Foreign Investment in the Ottoman Empire: International Trade and Relations, 1854–1914 1848854617, 9781848854611

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V. Necla Geyikdağı is Associate Professor in the Faculty of Economics and Administrative Sciences at Yeditepe University in Istanbul. She holds a PhD in International Business from the University of Bradford and has been published in numerous journals including Middle Eastern Studies, Management International Review, RISEC, Transnational Corporations and the Journal of Asia Pacific Business.

Foreign Invesment in the Ottoman Empire International Trade and Relations 1854–1914 V. Necla Geyikdağı

TAURIS ACADEMIC STUDIES an imprint of I.B.Tauris Publishers LONDON ● NEW YORK

To my husband Yaşar Geyikdağı, for his unwavering support.

Published in 2011 by Tauris Academic Studies An imprint of I.B.Tauris & Co Ltd 6 Salem Road, London W2 4BU 175 Fifth Avenue, New York NY 10010 www.ibtauris.com Distributed in the United States and Canada Exclusively by Palgrave Macmillan 175 Fifth Avenue, New York NY 10010 Copyright © 2011 V. Necla Geyikdağı The right of V. Necla Geyikdağı to be identified as the author of this work has been asserted by the author in accordance with the Copyright, Designs and Patent Act 1988. All rights reserved. Except for brief quotations in a review, this book, or any part thereof, may not be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. Library of Ottoman Studies 27 ISBN 978 1 84885 461 1 A full CIP record for this book is available from the British Library A full CIP record for this book is available from the Library of Congress Library of Congress catalog card: available Printed and bound in Great Britain by CPI Antony Rowe, Chippenham Camera-ready copy edited and supplied by the author

CONTENTS

List of Tables List of Illustrations Acknowledgements Foreword Preface 1 THE PRE-NINETEENTH-CENTURY OTTOMAN   ECONOMY

2

3

vii viii ix x xii 1

Economic Mentality Economic Disintegration Why could the Ottoman Economy not Industrialize? Attempts to Industrialize in the Nineteenth Century Foreign Influence on Ottoman Economic Thought The 1838 Anglo-Ottoman Trade Convention The Impact of Trade Agreements on Trade and Industry

4 5 8 17 18 21 24

FOREIGN CAPITAL: BORROWING

29

First Attempts at Borrowing The Persistence of Financial Crisis and Foreign Loans The Road to Bankruptcy The Ottoman Public Debt Administration The Distribution of Foreign Debt by Country

30 32 35 41 47

FOREIGN CAPITAL: DIRECT INVESTMENTS

53

Motives for Foreign Direct Investment Capital-Exporting Countries

53 55

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Foreign Investment in the Ottoman Empire

4 THE DISTRIBUTION OF FOREIGN DIRECT   INVESTMENT BY SECTOR

5

6

74

Railways Banks and Insurance Companies Ports and Docks Urban Services Mining Industry and Trade

75 100 108 111 119 126

FOREIGN INVESTMENT POLICY AND   POLITICAL RISK

135

The Ottoman Attitude towards Foreign Capital Political Risk

137 146

CONCLUDING REMARKS

159

Notes Bibliography Index

169 199 211

List of Tables

1.1 Foreign Trade of the Ottoman Empire 2.1 Foreign Debt of the Ottoman Empire 3.1 Foreign Direct Investment by Home Countries 4.1 Distribution of FDI in the Ottoman Empire by Sector 4.2 Major Railways in the Ottoman Empire 4.3 Major Foreign Banks in the Ottoman Empire 4.4 Major Port Investments in the Ottoman Empire 4.5 Gas and Lighting Companies in the Ottoman Empire 4.6 Tramway Companies in the Ottoman Empire 4.7 Major Foreign Companies in the Industrial and   Commercial Sectors (before the First World War)

25 49 57 74 89 105 112 115 117 132

LIST OF ILLUSTRATIONS

Maps Map 1 Railways in Ottoman Europe, 1909 Map 2 Railways in Ottoman Asia, 1918 Colour Plate Section Figure 1 (Heraclea) Zonguldak Coal Mines (Captain Turgay Erol Collection) Figure 2 Kalamish Lighthouse on the Marmara Sea (Captain Turgay Erol Collection) Figure 3 Railway construction in Anatolia (Captain Turgay Erol Collection) Figure 4 Eregli (Heraclea) Zonguldak Coal Mines (Captain Turgay Erol Collection) Figure 5 Balia-Karaidin share (V. N. Geyikdağı Collection) Figure 6 Electrical Tramways Company’s share (V. N. Geyikdağı Collection) Figure 7 Railway Construction (Captain Turgay Erol Collection)

81 82

ACKNOWLEDGEMENTS

I must express great thanks to Professor Feroz Ahmad who patiently read and examined my manuscript, and suggested very useful points. I am also very fortunate for the generous support of my husband, Professor Yaşar Geyikdağı. My immense gratitude goes to him for sharing the strain of writing of this book. I also wish to thank Captain Turgay Erol, a noted antiquarian and owner of Denizler Kitabevi in Istanbul, who kindly offered the use of relevant photographs and images from his collections. I must also mention the persistent efforts of Joanna Godfrey of I.B.Tauris who was very instrumental in the publication of this work. Jenna Steventon took over this challenging task after her. Finally, I would like to acknowledge the assistance of Nick Morgan, Kim McSweeney and Christina Kesisoglou for their whole-hearted work during the production process.

FOREWORD

I have taught the history of the late Ottoman Empire and the Middle East in the nineteenth and twentieth centuries for many years. I have been frustrated by the fact that there is still no book that adequately discusses the political economy of the region to my satisfaction. In the nineteenth century the region had become more and more enveloped by the ‘world economy’ dominated by Western Europe, especially Great Britain. The West began to take measures to prevent the rest of the world from pursuing an independent economic and political policy. The first target of these measures, by the British, was Egypt, whose ruler Muhammad Ali was possibly the first non-Western leader to begin the process of Westernization/modernization. Muhammad Ali’s plan was thwarted by the Anglo-Ottoman Trade Convention, known in Turkish history as the Treaty of Balta Limanı of 1838, which threw open the entire Ottoman Empire, of which Egypt was a part, to free trade dominated by the West. The Treaty not only strangled Egypt but also made it impossible for the Ottomans to pursue a policy independent of the West. During the Crimean War (1854–6) the Ottomans were forced to borrow money from Europe. Further borrowing and the inability to pay interest on the loans led to bankruptcy. In1881 the Sublime Porte was forced to permit its foreign creditors to establish the Ottoman Public Debt Administration to regulate Ottoman finances. The Sublime Porte no longer exercised control over its state revenues. Tariffs could no longer be increased without the consent of the West, and a great portion of both customs tariffs and internal revenues were withheld to pay back the European bondholders. The Ottomans were trapped in a vicious circle: in order to meet the requirements of the annual budget, they had to borrow more money from abroad. Such was the state of affairs that at the beginning of the twentieth century a foreign observer wrote that there is probably no sovereign state where the

Foreword

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influence of foreign capital was greater than in the Ottoman Empire. Not only did this heritage relate to purely economic undertakings but it extended throughout Ottoman political and social life. The West had understood that one of the simplest and surest methods of exercising political control over any country was through the domination of capital. Professor Necla Geyikdağı’s book fills a huge gap. It will serve admirably for students taking academic courses as well as for the general reader who wants to understand the political economy of the late Ottoman Empire, or indeed of the developing world. The aim of this study is to examine foreign direct investment into the Ottoman Empire, which, as in many other countries, served as a complementary extension of international trade relations. Thus, the first chapter of this work takes a general look at the Ottoman economy, including trade agreements and their consequences. The second chapter deals with foreign capital in the form of external debt and helps to describe an economic environment that later attracted foreign direct investment. In the following chapters, foreign direct investment constitutes the backbone of this study, with a level of detail and analysis that has not been shown before. The fact that the economic analyses take into account political developments, is another positive aspect. The political risk created by Ottoman government policy has been handled with mastery. In addition to reports and books published during the historical period in question, newspapers and journals such as L’Orient Illustré, The Economist, The Near East, The Times, and The Manchester Guardian were also used as sources. Even though the author specializes in economics and international business, this book will be of great interest to readers in the fields of history, economics, business, political science and international relations. While she has not compromised on analytical rigor, the author has written in a language that makes the subject intelligible to a wide audience. Feroz Ahmad Istanbul

PREFACE

Even though Turkey is endowed with potential to develop into an ‘advanced’ economy, it is still labeled as a ‘developing’ or ‘middle income’ country. Others, which started to modernize at a much later stage, have nonetheless succeeded in becoming industrialized nations. This has caused disappointment among Turks, who have tried to identify the reasons. Soon after the Napoleonic Wars, the Western European countries laid great emphasis on economic expansion through industrialization. The foremost European economists declared that the wealth of a nation could no longer be measured by its stock of precious metals. Rather, it would be based on production, to be distributed efficiently through trade. The Industrial Revolution that had started in England eventually spread to the more advanced countries of continental Europe. Technological progress had created revolutions in transport and communications. During the first half of the nineteenth century increased use of steam power and steam engines led to mass production. Steamships and steam locomotives were able to carry larger loads, reducing transport costs and increasing the volume of trade. Consequently it became easier for European producers to market their mass-produced goods and obtain raw materials from faraway lands. During the 1840s, the invention of the telegraph greatly facilitated commercial and diplomatic correspondence leading to an increase in the number of transactions. This process, recognized today as the first globalization, started in the 1820s and spread across the world until the outbreak of the First World War. The Ottoman Empire found herself in the midst of all these developments. Increasing foreign trade was followed by capital movements, first as loans and later as foreign direct investment. The European liberalism of the nineteenth century was first introduced to the Ottoman Empire

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before it was implemented in Europe. With free trade agreements, the cheap factory products of Europe entered the Ottoman Empire without encountering significant barriers, resulting in the collapse of local industries. At the same time, foreign borrowing which might have been used for developing the country, was misallocated or squandered. Finally, when the government could no longer pay its debts and went bankrupt, foreign creditors established the Ottoman Public Debt Administration and effectively controlled the country’s financial administration. Finally, foreign investment succeeded in turning the Ottoman Empire into an underdeveloped producer of raw materials for Europe and a market for European manufactured goods. It was the large foreign-owned companies which produced raw materials for Europe, transported them and carried out foreign as well as domestic trade. Railways and ports were built, and banks opened in order to facilitate the trading activities of foreigners, who also established and operated farms and mines to provide them with raw materials. Foreign capital that entered the country as foreign debt or venture capital therefore ended up controlling the production, the trade as well as the finances, of the Ottoman Empire. The last quarter of the twentieth century brought new technological advancements, and the activities and influences of international organizations such as the International Bank for Reconstruction and Development (the World Bank), the International Monetary Fund, the General Agreement on Tariffs and Trade and the World Trade Organization (WTO), which exercised significant control over foreign trade and international capital movements. These developments strengthened external economic relations, creating the necessary conditions for what is known as the second globalization. Since the 1980s, new liberal policies have been implemented in Turkey; liberalization of trade and financial markets together with new waves of borrowing and privatization programs have developed rapidly. Foreign influences have increased in an economy with a relatively undeveloped financial infrastructure. One can establish parallels between the Ottoman Public Debt Administration of the nineteenth and early twentieth century, and today’s Washington Consensus and the institutions of the European Union. Moreover, one can compare the foreign capital of the nineteenth century, which successfully controlled the political and economic structure of the country, with today’s foreign direct investment and speculative capital. In both periods foreign trade deficits and external debt grew rapidly. While the Public Debt Administration and the Ottoman Bank played a major role in influencing economic and, indirectly, political decisions during the Ottoman era, so, since the 1980s, do the institutions of the European Union and the Washington Consensus in today’s Turkey. Just

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as the crucial resources of the Ottoman Empire passed into foreign hands at the end of the nineteenth century, a similar phenomenon is taking place today with the privatization of the country’s largest and most important companies through foreign pressure. Transnational firms have significantly increased their influence. Taking advantage of the weaknesses of the political system, laws are enacted and regulations promulgated in favor of these transnationals. If one accepts that similar causes may produce similar results, a historical analysis could also enlighten present-day conditions. This work does not, therefore, limit itself to a systematic economic study of foreign direct investment in the Ottoman Empire. Rather, its aim is to examine causes and results within a wider framework. V. Necla Geyikdağı Istanbul

1 THE PRE-NINETEENTHCENTURY OTTOMAN ECONOMY

Despite European commentary and interpretation to the contrary, Charles Issawi maintains that, at its height in the fifteenth and early sixteenth centuries, the Ottoman Empire was probably the best-governed state in the world.1 Her high administrative standards can be observed in the official records and registers that have survived. The major productive classes of this period were farmers, artisans and merchants. The farmers, who had the right to exploit the soil, sowed the land, harvested, and paid the surplus value to the state, to which the land belonged. However, deeds were issued to farming families allowing them to use their allotment and leave it to their children under the same conditions. They had no right to sell or donate the land to others.2 Since they were giving all of the surplus value to the Government, they had virtually nothing to accumulate and use for investment. The Government divided arable land into fiscal districts (dirlik) according to the estimated taxes that could be raised from it. These lands were allocated as a source of subsistence to people who could perform certain duties for the State. In this way, the Government could pay functionaries in this non-monetary economy. Those who rendered military service were called sipahis and their land allotment timars.3 The sipahis occupied a distinguished position among state functionaries, and were close friends and partners of the Sultan in military expeditions during the early years of the Ottoman State. They were granted these lands for the services rendered to their ruler in conquering new territories. They did not own the land, but shared the revenue from it. The peasants were attached to timar lands. Artisans constituted the second most important economic group in the Ottoman Empire. The Government believed that merchants and artisans were indispensable in creating and developing new cities. Therefore it granted tax exemptions and other incentives in order to attract them to

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the new capitals, Bursa, Edirne and finally, Istanbul. It even forcibly exiled them to the new towns.4 Textile and leather manufacturing, metal working, weapons and jewelry production were the major industries of the Empire.5 Artisans sold their manufactures directly to consumers. Merchants were usually engaged in the trade and transportation of goods between different parts of the country and foreign lands. Merchants had a strong tendency for profiteering, accumulating wealth by fixing prices, circumventing price regulations and resorting to usury. Such behaviour was against the interests of both the State and people, so the Ottoman Administration felt the need to regulate it carefully.6 Merchants did not enjoy a respectable place in society, as the majority were non-Muslims, and such occupations were regarded as undignified for a Muslim or a Turk to follow. According to Bernard Lewis, ‘perhaps for these reasons most of the state-sponsored economic enterprises were unsuccessful, while the minorities and their foreign patrons increasingly controlled the economy’.7 There are many rules in the Koran and hadiths (traditions attributed to the Prophet without his having said they were of divine origin) about the regulation of commerce, but nothing that describes it as an inferior activity. There is even praise for commercial activities in the Koran and Muslim canonical works.8 However, some religious authorities came to equate such activities with gambling, and to regard the earning of interest as sinful. Superintendents (ihtisap ağası) in Ottoman cities controlled economic activities, with judges (kadis) above them. A system of regulations controlled quality and prices as well as weights and measures.9 The State also encouraged the building of markets (bedesten), hospices, caravanserais and soup-kitchens (imaret) in order to maintain the free flow of trade in the country. It was important to keep roads to Istanbul open and safe for traders.10 Uninterrupted provision of food products was vital for large cities, especially Istanbul. It appears that Muslims in the Ottoman Empire were unwilling to travel abroad before the end of the eighteenth century. While Europeans, from relatively early times, maintained first offices, and then consulates and embassies in the East, eastern governments did not do the same in the West. The same was true in commercial activity. The impetus for trade came from the West, and Western traders travelled and traded freely in Muslim countries. The Ottoman State encouraged trade by granting foreigners certain privileges to trade within the Empire, that were agreed for both economic and political reasons. These agreements were called ‘capitulations’. While Muslims were reluctant to travel to non-Muslim Europe, the Western states in their turn did not welcome them. When Ottoman merchants considered

The Pre-Nineteenth-Century Ottoman Economy

3

establishing an inn and a warehouse in Venice, the councils of the Venetian State had a long and anguished debate whether or not the Turks should be allowed to have such a facility. There was strong opposition before the proposal was finally accepted. Some Venetians found it ‘even worse than having Jews and Protestants, because unlike the Jews, the Turks had an army and a navy, and were therefore really dangerous’.11 One reason for the objection may have been that the Venetians did not want to share with the Turks the profits of the lucrative Eastern trade. Researchers later tried to understand the reasons why these capitulations were so important to Ottoman foreign trade. What were the reasons? Was it the reluctance of Muslim Turks to travel into Christian lands? Was it their low opinion of commerce? Did they find overseas trading strenuous? Or was it the revenue for the treasury in return for such privileges? Historians estimate that revenues from capitulations were not large, at a time when the Empire was most powerful. Therefore, other factors must have played a part. From the beginning, the Ottomans conferred trading privileges to commercial city-states such as Ragusa, Genoa and Venice, and even acknowledged the capitulations previously given to French merchants by Byzantine and Mameluke rulers. The capitulations given by Sultan Süleyman the Lawgiver (known in the West as Süleyman the Magnificent) were extended to the French Government, however, and not to a trade guild as in the pre-Ottoman agreements. According to Berkes, this agreement also had the purpose of promoting a political alliance.12 These 1535–6 capitulations to the French were not simple trading privileges, but a trade agreement between two states. Although it was not approved by the Sultan for a long time, it was rendered legally binding.13 The French rose in the Levant trade after the 1569 capitulations they secured from the Ottoman government. Such capitulations were also conferred on the British and the Dutch in 1580 and 1612 respectively.14 Ottoman budget revenues consisted of regular (steady) and irregular incomes. The regular revenues were as follows: i) mukataa, taxes from farmers gathered through intermediaries; ii) Cizye and haraç taxes that were paid by foreign states; iii) taxes paid by the artisans and merchants in the cities; iv) tariff duties from foreign trade; and v) the proceeds of the mining and salt establishments. Irregular revenues mainly arose from war booty. The existence of such irregular revenues made budgeting difficult until the expansion of the Empire practically came to an end.15 Mukataa, taxes collected from agricultural land, were the most important and produced the largest income. After the State estimated the amount of taxes that could be raised, it temporarily sub-contracted to private

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citizens its rights to collect the sums. Taxes from other economic activities such as trade, customs, mining, and even minting coins, were gathered in a similar fashion.16 Since most public services were provided by the pious foundations, the Government’s major outgoings were military expenses. Economic Mentality In the Middle Eastern state the adaptation of the economic system to changing conditions and times was out of the question. The ultimate aim of the Ottoman State was therefore to increase state revenues as much as possible without an adverse effect on the well-being of its subjects.17 It was, however, impossible to maintain the economic system unaltered, as Ottoman administrators expected. As the Empire reached its zenith in military, political, and economic terms, both production and consumption increased in the largest cities of the Empire, especially Istanbul. The most important cities and conurbations of the Islamic world, such as Aleppo, Damascus, Cairo, and Baghdad were located in the Empire. From Belgrade in the west to Tabriz on the eastern border, there was a high level of commercial activity between such prosperous centers. The importance of these cities as production and trade centers continued even when the Empire was declining.18 The Ottoman State had a trade deficit with the countries east of its borders. The deficit could be paid by a transfer of gold. Therefore, the greatest problem for the Ottoman administration was to find a balance between gold and silver.19 There seemed to be no difficulties in trading with Europe, although changes were already underway. The discovery of the Americas in the fifteenth century, new trade routes to Asia by circumventing the Cape of Good Hope, and attributing new economic functions to precious metals, heralded significant changes in international trade. In the last quarter of the sixteenth century, government expenditure increased because of long wars with Iran and Austria and the western Mediterranean countries, giving rise to inflation and shortages of precious metals. This situation became worse when foreign merchants, as beneficiaries of the capitulatory system, started using debased coins in exchange for Ottoman goods and untainted coins.20 A violent rebellion broke out in 1580, when the finance minister (defterdar) tried to pay the salaries of cavalry soldiers returning from Iran. The soldiers found the minister and the governor of Roumelia responsible for the debasement of silver coins and asked the Sultan to have them executed.21 According to Berkes, this debasement of the silver coins was the greatest devaluation the Ottoman Government had ever had. But, subsequently, such debasements were frequently used.

The Pre-Nineteenth-Century Ottoman Economy

5

All European states were following mercantilist policies in the sixteenth century. Historians write that Italian city-states had taken mercantilist measures since the thirteenth century. Such measures were also seen in Spain, France and England when the wheat and live animal trade was banned in the fourteenth century. At that time, the export of gold and silver was also prohibited. For economists, mercantilism emerged as an economic theory only in the sixteenth century. Between 1500 and 1800, Europeans were engaged in religious and commercial wars that made large mercenary armies necessary. They therefore turned their attention to new lands to find precious metals, especially gold. The best way for acquiring gold was to increase the production of goods for export in return. Governments wanted their citizens to be patriotic in economic matters as well as on political issues.22 The role of the governments as regulators of the economy was becoming increasingly important. According to Braudel ‘mercantilism was none other than the insistent, egoistic and presently vehement forward thrust of the modern state. It was the mercantilists, Daniel Villey assured us, who invented the nation’.23 The British did not remain outside of these mercantilist activities for long. They had used the Venetians and the Genoese as intermediaries in their Levant trade until the end of the sixteenth century, but now wanted to remove these intermediaries in order to increase their profits. As soon as they secured the first capitulations from the Ottoman Empire in 1580, the British ships loaded with kerseys, lead and tin appeared in the Aegean Sea.24 From time to time, the Ottoman Government prohibited the export of grains and other necessities. It was important to ensure the provision of food and other necessities to prevent scarcity and political unrest in Istanbul and other large cities. The social and economic order had to continue undisturbed and unchanged. There were no duties on the import of gold and silver, but their export was prohibited. However, the Ottoman State never considered a mercantilist policy that regulated the whole economy as with the European states.25 The principles that prevailed in the Ottoman State were diametrically opposed to mercantilism. As a matter of fact, the capitulatory trade regime that granted commercial privileges to foreigners was the opposite of mercantilism.26 Economic Disintegration It is widely accepted that the problems which lasted for two centuries began with two major devaluations at the end of the sixteenth century. The economic order outlined above could not remain unchanged in this period. As the technology of war had developed, the importance of the sipahis

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(cavalry units) diminished and endangered their economic privileges. The land-holding sipahis then resorted to the illegal extortion of the peasants’ surpluses.27 Village youngsters, who could no longer eke out a living, had to move either to the theological schools of Anatolia or to the border fortresses after joining irregular military forces. Within a short time, being away from their families, they lost the customs and habits of their traditional upbringing, resulting in a social and moral breakdown. Social unrest, theft and crime rose in tandem with rising unemployment and poverty. Such harsh conditions brought uprisings of students and irregular soldiers, which later turned into bloody rebellions that were known as the Celali revolts.28 Finally, in the seventeenth century, tax farming, as a system for collecting revenue, replaced the military fief system as the Ottoman State was integrated into the world economy. In the eighteenth century, wars were no longer a source of revenue but a source of social and economic calamity. The empire retreated, losing some of its tax revenue, as well as paying war indemnities and suffering financial difficulties. The Government started selling lands that yielded an annual tax (mukataa) to individuals who were granted a life-time right. Thus, as these lands became private estates (malikhane), the Government was losing annual tax income while raising immediate revenue from such sales. By the end of the century, most of the large and profitable lands had been sold, but the State was unable to raise the revenues it needed. The Government was forced to accept whatever price the buyers offered. The estate system soon turned into an operation that worked against the interest of the treasury.29 In the sixteenth century, the power of the State had fended off the feudalization tendencies of the fief (timar) holders. In the eighteenth century however, these feudal elements were able to defy the authority of the State. The estate system resulted in increasing the pre-eminence of the notables (ayans) in the provinces. Those notables acquired great wealth and influence through their estates, and some of them were able to leave their land as inheritance to their sons, giving rise to dynastic claims. However, they were unable to use their wealth for either agricultural development or building up a capitalistic industrial base. During the decline of the empire, they kept for themselves a part of the tax revenues that they were collecting on behalf of the Government. In the end, some of these notables became lords of large estates, and some even become derebeyi or local rulers. The Government acknowledged their political and administrative roles as long as they did not show any inclination towards independence. These local lords, lacking any feudal past, did not gain further significant power on the way to independence. The obstacle to such a transition was probably global economic

The Pre-Nineteenth-Century Ottoman Economy

7

developments that favored international finance and trade against agricultural economic activities.30 As the Ottoman system weakened during the eighteenth century, foreigners and Christian minorities started to abuse the system. Foreign ambassadors and consuls were allowed to hire Ottoman subjects as interpreters. These interpreters acquired the same privileges given to foreign merchants and mission employees through the capitulations. They were exempted from paying taxes and released from the responsibilities of being Ottoman subjects. Any interpreter who secured such a title of privilege from any foreign mission was in an advantageous position.31 Initially they were not allowed to engage in trade, but the European powers insisted there were no obstacles to them being involved in commercial activities according to capitulations granted to the British in 1675, to the Dutch in 1680, and the French in 1740. The last agreement also stipulated that interpreters could be appointed as vice consuls.32 As trade increased between Europe and the Ottoman Empire in the eighteenth century, the number of interpreters needed by the embassies increased. They demanded more berats (letters of privileges) from the Sublime Porte (Ottoman government) in order to hire more interpreters.33 Even interpreters’ assistants were given the privileges of foreign merchants, thus securing an unfair advantage against the domestic traders. Foreigners abused this system of capitulations during the years of Ottoman decline. Some foreign envoys obtained documents from the authorities even for individuals who did not speak any foreign language. Such merchants, claiming to be consular interpreters, stopped paying taxes in many parts of the Empire. This was another reason for declining government revenues and Ottoman sovereignty.34 Finally, at the end of the eighteenth century, Sultan Selim III tried to end the exploitation of the privileged interpreter system and prevent his subjects from obtaining foreign protection. He took the decision to give the same rights and tax privileges to all merchants trading with Europe. This could have ended the unfair competition among all types of merchants, but would have had no impact on the declining tax revenues. The creation of these ‘merchants of Europe’ did not bring the results the Sultan had expected.35 These developments led Ottoman statesmen to think about the causes of the State’s decline and find solutions to avert it. Thus, Ibn Khaldun’s great work, the Muqaddima, attracted the attention of the Ottoman elite during this inauspicious period. According to some Ottomans, the Ottoman state was of a type that Ibn Khaldun called the oriental ‘Islamic government’. The basic assumption of this governmental model is that a state is born, grows and finally declines. Ibn Khaldun tried to establish universal rules to explain

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the rise and the fall of civilizations (or empires).36 He wrote that eastern states are founded by nomad tribes and the solidarity among the members of the tribe makes military conquests possible. Since conquests bring booty and wealth, the tribe eventually settles and establishes urban centers. The members lose their fighting spirit and solidarity after becoming sedentary and start enjoying their wealth. They then become soft, timid and addicted to luxury, unable to preserve the unity of their state.37 Some Ottoman historians concluded that the rise and decline of their state was very much in line with this oriental state model of Ibn Khaldun.38 The only confounding issue was the long duration of the period of Ottoman decline. According to Berkes, the monopoly practices in the economy continued until the mid-nineteenth century.39 The agricultural taxing system left villagers with barely enough for their survival, while trade licenses allowed artisans a meagre profit to continue their livelihood, and tax collectors and other intermediaries earned much more than anyone else. The masses held out against all the odds. Since no major changes occurred in the fiscal, trade and industrial policies of the Ottoman state for two hundred years, it did not evolve as in Europe, from feudalism to capitalism. The stubborn resistance of both the people and the state bureaucracy created a decaying economic system.40 As explained in the next section, running parallel to political developments in the Ottoman Empire, the influence of the European powers increased in the economy, and external trade became an extension of European trade policies with new trade agreements. Attempts to industrialize also failed, to a major extent, because of external factors. Why could the Ottoman Economy not Industrialize? Several authors have tried to answer this question over the years. Charles Issawi discerned two factors that were influential in shaping Ottoman history: the independence movements of the non-Turkish peoples from the Empire, and the steady encroachment of the great powers.41 In order to thwart these threats the Ottoman Government was almost continually at war from the second half of the eighteenth century until 1923. Georges Clemenceau, the French prime minister, expressed his opinion about the cost of these wars to his Ottoman counterpart Damat Ferit Pasha, in private, when the latter was in France for the signing of the Treaty of Sèvres to end the First World War. He explained that during the one hundred and seventeen years since the beginning of the Napoleonic Wars, the Ottoman Empire had been at war for fifty-seven years. Russia came second, with thirteen years that were devoted mainly to wars with Turkey. The European average was

The Pre-Nineteenth-Century Ottoman Economy

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only seven years. If these seven years were subtracted from fifty-seven, one was left with half a century. This meant that the Ottoman Empire had used approximately one million soldiers, who could have been active in production, unproductively in wars. Moreover, the Government provided them with clothing, food and drink, and gave them expensive weapons. If during that time the Ottomans had only fought wars for seven years, like the rest of Europe, they would have had no foreign debts and no poor people.42 It is quite clear that such lengthy and costly wars were an impediment to economic development.43 Not only did the country lose territory and tax revenues, it also incurred ever-increasing military costs. In a book based on a 1905 report presented to the British Government, A. J. Dunn mentioned that the greatest part of the Ottoman debt arose from military expenditure. The country spent vast sums to protect its sovereignty and to avert Russian interventions based on hypocritical claims that these were on behalf of their Slavic brethren and co-religionists.44 Issawi mentions that, as opposed to Europe, the unsuitability of the rivers in the Ottoman Empire for transportation also had a negative impact on the development of trade and production.45 Though water mills were a Middle Eastern invention they were used to a much lesser extent than in Europe. Similarly, while windmills existed in Persia in the sixth century, their use did not go further than producing flour. In Europe, however, they became an important source of energy. An examination of the relationship between state and society shows that the influence of the Ottoman State on economic activities was far greater than in Europe. In the Ottoman system, the centralized administration left the economic power mostly in the hands of the state. On the other hand, in the West, there were different sources of power such as the Church, city states, feudal administrations, universities and trade guilds. These independent sources of production and trade have made great contributions to economic development.46 According to Halil İnalcık, the Ottoman Empire was a Middle Eastern state and the dominant mentality in such states was to leave society unchanged. Only then would there be peace and prosperity in the country. The economic structure was based on the principle of increasing the revenues of the State without impoverishing the people, and for this end the social order was to remain as it was.47 Timur Kuran thinks that the backwardness of Middle Eastern countries mainly resulted from the failure of Islamic economic institutions to evolve over time.48 These remained unchanged from approximately the tenth until the nineteenth century. One can mention examples such as the shari’a (religious) rules which regulated business contracts, the arbitrary system of

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taxation, the insufficient rights of private ownership, the inadequacy of public services such as health, education and urban hygiene which were left to the foundations of vakıf (waqf ). The inheritance law, which was more egalitarian than that of the West, was also governed by the Şeriat (Shari’a). In Islamic law, religious rules that regulated business contracts were well developed. There were rules about joint ownership and the establishment of commercial partnerships. However, such partnerships generally dealt with temporary contracts for a single activity such as a one-time importation from a certain country. In this system, companies having a ‘judicial person’ status were not even considered. Only ‘natural persons’ (individuals) could be held responsible. For this reason, the establishment and development of large companies (with legal status) was not possible.49 Arbitrary taxes, widespread confiscation and forced labour during times of war and crisis blunted people’s desire to save and make more money. Likewise, due to an absence or insufficiency of property rights, people lacked the desire to own real estate or to establish a business.50 Issawi argues that the reason why trade and other economic activities passed to foreigners was that they were under foreign protection and, thus, safe from the arbitrary administration of state officials.51 According to Islamic inheritance law a person could bequeath two-thirds of his/her estate to relatives but only one-third by will.52 Thus, it was not possible to preserve a lucrative business or real estate intact for the long term. The continuous division of wealth into smaller parts has had a negative impact on the accumulation of capital.53 When explaining the efforts to establish companies in the Ottoman Empire, Haydar Kazgan states that the main obstacle standing in the way of entrepreneurial efforts was the state bureaucracy. The tendency towards centralization gained strength significantly after the Tanzimat (the reform movement launched in 1839). With the declaration of the Second Constitution in 1908, the proponents of decentralization came to power. A report sent by the Salonica Chamber of Trade and Industry to the Government declared that ‘it was necessary even for the tiniest business to obtain a license from the Ministry of Commerce in Istanbul. For this purpose a person was sent to Istanbul to follow it up for at least three months. It was now recommended that the matter should be resolved by the local authorities’. 54 During the initial years of the Tanzimat, it was very hard to find qualified manpower to fill the lower and middle ranks of the bureaucracy. With the declaration of the Reform Decree (Islahat Fermanı) of 1856, minorities were allowed to work as state officials. In time, officials with training in the new technical, legal and economic schools were hired. During this period when the Government faced difficulties in paying salaries, bribery and corruption

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became rife. Bribery, as it does today, daunted foreign and local businesses and created numerous complaints.55 Foreign observers who have studied Ottoman industrial development in the nineteenth century maintain that corruption, incompetence and mismanagement in government administration were obstacles to development. However, some state that there were more important factors. Among these, Donald Quataert emphasizes the intense political goals of other countries.56 It was a part of Britain’s foreign policy until the 1870s, when she had a command of trade and industry, not to allow the development of foreign industries which could compete with British manufacturers. As an example, he points to Britain’s sabotage and termination of the industrial installations established by Mehmet Ali Pasha of Egypt. Having said that, the development of industry was not a feasible option for the Ottoman administrators who were quite familiar with the Egyptian case. In 1833, Lord Palmerston, the British Foreign Minister, wrote to Lord Ponsonby, their ambassador in Istanbul, that ‘the Turkish industry, must necessarily be discouraged’.57 While political corruption was rampant in early nineteenth-century Europe, even in Britain, it did not influence industrialization to any extent.58 Europeans played their part in corrupting the Ottoman bureaucracy. When comparing the economic approaches of the East and the West, Bernard Lewis, says that the difference lies in the dissimilarity of corruption on both sides. ‘In the West, one makes money in the market, and uses it to buy or influence power. In the East, one seizes power, and uses it to make money. Morally, there is no difference between the two, but their impact on the economy and on the polity is very different’.59 According to Kazgan, another factor which held back the accumulation of capital necessary for industrialization, was the Western-style consumption which rapidly rose after the Crimean War. Members of the Ottoman palace and bureaucracy imitated the consumption patterns of higher-ranking allied officers as well as the princes and princesses who had been expelled from Egypt by the Khedive. Within a short period, the coterie of the Sultan and bureaucrats became addicted to living in debt, and the amounts owed by prominent bureaucrats to the Galata bankers created scandals. Meanwhile, the merchants who imported luxury items from Europe were not only selling but also working hard to diffuse habits of conspicuous consumption.60 Desirable as this was, there were not enough savings to realize infrastructural investments and to establish industrial companies. According to Quataert, the internal security problems in the first half of the nineteenth century also had a negative impact on capital investment. The possibility that bandits could loot factories and production equipment

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Foreign Investment in the Ottoman Empire

also scared off investors. Moreover, in the vast Ottoman dominions, a relatively small population of 26 million was spread thinly and this was not conducive to mass production. Only large cities like Istanbul and Izmir had high population densities. Thus, in other parts, it can be inferred that industries, especially labor-intensive ones, could not develop.61This relatively thin spread of population also affected negatively the formation of large markets. During the Tanzimat period (1839–76), one of the factors which delayed the state-encouraged industrialization process was the passive and active negative reaction of the workers, producers and general public. The trade guilds were active and influential in this matter.62 For instance, in 1861 a British citizen started a cotton print cloth factory in Izmir. This aroused complaints from Armenian producers who manufactured similar goods and the factory was closed down by the Government.63 In many parts of the country, attempts at establishing modern factories met with the reaction of local artisans and, frequently, these were destroyed and looted.64 In this reform period, F. E. Bailey, who studied Ottoman–British relations, shows three main reasons behind Ottoman industrial backwardness: the lack of capital, limited resources of coal and iron and the absence of protective customs duties to protect industry.65 It was the last reason which Bailey and other authors found hard to explain. The Ottomans were collecting exports taxes of 12 percent while duties were only 3 percent for imports. These observers expressed, with astonishment, that the British made the Ottomans accept free trade before they accepted it in their own country.66 Despite this liberal policy in the Ottoman Empire, the principal European countries continued to increase their protectionist measures in order to protect their domestic industries. According to Edward Mead Earle, the absence of protective measures in Ottoman trade spelled the end of small industries, such as textiles and shoe manufacturing, which could not compete with the cheap machine-made products of the industrialized West. The Ottoman Empire ‘had not experienced the Industrial Revolution which was the modern foundation of Western society and civilization. But Turkey was victimized by the Industrial Revolution’.67 It was essentially twentieth-century scholars like Issawi, Bailey, Puryear, Earle and Clark who saw the Ottoman free trade policy as an unjust tool of imperialism. However, in the nineteenth century, Friedrich List, a German economist who was known to be an avowed partisan of protectionism and an opponent of laissez faire, had a different idea about the Ottoman Empire. He enthusiastically defended the thought that the Ottomans should have a free trade policy based on their selling raw materials to Europe and buying

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manufactured goods.68 He thought that Turkey was like a corpse which had lost her religious, moral, social and political foundations. Even if she was supported for a while, her fate was sealed and the solution for the Eastern question had to be in line with the interests of Europe.69 From the first quarter of the twentieth century, many educated Turkish intellectuals began to think that Islam was an impediment to economic development and needed to be reformed. Moreover, certain Western observers thought that Islam could not be reformed and would only lead to backwardness. The Earl of Cromer shared this prejudice in William Muir’s 1883 book about the caliphate: Christian nations may advance in civilization, freedom and morality, in philosophy, science, and the arts, but Islam stands still. And thus stationary, so far as the lessons of history avail, it will remain.70 Many researchers think that one of the reasons why Islamic civilization lagged behind was that jurisprudence (içtihat) was no longer open to new interpretations. During the earlier period of Islam, circumstances which were not covered by written law or usage and custom, were referred to scholars (ulema) or judges (kadis) who would reason on the matter and express personal views. In the twelfth century, it was assumed that all possible legal cases and special circumstances had been resolved and all that was needed was already known. Therefore, there was no further need for independent thinking and evaluation. Thus, the ‘gate’ to new jurisprudence was closed.71 For this reason, during the centuries that followed, the Islamic structure became devoid of independent thinking and analytical implementations, and consisted only of compilations and repetitions.72 The obstruction of analytical thinking also had an effect on the educational system. Instead of problem solving, emphasis was laid upon memorizing.73 As religion penetrated the many areas of social life, it also indirectly influenced economic life. This encouraged fatalism – a belief in, and acceptance of, fate. In the palaces of Islamic rulers, fortune-tellers held a prominent place. Their main task was to divine auspicious times in matters like military expeditions, marriages and journeys.74 In today’s economic literature, the term ‘scientific pessimism’ is used for such cultural values. Scientific optimists believe that a person with appropriate training will perform his job adequately. On the other hand, a scientific pessimist believes that one cannot control nature. Natural disasters can only be forecast by astrology and controlled through prayer and sacrifice. Everyone must conform to tradition or else face disaster. For this reason, one must be against new forms of

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organization that could arise from the division of labor and competition.75 A contemporary Islamist author saw insurance as ‘one of the most absurd manifestations of the modern materialistic mentality. Insurance meant disbelief in God’s will. If property was lost or burned, it was God’s will, hence, what was the use of insuring?’ Moreover, he mentioned that ‘insurance was an invalid and void transaction according to the Şeriat (Shari’a) because what was bought and sold did not exist (ma’dûm); the commodity was only the probability.’76 According to pro-Westernizing Ottoman intellectuals of the nineteenth century, these were peculiarities of oriental mentality, and obstructed economic development.77 Enver Ziya Karal maintained that the main reason behind the economic backwardness of the Ottoman Empire lay in the Muslim population ‘embracing a philosophy of unsupported and meaningless contentment which was supposedly based on religion.’78 According to Karal this worldview, which was kept alive in classical and popular Turkish literature, actually blunted the people’s motivation to work harder and to earn more. Authors, who studied the reasons why the Industrial Revolution began in England, wrote that the producers employed women and children as cheap labour to increase the demand for their products, and implemented the division of labour that led to a continual improvement in production techniques. Consumers kept on demanding more and better products for increasing their welfare. According to David Landes, the propelling power of the Industrial Revolution in England was the interaction of supply and demand.79 The British who discovered this interaction were the top implementers of technological developments in industrial production. They developed new markets for basic goods such as cotton and woollen textiles rather than luxury ones for silk. Even if not unsupported and meaningless as Karal maintains, the contentment of the Muslim population may have had a negative impact on economic life. A consumer who sees prosperity as unimportant or beneath his dignity will not increase the demand for goods, quantitatively or qualitatively. Likewise people with such a world-view were not likely to seek greater gains by cost cutting, increasing the market share, and continually improving production. Maxime Rodinson, who examined the Koran and hadiths (Prophet Muhammad’s sayings), maintains that there is no major impediment in Islam against progress on the road to capitalism. As opposed to other religious books which despise economic activities and urge the faithful to trust only God for their daily sustenance, the Koran has a positive approach to trade and only opposes deceitful practices. Rodinson writes that fatalism in Islam exists only in backward rural areas, though he states that human behavior

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is very much influenced by cultural tradition.80 He seems to ignore the fact that religion is one of the most important influences on culture. He sees the situation created by imperialism as the major reason of the economic backwardness of the Islamic world. Eric Lionel Jones used a similar reasoning to argue that religion did not prevent the development of the Muslim lands. In Islam, there are fundamental rules and beliefs that regulate life. However, it is not possible that these would be permanent and irreducible, or not be subject to evolution in time. Certain religious bans or the lack of intellectual and economic opportunities for women will certainly carry a cost to society. However, these would only slow down, and not halt completely, the process of economic development.81 Even though researchers like Rodinson and Jones have carefully examined the Islamic world, they lack the understanding and first-hand experience of specialists brought up within that culture. When they state that the Islamic world regressed during the Ottoman period or that Islamic countries have succumbed to colonialism, they cannot give adequate reasons to support these arguments. Scholars like Berkes, İnalcık or Kuran, in their own different ways, explain systematically the influence of religion on society and economic activities. Timur Kuran tried to show the relationship between Islam and economic development by a regression analysis. He took the per capita income logarithm as the dependent variable while the proportion of Muslims in the total population of 132 countries was the independent variable. He found a negative relationship which was statistically significant but with weak explanatory power.82 When a second independent variable – such as putting the country in the OPEC sphere or on a location within Africa – the proportion of Muslims in the total population became an important factor in the determination of the income level. Despite this quantitatively established correlation, Kuran states that he cannot explain the cause vs. results of the seemingly negative relationship between Islam and economic development. One can conclude that even if Islam does not have basic rules that would obstruct economic development, its involvement in education, economic institutions, and social and cultural life has created the conditions preventing economic progress.83 Another factor, purported to obstruct economic development and supposedly particular to Islamic societies, is collectivism. According to some, individualism in the West, especially in Anglo-Saxon countries, which emphasizes the value of an individual as a free human being, has supported the spirit of enterprise created by individual authority and responsibility. This played a major role in economic development.84 At the end of the

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nineteenth century, Tevfik Fikret, an Ottoman intellectual, praised the individualist, pragmatic and puritan particularities of Anglo-Saxon culture which promoted the entrepreneurial spirit.85 Prince Sabahattin, a Young Turk, wrote about the importance of individualistic formation and proposed that collective ownership should be abandoned in favor of private ownership. He recommended that the educational system should be changed to conform to the individualistic Anglo-Saxon one.86 Almost a century later, Sabri Ülgener claimed that the craft guilds that worked within group solidarity in the Ottoman production system have harmed economic life. The Ottoman guild workers were content and without any anxiety about their future livelihood. They were imbued with fatalism and traditionalism, upholding moderation and stability over active trading practices. Since there was no consideration for competitive commercial practices, such as speculation, price-cutting, advertisement and product improvement in the craft guilds, individual profit-making motivations were not felt. Acceptance of individualistic moral values would have helped to develop a competitive spirit necessary for economic progress.87 Even though individualistic and collectivist approaches influence the structure of management and production, it is not easy to establish their causal relationship with economic development. Today, as in Western countries where individualistic culture predominates, countries such as Japan and Korea, which have collectivist cultures,88 have achieved entrepreneurship and economic development with very successful large firms that are by no means behind those in the West. In the second half of the twentieth century, these collectivist countries had rates of economic growth which were superior to those of European countries and the United States.89 In recent years China, which also has a collectivist culture, has the fastest growing economy in the world. To sum up, if one evaluates the reasons why the Ottoman Empire could not industrialize and remained backward, by examining the various arguments put forth by numerous authors, we can see that these factors changed in character and intensity in different periods. According to Issawi, the wind and water mills which were invented in the Middle East were no longer used in the region – the Ottomans were not even aware of such things. İnalcık believes the economic organization remained static. The economic institutions analyzed by Timur Kuran did not change over time. For Lewis and Berkes, the ‘gate’ of jurisprudence was closed and this resulted in obviating analytical thinking and an insufficient educational system. In the nineteenth century, however, both the Tanzimat reforms and the free trade pressures of the West resulted in the lifting of certain religious rules, as in the use of money interest.

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The crafts and trade guilds also became ineffective and were later eliminated. The supposedly immutable economic system did change. Concurrently, with free trade agreements and political and economic collapse, Western imperialism – as suggested by Bailey, Puryear, Quataert, Earle, Clark, Rodinson and Berkes – gained importance. Attempts at industrialization, albeit with military purposes, were also a part of the reform movements started in the eighteenth century, during the reigns of Selim III (1789–1807) and Mahmut II (1808–39). As explained below, they were unsuccessful largely because of the opposition of Western merchants, industrialists, politicians and diplomats. The long wars and rebellions not only deprived the State of revenue but also took the most productive part of the active population away from production. The costs to the country were very high. For these reasons, while the negative impact on economic development from internal factors (religious and social) were decreasing in the nineteenth century, those from external factors (wars and Western imperialism) were on the rise. One could argue that starting from the foundation of the Ottoman state and continuing into the nineteenth century, the direct and indirect influences of religion created a static social and economic order. This led first to a decline in the military field, but in the nineteenth century the additional negative impact of rising Western imperialism led first to an economic collapse and then to a political one. Attempts to Industrialize in the Nineteenth Century The severe military defeats of the eighteenth century were followed by a rapid political decline. There were attempts to stop and even reverse this. Although restricted to the military, important reforms started during Selim III’s reign. It was realized that the need for armaments could not be met by simply importing from Europe, and experts from Europe were hired in order to eliminate the dependency on imported weaponry and ammunition. Factories for producing cannons, guns and ammunition were established. In order to provide infrastructure for these factories, various schools were opened. These included such schools as the Mekteb-i Mühendishane-i Bahri-i Hümayun (the Imperial School of Naval Engineering), Topçu Mektebi (the School of Artillery), the Mekteb-i Mühendishane-i Sultani (the Imperial School of Engineering) and the Mekteb-i Mühendishane-i Berri Hümayun (the Imperial School of Land Engineering). As the reform movement progressed throughout the nineteenth century, representatives of European countries in Istanbul began to sabotage these efforts which they thought would imperil their traditional interests and privileges. Thus, the Europeans formed alliances with the most reactionary members of the bureaucracy in order to oppose the reforms.90

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During the first 20 years of Mahmut II’s reign a number of factories were established around Istanbul. A textile factory was established in Eyüp, leather and shoe factories in Beykoz were upgraded, the paper plant at Hünkar İskelesi had the capacity to manufacture cloth. A fez factory was opened at Topkapı and a woollen textile factory became operational at İslimiye (in the Balkan mountains). In the vicinity of Tophane (in the European part of Istanbul), sawmills and copper plate factories were built and in the same district, steam power was used, instead of animals, to manufacture cannons and projectiles.91 During the first years of the Tanzimat, the establishment of farms and factories, based on European models, increased rapidly. Charles Mac Farlane, who revisited the Ottoman lands in 1847 after an absence of 20 years, was astonished about the changes that had taken place. He wrote that ‘by importing a hundred or two foreign workmen, and making them teach their arts to the people of the country, they could soon create a Turkish Manchester and Leeds, a Turkish Birmingham and Sheffield at Zeitoun Bournu.’92 He criticized these industrial activities, saying there was no proper agriculture in these fertile lands. To develop industry before developing agriculture and infrastructure was ‘beginning at the wrong end with a vengeance!’93 These efforts which started with great expectations did not succeed because of European interference and internal weaknesses. According to the conclusion of Bailey, Earle and Puryear, one of the most important reasons for this failure was the existence of a totally free trade regime, not to be found in any European country. It would therefore be appropriate to examine the conditions that forced the Ottomans to adopt such a free trade regime. Foreign Influence on Ottoman Economic Thought According to Berkes, in the Ottoman Empire until the end of the 1820s there did not exist economic thought, ideas, proposals, theories, observations or analyses within the frame of Western scientific and rational approaches. The majority of the Ottoman administration thought the decay that had been going on for three hundred years was caused by the abandonment of old traditions. They thought the situation could only be rectified by the strengthening or resuscitation of traditional political methods. For this reason, they envisaged measures such as a tight control of confiscation, taxes, monetary manipulations, internal and external monopolies, farmers’ and trade guilds.94 Berkes adds that it was such rectification efforts, based on punitive methods, which brought about this chronic struggle of interests. Selim III took a Western approach, such as asking the views of prominent scholars when starting the reform movement aimed at regaining the State’s

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military power. These ‘scholars’ submitted explanatory documents (layiha) to the Sultan.95 According to Berkes and Sayar, among these documents only that of Tatarcık Abdullah Molla contained any information, analysis and criticism. He elucidated his observations and criticism on topics like budgetary and tax policies, the traditional debasing of coins, and foreign trade policy. He suggested a ban on diamonds imported from the New World by Europeans. Even though Europeans did not use diamonds, they traded them for Ottoman property and valuables, which went to their own countries. He showed the damage created by such a trade.96 Yet these views of Abdullah Molla were never implemented, perhaps for military, political and personal reasons. On the other hand, European economic thought was undergoing a revolution. In his famous book, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Adam Smith wrote in detail about the ‘damage’ created by a mercantilist system. He criticized the protectionist policies of the French physiocrats and the Finance Minister Jean Baptiste Colbert (1619–83) who was responsible for establishing strong mercantilist policies in France a century earlier. Smith proposed that natural freedom, unrestrained by government control, was the most appropriate economic system.97 Forty years later, David Ricardo explained the declining productivity of cereal farming in Britain as resulting from cultivation in less fertile lands. The solution would be to import wheat from countries that had more productivity because of more fertile soil and, in return, export finished products in which Britain had a higher comparative advantage. He was for the abolition of the protectionist ‘Corn Laws’ in Britain.98 As a result of the Industrial Revolution, Britain was able to produce manufactured goods efficiently, and on a large scale. Britain’s internal market and her traditional export markets were saturated with British goods. These developments led British merchants and diplomats, who were in a constant search for markets for their products and raw materials for their industries, to seek new opportunities. Since Britain herself implemented protectionist policies, expansion into the similar European markets did not seem plausible. Hence, the target became the Ottoman Empire and other Eastern markets.99 The British started preparing the ground for establishing the idea of free trade. During the so-called Greek War of Independence, David Urquhart, like other romantic Europeans, ran to help the Greeks. Even though he was not an economist, he surmised that Russia would gain strength following this war, and would imperil, if not ruin, the Eastern trade of Britain. His curiosity took him to Istanbul. There, with the good offices of the British ambassador, he authored pro-free trade articles in order to influence the Ottoman

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administrators.100 The first Ottoman Turkish newspaper, the Takvim-i Vekayi, which was founded by Sultan Mahmut II, began to appear under the editorship of Esat Efendi in 1831. Alexandre Blaque, who previously edited a French newspaper in İzmir, became the editor-in-chief of Le Moniteur Ottoman which was the French version of that paper. It was even mentioned that the Sultan, a reformist and pro-European, wrote anonymous articles in this newspaper.101 Urquhart, who managed to reach the Sultan through Lord Ponsonby, the British ambassador, tried to convince Ottoman public opinion about the benefits of liberalism through his writings, in cooperation with Blaque Bey. These were, in part, translations from his book, Turkey and Its Resources, published in London in 1833. In this book Urquhart wrote: It is established, that our cottons and muslins, calicoes, chintzes, &c., are, if not better, infinitely cheaper than those of the East. Taste is gradually directing itself to our manufactures, and money less expended than formerly on furs, jewels, Persian and Damascus blades, amber mouth-pieces and shawls. We may calculate, at no remote period, if, indeed, political troubles are arrested, of supplying the necessaries as well as the luxuries of the whole of the eastern population, whose attention will thus be exclusively directed to agriculture, and the furnishing of raw produce; when we can take from them their produce in return for our wares, or find them the means of exchanging it.102 Moreover, Urquhart averred that the low-priced English cottons would convince the Eastern nations to stop producing locally.103 Among his other wishes or expectations were the elimination of monopolies, internal customs duties and export taxes as well as the arbitrary interventions of the local administrations. It was possibly for all these reasons that Ahmet Vefik Pasha thought of him as the most dangerous ‘friend of the Turks’.104 The second newspaper, the Ceride-i Havadis, which was published in 1840, followed the same line. It continued to give information and news about Western economic thought and organizations. A British merchant, William Churchill obtained, through the intermediation of Lord Ponsonby, the privilege of publishing this newspaper.105 According to Berkes, Churchill was probably employing Armenian authors who were more familiar with economic and commercial matters in Istanbul. Indeed, an economics book issued by the printing press of this newspaper was authored by an Armenian. In this paper, protectionism was severely criticized while the virtues of free trade were extolled. Churchill wrote that it would be more appropriate for

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the Ottomans to rely on agriculture and import manufactured products from Europe where they were cheaper.106 The Sultan spent vast sums to establish factories, mainly for military purposes and for the adoption of European technology. He also displayed a willingness, albeit limited, to reduce the country’s dependence on European products. Yet he did nothing to protect these establishments and, paradoxically, he assisted the enemy in preparing the groundwork for the obliteration of these national investments. Some scholars, who have examined the period in depth, maintain that in the Ottoman administration there was no one capable of understanding the implications of a liberal trade policy. Yet, it is hard to explain, within the frame of economic reasoning, the policy followed by the sovereign. The 1838 Trade Agreement was signed at a time when the Ottoman Empire was politically in dire straits. After a series of territorial losses in Europe, Greece was given full independence in 1830 (with the military and diplomatic interventions of Britain, France and Russia) while the French seized Algeria in 1830. Meanwhile, the governor of Egypt, Mehmet Ali Pasha of Kavala, initially with the prodding of France and Britain, declared war on his suzerain. His son İbrahim Pasha seized Syria and advanced into the center of Anatolia. Russia, which agreed to support Sultan Mahmut II, signed the Treaty of Hünkar İskelesi with the Ottoman Empire in 1833.107 Fearing that this treaty would give a special status to Russia, the British Foreign Office deemed it a prudent and appropriate policy to let the Ottoman Empire survive. Moreover, as the Russians did not adopt free trade, Britain could not get wheat from them at a desirable price. Instead, it would obtain it from the Ottomans on favorable terms. According to the theory of ‘free trade imperialism’ developed by Gallagher and Robinson, the Ottoman Empire became a part of the unofficial British Empire. ‘The dependence of the commercial thrust upon the political arm resulted in a general tendency for British trade to follow the invisible flag of informal empire.’108 The 1838 Anglo-Ottoman Trade Convention As the 1820 Customs Tariff Agreement ended in 1834, it was necessary to prepare a new one. According to the clauses of the capitulations, the three percent customs duties to be levied on foreign merchants required different books for every product as of the late eighteenth century. Taking into account international price increases, it was decided to renew these tariffs every fourteen years. Price changes, however, could dictate renewals that could occur before or after the fourteen-year term. As the 1820 agreement was based on the old prices, which meant lower customs duties,

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the British were extremely unwilling to have it renewed.109 While the customs duties for goods coming from Britain to the Ottoman Empire were only three percent, those imported to Britain, for similar goods was 60 percent.110 For this reason, as soon as the term of the tariffs came to an end, the Ottoman authorities expressed their desire to have a reasonable increase in the duties. However, Britain’s real goal was to impose an agreement by which internal monopolies would be terminated. There would then be no producer left who could compete with British goods protected by the Ottoman state. For this purpose, in 1836 Urquhart prepared a draft agreement which was sent to the British Foreign Ministry after being approved by the Ministry of Commerce.111 Thereafter, the British embassy in Istanbul began to exert pressure to get the negotiations started. The Sublime Porte did not want to accept the agreement as it stood. Meanwhile, other countries, especially France and Russia, were watching these negotiations closely. The French were convinced that Britain wanted to eliminate French influence in Egypt. Moreover, Egypt attracted Britain’s ire as it was competing with Britain with its cotton and foodstuffs and controlling the roads to India, passing through the Red Sea and the Euphrates.112 As the trade treaty to be struck with the Ottoman Empire would also bind Egypt, Britain would kill two birds with one stone. Mustafa Reşit Pasha, the Ottoman Ambassador in London, returned to Istanbul to become the Foreign Minister. This greatly facilitated the task of the British as Reşit Pasha’s thinking was in tune with theirs. All that remained was to convince the Sultan and that did not take long. In a meeting with the consuls of the major powers in May 1838, the Governor of Egypt proclaimed that he would declare his independence. It was rumored that Mehmet Ali Pasha wanted to establish a new empire, which caused unease at the Porte. Britain promised the Ottomans assistance against Mehmet Ali’s expected move and this facilitated Reşit Pasha’s task of convincing the Sultan. Should the British get the agreement they wanted, according to international law, it would also be applicable to Egypt. Since Egypt financed its military expenditures to a very large extent from monopoly concessions, its economic policy would be derailed and Mehmet Ali’s political influence would collapse. These developments were the major factors in convincing the Sultan to sign the trade agreement.113 On 16 August 1838, the agreement was signed at Reşit Pasha’s mansion at Balta Limanı, and comprised two parts. The first part dealt with domestic trade issues while the second part covered imports from Britain and the transit trade. The main clauses in both parts can be summarized as follows:114

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1 The former capitulations granted to British traders would continue henceforth and all concessions granted to other countries would also apply to Britain. 2 The ban on some exports established by previous covenants would be lifted. 3 The Yed-i Vahit system which granted the trade of agricultural and various other products to certain local monopolies would come to an end. 4 The necessary permission (tezkire), given by local authorities to transport purchased goods from one location to another, would be abolished. The authorities who did not abide by this decision would be punished and the British merchants would be compensated for their losses. 5 The British merchants and their collaborators would pay taxes that would not exceed the minimum paid by local merchants when trading goods within the Ottoman borders. This conferred upon British merchants not only the status of ‘most favored nation’ but also that of ‘most favored domestic merchant’. 6 Like other European merchants, the British paid, until 1838, a three percent tax (reftiyye) when the goods were loaded on board a ship to be exported. However, the new agreement also required the British to pay the nine percent tax (amadiyye) which they were previously unwilling to pay. This tax had to be paid when the goods were brought from the place of production to the port of export. Thus, the total export tax came to a total of twelve percent. 7 All goods imported from the British Empire to the Ottoman dominions would be subject to a three percent customs duty based on their value. Moreover, in lieu of the previously collected internal taxes, there would be an additional tax of two percent. Thus, the total import taxes added up to five percent. 8 The British merchants would have the freedom to trade goods imported from third countries. As long as they paid the five percent import tax, they could sell their goods within or outside the Ottoman Empire. This clause created a very lucrative potential for foreign merchants. 9 Good in transit through the Ottoman Empire would be taxed at three percent. The French, who objected to this agreement, changed their mind, and at the end of 1838 signed an agreement with the same conditions. In the following years, other European states signed similar agreements with the Sublime

24

Foreign Investment in the Ottoman Empire

Port: the Hanseatic League cities and Sardinia in 1839, Sweden, Norway, Spain, Holland, Prussia and Belgium in 1840, and Denmark and Toscania in 1841.115 Western diplomats and merchants had since long considered the internal monopolies and the export bans as impediments to trade between Europe and the Ottoman Empire. In 1833, while he was the Minister of Foreign Affairs, Lord Palmerston sent instructions to Ponsonby, the British Ambassador in Istanbul, to end the monopolies. Referring to the privileged merchants in this system, Palmerston said that as long as there are traders who have the power to fix prices of goods they buy from the producers, who are obliged to sell them, the Turkish industry should be obstructed. He asked the ambassador to convince the Ottoman authorities that the ending of this system would increase the wealth of the Sultan’s subjects and significantly develop the industry and resources of the Ottoman Empire.116 Yet, until the end of the 1840s, Britain continued to implement protectionism in its own trade policy. As a remnant of the eighteenth century, the preferential import duties for goods imported from her colonies still continued. Protectionism for goods like coffee, sugar and timber persisted until the 1850s and 1860s.117 The British were not alone in wanting the elimination of Ottoman monopolies. In a letter he wrote to the French Ministry of Foreign Affairs in 1837, a French chargé d’affaires in Istanbul noted that the French merchants desired the elimination of monopolies and ban of exports from the Ottoman Empire.118 Du Velay, who wrote long after the elimination of the monopolies, praised the 1838 Agreement. He wrote that after the elimination of these ‘disgusting and unfair monopolies’, the wearisome impediments to trade had been lifted.119 Even though the British made great efforts to eliminate the monopolies in the Ottoman Empire, they established a state monopoly which banned the export of raw materials such as wool, hides and minerals in order to protect their own industries. As late as the twentieth century, they imposed monopolistic export taxes in their Asian colonies in order to make it more difficult for them to export to third countries. Tin in Malaysia is a case in point.120 The Impact of Trade Agreements on Trade and Industry As there were no official trade records before 1878, one can only obtain information about the trade between Europe and the Ottoman Empire from European sources. However, each country’s use of different definitions in its trade statistics, the price and exchange rate fluctuations, as

The Pre-Nineteenth-Century Ottoman Economy

25

well as territorial changes, are factors that diminish the reliability of these statistics. According to Issawi, after the 1830s Ottoman foreign trade kept increasing. The volume of exports increased fivefold from the early 1840s to the mid-1870s, while imports rose by 4.7 times. During this period, as world prices showed little change, these figures are almost reflective of real values. Issawi also mentions that from the 1840s to 1912, exports for the entire Ottoman Empire increased by 3.3 times while imports rose by 4.6 times.121 As this increase in trade is well above that of the national product, one can conclude that the Ottoman Empire had opened up to world trade. Table 1.1 shows the foreign trade statistics of the Ottoman Empire from the 1830s to World War I. As seen in this table, Ottoman foreign trade consistently showed deficits. Table 1.1 Foreign Trade of the Ottoman Empire Years

Imports

Exports

Balance

(in million British pounds) 1830–1839

5.1

4.2

-0.9

1840–1849

6.9

6.0

-0.9

1850–1859

12.3

9.8

-2.5

1860–1869

18.3

15.4

-2.9

1870–1879

20.8

18.6

-2.2

1880–1889

16.0

15.5

-0.5

1890–1899

18.6

17.7

-0.9

1900–1909

26.0

23.0

-3.0

1910

39.2

26.0

-13.2

1911

40.4

27.1

-13.3

1912

35.2

27.6

-7.6

1913

39.4

28.4

-11.0

Source: Ş. Pamuk, Ottoman Foreign Trade in the 19th Century, (State Institute of Statistics, Ankara, 1995)

The Ottoman Empire has traditionally encouraged imports while preventing exports. During the early nineteenth century, while the import tax was three percent, the exporters paid a tax of twelve percent. The foreigners were amazed at this situation.122 Issawi interpreted this as a particularity of the socio-political structure of Ottoman society. The interest of the army

26

Foreign Investment in the Ottoman Empire

and bureaucracy had precedence over those of the farmers, craftsmen and merchants. The food supply in Istanbul and other cities had to be guaranteed so as not to give the slightest opportunity for the ‘rabble’ to revolt. One more reason put forth by Issawi is that the prices in the Ottoman Empire were lower than those in Europe, and this could result in excessive exports.123 Another aspect which amazed foreigners was that the Turks did not show any interest in trade. Rather, they left this to the non-Muslim subjects of the Empire and the Europeans.124 Karl Marx wrote in 1853 that he doubted whether Turks lived outside of Istanbul. He believed that whatever was imported from civilization, it was thanks to the able minorities like the Greeks and the ‘Slavonians’. He even claimed that if all the Turks were expelled from Europe, there would be no changes in trade.125 Issawi wrote that, after 1838, the Ottoman trade regime was among the most liberal in the world.126 Before the 1838 Agreement, the first trade privileges given to the French in 1536, and the ensuing capitulations proffered to other European countries, were already facilitating trading activities of the foreigners. From the sixteenth century, the capitulation policy implemented by the Ottoman Empire was diametrically opposed to the mercantilist policy of Europe.127 The British, who effectively controlled the Ottoman trade from the 1838 to the 1860s, had introduced free trade to the Ottoman Empire long before they did so in Britain.128 According to Bailey, during the first half of the nineteenth century, Britain had a virtual monopoly on international trade. Her most important problem was to find a market for the industrial products that her factories were producing. Several authors point out that Britain had two goals in her foreign trade policy. Firstly, she had to find new markets for her manufactured products and secondly, while maintaining a system of domestic agricultural protectionism, she had to obtain cheap and plentiful raw materials.129 Britain therefore oriented herself towards the domestic markets of non-capitalist peripheral countries outside the industrial core countries. In time, other European countries adopted similar industrial and trade policies. While the manufactured goods imports of the Ottoman Empire rose rapidly, her exports always lagged behind, even though large tracts of land were devoted to the cultivation of ever-increasing export items such as cotton and tobacco. Some authors argued that the 1838 Treaty was not the only cause of the Ottoman decline in industry and crafts during the nineteenth century. When faced with European competition, traditional industries such as silk and cotton textiles had been declining since the eighteenth century. The reduction of production in city centers resulted in lower exports. However, after

The Pre-Nineteenth-Century Ottoman Economy

27

1838 producers everywhere in the Ottoman Empire came under threat of European competition.130 Other than some luxury products which required superior craftsmanship, the goods produced by traditional methods could no longer compete with the cheaper industrial products of Europe. During the 1830s and 1840s, European observers noted happily that the textile industry of the Middle East would be destroyed completely, if it had not been destroyed already.131 Cotton textiles, which were a mainstay of the Ottoman industry, were collapsing before the competition of the cheaper products of the Manchester factories. Observers of the Ottoman Empire during the 1820s and 1830s noted, giving numerous examples, how European products caused decline and collapse throughout the empire. Urquhart writes that the Ambalakia factories could no longer function and within ten years the city was abandoned and the cotton textile exports from this region came to a halt. Meanwhile, the cotton textile imports from Britain increased tenfold in three years. They rose from 10,834 pounds sterling in 1828 to 105,615 pounds sterling in 1831.132 While there were 2000 muslin textile looms in Scutari (İşkodra) and Tirnovo (Tırnova) in 1812, this number fell to 200 in 1841. During the 1840s, there were 25 to 28 silk looms in Salonica; there were only 18 in the 1860s. During the 1850s, cities in Anatolia like Bursa and Diyarbakır, which were famous for their silk velvet, satin and other silk products, produced only one tenth of what they had manufactured 30–40 years earlier.133 During the 1840s, Ottoman textile manufactures were dwindling, and the British consul general in Beirut declared that the textile industry in the Province of Syria was almost completely ‘annihilated’.134 In 1847, Viquesnel mentions that while the Bursa silk industry had 1000 looms a few years ago, this number fell to 75, and the weight of silk produced fell from 25,000 okes to 4,000 okes.135 According to a report of the Industrial Reform Commission, established in1866, during the preceding 30–40 years the number of textile looms in Istanbul and Üsküdar fell from 2,750 to 25 while the brocade looms declined from 350 to four. The number of upholstery silk looms dipped from 60 to eight. During the same period, the number of pure cotton ‘nankeen’ looms declined from 40,000 to about 5,000 in Aleppo.136 Countries that had gone through the Industrial Revolution were using steam-powered machines and implemented a division of labor. The establishments which functioned within the traditional model were bound to disappear. From the mid-nineteenth century, European countries that industrialized after Britain applied high import duties in order to protect their infant industries. Protectionism played an important role in the United States’ realization of her industrial revolution, soon after that of Britain.

