definitions that would highlight this group’s common characteristics. For example, esnaf business lender Halk (People’s) Bank’s roster of qualifying esnaf businesses lists a total of fifty-one professional groups.^{Footnote 3} Indeed, when the State Planning Organization (Devlet Planlama Teşkilatı [DPT]) was established after the coup administration came to power, it worked to determine numerical distinctions among the various small producer types, partly to help decide how state support should be distributed according to more detailed categories, in addition to clarifying the producer groups’ characteristics with greater precision. The Turkish Commerce Law’s relevant article states that there were essentially two features distinguishing the esnaf from the small producer, here understood to mean merchant (in at least intermittent posession of a certain surplus): the esnaf was understood to rely on physical labor more than on material resources in his or her activities. Second, for a producer to count as esnaf, his or her earnings should cover no more than basic living expenses.^{Footnote 4} Thus, the esnaf was, by definition, someone without the capacity to save, whereas the small producer was an economic unit with the theoretical potential of evolving into an industrialist.

It is difficult to offer clear figures on the number of small producers in the period in question; different sources offer different totals. A DPT publication claims that the small producera numbered 400,000 in the 1950s,^{Footnote 5} with this group making up 1.5 percent of the total population and 5 percent of the registered voting population.^{Footnote 6} This figure reached 1.5 million in 1965, of which 600,000 were counted as small industrialists/producers.^{Footnote 7} This means that, given the nation’s population of 31 million in that year, the esnaf made up 4 percent, and the small industrialists 2 percent. Whatever opinions there may be on the exact figures, small producers were clearly making their presence increasingly felt within the population throughout the period, second only to farmers in importance. Politicians could no longer turn a deaf ear to their demands.

If it took until the 1950s for this historical actor to emerge, the origins of the small producer in Turkey hearken back to the early days of the Ottoman Empire. According to Evliya Çelebi’s travel account (Seyahatname), one of the oldest sources on this topic, the Ottoman esnaf, which was organized into Ahi (a Sufism-inspired professional grouping) and professional guilds^{Footnote 8} in the first years of the Empire and formed close relations with the Palace, numbered up to fifty-seven professional groups in seventeenth-century Istanbul. Up to 32,000 individuals belonged to the 1,100 guilds within which the esnaf groups were organized.^{Footnote 9}

Although the Turkish esnaf’s importance was undeniable in the economic and political life of the Ottoman state, toward the end of the era, non-Muslims—notably, persons of Greek heritage—had come to dominate in industry and commerce. Following the declaration of the Republic, as these small producers left the country with the mandatory population exchange or by their own free will, national productive capacity dipped dramatically. This certainly seems to point to a weakness in historical ties between small business and the Ottoman esnaf. Indeed, a study done in 2000 found that from generation to generation up to this day, the small business category in Turkey has always been relatively small. According to a survey, 63 percent of small businesses involved in the study had been founded by the interviewee himself or herself, 25 percent had been inherited from the interviewee’s father, and five percent from his or her grandfather.^{Footnote 10}

What is the social background of the small businessperson? We have little clear data, except to say that it is a heterogeneous group that includes farmers, aristocrats, blue-collar workers, esnaf, and members of the urban middle class. The most salient common trait of this otherwise diverse group is its members’ personal participation in production processes and their insistence on doing “what they know.” When asked, in interviews conducted in Bursa and Istanbul, how they had chosen their professions, a significant number of small businesspeople replied: “This is the only work we know. We could do no other.” Given that the carriers of these kinds of professional knowledge do not include large capitalists, they have been compelled to take “supplemental” and “dependent” productive roles vis-à-vis big industry.

As another salient aspect of Turkey’s small-business “culture,” many have assumed that, because Turkish small industrialists support Islamic and conservative parties, their economic and political belief systems tend to be conservative as well. Thus, it is startling to observe this group serving as a catalyst for economic transformation, particularly in the 1950s.^{Footnote 11} It is worth recalling that in the 1970s, when Islamic parties entered the Cabinet with the small producers’ backing, front-burner issues were not political but economic: industrialization and development. Shambayati informs us that when the Islamic National Party became a partner in government, it focused its energies on such ministries as Industry, Commerce, and Technology, rather than on Education, for example, as might have been expected. He concludes that Turkey’s Islamists are not always as “Islamist” as might be imagined.^{Footnote 12}

As to organizational type, we observe that the great majority of Turkish small businesspeople prefer the family firm structure.^{Footnote 13} This preference also tends to dominate throughout the business world, but it is especially the case for smaller firms. Such firms’ owners, moreover, typically distrust anyone from outside the family in decisions regarding not only major investments, but also quotidian operations. These owners are wary of professional managers, and show little taste for alternative financing schemes.^{Footnote 14} These traits are not unknown in international business, but it could be said that the Turkish distrust of resources outside the family goes a step further. For example, in Germany, corporation law allows for family members to have the final say in family firm-related decisions, yet it also ensures that banks and other partner-firm representatives have a place on executive boards.^{Footnote 15} This is a condition that most Turkish small industrialists would find unacceptable. Merger or partnership with another firm, or turning over shares to another group, are options that would not be viewed favorably.

That Turkey’s small industrialists lack a culture of partnership and are incapable of entering long-term cooperative relations with other firms is clearly not an ontological condition, but rather is more a result of the government’s failure to create rules and structures that would engender trust and promote cooperation in the business world. Thus, a brief discussion on trust in the economy and a glance at Western experiences in this regard may be helpful here.

