by Leila Kocakaya


Turkey and Iran both have a very long history and the territory they are presiding over have been home to many culturally and ethnically distinct groups of people.  Even though Iran is twice as bigger than Turkey, Turkey’s population is a little higher than that of Iran’s.  Their proximity to each other have given them some similar topography; i.e. both countries posses considerable amount of mountains and are subject to frequent earthquakes, which have cost each country with substantial amount of deaths.  Similarly, both Turkey and Iran posses a diversity of climate conditions.  Even though Iran is twice as big as Turkey, the latter has slightly higher population.  While Turkey is one of the world’s few self-sufficient in basic food, Iran is among the world’s leaders in its reserves of oil and natural gas.[1]



Basic Information

 Turkey has been a home to many different groups of people since seventh century B.C..  The first nomadic Turkish tribe came from Central Asia and invaded parts of Anatolia in the eleventh century.  By the time the Turkish arrived, Anatolia had already sheltered many civilizations, such as Hittite, Thracian, Hellenistic, and Byzantine.  Every time the area was conquered, the successors imposed their own language and way of life while at the same time have assimilated the customs of their subjects.  The first Turkish tribe, the Seljucks, brought their language and Islam to Anatolia.  The place has also been a home to Ottoman Empire, which became a world empire and controlled millions of people.  World War One, which ended the era of Ottoman Empire, had given rise to the establishment of the modern Turkish Republic in 1923.[2]  Mustafa Kemal Ataturk, an ex-Ottoman commander, asserted his leadership during the War of Independence and successfully combated against the internal traditionalist opposition and foreign intervention.

 The most important figure in the newly formed Turkish Republic was, and still is, Mustafa Kemal.  After independence was firmly established, Kemal was legally elected and he attempted to implant in Turkey the institutions and attitudes that would enable full fledged democracy to flourish under his successors.  He was a fervent admirer of Western institutions and attitudes, and he was determined to mold his new republic in the image of the West.[3]

The neighboring land of Iran also had a long and similar historical settling.  The first settlers in Iran were the Aryans in 1500 B.C.  The first Iranian Empire, the Achaemenids, dates back to 550 B.C., which stretched from the Aegean coast of Anatolia to Afghanistan.  The first interaction with the Turks was in the eleventh century when the Seljucks started to migrate to the Northern part of Iran and defeated the local rulers.  The Mongol invasions in the thirteenth century and the Safavid rule in the fifteenth century, both of which were Turkic, have ruled parts of Iran.  After the Safavid, muslim, conquest of 1501, Iran was strongly influenced by Islam.  The Safavids and the Ottomans had continuous wars for more than 150 years.  The Qajar Dynasty, which brought all Iran under control in the late eighteenth century were also Turkic.[4]  WWI brought an end to the Qajar Dynasty as well and brought Pahlavis to power.  Throughout the centuries, the Iranian regimes had not only conquered the neighboring areas but also devised ingenious institutions.   Reza Shah Pahlavi, who seized the royal crown in 1926, continued the absolutist traditions of the Iranian monarchy.  Even though Reza Shah never articulated his goals with the clarity of Mustafa Kemal, he also wanted to turn Iran in the Western direction.[5] 

Both Reza Shah and Mustafa Kemal promoted an unprecedented degree of secularism in public life, and both tried to support their reforms by the promulgation new symbols of national identity.  On the other hand, even though Shah and Kemal can be viewed similar with their state sponsored reforms directed for the same goals, there was a substantial difference between their regimes.  Kemal’s government acquired legitimacy by virtue of electoral victories whereas the Shah objective was to consolidate his own power.  Thus, although both rulers introduced radical reforms by shock treatment, the legacies they left to the political and economic cultures of their countries were bound to be different.[6]


A Closer Look At Turkish Economy 

For the last two hundred years, the rulers of the Turkish territory have tried to transform its economy in the European direction.  There were serious economic problems during the Ottoman era because of the imposition of unequal treaties and the granting of unfavorable trade agreements after defeat in wars, which in turn affected its trade and taxation system. The reforms undertaken during 1839-78 in order to create an industrial base caused the empire to be heavily indebted to the Western empires.    These Ottoman reformers tried to modernize the empire with the Western model; however, they primarily emphasized the development of a modern army.  If anything new was offered, such as medicine, mathematics, and engineering, they were offered on a very small scale, they were offered in the military schools.[7]

