Competing aid programs of the US and USSR

Throughout the Cold War, economic aid was a strategic instrument for both the US and the Soviet Union to build relationships in the less-developed world. This included exerting political and cultural influence in recipient countries and developing new links with governments and state bureaucracies. However, it would be misleading to overstate the similarities between the motivations of these two powers. The rationale and economic premises for economic assistance were quite different for American and Soviet policymakers. Moreover, their ideological differences and the characteristics of capitalist and socialist development policies were reflected in the way they dealt with less-developed countries through aid.

After the end of the Second World War, the Soviet Union remained reluctant to spend its resources to gain influence in world politics. However, the Soviet leadership under Khrushchev revised this policy in the second half of the 1950s. The new policy was to provide economic aid to newly independent countries emerging from centuries of colonization to stimulate their economic development and thus support their move towards a “peaceful transition” to socialism (Guan-Fu Reference Guan-Fu1983, 71).

At the time, the leaders of these aid-recipient nations sought economic development through the implementation of industrialization campaigns. However, because of a lack of sufficient capital accumulation, they were compelled to seek financial and technological assistance from external sources. For many, Soviet assistance seemed to be an alternative to aid from capitalist countries, which almost always came with conditions designed to maintain previous colonial entanglements. Moreover, the Soviets prioritized support for large-scale public investment to create material conditions for industrial takeoff and, in the long term, to wean less-developed countries off foreign aid (Wallace Reference Wallace1990, 38).

This aid policy continued into the 1960s, but was criticized within the Soviet administration, especially after the first major problems began to emerge. A major complication arose when some recipient countries were unable to meet their repayment obligations (Wallace Reference Wallace1990, 41). More importantly, the stark experiences of countries such as Sukarno’s Indonesia and Lumumba’s Congo, where leaders who had signed up to cooperate with the Soviets, were overthrown and replaced by successors who quickly reversed the Soviet alignment. At the 23rd Party Congress in 1966, Brezhnev set a tone for a change in aid policy. Scrutinizing the consequences of this change in policy, Valkenier (Reference Valkenier1983, 15) argues that after the decision to rethink its relations with less-developed countries by utilizing a more commercial approach, the Soviet Union began to pursue obvious needs rather than revolutionary calculations. Lowenthal (Reference Lowenthal1976), on the other hand, argues that the Soviet strategy now focused on several neighboring developing countries with which the Soviet Union wanted to establish firm economic ties. These countries were chosen not because they followed a non-capitalist path of development but “because they formed part of one of the three zones of pronounced Soviet interest.” According to Lowenthal (Reference Lowenthal1976, 52), these were South and Central Asia, Central Treaty Organization (CENTO) members (such as Turkey, Iran, and Pakistan), and progressive Arab countries.

The Soviet aid policy coincided with new developments in Turkey, Iran, and Pakistan, the three US allies bordering the Soviet Union. These three countries faced different problems in their relations with the Western bloc (Lowenthal Reference Lowenthal1976, 53–55). The apparent dissatisfaction with the US led to Soviet anticipation that these countries were drifting away from their previous position of complete loyalty to the Western alliance system. With this assessment, the time seemed ripe to open channels of cooperation with these three neighbors. This optimism on the part of the Soviet Union did not go so far as to have the illusion of an imminent break with the West, but was based on the belief that economic independence would move these countries away from their transatlantic ally and make them more receptive to Moscow’s proposals (Hirst et al. Reference Hirst, Khajei and Kaptan2023, 742). For instance, Soviet policymakers were sufficiently realistic to recognize that Turkey would not inevitably pursue a socialist path, yet they nevertheless defined Turkey’s independence from the West as an intrinsic objective (Hirst and İşçi Reference Hirst and İşçi2020, 837). In other words, ideological motivation was not absent from Soviet aid policy; however, it is reasonable to conclude that the primary objective was to promote independence rather than spread socialism. In engaging with these Western bloc governments, “the Soviets were sending a message that the USSR was not a threat to their independence” (Walters Reference Walters1970, 35–36). The Soviets remained committed to the concept of national development, with an increasing inclination, particularly during the 1970s, to explore alternative avenues for economic growth within the domestic boundaries of the states. For instance, in Turkey, they endorsed initiatives that would reinforce Soviet ties with the central government, irrespective of the political administration in Ankara, with the objective of facilitating expansion of the national economy (Hirst et al. Reference Hirst, Khajei and Kaptan2023, 742).