The Trust Factor: An International Comparison

Following World War II, a number of nations eager to make their industries more competitive worked to encourage cooperative synergies between small and large producers. Assessing to what extent and in what conditions they managed to succeed leads to the following conclusion: Coordination between firms requires long-term, not short-term, relations. Moreover, a robust long-term relationship involves more than just tallying up the financial indicators in hopes of gaining advantage, or relying on agreements that attempt to describe the working relationship down to the smallest detail, as assumed in neoclassical economic theory.^{Footnote 16} Neoclassical theory, of course, tells us that this give-and-take relationship among economic actors is limited to what appears to offer the best return at any given moment, according to short-term calculations. Such relationships are managed by sound information derived from prices and other economic indicators. Neoclassical theory further tells us that rational economic actors may create the conditions for long-term cooperation by freely entering into mutual agreements. Thus, no special effort is required to achieve coordination among firms, and to the extent that they are present, it is the financial instruments of governments (such as credit and incentives) that influence their decisions.

It is understandable that neoclassical economics might come to this conclusion, since it assumes a world of many small firms, none of which is capable of influencing prices. In such an environment, described as a fully competitive market, each firm would make its investment decisions based on prices that accurately reflect the conditions of other sectors of the economy. Thus governments wishing to influence firms’ economic decisions need use no more than monetary tools to manipulate the prices of investments.

In the real world, though, coordinating relations among firms is a far more complex process. Among other things, the fact that prices can be controlled and manipulated by large firms seriously puts into question any infallibility in communicating meaningful information that has been attributed to them by neoclassical understanding.^{Footnote 17} The state can always influence the price of investments, and hence profit margins, but coordination among strategic-priority firms, and small firms in particular, sustaining partnerships over many years, are key to succeeding in the kinds of specific and inflexible investments that alone may secure earnings.^{Footnote 18} The short-term and intermittent financial incentives offered by populist regimes are not likely to persuade small firms to commit to investments that make them dependent on larger ones. Furthermore, counter to prevailing opinion, when firms confirm investment decisions, these are not limited to short-term profit calculations but generally have security as a first priority. The security aspect of investment here means procuring raw materials needed for production without interruption and at reasonable prices, and expecting that the prices obtained for their products will reflect their true value on the market.^{Footnote 19} Chandler found that investment decisions of the earliest large, modern firms in the USA were of a more defensive than profit-motivated nature, essentially striving to ensure the uninterrupted flow of material, both forward and backward.^{Footnote 20} That is, investment decisions had less to do with financial incentives and the ability to obtain capital, and much more to do with market structures.^{Footnote 21} On the same logic, Zeitlin has made the point that where there are no institutions to mediate among actors when conflict arises, state credits and other services are not particularly meaningful.^{Footnote 22}

These factors bring us to the most critical concept regarding inter-firm relations in the organization of industry. This is the concept of “uncertainties”—one that has been neglected by mainstream economics. When monetary incentives and agreements among actors fail to alleviate these uncertainties, it can be said that the most important “incentive” that states can provide for ensuring coordination and cooperation among firms is creating institutions that reduce uncertainty.^{Footnote 23} This is particularly true for collaborations requiring expertise at various phases of production, for strategic relationships in which (1) critical information is shared among firms, (2) unexpected developments are experienced, and (3) time lapses occur between investment and return on investment.^{Footnote 24}

Examples from history show that the most effective collaborations among firms involve “public deliberative forums” in which all parties—the state included—actively participate and engage in effective information sharing as part of their commitment to problem solving.^{Footnote 25} In such forums, personal relationships prove to be as significant as the institutional and official relationships in question.^{Footnote 26} For Zeitlin, the “high levels of information exchange” and “frequent interactions among the nodes” facilitated by these institutions can replace tens of thousands of professional managers in the tasks of building coordination and reducing uncertainty in hierarchical organizations.^{Footnote 27} Some nations have succeeded better than others in these functions, as the examples that follow aim to document.

The nation boasting the highest level of harmony between large and small industry is undoubtedly Japan. Thanks to the mutual trust and concentrated division of labor among firms, Japan produced goods with particularly high competitive value and taught the world its “just in time” production management model in the 1980s. Fukuyama shows how the element of trust in these relations was partly a component of traditional culture and claims that national cultures with high levels of trust and social capital have less need of state assistance for ensuring efficient inter-firm cooperation.^{Footnote 28} The importance of belonging to a group in Japanese culture no doubt facilitates relations among firms, although the active contributions of governments should not be overlooked.

Since the seventeenth and eighteenth centuries, Japanese governments have put constructive efforts into creating institutions that augment the effects of “societal sanctioning,” with the goal of strengthening trust among firms.^{Footnote 29} With this system, managers of firms, particularly those organizing at the local level, meet frequently to share information, thus forming a kind of network. Because of these networks and their social activities, any supplier or final producer who behaves unethically will be sanctioned by colleagues and perhaps threatened with difficulty in finding future employment. This process, which involves the formation of effective mechanisms between the supplier and the main firms for monitoring one another with respect to cost, price determination, and quality control, is supported by the government.

The state, moreover, has given these business organizations the authority to penalize any parties found in violation of the working rules and procedures.^{Footnote 30} To have this authority to discipline rule-breakers is critical. Chandler argues that the United States’ failure to grant this right to working associations formed in the early industrialization period is one reason that hierarchies, not inter-firm solidarity, emerged to dominate American industrial organization.^{Footnote 31}

The Japanese state worked actively to increase the numbers of these business organizations. Under the nineteenth-century Meiji regime, local trade associations known as dôgyô kumiai actively handled quality control and sought qualified personnel to take positions as needed by industry. In the 1920s and 1930s, the Japanese Ministry of Industry (MITI) worked to increase the numbers and effectiveness of the kôgyô kumiai (industrial or manufacturers’ associations), particularly in the machine tool and auto parts sectors. When MITI did choose to use financial incentives for small capitalists, it did so only after consulting managers in the local chambers of commerce (shôkôkai) regarding distribution of the funds.^{Footnote 32}

Moreover, with instability in the labor market at the end of World War I, Japanese governments brought workers together with groups of small industrial firms that supplied the larger ones and installed various measures to sustain long-term relations between them.^{Footnote 33} Thanks to these measures, what we see in Japan today is small and large firm relations based less on contracts or market mechanisms than on dialog and mutual trust. Many studies show examples such as large industrialists’ losing income or orders for conjunctural reasons, even when joint agreements might allow them to do so, yet still making promised payments to its small industry partners.^{Footnote 34} The trust factor is of such importance that even when large firms engage in investment activities overseas, they do not let this affect their working relations with the small firms.^{Footnote 35} Such an approach is likely due to an awareness that small firms actually contribute to the global competitiveness of Japanese firms; thus the relations are preserved even at the price of occasional losses.

