Dialectic in Turkish Defence Industry

If we define the dialectical method as “focusing on alternatives at the same time and looking for a transcendence of the opposites entailing a leap of the imagination to a higher level” we can easily trace notion back to immemorial Greek philosophy. But it was Hegel to formulate the celebrated three-step process, “thesis, antithesis, synthesis”; namely, that a “thesis” would cause the creation of its “antithesis, and would eventually result in a “synthesis”. 

Considering basic policies of macro economy we encounter some similar dualities such as “state-owned vs. private enterprise”, “planned vs. market driven economy” and “national vs. export market”. These alternatives used to be considered as conflicting opposites. However based on analyses made on development of Korea, Singapore, Taiwan, Hong-Kong etc., economists started to perceive these alternatives as complementary policies rather than conflicting alternatives. Evans classified sates into three categories: Predatory, Intermediate and Developmental States . In addition to East Asia Countries mentioned, Cardoso and Falleton included some Latin America states to developmental states because of their industrialization policies in 1940’s and 1950’s .  Even some economists comprehend Austria and Finland as developmental states due to their “late comer” policies in the past.

Although economists have slightly different definitions for a developmental state, in each definition we find the notion of the “complementary concept” mentioned above. For example Weiss and Hobson states the basic function of a developmental state as “coordination of private sector and cultivation of market with interventions” . Famous Spanish Sociologist Manuel Castells emphasises the necessity of “support and encouragement of development as a principle of legitimacy”. 

I believe that Turkish Defence Industry is a successful example of this dialectic approach. We can look at basic dualities from the perspective of this industry.

State-Owned vs. Private Enterprises

During the initial years of Turkish Republic, due to insufficient capital accumulation, it was inevitable to establish a state-owned defence industry. We can mention re-organization of Ottoman facilities as Military Factories Directorate in Ankara-Kayaş-Elmadağ-Kırıkkale in early 1920’s, establishment of Gölcük Naval Shipyard in 1924, Air Maintenance Facility in 1925 and Airplane and Engine Factory (TAMTAŞ) in 1926 as examples. In 1950 arsenal area was organised as a state-owned company (MKEK).

A different model is developed in 1970’s. Foundations were established for Air Force (1970), Navy (1972) and Ground Forces (1974). Then they were united as Turkish Armed Forces Support Foundation in 1987. With the financial sources of this foundation, today we have defence companies like Aselsan, TAI, Havelsan, Roketsan … operating in primary defence areas.

A further step is taken in 1985 with the establishment of Undersecreteriat of Defence Industry (SSM) (then SAGEB) as the main procurement authority for defence together with Defence Industry Fund, a decision making authority and special provisions for procurement. These attracted Turkish private capital (Koç, Nurol, Kutlutaş, Vestel …) as well as foreign direct investment (FNSS, MIKES…) to defence industry.

As the result today we have a wide range of choices for running a military program. 

If we take a look at the general industrialization policy of privatization in Turkey, we see that state-owned production was excluded in a number of non-defence sectors. Unfortunately in some of these sectors private investors were not able to replace the investment gap and we lost the related capability. On the other hand in the defence sector we were able to complement state-owned facilities with effective incentives for private investors and entrepreneurs. Turkey preserved valuable state-owned assets and production capability. On the other hand there are many examples of government funds supporting advanced technology investments and private companies taking enterprising moves. 

Planned vs. Market Driven Economy

I should admit that defence industry has an innate advantage in this respect. National customer for any defence industry is, by definition, defence forces of the country. Hence the primary market depends on the procurement of military. This customer is a challenging one. He imposes difficult contract clauses, has extreme quality requirements, special configuration provisions etc. None of these exist in the consumer market…But our customer is organised, planned and reasonably predictable as well. 

In the case of Turkey, Armed Forces prepares a 10-Year Procurement Plan (OYTEP), SSM Prepares Strategic Plan, Technology Management Strategy, Sectorial Strategy Document… The basic aim of such documents is to lead R&D establishments and industry in the direction of future defence requirements.

There are cases of urgent requirements, examples of long procurement delays. But such difficulties are overcome with expertise in most cases.

National vs. Export Market

Interrelation between national and international markets is a very interesting issue in defence industry. Every export manager at the first encounter with a foreign procurement agency faces with the question “do your armed forces use this equipment? If your armed forces don’t use a weapon system it has a very little chance in the export market. 

Import substitution may be the first step in the national market. But most probably you will see that your customer has unique requirements and this will compel for innovation –if not for completely new development effort. Innovative content is also indispensable for the export of a defence product. If your product is based on technology transferred from an outside source or has some critical imported parts and sub-sections, your export chance is again very small. Even when you are not limited by legal provisions, most probably market conditions will jeopardize your export.

Hence we observe a very strong complementary aspect in “national vs export market” duality in the defence industry.

Apart from the innovation factor and in addition to “national vs. export market” duality I want to revisit the “import substation” issue and point out a nested duality of “import substitution vs. export”. We notice that Newly Industrialised Countries (NIC’s) (Korea, Singapore, Taiwan…) pursued a bipartite strategy. In some sectors they designed very effective strategies for export, in others they encouraged import substitution. We must not forget that todays developed economies applied import substitution policies during their industrial development in 19. Century. Cheng, describes the present “liberal advices” of developed countries as “kicking away the ladder” . Hence we must analyse the requirement, the market and the competition before making a decision. In the case of the defence industry, we must point out that, the issue becomes more complex with the introduction of amplified national interests.

Conclusion

In the example of Turkish Defence Industry, we see that basic dualities of economic policies such as “state-owned vs. private enterprises”, “planned vs. market driven economy” and “national vs. export market” were considered as complementary alternatives rather than conflicting opposites. I believe in the positive outcome of this strategy and would like the continuation for the predictable future for defence industry. It is not proper for me to propose to extend this approach to the totality of Turkish economy. But I would strongly advise economists to investigate this successful sector as a case study.