 The unexpected result of this introduction of European education was that the civil servants of the bureaucracy and the military officers became familiar with the Western ideas and demanded constitutional reform in the Ottoman Empire.   The Young Turk era, a group of young bureaucrats, officers, and intellectuals who seized power in 1908, forced the reluctant emperor to reinstate the constitution.  The main purpose of these reforms was to restore the power of the empire; however, these reforms could not prevent the further revolts against the Ottoman authority and gave rise to nationalism.  The defeat in WWI eventually brought an end to the Ottoman era and after the War of Independence in 1919-22, Mustafa Kemal emerged as the new leader.[8]

In the 1920s, Kemal’s objective was to break the nation from its Ottoman heritage.  He secularized the state by abolishing the sultanate (1922) and later the caliphate (1923), and closed the religious schools and the courts.  He replaced the Islamic legal system with that of European ones.  Literacy was greatly facilitated when he adopted and modified the Latin alphabet in 1928.  He was also convinced that in order to be strong and truly independent, Turkey had to develop its own economy and reduce its dependence on European entrepreneurship.  In 1923, he gave a conference about the importance of industry and agriculture.[9]  The economic policy in the following years were liberal, i.e. private enterprise, with the help of the government, was expected to develop the country.  Even though the economy grew a little, the Great Depression of 1929 also affected the new republic and drastically reduced the export earnings.[10]

The Great Depression revived the Turkish distrust of European capitalism and led to a new policy orientation known as etatism.  Accelerating economic development and self-sufficiency became the main objective and the authorities decided that the government should play a more active role in the economy.  Even though this state led capitalism was inspired by the Russian experience, the Turkish experience was more of a pragmatic solution in order to accelerate industrialization.  Between early 1930s and the outbreak of WWII, the government invested in factories, government owned banks and companies.  However, attention was given to military and political considerations than to outweighed the economical or profitability ones.  Heavy investment was made without adequate consideration of the availability of capital or labor.[11]  Until late 1970s, the state continued with the import substitution policies.  Several decades of state planning have finally followed by the economic liberalization in the 1980s and 1990s.  In 1980, the Turkish government undertook a major reform program and opened the economy to international trade. The program reduced the role of state, and encouraged exports and foreign direct investment.  Economic reforms have led to increases in exports of processed foods, textiles, motor vehicles, and consumer durables. Considerable investments in tourism, the revitalization of banking, and upgraded transportation facilities allowed Turkey to compete in the international services market in the 1990s. 


A Closer Look At The Iranian Economy

            By the time Reza Shah Pahlavi assumed the throne, there were very few industrial plants in Iran.  Even though the petroleum industry was modern, the oil that was produced for the international market had little impact on the domestic industry.   After consolidating his power under a strong central government, the Shah began to modernize the Iranian economy and entered the Western markets.  This centralization of power led to a state monopoly on foreign trade and stagnant agricultural productivity.  When his son Mohammad Reza assumed power in 1941, he also tried to continue the modernization efforts but and focused on the development of capital-intensive industries rather than labor intensive ones.

In 1960s, the program of the development of capital-intensive industries continued.  While the industrialists and, without doubt, the Shah became even wealthier, the majority of the population remained poor.  The land reform of the 1960s also did not produce satisfactory results for the poor.  Even though there was very strong growth in petroleum, transportation, communication, and industry, the result was the widening gap between the industrial and agricultural sectors since the Shah gave low priority to the later.  Thus, even though the economy continued to grow until mid-1970s, the inequality of the distribution of income left the majority of the population rural.

 The dissatisfaction with the Pahlavi rule gave way to the Islamic Revolution of 1979.  During 1970s, the revenues from oil and gas exports remained Iran’s only source of foreign exchange.  After the revolution, during 1980s, the government tried to reduce the dependence on oil by investing in other key industries such as copper and steel production.  Furthermore, the Iran-Iraq war which started in 1980 further aggravated the Iranian economy.[12]


Living Standards of Turkey and Iran 1955-1995

Up to the late 1970s, the Iranian economy showed impressive growth rates.  Its growth rate of GDP exceeded even those of the OECD countries, enabling Iran one of the few developing countries succeeding in reducing its relative income gap with the industrial countries.[13]    Before 1975, per capita income in Iran grew faster than Turkey.  By 1975, the level of per capita income was more than double than that of Turkey.  By the late 1970s, however, income per capita in Iran had witnessed a rapid decline, while the growth of Turkey has slowed down during a period of substantial restructuring.  By 1990, the living standards in Iran had fallen almost to the 1960 level and fallen behind Turkey (see table below):