The trust relationship that exists between large and small capital in Japan generally evolves out of active social and personal relations. It is most interesting to observe how representatives of large and small capital take part in socializing opportunities and events side by side, with the goal of institutionalizing those relations. This situation could be viewed as the antithesis to that in Turkey, with its fragmented structure and its work life organized around contention over separate interests rather than partnerships based on interest.

The picture in Germany has similarities with that in Japan; however, Germany’s business world is organized on the basis of powerful sector-based cooperatives and chambers of commerce.^{Footnote 36} German firms coordinate among themselves thanks to these organizations, which embrace diverse interest groups and “help social integration and create solidarity even between competitors.”^{Footnote 37} In addition to this, the Labor Law and the Chamber of Industry are effective in implementing binding rules such as payment conditions, technological standards, and contract models to which the entire population is obliged to conform. Although these standards may be perceived as interference in the right to freely engage in contracts and agreements, they serve critical functions in reducing uncertainty and supporting the formation of long-term partnerships. However, despite the numerous rules and onerous conditions in the terms of contracts, court cases between large- and small-capital parties are surprisingly few in number. This is due in large part to a trust relation that allows the parties to show flexibility to one another, rather than each side adhering rigorously to the terms of the contract.^{Footnote 38} Beyond speedy exchanges of information thanks to personal relations, the German Chambers of Commerce and Industry have much greater authority to act than their counterparts in Japan. The German Chambers could be said to serve as veritable information production and storage centers to compensate for the imperfect information supplied by the marketplace. The German state is so insistent on the chambers’ information role that business organizations complain that they are unable to plan their working processes freely, and that these areas receive more state funding than they deserve.^{Footnote 39}

The Chambers of Commerce and Industry are such masters of information on the economy that they are able to provide more authoritative arbitration of disputes among firms than can state law courts. For example the German commercial courts, rather than adhering strictly to contract terms in a conflict, prefer to consult with the chambers for the fairest resolution. The same principle is valid for unexpected developments not covered in contract language. The German government promotes the chambers’ functions in two ways. First, the government directs its support only to chambers staffed with personnel of sufficient quality and number to produce adequate information and sustain its flow among firms. Second, unlike in many countries, the German business community has, for all intents and purposes, no direct access to government; however large or powerful they are, firms that wish to communicate with the government are obliged to work through the Chamber of Trade and Industry. This fact only enhances the chambers’ prestige and their muscle to enforce their own rules.^{Footnote 40} Finally, it should be added that the German business world is particularly good at organizing on the local level. In Gary Herrigel’s words, the institutions that direct the country’s decentralized industrial order are capable of creating close dialog with firms, of intervening directly in relations, and of adjudicating disputes among firms.^{Footnote 41}

The success of German and Japanese states in bringing about cooperation between large and small capital positively influences the motivation that small business brings to its “complementary” role. According to Frederick McKitrick, if German small industry has succeeded in thriving, this is thanks to its many years of acting in solidarity with large industry, its adaptivity, and its well-played complementary roles.^{Footnote 42} Karl Schöppler, president of the Wiesbaden Small Business Chamber in 1950, put it this way: “Today industry is no longer in any way an enemy of artisanship. Nor are artisans enemies of industry.”^{Footnote 43} Small manufacturers in Japan shared a similar perspective. Far from abandoning a supplemental role in the production of finished goods, the small manufacturer in Japan braved the threat of dependency, and avoided working with more than one firm in the same sector rather than permitting a blot on its loyalty.^{Footnote 44}

The Japanese and German record thus reveals, alongside the influence of historical circumstances,^{Footnote 45} the formation of long-term, strategic relationships among firms supported by actively turning to advantage nonmarket instruments^{Footnote 46} and mechanisms of persuasion.^{Footnote 47}

England’s business world, in contrast to those of Germany and Japan, is one in which trust is notably weak and relations among firms are managed through market signals. It is a nation whose business world is very sparsely organized. In contrast to Germany’s numerically few but influential and unifying chambers of commerce, those in England are much weaker and more fragmented.^{Footnote 48} The apparent absence of institutional arrangements to foster inter-firm relations pushes them to prefer switchable assets linked to momentary market signals, not specific or co-specific assets, forms of investment that are helpful in sustaining long-term relations.^{Footnote 49}

These two factors are doubtless likely to have a negative impact on relations between England’s large and small capital communities. According to Thoburn and Takashima, the degree of distrust between the two groups is so acute that although large firms do give intermediate goods orders to small manufacturers, they also invest in capacity to carry out the entire production process themselves, if necessary.^{Footnote 50} In addition to having few of the long-term cooperative relationships seen in Japan and Germany, many British court cases focus on incidents of large firms exploiting smaller ones.

Given these conditions, it is not surprising to see the small UK manufacturer, as in Turkey, show a tendency to prefer producing finished goods. Thoburn and Takashima’s fieldwork found that most intermediate manufacturers active in the motor and electric sectors in England believe that their position would be much strengthened by direct sales of their products to the consumer.^{Footnote 51} That small-scale British manufacturers manage to market up to 75 percent of their goods directly to consumers is a clear indicator of this preference.^{Footnote 52} Recalling that some Japanese manufacturers may sell nearly 90 percent of their entire production to one large firm clearly points up England’s distinctiveness in this regard. Following this brief discussion of other national experiences, we now turn to a more in-depth look at the Turkish case.