28

Foreign Investment in the Ottoman Empire

As early as 1792, Alexander Hamilton, the Treasury Secretary, emphasized the need to protect America’s infant industries from the encroachment of Europeans.137 The same economic policy gained strength during the 1870s in Germany under the influence of the economist Friedrich List. In Latin America, this generally occurred during the late 1890s. According to a study by Williamson, in 1870 the average customs duty was five percent in Asian and Middle Eastern countries, including the Ottoman Empire. This was a few points lower than the average of Britain, France and Germany. The peripheral countries of Europe had a 12 percent average while Latin America and the United States had respectively 15 percent and 40 percent.138 While protectionism was gaining strength in the West, the Ottoman Empire was being forced into a policy of total free trade. Puryear wrote that the Industrial Revolution which slowed down during the Napoleonic Wars showed significant developments after 1815. He writes that In contrast with the liberal Turkish capitulations, enthusiastic governments in other parts of Europe instituted protective measures to benefit the development of indigenous industry. Indeed, tariffs sprang up almost overnight throughout most of the continent after Napoleon.139 Other American scholars have explained that the main reason behind Ottoman underdevelopment was the control of international trade and the customs of the empire by the major European powers. Thus, local industries received no encouragement and the traditional industries, with a potential to modernize, simply disappeared.140 The general situation of the economy, summarized in this chapter, lays the groundwork for foreign capital movements to be examined in chapters below. Thus, it will shed greater light on the means, the purposes and the modalities of the foreign investment inflows as well as their effects on the country. Foreign capital first arrived through loans and, later, as direct investments. From the mid-nineteenth century, when the Ottoman Empire was in woeful political and economic circumstances, foreign investment made its inroads. For years to come, it was influential in the political field, in having a major say in the state administration, and in the social field by shaping the people’s way of life.

2 FOREIGN CAPITAL: BORROWING

What has been termed ‘the first globalization’ was the economic development process that lasted from the Industrial Revolution to World War I, coinciding with a period of decline for the Ottoman State. As indicated in the previous chapter, the volume of trade rose significantly during this period. The rising supply of cheap European industrial products led to an increase in the demand for Ottoman primary products. In order to accommodate this increasing trade, which necessitated a better level of infrastructure than already existed, and to cover the seemingly unending budget deficits of the State, foreign capital in various forms began to move into the Ottoman realm. Eric Hobsbawm describes the 1848–75 period as ‘the age of capital’. This period of great progress for industrial capitalism was marked by private capital striving to buy everything, including labor, at the lowest price and selling at the dearest. This period was described by Hobsbawm as the ‘drama of progress’. Millions of tons of iron were used to build railways across continents, submarine telegram cables were laid beneath the oceans, and there was large-scale emigration to the New World. This drama of progress was a real one for those who, despite remaining outside capitalism, suffered from its effects. They had two options: either they would resist in vain, trying to protect their traditional structure, or learn the tricks of the West and use them against the West. Hobsbawm writes that there were victors and victims during this period1 and the Ottomans lived the drama of the victims. According to several Western observers, the Ottomans had for centuries lagged behind their contemporaries in matters of financial and fiscal administrations. It was only after the Industrial Revolution and the developments at the end of the eighteenth and the beginning of the nineteenth century,

30

Foreign Investment in the Ottoman Empire

that the Europeans learned to use modern financial skills, such as raising funds for their governments as well as for industry. Then, as explained by Eliot Grinnell Mears, they used such skills to gain political and economic gains outside their own countries. Looking around for fields for financial expansion, the Western bankers soon began to appreciate the availability of Turkey. Here was a country of vast potential resources, with a strategic geographical location and with a government too ignorant, irresponsible and corrupt to protect its interests. It was an ideal field for political intrigue and it did not long remain uncultivated.2 First Attempts at Borrowing During the years of financial difficulties for the Ottoman State, loans were often considered. While the idea of borrowing from Christian countries did not please those in Ottoman administrative circles, foreign countries were not willing to lend. Starting from Murat IV (1623–40), in the seventeenth century, and later under the reigns of Ahmet III (1703–30), Selim III (1789–1807) and Mahmut II (1808–39) attempts at borrowing abroad came to nothing.3 As Selim III was determined to establish a reliable army, his financial administrators attempted to borrow from the Netherlands but were turned down. Consequently, they even thought about borrowing from countries like Spain and Morocco.4 The Ottomans had to recourse to debasing gold and silver coins in order to balance budget deficits arising from heavy military expenses. During Mahmut II’s reign, gold and silver coins were debased 35 and 37 times respectively, leading to the depreciation of the Ottoman currency relative to the British pound sterling by 352 percent.5 The economic and social costs of price increases and the fall in purchasing power was enormous. As soon as he was enthroned, Mahmut II made an attempt to borrow from England. King George III declared that a sum of one million pounds sterling could be lent in return for timber, wheat and copper to be delivered to the British Mediterranean fleet. However, the Ottomans were so slow in trying to find out how this debt was to be paid back that this attempt yielded no results.6 Expanding trade after the 1840s led to an increase in customs tax revenues, with a positive effect on the State budget. The Government was able to start paying back its accumulated debts to the Galata bankers and merchants who were happy with this new turn of events. However, as imports eventually surpassed exports, Ottoman gold, silver and copper coins were used to cover the foreign trade deficit.7 The liquidity crisis that arose as a result

Foreign Capital: Borrowing

31

of the depletion of the metallic coins could no longer be dealt with by debasements or by recourse to borrowing from the Galata bankers. Foreign banknotes began to circulate in the Ottoman market. At a period when commercial activities increased significantly, the lack of banks and banknotes created problems with payments. European countries which issued banknotes with a 20–30 percent gold backing were able to resolve their liquidity problems in a much less costly way. The issuing of banknotes (kaimes) which could be used for payment was therefore an important and positive step. Banknotes, which were declared by the Government to be the equivalent of money, were issued at the end of 1839. These handwritten banknotes looked more like government bonds than money, even though they were named ‘cash equivalent banknotes’ (kaime-i mutebere nakdiye).8 When reaching maturity in eight years, the principal amount would be paid in gold, and the yearly interest would be eight percent.9 An agreement was reached with the Ricardo Investment Bank of London for the sale of banknotes issued in 1840 with a yearly interest rate of 12 percent and a nominal value of 25 piasters (kuruş). As these banknotes had no serial numbers, they lost a great deal of value when fake ones invaded the market.10 With the issuing of banknotes, the Galata bankers lost revenues. Instead of paying them 20 percent interest, the State was able to issue banknotes with interest rates ranging between 8 and 12 percent. The Galata bankers sent out agents who spread rumors that the banknotes had no gold equivalency and were not real money.11 These rumors, as well as the fake banknotes, led to a loss of confidence and merchants started to require gold for their goods. Printing fake Ottoman banknotes turned into an international industry. In addition to the fake banknotes manufactured by the Galata bankers, counterfeit Ottoman banknotes were even made as far away as the United States of America. Thus, Americans were making a profit without paying anything in return.12 As the production of real and fake banknotes increased, the State reduced the interest rate paid on this hybrid financial instrument from eight percent to six percent, and later to two percent.13 In fact the kaimes, which were really debt instruments, eventually turned into banknotes which could not be converted into gold. This initially unsuccessful implementation of banknotes might have created some doubts about obtaining loans through issues of securities. Despite the insistence of the British ambassador, the Sultan and the higher government officials were unwilling to obtain external loans. The British ambassador, Stratford Canning, in a long memorandum to the Sultan on 22 August 1850, asserted that the Ottoman Government needed external loans in order to realize the reforms that had been proposed

32

Foreign Investment in the Ottoman Empire

for many years.14 However, the collateral for such loans would deprive the State for a long time of some of its most important sources of revenues. As the State Treasury was in penury, salaries of government officials had to be reduced.15 Under such dire economic circumstances, and without a bank, banknotes issued solely with the authority of the mint led to difficulties in foreign trade payments. It was for this reason that an agreement was struck with two important Galata bankers, Alleon and Baltazzi. They would carry out the necessary market operations to protect the gold parity of the banknotes. These two bankers established, under the aegis of the State, the Banque de Constantinople (Bank-ı Dersaadet) and secured some stability for the value of the banknotes.16 This bank lent 130 million piastres to the Ottoman Treasury, which was then in dire straits. To do this, it borrowed the money from Europe with the Ottoman debt as collateral. However, when the state was unable to pay the debt, Grand Vezir Reşit Pasha signed a credit agreement in 1850 with Becket Dethomas et Co. of Paris, and Deveaux and Co. of London, in order to pay off the now internationalized debt of the Banque de Constantinople, and to finance the reforms promised to the British. Accordingly, bonds worth 55 million francs (55,000 bonds at 1000 francs each) were to be issued and paid back in 27 years. About 20 million francs from the sale of these bonds, which were issued without the approval of the Sultan, were deposited in the account of the London agent of the Banque de Constantinople. 17 Sultan Abdulmecit was furious when he learned about this and refused to be the first sultan to take external loans. He did not sign the agreement, and dismissed the Grand Vezir.18 As a result, the state had to pay not only the 20 million francs, but also an indemnity of 2.2 million francs.19 However Abdulmecit eventually gave in after incurring heavy expenses during the Crimean War. The Persistence of Financial Crisis and Foreign Loans The Ottoman State not only had to bear the financial burden of the Crimean War, but also had to defray the heavy expenses of basing foreign troops on its soil. It was clear there was no way the Ottoman treasury could meet such expenses. The State had to issue security notes for internal loans (called iane-i umumiye), and compelled bureaucrats as well as merchants to purchase them.20 When all state revenues were deemed to be insufficient, Sultan Abdulmecit issued a firman (decree) on 4 August 1854 authorizing foreign loans amounting to five million pounds sterling. Three million would be in the form of bond issues and an agreement was struck with Dent, Palmer and Company of London and their Paris agents, Goldschmid

Foreign Capital: Borrowing

33

and Company. This 15-year debt issue had a nominal interest rate of six percent, an annual one percent amortizing rate, and was sold at a 20 per cent discount. The revenues of Egypt were established as collateral. Since only 2.29 million pounds were to go to the Ottoman Treasury, the effective rate of interest came to nine percent.21 It was not possible to cover the total war expenses, calculated at 11.2 million pounds sterling by the Ministry of War, with the 1854 borrowings.22 The ever-increasing budget expenses necessitated a new round of borrowing in 1855. This time, Britain and France convinced the Ottomans to borrow five million pounds sterling and guaranteed the interest payments of the debt. Even the most cautious bankers became interested in this loan. While the rate of interest was four percent, it was sold at a premium of 2.62 percent above its nominal value. In Blaisdell’s opinion, this loan marked the beginning of foreign control over the Ottoman Empire.23 According to the agreement, the British and French Governments imposed condition that these sums would be used exclusively to finance the war, and two delegates, one British and one French, would be appointed to audit Ottoman Treasury accounts. The collateral for this loan was again the revenues from Egypt in addition to the revenues from the customs of Syria and İzmir. It appears that Lord Hobart of Britain and Marquis de Ploeuc of France met the determined and astute resistance of the Ottoman authorities in their auditing efforts.24 The exclusive use of the loan to finance the war meant killing two birds with one stone for the Western powers. With these loans, the Ottoman economy not only became dependent on the West, but also offered a significant market for developing the armaments industry in France and Britain. The fact that there was no objection to the French guarantee, while the issue was debated in parliament, was perceived to be the result of the lobbying efforts of the French armaments producers.25 The ease with which the loan was obtained must have instilled some optimism at the Porte since, thereafter, they frequently had recourse to new loans, resulting in ever-increasing indebtedness until the moratorium of 1875. When it was announced on 7 October 1875 that the obligations to repay the loans would not be met, a total debt amounting to 5,297 million francs had been incurred since the initial loan of 1854. The bond repayment allocations in the budget kept increasing, so much so that while they represented 18.8 percent of the 1862–3 budget, this rose to 43.9 percent of the budget of 1874–5.26 According to Morawitz, this huge sum left an amount that slightly exceeded half of its nominal value to the Treasury. Only ten percent was allocated to public investments and more than 1,250 kilometers

34

Foreign Investment in the Ottoman Empire

of railways were laid in the Balkans. With the remaining 90 percent ‘a few palaces were built on the Bosphorus along with some warships which never sailed. One can add to these buildings the beautiful mansions constructed in the vicinity of Parc Monceau belonging to the Galata bankers who chose to retire in Paris.’27 These loans were obtained in return for very hard terms. Among these were conditions, essentially set by the British, such as the right of foreigners to rent or purchase real estate belonging to the Ottoman State. Other terms included the creation of extremely favorable conditions that existed nowhere else for foreign traders. These included the lifting of government monopolies and the control of Ottoman finances by an international commission. When the established British and French financial institutions were reluctant to issue bonds, the Ottoman Government borrowed either by dealing with bankers of poor reputation, such as Mirès,28 or by selling bonds at market prices much below their nominal values. Taxes on salt, tobacco, silk, olive oil and copper, and stamp duties, in addition to tax revenues from important provinces, were shown as collateral.29 According to Rodkey, the inability of the mid-nineteenth-century Ottoman State was not merely the result of the corruption, fatalism and ignorance of the Ottoman authorities, as claimed by some Western authors. The Ottomans could diagnose their national weaknesses and the means of overcoming them in a perhaps more realistic way than the pro-reform Westerners, who wantonly and unabashedly described the Ottomans as ‘weak’ and ‘vacillating’.30 Rodkey maintains that the Ottomans’ seeming unwillingness for reforms was not due to their lack of understanding of the issues, but rather their feeling that the economic influence of the West would destroy the financial and political power of the Ottomans. In order to facilitate trade with the Ottoman Empire, the British promoted the establishment of a bank. The Ottoman Bank, with headquarters in London, was started in 1856 totally with British capital. It opened branches in important trading centers such as Beirut, İzmir (Smyrna), Galatz and Salonica.31 It was initially established as a commercial bank. However, when the Ottoman State had to negotiate loans, especially after the crisis caused by the infamous financier Mirès in 1860, it was transformed to meet this situation. In 1863, with the participation of French capital, it became the Imperial Ottoman Bank (Banque Impériale Ottomane). Even though its area of activity was in Istanbul, it was run under the direction of committees in London and Paris. This bank played a major role in the Ottoman economy. It performed the basic functions of state financial operations such as opening a credit line, assisting in external borrowing,

Foreign Capital: Borrowing

35

and issuing banknotes. Moreover, it made important contributions to the economy by giving loans to the commercial, mining and industrial sectors.32 The confidence felt by this privileged bank facilitated the issuing of bonds and attracted foreign banks which also started to carry out financial and commercial operations in the Ottoman capital. These foreign banks, which acted as intermediaries in bond issues, were able to secure much higher commissions than they could in Europe. The Road to Bankruptcy It was possible to solve the debt problem by financial, and especially fiscal, reforms. However, tax farming was still in use. In general, regions of vilayets (provinces) and sancaks (subprovinces) were arbitrarily determined by a vali (governor) and then given to the highest-bidding tax farmer who would sub-contract the region piecemeal to smaller tax farmers. With the new system ushered by the Tanzimat (1839–76), the tax farmers employed a great many collectors in a vertical organization. At every level, collectors would get their own cut – the amount going to the Treasury would be much lower than what was actually collected from tax payers.33 In any case, it took a long time for this new system to settle. The old order continued even during Abdulaziz’s reign (1861–76), 25–30 years after the proclamation of the Tanzimat.34 Many Western authors think that one of the worst weaknesses of the Ottoman financial administration was to cede the collection of taxes to intermediaries and then borrow to meet expenses.35 The Tanzimat sultans, despite the warnings of some farsighted Ottoman administrators, kept squandering vast sums of money, to the amazement of Western observers. They even accepted foreign control in order to facilitate borrowing. The Tanzimat Higher Council (Meclis-i Valâ-ı Tanzimat) was established with the Reform Decree (Islahat Fermanı) of 1856. This council had seven members: four Ottoman higher officials and three foreign experts. The Austrian ambassador was asked to find an experienced consulting expert as his delegate, and Von Lackenbacher joined the council.36 The French proposed one of their citizens, Alleon the banker, a founder of the Banque de Constantinople. When Alleon withdrew, the Marquis de Ploeuc was appointed. The British appointed Mr Falconnet, the Director of the Ottoman Bank.37 However, the Ottoman Government did not know how to use these experts. In October 1859 these foreign delegates sent a note to their governments that Turkey was not implementing the reforms envisaged by the 1856 Reform Decree. Despite the initial lack of attention paid to this committee, its authority and prerogatives were later increased.38

36

Foreign Investment in the Ottoman Empire

Following the unsuccessful Mirès borrowing, the British Government wanted to protect the interest of British investors during the second loan process of 1855. For this purpose, in 1861 it sent Lord Hobart and Mr Foster, an official of the British Ministry of Trade, to Istanbul, to investigate whether the borrowed funds were being properly allocated.39 The mission of these two men was to examine the situation, and determine the possibilities of reform. As the Hobart–Foster report had a positive impact in London, the unofficial approval of the British Government facilitated the 1861 loan. Under the supervision of Lord Hobart, previously uncollected banknotes were finally withdrawn from the market.40 Meanwhile, certain British and French newspapers had started to caution their readers about the Ottoman bonds. The Times (London), in particular, displayed an animosity that sometimes reached the level of cursing and insulting. As early as 1856, when the Reform Decree was promulgated and the Ottoman State gave all sorts of concessions under the guise of reform, including the control of its finances by foreigners, this newspaper was still making cynical and pessimistic comments. On 27 December 1856 The Times wrote about the auditing of government accounts by members of the Council of State and criticized the way punishment of peculation was entrusted to those members of the council who were themselves notorious for the same thing.41 When the 1858 bonds were issued, The Times declared that this should be for some time to come the last loan given to this ‘anomalous’ and ‘untried state’. Further, the newspaper claimed that since both during and after the Crimean War France and Britain had done their share of spending, it was now the Ottomans’ duty to help themselves. According to The Times, by furnishing funds to the Ottomans, the British investors would simply encourage the weaknesses of the Turks. The paper warned: ‘The faults of Musulman are apathy, sloth and self-indulgence, and if there is one thing more than another likely to encourage these vices, it is the too easy grant of funds which other men are to repay.’42 At a period when the Ottomans’ ability to repay their loans was viewed negatively, the Ottoman Bank, under British and French administration, was trying to attract the plentiful European funds by demonstrating how rich Ottoman State revenues were. True, the Ottoman budget revenues were on the rise, but expenses were increasing even faster. Between 1871 and 1874 the revenues had increased by 20 percent. However, after Mahmut Nedim Pasha, a Russian puppet, became the Grand Vezir, the situation got worse. The frequent changes he made in the reorganization of provinces as well as in the appointments of governors created new problems in the collection of taxes. In Anatolia, during 1872–5, and in Roumelia, during 1872–3,

Foreign Capital: Borrowing

37

drought and penury brought about a significant reduction in incomes.43 The Slavic peoples of Roumelia began to rebel as a result of Russian prodding. During the late 1860s, the Greeks had already kept the Ottoman army and administration active and busy. Substantial expenses therefore had to be incurred in order to fight the rebels and their instigators, namely Russia and certain European states. In fact, the economic crisis that started in 1873, and subsequently spread to most of the globe, also had its nefarious effects. During the 1870s, Spain and numerous Latin American countries were unable to pay their debts. Italy set limits on its payments. Greece had already stopped paying her debt instalments for some time. While the British Government did not intervene to protect her subjects in these countries, it worked to establish a control mechanism in Egypt and the Ottoman Empire when they encountered problems in debt payments.44 The 1874–5 budget had a deficit of five million Ottoman liras and the political situation was not opportune for a new loan. Mahmut Nedim Pasha drafted a plan which would pay only half of foreign debt interest. While this was announced on 6 October 1875, it was officially proclaimed in the Basiret and Vakit newspapers on 7 October. Accordingly, half of the interest on the debt which had matured would be paid outright while the remaining half would be paid in five-year notes with five percent interest. The collateral for this restructured loan was made up of the taxes from customs, salt and tobacco, as well as tax revenues from Egypt. Should these prove insufficient, the sheep tax revenues would be added.45 Even though the bankruptcy of the Ottoman State had been expected for quite a while, this situation, nonetheless, was met with surprise and anxiety among European investors. Europeans believed that since the Turks were unlikely to have taken such a sudden decision, the Russian ambassador, Ignatief, was thought to be behind it. According to Morawitz, it was Ignatief ’s plan to belittle the Ottoman Empire and destroy the confidence of investors lending to the Porte. In addition, this would create an opportunity for Russia to start troubles in Herzegovina and Bulgaria.46 The Economist explained the terms of the repudiation to its readers and commented on other notes sent by the Porte to the Constantinople Stock Exchange. It expressed its view on the preparation of the 6 October Decree: ‘There is evidently some mystery about the origin and the framing of the decree, which cannot be applied as it stands, though the issue of a document so defective must of course be more damaging to Turkish credit.’47 This repudiation showed its negative influence on the prices of Ottoman securities in the European markets. The Turkish securities listed in the London market

38

Foreign Investment in the Ottoman Empire

lost about 30 percent of their value as compared to seven months earlier. The losses in the Vienna Bourse were not heavy, with the exception of the Turkish lottery bonds, the only security quoted there, whose price declined from 49.50 to 40.25 liras within a week. The Vienna correspondent of The Economist reported that the share prices of some banks which dealt with Ottoman securities were also negatively influenced by the event. The people concerned were talking about radical reforms necessary to put Ottoman finances in order, including the seizure and sale of vakıf (mosque) possessions, a measure that the Turkish Government would not dare to carry out.48 European newspapers were well supplied with statements from European politicians and statesmen on the ‘Eastern question’. Benjamin Disraeli, the British prime minister, spoke of the serious character of ‘the Turkish confession of financial impotence’, as other well-informed statesmen did. Commentators reasoned that a Power which can no longer borrow what it wants for war, and which cannot make war without borrowing, is in much more immediate danger of collapse than a Power which has good credit in the money markets of Europe. And it stands equally to reason, that the European Powers which conceive themselves to be the natural heirs of Turkey in Europe, will begin to make ready for struggle, and to watch each other jealously, as they carefully scan the signs of that catastrophe which the Emperor Nicholas anticipated by almost a quarter-of-acentury, and we may hope by a longer period, when he spoke, in 1853, of the demise of ‘the sick man’ as even then imminent.49 During this turbulent period, in July 1876, the Government was obliged again to borrow, by issuing paper money, a sum of three million Ottoman liras, so long after its first disastrous paper money experience in the early Tanzimat period. However, this time the issue was totally under the control of the Ottoman Bank which would keep one third of the total amount in the Bank as reserve. This ‘forced loan’ was guaranteed by the estate of the late Sultan Abdulaziz which was handed over to the Treasury by the new Sultan on his accession to the throne. The estate included top-notch property, exemplary farms, and jewels that were found in the late Sultan’s coffers, valued at three million Ottoman liras. The mines, including the Heraclea coal mines which were owned by the Sultan, were the most valuable items of the estate. This state property alone was sufficient to guarantee the amount of the ‘forced loan’.50 However, the outcome of the imminent war with Russia was not expected to bring any relief in the foreseeable future. The Times special Istanbul correspondent wrote on July 28:

Foreign Capital: Borrowing

39

But the result of this and of all other financial measures of the Ottoman Government is dependent on the issue of a war which is not very rapidly progressing, and to which the War Office here seems bent on giving the most colossal and consequently the most costly proportions. No man can calculate how long it will be possible, even with the aid of paper-money, to bear the burden of so vast a military expenditure in the face of the general impoverishment of all classes of the population, except some of the highest Government functionaries, and of the almost total cessation of labour and industry, consequent on the enlistment of nearly all the able-bodied men.51 Three months after the decision on 6 October 1875, the interest payments on the 1858, 1869 and 1873 bonds were deferred. This created discontent among European creditors, who thought that the Ottoman State would not be able to make payments for a long time. Most of the grumbling against this decision took place in France and Britain where the majority of the creditors lived. Creditors, who were organized by the financial intermediaries, formed groups according to the collateral guaranteed by the Ottoman administration. In fact, it would not have been too difficult to restructure the debt, which had solid collateral, and pay it off. However, the Porte was undergoing an extremely bad period before and during the 1877–8 RussoTurkish War, and the matter was resolved only by the end of 1881. In the Balkans, Russian and Austrian agents, as well as the American missionaries, were constantly inciting rebellions in Serbia, Montenegro and Bulgaria. The indignation felt as a result of the large-scale massacres of Muslims in the Balkans spelled the end of the reign of Sultan Abdulaziz in May 1876. He was replaced by Murat V, but the latter being mentally unfit, Abdulhamit II ratified the constitution and was enthroned in December 1876. Just when the internal problems seemed about to be solved, Russia declared war in April 1877. This war, which brought about great Ottoman losses, was concluded with the Treaty of San Stefano in 1878. However, the Great Powers, led by Bismarck’s Germany, organized the Congress of Berlin in order to curb Russian gains and to get a share of the Ottoman territory. At the conclusion of the Congress, the Ottomans lost two-fifths of their territory and one-fifth of their population, half of which was Muslim.52 In the Balkans, the independence of Serbia and Montenegro was recognized, and a Bulgarian principality, nominally attached to the Ottoman State, was established while Austria took over the administration of Bosnia and Herzegovina. In Europe, a part of Bessarabia, and, in the Caucasus, Kars, Ardahan and Batum, were ceded to Russia. While still nominally under the Ottoman Sultan, Cyprus

40

Foreign Investment in the Ottoman Empire

was loaned to Britain and, in return, the British acquiesced to the French occupation of Tunisia. In addition to the loss of very important sources of revenue, the Ottomans had to pay Russia a war indemnity of 300 million rubles.53 In order to prevent the total annihilation of the Ottomans under such a heavy burden of debt, the Treaty of Berlin stipulated certain conditions: the Great Powers, which were signatories to the Treaty, would determine an amount of the tribute to be paid by the Bulgarians to the Ottomans; some of Eastern Roumelia revenues would be allocated for the payments of Ottoman debts; Bulgaria, Serbia, and Montenegro would participate in the payments of Ottoman foreign debt in proportion to the territories lost by the Ottomans; and the rights and responsibilities of the Ottomans relating to the Oriental Railway Company (of Ottoman Europe) would be fully preserved.54 While the sums to be apportioned to Montenegro and Serbia were not likely to reach an important amount, the Bulgarian tribute was expected to be a fairly handsome sum. That is why Russia tried to obtain a lien upon that amount, but the Powers raised their objections to the direct transfer of the tribute, which would make Bulgaria, in reality, a tributary of Russia. The Economist wrote: Certainly, if the dead weight of this money payment is to be hung round the neck of Turkish finance for an indefinite period, it might effectually prevent the Porte from ever rising its head above water. When first the stipulation of money indemnity was made known, we expressed our disapproval of the demand, which laid Russia open to the charge of attacking a weak state, not only to obtain territory, but money... Altogether, it is a matter of great regret as regards the financial future of Turkey, that this rock-a-head was not removed or sufficiently defined by the Berlin Treaty.55 Right after the signing of the Treaty, the foreign creditors started to pressure the Porte to pay its debt. Even before the Treaty, as the Russian war was in progress in 1877, the State renewed its borrowing. The loan agreement, named the Defense Loan, was carried out by the Porte, the Ottoman Bank, and Glyn Mills, Curries and Company of London. When the sale of the bonds, simultaneously in London and Paris, proved to be completely unsuccessful, the Ottoman Bank ended up providing the entire loan.56 Despite the severity of the conditions, the Ottomans were considered sincere and honest in their endeavors to pay their debt. When The Economist put countries into classes – those which cannot, and those which will not pay their debts – the Ottoman Empire was classified together with small and poor Honduras and

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41

Paraguay in the former class. Greece and Mexico were put into the second class of countries which ‘had they any real desire to rank amongst solvent nations, might readily do so.’ As she was ‘utterly powerless to pay her debts’ at the time, perhaps under the ‘tutelage of England’, the Ottoman Empire might not always be so financially helpless, especially if her bondholders should be willing to materially reduce their claims.57 The Ottoman Public Debt Administration The close cooperation between France and England during the Congress of Berlin was not maintained on the question of Ottoman debt payments. As each country wanted to give priority to the interests of its own citizens, no agreement could be reached on any of the proposals and projects. The Ottoman government dragged its feet since it was in great need of funds. It had to start repaying its existing debt before it could borrow again from Europe. Thus, with the efforts of the Ottoman Bank and local creditors, the Government was inclined to agree on the proposals. After long negotiations, the Powers agreed to reduce the amount of the debt on the condition that they would have control over Ottoman revenues. With an iradé of 20 December 1881 (28 Muharrem 1299 in the Muslim calendar), the Ottomans ratified the agreement.58 This document, which would thereafter be known as the Decree of Muharrem, contained 22 articles which regulated the organization and management of the Administration of the Ottoman Public Debt (Düyûn-u Umumiye İdaresi). These articles mainly covered the definition of an organ called the Council of Administration, and regulated the administrative organization and its relationship with the State. The methods for the consolidation and reduction of the debts, and rules about revenues, which would be transferred to the Ottoman Public Debt Administration (PDA) to pay off the debts, were also spelled out. Accordingly, the Porte transferred to this Administration ‘absolutely and irrevocably’ all the following revenues: the salt and tobacco monopolies, stamp tax, taxes on alcoholic drinks and fishing in Istanbul and its vicinity, and tithes from silk in certain districts until all the debts were paid off.59 In fact, these six taxes (called rüsumu sitte) had been set aside in 1880 to pay the debts of the Galata bankers who had provided loans to the State during the 1877–8 Russian War. In addition to those revenues, others with collateral value, such as customs revenues, tombeki duties and surpluses of tax on shops and stores, were also ceded to the bondholders. In case of unsatisfactory revenues from these sources, the Bulgarian tribute, the revenue from Eastern Roumelia, and any other income from Serbia, Montenegro, Bulgaria and Greece handed over to the Ottoman Government under the

42

Foreign Investment in the Ottoman Empire

provisions of the Treaty of Berlin and the Constantinople Convention (1877) to be applied to the public debt, were also considered as the property of the bondholders.60 Still, the British were initially in doubt as to the real significance of the Muharrem Decree. While revenues had been surrendered to the bondholders ‘absolutely and irrevocably’ by Article 9 of the iradé, the right of the Government to take them back into its own hands was perceived to be conceded in Article 21, which stated that ‘in the event of the Government annulling or suspending the present arrangements’, present rights of the bondholders should be restored. The Economist interpreted this latter stipulation as making the present hypothecation of revenues no more binding than those which the Porte had already failed to respect. Nevertheless, the newspaper summed up as follows: It must be admitted that if the bondholders could reckon with confidence upon receiving permanently the proceeds of the assigned revenues, they would have reason to be satisfied. It is true, also, that the granting to them of a direct control over the assigned revenues greatly enhances their value, and makes a default much less likely than if the money were to pass through the hands of the Government. But what strikes at the root of the proposed settlement is the fact that the Porte is really not in a position to give up the revenues it now promises to assign.61 In 1881, the administration of all domestic and foreign debts came under the authority of the PDA. The first period of borrowing, which had started in 1854, came to an end with the establishment of this Administration in 1881. According to Parvus Efendi (Alexander Helphand), this Administration was neither a political institution nor a representative of the governments of the creditors’ countries. It was ‘nothing but a private company.’62 This organization was like a second financial system, in addition to the Ministry of Finance in the Ottoman State. It employed thousands of employees in various branches all over the country. Several Western researchers see the Muharrem Decree as a private contract between the creditors and the Ottoman Government. Du Velay as well as Morawitz related this to the Treaty of Berlin. However, they add that even if no mention was made of international law, this agreement should have been under the aegis of signatory countries.63 According to the agreement an executive committee, the Council of Administration, was made up of the representatives of the bondholders. The British and Dutch together were represented by one member. The French, German, Austrian and Italian bondholders

Foreign Capital: Borrowing

43

had one representative each. A representative for the holders of Priority Bonds was to be chosen by the Ottoman Bank. Finally, the local bondholders who convened by order of the Istanbul Prefect were to choose their own representative.64 The total amount of borrowing between 1854 and 1874 had a nominal value of 5,297,676,500 francs, of which only 3,012,884,714 francs actually reached the Ottoman Treasury.65 This meant that the bonds were sold, on average, for only 57 percent of their nominal value. The political efforts of the Great Powers played a greater role in Ottoman loans than financial and economic habits and methods. The Ottoman bonds were marketed simultaneously in London, Paris, Amsterdam, Brussels, Frankfurt, Vienna and Istanbul. This strategy, which had a political raison d’être, was not really in the interests of the borrowing country. When a security was put on sale at prices denominated in different currencies and in different markets, the market with the highest cost of capital would set the criterion.66 This led the market prices way below the nominal value, and a very high effective rate of interest to be paid by the Ottomans. According to Parvus Efendi, the State was paying for an amount that it never borrowed. The inevitable bankruptcy of the State ‘would result from the limitless greed of the European financiers who fully benefited from the difficulties of the Ottoman State and also from the thoughtlessness, ignorance, and betrayal of Ottoman officials.’67 Parvus Efendi also mentions that Ottoman external debts, supposedly reduced by the Muharrem Decree, had really been inflated. They were shown to be higher than the real amounts. The share of the debt that was the responsibility of the Balkan States under Ottoman suzerainty was not paid to the PDA. For some reason, the creditor European countries showed a great degree of tolerance in this respect. The Europeans, who seized the most important sources of Ottoman revenues, made no attempt to collect the debt owed by the Balkan States.68 According to the Decree of Muharrem, the tax to be collected from Eastern Roumelia was fixed at 240,000 Ottoman liras. Upon the objections of the Roumelian Assembly, this was reduced to 180,000 Ottoman liras. This sum, which was not paid regularly, was later arbitrarily fixed at 130,000 liras.69 Following a series of manipulations, even this amount was left unpaid. The surplus of the Cyprus revenue was to be paid to the PDA. However, by taking over Cyprus, the British declared that the surplus would be paid to the 1855 bondholders. Therefore the Ottomans did not get any revenue from Cyprus after 1878.70 Even after losing this source of revenue that was granted by agreements, the Ottomans were asked to show new sources of revenues for the PDA.

44

Foreign Investment in the Ottoman Empire

Thereafter, from 1882 to the advent of the First World War in 1914, Ottoman borrowing was under the control of the PDA. After the 1877–8 Russo-Turkish War, the reign of Abdulhamit II (1876–1909) did not witness any major war, except the Greek–Turkish War of 1897. Yet the State had to bear the costs of various rebellions. From the Congress of Berlin until the First World War, Macedonia was a persistent source of problems for Ottoman and European statesmen.71 Each of the Balkan States tried to become the regional power by conquering Macedonia. The Ottomans did not want to lose a considerable source of revenue, but more importantly did not want to leave to their fate a Muslim population numbering at least a million. Moreover, they wanted to hold at bay the over-ambitious Greeks. The Albanians, who lost an important part of their land to the Serbs and Montenegrins began to show signs of discontent. Armenians, prodded by the Russians since the 1877–8 war, became organized to commit systematic acts of terror and massacres. In 1896, they raided the Ottoman Bank and threatened the Government. The Greeks never stopped plotting about Crete and even started a war in 1897. Despite being soundly defeated, the Greeks were able to unite Crete to Greece in 1912 thanks to the support of the European Powers. Nonetheless, this relatively calm period, which lasted until 1908, created a more opportune climate for the Ottomans to borrow under more favorable terms, compared to the pre-1878 period. The guarantees provided by the PDA reduced the risks of the creditors. During this period, the State borrowed seventeen times for a total of 120,314,473 Ottoman liras, of which 107,858,796 liras went to the Treasury.72 According to Earle, there was no group who knew the needs of the Ottoman State better than the PDA. Their main concern was to get the interest and the principal of the Ottoman bonds on time. However, the prevailing political instability and economic recession hampered this. It was necessary to feed the goose that laid the golden egg. For this reason, it was essential to maintain internal order, to reduce the ever-present danger of foreign occupation, and to provide the basic economic needs of the people.73 Consequently, the PDA supported direct investments such as the building of railways. The delegates of the creditors regularly reported financial developments related to the revenue collection to the bondholders whom they represented. In one subjoined note to the Council of Foreign Bondholders, Vincent Caillard, the British delegate on the PDA, detailed how the bondholders would receive their payments even in the case of diminished revenues from the provinces. The delegate did not seem concerned about the reforms in the Ottoman administration which were so urgently needed according to

Foreign Capital: Borrowing

45

the Powers, because ‘even if Turkey were to be absolutely dismembered’, there could be no question that the pledges given to the bondholders by the ‘international’ PDA would continue to be fulfilled. The publication of such notes and statements in journals had the purpose of reassuring those ‘bondholders, who might be induced to sacrifice their holdings through fears of a dénouement in the Turkish Empire’.74 This meant the complete removal of the default risk from the Ottoman bonds under the PDA. A problem arose between the Council of Administration and the bondholders at the turn of the century when the Council began to be involved with the financial transactions of the Ottoman Government. According to The Economist, in 1901, when the Government negotiated a loan of 1,234,000 Ottoman liras with the Ottoman Bank, the Council, at the request of the Government, undertook the collection of revenues assigned as security for the loan. H. Babington Smith, the representative of the British and Dutch bondholders, expressed his apologetic views about the matter, in the annual report of the Council to the creditors: By acceding to the request of the Government, and by co-operating in the service of the loan, we may appear to be giving support to an unsound system. I believe, however, that greater evils would have resulted, if owing to a refusal on our part, or from any other cause the Government had been prevented from obtaining the proposed loan.75 The Council had also considered it right to be involved in certain important matters as an agent of the Ottoman Government. A similar loan assistance had taken place in 1896, and the representative at that time assumed a similar apologetic attitude, stating that the Council of the PDA would ‘not be induced again to lend its name to an operation of this kind’. But this time, the PDA went so far as to itself make advances from the bondholders’ funds to meet the financial exigencies of the Turkish Treasury. According to The Economist, this was ‘most inimical to the interests of the bondholders that the Council should engage itself in these loan-mongering schemes.’76 In addition to assisting in government loans flotation, the Council also undertook the collection of tithes set apart for the payment of government railway guarantees. The Government, of course, paid a commission for the collection of such revenues: The amount of that commission exceeds the cost of collection. Instead, however, of accounting for that profit to the bondholders, who are their employers, and who pay them £2,000 a year each for

46

Foreign Investment in the Ottoman Empire their services, the members of the Council have arrogated it to themselves, and are consequently some £800 or £900 a year the richer by the transaction.77

After the 1908 Revolution, the internal and external problems took a turn for the worse. The Young Turk Revolution raised hopes for stability and peace. Ottoman intelligentsia hoped that the Government would be able to pay back its external debt, abolish the PDA, and secure its economic freedom.78 However, the restoration of the constitution created only a short-lived euphoria. After a short while, differences among nationalist groups re-emerged along with old hostilities. Three months after the new Government came to power, Bulgaria declared her independence on 5 October. The same day, Vienna announced the annexation of Bosnia and Herzegovina whose administration she had taken over at the 1878 Congress of Berlin. Austria and Bulgaria stopped paying tribute to the Ottoman treasury by renouncing the Sultan’s suzerainty.79 Greece did not miss the opportunity to announce the annexation of Crete, evacuated by the European powers, a week earlier. The protests of the Porte to the signatories of the Treaty of Berlin, to remind them of their responsibilities on this violation of the Treaty, fell on deaf ears. The Ottomans again lost land and resources that were financially minimally compensated by the Austrians and Bulgarians. In 1911, Italy declared war and attacked Libya, with hostilities lasting until 1912. In October 1912, the Balkan states, with Russian encouragement, started the Balkan Wars (1912–13). For this reason, the governments of the Second Constitutional Period had to borrow more money. As a result of these wars the Ottomans lost 83 percent of their European territory and 69 percent of its population.80 Once again, the loss of important sources of revenue reflected negatively on the terms of borrowing, despite the presence of the PDA. From the end of 1908 to 1914, the State issued bonds seven times, totaling about 46 million Ottoman liras of which only 39 million reached the Treasury. The average market value, which was 90 percent of the nominal value during 1882–1908, fell to 85 percent.81 The loans, obtained during the period of the PDA, were less frequent than the pre-1881 borrowings, and were put to better use. They were either used to pay off the previous debts or for military infrastructure expenses.82 However, from 1911, inopportune conditions accelerated the process of borrowing, and in 1914 the State was forced to borrow 22 million Ottoman liras. The First World War, undesirable as it was, most likely prevented a new financial disaster.

Foreign Capital: Borrowing

47

The Distribution of Foreign Debt by Country The initial Ottoman loans took place under the initiative of Britain, and the first four bond issues were denominated in British pounds. Thereafter, with the exception of two loans, all the bonds floated until the establishment of the Ottoman Public Debt Administration were denominated in French francs.83 In a short time, the French became the most important lenders to the Ottoman State. Starting from the 1870s the Paris capital market grew in leaps and bounds, and was able to compete comfortably with London. Between 1874 and 1914, the official rates of interest never rose above four percent. In fact, throughout most of this period, the rates did not exceed three percent in Paris.84 These low rates of interest were due to the very high propensity of the French people to save, a source of amazement to foreign observers. In 1871, following France’s defeat by Prussia, the French Government issued bonds worth 2,000 million francs in order to pay the war indemnity demanded by Prussia. The demand for these bonds was threeand-a-half times higher than that amount. For the 3,000 million francs loan issue of 1872, the demand was a staggering 43,800 million francs, one-anda-half times more than France’s gross national product at the time.85 These fast and consistently growing savings turned into investments. Until the 1890s, the French industrial sector was growing at a slower pace than the industrial sectors of England and Germany and consequently was using less machinery and equipment. The capital needs of industries, consisting of small-scale businesses, were relatively low. The slow growth of population led to lower levels of expenses for infrastructure and urbanization. Thus, there were no significant increases in internal borrowing. Even though the French had a level of income inferior to that of the Americans, they had a greater propensity to save which meant a significant investment potential. Given the low rates of interest in France, the external investment opportunities were tempting. As noted by Feis, out of the small black purse of the French bourgeois, the Russian monarchy could draw the substance for its monumental plans, the Austro-Hungarian Empire equip itself with railroads, banks, and factories, the Turkish Sultan spend without accounts, Italy endure the anxieties of the first years of unification, the small Balkan States establish their national existence.86 England, together with Holland, was one of the two countries where the financial markets were most developed. In the first half of the nineteenth century, British capital was the most important source of funding

48

Foreign Investment in the Ottoman Empire

for non-European countries. The government loans that financed the Napoleonic Wars turned Britain into a country of creditors. In the first quarter of the nineteenth century, the British depository banking system made great strides. Between 1816 and 1818, the establishment of 250 savings banks turned the people’s savings into investments.87 During this century, increased maritime and railway travel, the large-scale installation of cable wires, the lower postal and daily periodical costs, and the ease with which people could travel, speeded up capital movements. British capital was the most unhindered and fast-moving.88 Until the bankruptcy of the Ottoman Treasury in 1875, official British policy was to support the sale of Ottoman bonds. Before all else, Britain directed her investments in accordance with her political requirements. Britain supported the Ottomans in order to hold off Russian expansion. However, the British investors were very cautious. Starting with the first Ottoman loan, words of caution against the Ottoman financial situation appeared in the British press.89 In 1871 The Economist wrote that very few people familiar with the securities market would buy ‘Turks’ (Ottoman bonds).90 British investors, who were used to the advice of their official bodies, encountered apathy and neutrality when consulting their government after 1875. However, the British press, with an attitude of ‘we told you so’, blamed both the Ottoman administration as well as the insurrections and disturbances in the European provinces. The Economist wrote: The event will not surprise our readers. We have repeatedly said for many years that countries with an unstable and incapable administration were unsafe borrowers, and that the system of borrowing money to pay interest on old debts by which their credit was artificially maintained, was always in danger of collapse. The longer the delay the greater would be the crash in the end. The finances of Turkey, the most conspicuous offender in this line, have also been frequently discussed in our columns, in order to enforce our general lesson... The Herzegovina insurrection and the disturbance in Bosnia are assumed to have precipitated the catastrophe, while the end has also been heralded by the Turkish Government having to pay 18 per cent per annum interest for the last short advance, to meet the October dividends.91 The Economist continued to remain pessimistic and skeptical even after the promulgation of the Muharrem Decree, stating that this ‘illusory scheme’ could not permanently benefit either Turkey or her creditors. It

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49

was perceived to be the preparation for, and preliminary towards, further borrowing.92 Based on the prevalent belief that the financial position of the country could in no way be improved until the Government began to live within its means, The Economist erroneously predicted that the Ottomans would not only be unable to repay their debts but would also face a more complete collapse. However, even though the Empire incurred tremendous expenses arising from wars and insurrections, the PDA encountered no difficulties in arranging payments to the bondholders for the three decades to follow. As Table 2.1 shows, the borrowing from Britain fell both in absolute and relative terms. In fact, as the bonds changed hands daily in the securities markets, it was not possible to establish their values with precision. However, according to a study made by the PDA, and private estimates made by the Germans in 1913, data shows a secular variation of debt.93 Table 2.1 Foreign Debt of the Ottoman Empire 1881

1898

1913

(Million Ottoman Lira)

1881

1898

1913

(percentage) %

%

%

France

36.72

35.00

65.00

40.0

44.9

49.5

Britain

26.62

8.50

9.00

29.0

10.9

6.9

Germany

4.32

9.50

26.30

4.7

12.2

20.1

Belgium

6.61

14.00

14.40

7.2

17.9

11.0

Holland

6.97

3.50

3.90

7.6

4.5

3.0

Italy

2.41

1.00

1.30

2.6

1.3

1.0

Austro-Hun. Emp.

0.89

1.50

1.70

1.0

1.9

1.3

Local Investors Total

7.28

5.00

9.40

7.9

6.4

7.2

91.82

78.00

131.00

100.0

100.0

100.0

Source: V. Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları Hakkında Bir Tetkik, Türk Tarih Kurumu, Ankara 1991, p. 188, and C. Morawitz, Les Finances de la Turquie, Guillaumin et Cie, Paris, 1902, p. 237.