The figures on Soviet aid disbursements verify this geographical shift. According to the US Department of State, in 1965, the USSR extended about $655 million of new economic assistance, $540 million of which was concentrated in Iran, Turkey, and Pakistan. This made up over 80 percent of the total economic assistance that was extended that year.Footnote ¹ Between 1954 and 1984, Turkey and India were the largest non-socialist recipients according to Central Intelligence Agency (CIA) figures (Wallace Reference Wallace1990, 45).

In the early stages of the Cold War, the Soviet Union lagged behind the US in implementing an aid strategy as a foreign policy tool. American aid programs, such as the Marshall Plan and the Truman Doctrine, launched in the immediate aftermath of World War II, were designed to forge an alliance system that would serve the geopolitical needs of the West. Turkey was also a beneficiary. The grants and loans provided by the Marshall Plan authorities came under these circumstances. For, example, US aid to Turkey was accompanied by policy preferences that favored agricultural specialization over the continuation of earlier industrialization efforts.

It soon became clear that the US administration’s enthusiasm for expanding development programs was peculiar to the early Cold War and limited to Europe. Beginning with the Eisenhower presidency, US policymakers did not heed calls from the developing world for comprehensive development plans. Officials argued that development lending should continue under the auspices of the World Bank, which applied market logic and a business mentality to its lending (Adamson Reference Adamson, Statler and Johns2006, 48–50).

This position was maintained until the signs of policy change on the part of the Soviets reached the US leadership in the second half of the 1950s. When the Soviet Union entered the arena of developmental aid, “development turned competitive” (Lorenzini Reference Lorenzini2019, 68). Khrushchev’s new foreign aid policy sparked debate in the US administration. The result was an agreement within the administration to take more decisive steps to promote economic development in less-developed areas (Adamson Reference Adamson, Statler and Johns2006, 60). Yet, as Adamson framed, this alteration in the foreign aid policy of the US did not mean a change in the capitalist economic rationale inherent to it. “Recipients were not to use it to fund the state-directed enterprise. Rather, they should ‘create a favorable climate’ for private investment – lack of which made the provision of foreign aid necessary in the first place” (Adamson Reference Adamson, Statler and Johns2006, 60). Restricting public ownership of the economy in favor of the private sector was a primary ideological goal of the Cold War rivalry. No less important was the need to remove restrictions that curb the expansion of US capital (Viner et al. Reference Viner, Meany, Hamilton, Passman and Hoffman1963).

In the 1960s, aid itself became an arena in which the US and the Soviet Union engaged in full-blown Cold War competition. The US government, now more aware of the growing importance of aid for propaganda and securing US interests in the less-developed world, created a new institutional structure for foreign aid and advocated a more ambitious aid initiative. All aid agencies were merged into the United States Agency for International Development (USAID), and aid was extended to include massive infrastructure projects that symbolized the modernization ideology of the era (Lorenzini Reference Lorenzini2019, 65). Lorenzini accentuates that the US was never alone in these megaprojects, sometimes partnering with private business, more often working in wide consortia supported by the World Bank (Lorenzini Reference Lorenzini2019, 65), a model that would be used to build ERDEMİR in Turkey.