The 1950s: Emerging onto the Stage of History

In Turkey during the 1950s, many sections of society that were previously unable to make their interests known during the single-party period now began to surface and take a place in history. In a time of great transformations in foreign policy, economic philosophy, demographics, and culture, the political system was unlikely to remain unaffected. For our purposes, perhaps the most critical of these shifts was the adaptation of a relatively more democratic multiparty system to the nation and its population. This transformation in the political field made it possible for small actors, once almost entirely ignored, to suddenly take on importance. All across the nation, political parties, now competing for every vote, confronted two groups that commanded attention: the populous agricultural community,^{Footnote 53} and the smaller esnaf. During these years, the esnaf, representing a mere 5 percent of the voting population, took advantage of new legal arrangements to organize themselves rapidly and thereby proceed onto Turkey’s political and economic stage.

During the single-party period, the political climate had made it impossible for the esnaf or other social or economic groups to defend their interests. Moreover, according to its modernist view of the world, the dominant Republican People’s Party (CHP) generally held that in a nation aspiring to development, the small producer was destined to fade away. One sign of how widely this conviction was held during the single-party period may be seen in proceedings from the Esnaf Congress of 1936, which gave a tangible sense that the small craftsman was doomed to oblivion and there was no need to prevent this.^{Footnote 54}

The transfer of power to the Democrat Party (DP) in the 1950 elections ended the CHP’s twenty-seven-year rule, ushering in a golden age for the esnaf under Adnan Menderes, a populist leader in the true sense of the word. The change of mentality was clear for all to see, notably in Vice President Samet Ağaoğlu’s speech at a 1952 esnaf congress, in which he stressed that it would be possible to support small industry alongside heavy industry.^{Footnote 55} Official publications now frequently hailed the small producer as “the largest class after the farmers,” asserting that Turkey was henceforth “a nation of small business second only to agriculture.”^{Footnote 56} In their professional bulletin, esnaf representatives explained that the DP was taking small industry’s issues seriously from its very first years in office.^{Footnote 57}

These improved relations between esnaf and the government were not limited to friendly messages and demonstrations of good will. The esnaf lent its support to the DP administration throughout the party’s ten years in power, and, in return, sought an increase in credit opportunities to fulfill its dreams of increasing its scale of production and move toward greater wealth. This time, its wishes were granted.

The esnaf’s robust organizational network no doubt played a role in its demands being met. The DP government’s democratization efforts resulted in a growing number of organizations through which they were newly empowered to communicate demands to the regime and exert political pressure. Astutely, the influential esnaf press made it its mission to persuade every esnaf to join a professional organization. Its success in this effort can also be observed in the growing number of its cooperatives. Following the founding of the first cooperative with 78 partners in 1951, rapid organizational growth resulted in 76 esnaf cooperatives by 1955 and as many as 141 by 1960, totaling around 60,000 individual members.^{Footnote 58} This figure gives a clear signal that this group was poised to once again become an actor in Turkey’s economic and political history.

With the help of its empowered cooperatives, the esnaf began to achieve the goal of collecting a larger share of state credits. Statistics on various social groups’ share of these disbursements from 1950 to 1960 clearly show that small business was the only group for whom levels of credit actually increased, from 0.3 percent to 1.7 percent of the total. The percentage received by industrialists in 1960 did not change significantly from that of 1955, the earliest year for which figures are available, whereas agriculture’s share declined from 37 percent in 1950 to 35 percent in 1955, then to 33 percent in 1960. These groups fared similarly in relative income over the period. Agriculture had been capturing nearly 50 percent of the national income by 1950, but in the first half of this decade—historically, Turkey’s most aggressive growth phase—agriculture’s proportion of national income began to drop, down to 41.9 percent in 1955. Data show a little improvement in the second five years of the DP government, but the villagers’ 43 percent share of national income still lagged behind its 1950 level. Meanwhile, the esnaf’s share rose 1.5 percent over the ten-year period to pass 15 percent by 1960; the trend for all industry is similar.^{Footnote 59}

In sum, it can be said that as early as 1950 the small business community had emerged as an influential actor, a pressure group able to form close relations with the government, which helped it succeed in furthering its economic interests. Its aspiration was to secure funds to build up its productive infrastructure; that is, to get a larger share of the credit pie, which was itself expanding as part of the unique postwar-era environment. During the ten-year “golden age” through 1960 under DP leadership, small producers succeeded in achieving improved productive capacity. Their main objective then shifted from seeking credit to entering and participating in the domestic consumer market by producing and marketing consumer goods, a strategy that had become profitable under import-substitution policies.

What Has Changed? “Big Is Beautiful”

On May 27, 1960, Turkey witnessed the first military coup of its republican history. Though apparently triggered by political factors, the coup would have important economic consequences as well. The post-coup government created a powerful planning entity with constitutional grounding on September 30, 1960 under the Prime Ministry, the Devlet Planlama Teşkilatı (DPT, the State Planning Organization), and instituted a philosophy of economic planning that remained valid for twenty years. In Turkish economic history, the two ensuing decades are known as the “Planned Years”; the DPT put its stamp on the economic philosophy of the period. With the government strapped for cash, the “Planners” trained their sights on achieving a more judicious distribution of scarce resources,^{Footnote 60} an allocation of incentives based on evaluations of performance and productivity.^{Footnote 61}

The Planners’ influence on economic policies began to be observed very shortly after the coup, but the military regime’s approach to business had quickly made itself felt: Relations between government and business after 1960 hardly demonstrated a pluralism mediated by self-organized civil society players. Credits furnished to the esnaf following the coup did continued to rise and the esnaf continued to organize itself and institutionalize steadily,^{Footnote 62} while at the same time, coup governments generally sought to get greater control over business associations, even attempting to influence elections within the esnaf associations.^{Footnote 63}

For various reasons, big capital also failed to operationalize its own organizations to defend their interests. Both actions by the Istanbul Chamber of Commerce, representing large industry and hosting a wide and varied member pool,^{Footnote 64} and elections within the Istanbul Chamber of Industry following the coup produced results counter to big capital’s expectations.^{Footnote 65} Big businesspeople would thereafter have to defend their interests personally and not through a representative organization. In short, the 1960s witnessed an era of rising corporatism and particularism, in contrast to the pluralism of the 1950s.^{Footnote 66} This was because, unlike Japanese and German style forums that embraced all actors working for broader industrial organization and creating reciprocal confidence-building exchanges, Turkish business organizations became means for government to exert pressure on the business world.