The German investments, as opposed to the French ones, did not depend upon the presence of a class of rentiers who sought diversification and high returns. German foreign investments were carried out, under the leadership of the Government, by the banks and industrial organizations to develop trade, and to serve political ends. At the end of the nineteenth century,

50

Foreign Investment in the Ottoman Empire

the Germans increased their investments in neighboring countries, especially to the east. These countries needed capital to develop their resources and for infrastructure investments, while Germany needed their raw materials. The banks not only acted as intermediaries, but were also controlling shareholders and proprietary representatives. Foreign bonds, reaching the German market, were bought by the banks even when the investors did not buy them. With their ever-growing capital and solid knowledge, banks developed various specialties. They became the guides and supporters of German firms investing in foreign countries.94 The political and economic events that took place after the Ottoman bankruptcy in 1875 showed that the European powers, with Russia in the forefront, wanted to partition the Ottoman Empire. The attitude exhibited by the Europeans, during and after the Congress of Berlin, greatly eroded Ottoman confidence in Europe. During the 1880s, when Gladstone returned to power in England, he clearly displayed anti-Ottoman attitudes. He seized every opportunity to back the Greeks and the Balkan Slavs and to harass the Turks. The British occupation of Egypt in 1882 led to antiBritish sentiments at the Porte. Even the Sultan said that England was the country among the Powers that the Ottomans should not trust.95 Under these conditions, it was not difficult for Germany to infiltrate the Ottoman political and economic structure. The balance tilted with Germany’s role in the destiny of the Ottomans, and the imperial rivalries took another turn and shape. Under the influence of her Russian ally, France started to scrutinize Ottoman loans after 1899. Since Russia perceived the Baghdad Railway as a threat to her interests in the Near East, the Ottoman bond issues would not be listed in France. By the early 1900s, the French stipulated that countries borrowing from France should use the loan to purchase French goods and equipment. Since the Ottoman loans of 1903 and 1905 were attached to very comprehensive economic stipulations, issues were allowed to be sold in France. However, when the same stipulations resurfaced in 1910, the Young Turk Administration leaned toward Berlin.96 It should be noted that, with the initiative of Ernest Constans, France’s ambassador in Istanbul, the French market was closed to Ottoman bond issues. The ambassador wanted the Ottomans to pay for the losses incurred ten years earlier by the Ereğli (Heraclea) Coal Monopoly, a creation of French capital. The claim was that the losses emanated from the Ottoman regulations. But it was known that the ambassador had a personal financial interest in this coal operation.97 In the 1910 loan negotiations, Russia even asked France that the Ottomans should agree not to increase their military strength.98

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51

All these factors led the Ottoman Administration to turn to Germany. As seen in Table 2.1, the German share in the Ottoman debt grew constantly, surpassing that of Britain before the turn of the century and, in 1913, it tripled that amount. France, however, continued to have the largest share. As for creditors with smaller shares, barring the local creditors, Belgian and Dutch credits were significant. Even though they were not officially represented on the Ottoman Public Debt Administration, the Belgians had the second largest share, with 18 percent, at the end of the nineteenth century, and eventually declining to third place after Germany’s rise. The Dutch creditors had greater shares than their Italian and Austrian counterparts. Investors from countries with lower shares bought the Ottoman bonds with the expectation of high returns. According to Article 15 of the Muharrem Decree, during the first five years starting from the establishment of the Ottoman Public Debt Administration, Britain and France, being the largest creditors, would take turns in heading this administration. However, in case of changes in the number and composition of bonds, the Council of Administration would elect a president on its own. The idea of a presidency taking turns every year was launched in 1892 by the Rome Chamber of Commerce that appointed the Italian delegate.99 Italy, which had the lowest share among the creditor countries, was very anxious to join the community of Great Powers. By occupying Abyssinia (Ethiopia), it wanted to show that it had joined the rank of colonizing powers. However, when France seized Tunisia in 1881 there was a deeply-felt disappointment in Italy, which had itself coveted that land. In the end, no changes took place in the Council of Administration of the Public Debt. In fact, the loan share of Germany had grown by leaps and bounds. However the Germans perceived the selection of a president merely as a matter of prestige and did not dwell upon the matter. This chapter has examined the first foreign capital movements, in the form of debt, into the Ottoman Empire. European countries, which were initially hesitant to provide loans, started to compete with each other. There were political and economic reasons behind this development. The political motive was based on the lending country’s wish to further her influence, and to attempt to control the Ottoman realm politically and economically. The economic reason was to channel the surplus funds of Europe to countries where the highest possible return could be obtained. The Ottomans were a case in point as a haven for high returns. The Europeans killed two birds with one stone. On the one hand, they were obtaining high returns for their loans, and on the other, they were able to sell their production surpluses

52

Foreign Investment in the Ottoman Empire

in a country that acquired more purchasing power after receiving the loan. One of the most flagrant examples in the 1860s was the European ambassadors’ urging Sultan Abdulaziz to buy ships which the State did not have the economic and technical means to use or maintain. Thus, the Ottomans would have borrowed money for useless spending.100

3 FOREIGN CAPITAL: DIRECT INVESTMENTS

Motives for Foreign Direct Investment As explained in Chapter 1, the external trade of the Ottoman Empire had quintupled between 1840 and 1870. However, the lack of infrastructure created difficulties for foreign merchants and the trade volume of the country failed to develop to its full potential. For this reason, it was necessary to build new roads and to improve and develop port installations. European industries needed raw materials that were, generally, to be found in the lessdeveloped regions of the world. To reach these resources, the Europeans had to develop the infrastructures of these lands. Moreover, since Europe’s iron, steel and other similar products would be used for such infrastructure projects, the European producers had much to gain. The most basic and simple form of international business and economic activity was the expansion of trade, and European foreign direct investment (FDI) entered the Ottoman dominions for that purpose. Unlike financial investments, direct investments are made in physical assets such as factories and infrastructure. The first direct investments were made by trading concerns and maritime transportation firms. However, the expense and difficulty of land transportation impeded the growth of trade. Haydar Kazgan writes that even during the reign of Abdulhamit II, at the end of the nineteenth century, when the Haydarpaşa–Izmit railway had not yet reached the interior of Anatolia, it was not possible, especially during the winter months, to transport potatoes to Istanbul, and the demand for potatoes was instead met by imports from French ports on the Atlantic coast.1 In the 1840s, the Ceride-i Havadis, which was owned by an English merchant, published an article about the suitability of the Ottoman lands for the cultivation of cotton. The article encouraged farmers, saying that English merchants

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would purchase the entire crop at fair prices. However, as long as transportation problems persisted, such efforts proved to be futile. In 1857 the British consulate in Izmir, responding to a questionnaire survey conducted by the Manchester Cotton Supply Association, reported that transportation by camel caravans was very costly but the construction of the Aydın railway, which had just begun, would eventually contribute greatly to the cultivation of cotton.2 It is for this reason that the first foreign direct investments were channeled to developing infrastructure in the Ottoman dominions and other raw material exporting regions. This was followed by direct investments in agriculture and mining. As the number of foreign direct investors increased, through a ripple effect there was a corresponding increase in the number of banks and insurance companies that served them. According to Hobson, FDI from Britain and other European countries started to shift to industrial production only in the early 1900s.3 This general tendency was also observed in the Ottoman Empire. At the end of the nineteenth and the beginning of the twentieth century, the foreign powers believed the Ottoman State would fall apart and cease to exist. As they did not want to pass up their shares of the spoils, they brought in capital that would prove their presence and prepare the grounds for territorial or economic claims on the estate of the defunct. Experts believed that with an inept government and a population unorganized for production, the country’s fate would belong to the foreign capitalists who controlled the economy. Foreign representatives therefore urged their governments to invest in the Ottoman dominions.4 According to John Gallagher and Ronald Robinson, during the first half of the nineteenth century, British politicians and diplomats worked hard to promote Britain’s trade and investment in countries that lay outside her colonies. Among the politicians at the forefront of these efforts, one can cite Canning and Palmerston, who had the Ottomans sign the 1838 Trade Agreement. They wanted to extend Britain’s control beyond her colonies. As the British Industrial Revolution progressed, new markets and sources of raw materials were intermeshed, and imperialistic designs and activities followed suit. While mercantilist policies were implemented in the formal colonies, the non-colonial periphery was convinced or coerced into adopting a free trade policy.5 Certain authors6 claim that in the first half of the nineteenth century, the British State did not have a planned imperialistic expansionist policy, and essentially acted in accordance for economic reasons. Yet, when one examines developments in the Ottoman Empire, the facts support Gallagher and Robinson’s thesis. According to David McLean, ‘Turkey had long been a central feature of British foreign policy. Britain

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had trading interests to defend there throughout the nineteenth century. It was political affairs, however, which made Turkey important.’7 During the 1890s and early 1900s, the British thought the end of the Ottoman State was near. Yet they wanted it to continue for as long as possible in order to prevent other powers from gaining territory and influence in a way which would run counter to British interests.8 The economic and political motives that attracted investments to the Ottoman dominions will be seen in greater detail in the next section, with an examination of the major capital-exporting countries one by one. The locations and sectors of these investments will be covered in the next chapter. Capital-Exporting Countries After the establishment of the Ottoman Public Debt Administration and the guaranteeing of the repayment of the loans, the process of borrowing and FDI flows continued. The Public Debt Administration did not take long to increase its influence in Ottoman financial affairs and started to give directions to foreign investments. The scale of FDI inflows accelerated during the last quarter of the nineteenth century. The political superiority of the Europeans enabled them to obtain concessions, making lucrative investments possible. The presence of the Public Debt Administration and the ensuing foreign control greatly reduced the economic and political risk of foreign investment. Thus, infrastructure investments, requiring largescale capital, were on the rise. Now, what some Western authors termed ‘concession hunting’ and ‘the Sultan’s mortgaging his Empire’ reflected the dawn of a new age.9 While the Abdulhamit administration tried to isolate Ottoman society from the outside world, foreigners came to the Empire and carried out works that brought deep-seated changes in the lives of the Ottoman people. Even though the entry of foreign capital into the Ottoman dominions is as old as the foreign loans, one cannot establish the amount of this capital with complete accuracy. The estimations on this subject are generally based on the publications of European researchers at the end of the nineteenth century. Perhaps the most important one is Manuel des Sociétés Anonymes Fonctionnant en Turquie by Pech, who was head of the Statistical Office at the Ottoman Bank. As the number of companies increased, and other activities such as mergers and liquidations took place, this study came out, with updated editions, between 1904 and 1911. In the 1911 edition, 82 foreign companies were examined, covering details about the year they were established, their headquarters, and equity capital as well as the loans they

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received. Although comprehensive, the book still omitted many companies that were not corporations, but had been doing business in the Ottoman Empire for a long time. At the beginning of 1914, it is known that limited liability companies in İzmir alone numbered more than two dozen, and new ones were in the process of being established. As these limited companies could not officially be set up in accordance with Ottoman law, they created an extraordinary situation according to the British Chamber of Commerce in İzmir.10 One can also mention La France à Constantinople, published in 1907 by Ernest Giraud, the head of the French Chamber of Commerce in Istanbul. This book evaluates French investments. Further useful information is to be found in Les Intérêts Financières de la France dans l’Empire Ottoman prepared in 1919 by French businessmen who had investments in the country. There are also specialized studies that investigate a single investment in detail. In its issue of 24 May 1911, The Near East, an English journal, published a detailed list, with amounts of capital, investments and companies classified by sector. Vedat Eldem and İ. Hüsrev Tökin also classified foreign investments according to sectors and home countries. In time, with the accumulation of information, more recent authors such as Gündüz Ökçün, Orhan Kurmuş and Şevket Pamuk were able to supply further data. One must caution the reader about the value of these investments because of the accumulated impact of inflation over a long period. Hence, the figures shown for more recent years may look far greater than they really are as compared to past periods. Nonetheless, if used with caution, these figures can be of great value when examining the distribution of firms by sectors and home countries. Table 3.1 shows the variation of FDI stock from 1888 until the beginning of the First World War. The FDI Flows from Britain Starting from the second quarter of the nineteenth century, the British had the largest share of Ottoman foreign trade.11 This is why the earliest investors were British. However, France, not wanting to leave the field to Britain, did not waste time in following suit and, in the end, became the largest home country investing in the Ottoman dominions. According to Bailey, a study of the British Near East policy, during the period between the Greek War of Independence and the Crimean War, offers an excellent example of how history and economics interact.12 During this period, as well as in the years to follow, it is possible to observe how political events influenced economic relations, and at other times, how economic developments gave direction to political events. During the early days of the Greek rebellion, Lord Stratford Canning wrote a letter professing ‘a secret wish that the

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Table 3.1 Foreign Direct Investment by Home Countries 1888

1914

(thousand pounds £) %

(thousand pounds £) %

French

5,020

31.7

British

8,895

56.2

11,516

14.0

166

1.1

28,007

34.0

German

37,383

45.3

Others

1,744

11.1

5,500

6.7

TOTAL

15,825

100.0

82,406

100.0

Sources: 1888 estimations from Ş. Pamuk, Osmanlı Ekonomisi ve Dünya Kapitalizmi 1820-1914, 1984. 1914 estimations were based on various works: E. Pech, Manuel des Sociétés Anonyme Fonctionnant en Turquie, 1906 and 1911; The Near East, May 24, 1911; Le Groupement des Intérêts Français, Les Intérêts Financières de la France, 1919; and V. Eldem, Osmanlı İmparatorluğu'nun İktisadi Şartları Hakkında Bir Tetkik, 1994.

expulsion of the Turks “bag and baggage” from Europe might become a possibility’.13 In 1826, he supported Russian interests in the Balkans while the Akkerman Treaty was being signed. In 1827, Britain joined Russia and France, neither of whom were at war with the Ottomans, in a surprise attack on the Ottoman navy, thus helping the Greeks to gain independence.14 In later years, Britain’s economic interests in the Ottoman dominions grew. While he was ambassador to Istanbul (1842–58), Canning worked hard to promote trade and to convince the Turks to borrow from the West in order to carry out reforms. In her own interest, Britain tried to prevent the breakup and disappearance of the Ottoman Empire and even entered the Crimean War against Russia. At this juncture, the British came to understand the contribution of Ottoman trade to their welfare, as well as the importance of the Ottoman Empire as one of the routes to India.15 A Russian conquest of Asia minor would spell the end of British interests in the region. For all these reasons, the British were the first foreigners to obtain concessions to build railways in the Empire. Concessions were obtained in 1856 for the İzmir–Aydın line in Anatolia, and the Costanza–Chernavoda (KöstenceBoğazköy) line in the Balkans. In 1861, concessions were secured for the Varna–Roustchuk (Varna–Rusçuk), and in 1863 for the İzmir–Kasaba line.16 From the beginning of the nineteenth century, British merchants started to settle in İzmir in order to control western Anatolian Trade. After the dissolution of the British Levant Company in 1823, the flow of

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British traders to this region speeded up. The number of family companies and small partnerships was 35 in 1840.17 As the British did not want to be entirely dependent on American cotton as raw material for their cloth industry, in the 1840s they started to develop cotton production in India and the Ottoman Empire. Though Britain had been buying cotton from the Ottomans since the eighteenth century, the quantity was insufficient for British industry. In order to encourage the cultivation of cotton, they started a partnership called the Asia Minor Cotton Company in 1856.18 In order to increase production to a level that would meet the demands of British industry they imported American cotton seeds and fought against grasshoppers and plant diseases. They realized that the rapid progress of cotton supply, equal to the speed and regularity of Lancashire spindles, could not be achieved under existing circumstances, ‘without considerable application of Lancashire stimulants’. In addition to American seeds in abundance, practical instructors were wanted and extensive distribution of the publications issued by the British Cotton Supply Association was to be carried out. They even mooted opening up canals from the Euphrates and the Tigris for both irrigation of cotton fields and navigating the crop.19 The French and the British also pleaded for the elimination of the dime (aşar) tax for the cotton farmers. The efforts of the Ceride-i Havadis, as well as the British Foreign Ministry, produced concrete results. With a decree promulgated in 1862, the Ottoman Government announced that those who planted cotton on vacant lands would have free usufruct and no dime taxes for cotton would be levied for five years and roads would be built for lands growing cotton. In 1863, these encouraging measures were followed by the elimination of import taxes for cotton-processing machinery.20 However, the state could not fully carry out its promises due to adverse economic conditions. Then, important representatives of the British cotton industry bought large farms in western Anatolia and grew cotton themselves. According to one estimation, a third of agricultural lands in the vicinity of İzmir belonged to Europeans. In 1878, 41 British merchants owned half of that land.21 The correspondent of The Manchester Guardian (13 August 1864) reported that an Englishman, J. H. Hutchinson who grew cotton on a large area of land 25 miles from Izmir, brought a steam cultivator from England, and successfully used for the first time this application of steam power to agriculture in Asia Minor. In the 1863–4 season, cotton production was most favorable and encouraging, as 2,000 bales of cotton had been shipped to Boston from Izmir.22 British traders established plants that would clean and bale the cotton. In 1870, 34 plants, built in towns along the railway used more than 700 steam-powered cotton gins.23

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In western Anatolia wheat was ground into flour by the means of water mills, and during its dry seasons enough flour could not be produced. British investors reached the conclusion that it would be profitable to use steampowered machines to produce flour. In 1850, the first foreign flour mill, supplying the domestic market, was established in the vicinity of Izmir.24 Oil and soap was another sector producing for the domestic market. British investors, who understood western Anatolia’s production potential in this region as early as the first half of the nineteenth century, started producing oil at the opportune time. They established cotton and olive oil production plants in littoral western Anatolia in the 1870s. Later plants were established in Çukurova (Cilicia).25 A company established in Aydın in 1864, for producing licorice, was one of the oldest establishments in the food sector. As licorice had a wide and profitable market in Europe and America, investments in this area were eventually increased. In the 1880s a British company which collected the roots of the licorice plant on extensive leased fields of southeastern Anatolia, established a plant in İskenderun (Alexandretta).26 In 1864, another sector where British capital made an inroad was carpet weaving. The number of merchants who provided threads and other materials to the weavers kept on increasing. Other Europeans also started to invest in this very profitable sector. However, the British came ahead in the competition and had a virtual monopoly in the 1880s.27 Before long came the arrival of service firms supporting the foreign commerce and production companies thriving around İzmir. In 1863, the London-based Sun Fire Office, which established a branch office in İzmir, was the first company to insure against risks other than those related to maritime transportation. It was specifically oriented toward insuring the cotton crop against fires.28 A year later, the British-owned Ottoman Financial Association was established to extend credit to small producers. The next chapter shows that the British share in the banking sector was rather limited. However, they were nevertheless influential by being partners of the Ottoman Bank. Moreover, at the beginning of the twentieth century, they set up the National Bank of Turkey in order to facilitate trade.29 As the British settled intensively in İzmir, they established companies that would provide urban services such as lighting systems and public transport in that city. In Istanbul, they constructed a tunnel between Beyoğlu (Pera) and Karaköy (Galata) and operated the first underground system in the city. They also built a water distribution system in the city of Beirut. Moreover, large trade and construction companies, established with British capital, were doing business in various regions of the Ottoman dominions.30

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Foreign Investment in the Ottoman Empire

During the first half of the nineteenth century, as the shortest route to Asia for British traders had to pass through Ottoman lands, it was very important for Britain to preserve Ottoman territorial integrity and to prevent powerful rivals from establishing domination. The opening of the Suez Canal in 1869 had greatly shortened the route to Asia. Between 1859 and 1869 the British had opposed the construction of the canal on the grounds that it would divert thousands of workers from the cotton fields and hence reduce the cotton crop. They were also worried about the growth of French influence in Egypt. However, once the canal was completed, the control of this route to India was of great importance for the British. They therefore bought shares in the Suez Canal Company in 1874 and owned it jointly with France. Finally, in 1882, they occupied Egypt to protect their position in the country along with the interests of British bondholders and the Manchester textile industries. According to Feis, ‘the British occupation was the result of twenty years of corruption and extravagance on one side, of ambition and greed on the other.’31 The weakness of the Ottoman State, coupled with the timidity of Sultan Abdulhamit, turned this temporary occupation into a permanent one which lasted until 1954. The British took over the effective administration of Egypt and thus secured not only their political and economic interests in the region, but also the safety of the route to India. As seen in Table 3.1 (page 57), from then on British direct investments in the Ottoman Empire decreased in relation to those of France and Germany. The British sold their railways to the French and the Germans and stopped investing on a large scale. This situation worried the British delegate in the Ottoman Public Debt Administation, in 1907 he urged his government to actively support investors in the Ottoman dominions. He thought difficult days lay ahead for the Ottoman Treasury, and should a chaotic situation arise, only those powers that had investments in the country would have the right to intervene. He said, with their large-scale investments, ‘the French and Germans [ … ] are laying an economic foundation on which they will later be able to build a political edifice’.32 French Direct Investments The French proudly admired their investments in the Ottoman Empire, since, for many years, they ranked at the top as both creditors and direct investors. According to some French authors, ‘it was more difficult to state where the French investments were than where they were not’.33 They also mention that France entered Ottoman life not only with her investments but also with her ‘brilliant history’, ‘respected past’ as well as ‘civilization, language and political and military traditions’. According to Chéradame,

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‘the foundation on which the French Republic’s material interests lay in the Levant was her moral respectability’.34 Nevertheless, several changes took place at the end of the nineteenth century. While Britain and Russia had played the leading roles in the Balkans, new actors like Austria, Germany and Italy were taking their places on the Eastern scene. According to Paul Imbert, among all those ‘greedy’ countries, France was the only one that had good relations with the Sultan, respecting Ottoman territorial integrity without thinking about political interests.35 These authors chose to ignore France’s land-grabbing from the Ottomans in North Africa, fomenting revolts in lands such as Egypt, Syria and Lebanon, or endorsing wars, as in the Balkans, to divide and create new countries. They thought, self-righteously, that by providing credit, France was altruistically contributing to the development of foreign trade and the country.36 Another aspect described by Feis is that, while lending to foreigners, the French investors were unable to measure their economic gains carefully and objectively. Their decisions were influenced and controlled by the French Government and large financial institutions. Thus, they were directly or indirectly under the influence of sentimental and political developments.37 For this reason, French capital was essentially directed to Latin and Slavic countries. According to a French writer, M. Aupetit, the examination of the history of capital exported by the French is ‘almost equivalent to writing the history of French political sympathies, rapprochements, vague dreams of influence, alliances in arms.’38 In any case, the interest of the French in the Ottomans had a longer history compared with that of the other European powers. In 1907, the president of the French Chamber of Commerce in Istanbul, Ernest Giraud, compiled a booklet which provided a list of French businesses in that city. These included numerous small and medium-size stores, wholesale and semi-wholesale traders, makers of shoes and saddles, pharmacies, tailors, printing houses, bookbinders, hotels, inns, restaurants as well as construction and insurance companies. There were also large-scale companies in the field of mining, navigation and railways. A number of small firms started their business in the 1840s and 50s. However, the majority were established after 1870. The oldest and important French company in the Ottoman dominions was l’Administration des Phares de l’Empire Ottoman, a lighthouse builder and operator. Marius Michel, a French sea captain, who sailed in the Ottoman seas towards the end of the Crimean War, noticed that lighthouses were scarce and poorly maintained. He talked about this with General Count de Montebello, who travelled on one of his ships. Count

62

Foreign Investment in the Ottoman Empire

de Montebello enthusiastically informed Napoleon III about the situation, and Napoleon was quick to grasp its importance. The French had to act fast lest the British took the initiative. Without delay the monarch sent delegates to the Sublime Porte to begin discussions and negotiations. With a treaty signed in August 1855, the Ottomans established a lighthouse administration, Direction Générale des Phares, headed by Marius Michel. This administration, which was given the task of building lighthouses in the Empire, constructed 36 lighthouses on the Black Sea and the Dardanelles as well as four at the mouth of the Danube. As Michel, then Director General, saw that this was a profitable undertaking, he negotiated with the State to obtain a concession enabling him to establish a new company.39 He and a friend came to the capital, and obtained the first lighthouse building and operating concession from the Ottomans in August 1860. Later, he secured a second concession in 1884, and a third one in 1899. Thus, it was said ‘he makes France feel proud of the services he rendered to navigation in the Turkish waters.’40 Another important French company, established before the 1870s, was Société des Quais de Smyrne, in the seaport and docks business. The British were the first to attempt to build a quay in İzmir. In 1867, three British subjects, John Charnaud,41 Alfred Baker and George Guarragino made an agreement with the Ottoman Government for building and operating the quay.42 However, the founders of the company were unhappy with the British engineers. The French consul general in İzmir, Marquis de Moustier, recommended to John Charnaud the Dussaud brothers, who had a great reputation in seaport construction. As legal and financial problems discouraged the founders, they ceded the company to the Dussaud brothers in 1869. A company initially established with a British concession therefore became French.43 Less than a year after the dock began operations, disagreements arose between merchants and the company. The docking fees had to be set by a committee that included local merchants and government representatives. The company was able to fix the fees it wanted thanks to its relationship with some higher-level bureaucrats. It charged the full fare to British merchants while it offered a 50 percent discount to French and German traders.44 The British, who had to incur higher transportation costs, believed that they were facing unfair competition. That is why they considered buying the company. Likewise, the French lighthouse company was charging discounted fees to all but British ships. The Chamber of Shipping of the United Kingdom asked their Government to bring pressure on the Porte not to extend the lighthouse company’s concession. However, this

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did not yield any results. Meanwhile, some British ships unloaded their cargoes at Kuşadası (about 120 kilometers south of İzmir) in order to cut costs. During the early 1880s, with British pressure, the Porte issued a decree stipulating the implementation of the same fee to all concerned, thus reducing it to the 1877 level.45 Another notable French direct investment was Compagnie des Eaux de Constantinople, dealing with the city’s waterworks. A concession of 40 years was obtained in 1874 by Kâmil Bey, master of ceremonies at the Sublime Porte, and a French engineer known as Ternau Bey. The death of Kâmil Bey and the start of the Russo-Turkish conflict delayed the implementation of the concession. However, Ternau was able to renew the first concession in 1877 and established a joint stock company later. Among the founders were La Société Générale de l’Empire Ottoman, La Banque de Constantinople, I. De Camondo and Company, La Banque d’Escompte de Paris, La Banque de Paris et des Pays-Bas, La Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France and La Companie Générale des Eaux pour l’Etranger.46 The establishment of the company was approved, in 1882, by the Council of State and the Ministry of Commerce and Public Works. The company was to provide water from the Terkos Lake to Beyoğlu (Pera), Galata and the European parts of the Bosphorus, where the European population was more concentrated. By 1885, the company was able to provide water, albeit partially, and became profitable.47 The French started to invest in railway construction in Anatolia at a much later date than the British. The İzmir–Kasaba Railway was built by the British in the 1860s. Georges Nagelmackers bought its concession in 1893 and sold it to the French in 1894.48 With generous subsidies given by the Ottoman State, the French pledged to extend this line by 100 kilometers.49 Georges Nagelmackers also obtained the concession of the Mudanya–Bursa line which was constructed by the Ottoman State. The construction of this line started in 1873 with the encouragement of Sultan Abdulaziz. However, because of the state bankruptcy, it was abandoned for some years, until it began operation in 1886. The company became French when Nagelmackers transferred his rights to the French in 1891.50 Investments in Syria and Palestine accelerated during the 1890s after Germans started building the Anatolian Railway. For the French, the main purpose behind this was to prevent the rise of Germany in the Near East and to create French spheres of influence.51 The protection of the Catholics and clergy of the region played an important role in traditional French foreign policy. However, according to ambassadors like Ernest Constans (1898– 1909), the main goal of France was to strengthen its economic interests.

64

Foreign Investment in the Ottoman Empire

For this reason, this ambassador’s main concern was to protect the privileges of the Ottoman Bank, under French control, to assist the industrial investments of French companies, especially those involving railways, and to increase French exports to the Ottomans.52 After 1888, French investments continued to grow and spread to sectors like banking, insurance, mining, seaports and railway construction and operations, and trade. An examination of the reasons behind French investments show that these were not undertaken for purely altruistic motives, as contemporary French authors maintained. The first French investments – and for that matter, most foreign investments – were done for similar reasons, including the following: • • • • •

to invest only when there is a certainty of profits, to pre-empt other countries’ investments in certain regions, to reduce or eliminate the competitiveness of other Europeans, to facilitate the business and life of her own citizens and traders, to open up and develop economic, cultural, and political spheres of influence, especially in the Ottoman Arab provinces.

German Direct Investments In the nineteenth century, the population of Germany was rising rapidly and the country was encountering food shortages.53 For this reason, during the 1820s and 1830s, close to six million Germans emigrated.54 When Germany became an empire after the 1871 Versailles Treaty, it formed a strengthened union of its composing states. It then began to direct its attention to economic development, for which extended trade was necessary. To develop and protect its industry it had to stop the import of cheap foreign products. In 1879, Germany set up protective customs barriers and put an end to free trade. It began to import industrial raw materials and export a vast quantity of her manufactured products. German investments were first oriented to lands immediately to her east. However, in time, Germany’s commercial and political goals directed her to other parts of the world. In the early 1900s, while about half of German investments were in Europe, the remaining half were distributed in Africa, Asia, and in particular, in North and South America.55 Germany lagged far behind the great colonial powers in terms of finding external wealth. Russia was at the forefront among the countries that had significant economic ties with Germany. By a secret agreement, Germany sold Russia manufactured products at a cost lower than those from Britain, and was able to get raw materials from this resource-rich country. However, Russia had started to

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industrialize since the time of the Peter I (1682–1725), and by imitating the Western Europeans, had begun a rapid process of development.56 Hence, Western Europe’s cheap products did not present such a great danger to Russian industrial progress. Moreover, during the years 1874–5, Russia reversed its previous position on free trade and started to protect her industries.57 Russia was no longer a lucrative market for German exports. Germany’s attempts at creating a market in China were doomed to failure due to the competition of rapidly industrializing Japan. Under the circumstances, the most suitable countries with which to establish and develop economic ties were the Ottoman Empire and Persia. The latter presented some difficulties due to the heavy tutelage of Britain and Russia. On the other hand, the Ottomans were not under the hegemony of any great power; they therefore offered all foreign countries the same trade advantages and concessions. Given this situation, it did not prove difficult for the Germans to develop their relations with the Ottoman Empire. During the last quarter of the nineteenth century, German merchants and investors spread to various parts of the world to realize large gains. These desires combined with the ambition of the Kaiser for obtaining new colonies resulted in a fierce competition with Britain and France in matters of colonies, trade and investments. Germany tried to gain a significant influence in the Near East by her policy of pénétration pacifique in the Ottoman Empire. German imperialistic views were low-profile during the 1870s and 1880s. However, they acquired definite colonial overtones in the 1890s.58 Like other visionary Germans, Von Moltke wrote about his observations of the Ottoman Empire as early as 1841, in the Augsburg Gazette. He mentioned that the entire Ottoman dominions were under the influence of Russia, France and Britain when he was serving in a military mission in Istanbul. Yet one could not detect a trace of Germany and something had to be done about that. He even proposed the establishment of a German principality in Palestine.59 However, it was the two economists, Friedrich List and Wilhelm Roscher, who laid down the foundations of German imperialism. Both of them emphasized the importance of colonies for national economic development.60 Roscher wrote that the Germans should acquire colonies and settle there. Germans staying in the homeland would then have ‘elbow room’ (Lebensraum). Also, there would not only be new markets for Germany’s manufactured products but also new sources of raw materials. He showed Britain as an example, and expressed his wish for the German people to emigrate to fertile lands. He wrote that ‘perhaps, as List wished, towards those parts of Turkey which, God willing, shall yet constitute the inheritance of the German people.’61

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In his book published in 1886, Alois Sprenger wrote that Asia Minor was the only piece of land that had not been monopolized by a European power. Yet, it was a region which would make a superb colony and, before the Russian Cossacks grab it, Germany had to secure this ‘best part in the division of the world.’62 J. K. Rodbertus went even further, saying that ‘he hoped he would live long enough to see Turkey fall into the hands of Germany with German soldiers on the shores of the Bosphorus.’63 German traders were entering the Ottoman markets slowly but systematically. By the end of the 1870s, Britain’s share of imports to the port of İzmir was 45.2 percent while the German–Austrian share was 14.1 percent. At the end of the nineteenth century these became 32.8 and 23.1 percent respectively. In 1908 they were 31 and 27.4 percent.64 Within thirty years, the German–Austrian import share rose from less than one third of Britain’s to a comparative level. These changes did not take place only in İzmir. According to British Foreign Office reports and articles in newspapers, German products invaded the markets in Eastern Roumelia, while in Crete and Damascus, the Germans became relentless competitors of the British, and in Beirut all woollen textiles were imported from Germany.65 In 1898, The Times published an article evaluating the growth of German trade in the Ottoman dominions. The article stated that ten years ago, finance and trade were the quasi monopoly of Britain and France. A decade later, however, the Germans had become, by far, the most active group. Hundreds of German traders traveled in the Ottoman Empire, and worked hard at marketing their products while they inquired about the people’s needs and demands so as to order the goods that would sell. The London paper also described Krupp’s equipping the Ottoman fleet with torpedoes, the Ludwig Loewe Company providing weapons to the army, Krupp’s cooperation with Armstrong to fulfil the artillery orders, and German traders’ impressive progress in Syria and Palestine. Entrepreneurs, bankers, merchants, engineers, ammunition producers, ship and railway builders all played their roles in laying down the foundations of an ever-growing level of German investments in the Ottoman dominions. Other British papers such as The Economist and The Observer published similar articles.66 Like other foreigners, the Germans made investments that would increase trade. They invested in railways that would carry their goods to even the most remote corners of the Ottoman Empire. To perpetuate and facilitate this trade they opened up a vast number of bank branches covering most of the country. German capital was not there to build up industries. What the Germans called ‘undertaking capital’, investment in industrial enterprises, was directed to Central and Eastern Europe as well as to North and South

Foreign Capital: Direct Investments

67

America.67 Concentrated though they were in a few sectors, German direct investments grew steadily. As indicated in Table 3.1, while its share was barely more than one percent during the late 1880s, it rose to 27.5 percent by 1914. Feis wrote that the German government sought to establish reliable and permanent relations with the Ottomans that would create a political alliance. This way, they hoped that German financial and industrial concerns would have the concessions that would allow them to exploit Ottoman resources. The Baghdad railway would be the core of this system. ‘To the more ambitious and aggressive elements in Germany this railway was undoubtedly regarded as marking out a field of empire, a penetrative agent in foreign regions that would fall under German domination’.68 Belgian Direct Investments Belgium, which had become an independent country in 1830, was one of the first investors in the Ottoman dominions. In 1831, only two months after the enthronement of King Leopold I, Belgian merchants and industrialists requested him to establish official relations with the Ottoman State. The rapidly-growing Belgian industry needed large markets to sell its products. Belgian merchants asked their king to initiate an accredited representative in Istanbul who would protect them against inimical foreign powers.69 With a treaty signed in 1838, Belgium established a diplomatic mission, and Belgian traders started to examine commercial opportunities around Istanbul and Izmir. The crown prince, the Duke of Brabant, the future King Leopold II, tried hard to find a way to get Crete or Cyprus for Belgium while visiting Istanbul in 1860. In fact, Belgians often expressed their willingness to settle in these islands between 1837 and 1878. In 1876, their proposition to buy a few Aegean islands was turned down by the Ottoman Foreign Ministry.70 In 1878, after the occupation of Cyprus by Britain, and the avidity that the greater European powers displayed in getting their share of Ottoman lands, the small Kingdom of Belgium gave up its ambitions of acquiring a colony in the Mediterranean region. Nevertheless, the Belgians continued to increase their economic relations with the Ottomans. When the fez factory (Feshane) was moved from Topkapı to the Golden Horn in 1855, the new 8,000-square-meter factory was designed by Belgian experts. Moreover, it was built with steel and other equipment imported from Belgium, and Belgian steam-powered textile machines were used in the production process.71 Previously, the Ottomans had imported products like sugar, glass, and textiles from Belgium. Later, the bulk of the imports consisted of steel products and machinery. Products

68

Foreign Investment in the Ottoman Empire

used on railways such as rails, locomotives and coal, as well as a part for the Ottoman army’s rifles, were imported from Belgium.72 The period from the end of the nineteenth century to 1914 were years of great success for Belgian firms in terms of railway construction as well as urban rail transportation (streetcars and tramcars). Belgian capital and technology established urban transportation facilities in many countries, ranging from Russia to Argentina.73 In 1890, the Belgian Cockerill Company obtained from the Sublime Porte the concession for building a railway from Samsun on the Black Sea to Sivas in central Anatolia. However, those were the years when the strategic games played by the Russians, French, and Germans made it impossible for the Belgians to put this project into effect despite their technical superiority. Finally, they had to give up the concession.74 The Belgians adapted to these realities by becoming sub-contractors for important railway constructions. They made important contributions to the French railways in Syria as well as the Hejaz Railway. Georges Nagelmackers, a Belgian businessman, ceded to the French the concessions he obtained in 1891 for the Mudanya–Bursa line, and in 1893 for the İzmir–Kasaba line. In fact, the French thought they would encounter serious difficulties in getting business in Anatolia after the political games they played in Syria and North Africa. They had to use Nagelmackers, whom the French Foreign Ministry considered, or so it suited them to think, a French citizen.75 Belgian firms undertook the construction and operation of urban waterworks in the cities of İzmir and Salonica.76 In the Ottoman Empire, the Belgians not only brought in capital, but also imported investment goods. They also contributed with their expertise in the production of iron, ammunitions, threads and textiles. Italian Direct Investments The relations between the Italian city-states and the Ottoman Empire went back almost to the Empire’s foundation. The Venetians had plans to acquire Byzantium themselves. However, when the Turks took Constantinople, the Venetian ambassador proclaimed, with realism, their ‘intention to live in peace and friendship with the Turkish Emperor’.77 In order to increase its wealth, Venice needed to trade in the Mediterranean and the Black Sea while the Ottomans needed an intermediary like Venice to carry out trade with Europe. Despite interruptions resulting from wars, this co-existence lasted for centuries. However, after the great discoveries in the New World, rich capitalist centers gradually moved from Mediterranean city-states like Venice and Genoa to Northern Europe. Countries advanced in seafaring took over the larger part of world trade and the relatively small city-states

Foreign Capital: Direct Investments

69

lost their former importance. ‘Italy’ which was a geographical expression until 1870, was in great part under the sovereignty of foreign countries. The Austro-Hungarian Empire ruled over Lombardy until 1860 and Venice until 1866. The Kingdom of the Two Sicilies was ruled by the Bourbon dynasty until 1861 while Rome and its vicinity joined the Italian Union only in 1870. In Lombardy under Hapsburg rule, economic conditions fared well especially in the Po Valley and the vicinity of Genoa. However, formerly famous centers of trade and industry like Venice and Florence had turned into mere tourist attractions. The backward Southern regions (Mezzogiorno) remained poor even after the unification of Italy.78 Following unification, Northern Italy started to industrialize: the Lombard Valley became an industrial region, Genoa developed and Venice was reborn. As poverty still continued in greater parts of the country, Italy could sell a great part of its products only to the outside world. The most suitable external market was the Eastern Mediterranean where Italy and France sold the same products. The competition for imports was even more intense, since they needed the same agricultural products.79 Meanwhile, the Società Commerciale d’Oriente Bank, with headquarters in Venice, opened up a branch in Istanbul to facilitate trade. Like other trading nations, the Italians were aware of the importance of maritime transportation. They decided to start 14 sea lines from Italy to major Ottoman ports. In the early 1900s seven of these were active. The Italians were also actively seeking colonies in Africa. In 1881, the Italians were angered to see France conquer Tunis, which they coveted themselves. In 1885, from the Red Sea, they landed in Ethiopia (Abyssinia) to acquire a colony. In 1895, though soundly defeated by the Ethiopians, they still struggled to make conquests. A year later, they experienced one of the worst colonial disasters in modern history.80 Eritrea was the only land they could hold on to. According to Pinon, the Italians had practical policies with utilitarian goals and stayed away from doctrines, like religion. Perhaps with the influence of various events that had taken place in their long history, the Italians seemed to find an example from the past to provide a thesis for every case they came across. Their statesmen excelled in the art of diplomatic cunning. For this reason, ‘there was nothing more interesting than watching the Italian methods of propaganda and expansion in the Levant’.81 Towards the end of the nineteenth century, Italy was following the developments in the Ottoman Empire very closely for opportunities that would suit its interests. It established a network of intelligence with the Albanians and formed a tripartite agreement with Germany and Austria, seeking a zone of influence in the Balkans. They wanted the Italian language to supplant

70

Foreign Investment in the Ottoman Empire

French in the entire Eastern Mediterranean. For this purpose, they made use of powerful societies like Dante Alighieri and Umanitaria. Depending on what would serve their interests, they sometimes confronted their own ecclesiastics, and at other times cooperated with them.82 The Italians, like other Europeans, believing that economic expansion had to be supported by cultural and linguistic hegemony, established Italian schools in many Ottoman cities. They tried to convince themselves and others that they were once the greatest traders of the Mediterranean, that they had bequeathed various works in the Ottoman dominions, and that the Turkish language contained, especially in the financial area, many Italian words. The Italians also published a bilingual, French and Italian, weekly, L’Orient Illustré, in Istanbul. The issue for 7 March 1874 stated that the Italians were the first to bring to the Turkish race the auspicious influence of civilization.83 It mattered very much for Italy to acquire colonies as the great powers of Europe had done before them. For this purpose, they used any means available – political, economic and cultural. The same tactics were implemented in the occupation of Tripolitania, now Libya. Britain made a secret Mediterranean Agreement with the members of the Tripartite – Germany, Austria and Italy. After her occupation of Egypt, Britain tried to end the quasi-ostracism imposed by other European countries, and agreed to Italy’s ambitions in Tripolitania. When the Tripartite Agreement was renewed in 1902, Austria also gave its approval. Thus, in order to establish its influence there, Italy opened up a branch of Banco di Roma in Tripoli. Later two more branches and twelve trading agencies were established. With banking and commercial relations, Italy tried to gain the sympathies of local tribal chiefs. When, in 1909, it promised to support Russia’s ambitions to control the straits of the Bosphorus and the Dardanelles, Russia in return showed understanding for Italy’s desires in Libya. When everyone and everything was ready, in 1911, it started the Libyan military operation with the participation of Banco di Roma and the Dante Alighieri Society. This was at a time when, prodded and organized by Russia, the Balkan States were jointly preparing to attack the Ottomans. Making use of this opportunity, the Italians occupied Rhodes and the Dodecanese islands.84 During the two decades preceding the First World War, Italian financial involvement in the Ottoman Empire increased considerably. For example, trade between the two countries grew by 150 percent between 1896 and 1906 – from 53 million to 132 million lire. In 1914, Italy became the fourth-largest trading partner of the Empire after France, Germany and Britain. She had a positive trade balance with the Ottoman Empire while having deficits with most other countries.85

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71

The Italians did not have direct investments of any importance in the Ottoman Empire. As they did not have coal, they became partners, with the Greeks, in the Kozlu Coal Mining Company. After the First World War they also purchased the Sarıca Coal Mines established with German capital.86 When the Germans speeded up their railway projects in Anatolia, and only a year after the end of the Tripolitanian War, in 1913, they were able to obtain a concession for the construction of a railway between Antalya and Konya, a feat that won the appreciation of even the Russian press.87 However, according to British and German experts, Italy’s motivation was political rather than anything else. There was ample evidence that the Italian Government was trying to encourage entrepreneurs to get involved in Turkey in ways that would promote the political ambitions of the Italian Government, including territorial claims.88 American Investments Despite the vast geographical distance between the United States of America and the Ottoman Empire, the Americans established trade relations in the 1820s. Their exports, transported by sailing ships, grew until they reached two million dollars in the 1870s. However, with the advent of steamships, the British ships created a quasi-monopoly in the Eastern Mediterranean. American trade became dependent on British ships and subsequently diminished.89 When, in the early twentieth century, Americans were in the process of increasing their commercial and investment activities, the onset of the First World War prevented this. The Americans’ initial contacts were through missionaries who began to arrive in 1820. Though they realized the advantage European missionaries had, having arrived long before them, they were undeterred and worked very hard, even in the remotest parts of the Ottoman dominions. The American Board missionaries were especially active in European Turkey and Anatolia. In 1900, they educated about 17,700 non-Turkish children in 36 high schools and 398 elementary schools.90 Robert College, which they established in 1863, played a leading role in raising Bulgarian nationalists who would strive to create an independent country.91 When a rebellion by the Armenians in Bitlis and Sassoun, in eastern Anatolia, was quelled in one day, the American Board missionaries were infuriated. Without delay, they distributed, in and around their Boston headquarters, anti-Turkish and pro-Armenian pamphlets containing gross distortions. In the churches, they anathematized the Turks, and organized vociferous anti-Ottoman meetings.92 The Americans requested reparations for their missionary properties that were damaged during the Armenian rebellions in 1894–5. After heated

72

Foreign Investment in the Ottoman Empire

and protracted negotiations, in 1901 Sultan Abdulhamit agreed to pay ninety thousand dollars. However, as he did not want the British, French, Italian and German Governments making similar demands, he requested that this indemnity payment remain secret. This could be included within the purchase price of a warship to be bought from the United States.93 Some American officials thought that, in order to be indemnified, it would be worthwhile to send warships to Istanbul and intimidate the Ottomans.94 In 1901, Captain (later admiral) Colby M. Chester of the USS Kentucky was welcomed by the Sultan while the Americans hid their real intentions. Admiral Chester came back to Istanbul in 1908 as a representative of the New York State Board of Trade, and discussed the possibilities of obtaining a concession for the construction of a railway line between Aleppo and Alexandretta (İskenderun). Later, in 1909, a concession was given to the Americans for the construction of a 900-mile railway which would extend from Sivas to Süleymaniye, and from Yumurtalık to Van.95 The German Foreign Office suggested that the American promoters should come to an agreement with the Baghdad Railway authorities and the Foreign Office. Yet, the British believed that a large amount of American capital was not likely to be invested even if the concession were to be obtained.96 However, as Gordon explained, At first, European Imperialists with vested interests in Turkey had paid scant attention to the possibility of real competition from amateur Imperialists, but when the threat began to assume serious proportions they girded themselves for battle. English, French, and particularly German concessionaires and governments took active steps to close the door to American capital investment in Turkey.97 Facing this dogged European opposition, the American company gave up this plan in toto. Actually, the American investments in the Ottoman dominions were an iota compared to those in Europe and Latin America. Their most important investments were the American Tobacco Company that purchased and processed tobacco, and oil companies like Standard Oil and Socony which had established warehouses and distribution centers for their products. The Singer Sewing Machine Company had many agencies and stores in Anatolia. Company records indicate that, in 1918, it had about 200 agencies and stores there, with a sales volume of one million dollars.98 In 1909, a joint British–American group was awarded a contract to expand the telephone network in Istanbul.99 Another British–American company worked in the boracite business.100

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Frank Edgar Bailey pointed out that a government would find it difficult to separate economic motivations from political ones in the planning of foreign policy. He mentioned the mutual interaction of history and economics in Britain’s Near East policy from 1830 to 1855.101 An examination of Ottoman economic developments in the nineteenth century supports the idea of this interaction. The trade and investment activities of the Europeans were not solely based on economic motives. Quite often, political aspirations played a more pronounced role. While foreign investments sometimes entered into the Ottoman Empire with economic motives, there were periods when political reasons were dominant in the targets of capital movements. The first railways had the purpose of increasing trade, obtaining raw materials, and transporting the finished products to the markets. However, in later railway projects, one could detect a fierce competition among the European powers for political influence and military superiority. For countries like Belgium, economic motives played the major role for investment decisions. On the other hand, an economic and political latecomer like Italy cared more about the political dimension. In the next chapter, which covers the sectoral distribution of FDI, one can observe that even Greece, which broke away from the Ottoman Empire, and became independent in 1830, wanted to profit from such investment opportunities. In this, it had the cooperation of the Ottoman Greeks.

4 THE DISTRIBUTION OF FOREIGN DIRECT INVESTMENT BY SECTOR

An examination of foreign direct investments in the Ottoman lands indicates that railway investments not only had the greatest share but also kept rising. Table 4.1 shows the distribution by sector of FDI in 1888 and 1914. Table 4.1 Distribution of FDI in the Ottoman Empire by Sector 1888

1914

Thousand £

Percent

Thousand £

Percent

Railways

5,283

33.4

48,373

58.7

Banking

5,000

31.6

14,788

17.9

Insurance

–

–

460

0.6

Ports

–

–

4,025

4.9

Utilities & Urban  Transport

1,472

9.3

4,150

5.0

Commerce

1,280

8.1

5,000

6.1

895

5.6

2,700

3.3

Mining Industry

1,895

12.0

2,910

3.5

TOTAL

15,825

100.0

82,406

100.0

Sources: 1888 estimations from Ş. Pamuk, Osmanlı Ekonomisi ve Dünya Kapitalizmi 1820-1914, 1984; 1914 estimations were based on several works: E. Pech, Manuel des Sociétés Anonymes Fonctionnant en Turquie, 1906 and 1911; The Near East, May 24, 1911; Le Groupement des Intérêts Français, Les Intérêts Financières de la France, 1919; and V. Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları Hakkında Bir Tetkik, 1914.

The Distribution of Foreign Direct Investment by Sector 75 As mentioned earlier, the foreign investors had come to the Ottoman dominions with the purpose of increasing and facilitating trade through railroads, seaports, banks and insurance companies. Since investments made for mining operations and cotton cultivation were made with the purpose of exporting the products to the home country, these sectors too can be considered as trade-oriented investments. Accordingly, in 1888, 78.7 percent and, in 1914, 89.6 percent of the total investments had the commercial purpose of obtaining raw materials and selling industrial products. Railways Sultan Abdulmecit (1839–61) and the European-educated statesmen of the Tanzimat period wanted to have railways, as they had seen in Europe, built in their country. However, the Ottoman Government and capitalists lacked the capital and expertise this new transportation system required. Therefore, the railway building was left almost entirely to foreigners. Concessions were given to foreign investors, who were granted monopolies to operate the lines they built for a certain concession period. The Government guaranteed sufficient profits and agreed to provide building companies with certain sums for every kilometer built. Although very burdensome for the state treasury, these obligations helped the development of a vast railway network that would have been impossible otherwise. In 1893, Sir Vincent Caillard, the British delegate to the Council of the Public Debt Administration, in his annual report to the Ottoman bondholders, gave assurances about the goodwill of the Ottoman Government, and pointed out that operational kilo­ metric guarantees were only payable on the portion of the railways opened to traffic, and the liabilities in connection with them would come gradually into force. If all the current concessions were carried out in five to six years, the most important railways would probably be earning the amount of guarantee, and the value of the tithes in many districts traversed by the new lines would be greatly enhanced, thus affording an additional revenue to offset the guarantee payments. He also added that the Government held a ‘wise view’ in agreeing guarantees for new railway construction, because the guarantees previously accorded were ‘sensibly lightened by the returns from the railways themselves.’1 However, in 1896, when the financial difficulties of the Government increased because of the ‘disturbances in various parts of the empire’, and the guarantee payments reached almost 750,000 Ottoman liras, he anxiously stated that the Turkish Treasury was in no position to stand such a drain.2 Moreover, on many occasions this kilometric guarantee system was criticized for taking away the motivations of the railway administrations to work hard to increase the traffic and revenues. Since they were

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Foreign Investment in the Ottoman Empire

relieved of the risk of loss, managers, at least in some cases, did not worry whether freights or fares covered operating expenses or not.3 Ottoman steamship companies had been able to compete satisfactorily with their European counterparts since the middle of the nineteenth century. Several steamships were purchased during the reign of Sultan Mahmut II (1808–39) for his own use on the Bosporus and the Sea of Marmara as well as for an Ottoman commercial fleet. This fleet was organized as a steamship company, the Fevaid-i Osmaniye Company, in 1844, and began regular service from Istanbul to the Black Sea and Aegean ports as well as to the Marmara islands. Competing foreign steamships of Austrian, French, English and Russian companies ran their ships not only between Ottoman and European ports but also on domestic routes between Ottoman ports. There were also competing British and Russian lines to the Bosporus, but these were eliminated with the establishment of a domestic steamship company, Şirket-i Hayriye, which was given a monopoly for providing regular and rapid transportation service from Istanbul to points along the Bosporus.4 During the Tanzimat period, a new system of government and bureaucracy was created. New economic and social councils were composed of retired experts, senior bureaucrats and distinguished men to advise the Government on various policies and legislation. One of these was the Council on Public Works which also included several Europeans among its members. A Cahier des Charges, prepared by this council for the concession of railways, was reported by The Times to its readers. This cahier detailed, in six chapters and 86 paragraphs, ‘as minutely as possible of the plan and concession of railways, of the manner of maintaining and working them, of the length of the concession, of the caution money, the guarantee, the rates, the regulation of the railway service, and diverse other matters connected with the subject’.5 Although the Times correspondent found it unappealing for European capitalists, he admitted that this elaborate code ordered everything ‘so beautifully’ that the Turkish government might have constructed railways wherever it pleased. Morawitz wrote that railways influenced a country’s economy directly and indirectly. Should the Government decide to build the railway itself, it would have to borrow. Should it give a concession to a foreign firm, it would guarantee the investment by a commitment to make the company earn an agreed amount per kilometer. This was the direct influence of the railway on government finances. The gradual changes occurring in the country’s economy would make up the indirect effects.6 However, Morawitz did not mention how the foreign country or the firm that undertook the railroad

The Distribution of Foreign Direct Investment by Sector 77 construction was likely to be affected, directly and indirectly. Particularly during the last quarter of the nineteenth century, when the political and economic rivalries had intensified, foreign governments struggled to obtain the privilege of a railway concession. The country that obtained such a concession would gain influence in that area, get revenues from the sale of materials, equipment and vehicles used in railway construction and operations, and become a creditor right away. This created a directly beneficial effect on the economy of the capital-exporting home country that would eventually change the structure and volume of trade and investments by developing and expanding its sphere of influence. It could obtain its raw material needs faster and cheaper than before, and could sell its industrial products in the borrowing country, thus expanding and diversifying its market. These changes would eventually make their impact in the home country, thus creating the indirect effects. When the Ottomans needed to build railways themselves, like the Haydarpaşa (Istanbul)–İzmit line and the Bursa–Mudanya line, they had to borrow to finance these constructions. However, the State had to borrow even when they were built by a foreign investor, in order to back its commitment to guarantee the undertaking firm an agreed amount per kilometer. Such kilometric guarantees made railroad business very profitable for foreigners. The indirect effects of the railways were immediately noticed after the first constructions in Anatolia. In the regions adjacent to the railway lines, both the quantity of the crop and the level of trade increased. This led to a rising income which translated into a greater demand for consumer goods and, hence, more tax revenues for the Government. Even though the basic political and economic motivations which led European investors to build railways in the European and Asian parts of the Ottoman dominions were the same, the indirect economic effects were not. The lines built in Roumelia (European Turkey) passed through scarcely populated and unproductive lands, and did not yield the expected gains. On the other hand, as the first lines in Asia Minor were built on the productive lands of western Anatolia, this led to an expansion of agricultural lands and an increase in crops, bringing about an increase in dime taxes and creating positive developments in the economy.7 The Roumelian lines continued to be unproductive for many years. A study estimating the Serbian and Bulgarian national incomes as late as 1910 indicates the economic contribution of railways was only one quarter of the transportation carried out by carts and pack animals.8 In the following sections, the effects of the railways built in Ottoman Europe and Asia will be dealt with separately.

78

Foreign Investment in the Ottoman Empire

Railways in Ottoman Europe The first railway built in Roumelia was a short 60-kilometer line between Chernovoda (Boğazköy) on the Danube and Constantza (Köstence) on the Black Sea. Following the request of a few British merchants, J. Trevor Barkley obtained a 99-year concession without demanding any guarantees from the Government. At the end of the concession period, the line would be handed over to the Ottoman State. That no guarantees were asked from the Ottoman government for this first railroad concession surprised Western observers, since high revenue guarantees were consistently requested for later concessions.9 This line, which became operational in 1860, remained in Rumanian territory following the 1877–8 Russo-Turkish War and the ensuing Congress of Berlin. In 1882, the Rumanian government bought it for 1,650,000 francs. The second line in Roumelia was the Rustchuk (Rusçuk)–Varna line which carried commercial cargo from inland areas to the Danube, and then to the port of Varna on the Black Sea. This was built following a 99-year concession given to a British group in 1861. The annual guarantee payments were 140,000 pounds, 120,000, and 100,000 pounds respectively for the first, second, and third 33-year periods. According to Rondo Cameron, the construction of this line was an entirely international enterprise. While British contractors worked with French engineers, Belgian materials were used, and the capital was put up by these three countries and Holland.10 This line was leased in 1873 by Baron Hirsch’s Railway Operations Company of Turkey in Europe (Compagnie pour l’Exploitation des Chemins de Fer de la Turquie d’Europe) from the Rustchuk and Varna Railway Company which owned it. After the Congress of Berlin, the territory this line passed through was ceded to Bulgaria. When Baron Hirsch retired from the railway business in 1888, he sold his concession to the Bulgarian government for 44.5 million francs.11 The most important railway concession in European Turkey was given, in 1868, to Baron Hirsch for a rail network of two thousand kilometers. Hirsch was an Austrian banker who carried out the greater part of his business in Brussels during those years. As the establishment and financing of this railway firm hold quite an exceptional place in the history of foreign investments, it merits an examination in greater detail. With the calculation (or assumption) that every kilometer of the railway would cost 200,000 francs and that the Ottoman State would be given a loan at an interest rate of 11 percent, the guarantee per kilometer was established at 22,000 francs derived from 11 percent of 200,000 francs. Of this, 14,000 francs would be paid by the Ottomans for 99 years while the remaining 8,000 francs

The Distribution of Foreign Direct Investment by Sector 79 would be met by the concession holder, after the railway became operational. Thus, Baron Hirsch had received a concession both for the construction and operation of the line. Consequently, at the beginning of 1870, two different companies were founded within two days of each other. They were the Imperial Railway Company of Turkey in Europe (Société Impériale des Chemins de Fer de la Turquie d’Europe), with the purpose of building the rail line, and the General Railway Operations Company of Turkey in Europe (Compagnie Générale d’Exploitations des Chemins de Fer de la Turquie d’Europe), for operating this rail transport system.12 Although, according to the agreement, the 14,000 francs kilometric guarantee would be paid by the Ottoman Government with the rest to be met by the Railway Operations Company of Turkey (Compagnie Générale d’Exploitation des Chemins de Fer de la Turquie d’Europe), during the first ten years of construction, the total amount of 22,000 francs would be paid by the Ottoman Government to the constructing company, the Imperial Railway Company of Turkey in Europe (Société Impériale des Chemins de Fer de la Turquie d’Europe). Still, Baron Hirsch had to find the necessary capital and start the work before he could be paid the yearly guarantee of 22,000 francs. The astute banker displayed the same skill in getting the capital as he had previously done in establishing the two companies.13 The Baron began collecting the capital by issuing 1,980,000 bonds in the name of the Ottoman State. They had a nominal value of 400 francs each, and paid an annual interest of 12 francs or 3 percent semi-annually. In order to make these bonds more attractive to small investors, he devised a sweetener prize system paying up to 600,000 francs for bonds which would be redeemed by a lottery drawn six times a year. The amortization period of the entire bond issue would spread to 99 years, the full concession period. The concession holder would buy the entire issue at 128.50 francs per bond or at 32.125 percent of its nominal value. Then, he sold the initial issue of 750,000 bonds at 150 francs each to a syndicate consisting of nine banks which, in turn, would sell these at 180 francs each at twenty-eight financial centers in Europe. Baron Hirsch would get 30 percent of the net profit arising from this sale.14 It was not legally possible to sell these prize-winning bonds on the Paris, London and Vienna exchanges. The sale of such bonds had been forbidden in Paris since 1836. The Vienna regulations also did not allow it. Nonetheless, small investors flocked to purchase them elsewhere. The six lottery draws were not carried out properly. Bonds which had not even been sold or issued were included in the draws. Thus, except for large-scale investors, the chances of winning a prize were slim. After a while, people

80

Foreign Investment in the Ottoman Empire

described the situation as organized theft.15 Eventually, in 1870, Hirsch was able to convince the Austrian Government to allow the sale of the bonds. Owing to a very well-organized sales campaign, the initial issue of bonds sold quite well. However, the sale of the second (September 1872) issue did not go so smoothly. The difficulty of the task started to frighten the company. As a result, the concession agreement was changed, and the initial two-thousand-kilometer construction was reduced to 1,274 kilometers. The Ottoman State had to construct the connecting lines.16 In May, Hirsch broke the agreement and transferred the Imperial Railway Company of Turkey in Europe and the General Railway Operations Company of Turkey in Europe to the Ottoman State, which became the owner of both companies. The Government renounced the eight thousand francs kilometric guarantee payments and paid 72,727 francs per kilometer for the lines which were still being constructed.17 At the end of 1873, 387 kilometers became operational while a 102-kilometer section was close to being so, and a 763-kilometer portion was under construction. Even though she was the owner of these lines, the Ottoman Empire remained unconnected to the European railways. The State incurred an external debt of 800 million francs for treasury revenue of less than 250 million francs. She had to make a hefty budget allocation of 28 million francs per year for external debt payments.18 When the Ottoman State announced its bankruptcy in 1875, the drawing of the lottery bonds stopped and their value fell within the 20–30 francs range. After 1882, the draw started again.19 In 1903, following the consolidation of the Ottoman external debts, these, like other bonds, had appreciated in value. The amortization of these bonds with lottery draws was a heavy financial burden for the Ottoman government. In 1881, after the conversion of debt according to the Decree of Muharrem, the nominal value of these bonds was established at 180.36 francs. Yet, after 1903, the market value of these bonds rose to a much higher level. The cost of the bonds that the State had to amortize became prohibitive and these great losses continued until the First World War.20 After the bankruptcy of the State, railway construction in European Turkey came to a complete halt. The rebellions in Bosnia and Bulgaria after 1875, and the 1877–8 Russo-Turkish War had catastrophic results. With the Congress of Berlin, the Ottoman Empire had lost a part of her railways. Despite the fact that Baron Hirsch did not inspire confidence, the Ottoman government wanted him, as a lessee, to operate the General Railway Operations Company of Turkey in Europe, in line with the 1872 Convention.21 This firm, which was initially established as a French company,

Map 1  Railways in Ottoman Europe, 1909

Map 2  Railways in Ottoman Asia, 1918

Figure 1  Eregli (Heraclea) Zonguldak Coal Mines (Captain Turgay Erol Collection)

Figure 2  Kalamish Lighthouse on the Marmara Sea (Captain Turgay Erol Collection)

Figure 3  Railway construction in Anatolia (Captain Turgay Erol Collection)

Figure 4  Eregli (Heraclea) Zonguldak Coal Mines (Captain Turgay Erol Collection)

Figure 5  Balia-Karaidin share (V.N. Geyikdağı Collection)

Figure 6  Electrical Tramways Company’s share (V. N. Geyikdağı Collection)

Figure 7  Railway Construction (Captain Turgay Erol Collection)

The Distribution of Foreign Direct Investment by Sector 83 came under Austrian ownership after the Congress of Berlin, when its headquarters moved to Vienna. In fact, the influence of Austria–Hungary and Germany in the region was on the rise. According to one research, there was a reason for the insistence of these countries for requesting decisions on the status of railways: they simply wanted to see the British and the French out of the Balkan markets.22 In 1890, a group of banks led by the Deutsche Bank and the Wiener Bankverein signed an agreement with Baron Hirsch. Accordingly, they bought a quarter of the shares of the General Railway Operations Company, and in a short time they were able to muster 88 percent of the stocks. The group also obtained two credit claims put forward by Hirsch vis-à-vis the Ottoman Government. After this, Hirsch pulled out completely from the railway business. In October 1890, in Zurich, these banks established the Bank für Orientalische Eisenbahnen (Bank for the Oriental Railways).23 According to an arbitration prepared by Professor Gneist, Hirsch’s company had to pay the Ottoman Government 23 million francs. The correspondent of The Economist reported that this ‘arbitration was perfectly just, and Baron Hirsch should be the last to complain, as he gained substantial advantages over the Turkish Government at the time when the railway was built’. According to the original agreement with the Government he was to build the railways for an average price per kilometer in the plain, and for a higher price in the mountains. Afterwards the Turkish Government accepted the Baron’s proposal that one average price was to be set for the whole railway, whether it was constructed in the plain or through the mountains. After this agreement had been made, Hirsch completed all the railways in the plain, and left those in the mountains unfinished. As he received the average price, he incurred a debt to the Turkish Government which Professor Gneist calculated to amount to 23 million francs. This amount was to be repaid to the new company. The company also acknowledged that a treaty with the Ottoman Government entitled it to receive a certain percentage of the revenues of the Oriental Railways.24 During a period of strife and unrest in the Balkans, this banking company operated the railways. The Railway Operations Company was reorganized with a decision of the Austrian General Assembly in Vienna, and became the Betriebsgesellschaft der Orientalischen Eisenbahnen (Oriental Railways Company). After the end of the First World War, this bank remained the holding company for the majority of the shares of the Deutsche Bankcontrolled Anatolian Railway Company. It was also a major creditor of the Baghdad Railway.25

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Foreign Investment in the Ottoman Empire

When Bulgaria became independent in 1908, she seized a 310-kilometer portion in Eastern Roumelia. With the interference of the Great Powers, the compensation paid to the Ottoman State was substantially lowered.26 It was believed that Bulgaria was not able to pay cash for the line, but it could take over the responsibility for that portion of the loans of 1885 and 1894 which fell on the Eastern Roumelian lines. Any difference could be made up with foreign financial aid.27 In the end, Bulgaria paid only 42 million francs, a sum she obtained from Russia.28 The Oriental Railways Company took the political decision of moving its headquarters from Vienna to Istanbul in 1910. It became an Ottoman company under the administration of German and Austrian shareholders. After the Balkan Wars, only 466 kilometers of this railway network remained in Ottoman territory.29 This railway company, which started under the administration of Baron Hirsch, had caused great damage to the Ottoman State. In spite of that, Morawitz wrote in 1902 that Hirsch’s gains, amounting to 160–170 million francs, should not be exaggerated, since the business required a lot of hard work and ingenuity. He added that this small banker from Brussels had to plan, administer and execute this important public project in the interior parts of European Turkey, a ‘semibarbaric’ country plagued with animosities and difficulties. He believed that it would be unfair to ignore the difficulty of the task, and the heavy expenses incurred.30 It is worth mentioning that this banker-author was one of the fourteen members of the Board of Directors of the Oriental Railways Company for many years around the early twentieth century.31 In the summer of 1888, the Bank for the Oriental Railways put into operation the lines that originated in Austria and passed through Belgrade, Nish, Sofia and Edirne to reach Istanbul. Using the other European railways it was possible to connect Istanbul with Vienna, Berlin, Paris, and even London via Calais.32 However, the transportation needs of the Ottoman Empire could not be met sufficiently in the Balkans. More specifically, one could say that the lines needed to carry the goods for European countries were insufficient. Italians looked favorably at railway projects that would transport their goods from the Adriatic Sea into the interior parts of the Balkan Peninsula.33 While the Germans increased their activities in Asiatic Turkey, they did not neglect the Balkans. The concession for the 219-kilometer Salonica–Monastir line was given for 99 years to a German group headed by Alfred von Kaulla through the intermediation of the Deutsche Bank. A company for building the railroad was founded in 1891. It completed the construction in three years, and the line became operational in 1894 under the Oriental Railways Company. The Ottoman Government pledged to guarantee a gross revenue