US aid to the developing world was closely tied to the political priorities of the US government and rules of the capitalist market economy. The overall aim of US aid policy during the Cold War was to contain what it saw as a communist subversion (Lorenzini Reference Lorenzini2019, 64–65). US policymakers postulated that the provision of aid would serve as a means of leverage for the dominant classes, enabling them to enhance economic prosperity, cultivate liberal political institutions, and disseminate Western cultural values such as individualism within traditional societies. Aid has also been used to influence foreign policy in less-developed countries. In most cases, the recipient country had to adopt an American position on specific foreign policy issues (Walters Reference Walters1970, 13). For example, in Latin America, continued aid was contingent on the diplomatic isolation of socialist Cuba (Lorenzini Reference Lorenzini2019, 66).

The free market is an indispensable element of American foreign-policy ideology (Westad Reference Westad2005, 12). Priority was given to assisting projects in the energy and transportation sectors, which were crucial for an operating market economy, and to extractive industries and agriculture, which supplied raw materials to the industries of developed economies. The US did not promote the building of heavy industry in less-developed countries, as they believed that the lack of capital accumulation in private hands and the unwillingness of private businesses to tie their resources to long-term gains urged state investment and control in such industries. ERDEMİR, built in Turkey, epitomizes these debates.

In contrast, the primary goal of Soviet aid policy was to promote state enterprises and a planned economy. The Soviet Union used the term “economic and technical cooperation” instead of aid because they proclaimed that relations between the two sides were based on the principle of mutual advantage. The recipient would obtain the means for development, especially for building heavy industry, and, in return, the Soviet Union would acquire goods and raw materials necessary for its economy (Walters Reference Walters1970, 37–38). In the Soviet view, the remedy to underdevelopment was simple: “to cut relations with the West and introduce planning, nationalization, industrialization and close relations with the Eastern Bloc” (Lorenzini Reference Lorenzini2019, 44). However, this did not mean that the Soviets imposed these grand policies as a condition to aid. Rather, these measures were suggested as modi operandi of independent development, and Soviet aid was given to encourage such policy choices among policymakers in the developing world.

Obviously, the Soviet aid strategy was built on priorities and tenets that complied with socialist developmentalism. Politically, the Soviet Union aimed to circumscribe the West’s influence in the developing world. However, they believed that this could only be achieved through economic independence, which required the adoption of an alternate path of development based on the strong activity of the public sector in the economy.

Compared to Soviet aid, US aid was considered higher in quantity and quality. However, qualitative superiority was a controversial evaluation since there were also arguments that when US and Soviet technology was juxtaposed, the former was more advanced, while the latter was more robust and durable. A significant distinction lies in technology transfer;Footnote ² the Soviet Union enabled its diffusion, while the US, constrained by patents and copyrights, largely withheld it. Repayment conditions further underscored the relative advantages of Soviet aid, which was widely recognized for its generosity. Soviet loans extended over long periods, often ten years or more, at very low interest rates and could be repaid in local currency or domestically produced goods, thereby alleviating foreign currency shortages that burdened many developing countries. Furthermore, the Soviet Union did not seek any equity, profit sharing, or participation in the management of projects built with Soviet assistance, as was the case in İSDEMİR (Valkenier Reference Valkenier1983, 8).

To obtain a complete understanding of Cold War aid, we should also investigate the receiver’s perspective. It is also important to remember that views on aid were not uniform or homogeneous in any country, meaning that local actors could present different views on the problem of development and aid. Neither did all officials in less-developed countries share the same approach towards the aid policies of the US or the Soviet Union, nor were they equally open to collaboration with either side of the Cold War.

India is a good example of different actors’ contradictory positions towards the donors of Cold War aid and their recipes for development: “Those interested in central planning, industrialization, and government ownership of economic enterprises not surprisingly found their way to the Soviet aid agency” and “those favoring agriculture, private enterprise, and international trade typically worked closely with Western agencies” (Engerman Reference Engerman2018, 118). The Indian case reminds us that it is vital to consider the motivations of different domestic actors to have a fully fledged understanding of Cold War aid. Of course, foreign policy considerations play a part, but they shed only partial light on the factors that influence the recipient’s decision to cooperate. This framework draws general contours that help us examine ERDEMİR and İSDEMİR as sites of Cold War foreign assistance competition in Turkey.