Small manufacturers were most negatively affected by this new trend. Less successful than their large colleagues in approaching upper-level bureaucrats and no longer able to freely exchange information through their associations because of state interference, they complained bitterly, asserting that their post-coup demands had been pushed to the sidelines.^{Footnote 67} Small industrialists believed that free information exchange would make them more effective in forming and transmitting their demands to the state, and thereby would enable them to move into an economic position that was at least on a level playing field with that of big industry.

During Turkish Parliament debates on economic planning, various party spokespersons gave frequent and lengthy voice to the small industrialists’ complaints. The First Five-Year Development planning process, led by the DPT, was described as a technical group’s undertaking carried out behind closed doors.^{Footnote 68} Macit Zerren, speaking for the Justice Party (Adalet Partisi) during debates in the Senate, argued that drafts of the plan were being hidden like state secrets, and that businesspeople and other social groups were not being sufficiently consulted regarding them.^{Footnote 69} This tableau hardly resembled the governance mechanisms of nations successful in fostering trust in the business world.

In 1960s Turkey, as elsewhere, the reigning wisdom was that the path to achieving higher productivity was through large-scale investments. At odds with this understanding, import and taxation regimes and an insufficient flow of funds to the private sector all delayed the construction of large industrial plants. Hence, investors either did not materialize or preferred “small-capacity production facilities that contributed little to the national economy.”^{Footnote 70} However, Turkey could only hope to develop economically with large-scale industrial investments.

Indeed, signs of the 1960s sea change were visible by the mid-1950s, when the agricultural sector gained prominence. Conjunctural reasons for this included political populism directed at the farmer, and the Marshall Plan’s prioritization of agriculture to overcome Europe’s postwar food deficits. Thus, with new lands opened to cultivation, mechanization, the Korean War, and favorable climatic conditions, agricultural production and exports made dramatic gains in the early 1950s. The revenue earned financed an unplanned industrialization to generate basic, nondurable consumer goods, but this made the state permanently dependent on external financial resources.^{Footnote 71}

The DP assumed that Turkish agriculture would continue to present this happy picture well into the future; however, by 1953 incomes began to decline.^{Footnote 72} Yield increases were limited by the failure to leap forward in agricultural technology, by climatic conditions, and by the lack of new arable lands. Meanwhile, the end of the Korean War worked against Turkey in international terms of trade.^{Footnote 73} All these factors pushed generated difficulties with Turkey’s balance of payments.

By the start of the 1960s, the import-substitution style of development, which Turkey had been pursuing de facto since the mid-1950s, began to take on the trappings of official policy.^{Footnote 74} Now, not only was import substitution submitted to planning, but officials also hoped that a more sophisticated scheme for durable and nondurable consumer goods could be achieved. This would ultimately require the emergence of high-tech industrial facilities capable of large-scale production.^{Footnote 75} Thus, Turkey took on the role of producing intermediary and investment goods within state enterprises, leaving the more profitable production of final consumer goods to the large private industrialists.^{Footnote 76} The state began to wait for small industry to assume its proper role in this scheme.

Economic growth fueled by domestic demand did go hand in hand with the government’s import substitution policies, even if these did favor big industry. That is, although the goal was rapid industrialization, the manufacturing sector had to sustain itself mostly on growth in domestic demand alone. Thus, industrialization’s links with foreign trade were notably weak during the 1960s and 1970s, and Turkey was little integrated into the international economy overall. Manufacturing contributed a mere 18 percent to total exports between 1962 and 1970; by the 1970-8 period this share had risen to only 32 percent. The World Bank further calculated that exports’ contribution to Turkey’s economic growth amounted to no more than 5 percent for 1963–1968, 16 percent for 1968–1973, and –1 percent for 1973–1977. In sum, the state industrialization policy’s disregard for foreign demand allowed the domestic market to hold sway from 1960 to 1980.^{Footnote 77} The state mustered all its financial, credit, and international trade policies to sustain this new economic philosophy. High tariff walls protected manufactured goods, large industrialists secured abundant credit, high exchange rates facilitated importing intermediate and investment goods, and import licenses and foreign currency were readily available to big capital.^{Footnote 78} State tenders and public–private partnerships also funneled resources to large industries.^{Footnote 79}

The decision to provide incentives to large industry was not necessarily the most significant aspect of the regime’s 1960s economic policies, though. The DP government certainly supported large capital alongside the esnaf, but what distinguished the “Planned Era” was a new appeal to small industry. Obviously favoring “big” in the drive for greater efficiency and productivity, DPT bureaucrats made it clear that small business, too, would be supported—but only if it accepted playing a subsidiary and supplementary role to large industry. The planners argued that small firms’ refusing this role and seeing large industry as competition would result in scarce resources being squandered on units of unproductive scale. Thus, they frequently stressed that “support and incentives to small facilities will be handled with great care.”^{Footnote 80} By this they meant that small industry should avoid competing with big enterprises; credits and incentives for small industrialists would be provided only on this condition.^{Footnote 81} A similar approach is also observable in the activities and reports of the People’s Bank, which served as conduit for state credits to small industrialists.^{Footnote 82} Another significant topic noted in DPT reports concerned excess production capacity as a result of an investment glut in the 1950s. Turkish firms’ success in making manufacturing goods for the domestic market a profitable venture spurred many entrepreneurs, relying on generous credit, to undertake unrestrained investing. The DPT felt that because it was unplanned and uncoordinated, this overinvestment created capacities that failed to find domestic consumers, let alone buyers abroad. As has been noted, this had as much to do with the unproductive use of state resources as it did with the sharing of the domestic market, crucially important to Turkish industrialization.