The Distribution of Foreign Direct Investment by Sector 85 of 14,300 francs per kilometer, with the tithe revenues from the Sanjaks (subprovinces) of Salonica and Monastir as collateral. The administration of this kilometric guarantee was left to the Ottoman Public Debt Administration. The company, with headquarters in Istanbul, was established as a joint stock company.34 Although the expenses of the line were 41 percent of its gross receipts in 1901, the Ottoman Government had to pay 291 pounds sterling per kilometer, or 63,777 pounds sterling in total guarantees.35 It was common knowledge that the Ottoman Government had, for some time, wanted a railway that would carry troops from Istanbul to Salonica. The French did not pass up this opportunity. René Baudouy, the banker of the French Embassy in Istanbul, succeeded in obtaining a 99-year concession for the construction of a railway line between Istanbul and Salonica with an imperial decree (firman) in 1892. The construction of the 510-kilometer line, which ran parallel to the sea, was completed in 1896. The Ottoman State had pledged a guarantee of 15,500 francs per kilometer. The tithes of the Sanjaks of Gumuljina, Seres, Drama, and Dedeagach were offered as collateral. As the tithe of Salonica had already been pledged as collateral for the Salonica–Monastir line, it was left out of this new construction.36 The Ottoman Public Debt Administration regulated the procedure for the guarantee payments made to the company. The Salonica–Constantinople Junction Railway Company (Société du Chemin de Fer Ottoman Jonction Salonique–Constantinople) was founded as an Ottoman joint stock company, but with headquarters in Paris. Due to sea transportation competition, the revenues of the railway remained limited, and the kilometric guarantee deficit was covered by the tithes.37 This line had a strategic importance and was therefore heavily subsidized by the Government. In 1901, its gross receipts were only 3,534 francs, so the Government had to pay a guarantee amounting to 11,900 francs per kilometer.38 Railways in Ottoman Asia The İzmir–Aydın and İzmir–Kasaba lines, built and operated by the British, were the first railways in Anatolia. In 1856, Edward Price, who represented a group of British merchants, was the first foreigner to obtain a concession for a railroad in Ottoman Asia. Due to financial problems, the construction of the railway was delayed, and the line became totally operational only in 1867.39 As the 130-kilometer line passed through densely populated and fertile lands, its location was very well chosen. However, the difficulties arising during the construction raised the costs. On 27 February 1858, The Times correspondent reported that the Turkish Government had shown ‘the best disposition to promote the work, and this was no small help in an

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Foreign Investment in the Ottoman Empire

undertaking which was looked upon by the natives with distrust as new things always are by an ignorant population.’40 A major problem was the application of the new expropriation law. When the Ottoman Government granted the Izmir–Aydın Railway concession, ‘a special and very fair law of expropriation was framed and published’. The first section of the railway passed through gardens that supplied produce to the town. When the land proprietors found that the railway would increase the value of the property around it, they started asking exorbitant prices. Soon, European speculators were involved as well. But the authorities overcame this problem by threatening to apply the new law strictly, and appraising the property based on the taxation value of the year preceding the grant of the railway concession. In the end, all the small proprietors accepted the offers of the company, which were higher than those set down by the law.41 In 1861, in the half-yearly meetings of the company in London, the chairman, Sir Macdonald Stephenson informed the shareholders about the completion and opening of 27 miles of the railway and incoming revenues. He also expressed his pleasure with the attitude of the Ottoman Government in conceding the request made by the Company’s Board for issuing 250,000 pounds’ worth of debentures at 6 percent, and for a further extension of three years to complete the work. The mountainous characteristics of the region delayed the construction, as tunnels and hill works took longer than expected. The chairman also said that ‘the Board had paid a just tribute to the steady and cordial support of the Turkish Government upon all occasions, and acknowledged their aid and assistance in surmounting the many difficulties which had been encountered.’42 In the meeting, the contractor, Mr Crampton, said that ‘no government could have acted in a more straightforward manner than the Turkish Government had acted towards them, and their kind feelings towards the undertaking was well known.’43 The Ottoman Government obliged the Izmir–Aydın Railway concessionaire, like the others, to leave a certain number of shares for native investors. There was a demand for the initial shares of the company beyond all expectations, and half the number of the shares was soon taken up. At the time, it was surprising ‘that it was not Pasha So-and-so, and Greek, Armenian, and Jew So-and-so, who asked for shares, except, perhaps, for one or two only for form’s sake, but it was Turkish middle classes, men who had a few piastres to spare, and who were attracted by the novelty.’ In order to facilitate the placing of shares, the Ottoman Government sent subscription lists to the army and to other government offices in the capital, as well as in the provinces, and by these means the remaining shares were soon taken up.44

The Distribution of Foreign Direct Investment by Sector 87 The initial kilometric guarantee of 72,000 pounds sterling was six percent of the initial capital of 1,200,000 pounds. During the first years, there was a disagreement between the Ottoman State and the Izmir–Aydın Railway (Ottoman Railway from Smyrna to Aidin Company) as to the calculation of the guarantee payments. The operating costs had risen to 74 percent of revenues, and share prices had fallen. However, the situation improved considerably after the extensions of the line were completed.45 In 1879, a new concession was obtained to extend the line in two directions: From Aydın to Sarayköy in the Menderes valley, and from Torbalı, on the existing line to Tire. The Convention of 30 April 1888 allowed the line to be extended up to Dinar, further inside Asia Minor.46 There were other smaller extensions carried out later. In another half-yearly meeting in 1863, the chairman said that although 48.5 miles of the railroad, between Izmir and Efes (Ephesus) was working satisfactorily, the competition from camel transportation continued. However, he expected that this competition would end with the completion of the railway. The camel owners understood the benefits of the railway, and had appreciated ‘the difficulty of completing the works under existing circumstances as well as the serious consequences of deferring their completion.’47 During the construction period, the Government continued to pay a 40,000 pounds guarantee per annum, payable on the completed and accepted works, and the full guarantee of operation of the line increased to 112,000 pounds per year.48 According to Pech, Edward Price obtained another concession, in 1863, to build a railroad between İzmir and Kasaba (Turgutlu). He immediately transferred this to a British company.49 The 98-kilometer line, which became operational in 1866, extended beyond İzmir to Bornova. The kilometric guarantee to be paid by the Ottoman Government was calculated at five percent of the 800,000 liras capital. Following an 1871 decree, this line was extended to Alaşehir with a 76-kilometer extension. However, the Government had stipulated that it would have the right to buy back this line in 1891. In 1888, the concession to build the Manisa–Soma railway was given to the owners of the İzmir–Kasaba (Smyrna–Cassaba) line without a guarantee. In 1893, the Ottoman Government used its option to buy back the İzmir–Kasaba line, using a 500,000 pounds sterling advance provided by Georges Nagelmackers who also secured a 99-year concession to operate the line and extend it from Alaşehir to Afyonkarahisar.50 This advance was secured by the 50 percent of the gross revenue the Government was to receive according to the agreement. If the revenues fell short of the annuity of the advance, 2,310,000 francs (92,400 pounds sterling), the Government

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would make up to the company any difference between the half of the gross revenue and the required annuity.51 In 1894, Nagelmackers transferred all his rights to the Paris-based Société Ottomane du Chemin de Fer de Smyrne– Cassaba et Prolongement. Since, in 1888, the Germans had obtained a railway concession to build an extensive railway network in Anatolia, the French wanted to take this line, not to lag behind the Germans. Moreover, they wanted to extend it so as to trade more effectively. Construction of this 251-kilometer Alaşehir–Afyonkarahisar extension started in 1894, and was completed at the end of 1897.52 The Ottoman Government, again, gave guarantees for gross revenues of 830.76 Ottoman liras (755.23 pounds sterling) per kilometer. At the turn of the century, revenues were still low, but expected to improve. The total expenses of the whole Smyrna–Cassaba and its extension line represented 52.34 percent of its gross receipts. This number was 41.17 percent for the Anatolian Railway, and 36.35 percent for the Izmir–Aydın Railway.53 The Mersin–Adana railway was built and initially operated by the British who eventually sold it to the French. Mehmet Nahib Bey, who was really Baron de Reinach, and Costa Teodoridi transferred the 99-year concession, which they had obtained from the Ottoman Government in 1883, to Baron Evain de Vendeuvre. Even though he was a French citizen, Vendeuvre established a British company with headquarters in London.54 The Tarsous– Taurus and Adana Railway Company, under British management, built the line which became operational in 1886.55 This line had been envisaged as a great project which would extend to Basra. However, the lack of confidence felt by the Ottomans about Britain’s goals, as well as the dwindling interest shown to the region by the British Government, led to the abandonment of the idea.56 The Ottoman Government had not given any guarantees to the company, which would sell its vehicles, stocks and equipment to the state in 1933. The four years that followed the opening of the line were plagued by exceptional drought alternating with floods and epidemic diseases such as cholera. The company kept losing money and was close to bankruptcy. With the efforts of Vendeuvre, the company’s capital was raised and its headquarters was moved to Istanbul.57 Before the Bagdad Railway Company was established, the Germans wanted to acquire the Mersin–Adana line and add it to the Anatolian Railway Company. After obtaining the concession of the Baghdad railway, their interest in the matter rose significantly. The share prices of the Mersin–Adana Railway Company were falling day by day, reaching absurdly low levels. Under these circumstances, the Germans bought the majority of the shares and acquired the control of the company.58 In 1906, the line was fully purchased and added to the Baghdad line.59

French Jaffa–Jerusalem Salonica–Istanbul Damascus–Hama & Extensions   Beirut–Damascus–Hauran  Rayak–Aleppo  Homs–Jarabulus Mudanya–Bursa German Anatolian Railways  Haydarpaşa–İzmit

British İzmir–Aydın   Aydın–Dinar–Eğridir  Tire–Ödemiş & Extensions İzmir–Kasaba   Kasaba–Alaşehir   Alaşehir–Afyon  Manisa–Soma   Soma–Bandırma Mersin–Adana Chernovoda–Constantza Varna–Rustchuk

92

87 510 188 247 331 102 42

130 342 137 98 75 251 92 190 67 66 220

1888

1888 1892 1891 1891 1891 1891 1872

1856 1879 1879 1863 1872 1884 1885 1888 1883 1856 1860

Length km Concession Date

1873

1892 1896 1894 1896 1902 1903 1892

1867 1879–1912 1883–1911 1866 1875–88 1894–96 1888 1890 1886 1860 1866

Opening Date

Continued overleaf

HQ: Istanbul Purchased from the Ottoman Government in 1888

HQ:Istanbul, Adm: Paris

HQ: Jaffa, Adm: Paris HQ: Istanbul, Adm: Paris HQ: Istanbul, Adm: Paris

Sold to the Germans in 1896 Ceded to Rumania in 1878 Remained in the Bulgarian Principality in 1878, ceded to Bulgaria in 1908

Sold to the French in 1894 HQ: Istanbul, Adm: Paris

HQ: London

Explanation

Table 4.2 Major Railways in the Ottoman Empire

1872 1870 1872–18 1872–88 1872–88 1872–88 1874

1312 102 318 243 106 149 244 119

1869

1904 1911 1912 1912 1918 1913 1914 1914 1912

1890 1902

486 445 9 219 2264 200 38 53 18 134 60 453 62 203

1893 1896 1898 1894

Opening Date

Founded as a French Company in 1870 in Paris. HQ moved to Vienna after the Congress of Berlin. In 1910 HQ moved to Istanbul.

HQ: Istanbul HQ: Istanbul

Explanation

Sources: E. Pech, Manuel des Sociétés Anonymes, 1911; A. Du Velay, Essai sur l’Histoire Financière, 1903; C. Morawitz, Les Finances de la Turquie, 1902; Le Groupement des Intérêts Français, Les Intérêts Financiers de la France, 1919; V. Eldem, Osmanlı Devletinin İktisadi Şartları, 1994.

  İzmit–Ankara   Eskişehir–Konya   Arifiye–Adapazarı Salonica–Monastir Baghdad Railway   Konya–Bulgurlu   Bulgurlu–Ulukışla   Ulukışla–Karapınar   Durak–Yenice   Ulukışla–Adana  Toprakkale–İskenderun   İslahiye–Resulayn   Baghdad–Samarra  Rayak–Aleppo–Karkamış Austria Oriental (Roumelia) Railways   Banialuka–Doberlin   İstanbul–Edirne   Edirne–Philipopoli–Belova  Tirnova–Yanboli   Edirne–Dedeağaç   Salonica–Uskub (Skopie)   Uskub–Mitrovitza

Length km Concession Date

The Distribution of Foreign Direct Investment by Sector 91 In Anatolia, the Mudanya–Bursa line, which had previously been built by the Ottoman State, was sold to foreign operators in 1891. During his trip to Europe, Sultan Abdulaziz, impressed by the railways he had seen, wanted similar systems in the Ottoman Empire. The construction of the Mudanya–Bursa line started in 1873 with an imperial decree (firman). A committee consisting of generals and colonels was assigned to control the project. The leveling and grading stage took about a year. Thereafter, the inspection of the rails to be laid was assigned to two French contractors, Laporte and Miribel.60 They were to complete the railway construction plan prepared by the Austrian engineer Wilhelm von Pressel. Due to financial difficulties the construction progressed slowly and came to a halt with the bankruptcy of the State. Yet, to complete the line an additional few thousands francs would have been sufficient.61 The Ottoman State had spent 4,200,000 francs for this 42-kilometer railway. Sixteen years later, in 1891, Georges Nagelmackers, president of Wagon-Lits, obtained a 99-year concession to extend and operate this line to Çitli. The State was paid only 500,000 francs for this line, and the remaining materials.62 Nagelmackers established the Société Ottomane du Chemin de Fer Moudania–Brousse (Moudania–Brousse Ottoman Railway Company). This company which became operational in 1892, had its headquarters in Paris, and the majority of its shareholders were in France.63 According to Karal, as the concessions were abused and became the subject of speculation leading to hostile rivalries among countries, and to inordinately high costs, the Ottoman Government decided, in 1871, not to give further railway concessions, and instead, to carry them out with state capital. The Haydarpaşa-Izmit line, which was then under construction, was completed in 1873, and was operated unsuccessfully by the State for a while. Finally, it was put to tender, and the operation contract was awarded to a consortium consisting of E. Seefelder, Charles S. Hanson and Co., W. J. Alt and G. D. Zafiropulo.64 In 1886, the Ottoman Ministry of Public Works made an offer to this contractor group to extend the line to Ankara, and later to Baghdad. This offer was renewed in 1888 with the full support of the Government. However, this group could not muster the capital required for such a venture, and subsequently, withdrew completely from railway projects. Sir Vincent Caillard, the chairman of the Ottoman Public Debt Administration, tried in vain to convince an Anglo-American group to construct the Istanbul–Baghdad railway. At that time, Alfred von Kaulla, who was in Istanbul for the sale of Mauser rifles to the Ministry of War, became interested in the project, and began to cooperate with Georg von Siemens, the director of the Deutsche Bank. Through the efforts of

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Foreign Investment in the Ottoman Empire

these two individuals, the Deutsche Bank established a group which made use of this opportunity by buying the Haydarpaşa–İzmit line and obtaining the concession for its extension to Ankara. The Ottoman State guaranteed a minimum annual revenue of 15,000 francs per kilometer. This sum was to be met from revenues collected by the Ottoman PDA in certain regions crossed by the railway. Thus, in March 1889, the Anatolian Railway Company (la Société du Chemin de Fer Ottoman d’Anatolie) became the first German company to construct railroads in the Ottoman dominions.65 Its initial capital of 45 million francs consisted of ninety thousand shares at 500 francs each. Later, additional capital of 15 million francs, made up of 30 thousand shares at 500 francs each, raised the total capital to 60 million francs. By 1899, 60 percent of these shares had been sold.66 The first loan of the Anatolian Railway Company was negotiated through the intermediation of the Zurich based Banque des Chemins de Fer Orientaux. Bonds worth 80 million francs were put on sale to European financial markets with one fourth going to Britain. As previously mentioned, in 1890, the Bank für Orientalische Eisenbahnen (Banque des Chemins de Fer Orientaux) had been established by the Deutsche Bank and the Wiener Bankverein to liquidate the credits of Baron Hirsch, and manage the Oriental Railways Company (Compagnie des Chemins de Fer Orientaux) in European Turkey.67 This organization, now became the holding company for all the Deutsche Bank’s railway enterprises in the Balkans and the Near East.68 Otto von Kühlman, the general manager of the Oriental Railways Company, became the director of the Anatolian Railways which played a leading role in the construction of railways in Asiatic Turkey.69 During those years, the Deutsche Bank increased its influence on railway business in both Anatolia and Roumelia. The construction of railways in Anatolia advanced at a speed that amazed both local and foreign observers. The actual construction work was undertaken by sub-contractors of various nationalities. According to the Major Law’s report, no single Englishman was employed on the line or in any way connected with the enterprise.70 Rails of up to 485 kilometers in length were laid as far as Ankara, and this line became operational in January 1893. This speedy progress created such a positive impression that the concession for building the 444-kilometer Eskişehir–Konya line was given to the Anatolian Railway Company in February 1893. The Europeans maintained that the Ottoman Government unilaterally overestimated the military value of the railways. Consequently, the guarantees were given only to lines which were of strategic importance, and rails with a narrow gauge were not allowed.71 The Konya line, too, was speedily completed, so that Istanbul

The Distribution of Foreign Direct Investment by Sector 93 and Konya were connected by rail in 1896.72 Following an agreement in 1898, the Anatolian Railway Company agreed to connect Adapazarı with the İzmit–Ankara line, and this nine-kilometer extension was completed in a year. The 1890s marked the era of German predominance over rail transportation in Anatolia. The fact that the Germans obtained the contracts to build the Haydarpaşa port and train station made the other European powers restless. They began to perceive that they were about to lose the commercial competition and that the German era in the Ottoman Empire had dawned.73 The Germans had laid about 1000 kilometers of railway in Anatolia in ten years. During that time, German capitalists placed their capital at the service of commerce, the shipping companies organized direct services from Hamburg, Bremen, and Antwerp to Istanbul, and hundreds of German salesmen studied the Ottoman markets and sold their goods. German exports to the Ottoman Empire, which were 11,700,000 marks in 1888, rose by 350 percent to 40,900,000 marks in 1893. Germany’s corresponding imports rose from 2,300,000 marks to 16,500,000 marks.74 Between 1896 and 1899, no work was done to extend the Anatolian railways further east. The major reason was Russia’s objection to railways being constructed in northern Anatolia. The Russians believed that the Ottoman State would become more powerful with the construction of railways, and threaten their interests. The Sultan had declared that railways would not be constructed on the border areas, but this did not satisfy the Russians. At the beginning of 1900, the Russian ambassador in Istanbul started putting pressure on the Government, and wanted the immediate disbursement of the deferred war indemnity payment of 57 million francs. As the Ottoman Treasury was in no position to pay this sum, the Sultan had to declare by a mandate (hattı hümayun) that the railway concession in northern Anatolia would be given to the Russians.75 Another factor that influenced German railway enterprise in Anatolia was Otto von Bismarck’s negative attitude towards the Ottoman Empire and a Turkish–German rapprochement. In a letter he wrote, on 2 September 1888, to von Siemens, the Director General of the Deutsche Bank, he warned the German entrepreneurs who would invest in railway construction in Asia Minor. The danger involved therein for German entrepreneurs must be assumed exclusively by the entrepreneurs, and the latter must not count upon the protection of the German Empire against eventualities connected with precarious enterprises in foreign countries.76

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Foreign Investment in the Ottoman Empire

Even the Kaiser wrote that ‘Bismarck spoke quite disdainfully of Turkey, of the men in high position there, and of conditions in that land’.77 However, the Kaiser did not share his opinion about the Ottoman Empire, and Bismarck failed to persuade the young emperor to abandon his trip to Istanbul in 1889. Bismarck thought that those parts of the Ottoman dominions inhabited by non-Turks should be divided up among the Great Powers, and that the Turks should be confined to a national state comprising Edirne, Istanbul and a limited part of Anatolia. When this idea was supported by von der Goltz, who had spent long years in Istanbul, certain Ottoman officials became suspicious about Germany’s policies.78 Meanwhile, German experts published books which maintained that Ottoman Asia would be an ideal place to colonize.79 These publications concerned other foreigners, especially the French. If a railway, which would extend all the way to Baghdad, was constructed by the Germans, or by a company dominated by them, it would greatly strengthen German influence in the Ottoman Empire at the expense of other European powers. In 1898 and 1899, the Ottoman Public Works Ministry received many applications from those interested in building a railway to Baghdad. The international competition became so intense that there were now projects that went well beyond the initial plans. Among the various projects there was the idea of connecting Basra, on the Persian Gulf, with the Red Sea. Even the Russians, who were very meticulous about keeping Russian financial capital in Russia, took part in this competition.80 The French Foreign Ministry had declared that if French investors were on an equal footing with their German counterparts, in terms of ownership, management and construction, they would not object to the construction of the line. However, Constans, the French ambassador in Istanbul, believed that the French would gain even in a minority position. The Deutsche Bank administrators likewise believed that they would benefit from the financial and political support of the French. After the failure of their attempt to come to a satisfactory agreement with the British Izmir–Aydın Railway, the Anatolian Railways, after long negotiations, came to an agreement with the French Izmir–Kasaba Company, whose line connected the Anatolian’s Konya line to Izmir. In 1899 an agreement was struck in Berlin, after negotiations among the Deutsche Bank, the administrators of the Anatolian Railways Company, the Ottoman Bank, which represented French interests, and the representative of the İzmir–Kasaba Railway Company. Accordingly, German and French banks would have shares of 40 percent each, in terms of the administration and capital of the company, while the remaining 20 percent would be left to Ottoman investors. The Anatolian Railways Company and

The Distribution of Foreign Direct Investment by Sector 95 the İzmir–Kasaba Railway Company would co-operate in uniting lines that were very close to one another, and implementing the same rates. For better co-ordination, the directors of the two companies would also be members of both boards of directors.81 Certain French authors immediately concluded that there was really no equality. According to Chéradame ‘the lack of proportion was tantamount to the exchange of two soldiers between an army of 10,000 men and another one of 100,000 men’.82 Both the French and observers of other countries claimed that Constans, the French Ambassador, had a vested interest in this business. In an article of 16 April 1903, the Russian newspaper Novoe Vremya wrote that shares of the Baghdad Railway Company were given to Constans. Léon Pissard, who was a close friend and financial intermediary of Constans, was appointed to the Board of Directors of the Baghdad Railway Company. This was shown as an evidence of the personal financial involvement of the ambassador.83 Although only temporarily, this agreement had ended French objections. Meanwhile, the British, perhaps concluding that they could no longer hinder the construction of the Baghdad line, worked intensively on a rail project which would connect İskenderun (Alexandretta) with the Persian Gulf. The liberal conditions offered by the British enabled them to get the approval of the Ottoman Ministry of Public Works. However, with the start of the Boer War in October 1899, the British turned their attention to South Africa. On 27 November 1899, the Sultan declared that the concession for the Konya–Baghdad railroad would be given to the Deutsche Bank.84 It was not only the foreigners who found this objectionable – so did some Ottoman bureaucrats. The debates will be examined in the next chapter, dealing with views towards foreign investment. While the Ottoman and German statesmen and diplomats were wrangling on political issues, the Ottoman Ministry of Public Works, the Deutsche Bank and the Anatolian Railway Company were trying to solve the financial problems involved. The division of the capital and administration of the company to be established created strains between Germany and France and bargaining rounds which were to last for many years. Finally, a decree (irade) signed on 16 January 1902 by Sultan Abdulhamit gave the concession for building the railway solely to the Anatolian Railway Company and sought a compromise with the French investors. According to certain sources, the Sultan had promised the German Ambassador, Marschall, that the administration of the new company would be given to the Germans.85 Meanwhile the Ottoman Public Works Ministry and the Anatolian Railway Company prepared an agreement about the execution of the Baghdad railway project. This agreement was signed, on 21 January 1902,

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Foreign Investment in the Ottoman Empire

by the Public Works Minister Zihni Pasha and Kurt Zander, the Director General of the Anatolian Railway Company. The Deutsche Bank’s concession was officially approved.86 The Société Impériale Ottomane du Chemin de Fer de Bagdad was established, on 13 April 1903, as an Ottoman Company after delays because of financial and administrative problems.87 According to the agreement, the board of directors would consist of eleven members. Three of them would be appointed by the Anatolian Railway Company and at least three others would be selected from among Ottoman subjects. The total capital was 15 billion francs, of which ten percent was given to the Anatolian Railway Company.88 The British hotly debated the economic, political and moral consequences of an involvement, by investing capital, in the Baghdad Railway project in their Parliament and the press. According to Vice-Consul Waugh’s report to the Foreign Office, these were of such a nature that the entire management of the line was ‘secured in German hands’, and was ‘independent of nationality of the capital which may be raised to build the line’. He also emphasized that it might be assumed the power thus obtained would be used for the benefit of German goods transported by the line.89 The Economist had doubts about the completion of this line because of financial and political difficulties. Association with this project involved ‘possibilities of embarrassment’ and British interests in regions recognized as being of such vital importance such as the Persian Gulf would be guarded much more effectively by preserving their liberty of action.90 An editorial article in The Manchester Guardian criticized the Prime Minister, Balfour, writing that his recent statements would inspire considerable uneasiness, as they seemed to imply his country taking an active part in promoting this very ambitious German enterprise, at the risk of entangling itself in a quarrel with Russia about Asiatic Turkey. The article stated: Mr. Balfour used guarded language and denied that he was negotiating with the German Government, but he went on to declare his belief that ‘this great international artery had better be in the hands of three great countries than in the hands of two, or of one great country,’ just as if the German Government were going to control the line and had asked us to take a share in it.91 The Manchester Guardian also wrote about the willingness of English financiers to participate in the Baghdad railway scheme. They pointed out that the financial and economic scheme ‘has, however, been blasted by political considerations.’ The paper predicted much slower progress of the construction without British participation. It wrote:

The Distribution of Foreign Direct Investment by Sector 97 It is thought that France and Germany will provide the necessary capital. Russia, which, besides being short of money, is opposed to the railway, will certainly not do so. In a word, the realization of the scheme has become suddenly doubtful.92 Since the railway was going through an underdeveloped region, it was thought the traffic would not increase very quickly. Thus, the Ottoman Government undertook to contribute generously to the construction and operation budgets. For every kilometer of railway constructed, the State would give the company government bonds with a nominal value of 275,000 francs. This loan was secured by a first mortgage on the railway and its properties.93 The State would pay a kilometric guarantee of 12 thousand francs for the use of capital and 4,500 francs for participating in operational expenses amounting to an annual total of 16,500 francs (Article 35 of the Convention). Should, however, the operational revenues be in the range of 4,500 to 10,000 francs, the part above 4,500 francs would be left to the State. Should they exceed ten thousand francs, 60 percent would go to the State and the remaining 40 percent would be left to the company. According to Article 37 of the Convention the State would pay the company, for a period of 30 years, 350,000 francs per year to meet upgrading costs the Anatolian Railway Company would need for express transportation to the Persian Gulf. Moreover, during the concession period, another annual payment of 350,000 francs would be made after the new line reached Aleppo.94 The other important clauses of the Baghdad Railway Convention may be summarized as follows: • The right of passage through government lands would be granted freely to the concessionaire (Article 6). • The concessionaire would have the right to exploit the mines within a zone of twenty kilometers on each side of the line, provided the concession to mine had not been granted previously to another party. Likewise, the company was granted the right to exploit the forests and obtain wood and coal in these areas (Article 22). • The company had the right to build and operate ports and storage facilities in Baghdad, on the Tigris, in Basra, and other points in the Persian Gulf (Article 23). • The company would produce electricity, by building dams or by using natural waterfalls, to light up railway stations and for other operation activities (Article 25). • Even though antiquities and works of art were subject to the Antiquities

98

Foreign Investment in the Ottoman Empire

Law, the concessionaire did not have to get permission to conduct research on archeological discoveries (Article 27). • During the period of construction, necessary items such as machinery, equipment, wood, iron and coal would not be subject to any tax or import duty, whether bought locally or imported. Moreover, even after the line became operational, the company would not pay taxes for the coal it purchased, should the revenues remain below the guaranteed level (Article 8).95 The convention clauses granted to the Baghdad Railway Company were extraordinary. That is why E. M. Earle wrote that the Sultan had mortgaged his empire.96 According to Article 3 of the Convention, the railway to be constructed was divided into independent parts of 200 kilometers each. The 200-kilometer part between Konya and Bulgurlu was completed in less than a year, and became operational in the autumn of 1904. However, after Bulgurlu, it would take more time and money to cross the Taurus Mountains and reach the plain of Adana. The Ottoman State did not have the financial power to issue new bonds. Still, in 1908, after an improvement in government revenues and the completion of the Young Turk Revolution, construction started on various parts of the line. The Porte was able to pay the company in bonds by installments. This loan was secured on the surplus of the six taxes ceded to the PDA for the service of the debt, and the Bulgarian, Roumelian and Cyprus tribute, together with the sheep tax in the three provinces through which the line passes.97 In 1910–11 progress was made in the vicinity of Adana. In 1912, the line reached Aleppo, and in 1913, the İskenderun connection was completed. Meanwhile, the Haydarpaşa Port Company had obtained a concession for building the port of İskenderun. This company, with close ties to the Deutsche Bank, had various projects such as irrigation in the Adana plain, the drainage of swamps in the vicinity of İskenderun, and the construction of roads in Mersin. However, as new capital could not be found, these projects were deferred, and the resources at hand were directed to the Baghdad Railway.98 As the First World war started in 1914, 1060 kilometers of rails, not necessarily connected, had been laid beyond Konya.99 Construction continued during the war with the completion of the Taurus and Amanos tunnels. However, the connection of Western Europe to Baghdad was realized only in 1940 after the completion of lines in northern Iraq.100 Concessions were granted to build railways in the province of Syria, but until the 1890s these were not followed up. In 1888, Youssouf Navon Efendi obtained a 71-year concession. This entrepreneur did not have the

The Distribution of Foreign Direct Investment by Sector 99 necessary capital. He convinced Bernard Collas, the Director of the Ottoman Lighthouses Company to invest, and in 1889, transferred the concession to the Société du Chemin de Fer Ottoman de Jaffa à Jérusalem (Ottoman Railway Company from Jaffa to Jerusalem). The real purpose of this line, unlike the previous ones whose purpose was to carry merchandise, was to shuttle the large numbers of non-Muslim pilgrims, visiting the Holy Land, from the Port of Jaffa to Jerusalem.101 A Swiss sub-contractor, whose technical department was under the direction of an Ottoman Greek, completed the 87-kilometer line in 1892. Due to mistakes during construction, the line was closed to traffic in 1894. Later, even though the problems were not totally eliminated, it continued to operate under new management.102 The French owned the totality of the shares and bonds issued by this company. Since there were no government guarantees, this line did not prosper.103 In the spring of 1890, Joseph Moutran obtained a concession to run a steam-powered tramway (streetcar) between Damascus and Havran (Museyrib). Later, with French and Belgian capital the Société Ottomane des Tramways de Damas et Voies Ferrées Economiques en Syrie was founded. In another case in 1891, Hassan Beyhoum Efendi, a Beirut notable, obtained a 99-year concession for a railway operation between Beirut and Damascus. With French capital, he established the Société Anonyme Ottomane de la Voie Ferrée Economique de Beyrouth à Damas. The company’s intention was to lay rails on the Beirut–Damascus road. In 1892, these two companies merged under the name of Compagnie des Chemins de Fer Ottomans Economiques de Beyrouth–Damas–Havran en Syrie.104 The capital of 10 million francs consisted of 20,000 shares worth 500 francs each. The shareholders of the Beirut–Damascus Road Company were given 12,000 of these shares in return for their rights in the previous company.105 In 1893, with a new decree, Birecik on the Euphrates (Fırat) the last point on the line was added. The company increased its capital by issuing 10,000 more shares, and transferred its Moutran concession to a new company that was established in Paris under the aegis of the Ottoman Bank. However, there were also Swiss and Belgian banks among the participants. Despite several technical and financial problems, the Damascus–Havran and the Beirut–Damascus lines were completed. Concessions were obtained to extend the line to Hama and Aleppo via Rayak and to connect Homs to Tripoli-in-Syria. The Rayak–Hama line became operational in 1903 and the Rayak–Aleppo and the Tripoli–Homs lines were in service in 1906 and 1911 respectively. The French started to claim that the Baghdad Railway and its extensions were damaging the Hama–Damascus line even though the Ottoman State had not yet given permission for the Hama– Aleppo line. However, with the intermediation of Constans, the French

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Foreign Investment in the Ottoman Empire

Ambassador, a concession was granted in 1900 for the construction of the Rayak–Hama line to placate the French who were indignant about the leaving of Baghdad Railway to the Germans.106 The kilometric guarantee which was fixed at a maximum of 12,500 francs was raised by an additional 2,500 francs until the connection with the Baghdad Railway was completed. In 1905, the kilometric guarantee for this entire line was fixed at 13,600 francs.107 Later, in 1901 and 1908, disagreements arose during the construction of the Hejaz railway which was built solely by the Ottoman State. The government wanted to unite the Hejaz line with the Damascus line, and purchase the section between Damascus and Muzeyrib. However, when the French company demanded an exorbitant price, the Hejaz Railway Company decided to remain apart from the French-owned railway. In 1902, the Hejaz Railway Company bought from the British Syrian Railway Company an uncompleted line with only eight kilometers built, which the British had worked on between 1892 and 1898 and later abandoned. The Ottomans started to build a railway parallel to that of the French. In 1902, the French claiming that the Hejaz Railway was creating losses for them, asked to be indemnified. After much wrangling which lasted until 1905, the Ottoman State had to pay an indemnity of 3,400,000 francs to the French, in addition to giving them the permission to build a railway between Hama and Aleppo.108 Banks and Insurance Companies Modern banking is an institution that is essential for economic change and growth. However, it is sometimes debated whether banking is a factor which promotes economic growth or is a result of it. Actually, there is a reciprocal effect. Changes in the economy lead the way for new financial service products to meet the needs of these changes and, in turn, these new services influence economic development. From 1889 to the Tripolitanian War of 1911, the Ottoman economy displayed sustainable growth in all sectors, although comparatively less than Western Europe and America.109 During this period, there was a flurry of railway construction, and corresponding facilitation in the trade in merchandise. The rise of German investments and influence led other countries, which were alarmed by this competition, to counter it by obtaining further concessions in various sectors such as transportation, mining and commerce. In general, service firms, more likely to be large in size, followed the industrial and commercial firms of their country, and continued to provide similar services worldwide. For this reason, after the establishment of the Ottoman Public Debt Administration, which augured security for European creditors, the interest of banking and insurance companies in the Ottoman financial sector kept growing.

The Distribution of Foreign Direct Investment by Sector 101 Du Velay mentions that during Sultan Abdulaziz’s reign (1861–76), there were seven foreign banks.110 The most important, no doubt, was the Ottoman Bank. As explained in Chapters 2 and 3, the British wanted to establish a bank which would facilitate free trade, and in 1856, they founded the Ottoman Bank with British capital. However, the Ottomans had expectations that were well beyond the stated purpose of the bank. The State expected the bank to perform duties such as mediation on behalf of the Ottoman Government’s loans. In fact, in a society where people did not trust others for the safekeeping of their money, deposit banking had not taken root. Nevertheless, this bank opened up a branch in İzmir, a month later, and another one in Beirut after a few months. The bank earned enough revenues from its commercial activities. Shortly after its founding, the bank declared that there was a need for a state bank, and the necessity of British and French capital became evident. In the end, this bank was liquidated in 1863 to give way to the establishment of the second Ottoman Bank (La Banque Impériale Ottomane).111 The shares of British and French investors were more or less the same. While the headquarters of the bank was in Istanbul, it was controlled by two committees, one in Paris and the other in London. Until the end of the 1880s, the Ottoman Bank had served as a state bank. As the British lost their influence for political reasons, the French acquired the majority of the Bank’s shares and the committee in Paris dominated its administration. From the 1890s, when other foreign banks showed interest in the Ottoman Empire and created competition, the Ottoman Bank opened branches in various other places, in addition to Istanbul and other large commercial centers. In 1914, there were 14 branches in Roumelia, 43 in Anatolia, two on the Aegean Islands, four in Cyprus, 15 in Syria, four in Iraq, two in North Africa, two in Arabia, and three in Egypt, in addition to the central office and the two branches in Istanbul.112 Egypt was the first Ottoman land in which the British established a bank. In 1855, the Bank of Egypt was founded with the support of a capitalist group comprising a Greek merchant from İzmir and the directors of institutions like the East India Company, the London and Westminster Bank and the Oriental Banking Corporation. As this bank was the first joint stock (limited) company established by the British on foreign soil, the most careful inquiries were made by the British Government before the royal charter was granted. The British Treasury was made responsible for ‘an indefinite kind of general supervision of the bank’s affairs’.113 All essential provisions of this charter constituted a precedent example for the royal charter of the Ottoman Bank. The main services rendered by the Bank of Egypt were

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Foreign Investment in the Ottoman Empire

to lend money at high interest rates to the Viceroy (Khedive or hereditary governor) of Egypt and his entourage. Another important responsibility of the bank was to transfer to England the Egyptian tribute mortgaged as security for the first Ottoman loan of 1854. All these profitable activities enabled the bank to pay seven percent dividend to its shareholders during the first years. The expansion of cotton growing during the American Civil War, the Suez Canal project, and the spendthrift habits of the Viceroy made banking in Egypt an attractive venture. In consequence, the Anglo-Egyptian Bank was founded in 1864.114 The major banking institutions in Istanbul during Sultan Abdulaziz’s reign were the Ottoman Financial Association (British), Banque de Constantinople (British), Crédit Général Ottoman (French), Société Générale de l’Empire Ottoman (British, French and local bankers), and Banque Austro-Ottomane (Austrian majority) and Banque Austro-Turque (Austrian majority). The Austrian banks lasted only a few years during the 1870s. The others were active until the late 1890s.115 Crédit Lyonnais, which opened its first office in Istanbul in 1874, was the most important French bank before the First World War. In 1896, this bank also had branches in İzmir, Jerusalem, Jaffa, Alexandria, Cairo, and Port Said.116 Moreover, the French banks arranged credit syndicates for the Ottoman state loans. Between 1881 and 1914, 24 out of 34 important operations were performed or directed by French banks.117 The Banque d’Orient, which was established with French capital in Athens in 1904, was active in the important centers of the Ottoman Empire. It had branches in İzmir, Salonica, Alexandria and Cairo. It also had representatives in Monastir, Mitilini, Seres, Manisa, and Bergama.118 In 1888, the Banque de Salonique was founded as an Ottoman joint stock company with the participation of three banks, from France, Austria and Hungary, as well as businessmen from Salonica. In 1911, it had branches in Istanbul, Monastir, Cavalla, Skopje (Üsküb), Edirne, Beirut, Dedeagaç, Drama, Samsun, Yenice and İzmir. Its initial capital of 2 million francs rose to 5 million francs in 1905.119 The headquarters of the bank moved to Istanbul in 1912, due to the loss of Salonica to Greece during the Balkan War. At the end of the nineteenth century, the Deutsche Bank opened branches to serve German businessmen in several important trade centers, the larger ones being in Istanbul and Aleppo. Germany’s trading was therefore no longer dependent on British banking establishments. With the support of the German Government, the Deutsche Bank encouraged industrial and commercial activities in the Ottoman dominions. It had a large share in the construction of railways in Anatolia. In 1899, a group of German financiers

The Distribution of Foreign Direct Investment by Sector 103 established the Deutsche Palästina Bank. This, the first German Bank in the eastern Mediterranean, had branches in Beirut, Adana, Damascus, Gaza, Haifa, Jaffa, Jerusalem, Nablus, Nazareth and Tripoli-in-Syria.120 In 1906, the Deutsche Orientbank was established with the partnership of the Dresdner Bank, the Schaffhauerischer Bankverein, and the Nationalbank für Deutschland. It was registered by the German Consulate in Istanbul as a German joint stock company. Its headquarters was in Berlin and it had branches in Istanbul (the old city, Pera and Kadıköy), Cairo, Alexandria, Bursa, Edirne, Dedeağaç, Mersin, Adana, Aleppo and Hamburg.121 The Deutsche Palästina Bank merged with the Deutsche Orientbank in 1914.122 The Wiener Bankverein, founded in 1869, had only one Ottoman branch in Istanbul. Almost all of the other branches were in the Austro-Hungarian Empire.123 The Banque de Mételin, founded in 1891 as an Ottoman joint stock company, was considered by certain authors as a foreign bank with solely Greek capital.124 Pech’s 1906 edition shows its headquarters to be in the Aegean Island of Mitilini (Midilli), but in the 1911 edition it is in Istanbul, with branches in Mitilini, İzmir, Alexandria, Salonica and Athens, and smaller offices in Dikili, Nazilli, Söke, Ayvalık, Mont-Athos, Chio, Plumari and Ayosso.125 The Industrial Credit Bank of Greece, founded in 1873 in Athens, opened a branch in Istanbul in 1905, and a year later, it was bought by the Bank of Athens. It continued its operations in Istanbul and in İzmir until 1922.126 The British did not play an important role in the banking sector. The Anglo-Palestina Company Limited was established by the Jewish Colonial Trust of London in 1902 to facilitate the Jewish settlements there rather than serving British merchants. Although its official headquarters were shown to be in London they were actually in Jaffa, with branches in Jerusalem, Hebron and Beirut. In Jaffa, they had built a Jewish quarter, where people with moderate means could become owners of their own homes by payments spread over eighteen years.127 They also provided the means for building Jewish schools, the National Library and Museum and establishing an agricultural experimental station.128 The Anglo-Levantine Banking Company Limited started in 1908, as an off-shoot of the Jewish Colonial Trust to perform similar financial operations in Eastern and Central Europe and the Ottoman Empire. Although registered in London, its Istanbul office served as headquarters.129 In the Zionist Conference of 1912, Dr Victor Jacobsen, manager of the Anglo-Levantine Banking Company, presented the political aspects of the Zionist movement, and talked about an era of increasing liberty since 1908 with favorable expectations to their movement.130

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In 1909, three more foreign bank branches began to operate in Istanbul. The most important of these was the National Bank of Turkey, established through the efforts of Sir Ernest Cassel, and affiliated with the British Trade Corporation. The general unwillingness of the British to lend their savings to Turkey seriously hampered the efforts of this bank which was involved only in two bond issues – one for the City of Istanbul and the other for the Treasury.131 Another bank, which started in 1909, was the Banco di Roma. Its goal was not only to perform commercial banking but also to extend Italy’s financial influence into the Ottoman Empire.132 Before this, in the early 1900s, the Società Commerciale d’Oriente, with headquarters in Venice, had opened a branch in Istanbul to serve Italian merchants.133 Although the Russians opened an Istanbul branch of the Russian Bank for Foreign Commerce in 1909, due to the political situation in Russia its activities remained limited.134 The Crédit Foncier d’Orient of France, established in Istanbul in 1910 with a 75-year concession, was generally in the mortgage lending business.135 At the beginning of the twentieth century, these foreign banks went through a transformation that placed three types of activity in the limelight. These were (1) conditional borrowing, (2) the creation of industrial enterprise through a partnership with other foreign bankers, and (3) the establishment of financial groups aiming to support the industrial firms of their country.136 Lending countries not only wanted to be the sole concessionaires but also would not allow the loans to be used for the purchases of equipment from other countries. They would openly state: ‘the money you borrow from us can only be used to purchase our goods or to grant concessions to our investors’. The banks of the creditor countries would proceed according to this policy. The French and the Germans would incriminate each other for this ‘conditional lending’.137 However, this national teamwork benefited everyone involved. On the other hand, when it suited their interests, these foreign banks could garner investors from various countries to realize an industrial enterprise. For instance, the Ottoman Bank had established the Istanbul Port Company to run the port of Istanbul as a joint Anglo-French venture. The Turkish Petroleum Company was founded in 1912 with the Anglo-Dutch participation at 70 percent, while the Germans had 25 percent and the rest consisted of numerous countries with smaller shares. The National Bank of Turkey was the promoter of this multinational partnership.138 Also, foreign banks would provide financial support to their national industrial and commercial firms. For example, the Deutsche Bank provided financial support to the Anatolian Railways and the Baghdad Railways while the

The Distribution of Foreign Direct Investment by Sector 105 Table 4.3 Major Foreign Banks in the Ottoman Empire Bank

Headquarters

Banks with HQs in the Ottoman Empire Ottoman Bank Istanbul Salonica Banque de Saloniquec The National Bank Istanbul   of Turkey Soc. Commerciale Istanbul   D’Oriente d Banque de Mételin Mitilini

Opening Nationalityb datea

Number of branches

1863 1888

B, F F, A, H, O

66 14

1909

B

 1

1911

I

 1

1891

Gr

11

G G G A B

 2 11 11  1 4 or 5

B

 1

Gr

13

Gr

 9

F

 6

R

 1

I

 2

Banks with Branches in the Ottoman Empire Deutsche Bank Berlin 1888 Deutsche Palästina Bank Berlin 1899 Deutsche Orient Bank Berlin 1906 Wiener Bank Vienna Anglo Palastina Co. Ltd. London 1902 Anglo-Levantine London 1908   Bank. Co. Banque d’Athènes   (former Industrial Athens 1905   Credit Bank) Banque d’Orient Athens 1904 Banks with Representatives in the Ottoman Empire Crédit Lyonnais Lyon 1871 Banque Russe pour le St. Petersburg 1909   Commerce Etranger Banco di Roma Rome 1909

Notes: a Opening date in the Ottoman Empire. b  A – Austria; B – British; F – French; G – German; Gr – Greek;   H – Hungarian; I – Italian; R – Russian; O – Ottoman. c Headquarters moved to Istanbul in 1912. d Headquarters moved to Istanbul shortly after opening. Sources: E. Pech, Manuel des Sociétés Anonymes, 1911; J. Thobie, ‘Les Banques Etrangères à la Fin de l’Empire Ottoman’, 1995; C. Clay, ‘The Origins of Modern Banking in the Levant’, 1994; J. Ducruet, Les Capitaux Européens au Proche-Orient, 1964; G.B. Ravndal, Turkey, A Commercial and Industrial Handbook, 1926.

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Ottoman Bank arranged the provision of the tobacco monopoly to a French firm La Régie Cointéressée des Tabacs de l’Empire Ottoman. Ravndal explained the role of foreign banks as follows: Almost every one of these foreign banks has its history, sometimes secret but more often known, of foreign political intrigue for a share in the partition of the estate of the quondam ‘Sick Man of Europe.’ Every one of them has reaped large profits in promoting the trade of the country it has represented. None has worked with singleness of purpose for the prosperity of Turkey – that has always remained an incidental consideration. This concentration of capital in foreign hands has undoubtedly constituted a serious handicap to Turkey. However, it may safely be stated that the absence of such foreign concentrations of capital would have left the country in a much worse plight than it now finds itself.139 A few years earlier, Eliot Grinnell Mears wrote that the banking system which developed in the Ottoman Empire was a patchwork of different foreign banking practices. A foreign banking authority in Istanbul compared the banks to ‘glorified money changers’. Mears added that these banks were never on cordial terms with each other and ‘at no time have they pooled their unquestioned strength in the stabilization or improvement of local financial, industrial, and commercial conditions’.140 While modern insurance came into existence in Europe in the seventeenth century, it reached the Ottoman Empire only in the nineteenth century. As the Ottoman foundations and trade guilds provided society with some security, limited though it be, the public did not develop an interest in insurance services. Moreover, Islam brought various limitations to insurance, borrowings and security markets. The particularities of an insurance contract sufficed to ban it. When asked whether life insurance was admissible, the Supreme Religious Council of Judges (Kadis) in Istanbul issued a fetva which declared ‘the acceptance of the insurance money as permissible only in cases where the insurance company was located in a foreign country and the policy was issued abroad.’141 An author of the Sırat-ı Müstakim magazine, published in Istanbul, expressed the opinion that only fire insurance was admissible, and that municipalities should collect taxes to be used as a security blanket against conflagrations. Thus, insurance would serve the public interest, and fall in line with Islamic law (Şeriat).142 On the other hand, a book published in 1914, in Istanbul, described insurance as ‘one of the most absurd manifestations of the modern materialistic mentality.’ The

The Distribution of Foreign Direct Investment by Sector 107 author asked ‘if property was lost or burned it was God’s will, hence what was the use of insuring?’. He said also that insurance was an invalid and void transaction according to Islamic law since the transaction involved only a probability, and what was bought and sold did not exist.143 Thus, insurance services were used for a long time by foreigners who dealt with trade and transportation in the Ottoman Empire. The importance of maritime transportation became paramount as foreign trade rose. The earliest insurance company known in the Empire was the Neos Triton which was active in Istanbul from 1848 on.144 This company and a few others started their operations without the consent of the Government. In the 1863 Maritime Trade Code, certain clauses regulated insurance for the first time.145 At the very beginning of the 1860s, when the cultivation and trade of cotton increased, the efforts of the British to establish a company which would insure the goods against fire during storage and transportation came to nil. In 1863, however, the Sun Fire Office, to become the Sun Insurance Office later in 1891, opened an office to serve the British merchants.146 In the great fire of Beyoğlu (Pera) in 1870, the properties devastated were owned mostly by minorities. Following that event, there was an increase in the number of foreign insurance company agencies in Istanbul. Though the British were the first comers, the French eventually overtook them. According to a report prepared by the French Chamber of Commerce in 1907, eight French companies, namely La Confiance, Compagnie d’Assurances Générales Maritimes Française, La Foncière, Le Phénix, L’Urbaine, La Mutuelle de France et des Colonies, La Mutuelle Lyonnaise and La Nationale, had agencies in Istanbul. On the other hand, seven French companies, L’Abeille, La Caisse Paternelle, La Célérité, La Paternelle, La Populaire, L’Union, and L’Union et le Phénix Espagnol, were represented in the Ottoman Empire by non-French foreigners.147 L’Union had started insurance activities in 1891, and from 1900 made an inroad into life insurance, opening representative offices in the major Ottoman cities.148 The Assicurazioni Generali, which was established in 1831 in the port of Trieste in the Austro-Hungarian Empire, opened its first agency in Istanbul in 1863. With the outbreak of the First World War, British and French shares in the Ottoman General Insurance Company were taken over by the Assicurazioni Generali, whose home country was an ally of the Ottomans during the war.149 The first fully-fledged insurance company in the Ottoman Empire was established with foreign capital. According to an imperial decree (firman) of April 1892, a 30-year concession was given to a company for the insurance and reinsurance of risks related to fire, transportation and life both within

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and outside the Ottoman dominions. Thus, the Ottoman General Insurance Company was established in 1893 through the partnership of the Ottoman Bank, the tobacco monopoly (La Régie des Tabacs) and the Ottoman Public Debt Administration.150 The Ottoman Bank branches spread throughout the Empire and the offices of the Régie des Tabacs acted as agencies for this company. The Ottoman General Insurance Company joined efforts with the 43 foreign insurance companies in the Empire in order to streamline insurance procedures. From 1900, these insurance companies started to charge fixed insurance fees. According to Ravndal, secretive operations and price fixings made these firms very profitable despite all the risks and damage they had to take care of.151 With the First World War, the Ottoman Government was instrumental in the transfer of British- and French-owned shares in the Ottoman General Insurance Company to the Assicurazioni Generali. The company continued its insurance operations under its new name, Istanbul General Insurance Company (Istanbul Umum Sigorta Şirketi) until the sale of the company in 1979.152 Just before the War, 247 foreign insurance companies were active in the Empire. Among them, 99 were fire insurance, 76 marine insurance and 72 life insurance companies. They had 1,071 agencies in the country.153 The majority of the foreigners consisted of British, French and German firms, with a small number from Switzerland, Austria, and Italy. During the armistice years, the number of insurance companies saw a further increase, and American insurance companies made inroads into the Turkish market.154 Ports and Docks In the nineteenth century, even the most important Ottoman ports proved to be insufficient to meet the rising volume of trade. For this reason, those who had the greatest interest in improving and expanding the ports were foreign traders. In 1867, the British obtained a concession for expanding the docks of İzmir but, as it was explained in the previous chapter, it was the French who constructed and operated the port. The ports of Istanbul, Beirut and Salonica were built mostly with French capital. At this point, the history of the Istanbul Quays Company is of significant interest and relevance. In 1879, Marius Michel, the builder and general manager of the Lighthouse Administration of the Ottoman Empire, secured a concession for the construction and operation of ports on both sides of the entrance of the Golden Horn – Galata and Stamboul. It was reported that this new project of Marius Michel, who had become Michel Pasha that year, faced objections from the British ambassador in Istanbul, as had previously been the case during the construction and operation of the lighthouses.155 The British

The Distribution of Foreign Direct Investment by Sector 109 saw several problems with ‘the great Michel quay scheme’. The Manchester Guardian (2 January 1880) reported the intrigue of some Ottoman officials for nullifying the most sensitive privileges of the concession.156 First of all, it would be impossible to estimate the correct cost of such a gigantic enterprise until the work was underway. Even if the Government ceded its right to the foreshore, which would have been of great value to the concessionaire, there still existed difficulties in gaining land from the sea at the entrance of the Golden Horn. Although the Izmir quay scheme had, in the end, been a financial success, with the Dussaud brothers reclaiming a large amount of valuable land from the sea to be used as building sites, this would not be possible in Istanbul. The waters of the Golden Horn were too deep and their bottom was unsuitably treacherous for filling in. Moreover, it would be necessary to destroy valuable property for the port construction on this site, where expropriation was most difficult. Unless the Great Powers were willing to favor the scheme, the project was beset with many difficulties.157 Since Istanbul was a large port of entry not only for its neighboring regions, but also for consumption in the Balkan peninsula and Asia Minor, and even as far as Persia, the project was rendered profitable by both the concessionaire and the adversaries. However, the work was delayed until Michel Pasha received a new concession in 1890, and then formed the Société Anonyme Ottomane des Quais, Docks et Entrepôts de Constantinople in 1891.158 Apparently, the company was registered in June 1894, as Pech stated in his manual of the Ottoman joint stock companies. The concession included: 1 The construction and operation of quays on both shores of the Golden Horn. 2 The establishment of customs warehouses and free docks with the privilege of issuing their own warrants. 3 A service of steam boats for carrying merchandise as well as passengers within the concession zone. 4 Installation of tramways along the quays. 5 Utilization (by selling) of the land reclaimed from the sea, when not affecting public services. The company was to hand over 10 percent of the gross operating revenues to the Imperial Government.159 It had 36,000 common stock authorized (500 francs each), but only 6,000 outstanding, with a total worth of 18 million francs. It also issued 11,750 preferred shares (worth 500 francs each) amounting to 5,875,000 francs. Thus, the total capital was 23,875,000

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Foreign Investment in the Ottoman Empire

francs.160 In 1895, 13 million francs’ worth of shares was outstanding, and the share value belonging to Michel Pasha was six million francs. However, at this time, the company needed 29,500,000 francs to carry out the promised construction. Since the general manager and the main partners did not want to issue new shares, the company had to borrow for financing. As the Ottoman Bank refused a loan, the company approached a local banker, L. Zarifi who was supported by Crédit Lyonnais that was involved in issuing the bonds. The company was able to raise 11 million francs. A part of the Galata quays opened to business in February 1895. The rest of the Galata quays was inaugurated in March 1896, but there were difficulties ahead.161 In 1900, the Société des Quais, Docks et Entrepôts de Constantinople claimed that, since it was not allowed to enjoy all the rights and privileges conferred by the concession, the Ottoman Government should redeem the quays at a certain price.162 According to the concession, the firm had to build quays on both sides of the Golden Horn. Tahsin Pasha, the court chamberlain of Sultan Abdulhamid, thought that as the company deemed it unprofitable, it did not want to extend the quays beyond Galata. In order to be relieved from this unprofitable responsibility of the concession, it used bribery as well as manipulation. A notable person was employed by the company to inform the Sultan about the dangers of building long quays around the Golden Horn, as they might be used for landing forces to stage a coup against him. This person also convinced the court about the benefits of government ownership of such facilities.163 The French Ambassador, Ernest Constans, supported his close friend, Félix Granet, the managing director of the Quays Company at the time. The two men had been intimate political and business associates since the 1880s. According to Fulton, the managing director wanted to realize a hefty profit by selling both its property and its rights. Ambassador Constans urged the Ottoman Government to purchase the company for ‘an exorbitant sum of 69 million francs.’164 The Porte staunchly resisted the ambassador’s diplomatic tactics, and finally agreed to buy the company for 41 million francs in September 1901.165 Since the Government did not have the money for this purchase, it agreed to pay an indemnity of 25,000 Ottoman liras for the maintenance of the status quo for one year until it mustered the required sum.166 Nonetheless, the Government was not able to carry out this transaction in later years. At the end of the nineteenth century, the influence of Germany kept growing and the port of Haydarpaşa, in the Asiatic part of Istanbul, as well as some smaller wharfs, were built with German capital.167 In 1911, the Britishowned National Bank of Turkey obtained a concession for the construction of the port of Trabzon. Continual wars prevented the realization of this and

The Distribution of Foreign Direct Investment by Sector 111 other projects. During the First World War, in Trabzon, the Russians built roads and a breakwater with cranes.168 Table 4.4 shows the concession and starting dates as well as the concession holders and founders of the most important ports. Meanwhile, Sultan Abdulhamit indeed tried to get the State to buy these ports. At first, he tried to have the port of İzmir pass to the Imperial Treasury (Hazine-i Hassa). As this attempt was unsuccessful, the company’s concession was renewed in 1891. As explained above, the purchase of the Istanbul Galata Port, in 1901, was not realized because of the intervention of the French ambassador and the exorbitant price asked by the company.169 Urban Services The introduction of modern urban services to major Ottoman cities was generally carried out through the efforts of foreigners and minorities living in these cities. The French, British, Germans, Belgians and other Europeans generally made efforts to extend urban services to their compatriots and make money from the construction and operation of the facilities. La Compagnie des Eaux de Constantinople (Constantinople Water Company), which had the purpose of providing water to Pera (Beyoğlu) and the European side of the Bosporus, was established with that aim. The master of ceremonies of the Palace, Kâmil Bey, and an engineer Ternau Bey, obtained a concession in 1874, to establish and operate a company that would bring water from Lake Terkos. The war with Russia, and the death of Kâmil Bey, significantly delayed the establishment of the company. Ternau Bey nevertheless still succeeded in getting government approval for his firm in 1882. Its 20 million francs capital consisted of 40,000 shares at 500 francs each. La Société Générale de l’Empire Ottoman, Camondo and Company, La Banque de Constantinople (owned by Zarifi), the Oppenheim-Alberti Company, La Banque d’Escompte de Paris, La Banque de Paris et des Pays-Bas and the A.-J. Company were among the partners.170 There were indications that this firm, which started to provide water in 1891, did not operate ethically. In order to increase the number of its customers, it asked the State to close heavily-used public fountains in certain regions. It even submitted reports to the Government that they were health hazards. The company, going so far as threatening to cut off the water supply, left the Government in dire straits.171 For this reason, when a Swiss company offered to carry out water distribution services in the Üsküdar-Kadıköy area on the Asiatic side of Istanbul, the Government felt the need to be more careful. La Compagnie des Eaux de Scutari–Kadikeuy, established in 1890, was to gather the water flowing to the Göksu river in dams and carry it to the

1887

1888 1897

1899

1895

Compagnie Ottomane du Port, des Quais et Entrepôts de Beyrouth (Beirut)

Société Ottomane de Construction et d’Exploitation du Port de Salonique (Salonica)

Port de Haidar-Pacha (İstanbul)

Port d’Ismidt (İzmit) Not realized because of war

1896

1903

1902

1892

1896

1875

Opening Date

French

German

Anatolian Railways

Sultan’s Treasury Edmond Bartissol

Joseph Moutran

Marius Michel

John Charnaud, A.Baker, G.Guarracino

Concession Owner

Le Creusot, Hersent, Batignolles, Régie General de Chemin de fer Ottoman Bank

German

Deutsche Bank German

French & local HQ: Istanbul Adm: Paris

J. Moutran, Ottoman Bank, Le Comptoir d’Escompte de Paris, La Banque de Paris et Pays-Bas, Messageries, etc.

French and British

British. French after 1877 (Joseph and Elie Dussaud)

Partners

Sources: E. Pech, Manuel des Sociétés Anonymes,1911; J. Thobie, Intérêts et Imperialisme Français, 1977; G.B. Ravndal, Turkey: A Commercial and Industrial Handbook, 1926; E.Z. Karal, Osmanlı Tarihi, Vol. VIII, 2000.