The iron and steel industry in Turkey

The iron and steel industry has long been considered a cornerstone of industrial development and a critical indicator of a country’s economic strength. The per capita consumption of iron and steel is frequently regarded as an indicator of the level of welfare within a given society. Steel production is indispensable for manufacturing equipment, machinery, vehicles, and infrastructure and is thus directly connected to broader industrialization goals.

In Turkey, the ambition to develop a domestic iron and steel sector emerged in the early Republican period as part of the broader state-led industrialization efforts of the 1930s. In 1928, a German company in Kırıkkale constructed a steel production complex, primarily to support the arms industry. Turkey’s first large-scale iron and steel plant was founded as a state-owned enterprise within the framework of the country’s initial five-year industrialization plan (İnan Reference İnan1972, 7–8). The Karabük Iron and Steel Plant (Karabük Demir Çelik Fabrikası; KARDEMİR) was set up by a private British company and financed through British state credits. KARDEMİR began operations in 1938, with an initial capacity of 150,000 tons. Despite the expansion of the plant and its capacity to reach 600,000 tons by the 1950s, production remained below this level owing to inherent imbalances in the design and the existence of specific preferences for the production of certain commodities (İnan Reference İnan1972, 7–8).

By the 1950s, growing infrastructure demands and the limitations of KARDEMİR had become evident. The plant was unable to meet increasing domestic needs, particularly for flat steel products required by emerging industries, and, as a result, steel consumers started to import long and flat steel products from abroad, increasing the problem of balance of payments. In addition to initiating another major expansion in KARDEMİR, the Menderes government embarked on reviving plans for a new iron and steel plant that would be designed to produce all types of iron and steel products (Örnek et al. Reference Örnek, Başaran and Somel2022a).

The Democratic Party (Demokrat Parti; DP) government under Adnan Menderes secured US financing through USAID for a new iron and steel plant, reaching an agreement with the American Kopper Co., an American corporate group, as the main authority for the construction in Ereğli/Zonguldak. Despite the DP’s dismissal by a military coup, the project continued owing to these commitments. After the coup, the state’s newly established state planning organization (DPT) began drafting five-year development plans, in which priority was given to the construction of industrial plants.

Following its foundation of the DPT in 1960, the construction of Turkey’s second iron and steel plant, ERDEMİR, began in 1961, with the first development plan predicting sufficient capacity to meet demand (T. C. Başbakanlık Devlet Plânlama Teşkilâtı 1963). However, demand soon exceeded production, partly because of the 1964 Directive on the Assembly Industry, which required assembly industries to meet a certain level of local production content. An illustrative case is the Tuzla Jeep factory, which began employing domestically produced sheet steel only after ERDEMİR’s supplies became available in 1965 (Güvenç Reference Güvenç2014, 547–548). The second five-year plan (1968–1973) revised earlier optimistic projections, attributing shortfalls to delays in operationalization and technical problems, which necessitated higher imports than expected (T. C. Başbakanlık Devlet Planlama Teşkilatı Müsteşarlığı 1967). It was concluded that the projected volume of imports for the plan period would equal the investment required for a new integrated plant, thereby justifying both the expansion of ERDEMİR and the establishment of a third facility, subsequently named İSDEMİR.

During the 1960s and 1970s, marked by the highly polarized politics of the Cold War, the iron and steel industry was at the center of political debates, embodied by the alternative trajectories of ERDEMİR and İSDEMİR. ERDEMİR, established as a Turkish–American joint private enterprise under state auspices, reflected the US condition of private entrepreneurship in return for USAID funding. On the other hand, İSDEMİR emerged from Turkish–Soviet rapprochement in the late 1960s as a state enterprise financed through Soviet credit and expertise. Soviet advisors continued to provide technical support after its inauguration through Soviet personnel working in the plant. Unlike American shareholding in ERDEMİR, no formal Soviet partnership was imposed in İSDEMİR.