MENA:  Middle East and North Africa

MENA 1960=100, at 1985 international pries in US dollars

Source: PENN World Tables, Mark 5[14]

The rapid growth of Iranian economy during the two decades before the Islamic Revolution (1979) took place under the strategy of import substitution industrialization policies.  Turkey also followed a similar pattern of import substitution.  By 1965, Iran had a higher land/labor ratio and higher labor productivity than Turkey.  This meant that, in fact, Turkey’s industrial sector benefited a little more than Iran from the supplies of agricultural labor.  The illiteracy rate was also higher in Iran, which meant that labor was actually more skillful in Turkey.   However, Turkey adopted an extensive reform program by 1980, with manufacturing export promotion as one of its key objectives.  It is important to note that this free market orientation had been tried in Turkey back in the early twenties.  At that time, conversely, the program lacked sincere political commitment.  The balance of payment crisis of 1926, foreign exchange shortage, and the Great Depression in 1929 ended the era of the free market economy.[15]  Iran, on the other hand, continued and intensified the old regime’s import substitution policies in the post revolutionary period.  Even though all the other economic indicators were comparable in 1975, the share of manufacturing exports in Turkey was 23 times higher in Turkey.  By 1995, Turkey was supplying a much higher level of its labor to the industrial sector.  Therefore, even though the living standards in Iran was higher than Turkey in Iran until 1975, Turkey’s change of industrial policy brought them to the same level in 1990s as seen in the table:



Labor productivity and yields are in wheat equivalent units in kg per person
and per hectare respectively

Sources: FAQ, UNIDO, World Bank Data Banks, and Karshenas (1998)[16]




The decline of Iranian economy after the post-revolutionary period is attributable to four issues:  external constraints, the populist state, constitutional and legal constraints, and pressure groups.[17]   The populist Islamic revolution of 1979 heralded on the expansion role of the state to safeguard the redistributive nature of the revolution.  There was a reorientation of sectoral priorities towards agriculture, large-scale expropriation and reallocation of property, and large-scale nationalization of manufacturing and banking sectors.  It is important to note, however, that the flight of owners and managers of many companies after the revolution left the state with little option but nationalize them.[18]  Additionally, Iran ran a war economy from 1980 to 1988 during Iran Iraq war.  Foreign exchange shortages from the mid-1980s, following the decline in price of oil led the state to have strict foreign exchange control.[19]  Even though it would not be hard for a country like Iran, having one of the world’s largest oil reserves, to raise its foreign exchange, it could not do so because of the American economic sanctions.  This is why Iran, internationally isolated, promoted the import substitution policies even more than the old regime and lost its advantage against Turkey.



 The new government’s struggle with its economy after the revolution and its little success Five year plans undertaken shows that the country’s economic problems are more deep seated and were actually accentuated by the war with Iraq in the 1980s.  On the other hand, Turkey’s relative success was primarily caused by its liberalization policies since the 1980s.  Even though Iran has also introduced new market reforms since the last ten years, the structural features of its economy have remained unchanged.  The country remains still heavily oil dependent and the economy continues to be highly inward looking.  The implementation of different policies, i.e. liberalization as opposed to import substitution policies shows us how two countries with fairly similar experiences until late 1970s can change its path once different policies are implemented.       


[1] Library of Congress

[3] A History of Modern Middle East, William L. Cleveland; p.172

[5] A History of Modern Middle East, William L. Cleveland; p.183

[6] A History of Modern Middle East, William L. Cleveland; p.189

[7] Turkish Economic, Social, and Political Change, Edwin J. Cohn; p.3-5

[8] Turkish Economic, Social, and Political Change, Edwin J. Cohn; p.6

[9] Turkish Economic, Social, and Political Change, Edwin J. Cohn; p.8-9

[10] Turkish Economic, Social, and Political Change, Edwin J. Cohn; p.11

[11] Turkish Economic, Social, and Political Change, Edwin J. Cohn; p.12

[12] Library of Congress,

[13] The Economy of Iran, Hakimian and Karshenas; p.31

[14] The Economy of Iran, Hakimian and Karshenas; p.32

[15] Liberalization and the Turkish Economy, Tevfik F. Nas and Mehmet Odekon, p.2

[16] The Economy of Iran, Hakimian and Karshenas; p.37

[17] The Economy of Iran, Parvin Alizadeh; p.6

[18] The Economy of Iran, Parvin Alizadeh; p.3

[19] The Economy of Iran, Parvin Alizadeh; p.4




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