1911–13

1890

Société Anonyme Ottomane des Quais, Docks et Entrepôts de Constantinople (İstanbul)

Consortium des Ports Ottomans, İnebolu, Ereğli, Tripoli in Syria, Jaffa, Haifa

1867

Concession Date

Société des Quais (İzmir)

Company Name

Table 4.4 Major Port Investments in the Ottoman Empire

The Distribution of Foreign Direct Investment by Sector 113 Kandilli-Erenköy area, using the most advanced techniques of the period. The company had capital of 3,600,000 Swiss francs made up of 6,000 preferred shares and 1,200 common shares, each worth 500 Swiss francs. The rising cost of water collection dams, due to construction problems, and the insufficient number of customers, led to losses. Still, the high quality of the facilities, the services rendered to users, and the high quality of water won the appreciation of the public. Haydar Kazgan presents the cases of La Compagnie des Eaux de Constantinople and La Compagnie des Eaux de Scutari–Kadikeuy as two diametrically opposed examples of foreign-owned companies.172 The first one, aiming to amortize its capital as fast as possible, did not hesitate to use cheap obsolete technology and to resort to cunning and deceitful tactics. The second one used the most advanced technology, acted honestly and earned public appreciation. In 1910, La Compagnie des Eaux Scutari–Kadikeuy reduced its capital to 1,725,000 Swiss francs and became an Ottoman company. While the number of shares was reduced, the dividend and market value of shares increased. Moreover, as the number of customers rose, new investments were needed. After the First World War, during the armistice years, this firm with German and Swiss capital, after rendering years of decent service to the public, was taken over by La Compagnie des Eaux de Constantinople.173 Selim Faris Efendi secured a 40-year concession for the supply of water in Beirut, which had become an important Ottoman city. This resulted in the establishment, in 1873, of a British company, the Beyrouth Waterworks Company Limited, based in London.174 Meanwhile, the French obtained a water distribution concession for Beirut in 1874. In the end, they relinquished this business to the British in 1876. The Beyrouth Waterworks Company Limited had a capital of 400,000 pounds sterling, and its period of concession was later extended to 1950. In 1909, a French group bought the concession from the British and established La Compagnie des Eaux de Beyrouth.175 In October 1893, an Ottoman subject, Niyazi Bey, obtained a concession for a company to supply water to the city of İzmir. As was the case with several previous examples, after a short while he transferred this to foreigners, and in 1895, La Compagnie Ottomane des Eaux de Smyrne (Ottoman Water Company of Izmir) was founded with an administrative office in Liège, Belgium. The capital of 2,500,000 francs was raised to 3,700,000 francs in a short time, and the initial concession period of 47 years was extended to 85 years in 1897.176 Likewise, in 1888, Nemlizade Hamdi Efendi, an Ottoman subject, obtained a 51-year concession to supply water to the city of Salonica. He transferred this to Belgian entrepreneurs who founded the

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Foreign Investment in the Ottoman Empire

Compagnie Ottomane des Eaux de Salonique (Ottoman Water Company of Salonica). The firm, with headquarters in Brussels, had a capital of 5 million francs.177 From the 1850s, the urban lighting system of Istanbul, using coal gas, was among the responsibilities of the municipality.178 In 1891, Charles Georgi, a foreigner, obtained a 50-year concession for an urban lighting system using coal gas for Üsküdar and Kadıköy, and also to use the gas for heating and for operating mechanical tools. In September 1891, La Société Impériale Ottomane d’Eclairage par le Gaz et l’Electricité was established with its administrative office in Brussels. As the revenue turned out to be below expectations, the initial capital of 6 million francs was halved in 1901.179 During the First World War, this company passed into German control.180 In 1888, the Banque de Bruxelles obtained a 40-year concession for providing an urban lighting system in the European part of Istanbul. Subsequently, the Société pour l’Eclairage de la Ville de Constantinople – Gaz de Stamboul was established with headquarters in Brussels. It began to sell gas in January 1892. Various correspondence in 1906, between the Brussels headquarters and the Belgian Foreign Ministry, indicate that the company invested 200,000 Ottoman liras for a production unit and distribution network, on the European side of Istanbul, It provided gas to 20,000 users in addition to lighting 4,000 street lamps.181 The urban lighting system of İzmir was provided by the Ottoman Gas Company Limited, with headquarters in London. It was established after it obtained a 40-year concession in 1862. This was later raised to 80 years in 1897. In return, the company would add 800 new street lamps and would relinquish its property to the State at the end of the concession period.182 The company probably considered that its technology would no longer be in use in 1942, when the concession ended, since in 1897 electrical technology had already made inroads. The Ottoman Bank led the efforts to illuminate Beirut with street gaslights and provide public utility gas. In 1885, Alexandre de Girardin, having obtained a concession for producing and distributing coal gas, founded La Compagnie du Gaz de Beyrouth. The gas plant was constructed in a short period of time, the pipes were laid in a year, and the first city gas-light was lit in March 1888. The Ottoman Bank appointed three of the seven members of the board of directors. In the board, Moussa Freige, a banker from Beirut, represented the Ottoman shareholders. As the number of users was low, this company was consistently incurring losses.183 A book which detailed French investments, indicated that in 1919 this company could not pay interest on

The Distribution of Foreign Direct Investment by Sector 115 its bonds, and that its debts would be restructured under the supervision of l’Office National des Valeurs Mobilières.184 With a decree of January 1914, the Ottoman State gave a 50-year concession to establish a gas company which would provide lighting, heating and motor power to the region lying between Pera and Yeniköy, in the European part of Istanbul. La Société du Gaz de Constantinople was founded with a capital of 10 million francs. The French owned nine-tenths of the capital. However, due to the war, it was not even possible to renovate the old gas plant. The company continued to serve after the establishment of the Republican regime in Turkey.185 Table 4.5 Gas and Lighting Companies in the Ottoman Empire Company Name

Concession Date

Opening Concession Date Owner

Partners

Ottoman Gas Company Ltd (İzmir)

1857 1862

1876

André Marchais British A. Edwards

La Compagnie du Gaz de Beyrouth

1885

1888

Alexandre de Girardin

French, Belgian

Société pour l’Eclairage de la Ville de Constantinople

1888

1892

Banque de Bruxelles

Belgian

Société Imperiale Ottomane d’Eclairage par le Gaz et Electricité (Üsküdar)

1891

Charles Georgi

Belgian, German

Sociéte du Gaz de Constantinople

1914

War Years

MM. Monvoisin (President)

French

Société Ottoman d’Electricité de Salonique et Smyrne

1899

1903

Sir Ellis AshmeadBartlett

British

Société Anonyme d’Electricité Ganz (İstanbul)

1909

1910

Société Ganz (Consortium in 1911)

Hungarian, Belgian

Société Anonyme Ottomane d’Electricité (İstanbul)

1911

1914

Consortium Constantinople

Belgian, French Hungarian

Sources: E. Pech, Manuel des Sociétés Anonymes, 1911; Le Groupement des Intérets Français, Les Intérets Financiers de la France dans l’Empire Ottoman, 1919; J. Ducruet, Les Capitaux Européens au Proche-Orient, 1964.

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Foreign Investment in the Ottoman Empire

The first two cities of the Ottoman Empire where electricity was introduced were İzmir and Salonica. For reasons that are unclear, Abdulhamit II was afraid of electricity, and did not want it to be used in Istanbul. Therefore, he rejected concession applications for the production of electricity. During his reign electricity was used only in his palace and the hotels of Istanbul.186 After he was deposed, the production and use of electricity became widespread in Istanbul.187 In 1910, the Ottoman Government gave a 50-year concession to the Ganz Electricity Company of Hungary. In 1911, this firm, with the participation of Banque Générale du Crédit Hongrois and Banque de Bruxelles established the Société Anonyme d’Electricité Ganz, with a capital of 528,000 Ottoman liras or 12 million francs.188 According to Pech, the British politician, Sir Ellis Ashmead-Bartlett, obtained in 1889 a concession to provide electricity to the cities of İzmir and Salonica.189 This concession would last for 35 years for the provision of urban lighting to Salonica and 50 years for the operation of electrical street cars (tramways) in Salonica and İzmir. A company with headquarters in Istanbul was established in 1905 with a capital of 100,000 pounds sterling. During the years of fierce competition for concessions, through the determined efforts of the Belgian Embassy in Istanbul, a company group under the leadership of Banque de Bruxelles and Sofina Holding was established in Istanbul in 1911. After eliminating the competition of the Franco-German partnership, the Union Ottomane, this group succeeded in obtaining a concession allowing its formation of a monopoly that would produce and distribute electricity to meet the city’s needs. Belgian capital was predominant in this group under Sofina’s leadership. It played a key role in electricity production and transportation, such as the transition to electrical street cars.190 Important financial groups had joined this organization, known as Consortium de Constantinople. Among these were the Société Financière de Transports et d’Entreprises Industrielles de Bruxelles, Sofina, Comptoir National d’Escompte de Paris, Société Générale, Banque de Paris, the Ottoman Bank, the Ganz Electricity Company of Hungary, still supplying power to Istanbul, and various Belgian, Swiss and German companies which provided technical services.191 This group established the Société Anonyme Ottomane d’Electricité and prepared the project for the transition from horsedrawn street cars to electrical ones.192 Within two years, the first electrical street cars became operational. All the companies within the group agreed in June 1914 to establish a large company, the Tramways et Electricité de Constantinople, to provide the urban transportation services. The company would be run by the Belgian Sofina group.193 However, with the advent of the First World War, these projects turned out to be inconclusive.

The Distribution of Foreign Direct Investment by Sector 117 Table 4.6 Tramway Companies in the Ottoman Empire Company Name

Concession Opening Concession Date Date Holder

Partners & Explanations

Société des Tramvays de Constantinople (İstanbul)

1869

1871

K. Karapanos

Mostly French, German, Swiss

The Metropolitan Railway of Constantinople (İstanbul)

1869

1875

E. Gavand

British, German and Belgian after 1911

1884

Harentz Brothers and P. Guidici

Belgian (some British) (Electrical in 1914)

Société des Tramways Smyrne – Gueuz Tépé (İzmir)

1883

Compagnie Ottomane des Tramways de Salonique (Salonica)

1889

1893

Hamdi Bey

Belgian, French, German (Electrical in 1906)

Société Anonyme Ottomane des Tramways et de l’Electricité de Beyrouth (Beirut)

1906

1909

Selim Raad Efendi

Belgian and French

Société Anonyme Ottomane des Tramways et de l’Electricité de Damas (Damascus)

1903

1907

M. Aslan Bey

Belgian and French

Sources: H. Kazgan, Osmanlı’dan Cumhuriyet’e Şirketleşme, 1991; J. Thobie, Intérets et Imperialisme Français, 1977; E. Pech, Manuel des Sociétés Anonymes, 1906 and 1911.

The first Ottoman streetcar company was established through the efforts of the Ottoman Bank. In 1869, the Ottoman Government gave a concession to Konstantin Karapanos, a Greek Ottoman businessman, to build and operate a horse-drawn tramway line. The Ottoman Bank and its affiliated company, the Société Générale de l’Empire Ottoman as well as three notable Galata bankers Avram Camondo, Hristaki Zografos Efendi and Yorgi Zarifi, were among the founders of the Société des Tramways de Constantinople. The initial capital of the company was 400,000 Ottoman liras.194 The first line started in 1871, and ten years later, in 1881, the concession was

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Foreign Investment in the Ottoman Empire

extended until 1918 for the building of two new lines. In 1906, this period was further extended to 1993 for adding four new lines to the existing system.195 This last agreement provided the firm with a concession to operate electrical tramways. However, the Metropolitan Railway of Constantinople from Galata to Pera Limited, maintaining that the concession to operate electrical tramways belonged to them, virulently opposed that and let it be known that it would demand compensation. Then, the Government asked the two companies to strike an agreement. As shares of the Société des Tramvays were generally sold in France, by the end of the century the part of the capital contributed by the French rose to 3,700,000 francs.196 During the period when the concession for the horse-drawn tramway was given, another concession was granted to a French engineer, E. Gavand, for the construction and operation of a rail system between Galata and Pera. Because of the Franco-Prussian war and other reasons, Gavand was unable to establish a company in France. In 1872, the London-based Metropolitan Railway of Constantinople from Galata to Pera Limited was established.197 One factor delaying the construction was the presence of cemeteries in the area. In order to create an open space at the entrance of the station, a Turkish graveyard was totally removed.198 In January 1875, construction was completed and the line became operational. The concession period was determined 42 years after the completion of the construction work, and the initial capital was 250,000 pounds sterling.199 The initial years of operation were quite successful, with a high number of passengers and revenues as stated in its annual reports.200 However, in 1898, the company faced difficulties in extending its concession which would expire in 18 years. Some influential personalities close to the palace succeeded in getting a new 50-year concession and were willing to transfer it at a certain sum to the Metropolitan Company. The correspondent of The Manchester Guardian bitterly complained about this extortion of money from this British company. It is a feature characteristic of the present system that the private informers of the Sultan should be remunerated at the cost of a British undertaking which has been singularly beneficial in its effects and with which the Government has never had the smallest misunderstanding.201 The Metropolitan Railway Company and the Tramways Company reached an agreement on the electric tramway dispute. From January 1910, the right to operate electric tramways passed to the Société des Tramways de

The Distribution of Foreign Direct Investment by Sector 119 Constantinople. Finally, in 1911, the Tramway Company bought the British Metropolitan Railway for 95,000 pounds sterling, that would be raised by issuing bonds with coupon rates of five percent and using the assets of the Metropolitan Railway as collateral.202 Everything was ready for the transition to electrical tramways in Istanbul. The production of electricity rose with the establishment of the Société Anonyme Ottomane d’Electricité. However, it was going to take some time for the electric cables to be drawn. When the Balkan War erupted in 1912, the Ministry of War purchased the horses of the Tramways company in order to use them for military transportation. Consequently, the people of Istanbul were deprived of tramways for two further years. The Municipality of Istanbul and the Ottoman Ministry of Public Works began to bring pressure to bear on the Société des Tramways to speed up the shift to electrical power. Finally, in January 1914, the electricity-powered tramways began to run in Istanbul.203 Mining Ottoman mining was in its infancy even during the early twentieth century. A reason for this backwardness was considered to be the paucity of capital and the negative attitude of the Government towards foreign enterprises in such areas. If low-cost, large-scale extraction and production coupled with efficient transportation to seaports were to be realized, it was thought that Asia Minor would turn into one of the major mining centers of the world.204 In the nineteenth century, the use of the steam engine made coal an important fuel. In 1848, Sultan Abdulmecit ordered that tax revenues obtained from mining operations on imperial lands (Emlaki Hümayun) would be used for charitable and religious purposes. Thus, during 1848–65, coal mines were exploited by concessionaires who were granted the right through the Imperial Treasury.205 Possibly because the main users of coal, during that period, were the navy and commercial shipping, the administration of coal mines was entrusted to the Ministry of Naval Forces between 1865 and 1909. In 1896, through the initiative of the mine operators, an imperial decree allowed the commercial sale of coal dust, which remained in the mines, subject to the condition that ten percent would go to the State. Thus, the profit motive led to an increase in mining productivity. One of the first companies involved in transportation on the sea line to Egypt was a Georgian maritime company. When this company ran into financial problems in its maritime transportation business, it was obliged to sell its mining assets to the Société d’Héraclée.206

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Foreign Investment in the Ottoman Empire

Société d’Héraclée was founded as an Ottoman joint stock company with French capital, using the 50-year concession previously given to S. E. Yanko Bey Joannidés in 1896. This company, with the support of the Ottoman Bank, not only constructed mine installations, but also built a port in Zonguldak together with a railway line connecting them to the port.207 According to an estimate made in 1911, there were four large foreign capital firms which exploited coal mines. They extracted two million tons of coal annually, and two-thirds of that was produced by the Société d’Héraclée.208 The second most important was Sarıca Zade Company, followed by smaller Rombahi and Panopoulos mines which were affiliated with the Banque de Metelin. Even though the Aegean Island of Midilli (Mételin) was a part of the Ottoman Empire, the Banque de Mételin worked for Greek interests. Just before the First World War these two mines became a Greek–Italian joint venture as the Kozlu Coal Mines Ottoman Company. The Sarıca (Sarıca Zade) mine in Bender Ereğli was established, in 1910, with the participation of Belgian capital. In 1913, a majority of its shares was bought by the Germans who, thus, acquired the control of the company. Following the First World War, the mine was sold to the Commercial Bank of Italy.209 According to Vedat Eldem, a coal mine company was established in 1910 with Russian capital. French capital played a leading role in the establishment of the Société Anonyme Ottomane des Mines de Balia–Karaidin, a major investment which comprised the production of silvery lead in Balıkesir and lignite in Mancılık. When a concession granted to a Frenchman in 1878 was revoked in 1885 due to disagreement, the concession to exploit these mines was given for 99 years to the Banque de Constantinople, belonging to Zarifi, Sultan Abdulhamit’s banker and to the Laurium Factories.210 The company, which was established with a capital of 4,500,000 francs in 1892, raised this to six million francs in 1904. During the 1890s, there were nine Greek or Ottoman Greek banks among the shareholders.211 In 1888, a concession was granted to the Banque de Constantinople to exploit mines of manganese, silvery lead, antimony, copper and some alloys in an area of the Kesendere Kassandra region in the Province of Salonica. The concession for other mines in the region was given to Enrico Misrachi. The concessionaires established the Société Ottomane des Mines de Kassandra in 1893. It had a concession period of 98 years and an initial capital of three million francs.212 In 1900, the Société Anonyme Ottoman des Mines de Karasou was established with French capital following an 1898 concession for the mining of silvery lead and zinc in the Karasu village of the sub-province (sanjak) of Izmit. The initial capital of 3,200,000 francs was raised to 5,600,000 francs

The Distribution of Foreign Direct Investment by Sector 121 in 1906.213 Another firm with French capital was established to extract pitch and bitumen at Seniçer in the Province of Janina (Yanya). In 1885, after the Ottoman Bank obtained a 25-year concession, the Société des Mines de Sélénitza was established, in 1891, by Portelin, a Parisian notary public. The company had its headquarters in Paris, and was represented in Istanbul by the Ottoman Bank. It was planned to have a capital of 2,500,000 francs. However, during an extraordinary board of directors meeting in Paris in 1898, the capital was reduced to 800,000 francs made up of 4,000 shares, each worth 200 francs.214 Borax was discovered at the beginning of the nineteenth century in Sultançayırı, near Bandırma. A French company received a concession for its exploitation in 1867. Twenty years later, this firm sold the concession to the Charles Hanson, Desmazures and Groppler Company. At the end of 1887, the London-based Borax Company Limited was established. It had bought this 24-year concession for 80,000 Ottoman liras.215 Following a special decision of the shareholders on 19 January 1899, the entire assets of the company were ceded retrospectively, as of 1 October 1898, to the London-based Borax Consolidated Limited Company which comprised all the borax firms in the world.216 The company’s activities, which were halted during the First World War, were resumed after the War and continued until the end of 1941.217 An important ore found in western Anatolia was chromium, and the Ottoman Empire was the only place where this was produced during the nineteenth century. Many foreign entrepreneurs, already in the region, made attempts to get in to that business. Among these, a company established by a British subject, John D. Paterson, was very successful. Paterson and Associates obtained permission to exploit the Dağardı mines in 1876. Later, the same company succeeded in winning the concession for the Harmancık mines, and by 1902, owned 19 of the 24 mines operating in Anatolia.218 Even though the company eventually lost the concessions for its most important mines, during these years it was able to recover and produce 57 percent of the total production in the country in 1907.219 Meanwhile, some well-known German firms started to develop an interest in the chromium found in Anatolia. In 1911, the Krupp and Rochling companies took over many mines and attempted to create a large organization. However, the First World War interrupted these German enterprises.220 In western Anatolia, certain British firms that used steam power and railways operated lignite mines near Söke and Nazilli to meet their own needs. Thus, the McAndrews and Forbes Company, a producer of licorice, operated the Söke and Nazilli mines by making use of a 99-year concession.

122

Foreign Investment in the Ottoman Empire

The railways of Aydın and Kasaba, as well as some factories in İzmir, also obtained part of their coal in this way.221 The production of manganese in western Anatolia was carried out by J. Jackson, a British subject, and by the Anglo-German Mining Syndicate which exported to the United States of America. In the field of antimony, the Sturzenegger-Rees Company and the Smyrna Antimony Company were active. Also in western Anatolia, businessmen such as Abbott and Paterson were operating very successfully in the production of emery towards the end of the 1860s. Later, the American Emery Trust started to work in this region. In 1911, Abbott, Whittall and the American Trust united their interests by forming the Abbott Emery Mines Limited.222 The Ottoman State ceded to foreign companies the right to operate mines that belonged to the public treasury. Of these, the French operated the Ergani copper mine, the Akdağ zinc mine and the Bolkardağı silvery lead mine.223 Later the Bolkardağı mine was operated by the Germanowned Frankfurt Mine Company followed by the British-owned Smelting and Refining Company.224 It is evident that the foreign investors did not encounter any hurdle other than the fierce competition among themselves. By 1910, the foreign companies came to own more than two-thirds of the coal, chromium, copper and other mines in the Ottoman Empire.225 In the nineteenth century, there were no petroleum enterprises in the Ottoman Empire. Towards the end of the century, the need for oil products as fuel was felt, mainly for lamp oil, and especially in large cities. This need was met mainly from imports, and from the local seepage facilities in Anatolia and Iraq together with some shallow wells and galleries at the Marmara shale deposits and the seepage area of Iskenderun (Alexandretta).226 In the early 1890s, Calouste Serkis Gulbenkian, a British-educated Armenian resident of Istanbul and son of a wealthy merchant, had presented a report on Ottoman oil properties to the Ministry of Mines. The first thing Sultan Abdulhamit did was to decree ‘the transfer of the petroleum revenues from the Treasury to his own Privy Purse by the firmans of 1890 and 1899; and through the Crown-lands (Saniya) Administration he secured for himself a number of the known oil-bearing lands.’ 227 The most important oil basins in the Ottoman Empire lay in Mesopotamia. The area starting from the southeast of Mosul, along the Tigris river and around Kirkuk, Tuz Khurmati, Kifri and Salahiya showed an abundance of oil in many places. The oil fields were considered to be the continuation of Persian oil fields, where the oil had been extracted by foreign companies since the 1880s. Concessions were granted in some Anatolian regions such as Van and Kastamonu but remained undeveloped.228 When Midhat

The Distribution of Foreign Direct Investment by Sector 123 Pasha was the governor of Baghdad, in 1871 a group of German experts visited the region, and reported their findings in the most favorable terms. The governor had taken action to develop the Mandali seepages, and had built a short-lived refinery at Ba’quba, north of Baghdad. After the seepages of the area were acquired by the Sultan’s Privy Purse, a French specialist was brought in to increase the yields in some areas by deeper diggings.229 Foreigners took notice of these occurrences in the 1890s. The earlier years of the twentieth century witnessed competitive claims and concession negotiations for oil exploration by the Great Powers in Istanbul. The Deutsche-Bank-Petroleum A.G. group based its claims on the 1888 Anatolian Railways and the 1903 Baghdad Railway concessions. Article 22 of the latter document stipulated that the concessionaire would have the right to exploit mineral deposits within a zone of 20 kilometers on each side of the railway line.230 At the time, since they were busy extracting oil in Persia, the British showed no interest in oil concessions in Mesopotamia. They were also discouraged by the pro-German policies of the Sultan. However, after the Young Turk Revolution of 1908, they got the impression that the new regime would not be as pro-German as the deposed Sultan, and they would have a better chance in getting new concessions. The Manchester Guardian wrote: The change of government in Turkey has worked to British advantage not only politically but in the matter of trade and in potential concessions of every character. Hitherto virtually closed to British engineering enterprise, Turkey will now welcome brains and capital from Great Britain as she never has before, as she will now welcome them from no other country.231 Even before the Revolution, William Knox D’Arcy, an Englishman who successfully exploited oil wells in southwestern Iran, tried unsuccessfully to acquire concessions for exploration in Mesopotamia. Also an American, Rear-Admiral Colby Chester who was sponsored by the New York Chamber of Commerce, tried to get concessions for railway and harbor construction as well as the development of oil and minerals. Although he succeeded in receiving the concessions, he left the scene after 1911. The D’Arcy group which recently formed the Anglo-Persian Oil Company renewed its interest, as the Shell group also resumed their candidature for concessions.232 There were also smaller firms such as Anglo-Ottoman Oilfields Limited which was formed to acquire and work a petroleum concession in Turkey, comprising about 1,000 acres, granted under a firman by the Imperial

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Ottoman Government.233 At its statutory meeting held on 9 August 1910, the chairman of the company expressed their satisfaction with the property, relating transportation advantages with respect to their competitors, the increasing demand for liquid fuel, and work to be done on the property including a complete refinery.234 In the brief period of positive feeling towards Great Britain in the Turkish capital after 1908, the National Bank of Turkey was formed with British capital, with Sir H. Babington-Smith as its chairman. Among its four directors was Calouste Gulbenkian who devoted his efforts ‘to persuading the Bank to interest itself in Turkish oil development, and to reconciling British and German interests in that field, so that the threatened deadlock could be circumvented.’235 Before the end of 1910, an agreement was reached between the National Bank and the Deutsche Bank to form, in London, African and Eastern Concessions Limited intended for oil exploration throughout the Ottoman Empire. The initial capital of 80,000 pounds sterling was allotted as follows: 28,000 shares to the National Bank, 12,000 shares to Gulbenkian, 20,000 shares to the Deutsche Bank, and 20,000 shares to the Royal Dutch Shell group. The company changed its name to Turkish Petroleum Company in 1912.236 With the intervention of the British Foreign Office, the experienced Anglo-Persian Oil Company came into the business. British and German interests were therefore reconciled, allowing the creation of a feasible enterprise. At a Foreign Office meeting in March 1914, a new agreement was prepared to reallocate the shares of the raised capital (£160,000): 47.5 percent to the Anglo-Persian Oil Company,237 25 percent to the Deutsche Bank, 22.5 percent to the Royal Dutch Shell and 5 percent to Gulbenkian. Strangely, an official statement of the Anglo-Persian Oil Company published in The Times on 25 June 1914, wrote: The Anglo-Persian Oil Company has not acquired, nor has it any intention of acquiring, any shares in the Turkish Petroleum Company, nor does it intend working in Mesopotamia in conjunction with the Shell Company... The British group which is interested in the Mesopotamian Oilfields and which is acquiring a 50 per cent share in the Turkish Petroleum Company is one which was formed many years ago by Mr. W. K. D’Arcy for the purpose of acquiring the Mesopotamian oil concession, and its interests are separate from those of the Anglo-Persian Oil Company.238 It would seem that the Anglo-Persian Oil Company, for some reason, tried to hide its role in this affair, at least from some local stakeholders.

The Distribution of Foreign Direct Investment by Sector 125 At the same time, British and German Ambassadors in Istanbul requested the grant of an equitable concession for the development of Turkish oil. In a letter dated 28 June 1914, the Grand Vizier, Sait Halim Pasha, addressing them both ‘stated that the Ministry of Finance agreed to lease the petroleum deposits “discovered or to be discovered” in the vilayets of Baghdad and Mosul to the Turkish Petroleum Company and reserved to itself the right to decide later both its own share of the proceeds and the general terms of the concession.’239 This company went into abeyance during the First World War, but afterwards the German interest was handed over to the French by the San Remo Agreement of 1920. There were also smaller firms like the Syria Exploration Company, registered in London in 1912, which held licenses in Syria. Its main purpose was to interest larger concerns and sell its rights to these larger companies while retaining an interest. Jaffa Oilfields, an offshoot of Eastern Petroleum Company which was operating in Egypt, leased seven plots west of the Dead Sea. The Consolidated Oilfields of Syria, registered in 1913, failed to develop the bituminous lands which it was established to develop, and left the business. Anglo-Ottoman Oilfields Limited and the British Ottoman Oil Syndicate, which secured rights in the Boyabat seepage area (in northern Anatolia), also failed, most probably due to a lack of knowledge of geology and oil development.240 Severe animosity occurred, not only in concession hunting, but also in oil distribution. The Standard Oil Company entered the country in 1908 with the aim of building large facilities in Salonica and distributing oil.241 The Steaua Romana, the Rumanian oil company, which was largely owned by the Deutsche Bank after 1903, also wanted to establish a distribution center in Salonica during the same period. Standard Oil had been distributing oil from Izmir since the early 1880s when it had a virtual monopoly of the world’s oil trade. However, in 1885, American consuls at many oldworld ports, besides Izmir, began to report the advent of Russian oil.242 In 1910 there were reports of Standard Oil’s intentions to make Izmir its headquarters by erecting huge tanks and constructing a large quay. The total cost of these works was over 600,000 francs.243 Petroleum tanks were also being erected in all major Turkish towns, with special attention paid to Turkey in Asia. At the end of 1912, Germany launched an ultimatum against the Standard Oil Company by establishing a state monopoly in petroleum. It was hoped that the power of the ‘octopus’, which for years held the German petroleum market in an autocratic grip, would be broken.244 Besides giants like the Rothschilds and the Nobels, who organized the distributing business in Europe, there were smaller enterprises

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such as the Société Anonyme Ottomane en Commandite pour la Vente du Pétrole founded in Izmir for selling oil.245 Industry and Trade It is very difficult to calculate, or even reliably estimate, the amount of foreign direct investment in areas such as industry and trade. While there were large firms such as Société de la Régie Cointéressée des Tabacs de l’Empire Ottoman, the Société de Tombac and the Oriental Carpet Manufacturing Company Limited for which some financial data were available, there were also hundreds of small and medium-size companies. According to Orhan Kurmuş, based on the British Board of Trade records, there were at least 166 British firms with capital ranging from 10,000 to one million pounds sterling during 1860–1913.246 In fact, this might be a conservative, if not overcautious, estimate. Kurmuş arrives at this number by going through lists of approximately 700,000 firms and selecting those with names like Asia Minor, Anatolia, Ottoman, Turkish, Constantinople, names which relate to the Ottoman Empire. Companies specifying only the names of their owners were not included. Even then, this number is far higher than the 17 British firms listed in The Near East for 1911. Sources showing the foreign investment of that period tend to concentrate on large firms for which information is easy to obtain, and to skip or neglect the smaller firms. It is very difficult to gather information on small investors. It would be quite optimistic to expect that these entrepreneurs were regularly registered in their home countries and that these records have survived. The Ottoman city records and yearbooks do not seem to be very reliable either. The majority of the firms are not to be found in the records. Sometimes a book that may seem unimportant or unrelated may yield relevant information. For instance, one can discover that a trade company from Freiburg, Germany, established a silk factory in the 1860s, in Amasya, central Asia Minor, and that hundreds of children were busy opening silk cocoons.247 However, it is not possible to get information on important details such as the conditions of work, the amount of capital, and figures on production and exports. Sometimes, the city records indicate that a foreigner obtained permission to establish a steam-powered factory, and yet it is not possible to determine whether this business became operational. One can also discover articles in contempory newspapers detailing the properly-established factories running under modern management principles. It is possible to get detailed information on a spermaceti (whale oil) candle factory established in 1896 in Istanbul with French technology and capital. However, one notices that the factory closed shortly thereafter due to the introduction of

The Distribution of Foreign Direct Investment by Sector 127 urban gas and electrical lighting technologies into the Ottoman Empire. In 1898, Monsieur Tavernier established a match factory, the Société Anonyme des Alumettes Ottomane in a suburb of Istanbul. While it used the most modern production techniques of the period, it closed down after a short period of time.248 These short-lived enterprise capitals are not included in the calculation of the total foreign capital. Despite all these negative aspects, a list of the various industrial and commercial companies operating in the Ottoman Empire before the First World War is given in Table 4.7 (see page 132). Among these, one can encounter giants like the monopolistic Tobacco Régie which sprawled all over the Empire, small construction contractors and department store chains like Orosdi-Back. It seems that the most important company in the industrial and trade sectors was the tobacco monopoly company which was founded with a decision among the clauses of the 1881 Muharrem Decree. The Ottoman Public Debt Administration, which was established by the Decree, took over the collection of taxes and other government revenues, including tobacco revenue. Article 8 of the Decree stated: ‘The Government cedes in an absolute and irrevocable manner, as of 1/13 January 1882 and until the complete repayment of the above mentioned debt, the revenues from the tobacco and salt monopolies, produced or consumed in the provinces of the Empire, enumerated in the list annexed to the Convention of 10/22 November 1879 and attached to this Decree, excluding cigars, snuff and chewing tobacco, imported tumbeki [tobacco used in narghiles] and excepting the dime and tobacco customs duties’. Article 9 stated: ‘As for the monopolies of tobacco and salt, the Government would not oppose in principle that arrangements be made to exploit the salt through a régie [monopoly firm] except when there is a prior agreement between the Government and the Debt Administration. As for tobacco, the profits which could result from its exploitation through a régie would be shared among the State, the lenders, and the operating company subject to conditions to be determined among the interested parties’. In fact, the Ottoman Public Debt Administration fully realized that the six taxes which were considered for the payment of the debt were increasing and that the tobacco monopoly would be a profitable business.249 That is why they gave the concession to establish a tobacco monopoly to one of their members, Monsieur Devey.250 The Ottoman Government and the PDA reached an agreement on forming a tobacco monopoly. The Ottoman Bank, which was the essential concession holder, the Kreditanstalt group of Vienna and the group of the Berlin banker M.S. Bleichröder, signed the company agreement in May 1883 and established the Société de la Régie Cointéressée des Tabacs

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de l’Empire Ottoman. The period of concession was 30 years starting from the establishment of the company, with an initial capital of 100 million francs (4,400,000 Ottoman liras), half of which was already paid. The other half was to be obtained later with the approval of the Ottoman State and the PDA. In return for this concession, the company was to pay the PDA 750,000 Ottoman liras annually in three paid-in-advance installments. After this payment, the company would pay eight percent of its paid-in capital to the shareholders. Should the paid-in capital exceed 50,000,000 francs or 2,200,000 Ottoman liras (O.L.), this would be reduced to seven percent. The net earnings, after the payments to the shareholders, would be divided among the Ottoman State, the PDA and the Régie in proportions that would change according to the level of the earnings. For earnings up to 500,000 O.L., the State would get 30 percent. At earnings level 0.5–1 million O.L., the State’s share would be 39 percent; at 1–1.5 million O.L. 52 percent; at 1.5–2 million O.L. 70 percent; and above 2 million O.L. 75 percent. At the same levels, the corresponding share of the Public Debt would be 35, 34, 30, 20, and 15 percent, while that of the Régie would be 35, 27, 18, 10 and 10 percent.251 As the company had to bear losses during the first three years, its paid-in capital was reduced by 20 percent, in 1889, to forty million francs or 1,760,000 O.L. Moreover, in order to meet possible extraordinary losses, a fund was created and the distribution of earnings was temporarily rearranged.252 Despite all these, the company’s shareholders continued to get their eight percent dividends while the founders received five percent returns. The Ottoman Public Debt provided the necessary fund to make these payments.253 Between 1890 and 1895, profits steadily increased and the returns paid to shareholders rose from 17.5 percent to 18.5 percent. In 1889, the dividend, that was 13 francs per share, or 6.5 percent, rose by 20.5 francs, or 10.25 percent, in 1895.254 Part of the gains, which had to be kept as reserve funds, was generously distributed to the shareholders. This raised serious doubts about the company’s financial policies. Also, the company showed grossly inflated storage, production and sales costs to artificially reduce its profits.255 The most important reason behind the losses of the initial years was the decline of tobacco exports to Egypt. The British administration in Egypt did away with the agreement that tobacco would be imported exclusively from the Ottoman Empire. This led to the import of cheaper and lower-quality tobaccos from Greece and other countries.256 In order to prevent illegal tobacco cultivation, the Régie provided good-quality seed and advance payments to farmers, selected employees according to merit, provided technical advice, and educated specialists in

The Distribution of Foreign Direct Investment by Sector 129 order to improve quality and productivity. The company established a wide administrative system and created new processing and storage units. It also opened agencies in production regions which were far from these centers. The main factories, outside Istanbul, were in Samsun, Adana, İzmir and Manisa in Anatolia as well as Beirut, Damascus, Aleppo and Jaffa in Syria and Palestine.257 The Régie had obtained the monopoly of tobacco including purchasing, storage, processing and selling in the whole country. However, this monopoly was limited, in Lebanon and Crete, to the production tax (müruriye) previously collected by the State. The Ottoman State gave up the import taxes it collected on tobacco products like cigarettes, cigars and snuffs as well as dues from granting permissions for tobacco processing and the consumption tax (beyie). The Régie was unlike tobacco monopolies which existed in other countries. It played a major role in the Ottoman economy and preserved its importance even after the establishment of the Republic of Turkey. It paid high salaries to its white-collar employees and even more so to its higherlevel administrators. Foreign and Ottoman subjects alike perceived it as a desirable place to work. While the Régie created employment opportunities for some, it deprived a significant proportion of the population of the livelihood they obtained from the production and sale of tobacco. A great many farmers, cigarette producers, workers, bankers and merchants lost their jobs and incomes.258 Besides paying high salaries, the company also provided traveling expenses and paid leave to its European managers, all above European standards. Even the branch managers, who numbered more than a hundred, were earning more than the Ottoman prime ministers.259 The Régie was one of the most important organizations of the Ottoman Public Debt Administration. The persons who were appointed as president or vicepresident were also working for the Ottoman Bank, the railway companies or the foreign banks. The close connections between these foreign organizations facilitated the Public Debt Administration’s mission of constantly protecting foreign interests in the Ottoman Empire.260 The Régie was never on good terms with the Ottoman Government or the people who earned their livelihood through tobacco. With the establishment of this company, the Ottoman tobacco cultivator suddenly found himself under the control of a foreign agent that even collected taxes from him. The Régie would extend permission for the cultivation of tobacco, provide credit and buy the crop. Like any monopoly, the Régie held profits above everything else, bought the crop at rock bottom prices and even demanded a five percent interest for the loans, though this was not stipulated in the concession agreement. The farmers who could not make ends meet had

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to grow and sell tobacco ‘illegally’. In some regions, ‘illegal’ buyers would pay double or triple the price paid by the Régie.261 In order to prevent such smuggling, the company created its own police force and demanded that the Ottoman gendarmes fight against the smugglers. While the Government and the Sultan reluctantly accepted this demand, the governors of the provinces, where tobacco was grown, generally rejected such cooperation. Nonetheless, during the fourteen years following the establishment of the Régie, there were at least 2,000 people who died every year during the skirmishes between the Régie forces and the smugglers.262 In 1890, Nuri Bey, a Régie employee, sent a report to the Ottoman Palace. It detailed the company’s monopolistic policies, such as showing the earnings at levels much lower than the actual ones, thus reducing the amount to be paid to the State. The report also indicated the abysmal prices paid to the cultivators, many of whom were left with no choice but smuggling.263 Parvus Efendi studied the Régie during the last years of its concession. He found that its real capital was above 1,760,000 Ottoman liras, and the huge difference between that and the real figure was secretly recorded as security funds. According to the agreement, should the company’s capital exceed 2,200,000 Ottoman liras, the dividends paid to the shareholders would decline from eight percent to seven percent.264 The concession agreement of the Régie was due to end in 1914. For this reason, negotiations were started in 1912 and an agreement with revised clauses was prepared. According to the new agreement of 1913, the concession period was extended for another 15 years, but no changes were made to the company’s capital. However, the amount paid annually by the Régie to the Ottoman Public Debt Administration rose from 750,000 Ottoman liras to 800,000 Ottoman liras, and the dividends paid to shareholders fell from eight percent to six percent. No important changes were made to the distribution proportions of other earnings.265 Western Anatolia was a pole of attraction for foreign merchants and producers due to the variety of crops that could be grown on its fertile soil. From the mid-nineteenth century, the British played an important part in the production and trade of agricultural commodities. They were quite successful in the cultivation of cotton, tobacco, grapes, olives and figs, and the production of threads, textiles, oils, wines, brandies and packaged raisins and figs which were marketed in Europe. For the British companies, vertical integration was of primary importance. The crops were cultivated on the land that they had purchased; they processed the crops in their own workshops and factories; and sold the finished products through their own sales agencies in Europe.266

The Distribution of Foreign Direct Investment by Sector 131 The British cotton merchants worked hard to increase the production and trade of cotton from the 1860s. Some of them began to set up cotton gins on their farms in order to clean cotton and carry out the standard baling process. In a short time, the number of British steam-powered cotton gins rose phenomenally.267 The cotton gins were followed by spinning mills and textile factories which were oriented to the local market. British investments in cotton and woollen textiles, which were greater than those of other foreigners, were concentrated around İzmir and Istanbul. The Ottoman Cloth Company, which was established by five British merchants in İzmir in 1910, produced low-cost woollen fabrics and met the needs of the local market.268 The British also established an early superiority in the carpet business. During the 1860s they provided threads and design patterns to homebased carpet weavers. They also produced the raw cotton, the woollen threads and the dyes used in the weaving of carpets which were then exported to Europe. Several factories were established to achieve this. At the end of the nineteenth century, the French and the Belgians also took part in carpet production. For thirty years, the British left the production to home-based craftspeople. However, an Austrian company, Keun and Associates, established a large carpet-weaving factory in Uşak at the beginning of the twentieth century. The British, who did not want to lose their lead in the business, founded the Oriental Carpet Manufacturers Ltd. in 1907.269 After 1854, the British had the monopoly of licorice production. In 20 years they increased exports of licorice by 12 times, while the taxes they paid displayed only a ten-fold rise.270 The Germans entered this field in 1886 by establishing a factory in Aydın. Later, the Americans joined the fray by establishing the American Tobacco Trust Company, which created serious competition in this market.271 The British, who traded in the Izmir region, noticed in the first half of the nineteenth century that, due to insufficient flour mills, flour was frequently imported. They reasoned that the use of steam-powered flour mills would be a lucrative enterprise. The first of these mills was set up in 1850 in the vicinity of Izmir with steam engines imported from Britain. The company had a capital of 30,000 pounds sterling. All of its shares were bought by French and British subjects residing in Izmir.272 Thereafter, the British started to operate flour mills of various sizes in western Anatolia. Years later, in 1910, British investors built the first mechanized bread factory in Istanbul. This bread factory, with a capital of 78,750 pounds sterling, established a monopoly in the sector.273

Table 4.7 Major Foreign Companies in the Industrial and Commercial Sectors (before the First World War) Industry

Number of Firms

Location

Home Country

Cotton Ginning,   Baling

5

W Anatolia

Britain

Thread (Cotton   & Silk)

7

W Anatolia, Adana, Tarsus

Britain, Belgium

Textile (Cotton   & Wool)

5

W Anatolia, Istanbul

Britain, Belgium

Carpet Weaving

4

W Anatolia

Britain (2), Belgium (1), Austria (1)

Foundry & Machinery

7

W Anatolia

Britain (6), Belgium (1)

Electrical Machinery

1

Istanbul

Switzerland

Valonia

2

W Anatolia

Britain

Licorice

3

W & E Anatolia

Britain, Germany, USA

 

Oil & Margarine

25

W & S Anatolia, Britain (24), France (1) Istanbul

Soap

1

Izmir

Britain

Flour

8

W Anatolia, Salonica

Britain (7), France (1)

Wholesale &  Retail Trade

8

Widely distributed

Britain (5), France (3)

Bread Factory

1

Istanbul

Britain

Construction

6

Istanbul & vicinity

Britain (1), France (3), Belgium (1), Switz.(1)

Brewery

3

Istanbul, Izmir

Switzerland (1), Britain (2)

Consultancy

3

Istanbul

France

Sources: E. Pech, Manuel des Sociétés Anonymes, 1906 & 1911; O. Kurmuş, Emperyalizmin Türkiye’ye Girişi, 1974; V. Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, 1994; G. Ökçün, Ottoman Industry Industrial Census, 1997; E. Giraud, La France à Constantinople, 1907; The Near East, 24 May 1911.

The Distribution of Foreign Direct Investment by Sector 133 British investors in western Anatolia also pioneered the oil industry. R. Hadkinson, a successful businessman in Izmir, established the first olive oil factory in Ayvalık during the mid 1870s. Within a few years he came to own several factories on the seashore. In 1886 this entrepreneur imported, from England, machines to produce cottonseed oil, and established a factory in Aydın. In 1900, Hadkinson, who had become the largest oil producer in western Anatolia, owned two sunflower, four sesame, six cottonseed and ten olive oil factories.274 Another British-owned factory, the Samolda Cottonseed Oil was sold to local Greeks in 1910. The other two British oil factories were the Mersyna Oil Mill Co. Ltd. and the Ottoman Oil Company Ltd. which claimed to be the most modern oil producers of the period.275 In 1910, French investors established the Société Franco-Ottomane pour la Fabrication des Corps Gras et des Graisses Alimentaires in Istanbul. It had a capital of one million francs and produced margarine.276 With the Tanzimat Decree, the Ottoman Empire carried out reforms in virtually all aspects of the State. The civilian and military cadres were transformed and a new bureaucratic class come into being. The British and French military personnel, who came to Istanbul with their families during the Crimean War, introduced new patterns of copycat consumption and fashion among the bureaucracy and the people. Towards the end of the nineteenth century, these imitative trends grew, bringing changes in dress as well as behaviour. With the influence of missionaries, the production of wine increased and the consumption of alcoholic beverages like beer began. In the end, foreigners started to produce these items on a large scale. In 1890, two brothers, A. and U. Bomonti obtained a concession for the production of beer, malt and ice. In 1893, they started their first operation at Feriköy in Istanbul. In 1902, they moved their production facilities to their new location in the city, and in 1905 they reorganized as the Société Anonyme Brasserie Bomonti. They bought the Nektar Brewery Company Limited, established in 1907 by the British, and formed the Société Anonyme des Brasseries Réunies, Bomonti Nektar. It was reorganized with a total capital of four million francs and maintained its monopolistic position. In 1912, it also founded the Aydın Beer Factory in Izmir.277 The British also introduced the manufacture and use of steam engines into the Ottoman Empire. The steam engines used by the British entrepreneurs in western Anatolia required workshops for maintenance, repair, and the manufacture of spare parts. This eventually led to the full-scale production of machines and engines. During the 1880s, in Izmir and its vicinity, there were 16 establishments in this field, and the six largest belonged to the British. These large firms used high-quality iron and steel imported from

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Foreign Investment in the Ottoman Empire

Belgium, Germany and Britain in their production. M. Rankin, S. Watkins, J. Papps, J. Clark, Rice Brothers, D. Issigonis, Biejerring and Westland were the most important names in this sector.278 With the advent of electrical machinery these steam-powered engine firms gradually lost their predominance. In the 1913 industrial census, only Rankin and Issigonis were still mentioned.279 At the end of the nineteenth century, the growth of large cities engendered a growing need for construction companies. In 1879, the British formed the Constantinople Land and Building Company Limited, based in London. Its main purpose was to purchase land in Istanbul and build rental housing and hotels which it would operate itself. It had a capital of 25,000 pounds sterling, and was granted the option of operating tramways and railways as well.280 Foreigners not only constructed hotels but also operated them. The most famous of these was the Pera Palace Hotel in Istanbul, built in the spring of 1893 by the Compagnie Internationale des Grands Hotels which was a part of the Orient Express train operations owned by Georges Nagelmackers, the financier from Liège.281 Moreover, the French owned at Beyoğlu (Pera) the Grand Hotel Français et Continental and the Grand Hotel des Colonies.282 Another construction company operating in Istanbul was the Swiss Société Immobilière des Bains de Mer de San Stefano. Established in 1910, its purpose was to construct beach installations at Yeşilköy (San Stefano) in Istanbul.283 Many small entrepreneurs were working as sub-contractors in the seaports, railways and the urban services. For instance, a Frenchman named P. Augier worked in the harbors of Zonguldak, Haydarpaşa and Bandırma, while another Frenchman, Albert Pottier, constructed the sewerage system of Bursa.284 A new enterpsrise of the twentieth century was the consultancy firm. The Société Franco-Ottomane d’Etudes Industrielles et Commerciales, established in Paris in 1908, aimed at studying and obtaining relevant concessions for all sorts of industrial, commercial, and real estate as well as public works-related activities in the Ottoman Empire. Two other new firms joined the consultancy business a couple of years later. They were the Société Générale d’Entreprises dans l’Empire Ottoman and the Syndicat Industriel et Commercial Ottoman. The capital of these three consultancy firms was respectively 2.5 million francs, 4 million francs, and 1.2 million francs.285

5 FOREIGN INVESTMENT POLICY AND POLITICAL RISK

The factors that attracted foreign investors to the Ottoman Empire and the sectors they tended to choose were examined in Chapters 3 and 4. This chapter will attempt to elucidate the negative and positive reactions to foreign investment in the nineteenth century. While the perceptions of the Ottoman Government and intellectuals will be examined in some detail, a brief account of relevant views of foreign countries will also be presented. Some of the capital-exporting countries had peculiar ways of looking at investments in the Ottoman Empire. Since interest rates and returns were low in France, and with the highest savings and capital accumulation, the French were oriented to foreign instruments, especially bonds. The French Government had a policy of orienting these savings to countries where it could obtain political interests and privileges. Certain banks functioned in the same way as embassies. Negotiations on debt were generally carried out through the French Foreign Ministry, and French investors approved this government intervention.1 However, after 1887, those who wanted to borrow had to satisfy the foreign ministries of both France and Russia. French financial relations were shaped more by the political goals of their Russian ally than the interests of the French people. The French ambassador in Istanbul, Bompard, wrote a letter to the French Foreign Ministry, in which he mentioned bitterly that the Russian Government abused the French financial markets and used them in line with its own political goals. A bond issue, not allowed by the Russians, could not reach the Paris Bourse.2 British investments tended to be oriented towards profit as well as keeping the balance in the political status quo. The British State intervened in foreign investments only when there was a flagrant violation of international law.3 For the credits granted to the Ottoman Empire before 1875, financial gains took precedence over political motives. The European creditors

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were attracted to the Ottoman Empire because of the prospects of high returns. During and after the Crimean War, the allies of the Ottomans had provided credits, believing they were for a high moral purpose. However, at the time of later loans the British press displayed unpleasant, and even outright, hostility, with those buying Ottoman bonds warned by The Times of the risks. On 24 July 1855, in the midst of the Crimean War, The Times editorial wrote: No doubt, the war is a very disagreeable thing, and a loan of 5,000,000l is a very disagreeable thing, and the fact of its being advanced to a State with such a barbarous finance as that of Turkey is still more disagreeable... we might admit that a pecuniary engagement with Turkey was likely enough to be an occasion for sin on both sides, that is, dishonesty on her side, and insolence on ours; that common liabilities have very often been thrown upon ourselves, with very ill feeling towards the partner in the contract; that a large communication of good credit to a Power without credit is likely enough to encourage that extravagance which created the necessity for such an operation.4 On 9 October 1873 the same newspaper wrote that the only service which could be rendered to Turkey was to refuse her a single additional shilling until she placed her system of revenue and expenditure under solemn guarantees in the hands of statesmen conversant with true principles. Accordingly, such strict regulation could have prevented any wrongdoing, including imperial interference.5 While Germany was industrializing rapidly between 1870 and 1914, the high demand for internal capital left a limited amount to be invested abroad. A rentier class, similar to that in France, did not really exist in Germany, and foreign investments were carried out by German banks and industrialists in order to encourage the country’s foreign trade by marketing their products and finding sources of raw materials. The German Government oriented the banks and industrialists to parts of the world where it could gain political influence. However, there were objections even against a trickle of outward investment. The ‘agriculturalists’ and the ‘socialists’ severely criticized the banks, who they perceived as intermediaries of capital export. The agriculturalist group thought that, with capital going out, domestic interest rates on debt would rise. Moreover, as Germany’s foreign trade would grow, it would seek a lowering of tariffs for its industrial exports. This would lead to a bargaining process on the back of agricultural products, thus harming the interests of the agrarian sector. The socialists, on the other hand, thought that

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foreign capital would lend to the exploitation of weak nations, and would certainly involve Germany in international conflict.6 In the 1880s, Chancellor Bismarck took a negative view of the rapidly growing interests of German industrialists and merchants in the Ottoman Empire, and a possible political rapprochement between the two countries. Bismarck’s greatest fear was that a war between Russia and Germany could erupt because of the latter’s interests in the Ottoman Empire. As the Deutsche Bank was making preparations to construct the Anatolian railways, Bismarck openly declared that he was against this enterprise.7 Such opposition ended with Bismarck’s departure in 1890. As the negotiations for the Baghdad Railway were proceeding, Russia’s objections to the project did not stop. It claimed that a railway in eastern Anatolia would pose a threat to its presence in the Caucasus. It threatened to make the Ottoman Empire pay the remainder of the war reparation that was due to Russia according to the Treaty of Berlin. With the Black Sea Agreement of 1900, the Sultan was forced to declare that the concession to build a railway in eastern Anatolia would be given solely to the Russians. The Russians also came up against an international company, of which Russia would be a part, to build and operate the railway. The finance minister declared that the Government of Russia was more interested in devoting its available resources to the construction of new railways within the Russian Empire than it was in promoting an enterprise destined to offer competition to Russia’s railways and industries.8 In reality, Russia’s intention was to prevent any kind of progress and development in the Ottoman Empire, including economic and military. The Ottoman Attitude towards Foreign Capital Certain Western authors seem to rely on superficial observations when describing the Turkish attitude towards foreign investment. Mears thought that the Turks had a strong mental inclination to accept foreign investment. To him [Turk] it seems the will of Allah that railways, port and harbor works, local public utilities, mines, banks, and other enterprises should be both owned and managed mainly by foreigners. He accepts the situation without the show of resentment and apparently seems to be well satisfied that others are willing to assume what he has been accustomed to regard as the aggravations of business enterprise.9 Such authors admit that Ottoman industry had a glorious past. They describe the exquisite fabrics of Mosul, copper works of Diyarbakır, the steel and

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enamel works of Damascus, and silken velvets of Bursa. Then, for whatever reason, the whole country declined economically in the nineteenth century. Due to mismanagement, popular ignorance, heavy taxes, and the invasion of the cheap machine-produced European products, the Ottoman Empire had turned into a ‘backward country’, both industrially and politically. They even thought that the Turkish villager had gained a widespread reputation as being lazy by birth.10 However, most of these authors could not see the fatigue created by mostly long and very costly wars on the common people and the educated classes, the disgust of farmers under a heavy tax burden, or the demoralization of the craftsmen who could not compete with the products of industrial Europe. Sometimes, they simply could not overcome their ingrained prejudices against a Muslim community. As mentioned in Chapter 1, during the 1830s and 40s, Le Moniteur Ottoman and William Churchill’s newspaper the Ceride-i Havadis were continually praising the wisdom of a free trade regime, the lowering of customs tariffs, and the elimination of internal monopolies. The first Ottoman economics books were written under their influence, and according to Berkes, they were authored by the staff of the above-mentioned newspapers. For instance Sahak Efendi, an author of the Ceride-i Havadis, also wrote a book, İlm-i Tedbir-i Menzil, on that subject. The first economics texts were either translations of Western books or works which collected the ideas of European liberal economists. Soon after these, Mehmet Şerif Efendi, an instructor at the Civil Service School (Mekteb-i Mülkiye) wrote a book on economics entitled The Science of the Wealth of Nations (İlm-i Emval-i Milliye). Though this book basically followed Adam Smith’s precepts, Şerif Efendi was also known to be a meticulous researcher who was interested in the economic problems of his country.11 While the Tanzimat administration brought wide-ranging reform plans, it was unable to steer the Ottoman economy into the path of development, and all attempts resulted in fiasco. As early as the 1850s, intellectuals, army officers, medrese students and religious scholars, who saw that the Muslim people had lost their economic power to foreigners and religious minorities, started secret activities designed to eliminate the Tanzimat order. During the 1860s, the general discontent rose sharply and the Young Ottomans Society (Yeni Osmanlılar Cemiyeti) began to demand a constitutional government which would end the absolute power of the Sultan. During the early 1850s, Şinasi, who studied economics (public finance) in France, influenced the Young Ottomans, including Namık Kemal and Ziya Bey (later to become Ziya Pasha). During the years they spent in Europe, these intellectuals took courses in economics, and also studied independently. The Young Ottomans

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published critical works in Europe, and when they returned home, they wrote articles criticizing the liberal Tanzimat economy in the Tasvir-i Efkar, a newspaper published by Şinasi. During the 1870s, the European Powers were continuing to undermine the existence and sovereignty of the Ottoman Empire. Certain intellectuals, who noticed the increasing impoverishment of the people, and the country heading towards bankruptcy, began to ask whether the idea of Westernization had come to mean the annihilation of the Turkish people.12 The Young Ottomans claimed that the economic policies of the Tanzimat were wrong and dangerous. While the economics authors and teachers of the period remained stuck in the mould of Western economic ideology, non-economists such as Namık Kemal and Ziya Pasha tried to discover what was going wrong by making direct observations about the economy. Even though their main orientation was political, these authors managed to understand the past and future of the Ottoman economy better than the professional economists. They were not constrained by any specific economic doctrine. They generally criticized what they termed the ‘officeholding capitalism of local agent bureaucrats’.13 The prevalent mentality that ran the free trade policy in the Ottoman Empire was adopting a liberal policy in other economic relations with Western countries, including foreign direct investment and borrowing. What was perceived to be the most important economic textbook of the period, An Introduction to the Science of Wealth (Mebad-i İlm-i Servet), written by Sakızlı Ohannes Efendi (later to become Pasha) defended a laissez-faire economy. Until the early 1900s, those in the highest ranks of the Ottoman public administration considered this book to be the best in its field.14 In his book Political Economy (Ekonomi Politik) published in 1879, Ahmed Midhat Efendi, who was not an economist, wrote in order to enlighten the public that the laissez-faire doctrine would spell disaster for Ottoman society. He was against free external trade and he ranked imported products according to their level of necessity. Those that were very much needed could be subject to low import duties or none at all. For instance, investment goods such as machinery could be imported without duties. On the other hand, luxury products could be subject to high duties. Moreover, he expounded views on the relationship between trade and foreign direct investments that even today’s liberal economists are reluctant to accept. He maintained that if the Ottomans wanted to attract foreign direct investment, there should be hurdles against free imports. In order to circumvent these hurdles, such as import duties, foreigners were likely to prefer the option of investing and producing in the Ottoman Empire.15 However, according to Berkes, the Ottoman Empire had so tightly committed herself to various commercial

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agreements, that it did not seem possible to raise the import duties.16 Other authors did not think it possible that European capital would forsake the high returns provided by Ottoman bonds and instead invest in risky industrial establishments.17 During the last quarter of the nineteenth century, Ottoman intellectuals and bureaucrats understood the necessity of realizing infrastructure investments such as railways, ports and other means of transportation and communications, as well as irrigation networks, in order to solve the country’s economic problems. However, these investments required capital that did not exist in the Empire. The Minister of Public Works sent delegations to all parts of the country in order to prepare an inventory of required investments. At the end of 1880, a detailed report was sent to the Sultan.18 The Minister’s report, sounding almost like an invitation to foreign capital, aroused interest among foreign investors. The Minister, Hasan Fehmi Pasha, believed that the capital needed for infrastructure investments could only be obtained from foreigners. He maintained that the State did not make the required effort to attract investments which would provide proper roads and railways, and put in working order the waterways and seashores. He thought it was necessary to attract foreign engineers and capitalists to exploit the huge untapped assets that were lying dormant in the rural areas, forests and mines of the Empire.19 The concessions given to foreigners in the Ottoman Empire resulted mainly from reasons such as diplomatic pressure or financial difficulty. For the first time, Hasan Fehmi Pasha mentioned the words ‘necessity’ and ‘benefit’ for these investments. In order to protect the country’s interests, Hasan Fehmi Pasha considered certain measures. He believed that foreign investors should not expect returns higher than those existing in their own countries. It was necessary to be careful about the use of political pressure through foreign capital, especially concerning infrastructure investments. Therefore, syndicates formed by multinational capitalists might be more appropriate. Only such syndicates would hold business interests above political considerations in case of war, and would therefore be politically neutral. In order to encourage foreign investments and management, Hasan Fehmi Pasha made the following recommendations:20 • The Government should declare that appropriate projects are beneficial for the country. • Foreign companies should be allowed to operate the mines in the vicinity of the railways they are building, but only by complying with the existing laws and regulations.