US aid and the ERDEMİR case

The foundation of ERDEMİR in 1960 represented a milestone in Turkey’s post-war industrialization as the country’s second iron and steel plant and the first to produce flat products (Devlet Planlama Teşkilatı Yayım and Basım Şube Müdürlüğü Reference Yayım and Şube Müdürlüğü1991, 67). Founded as a joint stock company, its partners included Sümerbank (a Turkish state bank), the General Directorate of Turkish Iron and Steel Enterprises (Türkiye Demir-Çelik İşletmeleri Genel Müdürlüğü), the Ankara Chamber of Trade and Industry (Ankara Ticaret ve Sanayi Odası), Türkiye İş Bankası (a Turkish private bank), and a US company, Koppers Co. Construction, and lasted from 1961 to 1965. The initial project design by Koppers, based on a 1958 contract, envisaged state ownership and operations (Szyliowicz Reference Szyliowicz1991, 76). However, in 1959, the US government imposed two conditions: the plant must be privately owned regardless of state investment; and private American investors must participate in financing. Both conditions were swiftly fulfilled, allowing the US to showcase ERDEMİR as a model of privately owned heavy industrial investment backed by the US government and US capital (Adalet Reference Adalet2018, 2). The US government’s economic motivation was to create a model in which US corporations gained maximum benefits by investing in the Third World (Meernik et al. Reference Meernik, Krueger and Poe1998, 66). Thus, the US encouraged American companies and banks to invest in the project and its financing.

In line with US demands, ERDEMİR was established as a private company (Yıldırım Reference Yıldırım1981, 40), although attracting local private partners proved difficult. Despite initial support, major Turkish capitalists avoided heavy industry, favoring safer and more profitable sectors, such as real estate. Consequently, the state became the majority shareholder, holding 51 percent through Sümerbank and the Directorate General of Iron and Steel Enterprises, while Koppers Co. acquired 21 percent, Chase International Investment Co. 8.25 percent, and the remainder went to local investors. However, the company’s administrative structure did not reflect the overwhelming presence of the state as a major shareholder. Koppers retained near-absolute control over project design, procurement, and management decisions. This asymmetry created an unusual hybrid – state-funded investment coupled with foreign private control – setting the stage for many of the controversies that followed. High-interest foreign loans negotiated with American firms and banks compounded these governance problems. As loan-servicing obligations mounted, ERDEMİR became increasingly dependent on new external credits, undermining its financial sustainability and intensifying concerns about foreign leverage (Yıldırım Reference Yıldırım1981, 40).

From the outset, the ERDEMİR project faced technical criticism. The planners of the 1961 First Development Plan deemed its design technologically outdated, holding Koppers Co. responsible for employing inferior technology compared to a contemporaneous plant in Greece. Despite the planners’ intention to remove the project from the first development plan, binding agreements with the US government and private firms prevented it (Milor Reference Milor2022, 179). Further critiques targeted the project designers’ failure to anticipate rising domestic demand: according to Işın Çelebi, a specialist in the iron and steel sector in the DPT during the 1970s, the plant’s initial capacity was underestimated, its location limited future expansion, and its units were poorly balanced, reducing efficiency. These deficiencies required costly renovations, increased capacity, and reorganization (Çelebi Reference Çelebi1983, 65). Additionally, the utilization of company equity, US state and private loans, and domestic borrowing significantly increased costs beyond the original project estimates.