Such were the approaches reflected in various DPT reports that influenced small industrialists’ strategic options throughout the 1960s. For example, a small producer active in this period, Orhan Demirtaş, affirmed that the import substitution policies that began at the end of the DP era had indeed encouraged this group to invest.^{Footnote 83} Just a few years later, however, Fahrettin Gülener reported in an interview that attempts to expand his business and procure more means of production generated zero response from the 1960s government.

In contrast to the DP period, then, the planned era encouraged large over small industry. Thus, it may not be surprising that small industry failed to make a new place for itself in the economy throughout the 1960s, even while continuing to receive increasing credits. Reduced to serving as large industry’s providers, small industry was far from happy with the result that the domestic market, now considerably more profitable thanks to import substitution policies, had been removed from its grasp. This emphasizes the fact that the competitive arena of the new period was the domestic marketplace—as much as, and even more than, credit provision.

The Big Ones’ Motto: “Not Without the Little Ones!”

In Turkey of the 1960s and 1970s, most observers believed that big capital was destined to gobble up small capital, absorbing it completely.^{Footnote 84} However, to the contrary, and particularly in the increasingly violent class conflicts of the 1970s, far from acting as predators, big business sought friendly relations with all private sector actors, even occasionally serving as spokespersons for small industry. For example, taking sides on the most controversial topic of the early 1950s, a 1962 Istanbul Chamber of Commerce publication warmly praised the planning period for increasing credits to small business.^{Footnote 85} Similarly, in the 1970s, criticizing the tax system, large industrialist Feyyaz Berker stressed that industry as a whole shouldered 73 percent of all taxes, but small industry’s tax burden was particularly oppressive.^{Footnote 86}

Turkey’s large industrialists were, above all, a product of the special environment that began to emerge around 1955. The protective import substitution policies designed to counteract the scarcity of foreign exchange directed large businesspeople, up to then engaged in mercantilism, toward industry “by necessity.”^{Footnote 87} New to production, much less to any area of specialization within it, these entrepreneurs focused on goods whose marketing networks they could control: durable goods such as washing machines and radios that could be assembled, and consumables such as food and textiles.^{Footnote 88} These sectors had advantages: extensive domestic markets and the possibility of obtaining some of their intermediate components within the country.^{Footnote 89}

The postwar period’s economic conditions affected both large and small industrialists. In the 1950s, the small producer sought to benefit from opportunities offered by inflation and abundant credit to produce highly profitable consumer goods for the protected domestic market.^{Footnote 90} Large capital objected to this, arguing that it would further constrict opportunities offered by an already limited domestic market.^{Footnote 91} In addition, large industry’s ability to continue to profit from its consumer goods assembly activities depended on an unbroken supply of intermediate and investment goods, but it was unable to source these consistently from abroad owing to the foreign exchange problem. Moreover, unlike in Germany or Japan, Turkey’s large industrialists did not take the route of developing the domestic intermediary goods market, if only for price advantages. The Turkish industrialists had little choice in the matter, as they lacked expertise in supervision or quality control of the manufacturing process. Thus, in search of sufficient supply and quality for these goods, the large industrialists sought to dissuade the small producers from using their investment resources in consumer goods production.^{Footnote 92} Should they succeed, the large industrialists could then both enjoy a competitor-free environment and retain access to cheap intermediate and investment goods.

With this strategy, large industry also hoped to create sources to deliver the foreign exchange it needed. Small producers of consumer goods could compete with equivalent large industry goods only by lowering prices, along with quality. Small producers could never hope to earn foreign exchange by exporting their typically inferior goods to a competitive foreign market.^{Footnote 93} However, by concentrating on intermediate and investment goods, even if at low profit levels, small producers could still earn foreign exchange and thus contribute to large capital’s growth, should the latter succeed in capturing a portion of the export market. That is, while continuing to support the idea of small industry’s mission as a provider of intermediate goods for large industry, the major firms, at one point, also urged their small brethren to think of marketing a portion of its production on foreign markets.^{Footnote 94} Consistent with this conviction, the Economic Development Foundation created by the Industrialists and Businesspersons Association of Turkey (TÜSİAD) stated in a 1971 report that the small producer could be a supplier not only to local big industry, but also to international firms. To do so would result in both foreign exchange savings and a reduction of in-country costs to the ultimate producer of contract production.^{Footnote 95}

In sum, relations between large and small industry throughout the 1960s could be called competitive overall, but not to the point at which the large wished to drive out the small. The big players wanted small manufacturers to direct their investments toward supplying them with intermediate and investment goods, and expected governments to generously support investments of this kind. As it turned out, small manufacturers resisted taking part in this scenario because conditions that would enable them to benefit from long-term relations of cooperation had not materialized; they remained “unpersuaded,” despite the financial incentives they had received.

Small Industry’s Struggle for Domestic Market Share

Turkey’s small industrialist community had never been homogeneous—and starting in the 1960s, it became even more diverse, making it more difficult to speak of unity around a particular political, social, or economic demand. At that time, however, one section of this community grew stronger economically and began to articulate its own economic views. This was the group that had managed to grow its businesses with credit financing from the DP regime, obtain modern means of production for the first time, and fully embrace an industrialist identity. A number of indicators suggest that this small-industrialist subgroup entered the 1960s on a more self-confident and ambitious footing, even in the negative aftermath of the coup. With the capital reserves and production capacity it had secured in the preceding decade, it believed itself capable of further successes, perhaps even of evolving into heavy industrialists, given the proper conditions. For this, of course, it hoped for increased levels of credit and other capital assistance from the state.

In 1967, a group of Ankara industrialists made these demands clear in the following statement sent to the ministerial cabinet:

As we have seen, it was both sides’ main desire that small industry seek closer relations with big capital and play a complementary role to it. Compatible with this demand, small industry first saw an opportunity in intermediary industrialism.^{Footnote 97} However, the small industrialist would soon see that doing business with big capital in an unregulated economy would not lead to growth and greater wealth, as had been hoped.