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• Foreign companies should be exempted from all import taxes on machinery, vehicles, implements and materials they would need to import. • Foreign investors, needing timber for construction, should be allowed to cut down trees as permitted by forest regulations. • In order to realize and operate its investment, the foreign company should have the right to freely use the government buildings it needed, such as stations, warehouses and work sites. • Those who would benefit from these state facilities would not only be regular railway operations but also short-distance tramways, narrowgauge railways, canal and road constructions as well as irrigation and swamp drainage projects. In later years, there were intellectuals who came to believe in the West’s individualist and enterprising culture, besides its investments. Under the influence of certain French sociologists who admired the British system of government, Young Turks like Prince Sabahattin, Tevfik Fikret and Sâti Bey proposed that, for promoting economic growth, the people should be inculcated with notions such as individualism, liberalism, and private enterprise.21 Tevfik Fikret believed that economic development could be realized with a new educational system which would eliminate the influences of ‘servile and parasitic intellectuals’, and educate a new generation of individualist youths. In the projected ‘New Schools’ students were to receive education in English and Turkish. Instead of superficial, unpractical and unnecessary knowledge, emphasis would be laid on crafts and physical education as well as a curriculum including music, drawing and instructive travel. The two main orientations would be agriculture and commerce. The real purpose was to train self-sufficient, individualist and enterprising youths. English would have precedence since ‘it was the language of a race whose liberalism and spirit of enterprise should be examples’ to those in need of development.22 Had this ‘New School’ project been implemented, it would have been a prototype of today’s Turkish business schools with English as the language of instruction. A representative of this line of thought in political economy was Cavit Bey, an economics and finance expert and later the Finance Minister. Cavit Bey wrote in the Journal of Economics and Social Sciences (Ulûm-u İçtimaiye ve İktisadiye Mecmuası), a journal that was perceived to be the organ of Westernist intellectuals. In it, he maintained that there could be no economic development without foreign investment. Accordingly he wrote:

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The number of those... who would not want the coming of foreign capital to our country is less than the foreigners believe. There are certain small-scale enterprises that can be carried by the accumulated capital in the country which, of course, we would not like to have pass into the hands of foreigners... Yet, in my opinion, we must accept foreigners even in such enterprises for the sake of establishing a skill, that of management and rationalization, which we lack so badly. As to important public works, these can be done only with foreign capital.23 These intellectuals might not have been so insistent on their ideas had they been able to observe how a country like Japan, which was collectivist in orientation and committed to her culture, was able to develop with very different production and management methods later in the twentieth century. Japan was also a role model in the development of other Asian countries that were collectivists rather than individualists. Moreover, the high propensity to save in these countries played a major role in their development and eliminated the need for foreign investment.24 On the other hand, intellectuals like Ziya Gökalp, were not of the same opinion as the Westernists. Gökalp envisaged (Durkheim’s) collectivism as all classes of the nation displaying unity in culture. ‘Solidarism’ could be an ideology that would promote development.25 Many authors showed displeasure at the Galata bankers and the foreigners for the games they played in trying to extricate concessions, as well as at the Ottoman bureaucracy’s corruption. These authors were able to express their opinions openly only after Sultan Abdülhamid’s censorship was lifted following the Second Constitutional Period of 1908. They explained how the concessionaires were making fortunes at the expense of the Ottoman people. The Paris correspondent of the Tanin newspaper wrote in a 1909 article about the mining enterprises. He explained how the share price of the Balia– Karaaidin Mining Company was illegally manipulated, and exposing those who took advantage of the situation. The most influential partner of the company was the Banque de Constantinople owned by Zarifi, the Sultan’s banker. The Balia–Karaaidin Mining Company had two argentiferrous lead mines and a lignite mine. Pech writes that the lignite mine belonged to the Banque de Constantinople.26 In the 1890s, nine Greek and Ottoman–Greek banks controlled the administration of the bank. According to Tanin, the Ottoman Government ceded for a trinket one of its most valuable mines for a period of one century. Even though the concessionaires were expected to

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make 12–15 million Ottoman liras until the end of the concession period, the Government was to get almost nothing. The Balia–Karaaidin Mine was no exception. Certain individuals were gaining influence under the profiteering administration of the Ottoman Bank. In order to monopolize the wealth of the country they planned and organized themselves so as to make the most of the heedlessness of the Ottoman bureaucracy.27 During 1911–12, another author who influenced the Turkish intellectuals was Parvus Efendi (Alexander Helphand). He wrote under the name of Parvus Efendi in Tanin, Tasvir-i Efkar (Description of Ideas), and Jeune Turc (in French) and under the name of Alexandre Helphand in Türk Yurdu (Turkish Hearth).28 Parvus Efendi wrote that the Ottoman Empire’s agriculture, trade, natural resources, railways and other infrastructure, customs duties and other state revenues were held hostage by European Powers. Should this situation persist, agriculture and industry had no possibility of development. He also mentioned that there were two Europes: one official and the other national. Turkey contacted and gained familiarity with ‘official’ Europe through its diplomats and financial administrators. She heeded its advice and saw Europe as an example. However, these representatives of official Europe only sought to wrest unjust gains from the Ottomans, and live off their back.29 According to Parvus Efendi, the country could develop only if it freed itself from the yoke of European imperialism and, to this end, it needed to do away with capitulations and external debt. Development could not be realized with foreign aid or capital. The impossibility of development in this period was the result of the continuation with the same policies from the past. He maintained that current borrowing would be under even worse terms than in the past, and this would hasten the Empire’s economic fall. Parvus’ ideas deeply influenced the leaders of the Committee of Union and Progress as well as the nationalist intellectuals.30 Perhaps the only company in the Ottoman Empire which drew a very negative reaction from the people and the Government was the Tobacco Régie. The reaction did not arise from the foreign origin of the company but rather from the damage it did to the Government as well as to the tobacco cultivators through its monopolistic practices. As explained in Chapter 4, the Régie had created its own police force to prevent tobacco smuggling, and caused numerous deaths. Sultan Abdülhamid’s private secretary, Tahsin Pasha, writes that while the concession terms of the Régie were being negotiated, due to the incompetence of the Ottoman Government, clauses that were against Ottoman interests were inserted in the agreement. While the concession-seeking companies had capable administrators, with experienced and astute legal counsels, the Ottomans lacked expert advice. Therefore,

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quite often, their ability and attention overcame the lack of experience and knowledge of the Ottomans, who realized the damage only when it was too late. Tahsin Pasha continues: The Régie contract also happened that way and the people who cultivated tobacco incurred great losses. In order to prevent smuggling, the calamity created by the Régie mercenaries was followed by numerous complaints. This, as well as the unfair treatment and damage that the people suffered under Régie officials resulted in a flood of popular complaints and petitions sent to the Palace. These contained such true and rightful complaints that it was impossible to ignore them.31 The Ottoman discontent with the Régie continued after the Young Turks came to power in 1908. When the Ottoman Finance Minister publicly attacked the Régie and set up a committee to investigate its activities, the French Foreign Minister Stephen Pichon expected an expropriation and instructed the ambassador in Istanbul to make an ‘energetic protest’. The French finance minister threatened to close the French money market for Ottoman securities.32 Under such conditions the Ottoman Government had to back down. When negotiations started for the renewal of the Régie’s concession in 1912, a revised agreement was prepared. According to the new agreement of 1913, the concession period was extended for a further 15 years, but no changes were made to the company’s capital and to the proportions in the distribution of earnings.33 We can find some praise in the foreign news media for the Ottoman Government’s attitude towards foreign investment. It seems the Ottoman authorities did their best to facilitate the work of foreign investors willing to build railways, as they aspired to have this modern transport system in their own country. On 27 February 1858, The Times correspondent reported that the Ottoman Government, as well as the local authorities in the Izmir region, had shown the best disposition to promote the construction of the IzmirAydın Railway, in spite of the suspicions of the native people about these new enterprises.34 The Ottoman Government legislated a special expropriation law in order to prevent abuses by proprietors and speculators. The Government’s policy assisted the railway company rather than protecting the rights of landowners. The Government also helped the company sell its shares and issue new debentures by sending subscription lists to public offices at the capital as well as the provinces.35 In a half-yearly meeting of the company in London in 1861, the chairman, Sir Macdonald Stephenson, reported to the shareholders the most agreeable

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attitude of the Ottoman Government for the completion of the railroad. The contractor, Mr Crampton, also expressed his pleasure about the honest manner of the Turkish Government towards the company.36 In another halfyearly meeting in 1863, the chairman gladly said ‘the Ottoman Government had intimated that, if essential for the completion of the line and desired by the shareholders, the increased guarantee should be given.’37 In the second half of the nineteenth century, traditional producers, like the Luddites in Britain, resisted the formation of modern factories for fear of losing their livelihoods. However, the resistance, that turned occasionally to violence, was often of a passive nature and not directed towards foreigners. Local administrators and Ottoman bureaucrats were concerned about the regulation of new enterprises, and sometimes refused permission for factories that might jeopardize the livelihoods of citizens. When entrepreneurs wanted to establish a water-powered yarn factory in 1875, the Salonica provincial administrative council judiciously stated that the new establishment should not interfere with the subsistence of the local residents, and that the usage of water for production should not diminish the water supplies needed for local gardens, orchards, and fields.38 Until the 1860s, guilds were active in representing their members when they were involved in conflicting situations with foreigners. However, these lost their powers, or were abolished altogether, after the 1860s.39 In 1861, when the British Abbott family opened a muslin printing factory in İzmir, the guild of cloth printers, dominated by Armenian craftsmen, claimed that because of far superior technology, the new factory was producing at lower costs and creating unfair competition. A decision was taken by the authorities to close the factory.40 In rare cases, local rivals created problems for foreign entrepreneurs. During the 1870s, there was fierce competition between the Greek and British food-oil producers in western Anatolia. When they could not compete with the British, who used superior technology in production, the Greeks started to threaten and plot against them. The British investors tried to avert such plots by registering their factories in Greek names and employing Greek managers. However, this did not have a long-term effect. In 1880, a Greek manager, G. Mandamathiotis, asked the court to recognize his full ownership in one of the factories of R. Hadkinson in İzmir, and won the case. Hadkinson was unsuccessful in regaining ownership of his factory. A little later, Mandamathiotis was killed by unknown assailants and his heirs, afraid of facing the same fate, gave the factory back to Hadkinson. In 1895, Hadkinson again lost four of his factories the same way. This time, he succeeded in getting them back through peaceful legal means.41 It would appear that, as the power of the guilds diminished, government protection of foreign property became stronger.

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With a careful examination of all the views, one can infer that there was no serious animosity towards foreign investment in the Ottoman Empire, although Ottoman intellectuals reacted defensively in extreme cases of exploitation and abuse. On the other hand, in the Ottoman lands that became separate states after the 1878 Congress of Berlin, one can discern a xenophobic attitude towards foreign investors. Even though these countries, Serbia and Bulgaria, made laws and regulations that would encourage the type of foreign investment they needed, their government organizations had the power to intervene in the market. This could cause an increase in risk and a reduction of profits for the foreign enterprises. In these countries, large industrial investments could only be realized with the involvement of large European banks, who found them too risky both from a business and a political point of view.42 As soon as Serbia and Bulgaria had the opportunity to govern themselves, they nationalized the railways, railway workshops, mining enterprises and armament factories that remained in their lands. The hostility felt towards foreign companies existed not only among bureaucrats and rival domestic entrepreneurs but also among Christian priests who feared a loss of their authority. These hostilities went as far as sabotaging foreign installations. Laws promulgated in Bulgaria in 1905 stipulated that native Bulgarians should be the administrators of foreign companies.43 During this period, such a demand was unacceptable for foreign investors. Political Risk Political risk for foreign firms can generally be defined as the increasingly difficult working conditions and decrease in revenues due to changing political conditions in the countries where they operate. Wars, rebellions, a change of government or ideology, which may result in the introduction of different laws, rules, and working conditions, all constitute political risk. The most important political risk faced by foreign investors in the Ottoman Empire was war. As with other countries in wartime, providing for the needs of the army was the most important problem faced by the Empire, which could confiscate the production and assets of domestic and foreign companies. War measures, such as mining the straits and the gulfs, also hurt business activities. In the latter part of 1853, with the start of the Crimean War, a British-run flour-mill operating in İzmir since 1850 had to cease its operations after the State confiscated all its stocks of cereal. At the end of the war, the Ottoman Government purchased all French-owned stocks, and the majority of British ones.44

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In 1912, when the first Balkan War started, the Ministry of War commandeered the horses of the streetcar (tramway) company of Istanbul (Société de Tramways de Constantinople) for military purposes. With the approval of the company, all of the tramway horses were bought for 30,000 gold coins by the State. Consequently, the company had to curtail its activities for two years.45 The Near East’s İzmir correspondent wrote, on 18 July 1913, that with an arbitrary order from Istanbul, all the horses and carriages were sent to the front and daily business activities came to a partial standstill. The police and gendarmes followed the instructions meticulously and very few carriages were left for commercial transportation. Carriages which escaped seizure were hidden away. Foreign businessmen were very unhappy about the inconveniences caused by the war. In 1913, when the Second Balkan War began, The Near East’s correspondent wrote ‘the same tactics are being displayed now as the outbreak of the Turkish–Balkan War, slips of paper, with particulars of the property seized being given in exchange, but as experience has proved that these receipts are of very little value, the owners of carts and horses were in dismay’. He expected that the prolongation of the war would inevitably lead the Turks to also commandeer horses belonging to foreigners.46 In this situation, besides the owners of horses and carts, the manufacturers and merchants, who could not have their goods transported, were also incurring losses. With the advent of the First World War in 1914, many industrial establishments were partially or totally seized as a result of decisions taken due to ‘extraordinary war responsibility’ (tekâlif-i harbiye).47 These decisions applied to firms both domestic and foreign. The British cooking-oil company, the Ottoman Oil Company Limited, was seized, since Britain had become an enemy country. After the conflict, the factory resumed its activities.48 Ökçün noted that only one of the four major cooking-oil companies was still operating in 1915. The main reason for halting their operations was the lack of raw materials and fuel.49 During the First World War, textiles was another sector to have its assets and production seized. While war conditions paralyzed all the thread and cloth factories, textile factories which drew their own threads continued to work and meet military needs by producing coarse woollen clothes, serges and blankets.50 Among these woollen textile factories, the Ottoman Cloth Company, founded by five British merchants in 1910, in İzmir, was perhaps the one using the most modern machinery. Even before the War, this factory had an agreement with the Ottoman Government to produce woollen cloth for the army. When the War started, the Ottoman Government seized the factory.51

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Towards the end of the nineteenth century, as the Ottoman Empire lost territory in the Balkans, the railway companies became exposed to high political risk. The Imperial Railway Company of Turkey in Europe (La Société Impériale des Chemins de Fer de la Turquie d’Europe) and, after 1890, the Oriental Railways Company (La Société des Chemins de Fer Orientaux) which took its place, incurred heavy losses. The 1878 Berlin Treaty secured the independence of Serbia, and while the Bulgarian Principality in northern Bulgaria, was nominally under Ottoman suzerainty, it obtained a semi-independent administration. The administrations of Serbia and Bulgaria saw the railways as strategic, much like the military equipment used by their armed forces.52 For this reason, they aimed to nationalize the assets and operations of the railways. Even the Bulgarian Principality, not yet independent, established its state railways in 1884. In 1888, both Serbia and Bulgaria nationalized the railway companies within their lands.53 In fact, immediately after the Congress of Berlin, the administrators of the Imperial Railway Company of Turkey encountered the ‘impertinent’ behavior of Serbian and Bulgarian officials. In 1890, Otto von Kühlmann, who had been the president of the company during the 1880s, wrote in a letter to the head of the Deutsche Bank, Georg Siemens, about the Bulgarian attitude: ‘They have 300 kilometers of railways in their country for which they have not paid anything and then they complain because they believe railway tariffs are too high’.54 On their side, the Serbs and Bulgarians were accusing the company of holding its financial interests, and those of Austria and Germany, above those of the countries in which they were operating. Moreover, the company was accused of doing nothing to develop local resources and industry. Also, the Serbs and Bulgarians were angry at the fact that the company was run from Vienna with foreign managers while rate schedules and regulations were outside of their control.55 The Economist of London also blamed the Oriental Railway, stating that ‘the company had no inducement to improve their service or increase traffic. This might be said equally well of the line from Salonica to Monastir, which is leased by a German company to the Oriental Railway, and of the [French] “Jonction” line to Constantinople’. Since the kilometric guarantee secured the company’s shareholders a respectable percentage on their capital whether freights or fares covered working expenses or not, ‘it could afford to disregard sordid considerations of profit and loss’.56 In 1896, the Bulgarians began to construct a line parallel to the railway section remaining in Bulgaria. This arose out of the negative feelings they had against the Oriental Railway and its unwillingness to pay the real price of the railway to the Ottoman Government. The company lodged a protest

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and secured the support of the German and Austrian Governments as well as the banks. It even proposed to cede the 319-kilometer railway operation to the Bulgarians in return for reasonable compensation. The proposal that was ratified by the Bulgarian Parliament met the objections of the Ottoman Empire. Since the Bulgarians could not muster the necessary funds, the idea was abandoned.57 The proclamation of the second Turkish constitution in 1908, and the subsequent confusion in Ottoman administration and politics, gave the Bulgarian Principality a long-awaited excuse for occupying the railroad as far as Philippopoli (Filibe), in Eastern Roumelia.58 The reason for this action was the Oriental Railway workers’ strike in September that the Bulgarians claimed to have been started in Istanbul. According to The Economist the strike ‘seems really to have been started at Philippopoli, and the company was entitled to expect Turkish protection, as a tenant of the Porte.’ During the workers’ strike, the Bulgarian authorities resorted to severe action against the employees of the Oriental Railway Company. At one point on the line, Bulgarian troops expelled the employees of the company without giving them time to find other places to live. They also confiscated the company’s stores of coal and petroleum. At other points, they arrested an employee of the company, an Austrian subject, and threatened a French inspector with explusion.59 Behind Bulgaria’s claim and actions was impatience at the vassalage recently reasserted by the exclusion of a Bulgarian diplomatic agent, M. Gueshoff, from a state banquet, the invitations to which were confined to representatives of sovereign states.60 Many believed that this exclusion of the Bulgarian representative from a Turkish official event might have impelled Bulgaria to take steps for international recognition of her independence. The Ottoman Government took action after the Austro-Hungarian ambassador in Istanbul urged the Porte to step in and end the strike by force. Ambassador Markgraf Pallavicini claimed the strike was engineered by Bulgarian socialists and nationalists based in Plovdiv.61 When the Ottoman Government sent a battalion of soldiers to the railway’s main terminal in Istanbul, the strike committee agreed to resume work for the time being. This temporary settlement did not end the crisis and diplomatic action continued. After Bulgaria proclaimed her independence the railway issue had to be solved permanently. One point of contention was the section of railway owned by the Ottoman Government, and run by the Oriental Railways remaining in the Bulgarian territory. The company was earning 80,000 pounds sterling annually from the line. The Bulgarians wanted to pay 1,600,000 pounds sterling to buy the operating rights. This would have been 80,000 pounds a year based on five percent of the total cost. However, the company did not

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accept the offer. Among several reasons mentioned, there was the argument that revenues from the line kept increasing. Therefore, the amount to be paid by Bulgaria should take into account the increase in future earnings.62 The European Powers pressured the Turks to accept Bulgaria’s offer. With an agreement made by the Ottoman and Bulgarian Governments and the Oriental Railway Company, Bulgaria came to own the line completely. The 42 million francs, the compensation paid to the Ottomans, was provided by Russia, and the Ottoman Government had to give half of this amount to the Oriental Railway Company according to the settlement protocol.63 The 1911–12 Tripolitanian War and, to a greater extent, the Balkan Wars, brought great losses for the Oriental Railways Company, which had moved its headquarters from Vienna to Istanbul in 1910. The Serbian and Bulgarian Governments occupied the lines run by the company in their newly-conquered territories and operated them on their own accounts.64 The new borders resulting from the Balkan Wars created difficulties for the German-operated Salonica– Monastir Railway as well as for the French Istanbul–Salonica Railway Company. This created a rift, which would last for years, between the railway companies and the newly-formed countries. The Austro-Hungarian Government entered into negotiations with the German banks, which were the largest shareholders, and insisted on the return of the lines to the Oriental Railways Company, arguing that Austrian control was vital for the protection of its trade which passed to the Aegean. The Serbian Government resisted this demand, refusing to return the lines and compensate the Ottoman Government. Finally, the problem was internationalized with a French proposal. Negotiations and bickering continued until the start of the First World War.65 The lines run by the Salonica–Monastir Railway and the Salonica–Istanbul Railway companies suffered the most from terrorist attacks during the wars and rebellions in the Balkans. Thanks to these two lines, the Ottoman army was able to move troops rapidly from Istanbul and Anatolia. When, in 1903, violent revolts took place in Macedonia, the Ottomans were able to send 200,000 soldiers to quell the rebellion. These lines were therefore the targets of frequent sabotage. The railway operating company of the Salonica–Monastir line sent its 1903 Report to its headquarters in 1904. It was mentioned that, unlike previous years, the blowing up of the railways had not resulted in much damage during 1903. However, time-bomb attacks carried out on trains resulted in numerous dead and wounded passengers.66 The wars also hurt international shipping and transportation companies. During the Tripolitanian and Balkan Wars, the Ottoman Government decided to black out the lighthouses on all seashores, including those of the Red Sea. Despite vehement protests, lighthouses remained dark for a long

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period of time. The foreign press reported, in June 1913, that the lighthouses would be relit and that mines laid in the seas were to be removed. But that proved not to be the case, with the advent of the Second Balkan war.67 Later, British maritime companies requested, through their Foreign Office and the British Chamber of Commerce in Istanbul, that their ambassador should pressurize the Ottoman Government to remove the mines in the Dardanelles and the gulf of İzmir.68 An important event, which could be considered a political risk in the Ottoman Empire, were the boycotts organized against Austrian and Bulgarian goods from early October 1908 to early February 1909. These politically-motivated events had economic results. On 5 October 1908, Bulgaria declared her complete independence.69 Next day, the AustroHungarian Empire announced the annexation of Bosnia and Herzegovina, even though the 1878 Treaty of Berlin had only given her the temporary right of administration.70 Greece did not miss this opportunity, and on the same day declared the annexation of Crete.71 The Ottoman Government, which protested that the Treaty of Berlin was being contravened, got no response from the Great Powers who had signed it.72 As a result, the Ottomans lost two very important provinces and the revenues derived from them. The news caused a deep resentment among Ottoman intellectuals, who protested vehemently.73 This was not unexpected. The new Young Turk administration and intellectuals considered this to be an act of betrayal by the Great Powers after the constitution had just been restored. The State was in no position to declare war. Newspapers like Servet-i Fünun, Tanin, and İkdam strongly criticized this fait-accompli by Austria and Bulgaria, and urged the public to boycott these countries’ goods. The first boycott started with the merchants of Salonica, who sent a telegram on 7 October 1908 to Austrian suppliers, announcing the cancellation of their orders.74 On 10 October, Tanin, which was an unofficial organ of the Committee of Union and Progress (CUP), published an article entitled ‘Do not buy Austrian goods’. Later, this article was republished in all the newspapers in the country and had the effect of a bugle call for the boycott. Dr Rıza Tevfik, a member of the CUP, gave a speech during a meeting held at a theatre at Tepebaşi in Istanbul. He said that in order not to buy goods from a certain store, one should not go there. It would be strange and meaningless, he said, to shout in front of the store that one would no longer patronize it. The boycott was to be carried out without violence, but with persistence. On the same day, a Turk, a Greek, a Jew, an Armenian, and an Arab addressed a crowd that had gathered in the courtyard of the Sultan Ahmet (Blue) Mosque. They all condemned Austria’s betrayal and urged a

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boycott. According to Pinon, the patriots tore up their red fezzes publicly in the streets, since they had been manufactured in Austria, and instead, wore a white fez or an astrakhan fur hat. The same thing happened in the streets of Istanbul, Izmir, and Trabzon.75 Austria’s exports to the Ottoman Empire, which were made public on 7 December, showed a great decline. Although the report did not show separate October figures, it was seen that in the four months from July to October, the number of fezzes exported in 1908 declined to 234,000 from the 750,000 in the same period in 1907. According to The Economist there were no exports in October 1908.76 The loss of Bulgaria brought about greater damage to the Ottoman Empire, both politically and economically than the loss of Bosnia and Herzegovina. However, Austria was also in a vulnerable position, with a visible presence in the Empire. She had much to lose, with stores as well as service and production companies, and now became the main target of the boycott. On one occasion, a traveling representative of a Reichenberg cloth manufacturer had to cut short his usual trip to the country because his presence was no longer desired. The firm’s customers in Istanbul, Izmir and Beirut informed him ‘that no orders of any kind would be given, that he had best not to show himself in Turkey, where he would be badly received’.77 The Austrians claimed that, if the Ottoman Government wanted it, the boycott could end. However, the Porte and press made it clear that, as no violence had been carried out against any country, the Government would not interfere in the people’s trading preferences.78 The boycott was carried out effectively all the way from the Balkans to the Lebanon. At the ports, the bargees would not unload Austrian goods, while the porters would not carry them. The poor people, who incurred great losses because of the boycott, were also its staunchest supporters. On the night of 12 October, during the month of Ramadan, when the announcement of the boycott reached the Jaffa Committee of the Union and Progress office, the members forwarded the news to the bargees in the night coffeehouses. This was received with great excitement, and the workers refused to unload the ships’ cargoes. The bargees in Beirut went even further. They not only refused to unload and carry the goods, but also damaged the signs of stores that sold Austrian goods and of Austrian insurance firms.79 The boycott had totally paralyzed Vienna’s Eastern Mediterranean trade. Austrian merchants, manufacturers and ship owners expected their government to take urgent diplomatic steps, while some of them wanted reparations. Up until 10 December, 26 ships returned to Trieste without unloading their cargoes. In October 1908, the revenues of the Lloyd Shipping Agency were 450,000 Austrian kroners less compared to a year earlier. The railway company that operated in southern Austria declared a loss of revenue of

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1,232,513 kroners in November because of diminished traffic in the Trieste region. This was considered to be a financial and commercial catastrophe.80 After lengthy arguments and negotiations, on 2 February 1909, it was announced in Vienna that the arrangement between Austria–Hungary and Turkey had been ratified. The indemnity agreed upon would be paid in one lump sum, and not in installments, as had been generally supposed. According to The Economist the financial sacrifice which Austria–Hungary made in order to pacify Turkey was very small when compared to the losses which the boycott caused to Austrian industrial, railway and shipping companies, estimated at a billion crowns.81 The Ottoman and AustroHungarian Empires signed an agreement on 26 February1909. Austria agreed to pay the Ottoman Empire an indemnity of 54 million francs.82 A few months later Bulgaria, also, agreed to pay reparations, and the crisis was over. However, the Ottoman Government’s resentment continued well into the summer of 1909. It purposefully discriminated against Austria by offering employment to British, French, German and Italian personnel from the Macedonian financial commission. German and Italian generals, along with a British Admiral, were assigned to high positions in the Ottoman Army, while Austrian officers were overlooked.83 Foreign companies which came to the Ottoman Empire to trade or manufacture wished to carry out their business according to their own interests. They did not want to be subject to Ottoman law and regulation. While these companies had to comply with legal regulations in other countries, they tried to have their own way in the Ottoman Empire. Entreaties and demands made by ambassadors and consuls of the major powers before the Sultan and the Government, had influenced Ottoman economic policies for a long time. If, from time to time, the Ottomans took unilateral decisions on customs duties, production concessions or the control of foreign companies, that had not been suggested by the foreigners beforehand, they would arouse objections and complaints. As economic problems intensified, in the earlier part of the twentieth century the foreigners meddled in the crisis measures taken by the Porte. Though few in number, such laws and regulations could be considered to carry political risk for foreign firms. The Corporate Income Tax Law of 12 May 1906, which required foreign firms to meet certain requirements in order to do business in the Ottoman Empire, created lengthy debates and negotiations. According to the correspondent of The Near East of 28 November 1913, this law was not accepted by the major powers even by the date of his article. Insurance companies and others that did not comply with the new law met serious problems in Ottoman courts when trying to collect dues. In order for this

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law to be accepted by the European powers, the foreign firms had to be regulated according to the modifications suggested by the Powers.84 A few months later, The Near East published another article about the status of the British limited companies, mentioning that these ‘limited’ companies were not legally recognized in the Ottoman Empire. Thus, as they had problems in seeking their rights in courts, the British Chamber of Commerce in İzmir tried to rectify this situation.85 A British bank, which could not collect the debts of Ottoman subjects, could not take legal steps because of that. Should no solution be found, the losses, to be incurred by British firms in the Eastern Mediterranean, were a cause of concern. In rare cases, companies were able to seek indemnification for the damages they incurred. The Commercial Company of Salonica was one of them. The company was established in 1895 as a British joint stock company, with headquarters in London. Although a British company by registration, it was initiated by Banque de Salonique and the Régie des Tabacs, with an exclusive right for selling cigarettes, cigars and chewing tobacco.86 When this region was lost by the Ottomans, during the First Balkan War, it was contested by the Greeks and the Bulgarians. The Commercial Company of Salonica claimed to have incurred heavy losses when the invading Bulgarian army pillaged and burnt its stores and warehouses in Serres and Djoumaya Bala. The British Government had filed a diplomatic claim on behalf of the Commercial Company before the First World War. The claim, involving a sum of 115,949 pounds sterling, was brought before the Anglo-Bulgarian Mixed Arbitral Tribunal in December 1925.87 A settlement was announced after the tribunal had held several hearings, and an agreement was signed by the Bulgarian Prime Minister and by a representative of the claimants. However, the terms of the settlement were not announced.88 Managers and owners of businesses are always concerned about the negative impact of wars on their profits. However, there are examples of increased profits during wartime for companies producing war materials and necessities. Mira Wilkins explains how during the First World War the subsidiaries of the American Radiator Company in Britain, Belgium, Italy and Germany produced and sold materials to the respective governments on both sides of the battle, and profits surged despite heavy war taxes.89 The Orosdi–Back Company in the Ottoman Empire was also able to conduct a successful business even during war years. It is interesting that Etablissements Orosdi-Back (EOB) started with a store in Istanbul in 1855, and not in Europe as is sometimes thought. Eventually the company’s headquarters moved to Paris, where it registered in 1888.90 It had stores in Paris, Istanbul, İzmir, Vienna, Salonica, Philippopoli, Cairo, Alexandria, Tantah,

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Tunis and Bucharest. The company was reorganized in 1895 as a joint stock company, and at that time it had buying facilities in Lyon, La-Chaux-deFonds, Manchester, Birmingham, Bradford, Vienna, Milan, Chemnitz and Barmen.91 In 1908, the EOB reported that its imports into the Ottoman Empire in the previous year had made up five percent of the country’s total imports. During the Greek occupation of Salonica in 1912, which turned out to be permanent, the majority of the city’s population, which was made up of Jews and Turks, had to leave. They were partially replaced by an influx of Greeks. The EOB store manager became worried, made arrangements with the French Government in order to protect the store, and sent the account books and some merchandise to Üsküb (Skopje). However, the impact from these political changes did not prove to be as bad as predicted. In 1915, when there was a risk arising from protests against all foreigners, the manager proceeded to remove all signs in French from the store in Istanbul. Even though the branches had been cut off from the general suppliers, the existing quantity and diversity of stocks in the local warehouses allowed the continuation of rising profits in the Ottoman Empire.92 Political risk may even be initiated by companies themselves as explained in the following cases. In 1900, Société des Quais, Docks et Entrepôts de Constantinople, with the support of the French ambassador Ernest Constans, created its own political problem that turned into a full-scale crisis between the two Governments. The company claimed that since it was not allowed to enjoy all the rights and privileges granted by the concession, the Ottoman Government should purchase the concession at a certain price.93 As explained in the previous chapter, according to the concession that allowed the formation of the company in 1894 by Marius Michel (Michel Pasha), the firm had to construct quays on both sides of the Golden Horn, and establish customs warehouses and free docks with the privilege of issuing its own warranty documents. It also had to provide a steam-boat service for carrying merchandise and passengers in the concession zones.94 According to Tahsin Pasha, the company wanted to be relieved from the unprofitable parts of the concession. By using bribery as well as manipulating feelings, the agents of the company tried to inveigle the Sultan about the merits of government ownership of such port facilities.95 With the support of the French Ambassador Constans, the managing director of the Company, Felix Granet, asked for a hefty price of sixty-nine million francs for selling both its property and its rights.96 Granet had left France, after his repeated involvement in financial scandals, for a business career in Turkey. He had been a close political and business associate of Constans during the 1880s. This financial diplomacy took the ambassador and the French

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Foreign Ministry some considerable time. The Porte strongly contested the ambassador's diplomatic tactics, but finally consented to purchase the concession for 41 million francs in September 1901.97 Yet, the government did not have the necessary funds during these difficult times. Although it did not cause any harm to this company, the government still agreed to pay an indemnity of 25,000 Ottoman liras for delaying the purchase for one year until it had the sufficient means.98 The irony here is the host country, not the foreign company, facing “political risk”. Another company-initiated political risk situation involved a French company, Société Ottomane d’Héraclée, during the difficult times of the early twentieth century. In the second half of the nineteenth century the main users of coal were the Empire’s navy and commercial shipping companies. The administration of the coal mines was therefore entrusted to the Ministry of the Navy between 1869 and 1909. According to Eldem there were 124 mining facilities in the Heraclea (Ereğli) coal basin in 1892, the great majority belonging to non-Muslim minorities.99 The Société d’Héraclée was founded as a joint stock company with French capital in 1896, using a 50-year concession previously given to S. E. Yanko Bey Joannidés.100 The concession changed hands, involving Pangeli and Cartali, before a final transfer to a French syndicate led by Count Vitali.101 This company, with the support of the Ottoman Bank, would not only construct the mine installations, but also build a port at Zonguldak together with a railway line connecting them to the port. However, the company did not do as well as it expected, and by 1906 it sought the support of the experienced Count Vitali and the Ottoman Bank. Count Vitali and the administrators of the Ottoman Bank, together with the enthusiastic French ambassador, Constans, prepared a plan for monopolizing the coal fields of the Heraclea basin. Claiming that the company had encountered official obstruction in its operations, they wanted the Porte to settle the demands of the company, which included a clarification of property titles, the introduction of a customs service at Zonguldak, and the payment of a sizable indemnity.102 The Porte began to raise objections to the transfer of the concession by Pangiri and Cartali, that had not been approved by an imperial iradé. When the Porte resisted such demands, Constans launched an offensive with the knowledge of his ministry, following a policy for expanding the economic interests of France in the Ottoman Empire. The French Foreign Ministry agreed with Constans to deny the Ottoman Government access to the Paris money market until the Heraclea Company’s demands were met. Moreover, the Ottoman Bank also refused advances to the Ottoman Treasury. On 21 April Constans gave the Porte an ultimatum demanding an immediate

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settlement, and on 5 May sent the ambassadorial ship to Zonguldak with a contingent of marines. ‘These strong-arm tactics and a liberal distribution of bakhshish’ soon had an effect.103 The French Embassy received a communication in writing from the Porte embodying, on the basis of the iradé promulgated on 18 May, a settlement with the Heraclea Company ‘in accordance with the demands contained in Constans’s Note of May 5’.104 Constans immediately informed the French Cabinet about the satisfactory settlement of the problem on 19 May.105 However, the Young Turk Revolution of July 1908 brought about important policy changes which caused the deterioration of Franco-Ottoman relations. The leaders of the new administration were unhappy with the country’s economic dependence on Europe, and especially the manipulations of companies such as the Imperial Ottoman Bank and the Tobacco Régie. The new Turkish Government indefinitely postponed the implementation of the Heraclea (18 May) iradé. Ambassador Constans was called ‘Mr. Twelve Percent’ by some Turkish officials before the Revolution. He always expected his business associates to pay him a significant percentage of the value of the deals (contracts or compensation) he was involved in. According to the British Foreign Office and the French daily L’Humanité, he was widely known by 1909 as ‘Mr. Eighteen Percent’.106 In a circular written by the Central Committee of the Union and Progress to its branches in the provinces, it was ‘stated that “the Heraclea mines affair was to have brought 2,000,000 f. (£80,000) to a certain ambassador”, obviously M. Constans’.107 When the circular was published by a Turkish newspaper, Serbesti, Constans complained to the Grand Vezier and demanded that the Committee should formally withdraw this charge. Some politically risky events involving government bureaucracy occurred when the Standard Oil Company attempted to establish an oil distributing facility in Salonica. When the company first moved to Salonica in 1908, it wanted to buy a suitable piece of land belonging to the Sultan in order to construct its oil distributing facilities. As the negotiations dragged on slowly, the Sultan was deposed and his properties were confiscated by the State. When Standard Oil renewed its interest in the plot, the Ministry of Finance favorably looked into the matter and decided to put it up, in conformity with the law, for sale by auction. At this time, the Salonica Municipality claimed that it was granted, by an imperial firman, a monopoly right to store petroleum. According to the Salonica correspondent of The Near East, the mayor’s bidding against the Standard Oil Company resulted in the company’s paying 4,000 pounds more than the expected price.108 The municipality gave permission for building offices, stables and other facilities. However,

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they absolutely refused to allow the construction of the storage tanks unless the Standard Oil Company signed a contract to pay them the dues they claimed. Meanwhile, the Steaua Romana, which was under German control at the time, had also bought a piece of land, and their agent had personally signed the contract required by the municipality, thereby avoiding such a confrontation. The Standard Oil Company had to ask the intermediation of the American ambassador to resolve this problem with the local authorities. In 1910 it was said that the company intended to make Izmir its headquarters for the Empire. The railway companies running from Izmir were using a number of petroleum tank wagons and the Standard Oil Company itself planned to have a special tank steamer to supply the seaport towns of mainland Anatolia and the islands of the Aegean Sea Archipelago. For the whole scheme, the company intended spending six million francs.109 Still, despite attempted regulation and political turbulence in the twentieth-century, it can be said that the political risk in the Ottoman Empire was lower than in the Balkan countries and Russia. As the Ottoman Empire had a corrupt bureaucracy, as in Russia and the Balkans, foreign investors felt the negative impact. Nonetheless, unlike these other countries, there was no xenophobia in the Ottoman Empire. The traditional business rules continued and there were no envious attempts at confiscating or eliminating the business of foreigners. Even the Tobacco Régie, which had done so much harm to the State and the people, was left untouched with its concession. The Persian Tobacco Monopoly that was established in 1890, under British control, collapsed under pressure from tobacco merchants and religious leaders (ulema). Yet, in the Ottoman Empire, the Tobacco Régie’s concession was extended, in 1913, until 1929.110

6 CONCLUDING REMARKS

In the first chapter, the Ottoman economic structure and way of thinking were outlined. The main views as to why the Ottomans did not industrialize were given and, in this context, the industrialization efforts of the nineteenth century and their lack of success were analyzed. In the established Ottoman order the economic structure, being part of the general static social system, was a component that was not supposed to change. In the seventeenth and eighteenth centuries, however, internal and external conditions put a significant pressure on this structure and the system, which was not allowed to evolve in a healthy way, finally collapsed. By the time it was realized that a change was needed in economic policies and government administration, it was already too late. In the end, as foreign influences started to take control of the economy, the administrative order, as well as industry and trade, developed according to the demands of foreigners. Direct and indirect foreign interventions prevented Western-type industrialization, and the new trade order of the nineteenth century led to the deindustrialization of the country. Using Gallagher and Robinson’s expression, the ‘imperialism of free trade’ entered the Ottoman Empire with the 1838 Trade Agreement, and the country had to specialize her trade in line with the needs of the developed countries of Europe. The cheap textiles and other industrial products of European countries were imported into the Empire, mainly from Britain, and subsequently from other countries that had been through the Industrial Revolution. At the same time, raw materials and food, needed by European industries, were exported. As the Ottoman people became impoverished in the process, it became more difficult for them to buy the higher-quality but more expensive traditional clothes manufactured by the local craftsmen. British cloth was so much cheaper that the local product could no longer compete. Finally, while free trade with Europe destroyed

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traditional industries, it created a vicious circle which prevented the transition to modern production. Europe’s need for raw materials and cereals created a demand in peripheral countries and this, in turn, increased the relative prices of agricultural and mining products. From the 1830s to 50s, the Ottoman terms of trade (the ratio of the price index of export products to the price index of import products) rose. In other words, during this period, there was an increase in the purchasing power of export revenues for buying imported goods. This led farmers to cultivate more land for products like cotton, tobacco, and wheat to meet this indirect demand. Creating a ‘resource curse’ problem, the natural resources of the country paradoxically hampered economic development.1 Rather than being employed for developing industrial production, natural resources were devoted to the manufacture of primary goods which only temporarily raised export incomes. According to a study by Jeffrey Williamson, the Ottoman terms of trade improved from 1815 to the end of the 1850s, albeit with fluctuations, and they increased at an annual rate of 2.4 percent from 1855 to 1859. During the same years, the increase in the Egyptian terms of trade was annually 2.7 percent.2 Thus, the rise in the price of export products could have led to increases in their production. Unfortunately, the terms of trade improvements did not continue for long and, in fact, the decline started much sooner than those of other countries exporting primary products. At the beginning of the nineteenth century, major changes were taking place worldwide. After the fifteenth century, the discovery of new sea routes and continents brought about a rapid increase in world trade. However, it did not immediately create permanent changes to the economic structures and income distribution of individual countries. Steam-powered ships and trains created a revolution in the nineteenth century and significantly lowered the cost of transportation. As trade grew rapidly from the early nineteenth century, price differences tended to disappear. The transportation revolution was not the only factor which led to a rapid growth of trade. Converging prices across different markets worldwide brought about market integration, and this is accepted as the beginning of the process of globalization.3 It is true that significant financial success was achieved from trade before the nineteenth century. However, this remained largely within the Dutch or British East Indies Companies, the French and British Levant Companies, or other giant European trade monopolies. After the 1820s, producers and consumers played a greater role in the market, and freight and customs duties fell. Both producers and consumers benefited from this development. Moreover, as producers of raw materials were able to sell their

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products at higher prices, the distribution of gains (rents) also changed. The reduction or total disappearance of price differences could be observed across all world markets. For instance, between 1837 and 1846, the price of Egyptian cotton was 63 percent higher in the Liverpool exchange than in Alexandria. This price difference fell to 41 percent between 1863 and 1867, to 15 percent between 1882 and 1889, and to 5 percent between 1890 and 1899.4 This development supported classical trade theory. The price of imported goods fell while that of exports rose, and the benefits created by foreign trade were shared between the buyers and the sellers. However, whether this sharing was fair was met with doubt among the Ottoman administrators, and continues to be a topic of debate among academics. In any case, the distribution of income in the Ottoman economy was affected. In line with the Stolper–Samuelson theorem, while income in the export sector was increasing to some degree, at least in certain periods, the income of the manufacturing sector, which competed with imports, was falling. During most of the nineteenth century, as predicted by classical economists, the prices of primary goods showed a rising trend in relation to finished products. This situation was confirmed by various studies. An examination of Williamson’s study, on Ottoman terms of trade, indicates that from 1815 to 1857, when they reached their highest point, they increased by 160 percent. After 1857, however, there was a general trend for them to decrease, albeit with fluctuations. By the end of the nineteenth century, the terms of trade had fallen by 20–25 percent compared to 1857. The Ottoman people therefore received fewer finished products in return for their primary products. This reversal of trends in the terms of trade occurred much earlier in the Ottoman Empire than in other peripheral countries. It started 50 to 60 years earlier compared to the developing countries of Asia and Latin America. With her worsening terms of trade, the Ottoman Empire kept incurring trade deficits, and her debt rose day by day. The first external loans were made for the legitimate purpose of financing the State’s heavy war expenses. However, indebtedness soon turned into a habit, much like the seemingly unending wars, and the irresponsible squandering of the Palace, as well as the incompetence of the administrators, led the State to bankruptcy. Political reverses speeded up the economic collapse, and the mutual negative influence of political and economic decline turned into a vicious circle which seemed inextricable. Finally, with the Ottoman Public Debt Administration’s seizures of state finances, the economy fell almost completely into foreign hands. Henceforth, the Public Debt Administration decided on all new loans, administered the payments of various debts, and oriented and controlled the incoming FDI. The Debt Administration was

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very efficient in collecting taxes that were left to it and in controlling the debt payments. Following the Muharrem Decree of 1881, the amount of debt payments to foreign countries was double the amount of the Treasury’s new borrowings. According to one calculation, between 1882 and 1913, new foreign loans brought an annual average of 1.8 million pounds sterling to the Treasury while the annual amount paid to foreign countries was 3.7 million pounds.5 Meanwhile, since the Debt Administration had also the responsibility to serve the foreign investors, it oriented FDI to the production of primary export goods which would meet the needs of European industries. It is sometimes claimed that free trade brings benefits to an underdeveloped country by bringing in foreign investment, even if it is for producing primary goods. It is argued that one of the most important problems faced by these countries is the absence of capital accumulation. The Ottoman Empire, too, received its FDI through external trade. The European countries, which had started mass production with the Industrial Revolution, had to find extensive markets for their products. Moreover, in order to expand further, European industries needed the new materials which they lacked. The Ottoman population was a potentially good market for European products, while the Ottoman lands could be a source of raw materials. Consequently, immediately after the trade agreements, foreign traders opened up trading houses all over the Ottoman lands with the purpose of importing their products and buying raw materials for the home industries. As discussed in Chapters 3 and 4, in order to increase agricultural production, starting from western Anatolia, foreign traders bought land, established farms, brought machinery, and set up factories for the effective production of raw materials and finished goods. Roads were needed for transporting the manufactures to the consumers as well as the raw materials to the foreign buyers. For this reason, as everywhere else, globalization, as a facilitator of market integration, made it necessary to build railways and effective seaports. These investments, requiring sizable capital, were made by foreigners for foreigners. In order to serve these foreign infrastructure and manufacturing establishments, banks and insurance companies, as indispensable components of modern business, also came from the capital-exporting countries. In the major cities, a need was felt for urban services such as water, electricity, gas, and tramways. These services were sought not only by the ever-increasing foreign population but also by the local administrators, intellectuals and bureaucrats who, through globalization, had become aware of these new developments in the industrialized countries. Since materials, imported from Europe, were used in the construction of railways, seaports

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and tramway infrastructure, European industrialists were also happy. By the end of the nineteenth century, modern European stores and, although limited, factories that produced consumer goods, were established in order to meet the needs of foreign and local elites in the major cities. Foreign investments, initially provided for trade, gradually moved to other areas. Even though a great majority of Western authors maintain that foreign capital is always very beneficial, there are economists who see this matter differently. Hans W. Singer has analyzed the export-oriented agricultural and mining investments made in underdeveloped countries by industrialized countries, taking into account productivity and terms of trade as well as the cumulative and multiplier effects created in the economy. Foreign investments in the export-oriented sectors are generally technology-based and capital-intensive. Moreover, these underdeveloped countries had backward production processes geared to local consumption sectors such as clothing and food. Due to the duality created in the economic structure, employment statistics of these countries do not truly reflect the importance of external trade. The productivity of a worker employed in the export sector is greater than that of his counterpart in the local sector. For this reason, as the proportion of workers in the export sector to the country’s total workers is lower in underdeveloped than in developed countries, external trade in underdeveloped countries seems less important than it really is. According to Singer, another important point is that companies producing export-oriented primary goods are owned by foreigners. These countries, which specialize in the production of primary goods, procure the finished products from the developed countries and this leads to the reduction and even disappearance of the multiplier effect.6 For instance, there was the investment made by British investors in the agricultural sector for the production of cotton in the Ottoman Empire. They had made a capital-intensive investment by using machines which reaped the cotton and separated it from the seed. However, the multiplier effect of such an investment would be much lower than that of a domestic one. The value of imported clothes bought by consumers leaves the domestic economy. Also, if the foreign investor transfers the profits to his home country and does not reinvest them in the host country, the foreign investment will not grow in the domestic economy. For this reason, Singer maintains that if the value of an investment can be measured by a multiplier effect based on income, employment, capital, accumulated technical know-how and external savings formation, such investments in underdeveloped regions would not be ‘foreign investments’ but rather a ‘domestic investment’ made by developed countries in foreign lands. These investments cannot be a

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part of the economies of underdeveloped countries. They can only be an ‘advanced outpost’ of developed countries in underdeveloped lands. When examined in this light, it cannot be said that foreign direct investments made in primary sectors in the Ottoman Empire have contributed significantly to the country’s economy. The increase in the demand for workers in this sector was probably met by those who lost their jobs in the country’s declining industries. According to Kurmuş, investors from countries which exported capital to the Ottoman Empire speeded up the accumulation of capital at home by repatriating their profits to the home countries. For instance, in general the British in western Anatolia made no special efforts to reinvest their profits in productive enterprises.7 Singer goes further by also taking into account the opportunity cost of turning underdeveloped countries into producers of food and raw materials. Firms established with foreign capital may be more productive than domestic agricultural operations. Instead of specializing in agriculture, they could have established domestic industries which might have been more productive. Despite the speculative character of the argument, Singer maintains that it cannot be ignored. Moreover, the long-term accumulation of knowledge and technology is of utmost importance for the industry: The most important contribution of an industry is not its immediate product (as is perforce assumed by economists and statisticians) and not even its effects on other industries and immediate social benefits (thus far economists have been led by Marshall and Pigou to go) but perhaps even further its effect on the general level of education, skill, way of life, inventiveness, habits, store of technology, creation of new demand, etc. And this is perhaps precisely the reason why manufacturing industries are so universally desired by underdeveloped countries; namely, that they provide the growing points for increased technical knowledge, urban education, the dynamism and resilience that goes with urban civilization, as well as the direct Marshallian external economies.8 This may be the reason why underdeveloped countries made industrial development their primary goal. This forced specialization in the nineteenth century, turned underdeveloped countries into producers of primary goods, and their historical process of industrial development was obstructed. In the nineteenth century, Britain was able to claim a comparative advantage in the cotton textile industry because of her superiority in steam engines and textile looms, as well as her ability to obtain raw materials effectively

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from various parts of her ‘official’ and ‘unofficial’ empire. As explained in Chapter 1, had Ottoman efforts to industrialize been successful, the Ottoman economy which produced cotton, wool and silk might have had an even greater comparative advantage, at least in this area. The country would have benefited from positive externalities, as mentioned by Marshall. This would have enabled the advancement of technical knowledge and popular education, and provided the dynamism of industrialization. There is no doubt that foreign direct investment, used in developing the infrastructure, was beneficial in many ways. However, had the Ottoman Government been able to construct the railways without borrowing at exorbitant interest rates and paying for extraordinary guarantees, while free of lengthy wars as well as internal and external exploitation, would it not have been in a more effective situation? Even though the 1,464-kilometer long Hejaz Railway might not have been very important from an economic point of view, it was built entirely with donations collected from the Muslim community, and employing Ottoman soldiers as workers. With additional lines and connections, the railway had a length of 1,766 kilometers. It had 2,666 masonry-built bridges and culverts, 7 iron bridges, 9 tunnels, 96 stations, engine repair and maintenance workshops, factories, water reservoirs and various other auxiliary installations.9 As explained at length in Chapter 5, the Ottoman administration had welcomed foreign investments. Unlike the prevalent attitudes in the Balkan countries, there was not the same hostility and prejudice in Anatolia. Foreign investments did not encounter hurdles outside a particular section of the bureaucracy. Even though the country underwent long and damaging years of wars and rebellions, the political risk did not deter foreign investors. There is no doubt that in the creation of this relatively secure investment environment, the reassuring efforts of the Ottoman Public Debt Administration and the Ottoman Bank played an important part. Before the First World War, the country faced external threats from the Balkan and Tripolitanian wars while internally it had to go through difficulties created by the Young Turk Revolution. During this period, the foreign states kept a close watch on the country and encouraged their financiers to make investments in order to get their share of the spoils during an imminent dismemberment of the Ottoman Empire. Turkey’s relationship with the International Monetary Fund (IMF), together with the growth of its external debt, has led some Turkish authors to compare the present economic problems of the country with those of the last decades of the Ottoman Empire.10 They claim that the wave of economic liberalization in Turkey after 1980 created conditions similar to

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those of the late Ottoman Empire, taking the country too much under the influence of its allies and international institutions. These authors, like many Western writers in this field, have reached the conclusion that the economic control or dependence of a country is closely tied to its political dependence. In general, the processes of globalization both in the nineteenth and the twentieth century have brought about ‘liberalization’ which is basically the free movement of goods and services as well as capital. The two periods also display striking similarities in Turkey’s international economic and political relations. The influence on the Ottoman Empire of the first phase of globalization, starting with the Industrial Revolution and continuing until the First World War, was the decline of Ottoman industries compared to those in Europe, together with the complete disappearance of some industrial sectors. However, the increased demand for raw materials, initially by Britain and later by other European countries, led to the development of the agricultural sector with an increase in commercial agricultural production and exports, as explained in Chapter 1. Although short-lived, the improvements in the terms of trade during the 1840s and 1850s created short-term income gains, while the country faced long-term deindustrialization. On the other hand, the liberalization efforts, coming as a result of the second globalization, led to positive developments in some industrial sectors, such as consumer durables, while creating important changes in Turkish agriculture which fell behind in certain sectors such as cotton, wheat and tobacco. During the first globalization period developed countries aimed at selling industrial products and importing raw material. Large firms from the industrialized countries tended, in general, to invest outside their home country in order to obtain their energy and raw material needs at lower cost and with more stability. In the second wave of globalization, advances in transportation and communications have changed motivations for FDI, as well as the ways foreign affiliations are managed. During the last quarter of the twentieth century, the FDI carried out by transnational firms has reduced, if not eliminated, the need to transport raw materials to the home country. Firms are transporting their raw materials to third countries to cut production costs as they find efficiencies in these countries. In addition to the positive influence of technological changes on trade and investment, international organizations such as the International Monetary Fund, the World Bank and the World Trade Organization (the General Agreement on Tariffs and Trade before 1995) have strengthened external economic relations among countries. During the last two decades of the twentieth century, a wave of liberalism similar, in certain ways, to

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that of the nineteenth century has been spreading all over the world. At the same time, those who are negatively affected by these developments or feel uncomfortable by the hegemony of powerful countries, strongly protest against this situation. Today, as mentioned above, some Turkish intellectuals see at least some similarities between the two globalization periods and their impact on the Ottoman Empire and the Republic of Turkey, which has adopted the liberalism vogue of the 1980s. They believe the first globalization entered the Ottoman Empire with the 1838 Trade Agreement and gained speed with the construction of railways starting in the 1850s and the introduction of the telegraph in the 1860s. The second globalization process was introduced in Turkey through the ‘24 January 1980 Decisions’ which led to the liberalist policies of the 1980s. In both periods, foreign trade deficits and external borrowings rapidly increased. During the Ottoman era, the Public Debt Administration and the Ottoman Bank played major roles in the taking of economic decisions while in the 1980s, the institutions of the European Union and the International Monetary Fund, as well as the Washington Consensus, were influential in Turkey’s economic policies. At the end of the nineteenth century, foreigners acquired the important resources of the Ottoman Empire while, today, with the conditions set by the IMF, the Government privatized the largest and most important firms. Today, transnational firms have increased their influence and, making the most of the weaknesses of the bureaucracy and the political system, have had very favorable laws and regulations passed for them. The country’s international investment position – the total of all domestic assets owned by foreigners less the total of foreign assets owned by the residents of Turkey – has continued to grow negatively. It was –­105,305 million dollars in 2003, and amounted to –314,531 million dollars in 2007, tripling in four years.11 The Turkish current account deficit, a consequence of the large trade deficit, is financed by either external borrowing or speculative capital inflows. Hence, foreign debt also shows a steady upward trend. The total external debt, which was 20.5 billion dollars in 1984, increased to 52.4 billion in 1990, 75.9 billion in 1995, 118.6 billion in 2000, and 247.1 billion dollars in 2007.12 As private-sector indebtedness increased much faster than that of the public sector, private banks became the heaviest borrowers. Their debt quadrupled between 2001 and 2007, making the financial system vulnerable to a financial crisis. In short, both the nineteenth and twentieth centuries witnessed a globalization that led to persistent trade deficits and heavy indebtedness, as well as foreign dominance in the economy.

Notes

Chapter 1   1 Charles Issawi (ed.), The Economic History of the Middle East, The University of Chicago Press, Chicago, 1966, p. 23.   2 Halil Inalcik, ‘Köy, Köylü ve İmparatorluk’ [The Village, Villager and the Empire], 5th International Social and Economic History Congress of Turkey, Proceedings, Turkish Historical Institution Publications, Ankara, 1990, pp. 3–5.   3 Niyazi Berkes, Türkiye İktisat Tarihi [Economic History of Turkey], Vol. 1, Gerçek Yayınevi, İstanbul, 1972, pp. 62–4.   4 Halil İnalcık, ‘The Ottoman Economic Mind and Aspects of the Ottoman Economy’, in M. A. Cook (ed.) Studies in the Economic History of the Middle East from the Rise of Islam to the Present Day, Oxford University Press, London, 1970, p. 207.   5 Berkes, Türkiye İktisat Tarihi, Vol. 1, p. 73.   6 Ibid., p. 77.   7 Bernard Lewis, What Went Wrong? The Clash between Islam and Modernity in the Middle East, Perennial (Harper–Collins), New York, 2002, p. 50; and B. Lewis, Islam in History – Ideas, People and Events in the Middle East, Open Court, Chicago, 1993, p. 348.   8 Maxime Rodinson, Islam and Capitalism, Pantheon, New York, 1973, Chapter 2; Berkes, Türkiye İktisat Tarihi, Vol. 1, pp. 77–8; Lewis, Islam in History, pp. 96–100; H. Inalcık, ‘The Ottoman State: Economy and Society, 1300–1600’, in H. Inalcık and D. Quataert (eds.) An Economic and Social History of the Ottoman Empire, Cambridge University Press, 1996, p. 46.   9 Berkes, Türkiye İktisat Tarihi, Vol. 1, p. 78. 10 Inalcık, ‘The Ottoman Economic Mind …’, pp. 207–8. 11 Lewis, What Went Wrong?, pp. 35–6. 12 Niyazi Berkes, Türkiye İktisat Tarihi, Vol. 2, Gerçek Yayınevi, Istanbul, 1975, pp. 82–3. 13 Nasim Sousa, The Capitulatory Regime of Turkey, Its Origin and Nature, The Johns Hopkins Press, Baltimore, 1933, pp. 69–70. 14 Inalcık, ‘The Ottoman Economic Mind …’, p. 194. 15 Berkes, Türkiye İktisat Tarihi, Vol. 1, pp. 120–5.

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16 Yavuz Cezar, Osmanlı Maliyesinde Bunalım ve Değişim Dönemi, Alan Yayıncılık, 1986, p. 21. 17 İnalcık, ‘The Ottoman Economic Mind …’, p. 218. 18 Fernand Braudel, The Perspective of the World, Civilization & Capitalism 15th –18th Century, Vol. 3, Harper & Row Publishers, New York, 1984, pp. 468–9. 19 Berkes, Türkiye İktisat Tarihi, Vol. 2, p. 119. 20 Ibid., pp. 123–4. 21 The English historian Richard Knolles mentions that a great fire occurred before the execution of the Beylerbeyi (governor) of Ottoman Europe and the defterdar (treasurer). As usual, the soldiers who were given the order to put out the fire, not only did not carry out the instruction but also blocked the way to others who were carrying water. As a result, seven mosques, 25 hans (large commercial buildings), and 15,000 houses burned down. The soldiers surrounded and attacked the Pasha’s mansion. Fearing worse actions by the soldiers, the Sultan gave Mehmet Pasha and the defterdar to the soldiers. Knolles wrote that ‘the Ianizaries, who drew them up and downe the streets at horses tails, and afterwards cutting off their heads, in scorne tossed them from hand to hand one to another, as if they had bin tennise balls’, Richard Knolles, The Generall Historie of the Turkes, Adam Islip, 1631, pp. 1005–6. 22 S.B. Clough and C.W. Cole, Economic History of Europe, DC Heath and Company, Boston, 1952, p. 197. 23 Fernand Braudel, The Wheels of Commerce, Civilization & Capitalism 15th–18th Century, Vol. 2, Harper & Row Publishers, New York, 1979, p. 544. 24 Inalcık, ‘The Ottoman State …’, pp. 369–70. 25 Ibid., p. 50. 26 Berkes, Türkiye İktisat Tarihi, Vol. 2, p. 70. 27 Huri İslamoğlu-İnan, ‘State and Peasants in the Ottoman Empire: A Study of Peasant Economy in North-Central Anatolia During the Sixteenth Century’, in Huri İslamoğlu-İnan (ed.) The Ottoman Empire and the World Economy, Cambridge University Press, Cambridge, 1987, pp. 127–8. 28 Mustafa Akdağ, Türk Halkının Dirlik ve Düzenlik Kavgası, Celali İsyanları, Bilgi Yayınevi, Ankara, 1975, pp. 69–74. 29 Cezar, Osmanlı Maliyesinde Bunalım, pp. 141–2. 30 Berkes, Türkiye İktisat Tarihi, Vol. 1, pp. 141–4. 31 Enver Ziya Karal, Selim III’ün Hat-tı Hümayunları, Türk Tarih Kurumu, Ankara, 1988, p. 141. 32 A.İ. Bağış, Osmanlı Ticaretinde Gayri Müslimler, Kapitülasyonlar-Beratlı Tüccarlar, Avrupa ve Hayriye Tüccarları (1750–1839), Turhan Kitabevi, Ankara, 1983, p. 27. 33 A berat was an official permit and appointment document which was given to individuals who assumed certain duties and responsibilities. 34 Karal, Selim III’ün Hat-tı Hümayunları, pp. 141–2. 35 Bağış, Osmanlı Ticaretinde Gayri Müslimler, pp. 59–65. 36 The Muqaddima (Prologomena) of Ibn Khaldun has been shortened to Kitab’ul İber or El İber in its Turkish translation. It deals with the history and civilization of the Arab, Persian and Berber nations, including their rise and fall. It is really a masterpiece on the universal theory of history. 37 İbn Haldun, Mukaddime, Vol. 1, Translated into Turkish by Zakir Kadiri Ugan, Milli Eğitim Bakanlığı Yayınları, Istanbul, 1990, Chapter 3.