These early technical problems were not merely engineering flaws; they signaled deeper tensions between US development prescriptions and Turkey’s material realities. The US preference for minimal state involvement and reliance on foreign consultants clashed with the requirements of large-scale heavy industry, which in Turkey – given limited private capital, domestic technology gaps, and the need for long-term coordination – functioned best under state leadership. The construction of ERDEMİR unfolded during a period of intense political mobilization. The liberalizing 1961 Constitution expanded political freedoms, enabling socialist organizations, trade unions, and intellectuals to voice critiques of foreign dependency. Against this backdrop, ERDEMİR became a lightning rod in public debates over American influence, capitalist development strategies, and the limits of Turkey’s private-sector-first model.

Key left-wing critics such as Doğan Avcıoğlu (Reference Avcıoğlu1996, 1085–1086) argued that US credit was in practice granted not to Turkey but to Koppers Co., enabling the firm to sell equipment at inflated prices and to impose a pattern of dependency that hindered competitive production. Nora Şeni similarly interpreted the ERDEMİR contract within the broader context of the international capitalist division of labor, linking American interest in Turkish steel to the strategic needs of US petroleum infrastructure and the expansion of American capital in the Turkish oil sector following the 1954–1957 liberalization laws (Belge and Özüak Reference Belge and Özüak1985; Şeni Reference Şeni1978).

The intellectual weekly Yön Dergisi sustained an extensive campaign between 1962 and 1967, warning that ERDEMİR risked becoming a “feedbox” for Koppers (Yön Dergisi 1962, 13). Its reports highlighted unrealistic project costs, conflicts of interest inherent in Koppers’ dual roles as consultant and supplier, and inaccuracies in raw material assessments that could force Turkey to import iron ore despite the new plant – an irony for a project touted as a symbol of industrial self-sufficiency.

As ERDEMİR became operational in 1965, allegations of corruption and mismanagement gained national prominence and were widely discussed in the press and in parliament. These criticisms, although varied, converged around several recurrent themes that together shaped the public perception of the project. Commentators frequently asserted that construction costs had exceeded global averages by as much as three- or four-fold, pointing in particular to disputes over limestone procurement and to questionable payments made to the Turkish representative of Morrison Knudsen, one of the American contractors involved in the project (Selçuk Reference Selçuk1965a). Such concerns were compounded by what many perceived as striking governance asymmetries: although the Turkish state held 51 percent of ERDEMİR’s shares, its managerial authority remained sharply limited, allowing Koppers to dominate procurement processes, technical decision-making, and the broader financial architecture of the enterprise. Reports also highlighted a pattern of privileges and unequal employment practices, including high salaries and special benefits for American personnel, managerial extravagance, nepotism, and the overstaffing of administrative units. The controversy acquired an overtly political character when allegations surfaced linking AP leader and Prime Minister Süleyman Demirel to Morrison Knudsen, suggesting that he may have derived personal benefit from ERDEMİR-related contracts (Yön Dergisi 1965, 10–11).

Together, these interrelated claims – escalating costs, skewed governance structures, unequal labor practices, and perceived political entanglements – transformed ERDEMİR from a technical industrial project into a focal point of political contestation, symbolizing for many the broader shortcomings of the American-supported development model in Turkey. While the AP government (1965–1971) avoided opening a full parliamentary inquiry, opposition deputies from the Republican People’s Party (Cumhuriyet Halk Partisi) and the Workers’ Party of Turkey (Türkiye İşçi Partisi) repeatedly demanded nationalization or the establishment of a new public steel company (TBMM 1966, 1967). The cumulative effect was to cement ERDEMİR as a symbol of the perceived failures of US-supported development models.

In 1965, the year ERDEMİR went into production amid intense public debate, Turkey had already set out in search of alternatives for future heavy industrial ventures. A new diplomatic opening with the Soviet Union appeared capable of enabling the heavy industrial investments prioritized in planned development. At this juncture, the ERDEMİR experience did not, by itself, push Turkey toward Soviet industrial assistance. Rather, it served as a concentrated illustration of the structural problems embedded in the American development model as it operated under Turkish conditions, thereby accelerating existing efforts to explore alternative paths.