Small industry came face to face with big capital in two phases of the production and marketing processes. The first occurred in the context of procuring raw materials. Small producers were unable to directly purchase materials processed in state factories or from abroad, and were thus generally obliged to obtain them from large firms. However, the price of these materials rose steeply as they passed through the hands of three or four intermediaries on their way to the small producers.^{Footnote 98} Already in an unequal relationship with big capital on that front, small firms were similarly disadvantaged when marketing their intermediate goods. As big capital controlled all domestic marketing channels for finished goods, it also took the leading position in the new constellation of assembly manufacturing, and so became the sole buyer for small capital’s intermediate goods. Here, too, small producers were obliged to sell their goods almost solely to large firms, which held most of the bargaining power. In 1965, the President of the Ironmongers’ Federation, Şevket Çadırcı, described the situation in the following terms:

Here, Çadırcı repeated a call seen in a number of small business publications: the urgency of organizing within the enterprise community, as the esnaf had done in the 1950s. This time, though, its purpose would not be to lobby the government for more credit, as had been done earlier. This time, because so many small manufacturers were “entertaining dark thoughts” at merely being producers, small industrialists needed to create a system for marketing their goods by themselves, enabling them to secure fair prices.^{Footnote 101} One way or another, they needed to create cooperatives, as had been done in developed nations, to reap profitable sales.^{Footnote 102}

Political parties were aware of the small industrialists’ plight, struggling with low profit margins due to their weakness in marketing, and of this having become the main point of conflict with big capital. For example, the Republican Peasants Nation Party (Cumhuriyetçi Köylü Millet Partisi) demonstrated its awareness of small capital’s marketing woes in a propaganda brochure issued prior to the 1965 elections.^{Footnote 103} Even leftist segments of society, which frequently argued that small industry was doomed in a modern economy, stressed the difficult position small producers faced due to unfair trade conditions vis-à-vis big capital.^{Footnote 104}

It would be an overstatement to say that small industrialists wished to abandon intermediate industrialism entirely, even while enduring low profits; however, in parallel with their protests, they also began to produce goods for which they could create their own marketing channels and set their own prices. Many intermediate industrialists interviewed in Bursa expressed that this “concept change” was something that anyone with sufficient capital would wish to attempt. However, those who sought a move to finished goods often had to endure pressure tactics from big capital. Rıza Güral recounts that when he decided to go into independent glassware production, Şişecam, a major player in the sector, encouraged him to change his mind. At first unsuccessful in finding outlets for their goods and to avoid pressure tactics, the Gürals opted to work with retailers who had no prior relationship with their big competitor, then transform these retailers into dedicated outlets, creating their own marketing network.^{Footnote 105}

Small industrialists’ discontent with acting as intermediate manufacturers cannot be explained only by the predisposition for independence so frequently attributed to Turkish entrepreneurs. A 1986 study by Mine Çınar in Bursa shows that small industry’s potential for growth in other sectors appeared to be slim indeed, as long as they continued to sell their goods to wholesalers or directly to big industry, thus cementing those actors’ pricing decisions.^{Footnote 106} Groups such as sports equipment producers who, in marketing their own goods, stood as an exception to these prevailing conditions tended to show higher performance levels in “staying alive” and in growth.^{Footnote 107} Çınar concluded from these findings that for small industry to grow, “more than production efficiency, what matters is marketing opportunities.”^{Footnote 108} In some DPT reports, finished commodity manufacturers were regarded “if with reservations, as the enterprises capable of surviving and developing.”^{Footnote 109} From this we gather, contrary to general opinion, that the position of the small industrialist in league with large industry as an intermediate producer is not necessarily advantaged.^{Footnote 110}

The question of how successful the small manufacturers regarded themselves in finished goods production is not easy to answer. Many among those interviewed stated that although in the early 1960s big industry was still weak, leaving unclaimed many areas of production in which the small producers could do good business, by the late 1970s, any area big capital laid its hand on left no room for the small. For example, Anka Press owner Mehmet Aktaş observed that rather than teaming up with big capital as intermediate manufacturers, many small firms preferred to build their own marketing networks for finished goods. Still, if this meant competition with big capital, their chances of success would not be great. Similarly, Müma Makina owner Kamil Durer stated, “I could make the best refrigerator in the world, but I could never sell it as long as Arçelik and Beko are around. The big ones would never allow it.”

There is truth in this pessimistic view, as small industry could not seriously compete with large firms in consumer goods between 1960 and 1980. Furthermore, the state was not particularly successful in its attempts at transforming small industry into intermediate goods providers. We next turn to the state’s economic policies and try to evaluate them.

An Evaluation of the State’s Industrialization Policy in Turkey

The governments of the period did bring to bear various monetary and financial policies aimed at facilitating small industries’ forging complementary relations with big industry. However, the conception and implementation of these policies failed to be integrated into the national economic planning process. Planning documents stated that a selective incentive program would be carried out to encourage small industry in intermediate goods production, but capabilities such as production quality and use of technology, which might influence decisions on the allocation of these incentives, were not clearly spelled out.^{Footnote 111} Planners affirmed that their objectives would be supported by macro-level polices, yet “the necessary harmonization between planning and short-term macro economic management was never achieved; money and credit, currency exchange, and sometimes monetary policies were excluded from the planning process, left out of the picture.”^{Footnote 112} Despite these weaknesses, the government carried out substantial distributions of financial incentives, particularly credits, throughout the 1960s and 1970s. During the “planned era,” industry’s share of total credit rose from 5 to 9 percent, and the esnaf (or small manufacturers’) share rose from about 2 to nearly 5 percent.^{Footnote 113} The People’s Bank (Halk Bankası) alone distributed 202 million Turkish lira in credit to small manufacturers toward the end of 1963, and in only eight years, this sum had risen almost sixfold, to 1.271 billion lira by 1971.^{Footnote 114}

It is unknown what portion of these surging credits to small industry were distributed to intermediate goods producers and what share to consumer goods producers. We do know that intermediate production rose significantly during this era: the total value of private sector production of such goods rose from 20 percent to 43 percent between 1963 and 1980. The value of durable goods rose even faster, from just over 4 percent to 10 percent.^{Footnote 115} Governments’ lackluster performance in small industry policies is reflected in this failure of intermediate goods’ value increase to keep up with that of consumer goods.