Notes 38 39 40 41

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Berkes, Türkiye İktisat Tarihi, Vol. 1, pp. 15–6. Berkes, Türkiye İktisat Tarihi, Vol. 2, p. 247. Ibid., pp. 181–5. Charles Issawi, The Economic History of Turkey 1800–1914, The University of Chicago Press, Chicago, 1980, pp. 3–4. 42 Haydar Kazgan, Osmanlı’dan Cumhuriyet’e Şirketleşme ‘Osmanlı Sanayii Monografi ve Yorumlar’, Töbank, 1991, p. 33. 43 Until the late seventeenth century, in times of peace, the janissaries worked as farmers, merchants and artisans. They even produced their own weapons and thus were not a burden on the state treasury. Berkes wrote that they were firstly artisans and secondly soldiers. Berkes, Türkiye İktisat Tarihi, Vol. 1, p. 113. 44 A. J. Dunn, Turkey and Its Future, Effingham Wilson, London, 1905, p. 58. 45 Charles Issawi, The Middle East Economy, Decline and Recovery, Markus Wiener Publishers, Princeton, 1995. 46 Ibid., p. 7. 47 İnalcık, ‘The Ottoman Economic Mind …’. 48 Timur Kuran, ‘Why the Middle East Is Economically Underdeveloped: Historical Mechanism of Institutional Stagnation’, Forum 7, Institutional Barriers to Economic Change: Cases Considered, Forum Series on the Role of Institutions in Promoting Economic Growth, Mercatus Center, George Mason University, June 10, 2003, p. 7. 49 Ibid, pp. 9–10. 50 During the mid-nineteenth century, W.W. Smyth, who traveled in the Ottoman Empire, noticed in the vicinity of Diyarbakir that not all of the cultivable land was used. When he asked a village administrator the reason for that, he got the following answer: ‘[I]t is true that there is waste land in plenty, and that we might till it, and I might profit greatly by it. But, supposing I were to do as you propose, is not this source of gain too open to all eyes? No sooner should I have reaped the crops and stored my granaries, than my enemies (for all in authority have such) would step forward to the Pasha of Diarbekir, the musheer, and say, “this man has committed such and such an offence; but being a rich man, having gained so and so much this year by his crops, he can pay a handsome fine;” and then the Pasha would exclaim, “Mashallah! You speak the truth; I will send for him, and inshallah! Force him to pay well for his misdeeds.” And thus the fruits of the year’s labor would be swallowed by the musheer and the informers’. Warrington W. Smyth, A Year with the Turks or Sketches of Travel in the European and Asiatic Dominions of the Sultan, Redfield, New York, 1854, pp. 88–9. 51 Issawi, The Middle East Economy, pp. 7–8. 52 Kuran, ‘Why the Middle East …’, p. 11. 53 Halil İnalcık, ‘Capital Formation in the Ottoman Empire’, Journal of Economic History, March 1969, Vol. 29, No. 1, p. 138. 54 Kazgan, Osmanlı’dan Cumhuriyet’e, pp. 40–1. 55 In a 1909 article in the Servet-i Fünun newspaper, Cenap Şahabettin wrote that one needed permission to exploit mines and forests. For that it was necessary to feed a ‘bunch of hungry men’ starting from the minister at the top and going down to the smallest clerk at the bottom. Spending time and money while running among offices of the palace and the government to obtain a

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56 57 58

59 60 61 62 63 64 65 66 67 68 69

70 71

Foreign Investment in the Ottoman Empire concession, after that, one also had to spread the happiness to the provinces, where the actual business is located, by giving appropriate presents to everyone from the governor down to the clerk. Kazgan, Osmanlı’dan Cumhuriyet’e, p. 222, Document No. 18. Donald Quataert, ‘Ottoman Manufacturing in the Nineteenth Century’, in D. Quataert (ed.) Manufacturing in the Ottoman Empire and Turkey, 1500–1950, State University of New York Press, Albany, 1994, p. 91. Vernon John Puryear, International Economics and Diplomacy in the Near East, Archon Books, 1969, p. 118. Even in the late nineteenth century, big landowners in Britain were elected to parliament by bribing people in their electoral districts consisting of a few old villages, termed ‘rotten boroughs’. They thus acquired the control in parliament. Jack A. Goldstone, ‘Islam, Development, and the Middle East: A Comment on Timur Kuran’s Analysis’, Forum 7, Institutional Barriers to Economic Change: Cases Considered, Forum Series on the Role of Institutions in Promoting Economic Growth, Mercatus Center, George Mason University, June 24, 2003, p. 6. Lewis, What Went Wrong?, p. 63. Kazgan, Osmanlı’dan Cumhuriyet’e, p. 92. Quataert, ‘Ottoman Manufacturing…’, p. 92. Issawi, The Economic History of Turkey, p. 304. Quataert, ‘Ottoman Manufacturing …’, pp. 92–3. Ibid., p. 93. Frank Edgar Bailey, British Policy and the Turkish Reform Movement, A Study in Anglo-Turkish Relations, 1826–1853, Harvard University Press, Cambridge 1942, p. 78. Puryear, International Economics and Diplomacy, p. 117. Edward Mead Earle, Turkey, the Great Powers and the Bagdad Railway, A Study in Imperialism, The MacMillan Company, New York, 1923, p. 13. Friedrich List, The National System of Political Economy, Longmans, Green and Co., London, 1885 (reprint, Augustus M. Kelly Publishers, 1991), pp. 419–20. List believed that sooner or later all Asians whether they be Turks, Persians, Chinese or Indians would fall under the domination of the Europeans. He thought that the collapse of the Asian nations was inevitable and that their resurrection could only take place with Europeans intervening and spreading the Christian faith and moral values. Moreover, migration from Europe and the introduction of the European system of administration was necessary. The Earl of Cromer, Modern Egypt, Vol. 2, The MacMillan Company, New York, 1909, p. 229. El Ghazali’s abandonment of the logic and philosophy of his youth to turn to mysticism later might have played a role. Sultan Mehmet II started a kind of competition between two learned men of the period. Hocazade Muslihuddin Mustafa defended El Ghazali’s Tehafut-el Felasife while Ali Tusi sided with Ibn Rushd’s Tehafut-el Tuhafe. The Sultan’s paying a greater reward to Hocazade was interpreted as the sovereign having a higher opinion of El Ghazali. Thus, the more rational approaches of Ibn Rushd were pushed aside. Baron Joseph von Hammer, translated by Mehmet Ata Bey, Büyük Osmanlı Tarihi, Vol. 2, Üçdal

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Neşriyat, Istanbul, pp. 230–1; A. Adıvar, Osmanlı Türklerinde İlim, Remzi Kitabevi, Istanbul, 1970, p. 47. 72 Bernard Lewis, The Muslim Discovery of Europe, W.W. Norton & Company, New York, 1982, pp. 229–30. 73 Lewis, Islam in History, pp. 353–4; Timur Kuran, Islam and Mammon, The Economic Predicament of Islamism, Princeton University Press, Princeton, 2004, p. 138. 74 Lewis, What Went Wrong?, pp. 122–3. 75 Mark Casson & Andrew Godley, Cultural Factors in Economic Growth, Springer, Berlin, 2000, pp. 26–7. 76 Niyazi Berkes, The Development of Secularism in Turkey, Hurst & Company, London, 1998, pp. 394–5. 77 Ibid, p. 399. 78 Enver Ziya Karal, Osmanlı Tarihi, Vol. VII, Türk Tarih Kurumu, Ankara, 2003, p. 254. 79 David S. Landes, ‘What Room for Accidents in History?: Explaining Big Changes by Small Events’, Economic History Review, XLVII, 4 (1994), pp. 648–51. 80 Rodinson, Islam and Capitalism, pp. 112–3. 81 Eric Lionel Jones, Growth Recurring: Economic Change in World History, Clarendon Press, Oxford, 1988, p. 97. 82 Kuran, Islam and Mammon, pp. 122–3. 83 Timur Kuran, ‘The Provision of Public Goods Under Islamic Law: Origins, Impact, and Limitations of the Waqf System’, Law & Society Review, 2001, Vol. 35, No. 4; Kuran, ‘Why the Middle East …’; and Kuran, Islam and Mammon. 84 Kuran, Islam and Mammon, p. 139. 85 According to Niyazi Berkes, Tevfik Fikret and other young pro-Western intellectuals felt close to Anglo-Saxon culture because they were against Abdulhamit II’s anti-British policies. However, Adam Smith’s The Wealth of Nations might also have instilled free trade sympathies. 86 Berkes, The Development of Secularism, pp. 302, 312. 87 Sabri Ülgener, İktisadi İnhitat Tarihimizin Ahlâk ve Zihniyet Meseleleri, İsmail Akgün Matbaası, Istanbul, 1951, pp. 71–91. 88 Geert Hofstede, Culture’s Consequences: International Differences in Work Related Values, Sage Publications, Beverly Hills, 1980, and Geert Hofstede, Cultures and Organizations: Software of the Mind, McGraw-Hill Book Company, London, 1991. 89 World Bank, The East Asian Miracle: Economic Growth and Public Policy, Oxford University Press, New York, 1993. 90 Stanford J. Shaw, Between Old and New: The Ottoman Empire under Sultan Selim III, 1789–1807, Harvard University Press, Cambridge, 1971, p. 179. 91 Edward C. Clark, ‘The Ottoman Industrial Revolution’, International Journal of Middle East Studies, 5 (1974), p. 66. 92 Charles Mac Farlane, Turkey and Its Destiny: The Result of Journeys Made in 1847 and 1848 to examine into the State of that Country, Vol. I, Lea and Blanchard, Philadelphia, 1850, p. 45. 93 Ibid., p. 46.

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  94 Berkes, Türkiye İktisat Tarihi, Vol. 2, p. 326.   95 Yusuf Akçura maintains that the Sultan was influenced by the Cahiers des Doléances of the early French Revolutionary period while Bernard Lewis says that the resemblance between the layiha and the cahiers is just coincidental. A. G. Sayar, Osmanlı İktisat Düşüncesinin Çağdaşlaşması, Ötüken, Istanbul, 1986, p. 176; and B. Lewis, The Emergence of Modern Turkey, 2nd Edition, Oxford University Press, London, 1968, p. 58.   96 Sayar, Osmanlı İktisat Düşüncesinin Çağdaşlaşması, p. 179.   97 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, The Modern Library Edition, New York, 1937, pp. 398–510 and 607–57.   98 David Ricardo, Principles of Political Economy and Taxation, Barnes & Noble Books, New York, 2005, pp. 105–18.   99 Puryear, International Economics and Diplomacy, p. 108; and Yusuf Kemal Tengirşenk, ‘Tanzimat Devrinde Osmanlı Devletinin Haricî Ticaret Siyaseti’, Tanzimat I, Maarif Matbaası, Istanbul, 1940, p. 298. 100 Berkes, Türkiye İktisat Tarihi, Vol. 2, p. 330. 101 Berkes, The Development of Secularism, p. 126. 102 David Urquhart, Turkey and Its Resources, Its Municipal Organization and Free Trade; the State and Prospects of English Commerce in the East, the New Administration of Greece, Its Revenue and National Possessions, Saunders and Otley, London, 1933, p. 141. 103 Ibid., p. 143. 104 Sayar, Osmanlı İktisat Düşüncesinin Çağdaşlaşması, p. 195 and the footnote. 105 According to Berkes, Churchill, who shot a Turkish boy by accident during a hunt, faced very negative reactions. The British ambassador, who portrayed Churchill as a ‘victim’, created a diplomatic crisis. In order to ‘appease’ Churchill, he obtained for him a concession to issue a newspaper. Berkes, Türkiye İktisat Tarihi, Vol. 2, p. 331. 106 Sayar, Osmanlı İktisat Düşüncesinin Çağdaşlaşması, pp. 273–5. 107 Stanford J. Shaw and Ezel Kural Shaw, History of the Ottoman Empire and Modern Turkey, Vol. II, Cambridge University Press, Cambridge, 1977, pp. 28–35. 108 John Gallagher and Ronald Robinson, ‘The Imperialism of Free Trade’, The Economic History Review, 1953, New Series, Vol. 6, No. 1, pp. 11–12. According to these authors, the British Empire, in the nineteenth century, was expanding by acquiring colonies officially. Moreover, she used her political power and commercial superiority to make the Ottoman Empire, Iran, China and some Latin American countries part of her ‘unofficial empire’. As a result of these commercial relations, the British political influence kept gaining strength. 109 Tengirşenk, ‘Tanzimat Devrinde Osmanlı Devletinin Haricî …’, p. 299. 110 Mübahat Kütükoğlu, Osmanlı-İngiliz İktisadi Münasebetleri I, Türk Kültürünü Araştırma Enstitüsü, Ankara, 1974, p. 81. 111 Ibid., pp. 87–8. 112 Théophile Lavallée, Histoire de L’Empire Ottoman Depuis les Temps Anciens Jusqu’à Nos Jours, Garnier Frères, Paris, 1855, p. 500. 113 Tengirşenk, ‘Tanzimat Devrinde Osmanlı Devletinin Haricî …’, p. 310; Berkes, Türkiye İktisat Tarihi, Vol. 2, p. 331; and Cevdet Paşa, Tezakir 13–20, Tezkire No. 6.

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114 Kütükoğlu, Osmanlı-İngiliz İktisadi Münasebetleri I, pp. 109–13; and Tengirşenk, ‘Tanzimat Devrinde Osmanlı Devletinin Haricî …’, pp. 290–3. 115 Tengirşenk, ‘Tanzimat Devrinde Osmanlı Devletinin Haricî …’, p. 289. 116 Puryear, International Economics and Diplomacy, p. 118. 117 D.C.M. Platt, ‘The National Economy and British Imperial Expansion before 1914’, The Journal of Imperial and Commonwealth History, 1972, Vol. II, No. 1, p. 8. 118 Issawi, The Economic History of Turkey, p. 91. 119 A. Du Velay, Essai sur L’Histoire Financière de la Turquie, Depuis le Règne du Sultan Mahmoud II Jusqu’à nos Jours, Arthur Rousseau, Paris, 1903, p. 102. 120 Jacob Viner, International Economics, The Free Press, Glencoe, Illinois, 1951, p. 144. 121 Issawi, The Economic History of Turkey, p. 76. 122 Bailey, British Policy and the Turkish Reform, p. 79. 123 Issawi, The Economic History of Turkey, p. 74. 124 Bernard Lewis, The Emergence of Modern Turkey, Second Edition, Oxford University Press, London, 1968, pp. 454–6. 125 In articles which appeared in the New York Daily Tribune, Marx wrote that ‘it is the Greek and Slavonic middle-class in all the towns and trading posts who are the real support of whatever civilization is effectually imported into the country. That part of the population is constantly rising in wealth and influence, and the Turks are more and more driven into the background. Were it not for their monopoly of civil and military power they would soon disappear. But that monopoly has become impossible for the future, and their power must be got rid of. To say that they cannot be got rid of except by putting Russians and Austrians in their place means as much as to say that the present political constitution of Europe will last for ever. Who will make such an assertion?’, Issawi, The Economic History of Turkey, p. 54. In fact, Marx was wrong about the impact of Turks on trade. At the time, while all the European countries had protectionist policies, the Ottoman Empire had an almost free trade policy. Had it not been for countries adopting free trade, European countries, and especially Britain, would have suffered a significant decrease in their volume of trade. 126 Issawi, The Economic History of Turkey, p. 76. 127 Berkes, Türkiye İktisat Tarihi, Vol. 2, pp. 70–4. 128 Puryear, International Economics and Diplomacy, p. 117. 129 Bailey, British Policy and the Turkish Reform, pp. 64–9; and Puryear, International Economics and Diplomacy, Ch. 4. 130 Salgur Kançal, ‘La Conquête du Marché Interne Ottoman par le Capitalisme Industriel Concurrentiel (1838–1881)’, Economie et Sociétés dans L’Empire Ottoman (Fin du XVIIIe – Début du XXe Siècle), Colloques Internationaux du Centre National de la Recherche Scientifique, No. 601, Paris 1983, pp. 366–9. 131 Roger Owen, The Middle East in the World Economy 1800–1914, I. B. Tauris & Co. Ltd. Publishers, London, 1993, p. 93. 132 Urquhart, Turkey and Its Resources, p. 144. 133 M. A. Ubicini, Letters on Turkey: An Account of the Religious, Political, Social, and Commercial Conditions of the Ottoman Empire; the Reformed Institutions, Army, Navy, &c. &c., Part I, Turkey and the Turks, Translated from French by Lady Easthope, John Murray, London, 1856, p. 339.

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134 Owen, The Middle East in the World Economy, p. 93. 135 Ömer Celal Sarç, ‘Tanzimat ve Sanayimiz’, Tanzimat I, Maarif Matbaası, Istanbul, 1940, p. 427. The Oke or Okka is a measurement of weight equivalent to 2.8 pounds. 136 Ibid., p. 428; and The Manchester Guardian, ‘Our Interests in Turkey’, 24 February 1869, p. 7. 137 John D. Daniels and Lee H. Radebaugh, International Business, Environments and Operations, Addison-Wesley, Reading, 1998, p. 240. 138 Jeffrey G. Williamson, Globalization and the Poor Periphery before 1950, The MIT Press, Cambridge, Massachusetts, 2006, p. 112. 139 Puryear, International Economics and Diplomacy, p. 108. 140 Earle, Turkey, the Great Powers, pp. 9–17; and Leland James Gordon, American Relations with Turkey, 1830–1930 An Economic Interpretation, University of Pennsylvania Press, Philadelphia, 1932, p. 73. Chapter 2    1 Eric Hobsbawm, The Age of Capital 1848–1875, Abacus, London, 2004, pp. 13–7.    2 Eliot Grinnell Mears, Modern Turkey: A Politico-Economic Interpretation, 1908– 1923, The MacMillan Company, New York, 1924, p. 389.    3 Nihad S. Sayar, Türkiye İmparatorluk Dönemi Mali Olayları, İ.İ.T.İ.A. Nihad Sayar Yayın ve Yardım Vakfı, No. 281, Istanbul, 1977, p. 192.    4 Berkes, Türkiye İktisat Tarihi, Vol. 2, p. 312.    5 Bernard Lewis, The Emergence of Modern Turkey, 2nd Edition, Oxford University Press, London, 1968, pp. 110–11.    6 Charles Morawitz, Les Finances de la Turquie, Guillaumin et Cie, Paris, 1902, pp. 14–5.    7 Haydar Kazgan, Osmanlıda Avrupa Finans Kapitali, Yapı Kredi Yayınları, İstanbul, 1995, pp. 72–3.    8 Issawi, The Economic History of Turkey, p. 327.    9 Kazgan, Osmanlıda Avrupa Finans Kapitali, pp. 74–5; Stefanos Yerasimos, Az Gelişmişlik Sürecinde Türkiye, 2. Tanzimattan I. Dünya Savaşına, (Türkçesi: Babür Kuzucu), Belge Yayınları, Istanbul, 2001, p. 69.   10 Morawitz, Les Finances de la Turquie, pp. 17–8.   11 Economic historians generally claim that these banknotes had no backing. However, Stanford J. Shaw and Ezel Kural Shaw wrote that the 1840 banknotes were backed with 160,000 gold pieces. Shaw and Shaw, History of the Ottoman Empire, p. 96.   12 Kazgan, Osmanlıda Avrupa Finans Kapitali, p. 75.   13 Parvus Efendi, Türkiye’nin Mali Tutsaklığı, (Prepared for publication by Muammer Sencer), İleri Yayınları, Istanbul, 2005, p. 61.   14 F. S. Rodkey, ‘Ottoman Concern about Western Economic Penetration in the Levant, 1849–1856’ , The Journal of Modern History, Vol. 30, No. 4, Dec. 1958, pp. 348–9.   15 Stanley Lane-Poole, The Life of the Right Honorable Stratford Canning Viscount Stratford de Redcliff, Vol. II, London, 1888, p. 215.   16 Kazgan, Osmanlıda Avrupa Finans Kapital, p. 78; and Yerasimos, Az Gelişmişlik Sürecinde, p. 71.

Notes 17 18 19 20 21

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Du Velay, Essai sur L’Histoire Financière, pp. 138–9. Kazgan, Osmanlıda Avrupa Finans Kapital, pp. 123–4. Du Velay, Essai sur L’Histoire Financière, p. 139. Shaw and Shaw, History of the Ottoman Empire, p. 97. Donald C. Blaisdell, European Financial Control in the Ottoman Empire, AMS Press Inc., New York, 1966, pp. 28; Du Velay, Essai sur L’Histoire Financière, pp. 139–41, and Yerasimos, Az Gelişmişlik Sürecinde, p. 93. 22 Du Velay, Essai sur L’Histoire Financière, p. 141. 23 Blaisdell, European Financial Control, p. 28. 24 Du Velay, Essai sur L’Histoire Financière, p. 143. 25 Kazgan, Osmanlıda Avrupa Finans Kapital, pp. 134–5. 26 Shaw and Shaw, History of the Ottoman Empire, p. 156. 27 Morawitz, Les Finances de la Turquie, pp. 51–2. 28 Jules Mirès was a banker who directed his attention to new and speculative enterprises. In 1860, he became interested in laying railways and establishing banks in the Ottoman Empire. While the large European banks were reluctant to sell the Ottoman bond issue of 1860, Mirès took over the sale. He tried to facilitate this by writing articles in the newspapers he owned. He expected great profits from this bond sale. The bonds, which had a nominal value of 500 francs each, were sold at 312.50 francs or at 62.5 percent of their nominal value. Since Mirès had an agreement with the Ottomans to buy these bonds at a rate of 53.75 percent, he would make a profit of 8.75 percent (62.5 less 53.75), in addition to the 1.5 percent commission he was getting. The total amount borrowed would be delivered to the Ottomans in 18 months. However, the interest payments and amortization would begin in six months. Since the amortization rate of the bonds was one percent, those creditors who were lucky to get the amortization in the first lottery draw would get their principal amounts back at the nominal value. In other words, in six months they would get 500 francs for the 312.50 francs they had paid. In 1861, when Mirès was indicted for various financial irregularities, the sale of these bonds came to a complete halt. The Mirès incident wreaked havoc in Europe and the Ottoman State. The Ottoman lira lost 85 percent of its value in five months. Du Velay, Essai sur L’Histoire Financière, pp. 153–66; and Wikipédia, Article ‘Jules Mirès’, http://fr.wikipedia.org/wiki/Jules_Mirès. 29 İ. Hakkı Yeniay, Yeni Osmanlı Borçları Tarihi, İstanbul Üniversitesi Yayınları, İstanbul, 1964, Ch. I. 30 Rodkey, ‘Ottoman Concern …’ , p. 352. 31 Adrien Biliotti, Banque Impériale Ottomane, Imprimerie Henri Jouve. Paris, 1909, pp. 19–20; and Du Velay, Essai sur L’Histoire Financière, p. 189. 32 Edhem Eldem, Osmanlı Bankası Tarihi (Translation: A. Berktay), Osmanlı Bankası ve Türkiye Ekonomik ve Toplumsal Tarih Vakfı, Istanbul, 1999, p. 83; and Biliotti, Banque Impériale Ottomane, pp. 317–31. 33 Berkes, Türkiye İktisat Tarihi, Vol. 2, pp. 299–300. 34 Paul Imbert, La Rénovation de L’Empire Ottoman: Affaires de Turquie, Librairie Académique, Paris, 1909, pp. 196–200; and Du Velay, Essai sur L’Histoire Financière, pp. 105–19. 35 Edouard Engelhardt, La Turquie et le Tanzimat ou Histoire de Réformes dans L’Empire Ottoman depuis 1826 Jusqu’à nos Jours, A. Cotillon et Cie, Paris, 1882, pp. 106–10; and Du Velay, Essai sur L’Histoire Financière, pp. 27–9 and 89–96.

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36 Yerasimos, Az Gelişmişlik Sürecinde, p. 137. 37 Du Velay, Essai sur L’Histoire Financière, pp. 113–14. 38 Blaisdell, European Financial Control, p. 31. 39 Du Velay, Essai sur L’Histoire Financière, p. 166. 40 Blaisdell, European Financial Control, p. 35. 41 The Times, London, Saturday, December 27, 1856, p. 6. 42 The Times, ‘Editorials/Leaders’, 15 September 1858, p. 6. 43 Shaw and Shaw, History of the Ottoman Empire, pp. 155–6. 44 Herbert Feis, Europe the World’s Banker 1870–1914, Yale University Press, New Haven, 1930, pp. 105–7. 45 Morawitz, Les Finances de la Turquie, p. 50; and Du Velay, Essai sur L’Histoire Financière, p. 326. 46 Morawitz, Les Finances de la Turquie, p. 51. 47 The Economist, ‘The Terms of the Turkish Repudiation’, 16 October 1875, p. 1224. 48 The Economist, ‘Austria and Germany’, 16 October 1875, p. 1227. 49 The Economist, ‘The Cloud in the East’, 20 November 1875, p. 1363. 50 The Times, ‘Paper Money in Turkey’, 5 August 1876, p. 6. 51 Ibid. 52 Shaw and Shaw, History of the Ottoman Empire, pp. 189–91. 53 Du Velay, Essai sur L’Histoire Financière, p. 373. According to The Economist (24 August 1878, p. 1000), the war indemnity was 310 million roubles, which might turn out to be silver roubles, in which case the sterling value would be upwards of 50 million pounds. 54 Ibid., p. 376. 55 The Economist, ‘The Financial Future of Turkey’, 24 August 1878, p. 1000. 56 Du Velay, Essai sur L’Histoire Financière, p. 372; and Blaisdell, European Financial Control, p. 87. 57 The Economist, ‘The Financial Future of Turkey’, 24 August 1878, p. 999. 58 Blaisdell, European Financial Control, p. 90; and The Economist, ‘Turkey and her Creditors’, 24 December 1881, pp. 1586–7. 59 Yeniay, Yeni Osmanlı Borçları, p. 72; and Du Velay, Essai sur L’Histoire Financière, p. 436. 60 Blaisdell, European Financial Control, pp. 92–3. 61 The Economist, ‘Turkey and her Creditors’, 24 December 1881, p. 1587. 62 Parvus Efendi, Türkiye’nin Mali Tutsaklığı, p. 72. Alexander Israel Helphand (or Helfant) was born in Russia. He earned his doctorate in Germany. In 1905, he participated in the Russian rebellion, and was exiled to Siberia. From there, he made an escape to Germany. There and in Switzerland he joined the socialists. At the end of 1910 he came to Turkey and met with the leaders of the Committee of Union and Progress. He wrote in well-known Turkish newspapers and journals under the name of Parvus Efendi. In his Turkish writings, he never mentioned the socialist revolution. He thought that Turkey had to establish a democratic national State. (Parvus Efendi, in Muammer Sencer, editor Türkiye’nin Mali Tutsaklığı, İleri Yayınları, Istanbul, 2005, pp. 37–53, and Berkes, Development of Secularism in Turkey, pp. 335–6). 63 Morawitz, Les Finances de la Turquie, p. 231; and Du Velay, Essai sur L’Histoire Financière, p. 445.

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64 Blaisdell, European Financial Control, pp. 94–5. 65 Du Velay, Essai sur L’Histoire Financière, pp. 341–2; and Parvus Efendi, Türkiye’nin Mali Tutsaklığı, p. 66. 66 Leland Hamilton Jenks, The Migration of British Capital to 1875, Alfred A. Knopf, New York, 1927, pp. 278–9. 67 Parvus Efendi, Türkiye’nin Mali Tutsaklığı, p. 67. 68 H. C. Woods, ‘The Negotiations between Turkey and Bulgaria’, The New Age, January 21, 1909, no. 750, p. 257. 69 Blaisdell, European Financial Control, pp. 115–16. 70 Ibid., p. 114; and Parvus Efendi, Türkiye’nin Mali Tutsaklığı, p. 73. 71 Shaw and Shaw, History of the Ottoman Empire, pp. 207–8. 72 Rafii Şükrü Suvla, ‘Tanzimat Devrinde İstikrazlar’, Tanzimat I, Maarif Matbaası, Istanbul, 1940, pp. 287–8. 73 Earle, Turkey, the Great Powers, p. 18. 74 The Economist, ‘The Turkish Public Debt’, 7 December 1895, p. 1589. 75 The Economist, ‘The Danger to Turkish Bondholders’, 18 January 1902, p. 75. 76 The Economist, ‘The Ottoman Public Debt Administration’, 26 April 1902, p. 650 77 The Economist, ‘The Danger to Turkish Bondholders’, 18 January 1902, p. 75. 78 Feroz Ahmad, The Young Turks, The Committee of Union & Progress in Turkish Politics 1908–1914, Oxford – At the Clarendon Press, 1969, p. 76. 79 Shaw and Shaw, History of the Ottoman Empire, pp. 276–7. 80 Ibid., p. 298. 81 Suvla, ‘Tanzimat Devrinde İstikrazlar’, pp. 278–84. 82 Enver Ziya Karal, Osmanlı Tarihi, Vol. VIII, Türk Tarih Kurumu, Ankara, 2000, p. 431. 83 Suvla, ‘Tanzimat Devrinde İstikrazlar’, pp. 272–5. 84 Feis, Europe the World’s Banker, p. 33. 85 James Macdonald, A Free Nation in Debt, Financial Roots of Democracy, Farrar, Straus and Giroux, New York, 2003, p. 383. 86 Feis, Europe the World’s Banker, p. 37. 87 Macdonald, A Free Nation in Debt, pp. 379–80. 88 Feis, Europe the World’s Banker, p. 4. 89 Blaisdell, European Financial Control, Ch. 4. 90 D.C.M. Platt, ‘British Portfolio Investments Overseas before 1870: Some Doubts’, The Economic History Review. 2nd Series, Vol. XXXIII, No. 1, February 1980, p. 11. 91 The Economist, ‘The Turkish Repudiation’, Oct. 9, 1875, pp. 190–1. 92 The Economist, ‘Turkey and Her Creditors’, Dec. 24, 1881, pp. 1586–7. 93 According to Article 15 of the Muharrem Decree, France and Britain, which had the highest share of Ottoman bond issues in terms of size and importance, would take turns to appoint a president for the Ottoman Public Debt Administration. Towards the end of the nineteenth century, opposing views came forth. Upon the request of the German delegate, a study was carried out to determine the shares of lending countries. In Germany, questionnaires were sent to the banks. In Britain, the principal amount of the debt was calculated according to the coupon interest payments. The shares of other countries were calculated by rather vague methods (Morawitz, Les Finances de la Turquie, pp. 236–7). The 1913 share calculations were based on private German estimates.

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(Vedat Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları Hakkında Bir Tetkik, Türk Tarih Kurumu Basımevi, Ankara, 1994, p. 188).   94 Feis, Europe the World’s Banker, pp. 62–3.   95 Tahsin Paşa, Abdülhamit ve Yıldız Hatıraları, Muallim Ahmet Halit Kitaphanesi, İstanbul, 1931, p. 52.   96 Feis, Europe the World’s Banker, p. 128.   97 Bruce Fulton, ‘France’s Extraordinary Ambassador: Ernest Constans and the Ottoman Empire, 1898–1909’, French Historical Studies, Vol. 23, No. 24, Fall 2000, pp. 701–2.   98 Feis, Europe the World’s Banker, p. 139.   99 Blaisdell, European Financial Control, p. 121. 100 Ibid., p. 2. Chapter 3    1 Kazgan, Osmanlı’dan Cumhuriyet’e, p. 8.    2 Orhan Kurmuş, Emperyalizmin Türkiye’ye Girişi, Bilim Yayınları, Istanbul, 1974, pp. 70–80. The Manchester Guardian, too, wrote about the need for the early completion of the Izmir–Aydın railway in order to meet the cotton demand of British manufacturers (The Manchester Guardian, ‘Cotton Growing in Turkey and Syria’, 25 May 1861, p. 5).    3 C. K. Hobson, The Export of Capital, Constable and Company Ltd., London 1914, p. 159.    4 Dunn, Turkey and its Future, pp. 58–61; and Feis, Europe the World’s Banker, p. 317.    5 Gallagher and Robinson, ‘The Imperialism of Free Trade’, pp. 6 & 11.    6 D.C.M. Platt, ‘The National Economy and British Imperial Expansion before 1914’, The Journal of Imperial and Commonwealth History, Vol. II, No. 1, October 1973, pp. 3–14.    7 David McLean, ‘Finance and “Informal Empire” before the First World War’, The Economic History Review, New Series, Vol. 29, No. 2, May 1976, p. 293.    8 Ibid., p. 293.    9 Mears, Modern Turkey, p. 354; and Earle, Turkey, Great Powers, pp. 58–84.   10 The Near East, ‘British Companies in Turkey – Their Non-Recognition by the Authorities’, 20 February 1914, p. 516.   11 See Ş. Pamuk, Ottoman Foreign Trade in the 19th Century, Historical Statistics Series, Volume 1, State Institute of Statistics, Ankara, 1995, pp. 61–77.   12 Bailey, British Policy and the Turkish Reform Movement, p. 63.   13 Lane-Poole, The Life of the Right Honourable, Vol. I, pp. 345–6.   14 Shaw and Shaw, History of the Ottoman Empire, p. 30.   15 Bailey, British Policy and the Turkish Reform Movement, p. 64.   16 Morawitz, Les Finances de la Turquie, pp. 373–4 and 389–90.   17 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 29.   18 Ibid., p. 79.   19 The Manchester Guardian, ‘Cotton Growing in Turkey and Syria’, 25 May 1861, p. 5.   20 Karal, Osmanlı Tarihi, Vol. VII, pp. 252–3; and Issawi, The Economic History of Turkey, pp. 236–41. 21 Roger Owen, The Middle East in the World Economy, 1800–1914, I.B. Tauris & Co. Ltd., London, 1993, p. 114.

Notes 22 23 24 25 26 27 28

181

The Manchester Guardian, ‘The Turkish Cotton Crop’, 13 August 1864, p. 5. Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 86. Ibid., p. 146. Ibid., pp. 147–53; and Issawi, The Economic History of Turkey, p. 247. Kurmuş, Emperyalizmin Türkiye’ye Girişi, pp. 140–5. Ibid., p. 129; and Issawi, The Economic History of Turkey, p. 307. Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 90; and Encyclopedia of Company Histories, http://fundinguniverse.com/company-histories/Royal-amp;-Sun Alliance-Insurance-Group-plc-Company-history.html, (Accessed Dec. 29, 2006). 29 E. Pech, Manuel des Sociétés Anonymes Fonctionnant en Turquie, Imprimerie Gérard Frères, İstanbul, 1911, pp. 150, 152, and 132. 30 Ibid. 31 Feis, The World’s Banker, p. 390. 32 Ibid., pp. 317–18. 33 René Pinon, L’Europe et l’Empire Ottomane: Les Aspects Actuels de la Question d’Orient, Librairie Académique, Paris, 1917, p. 355; and Le Groupement des Intérêts Français dans l’Empire Ottoman, Les Intérêts Financières de la France dans l’Empire Ottoman, July 1919, p. 6. 34 André Chéradame, La Question d’Orient, la Macédoine, le Chemin de Fer de Bagdad, Librairie Plon, Paris, 1903, p. 261. 35 Paul Imbert, La Rénovation de l’Empire Ottoman: Affaires de Turquie, Librairie Académique, Paris, 1909, p. 235. 36 René Pinon, L’Europe et l’Empire Ottoman, p. 355; Le Groupement, Les Intérêts Financières de la France, p. 3; and Imbert, La Rénovation de l’Empire Ottoman, p. 235. 37 Feis, The World’s Banker, p. 50. 38 Ibid., p. 50. 39 Jacques Thobie, Intérêts et Impérialisme Français dans l’Empire Ottoman (1895– 1914), Publications de la Sorbonne Imprimerie Nationale, Paris, 1977, pp. 148–9. 40 Ernest Giraud, La France à Constantinople, Imprimerie Française, İstanbul, 1907, pp. 176–7. 41 The Charnaud family members, who came to İzmir from France in 1827, later became British subjects. Jean Charnaud was naturalized in 1862. 42 Pech, Manuel des Sociétés Anonymes, p. 188. 43 Thobie, Intérêts et Impérialisme Français, p. 134. 44 Kurmuş, Emperyalizmin Türkiye’ye Girişi, pp. 201–2. 45 Ibid., p. 203. 46 Pech, Manuel des Sociétés Anonymes, p. 203. 47 Thobie, Intérêts et Impérialisme Français, p. 141–2. 48 Du Velay, Essai sur l’Histoire Financière, p. 579. 49 Earle, Turkey, Great Powers, p. 30. 50 Du Velay, Essai sur l’Histoire Financière, p. 615. 51 Feis, The World’s Banker, pp. 208 and 334. 52 Fulton, ‘France’s Extraordinary Ambassador …’, p. 685. 53 In 1816, the German population count was 25 million. It rose to 41 million in 1871 when the German Empire was founded, and reached 52 million in 1895. (İlber Ortaylı, Osmanlı İmparatorluğu’nda Alman Nüfuzu, İletişim Yayınları, İstanbul, 1998, p. 34)

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54 Ibid., p. 34. 55 Feis, The World’s Banker, p. 74. 56 In 1725, when Peter I died, there were 233 factories, of all sizes, in Russia. At the death of Catherine II, in 1796, this number rose to 3,360 excluding mines and ironworks. (Fernand Braudel, The Perspective of the World, Civilization & Capitalism 15th–18th Century, Vol. 3, Harper & Row, New York, 1982, p. 450). 57 Hobsbawm, The Age of Capital, p. 356. 58 Malte Fuhrmann, ‘Visions of Germany in Turkey: Legitimizing German Imperialist Penetration of the Ottoman Empire’, http://www.users.ox.ac. uk/~oaces/conference/papers/malte_fuhrmann.pdf. (Accessed September 29, 2006) 59 Chéradame, La Question d’Orient, p. 2. 60 Frank M. Baglione, ‘“Not as People but as Germans”, German and American Views on the Ethnic Impact of Imperialism’, http://organizations.ju.edu/ fch/1993baglione.htm. (Accessed October 11, 2006). 61 William Roscher, Principles of Political Economy, Vol. I, Translated by John J. Lalor, Henry Holt & Co., New York, 1878, p. 369. 62 W. O. Henderson, ‘German Economic Penetration in the Middle East, 1870– 1914’, The Economic History Review, Vol. 18, No. 1/2, 1948, p. 56. 63 Chéradame, La Question d’Orient, p. 3. 64 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 205. In August 1911, the Quarterly Trade Journal of the British Chamber of Commerce in Turkey published an article, ‘British Interests in Turkey’, which was republished in The Near East. The article complained that Britain severely neglected this country, even maintained that the British policy towards Ottomans since the 1870s bore a ‘veiled hostility’. However, her economic attitude in this country was defined as ‘openly and undisguisedly hostile’ (The Near East, August 9, 1911, p. 325). 65 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 206. 66 Earle, Turkey, the Great Powers, p. 37; The Economist, ‘Turkish Railways and British Trade’, 18 March 1899, p. 385; and The Observer, ‘Germany and the Near East’, 28 October 1900, p. 7. 67 Feis, The World’s Banker, p. 187. 68 Ibid., p. 318. 69 Marc Van Den Reek, Osmanlı Başkentinde Belçika, İlk Adımlardan Güzel Çağa Kadar, Belçika Başkonsolosluğu, İstanbul, 2001, pp. 15–16. 70 Léopold de Belgique (futur Léopold II), Voyage à Constantinople 1860, Editions Complexe, Bruxelles, 1997, p. 28. 71 Van Den Reek, Osmanlı Başkentinde Belçika, pp. 21–2. 72 L’Orient Illustré, ‘Biographie. Son Excellence le Vicomte Roger Helman de Grimberghe, Ministre Plénipotentiaire de Belgique près de la Porte Ottomane’, 21 March 1874, p. 57. 73 Alberte Martinez Lopez, ‘Belgian Investments in Tramways and Light Railways: An International Approach, 1892–1935’, Journal of Transport History, March 2003, pp. 59–77. 74 Jacques Thobie, La France et l’Est Méditerranéen Depuis 1850, Editions Isis, Istanbul, 1993, p. 81. 75 Ibid., p. 83.

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  76 Pech, Manuel des Sociétés Anonymes, pp. 234 and 243.   77 Braudel, The Perspective of the World, p. 137.   78 David S. Landes, The Wealth and Poverty of Nations, Why Some Are So Rich and Some So Poor, W.W. Norton & Company, New York, 1998, pp. 250–1. The most important export item of the Mezzogiorno was its manpower. They especially emigrated to the United States and Argentina. Eventually this migration gained speed, and in 1905 alone, the number of Italian emigrants had reached 726,000 (Histoire Universelle, Vol. 3, Gallimard, Bruges, 1958, p. 655).   79 Pinon, L’Europe et l’Empire Ottoman, pp. 339–44.   80 William L. Langer (ed.), An Encyclopedia of World History, Houghton Mifflin Company, Boston, 1972, p. 709.   81 Pinon, L’Europe et l’Empire Ottoman, p. 342.   82 Ibid., pp. 342–52.   83 L’Orient Illustré, ‘Biographie. Son Excellence le Comte Ulysse Barbolani, Ministre Plénipotentiaire de S. M. le Roi d’Italie près de la Porte Ottomane’, March 7, 1874, Year 2, No. 58, p. 41.   84 Yerasimos, Az Gelişmişlik Sürecinde, pp. 439–44.   85 R. J. B. Bosworth, ‘Italy and the End of the Ottoman Empire’ in Marian Kent (ed.) The Great Powers and the End of the Ottoman Empire, Frank Cass, London, 1996, p. 54.   86 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, p. 49.   87 The Near East, ‘Italy in Asia Minor – Valuable Turkish Concessions’, 3 October 1913, p. 640.   88 Bosworth, ‘Italy and the End of the Ottoman Empire’, p. 64.   89 Leland James Gordon, American Relations with Turkey 1830–1930, An Economic Interpretation, University of Pennsylvania Press, Philadelphia, 1932, pp. 123–7.   90 John DeNovo, American Interests and Policies in the Middle East 1900–1930, The University of Minnesota Press, Minneapolis, 1963, p. 9.   91 Ayten Sezer, ‘Osmanlı Döneminde Misyonerlik Faaliyetleri’, www.ait.hacettepe.edu.tr/akademik/arsiv/misy/htm. Accessed October 21, 2006.   92 Bilal N. Şimşir, ‘Washington’daki Osmanlı Elçisi Alexandre Mavroyani Bey ve Ermeni Gailesi (1887–1896)’, Ermeni Araştırmaları, Sayı 4, Aralık 2001– Ocak, Şubat 2002, www.iksaren.org/index.php?Page=DergiIcerik&IcerikNo= 267. Accessed November 3 2006.   93 DeNovo, American Interests and Policies in the Middle East, p. 23; and Gordon, American Relations with Turkey, p. 241.   94 Gordon, American Relations with Turkey, p. 284.   95 DeNovo, American Interests and Policies in the Middle East, pp. 60–1.   96 The Manchester Guardian, ‘German and American Rivalry in Turkey’, 25 June 1910, p. 6.   97 Gordon, American Relations with Turkey, p. 259   98 DeNovo, American Interests and Policies in the Middle East, pp. 39–40.   99 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, p. 114; and DeNovo, American Interests and Policies in the Middle East, p. 40. 100 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, p. 46. 101 Bailey, British Policy and the Turkish Reform Movement, p. 63.

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  1 The Economist, ‘The Turkish Railway System’, 4 November 1893, p. 1313.   2 The Times, ‘Sir Vincent Caillard’s Special Report on the Ottoman Public Debt’, 26 November 1896, p. 9.   3 The Economist, ‘The Oriental Railway – Nisch-Uskub and Salonica’, 2 November 1912, p. 905.   4 Shaw and Shaw, History of the Ottoman Empire, pp. 91, 119–20.   5 The Times, ‘Turkey’, 17 November 1858, p. 8.   6 Morawitz, Les Finances de la Turquie, p. 371.   7 Ibid., p. 372.   8 Michael Palairet, Balkan Ekonomileri 1800–1914, Kalkınmasız Evrim, Translated from English by Ayşe Edirne, Sabancı Üniversitesi, Istanbul, 2000, 48.   9 Morawitz, Les Finances de la Turquie, p. 373. 10 Peter Hertner, ‘The Balkan Railways, International Capital and Banking from the 19th Century until the Outbreak of the First World War’, Bulgarian National Bank Discussion Papers, DP/53/2006 (June). 11 Morawitz, Les Finances de la Turquie, p. 374. 12 Du Velay, Essai sur l’Histoire Financière, pp. 251–2. 13 Ibid., p. 254; and Morawitz, Les Finances de la Turquie, p. 375. 14 Du Velay, Essai sur l’Histoire Financière, pp. 254–5; and Morawitz, Les Finances de la Turquie, pp. 376–81. 15 Hertner, ‘The Balkan Railways …’, p. 9. 16 Feis, Europe the World’s Banker, p. 295. 17 Du Velay, Essai sur l’Histoire Financière, p. 257. 18 Ibid., p. 259. 19 Hertner, ‘The Balkan Railways …’, p. 9. 20 Parvus Efendi, Türkiye’nin Mali Tutsaklığı, pp. 155–62. 21 In 1872, the Ottoman Government was displeased with Hirsch who built the railways in the cheapest possible manner. For instance, the bridges, which were to be built with stone, were actually built with wood. In order to save capital and rails, railway lines were cut short, and did not pass through the nearby villages and towns, as was the case in Macedonia (Hertner, ‘The Balkan Railways …’, p. 14). This was why horse and camel caravans continued decades after the railways were built. 22 Cited in Hertner, ‘The Balkan Railways …’, p. 11, footnote 43. 23 Du Velay, Essai sur l’Histoire Financière, p. 569. It was economic reasons which led German and Austrian investors to form a Swiss firm. Swiss laws concerning the administration and financing of companies were not as rigid as the German ones. Moreover, taxes on returns from shares and bonds were lower in Switzerland (Hertner, ‘The Balkan Railways …’, pp. 21–2). 24 The Economist, ‘Austria’, 4 October 1890, pp. 1,265–6. 25 The Economist, ‘Switzerland – The Zurich Oriental Railway Bank’, 28 December 1918, p. 882. 26 H. C. Woods, ‘The Negotiations between Turkey and Bulgaria’, The New Age, January 21, 1909, p. 257. 27 The Economist, Dec. 28, 1918, p. 882. 28 Hertner, ‘The Balkan Railways …’, p. 27.

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29 Ibid., pp. 27–8. 30 Morawitz, Les Finances de la Turquie, pp. 381–2. 31 Pech, Manuel des Sociétés Anonymes, 1906, p. 52, 1911, p. 50. 32 Earle, Turkey, the Great Powers, p. 29. 33 Imbert, La Rénovation de l’Empire Ottoman, p. 75. 34 Du Velay, Essai sur l’Histoire Financière, pp. 562–4; and Morawitz, Les Finances de la Turquie, pp. 385–6. 35 The Times, ‘Railways in Turkey’, 20 September 1902, p. 4. 36 Du Velay, Essai sur l’Histoire Financière, pp. 555–8. 37 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, p. 98. 38 The Times, ‘Railways in Turkey’, 20 September 1902, p. 4. 39 Du Velay, Essai sur l’Histoire Financière, p. 249. 40 The Times, ‘Turkey’, 9 March 1858, p. 10. 41 Ibid. 42 The Times, ‘Railway Intelligence–Ottoman (Smyrna to Aidin)’, 29 March 1861, p. 5. 43 Ibid. 44 The Times, ‘Turkey’, 9 March 1858, p. 10. 45 The Times, ‘Major Law’s Report on Railways in Asiatic Turkey’, 25 May 1896, p. 9; and Du Velay, Essai sur l’Histoire Financière, pp. 595–600. 46 Du Velay, Essai sur l’Histoire Financière, p. 595; and The Times, ‘Major Law’s Report on Railways in Asiatic Turkey’, 25 May 1896, p. 9. 47 The Times, ‘Railway Intelligence–Ottoman (Smyrna to Aidin)’, 31 March 1863, p. 7. 48 Ibid. 49 Pech, Manuel des Sociétés Anonymes, p. 70. 50 Morawitz, Les Finances de la Turquie, p. 393; and Du Velay, Essai sur l’Histoire Financière, p. 579. 51 The Times, ‘Railways in Turkey’, 20 September 1902, p. 4. 52 Pech, Manuel des Sociétés Anonymes, p. 71; and Du Velay, Essai sur l’Histoire Financière, p. 580. 53 The Times, ‘Railways in Turkey’, 20 September 1902, p. 4. 54 Jacques Thobie, Intérêts et Impérialisme Français dans l’Empire Ottoman (1895– 1914), Publications de la Sorbonne, Paris, 1977. 55 Du Velay, Essai sur l’Histoire Financière, p. 600. 56 Morawitz, Les Finances de la Turquie, p. 395. 57 Thobie, Intérêts et Impérialisme Français, p. 138. 58 Imbert, La Rénovation de l’Empire Ottoman, p. 42. 59 Earle, Turkey, the Great Powers, p. 109. 60 Karal, Osmanlı Tarihi, Vol. VII, p. 270. 61 Du Velay, Essai sur l’Histoire Financière, p. 615. 62 Morawitz, Les Finances de la Turquie, p. 391. According to Du Velay, this amount was 680,000 francs (Du Velay, Essai sur l’Histoire Financière, p. 615). 63 Morawitz, Les Finances de la Turquie, pp. 391–2; and Karal, Osmanlı Tarihi, Vol. VII, p. 270. 64 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, p. 98; and Morawitz, Les Finances de la Turquie, p. 392.

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65 Earle, Turkey, the Great Powers, pp. 31–2; Imbert, La Rénovation de l’Empire Ottoman, pp. 14–15; Du Velay, Essai sur l’Histoire Financière, p. 586. 66 Du Velay, Essai sur l’Histoire Financière, pp. 589–90. 67 Pech, Manuel des Sociétés Anonymes, p. 102. 68 Earle, Turkey, the Great Powers, p. 32. 69 M. Hecker, ‘Die Eisenbahnen in der asiatischen Türkei’ (Archiv für Eisenbahnwesen, XXXVII, 1914), translated from German in Charles Issawi (ed.) The Economic History of the Middle East, The University of Chicago Press, Chicago, 1966, p. 250. 70 The Times, ‘Major Law’s Report on Railways in Asiatic Turkey’, 25 May 1896, p. 9. 71 Hecker, ‘Die Eisenbahnen in der asiatischen Türkei’, p. 249. 72 Earle, Turkey, the Great Powers, pp. 32–3. 73 Imbert, La Rénovation de l’Empire Ottoman, pp. 240–51. 74 Earle, Turkey, the Great Powers, p. 36. 75 Karal, Osmanlı Tarihi, Vol. VIII, p. 181; and The Manchester Guardian, ‘The Russo-Turkish Railway Question’, 3 April 1900, p. 12. 76 Earle, Turkey, the Great Powers, p. 41. 77 Ibid., p. 54, endnote 23. 78 Karal, Osmanlı Tarihi, Vol. VIII, pp. 178–9. 79 Chéradame, La Question d’Orient, pp. 2–8. André Chéradame begins his 1903 book with German politics in the Ottoman Empire. He reveals his anxiety and somber thoughts about the penetration of Germany into the Empire since Von Moltke’s visit to Istanbul in 1841, and his writings in German newspapers that urged Germany to enter the colonization competition with other Great Powers. He also mentions the works of the economists, Roscher and Rodbertus, and the orientalist Sprenger, full of wishes and intentions for bringing Turkey under German rule. British newspapers also expressed such views. The Observer (28 October 1900) wrote about Herr Siegmund Scheider’s new book describing Asiatic Turkey where the new railroads were to be traversed. The article mentions the author’s enthusiasm for the project as he describes the feelings of triumph for the German nation at the moment of ‘completion of the Bagdad Railway, which in political, commercial, and colonizing importance throws considerably into the shade even the epochal building of the Suez Canal. He recommends however, that the utmost circumspection be preserved in the colonizing of Asia Minor, that only suitable settlers be allowed to proceed further, and that every respect be paid to the prejudice and opinions of the present inhabitants. He is convinced that the value of Christian missions among the ‘Islamists’ is absolutely nil, and that ‘a complete army of missionaries or a deluge of the publications of the Bible Society will not attain a civilising effect which will be produced on the peoples of Turkish Asia by the first locomotive train passing through their country’. 80 The project prepared by Count Vladimir Kapnist in 1898, was studied seriously by the Ministry of Public Works (Earle, Turkey, the Great Powers, pp. 58–9). 81 The Times, ‘The Baghdad Railway’, 10 August 1899, p. 3; and Earle, Turkey, the Great Powers, pp. 59–60. 82 Chéradame, La Question d’Orient, p. 47.

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  83 Fulton, ‘France’s Extraordinary Ambassador …’, p. 690.   84 Earle, Turkey, the Great Powers, p. 61; The Manchester Guardian, ‘Editorial Article 3’, 29 November 1899, p. 7; and The Observer, ‘Germany and Asia Minor’, 3 December 1899, p. 4.   85 Raymond Poidevin, Les Relations Économiques et Financières entre la France et l’Allemagne de 1898 à 1914, Librairie Armand Colin, Paris, 1969, p. 258.   86 Morawitz, Les Finances de la Turquie, p. 414.   87 Edwin Pears, ‘The Bagdad Railway’, Contemporary Review, 94, 1908, July/Dec., pp. 573–4; and Pech, Manuel des Sociétés Anonymes, p. 96.   88 The Times, ‘The Baghdad Railway’, 22 April 1903, p. 7; and Earle, Turkey, the Great Powers, p. 70.   89 The Economist, ‘The Baghdad Railway’, 18 April 1903, pp. 683–4.   90 The Economist, ‘The Lessons of Baghdad’, 25 April 1903, pp. 729–30.   91 The Manchester Guardian, ‘Editorial Article 4’, 9 April 1903, p. 4.   92 The Manchester Guardian, ‘The Bagdad Railway – Negotiations Broken Off’, 24 April 1903, p. 9.   93 Earle, Turkey, the Great Powers, p. 77.   94 Du Velay, Essai sur l’Histoire Financière, p. 632; and Chéradame, La Question d’Orient, pp. 102–7.   95 Chéradame, La Question d’Orient, pp. 70–111; and The Manchester Guardian, ‘The Bagdad Railway Convention – Provisions of the Concession’, 23 April 1903, p. 5. 96 Earle, Turkey, the Great Powers, p. 81. 97 The Economist, ‘The Baghdad Railway’, 30 May 1908, p. 1,141. 98 The Near East, ‘Germany in Turkey’, October 24, 1913, s. 731. Financial sources were not the only issues in the progress of the railway. The Times wrote about agreements which had been concluded between the Ottoman Bank and the Deutsche Bank with regard to future railway spheres in Syria and Anatolia. These agreements were connected with the Anglo-German and Anglo-Turkish arrangements which were the subject of negotiations a few months earlier. During those negotiations, in October 1913, in deference to the wishes of Russia and the Turkish–Russian Convention of 1900, the project was modified not to include the extension of the Samsun–Sivas–Erzincan line to Erzurum (The Times, ‘Railways in Asia Minor – The Franco-German Agreements’, 17 February 1914, p. 5). 99 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, p. 100. 100 Alfred Bonné, State and Economics in the Middle East: A Society in Transition, Greenwood Press Publishers, Westport, Connecticut, 1973, p. 326. 101 Thobie, Intérêts et Impérialisme Français, p. 158. 102 Hecker, ‘Die Eisenbahnen in der asiatischen Türkei’, p. 250. 103 Thobie, Intérêts et Impérialisme Français, p. 160; and The Times, ‘Railways in Turkey’, 20 September 1902, p. 4. 104 Pech, Manuel des Sociétés Anonymes, pp. 86–7; and Thobie, Intérêts et Impérialisme Français, p. 165. 105 According to Thobie the number of shares was 12,500 (Thobie, Intérêts et Impérialisme Français, p. 166). But, Pech reported the number of shares in this deal as 12,000 (Pech, Manuel des Sociétés Anonymes, p. 87). 106 Fulton, ‘France’s Extraordinary Ambassador …’, pp. 692–3. 107 Pech, Manuel des Sociétés Anonymes, pp. 87–8.

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108 Hecker, ‘Die Eisenbahnen in der asiatischen Türkei’, p. 253. 109 Christopher Clay, ‘The Origins of Modern Banking in the Levant: The Branch Network of the Imperial Ottoman Bank, 1890–1914’, International Journal of Middle East Studies, Vol. 26, No. 4, November 1994, p. 591; Osman Okyar, ‘A New Look at the Problem of Economic Growth in the Ottoman Empire (1800–1914)’, The Journal of European Economic History, Vol. 16, No. 1, 1987, pp. 45–6; and Quataert, Ottoman Manufacturing, pp. 87–111. 110 Du Velay, Essai sur l’Histoire Financière, pp. 189–210. 111 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, p. 160; and Pech, Manuel des Sociétés Anonymes, pp. 111–12. 112 Clay, ‘The Origins of Modern Banking in the Levant …’, p. 610. 113 Albert Baster, ‘The Origins of British Banking Expansion in the Near East’, The Economic History Review, Vol. 5, No. 1, October 1934, pp. 78–9. 114 Ibid., p. 80. 115 Du Velay, Essai sur l’Histoire Financière, pp. 200–6. 116 Clay, ‘The Origins of Modern Banking in the Levant …’, p. 593. 117 Jacques Thobie, ‘Les Banques Etrangères à la Fin de l’Empire Ottoman’, in J. Thobie and S. Kancal (eds.) Système Bancaire Turc et Réseaux Financiers Internationaux, l’Harmattan, Paris, 1995, p. 14. 118 Pech, Manuel des Sociétés Anonymes, 1911, pp. 153. 119 Ibid., p. 137. 120 G. Bie Ravndal, Turkey: A Commercial and Industrial Handbook, Department of Commerce, Washington, 1926, p. 90; Earle, Turkey, the Great Powers, p. 37; and Thobie, ‘Les Banques Etrangères …’, p. 17. 121 Pinon, L’Europe et l’Empire Ottoman, p. 323; and Pech, Manuel des Sociétés Anonymes, 1911, pp. 141. 122 Ravndal, Turkey: A Commercial and Industrial Handbook, p. 224. 123 Pech, Manuel des Sociétés Anonymes, 1911, pp. 123. 124 Clay, ‘The Origins of Modern Banking in the Levant …’, p. 593. 125 Pech, Manuel des Sociétés Anonymes, 1906, p. 132 and 1911 p. 153. 126 Ravndal, Turkey: A Commercial and Industrial Handbook, p. 226; Pech, Manuel des Sociétés Anonymes, 1906, p. 130 and 1911, p. 134. In April 1925, the branches of the Bank of Athens in Turkey were allowed to reopen for a period of three months in order to liquidate its business (Ravndal, p. 226). 127 The Manchester Guardian, ‘Zionist Movement – Address by Herr Wolfsohn’, 3 May 1910, p. 14; and Pech, Manuel des Sociétés Anonymes, 1911, pp. 150–1. 128 The Manchester Guardian, ‘Zionist Congress – Development of Jewish Nationalism’, 4 January 1910, p. 8. 129 Pech, Manuel des Sociétés Anonymes, 1911, pp. 152; and The Manchester Guardian, ‘Zionist Congress …’, 4 January 1910, p. 8. 130 The Manchester Guardian, ‘Zionist Conference – Progress of Colonisation in Palestine’, 9 September 1912, p. 14. 131 Thobie, ‘Les Banques Etrangères …’, p. 15. 132 Ravndal, Turkey: A Commercial and Industrial Handbook, p. 225. 133 Pinon, L’Europe et l’Empire Ottoman, p. 340; and Pech, Manuel des Sociétés Anonymes, 1911, p. 143. 134 Pech, Manuel des Sociétés Anonymes, 1911, p. 130; and Ravndal, Turkey: A Commercial and Industrial Handbook, p. 225.