The rapprochement between the Soviet Union and Turkey in the 1960s

The construction of the third iron and steel plant was a consequence of Turkish–Soviet rapprochement during the Cold War. Turkey previously received significant Soviet economic and technical assistance, including planning support for its first five-year plan in 1932 and an interest-free loan of eight million gold dollars (Wallace Reference Wallace1990, 95). However, between 1936 and 1963, bilateral diplomatic and economic relations were at a minimum level, except for Soviet aid to build the Paşabahçe glass factory in İstanbul in 1957 (Wallace Reference Wallace1990, 109), which operated in 1962 (Polatoğlu Reference Polatoğlu2019, 483). An exceptional feature of this aid, particularly for the Soviet side, was that it involved a Soviet enterprise, Technoexport, and a private Turkish bank, İş Bankası, rather than being a state enterprise. It was initiated by pro-American and anti-communist DP governments. Like the late 1960s, the end of the 1950s was also marked by a crisis in Turkish–American relations, which emerged after the US denied financial support to the DP government. This steered the disappointed government to contacting Moscow with the same request of financial support (Hirst and İşçi Reference Hirst and İşçi2020, 847–848).

Turkish–Soviet relations recovered slowly after the 1960 military intervention. At the beginning of the 1960s, trade with the Soviet Union constituted only 1 percent of Turkey’s total foreign trade (Qasımlı Reference Qasımlı2013, 24), but by mid-1965, Turkey’s export rate to the USSR had risen to nearly 5 percent (Ulusoy Reference Ulusoy1965). Turkey’s rapprochement with the Soviet Union in the 1960s became possible because of both international and national developments. The major facilitator was the easing of Cold War tensions between the US and the Soviet Union, which marked a new phase of the conflict following the Cuban Crisis and was later formulated by the Nixon administration in 1969 as a new framework of Cold War diplomacy, known as détente. As bloc loyalties loosened during the détente years, underdeveloped countries, such as Turkey, found more room to maneuver, especially in areas seen as less directly linked to ideology. In the early years of the Cold War, Turkey faced a binary choice between US capitalism and Soviet socialism, but by the 1970s, the era of exclusive alliances was over (Hirst et al. Reference Hirst, Khajei and Kaptan2023, 740).

There were also reasons rooted in Turkey’s own conditions, particularly the deterioration of relations with the US. A series of developments led Turkey to feel betrayed and pushed policymakers to seek alternatives to its strictly West-oriented foreign policy. The first incident was the US–Soviet agreement ending the Cuban Missile Crisis, which required the removal of Jupiter missiles from Turkey. The US made this decision without consulting Ankara, a move widely seen by the public and policymakers as indifferent to Turkey’s security concerns in the face of the Soviet threat. This fueled debates over the sincerity and reliability of the US as an ally (Erhan Reference Erhan and Oran2008, 681–684).

Anti-American sentiment deepened with the disclosure of President Johnson’s letter to Prime Minister İnönü, warning Turkey against military intervention in Cyprus, where inter-communal conflicts erupted in 1963. This unconventional diplomatic ultimatum shocked a country that was long reliant solely on the US and NATO in its alliance policies (Erhan Reference Erhan and Oran2008, 686–690) and fueled anti-American public resentment, making it harder for right-wing parties to sustain excessive pro-American policies. While neutrality was never considered, these developments prompted Ankara to reassess its rigid foreign policy towards the Soviet Union. The Cyprus crisis opened up, as both countries had similar concerns about critical issues. The Soviet administration was against Greece’s possible annexation demands and supported the independence of Cyprus, an attitude that Turkey found satisfactory. Amid the diplomatic crisis with the US, the Soviet ambassador offered aid to Turkey for building industrial plants. Both sides affirmed “peaceful coexistence of states governed by different systems” and Moscow assured that Turkey’s NATO membership would not be questioned (Qasımlı Reference Qasımlı2013, 72, 117).