Also ineffective—and, in some cases even harmful—were foreign exchange and public enterprise (Kamu İktisadi Teşekkülleri, or KİT) policies to encourage small industry to produce intermediate goods. For one thing, keeping currency values stable throughout the period facilitated imports of intermediate and investment goods.^{Footnote 116} This policy intended to enable big industry to inexpensively import intermediate goods, on the one hand. On the other, various tax and selective exchange rate policies constricted tourism and consumer goods’ importing.^{Footnote 117} With investment and intermediate goods now unprotected owing to foreign exchange, even as consumer goods production became a profitable enterprise thanks to customs policies, businesses’ appetite for investing in this early form of small industry, with its low competitiveness and profit levels, was understandably not great. By pricing their intermediate and investment goods below cost, to keep big industry’s production expenses low, the KİT’s policies effectively reduced incentives for investments in small manufacturing.

Perhaps the most telling sign of the state’s lack of success in its small manufacturing policies was the rapid rise in intermediate goods imports, and in intermediate-goods-producing public enterprises (KİT), which generated current account deficits, especially after 1970. First, loans to public enterprises from the Central Bank rose precipitously, from 2 billion lira in 1970 to 86 billion lira in 1980—funds mostly used not as investment capital, but to cover deficits resulting from the low prices secured for intermediate goods. This was far more than the increase in loans made to the private sector.^{Footnote 118} A similar trend could be seen in intermediate goods imports. Among total imports, the value of intermediate goods rose from 38 percent in 1960 to 48 percent in 1970; and then to a staggering 78 percent by 1980. These figures clearly show that small industry was far from providing the needed intermediate goods to large industry, and that big capital had started to supply its plants from other sources.

Toward the end of the 1970s, sensing that the domestic market was being subdivided and each of its niches filled, small manufacturers apparently began to discover the importance of the export market. It would be not an exaggeration to say that small industry’s stellar rise after 1980, to the point of competing more directly with big industry, may be related to its success in adapting itself to an export-led growth strategy by refining its finished goods. One reason for this may have been that small manufacturer associations, created in the 1980s, offered extensive consulting on exportation and emphasized their conservative identities to cultivate closer ties with the Muslim Middle East, at that time an emerging market buoyed by petroleum price increases.

The surprising feature of the twenty years that followed the planned era was that small industry received no support from the state in its transformation toward an export force. Of course, the government, having renounced domestic market-oriented import substitution policies for industrialization policies now aimed at foreign markets, did include measures that facilitated exports in general. Among those designed to push entrepreneurs toward the foreign market were monetary, financial, and salary policies designed to shrink the domestic market, while removing many taxes on exports.^{Footnote 119} However, it could be argued that small industrialists succeeded in marketing their goods, chiefly on their own, particularly in Middle Eastern Muslim countries, by employing the mediation of their own conservative businesspersons’ associations. Indeed, during those years, the rise of the Anatolian small industrialists openly displaying and emphasizing their conservative identity was observed with concern by the military, the bureaucracy, and other secular sections of the public. The conservative small industrialist phenomenon of this period was named “Green Capital” for this reason. That small industrialists saw no support from the state in this period was embedded within the name of the association (created in 1991 and since that time unquestionably the most influential organization to represent small industry), Müstakil Sanayici ve İşadamları Derneği (MÜSİAD). The word “independent” (müstakil) in its name emphasized small industry’s autonomy from the state.

Erol Yarar, the founding president of MÜSİAD, explained that its fundamental aim was not for members to build relations with government, but rather “to support the introverted industrialist in coming out of his cocoon to form relations with the general community of industrialists, and to give him access to plentiful information on technology and market conditions to help him overcome any problems he might encounter in these relations.”^{Footnote 120} Indeed, the main effort of MÜSİAD and other conservative business associations in the 1980s was to connect with Arabic capital in a fashion similar to how the 1960s big firms had formed links with capital from the West and from Turkish minorities. The objective was to secure access to final-goods markets in the Middle East, as well as to the financial vehicle represented by Arab capitalists’ petrodollars.^{Footnote 121} Thus one of MÜSİAD’s presidents, Ömer Cihad Vardan, has described efforts to cooperate with Islamic nations as the association’s most important area of activity.^{Footnote 122} Throughout the 1990s, MÜSİAD engaged in providing consulting support to members on exporting, while organizing trips overseas and commerce fairs in Turkey and the Middle East, aiming to solidify these relations. Thus, small producers that long had been concentrating exclusively on production issues began to appreciate the importance of marketing.^{Footnote 123}

These initiatives among small industrialists appeared successful—benefiting, no doubt, from the general opening of the economy to the outside world, Turkey’s foreign trade with the Islamic world grew from 8 percent in 1970 to 44 percent by 1994. Then, in 2002, with the conservative AK Party (AKP) coming to power, the small industrialists’ strategy of opening out to the Middle Eastern markets received real government support. Once in power, relations that the private sector had begun to form years earlier on its own initiative^{Footnote 124} became part of relations among governments. Thus, for example, the Turkish and Syrian governments could organize a bilateral ministerial meeting in a short period of time. In addition, with the AK Party in power, resources distributed in the form of public tenders began to flow to small as well as big capital.^{Footnote 125} However, the growing importance of small industry, with its export activities becoming a powerful force in the Turkish economy of the 1980s, represented less a conscious state policy preference than a result of planning deficiencies within its industrialization policy making of the 1960s and 1970s.