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135 Pech, Manuel des Sociétés Anonymes, 1911, p. 328. 136 Thobie, ‘Les Banques Etrangères …’, p. 19. 137 Feis, Europe the World’s Banker, pp. 127–30. 138 Thobie, ‘Les Banques Etrangères …’, pp. 19 and 25. 139 Ravndal, Turkey: A Commercial and Industrial Handbook, p. 226. 140 Mears, Modern Turkey, p. 376. 141 Bonné, State and Economics in the Middle East, p. 360. 142 Berkes, Development of Secularism, pp. 398–9. 143 Ibid., p. 399. 144 M. Koraltürk and Fatih Kahya, ‘Insurance in the Ottoman Empire’, in M. Koraltürk (ed.) What Hurts the Purse Hurts the Soul, Allianz, Istanbul, 2009, p. 13. 145 H. Kazgan, A. Soyak and M. Koraltürk, Cumhuriyetin 75 Yıllık Sigortacısı Koç Allianz, Koç Allianz Sigorta A.Ş., Istanbul, 1998, p. 35. 146 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 90; and Royal & Sun Alliance Insurance Group plc, Accessed 29 December 2006 at www.fundinguniverse. com/company-histories/Royal-amp;-Sun-Alliance-Insurance-Group-plcCompany-History.html 147 Giraud, La France à Constantinople, p. 225. 148 Pech, Manuel des Sociétés Anonymes, 1911, p. 248. 149 Generali Sigorta, Accessed 24 January 2007 at www.generali.com.tr/kurumsal/ tarihce/html 150 Kazgan et al, Cumhuriyetin 75 Yıllık Sigortacısı Koç Allianz, p. 56; Pech, Manuel des Sociétés Anonymes, 1911, p. 257. 151 Ravndal, Turkey: A Commercial and Industrial Handbook, p. 190. 152 Generali Sigorta, Accessed 24 January 2007 at www.generali.com.tr/kurumsal/ tarihce/html 153 Koraltürk and Kahya, ‘Insurance in the Ottoman Empire’, pp. 14–15. 154 Ravndal, Turkey: A Commercial and Industrial Handbook, p. 190. 155 Thobie, Intérêts et Impérialisme Français, pp. 162–4; and Thobie, L’Administration Générale des Phares, pp. 40–1. 156 The Manchester Guardian, ‘The Greek Question and Mediation of the Powers’, 2 January 1880, p. 7. 157 Ibid. 158 Thobie, Intérêts et Impérialisme Français, p. 162. 159 Pech, Manuel des Sociétés Anonymes, 1911, p. 179. 160 Ibid., p. 180. 161 Thobie, Intérêts et Impérialisme Français, p. 164. 162 The Times, ‘France and Turkey’, 9 September 1902, p. 3. 163 Tahsin Paşa, Abdülhamit ve Yıldız, pp. 177–8. 164 Fulton, ‘France’s Extraordinary Ambassador …’, pp. 693–4. 165 Ibid., p. 694. 166 The Times, ‘France and Turkey’, 9 September 1902, p. 3. 167 Chéradame, La Question d’Orient, p. 64. 168 Ravndal, Turkey: A Commercial and Industrial Handbook, p. 63. 169 Karal, Osmanlı Tarihi, Vol. VIII, pp. 463–4. 170 Pech, Manuel des Sociétés Anonymes, 1911, p. 203. 171 Kazgan, Osmanlı’dan Cumhuriyet’e, p. 132. 172 Ibid., pp. 132–6.

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173 Jean Ducruet, Les Capitaux Européens au Proche-Orient, Presses Universitaires de France, Paris, 1964, p. 329. 174 Pech, Manuel des Sociétés Anonymes, 1911, p. 207. 175 Ducruet, Les Capitaux Européens, p. 330; and The Manchester Guardian, ‘Public Companies – Sale of Beyrouth Waterworks’, 11 May 1909, p. 10. 176 Pech, Manuel des Sociétés Anonymes, 1911, p. 207. 177 Ibid., p. 214. 178 However, the gas production facilities of the Dolmabahçe Palace belonged to the Imperial Treasury until it was transferred to the Municipality of Istanbul in 1874. 179 Pech, Manuel des Sociétés Anonymes, 1906, p. 187 and 1911, pp. 218–9. 180 Le Groupement, Les Intérêts Financiers de la France, 1919, p. 32. 181 Van den Reeck, Osmanlı Başkentinde Belçika, p. 41. 182 Pech, Manuel des Sociétés Anonymes, 1911, p. 220. 183 Thobie, Intérêts et Impérialisme Français, pp. 189–92. 184 Le Groupement, Les Intérêts Financiers de la France, p. 33. 185 Ducruet, Les Capitaux Européens, p. 329; and Le Groupement, Les Intérêts Financiers de la France, p. 32. 186 Joan Haslip, The Sultan, The Life of Abdul Hamid, Cassel, London, 1958, pp. 148–9. 187 Shaw and Shaw, History of the Ottoman Empire, p. 230. 188 R. Sertaç Kayserilioğlu, Dersaadet’ten İstambul’a Tramvay I, IETT Genel Müdürlüğü, Istanbul, 1998, p. 144; and Mears, Modern Turkey, p. 362. 189 Pech, Manuel des Sociétés Anonymes, 1911, p. 226. Sir Ellis Ashmead-Bartlett was a politician who maintained in the British parliament that the integrity of the Ottoman Empire should be preserved. During the 1897 Ottoman– Greek War, he observed, with his elder son, the battle of Thessaly. During this period the European, and especially the British press kept writing that the Armenians were subjected to cruelty and that these innocent people were massacred. In reality, the Armenians were using the churches to store weapons and create trouble. One day, a weapons cache between the walls of an Armenian church at Pera, Istanbul, was discovered. The European embassies were informed and the situation was exposed and officially reported. Due to the negative press about the Ottoman Empire and the Turks in British newspapers, these Armenian weapons and ammunition were sent to London through Sir Bartlett and displayed beside the Parliament. Tahsin Pasha, who relates this incident in his memoirs, calls Sir Bartlett a turcophile (Tahsin Paşa, Abdülhamit ve Yıldız Hatıraları, Muallim Ahmet Halit Kitaphanesi, Istanbul, 1931, p. 45). 190 Jacques Thobie, La France et l’Est Méditerranéen depuis 1850, Editions Isis, Istanbul, 1993, p. 99. 191 Le Groupement, Les Intérêts Financiers de la France, p. 31; and Thobie, La France et l’Est Méditerranéen, p. 99. 192 Ravndal, Turkey: A Commercial and Industrial Handbook, p. 75. 193 Van den Reeck, Osmanlı Başkentinde Belçika, pp. 43–4. 194 Thobie, Intérêts et Impérialisme Français, pp. 188–9. 195 Kazgan, Osmanlı’dan Cumhuriyet’e, p. 88. 196 Thobie, Intérêts et Impérialisme Français, p. 189.

Notes

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197 Pech, Manuel des Sociétés Anonymes, 1911, p. 260. 198 L’Orient Illustré, ‘Chronique Locale’, 26 December 1874, p. 333. 199 Pech, Manuel des Sociétés Anonymes, 1911, p. 260. 200 The Observer, ‘Metropolitan Railway of Constantinople’, 18 March 1886, p. 2; and The Manchester Guardian, ‘Railway Intelligence – Metropolitan of Constantinople’, 26 March 1888, p. 8. 201 The Manchester Guardian, ‘British Enterprise in Turkey’, 5 July 1898, p. 12. 202 Kazgan, Osmanlı’dan Cumhuriyet’e, p. 88; and Kayserilioğlu, Dersaadet’ten İstambul’a Tramvay, p. 145; and The Times, ‘Sale of the Metropolitan Railway of Constantinople’, 28 June 1911, p. 23. 203 Kayserilioğlu, Dersaadet’ten İstanbul’a Tramvay I, pp. 197–9. 204 The Near East, ‘The Mineral Wealth of Turkey – Undeveloped Resources of the Empire’, 21 June 1911, p. 156. 205 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, p. 47. 206 Ibid., p. 49. 207 Le Groupement, Les Intérêts Financiers de la France, p. 29; and Kazgan, Osmanlı’dan Cumhuriyet’e, p. 205. 208 The Near East, ‘The Mineral Wealth of Turkey’, p. 156. 209 MTA, ‘Umumi Maden Durumu: Saltanatın Son ve Cumhuriyatin İlk 22 Yılında Türk Madenciliği’, Maden Tetkik ve Arama Dergisi, Yıl 1945, Sayı 34, pp. 254–5. www.mta.gov.tr/mta_web/kutuphane/mtadergi/34_1.pdf 210 Pech, Manuel des Sociétés Anonymes, 1911, p. 156. 211 Kazgan, Osmanlı’dan Cumhuriyet’e, p. 171. 212 Pech, Manuel des Sociétés Anonymes, 1911, p. 160. 213 Ibid., pp. 167–8. 214 Ibid., p. 171. 215 Ibid., p. 173. 216 Ibid., p. 177. 217 MTA, ‘Umumi Maden Durumu …’, p. 277. 218 Kurmuş, Emperyalizmin Türkiye’ye Girişi, pp. 177–9. 219 Ibid., p. 181. 220 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, p. 54. 221 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 165. 222 Ibid., p. 173. 223 Le Groupement, Les Intérêts Financiers de la France, p. 29; and Mears, Modern Turkey, p. 371. 224 MTA, ‘Umumi Maden Durumu …’, p. 270. 225 Owen, The Middle East in the World Economy, p. 198. 226 Stephen Helmsley Longrigg, Oil in the Middle East – Its Discovery and Development, Oxford University Press, London, 1954, pp. 12–13; and The Near East, ‘Mineral Wealth of Turkey’, 6 September 1911, p. 429. 227 Ibid., p. 13. 228 Cemal Bey, ‘Mines’, in E. G. Mears Modern Turkey, The Macmillan Company, New York , 1924, pp. 315–16. 229 Longrigg, Oil in the Middle East, p. 14. 230 Karl Hoffmann, ‘Oelpolitik und angelsächsischer Imperialismus’ in C. Issawi The Economic History of the Middle East 1800–1914, The University of Chicago Press, Chicago, 1966, p. 199.

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231 The Manchester Guardian, ‘The New Turkey – Attitudes towards British Enterprise’, 30 September 1908, p. 7. 232 Longrigg, Oil in the Middle East, pp. 29–30. 233 The Manchester Guardian, ‘New Issues’, 3 May 1910, p. 11. 234 The Times, ‘Anglo-Ottoman Oilfields (Limited)’, 11 August 1910, p. 12. 235 Longrigg, Oil in the Middle East, p. 29. 236 Ibid., p. 30. 237 This company’s name changed to first the Anglo-Iranian Oil Company and later the British Petroleum Company. 238 The Times, ‘Official Statement’, 25 June 1914, p. 9. 239 Longrigg, Oil in the Middle East, p. 31. 240 Ibid. p. 25. 241 The Near East, ‘Foreign Capital in Turkey – A Standard Oil Episode’, 11 October 1911, p. 569. 242 The Manchester Guardian, ‘The World’s Oil – Distribution of Sources of Supply’, 18 June 1914, p. 9. 243 The Manchester Guardian, ‘Commercial and Financial Notes’, 21 October 1910, p. 12. 244 The Observer, ‘Affairs in Berlin – German Predictions about the War’, 20 October 1912, p. 13. 245 The Manchester Guardian, ‘Trade Development in Smyrna’, 27 January 1912, p. 15. 246 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 22. 247 Andreas David Mordtmann, İstanbul ve Yeni Osmanlılar, Translated from German by G. Songu Habermann, Pera Yayıncılık, Istanbul, 1999, p. 167. 248 Kazgan, Osmanlı’dan Cumhuriyet’e, pp. 152–7, and pp. 122–7. 249 Morawitz, Les Finances de la Turquie, pp. 281–2. 250 Kazgan, Osmanlı’dan Cumhuriyet’e, p. 104. 251 Du Velay, Essai sur l’Histoire Financière, pp. 503–4. 252 Pech, Manuel des Sociétés Anonymes, 1911, pp. 30–2. 253 Kazgan, Osmanlı’dan Cumhuriyet’e, p. 107. 254 Thobie, Intérêts et Impérialisme Français, p. 188. 255 Shaw and Shaw, History of the Ottoman Empire, p. 233. 256 Kazgan, Osmanlı’dan Cumhuriyet’e, pp. 106–7; and Du Velay, Essai sur l’Histoire Financière, pp. 505–6. 257 Thobie, Intérêts et Impérialisme Français, p. 182. 258 Donald Quataert, Social Disintegration and Popular Resistance in the Ottoman Empire, 1881–1908, Reactions to European Economic Penetration, New York University Press, New York, 1883, pp. 15–18. 259 Kazgan, Osmanlı’dan Cumhuriyet’e, p. 108. 260 Blaisdell, European Financial Control, pp. 222–3. 261 Quataert, Social Disintegration and Popular Resistance, p. 24. 262 Ibid., p. 34. 263 Ibid., p. 34. 264 Parvus Efendi, Türkiye’nin Mali Tutsaklığı, p. 219. 265 The Near East, ‘Turkish Tobacco Monopoly’, 1 August 1913, p. 375. 266 Kurmuş, Emperyalizmin Türkiye’ye Girişi, pp. 121–2. 267 Ibid., pp. 135–40; and The Manchester Guardian, ‘The Turkish Cotton Crop’, 13 August 1864, p. 5.

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268 Owen, The Middle East in the World Economy, p. 211. 269 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 132; Quataert, Manufacturing in the Ottoman Empire, pp. 110–11; and Pech, Manuel des Sociétés Anonymes, 1911, p. 283. 270 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 141. 271 Ibid., p. 145. 272 Ibid., p. 146. 273 Pech, Manuel des Sociétés Anonymes, 1911, p. 293. 274 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 148–50. 275 Ibid., pp. 148–9. 276 Pech, Manuel des Sociétés Anonymes, 1911, p. 331. 277 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, pp. 82–3; Pech, Manuel des Sociétés Anonymes, 1911, pp. 322–4; and Gündüz Ökçün, Ottoman Industry Industrial Census of 1913, 1915, Historical Statistics Series, Vol. 4, State Institute of Statistics, Ankara, 1997, p. 61. 278 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 155 279 Ökçün, Ottoman Industry Industrial Census, pp. 205–6. 280 Pech, Manuel des Sociétés Anonymes, 1911, p. 263. 281 E. Yenal, Bir Kent: Istanbul, 101 Yapı, Yapı Kredi Yayınları, Istanbul, 2001, p. 250. 282 Giraud, La France à Constantinople, p. 29. 283 Pech, Manuel des Sociétés Anonymes, 1911, p. 290. 284 Giraud, La France à Constantinople, p. 33. 285 Pech, Manuel des Sociétés Anonymes, 1911, pp. 311, 316, and 325. Chapter 5    1 Feis, Europe the World’s Banker, pp. 133–4.    2 Ibid., pp. 134–5.    3 Blaisdell, The European Financial Control, p. 43.    4 The Times, ‘Editorials’, 24 July 1855, p. 9.    5 The Times, ‘Editorials’, 9 October 1873, p. 9.    6 Feis, Europe the World’s Banker, p. 160.    7 Earle, Turkey, the Great Powers, p. 41.    8 Ibid., p. 150.    9 Mears, Modern Turkey, pp. 354–5.   10 Earle, Turkey, the Great Powers, p. 12.   11 Sayar, Osmanlı İktisat Düşüncesinin Çağdaşlaşması, pp. 308–14.   12 Berkes, The Development of Secularism, p. 202.   13 Berkes, Türkiye İktisat Tarihi, Vol. 2, pp. 335–6.   14 Sayar, Osmanlı İktisat Düşüncesinin Çağdaşlaşması, p. 359.   15 Ahmed Midhat, İktisat Metinleri (Ekonomi Politik and Hallül-Ukad), Prepared for publication by E. Erbay and A. Utku, Çizgi Kitabevi, Konya, 2005, p. 68.   16 Berkes, Türkiye İktisat Tarihi, Vol. 2, p. 340.   17 Kazgan, Osmanlı’dan Cumhuriyet’e, p. 72.   18 Ibid., p. 49.   19 Morawitz, Les Finances de la Turquie, p. 185.   20 Kazgan, Osmanlı’dan Cumhuriyet’e, pp. 62–3.

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21 Prince Sabahattin came under the influence of Frédéric Le Play, and especially one of his disciples, Edmond Demolins (1852–1907), whom he knew personally (Berkes, The Development of Secularism, p. 310). 22 Berkes, The Development of Secularism, p. 406. 23 Ibid., p. 424. 24 Joseph E. Stiglitz, Globalization and its Discontents, W.W. Norton & Company, New York, 2002. 25 Berkes, Türkiye’de Çağdaşlaşma, pp. 458–9. 26 Pech, Manuel des Sociétés Anonymes, p. 156. 27 Kazgan, Osmanlı’dan Cumhuriyet’e, pp. 171–2. 28 Parvus Efendi, Türkiye’nin Mali Tutsaklığı, pp. 22–8. 29 Ibid., pp. 290–1. 30 Berkes, Türkiye’de Çağdaşlaşma, pp. 460–2. 31 Tahsin Paşa, Abdülhamit ve Yıldız Hatıraları, p. 179. 32 Bruce Fulton, ‘France and the End of the Ottoman Empire’, in Marian Kent (ed.) The Great Powers and the End of the Ottoman Empire, Frank Cass, London 1996, pp. 156–7. 33 The Near East, ‘Turkish Tobacco Monopoly’, 1 August 1913, p. 375. 34 The Times, ‘Turkey’, 9 March 1858, p. 10. 35 Ibid. 36 The Times, ‘Railway Intelligence – Ottoman (Smyrna–Aidin)’, 29 March 1861, p. 5. 37 The Times, ‘Railway Intelligence – Ottoman (Smyrna–Aidin)’, 31 March 1863, p. 7. 38 Donald Quataert, ‘Ottoman Manufacturing in the Nineteenth Century’, in Donald Quataert (ed.) Manufacturing in the Ottoman Empire and Turkey, 1500–1950, State University of New York Press, Albany, 1994. 39 Issawi, The Economic History of Turkey, pp. 304–5. 40 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 126. 41 Ibid., pp. 149–50. 42 Palairet, Balkan Ekonomileri, pp. 379–81. 43 Ibid., p. 384. 44 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 146. 45 Kayserilioğlu, Dersaadet’ten İstanbul’a Tramvay I, p. 197. 46 The Near East, ‘Smyrna and the War’, 18 July 1913, p. 314. 47 Ökçün, Osmanlı Sanayii 1913, 1915, p. 7. 48 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 36. 49 Ökçün, Osmanlı Sanayii 1913, 1915, pp. 166–7. 50 Ibid., pp. 122–4. 51 Kurmuş, Emperyalizmin Türkiye’ye Girişi, p. 154. 52 Palairet, Balkan Ekonomileri, p. 376. 53 Ibid., p. 177. 54 Hertner, ‘The Balkan Railways …’, p. 23. 55 Feis, Europe the World’s Banker, p. 298. 56 The Economist, ‘The Oriental Railway – Nich, Uskub and Salonica’, 2 November 1912, p. 905. 57 Feis, Europe the World’s Banker, p. 299. 58 The New York Times, ‘Bulgaria Proclaims Independence’, 6 October 1908, p. 2. 59 The Manchester Guardian, ‘The Company’s Attitude’, 2 October 1908, p. 7.

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60 The Economist, ‘Bulgaria and the Porte’, 3 October 1908, p. 612. 61 Peter Mentzel, ‘The Bulgarian Declaration of Independence and the 1908 Oriental Railway Strike: Conspiracy or Coincidence?’, East European Quarterly, Winter 2003, 37, 4, p. 411. 62 H. C. Wood, The New Age, January 21, 1909, p. 257; and Mentzel, ‘The Bulgarian Declaration …’, p. 414. 63 Feis, Europe the World’s Banker, p. 301. 64 Hertner, ‘The Balkan Railways …’, p. 28. 65 Feis, Europe the World’s Banker, pp. 304–12. 66 Hertner, ‘The Balkan Railways …’, pp. 24–5. 67 The Near East, ‘Removal of Mines’, 13 June 1913, p. 166. 68 The Near East, ‘Red Sea Lights’, 1 August 1913, p. 380. 69 The New York Times, 6 October 1908, p. 2. 70 The New York Times, ‘Austria Takes Two Provinces’, 7 October 1908, p. 1. 71 The New York Times, ‘Crete Decides to Join Greece’, 8 October 1908, p. 1. 72 Feroz Ahmad, The Young Turks: The Committee of Union and Progress in the Turkish Politics 1908–1914, Oxford University Press, London, 1969, p. 24. 73 René Pinon, L’Europe et la Jeune Turquie: Les Aspects Nouveaux de la Question d’Orient, Librairie Académique Perrin et Cie, Paris, 1913, pp. 373–4. 74 Y. Doğan Çetinkaya, Economic Boycott as a Political Weapon: The 1908 Boycott in the Ottoman Empire, Boğaziçi University, Unpublished Master’s Thesis, 2002, p. 63. 75 Pinon, L’Europe et la Jeune Turquie, p. 275. 76 The Economist, ‘Austria–Hungary – Panic in Vienna’, 12 December 1908, p. 1123. 77 The Economist, ‘Austria–Hungary – The Turkish Boycott’, 28 November 1908, p. 1031. 78 Çetinkaya, Economic Boycott as a Political Weapon, p. 70. 79 Pinon, L’Europe et la Jeune Turquie, p. 282. 80 Ibid., p. 284. 81 The Economist, ‘Austria’s Settlement with Turkey’, 6 February 1909, p. 275. 82 Pinon, L’Europe et la Jeune Turquie, p. 286. 83 R. F. Bridge, ‘The Habsburg Monarchy and the Ottoman Empire, 1900–1918’, in Marian Kent (ed.) The Great Powers and the End of the Ottoman Empire, Frank Cass, London, 1996, p. 39. 84 The Near East, ‘Foreign Companies in Turkey’, 28 November 1913, p. 112. 85 The Near East, ‘British Companies in Turkey – Their Non-Recognition by the Authorities’, 20 February 1914, p. 516. 86 Pech, Manuel des Sociétés Anonymes, 1911, p. 250. 87 The Times, ‘Anglo-Bulgarian Mixed Tribunal’, 16 December 1925, p. 11. 88 The Times, ‘Company Claims Against Bulgaria: A Settlement Reached’, 27 July 1926, p. 9. 89 Wilkins, Mira, The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970, Harvard University Press, Cambridge, Mass., 1974, pp. 5–6. 90 Kupferschmidt, Uri M., European Department Stores and Middle Eastern Consumers: The Orosdi-Back Saga, Ottoman Bank Archives Research Center, Istanbul 2007.

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  91 Pech, Manuel des Sociétés Anonymes, 1911, p. 268.   92 Kupferschmidt, European Department Stores, pp. 33–4; and Salmon, L., Carrière de Louis Salmon aux Ets. Orosdi-Back, available at http://papymac. free.fr/Louis_EOB.html (Accessed 27 May 2009).   93 The Times, ‘France and Turkey’, 9 Sept. 1902, p. 3.   94 Pech, Manuel des Sociétés Anonymes, 1911, p. 179.   95 Tahsin Paşa, Abdülhamit ve Yıldız Hatıraları, pp. 177–8.   96 Fulton, ‘France’s Extraordinary Ambassador …’, pp. 693–4.   97 Ibid., p. 694.   98 The Times, ‘France and Turkey’, 9 Sept. 1902, p. 3.   99 Eldem, Osmanlı İmparatorluğu’nun İktisadi Şartları, 1994, p. 48. 100 Pech, Manuel des Sociétés Anonymes, 1911, p. 163. 101 The Times, ‘A Franco-Turkish Difference’, 9 May 1908, p. 9. 102 Fulton, Bruce, ‘France and the End of the Ottoman Empire’, in Marian Kent (ed.) The Great Powers and the End of the Ottoman Empire, Frank Cass, London, 1996, p. 155–6. 103 Fulton, ‘France and the End of the Ottoman Empire’, p. 156. 104 The Times, ‘The Heraclea Mines Question’, 27 May 1908, p. 9. 105 The Times, ‘France and Turkey. Heraclea Mines Dispute Settled’, 20 May 1908, p. 7. 106 Fulton, ‘France’s Extraordinary Ambassador …’, p. 688. 107 The Times, ‘French Ambassador and the Committee’, 30 May 1909, p. 6; and Fulton, ‘France’s Extraordinary Ambassador …’, p. 701. 108 The Near East, ‘Foreign Capital in Turkey – A Standard Oil Episode’, 11 October 1911, p. 569. 109 The Manchester Guardian, ‘Commercial and Financial Notes’, 21 October 1910, p. 12. 110 Quataert, Social Disintegration and Popular Resistance, p. 38. Chapter 6    1 The notion of ‘resource curse to development’ was first used by Richard M. Auty in his 1993 book entitled Sustaining Development in Mineral Economies: The Resource Curse Thesis (Routledge, London). Later other economists put forth studies which supported the negative relationship between natural resources and economic development.    2 Williamson, Globalization and the Poor Periphery, pp. 83–4.    3 Kevin H. O’Rourke and Jeffrey G. Williamson, ‘When did Globalization Begin?’ European Review of Economic History, April 2002 (6), pp. 23–50.    4 Williamson, Globalization and the Poor Periphery, p. 30.    5 Pamuk, The Ottoman Empire and European Capitalism: 1820–1913, p. 61    6 Hans W. Singer, ‘The Distribution of Gains Between Investing and Borrowing Countries’, The American Economic Review, Vol. 40, No. 2, Papers and Proceedings of the Sixty-second Annual Meeting of the American Economic Association, (May 1950), pp. 473–85.    7 Kurmuş, Emperyalizmin Türkiye’ye Girişi, pp. 222–7.    8 Singer, ‘The Distribution of Gains …’, p. 476.

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  9 M. Aksay, Hicaz Demiryolu Fotograf Albümü, Al Baraka Türk Yayınları, Istanbul, 1999, p. 15. 10 For instance, İ. Selçuk, ‘Osmanlı Sonuna Dek Küreselleşmişti’ [The Ottomans were Globalized All the Way], Cumhuriyet, (5 May 2001); S. Akşin, ‘Türkiye Sömürge Olurken’ [When Turkey was Becoming a Colony], Cumhuriyet, (1 May 2001); E. Alkin, ‘Sömürgeleşme Süreci Borçlanmadan mı Geçer?’ [Is Colonization a Consequence of Debt?], HO Tercüman, (11 May 2004); and M. Köyatası, ‘Yeni bir Kavram ve İzin’ [A New Concept and Vacation], Akşam, (29 July 2005). 11 Turkish Statistical Institute, Turkey: Economic and Financial Data, National Summary Data Page, Available at www.tuik.gov.tr/arastirmaveprojeler/turcat/ body/turcat.html (Accessed 11 October 2008); and Rabobank, Country Update: Turkey, Available at www.rabobankgroep.nl/download/Turkey08_ update.pdf (Accessed 11 October 2008). 12 State Institute of Statistics, Statistical Yearbook (Ankara: SIS, 1992), p. 490; and the Prime Ministry Undersecreteriat of Treasury, External Debt Profile, Available at www.treasury.gov.tr/yayin/hazineistatistikleri/3-6.xls (Accessed 26 October 2007).

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Macdonald, James, A Free Nation in Debt, Financial Roots of Democracy, Farrar, Straus and Giroux, New York, 2003. McLean, David, ‘Finance and “Informal Empire” before the First World War’, The Economic History Review, New Series, Vol. 29, No. 2, May 1976, pp. 291–305. Mears, Eliot Grinnell, Modern Turkey: A Politico-Economic Interpretation 1908–1923, The MacMillan Company, New York, 1924. Mentzel, Peter, ‘The Bulgarian Declaration of Independence and the 1908 Oriental Railway Strike: Conspiracy or Coincidence?’, East European Quarterly, XXXVII, No. 4, Jan. 2004, pp. 403–19. Morawitz, Charles, Les Finances de la Turquie, Guillaumin et Cie, Paris, 1902. Mordtmann, Andreas David, İstanbul ve Yeni Osmanlılar, Translated from German by G. Songu-Habermann, Pera Yayıncılık, İstanbul, 1999. MTA, ‘Umumi Maden Durumu: Saltanatın Son ve Cumhuriyetin İlk 22 Yılında Türk Madenciliği’, Maden Tetkik ve Arama Dergisi, Year 1945, No. 34, pp. 246–87. Okyar, Osman, ‘A New Look at the Problem of Economic Growth in the Ottoman Empire (1800–1914)’, The Journal of European Economic History, Vol. 16, No. 1, 1987, pp. 7–49. O’Rourke, Kevin H. and Jeffrey G. Williamson, ‘When Did Globalization Begin?’ European Review of Economic History, Nisan 2002 (6), pp. 23–50. Ortaylı, İlber, Osmanlı İmparatorluğu’nda Alman Nüfuzu, İletişim Yayınları, İstanbul, 1998. Owen, Roger, The Middle East in the World Economy 1800–1914, I.B. Tauris & Co. Ltd Publishers, London, 1993. Ökçün, Gündüz, Osmanlı Sanayii 1913, 1915 Yılları Sanayi İstatistiki, T.C. Başbakanlık Devlet İstatistik Enstitüsü, Ankara, 1997. Palairet, Michael, Balkan Ekonomileri 1800–1914, Kalkınmasız Evrim, Sabancı Üniversitesi, İstanbul, 2000. Pamuk, Şevket (Ed), 19. Yüzyılda Osmanlı Dış Ticareti, Tarihi İstatistikler Dizisi Vol. 1, T. C. Devlet İstatistik Enstirüsü, Ankara, 1995. Pamuk, Şevket, Osmanlı Ekonomisi ve Dünya Kapitalizmi 1820–1913, Yurt Yayınları, Ankara, 1984. Parvus Efendi, Türkiye’nin Mali Tutsaklığı, (Muzaffer Sencer, editor), İleri Yayınları, İstanbul, 2005. Pears, Edwin, ‘The Bagdad Railway’, Contemporary Review, 94, 1908: July/Dec., pp. 570–91. Pech, E., Manuel des Sociétés Anonymes Fonctionnant en Turquie, 3. Edition, Paris, 1906. Pech, E., Manuel des Sociétés Anonymes Fonctionnant en Turquie, Imprimerie Gérard Frère, Istanbul, 1911. Pinon, René, L’Europe et l’Empire Ottoman: Les Aspects Actuels de la Question d’Orient, Librairie Académique, Paris, 1917. Pinon, René, L’Europe et La Jeune Turquie: Les Aspects Nouveaux de la Question d’Orient, Librairie Académique Perrin et Cie, Paris, 1913. Platt, D. C. M., ‘The National Economy and British Imperial Expansion before 1914’, The Journal of Imperial and Commonwealth History, 1973, Vol. II, No. 1, pp. 3–14.

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Newspapers The Economist

‘The Turkish Repudiation’, 9 October 1875, pp. 1190–1. ‘The Terms of the Turkish Repudiation’, 16 October 1875, pp. 1223–7. ‘Austria and Germany’, 16 October 1875, pp. 1227–8. ‘The Cloud in the East’, 20 November 1875 pp. 1363–4. ‘The Financial Future of Turkey’, 20 November 1878, pp. 999–1000. ‘Turkey and Her Creditors’, 24 December 1881, pp. 1586–7. ‘Austria’, 4 October 1890, pp. 1265–6. ‘The Turkish Railway System’, 4 November 1893, pp. 1313–14. ‘The Turkish Public Debt’, 7 December 1895, p. 1589. ‘Turkish Railways and British Trade’, 18 March 1899, p. 385. ‘The Danger to Turkish Bondholders’, 18 January 1902, p. 75. ‘The Ottoman Public Debt Administration’, 26 April 1902, p. 650. ‘The Baghdad Railway’, 18 April 1903, pp. 683–4. ‘The Lessons of Baghdad’, 25 April 1903, pp. 729–30. ‘The Baghdad Railway’, 30 May 1908, p. 1141. ‘Bulgaria and the Porte’, 3 October 1908, pp. 611–12. ‘Austria–Hungary – The Turkish Boycott’, 28 November 1908, pp. 1031–2. ‘Austria–Hungary – Panic in Vienna’, 12 December 1908, pp. 1123–4. ‘Austria’s Settlement with Turkey’, 6 February 1909, pp. 275–6. ‘The Oriental Railway – Nisch–Uskub and Salonica’, 12 November 1912, pp. 905–6. ‘Turkish Financial Prospects’, 11 July 1914, p. 66. ‘Switzerland – The Zurich Oriental Railway Bank’, 28 December 1918, p. 882.

The Manchester Guardian

‘Cotton Growing in Turkey and Syria’, 25 May 1861, p. 5. ‘The Turkish Cotton Crop’, 13 August 1864, p. 5. ‘Our Interests in Turkey’, 24 February 1869, p. 7. ‘The Greek Question and Mediation of the Powers’, 2 January 1880, p. 7. ‘Railway Intelligence – Metropolitan of Constantinople’, 26 March 1888, p 8. ‘British Enterprises in Turkey’, 5 July 1898, p.12. ‘Editorial Article 3’, 29 November 1899, p. 7. ‘Editorial Article 4’, 9 April 1903, p. 4. ‘The Baghdad Railway Convention – Provisions of the Concession’, 23 April 1903, p. 5. ‘The Baghdad Railway – Negotiations Broken Off’, 23 April 1903, p. 9. ‘The New Turkey – Attitudes Towards British Enterprises’, 30 September, 1908, p. 7.

208

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‘The Company’s Attitude’, 2 October 1908, p. 7. ‘Public Companies – Sale of Beyrouth Waterworks’, 11 May 1909, p. 10. ‘Zionist Congress – Development of Jewish Nationalism’, 4 January 1910, p.8. ‘New Issues’, 3 May 1910, p. 11. ‘Zionist Movement – Address by Herr Wolfsohn’, 3 May 1910, p. 14. ‘Commercial and Financial Notes’, 21 October 1910, p. 12. ‘Trade Development in Smyrna’, 27 January 1912, p. 15. ‘Zionist Conference – Progress of Colonization in Palestine’, 9 September 1912, p. 14.

The Near East

‘The Near East Trade and Commerce – British Interests in Turkey’, 9 August 1911, p. 325. ‘The Mineral Wealth of Turkey – Undeveloped Resources of the Empire’, 21 June 1911, p. 156. ‘The Mineral Wealth of Turkey’, 6 September 1911, p. 429. ‘Foreign Capital in Turkey – A Standard Oil Episode’, 11 October 1911, p.569. ‘Removal of Mines’, 13 June 1913, p. 166. ‘Smyrna and the War’, 18 July 1913, p. 314. ‘Turkish Tobacco Monopoly’, 1 August 1913, p. 375. ‘Red Sea Lights’, 1 August 1913, p. 380. ‘Italy in Asia Minor – Valuable Turkish Concessions’, 3 October 1913, p. 640. ‘Germany and Turkey’, 24 October 1913, p. 731. ‘Constantinople Business Letter: Foreign Companies in Turkey’, 28 November 1913, p. 112. ‘British Companies in Turkey – Their Non-Recognition by the Authorities’, 20 February 1914, p. 516

The New Age

21 Jan. 1909, Woods, H.C., ‘The Negotiations between Turkey and Bulgaria’, No. 750, p. 257.

The New York Times

‘Bulgaria Proclaims Independence’, 6 October 1908, p. 2. ‘Austria Takes Two Provinces’, 7 October 1908, p. 1. ‘Crete Decides to Join Greece’, 8 October 1908, p. 1.

The Times

‘Turkey’, 9 March 1858, p. 10. ‘Turkey’, 17 November 1858, p. 8. ‘Railway Intelligence – Ottoman (Smyrna to Aidin)’, 29 March 1861, p. 5. ‘Railway Intelligence – Ottoman (Smyrna to Aidin)’, 31 March 1863, p. 7. ‘Paper Money in Turkey’, 5 August 1876, p. 6. ‘Major Law’s Report on Railways in Asiatic Turkey’, 25 May 1896, p. 9. ‘Sir Vincent Caillard’s Special Report on the Ottoman Public Debt’, 26 November 1896, p. 9. ‘The Baghdad Railway’, 10 August 1899, p. 3.

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‘France and Turkey’, 9 September 1902, p. 3. ‘Railways in Turkey’, 20 September 1902, p. 4. ‘The Baghdad Railway’, 22 April 1903, p. 7. ‘France and Turkey – Heraclea Mines Dispute Settled’, 2 May 1908, p. 7. ‘A Franco-Turkish Difference’, 9 May 1908, p. 9. ‘The Heraclea Mines Question’, 27 May 1908, p. 9. ‘Turkey – French Ambassador and the Committee’, 30 May 1909, p. 6. ‘Anglo-Ottoman Oilfields (Limited)’, 11 August 1910, p. 12. ‘Sale of the Metropolitan Railway of Constantinople’, 28 June 1911, p. 23. ‘Railways in Asia Minor – The Franco-German Agreements’, 17 February 1914, p. 5. ‘The Official Statement’, 25 June 1914, p. 9. ‘Anglo-Bulgarian Mixed Arbitral Tribunal’, 16 December 1925, p. 11. ‘Company Claims against Bulgaria – A Settlement Reached’, 27 July 1926, p. 9.

The Observer

‘Metropolitan Railway of Constantinople’, 18 March 1886, p. 2. ‘Germany and Asia Minor’, 3 December 1899, p. 4. ‘Germany and the Near East’, 28 October 1900, p. 7. ‘Affairs in Berlin – German Predictions about the War’, 20 October 1912, p. 13.

L’Orient Illustré

‘Biographie. Son Excellence le Comte Ulysse Barbolani, Ministre Plénipotentiaire de S. M. le Roi d’Italie près de la Porte Ottomane’, 7 March 1874, Year 2, No. 58, p. 41. ‘Biographie. Son Excellence le Vicomte Roger Helman de Grimberghe, Ministre Plénipotentiaire de Belgique près de la Porte Ottomane’, 21 March 1874, Year 2, No. 60, p. 57. ‘Chronique Locale’, 26 December 1874, Year 2, No. 94, p. 333.

Index

Abdulaziz 35, 38, 39, 63, 91, 101 Abdulhamit II: British occupation of Egypt 60; cost of rebellions 44; oil revenues 122; payment of American reparation 72; railways 95; rejection of electricity 116; succession to power 39 Abdulmecit 32, 75, 119 Abyssinia (Ethiopia) 51 Adana 88–90, 98, 103, 129 Administration of the Ottoman Public Debt (Düyûn-u Umumiye İdaresi) 41 African and Eastern Concessions Limited 124 agriculture: direct investments 54; expansion 166; exports 26; importance to economy 1; stimulation of 162; taxation revenue 3, 8; vertical integration 130 Ahmet III 30 Ahmed Güner Sayar 19 Ahmed Midhat Efendi 139 Ahmet Vefik Pasha 20 Akkerman, Treaty of (1826) 57 Algeria 21 Alleon, J. 32, 35 American Tobacco Company 72 Anatolia: agricultural expansion 77, 130; cotton industry 58, 59; flour production 59, 131; foreign

companies in industry 132; German involvement in railways 71, 88, 92–4, 102; occupation 21; mining and oil 121–2, 133; other states’ involvement in railways 57, 63, 68, 85, 137, 150; ports 158; rebellion 71; revenue 36; textile industry 27 Anglo-Egyptian Bank 102 Anglo-Palestina Company Limited 103, 105 Anglo-Persian Oil Company 123, 124, 125 Ankara 25 armament production, European 33 artisans 1, 2, 3, 8 Ashmead-Barlett, Sir Ellis 116, 190 Assicurazioni Generali 107–8 Austro-Hungarian Empire 46, 47, 69, 103, 107, 151–3 Aydin 54, 57, 59, 85–9, 94, 122, 131, 133, 144 Baghdad 4, 91, 94, 97–8, 123, 125 Baghdad Railway 50, 95, 97, 100, 137 Bailey, F. E. 12, 26, 56, 73 Balfour, A. J. 96 Balkan Wars 46, 84, 147, 150, 154 Balta Limani, Treaty of (1838) 21–4; advantages to British 23; decline in

212

Foreign Investment in the Ottoman Empire

Ottoman industry 26–7; European agreement 23–4; ‘imperialism of free trade’ 159; liberalism 26; transportation of goods 23 Baltazzi, T. 32 Banco di Roma 70 Bank für Orientalischen Eisenbahnen (Bank for the Oriental Railways) 83, 84, 92 Bank of Egypt 101 banking 100–8; deposit, unpopularity of 101; support for industry 104; banknotes 31–2, 38 bankruptcy, Ottoman Treasury 48, 50 Banque de Bruxelles 114 Banque de Constantinople (Bank-i Dersaadet) 32, 120, 142 Banque de Salonique 102 Banque d’Orient 102 Banque Impériale Ottomane 101 Basiret (newspaper) 37 Baudouy, René 85 Beirut: gas supply 114; ports 112, 118; railways 89, 99; tramways 117; water supply 59, 113 Belgium 67–8; early investment in Ottoman Empire 67; and electricity supply 116; importance as lender 51; mining industry 120; water supply 113–14 Berkes, Niyazi: debasement of coinage 4; failure to industrialize 16; import taxes 139; monopoly practices 8; Ottoman economic theories 18, 138; purpose of capitulations 3 Berlin, Treaty of (1878) 40, 42, 46, 148, 151 Beyrouth Waterworks Company 113 Bismarck, Otto von 93, 94, 137 Blaisdell, Donald C. 33 bonds: first issue 32; focus of Public Debt Administration 44, 51; foreign distrust of 36; guarantee system 45;

lottery 79, 80; sale value 34, 43; during Second Constitutional Period 46 boycott of goods (1908–09) 151–2 Braudel, Fernand 5 brewing 133 British Levant Company 57 Bulgaria: declaration of independence 46, 151; effect of loss on Empire152; nationalization 146, 148; railways 78, 84, 146, 148, 149–50; reparations 153 bureaucracy, state 10 Bursa 2, 27, 63, 68, 77, 89, 91, 103, 134, 138 Caillard, Sir Vincent 75, 91 Cameron, Rondo 78 candle industry126 Canning, Sir Stratford 31, 54, 56, 57 capital, borrowing 29–52; ‘age of capital’ (Hobsbawm) 29; collateral 33; control of Empire by lenders 54; cost of Crimean War 32; distribution by country 47–52; foreign banks 34–5; global economic crisis 37; lack of Ottoman capital 11, 162; Ottoman attitude towards 30, 34, 137–46 ; Public Debt Administration 41–6; tax farming 2, 35 capitulations 2–3, 5, 7, 26 carpet weaving 59, 131 Cavit Bey 141 Celali revolts 6 Ceride-i Havadis (newspaper) 20, 53, 58, 138 Chéradame, André 60, 95 Chester, Colby M. 72, 123 Churchill, William 20 cizye (taxation of foreign states) 3 Clémenceau, Georges 8 coal see mining Cockerill Company 68 coinage, debasement 4, 30 Colbert, Jean Baptiste 19

Index Collas, Bernard 99 collectivism 15–16, 142 Committee of Union and Progress (CUP) 143, 151 Compagnie des Eaux de Constantinople (Constantinople Water Company) 63, 111 Congress of Berlin (1878) 39, 46, 50, 78, 83, 146 Constans, Ernest 50, 94, 99, 110, 156, 157 Constantinople Convention (1877) 42 Constantinople Land and Building Company 134 construction companies 134 consultancy companies 134 Corn Laws, British 19 Corporate Income Tax Law (1906) 153 corruption 11, 155, 157 cotton industry: British investment 131; competition with cheaper imports 20, 26, 27; export 75; insurance 59, 107; steam power 58, 163; transportation problems 53 Council of Administration 41, 42, 45, 75 Council of Foreign Bondholders 44 Council on Public Works 76 Crédit Lyonnais 102, 110 Crete 44, 46, 151 Crimean War 11, 32, 33, 36, 57, 146 CUP see Committee of Union and Progress customs revenues 21–2, 30 Customs Tariff Agreement (1820) 21 Cyprus 39, 43, 67 Damascus 4, 20, 66, 99–100, 103, 117, 129, 138 Damat Ferit Pasha 8 Dante Alighieri 70 D’Arcy, William Knox 123, 124 debt, foreign, distribution of 47–52 debt, foreign, Modern Turkey 167

213

Decree of Muharrem (1881) 41–3, 48, 51, 80, 127, 162 Defense Loan, The 40 Deutsche Bank: importance to German trading 102; oil exploration 124; railways 83, 84, 92, 94, 96 devaluation of currency 4 direct investment, foreign (FDI) 53–73; advantages of 165; America 71–3; Belgium 67–8; effect on economy 164; expansion of trade 53; France 60–4; Germany 64–7, 93; Great Britain 56–60; Italy 68–71; motivation 53–5; urban infrastructure 111–19 see also banking; insurance; mining; ports; railways Direction Générale des Phares 62 Disraeli, Benjamin 38 Du Velay, A. 24, 42, 101 Dunn, A. J. 9 Earle, Edward Mead 12, 44, 98 economic crisis, global (1873) 37 economic texts, Ottoman 138 Economist, The (journal): bankruptcy of Ottoman Empire 37, 38; and bond holding 42, 45; and boycott of Austro-Hungarian goods 152, 153; doubts re Baghdad railway project 96; on instability of Ottoman administration 48, 49; railways 83, 148–9; Russia 40 economy, pre 1800 1–17; attempts to industrialize 8–17; control by superintendents (ihtisap ağasi) 2; disintegration 5–8; importance of land 1; monopoly practices 8; necessity for change 4 Edirne 2, 84, 94, 102–3 education 71, 141 Egypt: British occupation 50, 60; declaration of war against Ottoman

214

Foreign Investment in the Ottoman Empire

Empire 21; desire for independence 22; industry 11; taxation as collateral 33, 37; trade agreement 22; electricity 97, 116, 119 emigration 29 Enver Zira Karal 14, 91 Ereğli 50, 120, 156 Europe: early contact 2; economic thought 19; increase of influence 8; need for raw materials 53 European Union 167 farming see agriculture FDI see direct investment, foreign Feis, H. 47, 60, 61, 67 feudalism 6 Fevaid-i Osmaniye Company 76 flour manufacture 59, 131, 146 France: direct investment 60–4; as lender to Ottoman State 47, 50, 51, 56; mining industry 120; motivation for foreign policy 63, 64; occupation of North Africa 51, 61; railways 94, 95; tramways 118 France à Constantinople, La (Giraud) 56 free trade agreements : promulgation of European policies 16, 19, 20, 138; collapse of traditional industries 12; effect of globalization 162 see also Balta Limani, Treaty of ‘free trade imperialism’ 21 Fulton, B. 110, 180–1, 187, 189, 194, 196 Galata Bank 30, 31, 32, 41, 117, 142 Gallagher, John 21, 54, 159 gas supply 114, 115 General Railway Operations Company of Turkey in Europe (Compagnie Générale d’Exploitations des Chemins de Fer de la Turquie d’Europe) 79 Germany: banking 50, 102; capital investment 49–51, 100, 110; cooperation with Russia 64; direct

investment 64–7; mining industry 121; protectionism 64; railways 92–4, 95; trade 66 Giraud, Ernest 56, 61 Gladstone, W. E. 50 globalization 6, 29, 162, 166, 167 Gökalp, Ziya 142 Gordon, L. J. 72 Great Britain: agriculture 130; attempt to prevent foreign industrial competition 11; banking 34, 103; capital investment 47, 48, 49; carpet manufacture131; cooking oils 133; cotton industry 58, 131, 164; debt payments 41; flour manufacture 131; free trade agreements 54; imperial expansionism 54; industry and trade 26, 56–7, 126; mercantilism 54; need for raw materials 26; railways 57, 95; steam power 133–4 Greece 19, 21, 151 guilds 16, 17, 145

haraç (foreign taxation) 3

Hasan Fehmi Pasha 140 Helphand, Alexander see Parvus Efendi Hirsch, Baron Maurice de 78, 79, 80, 83, 84 Hobart-Foster report (1861) 36 Hobsbawm, Eric 29 Hobson, C. K. 54 Hünkar İskelesi,Treaty of (1833) 21 Ibn Khaldun 7, 8 İlm-i Tedbir-i Menzil (Sahak Efendi) 138 Imbert, Paul 61 Imperial Ottoman Bank (Banque Impériale Ottomane) 34–5 Imperial Railway Company of Turkey in Europe (La Société Impériale des Chemins de Fer de la Turquie d’Europe) 79, 148

Index Imperialism, European 12, 15, 17, 65, 143, 159 İnalcik, Halil 9, 15, 16 Industrial Reform Commission 27 Industrial Revolution, European ix, 14, 19, 28, 29, 54, 162 industrialization 8–18; effect of shari’a 9–10; lack of success 17; reaction of guilds 12 industry 126–34 infrastructure: increasing investment in 55; Ministry of Public Works Report (1880) 140; need for capital 140; transportation 116–19; urban 59, 68, 111–19, 162 Inquiry into the Nature and Causes of the Wealth of Nations, An (Smith) 19 insurance 59, 106–8 interest, financial 16 International Bank for Reconstruction and Development (World Bank) 166 International Monetary Fund (IMF) 165, 167 interpreter system 7 Introduction to the Science of Wealth, An (Mebad-i İlm-i Servet) (Sakizli Ohannes Efendi) 139 Islam: and economic development 9, 13–17; education 13; European prejudice 138; individual responsibility 10; jurisprudence (içtihat) 13 Issawi, Charles 1, 8, 10, 16, 25, 26 Istanbul: construction industry134; infrastructure 59, 72, 114–19; port 76, 104, 108–11, 112; railway 77, 84, 85, 89–90, 91, 93, 102–4 Istanbul General Insurance Company (Istanbul Umum Sigorta Şirketi) 108 Istanbul Quays Company 108 Italy: colonialization of Africa 51, 69, 70; desire for influence in Balkans 69; direct investment 68–71; occupation of Rhodes and Dodecanese 70

215

İzmir: flour production 59, 131, 146; foodstuffs 132, 133; infrastructure 59, 113–15, 116, 117; oil production 125, 158; ports and docks 62, 66, 108, 109, 125, 111, 112; railway 57, 63, 68, 85–7, 94–5, 89, 90; textiles 145, 147; trading centre 34, 67 Jones, Eric Lionel 15 Journal of Economics and Social Sciences (Ulûm-u İçtimaiye ve İktisadiye Mecmuası) 141 Kâmil Bey 63, 111 Kazgan, Haydar 10, 11, 53, 113 Konya 71, 92–5, 98 Kühlmann, Otto von 148 Kuran, Timur 9, 15 Kurmuş, Orhan 126, 164 land, right to purchase 34 Landes, David 14 Lewis, Bernard 2, 11, 16 licorice 59, 131 lighthouses 61–2 lighting, urban 114–16 List, Friedrich 12, 28, 65 Macedonia 44, 150 MacFarlane, Charles 18 Mahmut II 17, 18, 20, 21, 30, 76 Mahmut Nedim Pasha 36, 37 Manchester Guardian, The (newspaper) 58, 96, 109, 118, 123 Manuel des Sociétés Anonymes Fonctionnant en Turquie (Pech) 55 Maritime Trade Code (1863) 107 maritime transportation 69, 108–11, 119; effect of wars 150–1; importance of new technology 160; insurance 107; lighthouses 61–2; steamships 76 see also ports and docks Marx, Karl 26 McLean, David 54

216

Foreign Investment in the Ottoman Empire

Mears, Eliot Grinnell 30, 106, 137 Mediterranean Agreement (1887) 70 Mehmet Ali Pasha 11, 21, 22 Mehmet Şerif Efendi 138 Mersin 88, 98, 103 military operations 6, 8–9, 17, 146, 154, 161 mining 119–26; antimony 122; borax 121; chromium 121; coal 38, 50, 71, 156; direct investments 54; gold 5; iron 29; lignite 120, 121, 142; manganese 122 Moltke, Helmuth von 65 Moniteur Ottoman, Le (newspaper) 20, 138 monopolies 22, 24, 34, 138, 160 see also Tobacco Régie Morawitz, Charles 33, 37, 42, 76, 84 Muir, William 13 Muqaddima (Ibn Khaldun) 7 Murat IV 30 Murat V 39 Mustafa Reşit Pasha 22 Nagelmackers, Georges 63, 68, 87, 88, 91, 134 Namık Kemal 138 National Bank of Turkey 59, 104, 110, 124 Near East, The (journal) 56, 126, 147, 153, 154, 157 ‘New Schools’ 141 newspapers, Ottoman: Basiret 37; Ceride-i Havadis 20, 53, 58, 138; Serbesti 157; Takvim-i Vekayi 20; Tanin 142, 151; Tasvir-i Efkar 139; Vakit 37 oil, cooking 133, 147 oil, production 72, 122–5 Oriental Railways Company 40, 83, 84, 92, 148–50 Ottoman Bank (from 1863 Imperial Ottoman Bank) 34–6, 38, 41, 43–5, 55, 59, 101

Ottoman Cloth Company 131, 147 Ottoman Empire: bankruptcy 35–41, 80, 91; centralized administration 9; control of finances by international commission 34; failure to evolve 8, 29; foreign control of economy 33; foreign influence on economic system 18–21; importance as trade route to Asia 60; independence bids by non-Turkish states 8; partition 50; reorganization after Congress of Berlin 39 Ottoman General Insurance Company 107–8 Ottoman Public Debt Administration (PDA) 41–6; control of economy by foreign states 161; increase in investment 55, 100; guarantee of payments for railways construction 85; leadership 51 Palmerston, Lord Henry 11, 24, 54 Parvus Efendi (Alexander Helphand) 42, 43, 143 PDA (Public Debt Administration) see Ottoman Public Debt Administration Pech, E. 55, 87, 109, 116 Persia 65 petroleum see oil, production Pinon, René 69, 152 Political Economy (Ekonomi Politik) (Ahmed Midhat Efendi) 139 political ramifications 146–58; Balkan Wars 147, 150; Crimean War 146; independence of smaller states 148–50, 152; Tripolitanian War 150; World War I 147, 154 ports and docks 62, 68, 69, 108–11, 112, 120, 155 Price, Edward 85, 87 protectionism 12, 19, 20, 24, 27–8 Puryear, Vernon John 12, 17, 18, 28

Index Quataert, Donald 11 Railway Operations Company of Turkey in Europe (Compagnie pour l’Exploitation des Chemins de Fer de la Turquie d’Europe) 78 railways 74–100; American investment 72; Anatolian 85–95, 123; Baghdad 50, 63, 94–8; Belgian investment 68; British investment 57; for Christian pilgrims 99; competition from camel transportation 87; construction halt after state bankruptcy 80; economy 76, 78; effect of rebellions and war 80; expropriation law 86; French investment 63; German investment 66, 67, 94–7; growth 100; guarantee system for construction 75–7, 85; Italian investment 71; major lines in Ottoman Empire 89–90; and mining industry 120; monopolies 75; motivations for 73, 144; necessity for foreign loans and expertise 75–7; in Ottoman Europe 78–85; political problems 148–9; with state capital 91; strike 149; Syrian 98–9; troop movements 85, 150 Ravndal , G. B. 106, 108 rebellions 37, 44, 56 Reform Decree (Islahat Fermani) (1856) 10, 35, 36 Ricardo, David 19 Robert College 71 Robinson, Ronald 21, 54, 159 Rodbertus, J. K. 66 Rodinson, Maxime 14, 15 Rodkey, F. S. 34 Roscher, Wilhelm 65 Roumelia 4, 36–7, 40–1, 43, 66, 77–8, 84, 92, 101, 149 Russia 65, 70, 93, 94, 111 Sabahattin, Prince 16, 141 Sahak Efendi 138

217

Sakizli Ohannes Efendi 139 Salonica 10, 27, 34, 68, 84–5, 102–3, 108, 113–14, 116, 120, 125, 145, 148, 150–1, 154–5, 157 salt 3, 127 San Stefano, Treaty of (1878) 39 Sâti Bey 141 Science of the Wealth of Nations, The (İlm-i Emval-i Milliye) (Mehmet Şerif Efendi) 138 ‘scientific pessimism’ 13 Second Constitution (1908) 10, 46 Selim III 7, 17, 18, 30 Serbesti (newspaper) 157 Serbia 146, 148 Şeriat 10, 106, 107 silk industry 26, 27, 126 Singer, H. W. 163, 164 sipharis (cavalry units) 1, 5, 6 Smith, Adam 19 Société Anonyme Ottomane d’Electricité 119 Société Anonyme Ottomane des Quais, Docks et Entrepôts de Constantinople 109, 110, 155 Société Franco-Ottomane d’Etudes Industrielles et Commerciales 134 Société d’Héraclée 119–20, 156 Société Impériale Ottomane d’Eclairage par le Gaz et l’Electricité 114 Société Impériale Ottomane du Chemin de Fer de Bagdad 96 ‘solidarism’ 142 Sprenger, Alois 66 Standard Oil Company 125, 158 steam engines 133, 134 Stolper-Samuelson theorem 161 Sublime Porte see Ottoman Empire Suez Canal 60 Süleyman the Lawgiver (Süleyman the Magnificent) 3 Sun Fire Office (after 1891 Sun Insurance Office) 59, 107

218

Foreign Investment in the Ottoman Empire

Tahsin Pasha 144, 155 Takvim-i Vekayi (newspaper) 20 Tanin (newspaper) 142, 151 Tanzimat (reform movement): centralization 10; discontent with 138–9; economic problems 138; industrialization 12; railways 77; relaxation of religious rules 16, 133; reorganization of government 76; rise of industry 18; tax farming 35 Tanzimat Higher Council (Meclis-i Valâ-ı Tanzimat) 35 Tatarcik Abdullah Molla 19 Tasvir-i Efkar (newspaper) 139 tax farming 2, 4, 6, 35 taxation 3, 4, 7, 25, 34, 41, 119 telegraph ix, 167 telephone 72 Ternau Bey 63, 111 Tevfik Fikret 16, 141 textiles 26–7, 145, 147, 159 see also carpet weaving; cotton industry; silk industry Times, The (newspaper): criticism of Ottoman government 36; German trade 66; military spending 38–9; oil production 124; on Ottoman bonds 136; railway concessions 76; railway construction 144; railways in Ottoman Asia 85 tobacco industry 26, 106, 127–30, 143–4, 154, 158 Tobacco Régie 127–9, 143–4, 154, 157 Tökin, Hüsrev İ. 56 trade 126–34; increase in eighteenth century 7, 25; Islamic beliefs on 2, 26; major foreign companies 132; monopolies 126–30 traditional industries, collapse of 27–8, 145 tramways 99, 116, 117, 118, 119 transport: effect of wars 147, 150–1;

importance for trade 2, 53, 54, 84; technological advances ix see also maritime transportation; ports and docks; railways; tramways Tripartite Agreement (Italy, Germany, Austria) 69–70 Tripolitania (Libya) 70 Tripolitanian war 71, 100, 150 Tunisia 40, 51 Turkey and Its Resources (Urquhart) 20 Ülgener, Sabri 16 Umanitaria 70 United States 27–8, 71–3 Urquhart, David 19, 20, 22, 27 Vakit (newspaper) 37 Vedat Eldem 56, 156 Versailles, Treaty of (1871) 64 Villey, Daniel 5 Viquesnel, A. 27 wars: Franco-Prussian 47; GreekTurkish 44; Italian-Libyan 46; RussoTurkish 38–41, 80 Washington Consensus 167 water supply 63, 111, 113–14 Wiener Bankverein 83 Wilkins, Mira 154 Williamson, Jeffrey G. 161 World Bank see International Bank for Reconstruction and Development World Trade Organization (WTO) 166 World War 46, 98, 147, 154 Yed-i-Vahit system 23 Young Ottomans Society (Yeni Osmanlilar Cemiyeti) 138–9 Young Turk Revolution (1908) 46, 98, 123, 141, 144, 157 Ziya Pasha 138–9