Consequently, aid diplomacy became the main axis of the new era in bilateral relations. Turkey’s material and structural conditions, more so than foreign policy, shaped this rapprochement. As mentioned earlier, since its foundation, Republican Turkey has aimed for industrialization (Georgeon Reference Georgeon1995). The initial phase of industrialization in the 1930s meant substantial state investment, with the majority of industrial facilities established and operated by the state, giving the period an “étatist” character. After World War II, state-led economic policies did not continue to be a significant feature of the political and economic landscape, but étatism and the role of private enterprises remained central topics in economic debates. The years 1946–1957 marked a partial exception when agriculture was prioritized, although modest state industrial investment continued (Boratav Reference Boratav2005). Following the 1960 coup, the policy shifted towards industrialization, especially in heavy industries such as iron and steel. Most political actors, including the right-wing AP, endorsed this development strategy. In its 1965 program, the AP highlighted industrial development and pledged significant investment in industries deemed crucial for the success of an import substitution, including fuel oil, iron and steel, motor vehicles, the petroleum industry, aluminum, chemistry, and the paper industry, while announcing a third iron and steel plant. However, the AP government emphasized that private enterprises should undertake industrialization, and that the role of the state should be limited to a facilitator. Accordingly, the program stated that in the field of industrialization, by establishing partnerships that ensure the participation of citizens, as in some countries that are rapidly progressing, the establishment of mixed enterprises will be encouraged, which will reinforce the capital resources of institutions operating entirely on private sector principles (TBMM 1965).

The AP was in favor of industrial development, but categorically opposed étatism. ERDEMİR epitomized this stance but also symbolized its problems with a negative legacy. Above-mentioned controversial aspects of the ERDEMİR experience made it difficult for any government to insist on reusing a similar model for heavy industry investment.

In line with its commitment to industrial growth and state-led economic model, even under the right-wing anti-communist AP government, Turkey sought technical and financial assistance from the Soviet Union. This was facilitated by the Soviet aid policy targeting developing countries and by a shared view on the importance of economies of scale and heavy industry for industrial development. Together, these factors paved the way for project-based cooperation with the Soviet Union. On the other hand, the declining interest of the US and other Western powers in Turkey’s industrial development also played a role. In the 1960s, Turkish governments faced difficulties finding funds in the West for their extensive industrial projects. In 1964, US economic aid dropped from 150 million to 40 million dollars (Qasımlı Reference Qasımlı2013, 80–81).

The initial gesture of rapprochement came from the Soviet Union, in 1963. In the same year, a direct telegraph line was established between these two countries. In the spring of 1963, a TBMM delegation led by the senate president Suat Hayri Ürgüplü, comprising six senators and nine deputies, visited the USSR. This was followed by Foreign Minister Feridun Cemal Erkin’s visit in the autumn of 1964 to negotiate the Cyprus issue and secure economic aid for Turkey’s industrial projects. The Soviets supported Cyprus’s sovereignty, aligning with Turkey’s aim to prevent the Greek policy of enosis, or the union of Cyprus with Greece. Subsequently, a Soviet parliamentary delegation led by the Supreme Soviet Presidium Chairman Nikolai Podgorny visited Turkey, during which Podgorny addressed the Turkish parliament, an unusual departure from previous tensions. In May 1965, Soviet Foreign Minister Andrei Gromyko visited Turkey (Polatoğlu Reference Polatoğlu2019, 483–484; Qasımlı Reference Qasımlı2013, 60, 112–113, 133, 147). Despite diplomatic rationale, the main impetus of this new phase was economic cooperation (Hirst and İşçi Reference Hirst and İşçi2020, 849).

Soviet aid and the İSDEMİR case

As diplomatic relations with the USSR intensified, Prime Minister Suat Hayri Ürgüplü’s 1965 visit to Moscow marked a new phase in economic collaboration. His right-wing government declared its intention to continue “good neighborhood relations” with the Soviet Union and acted accordingly. Negotiations on Soviet aid were concluded in 1967 with an agreement on the construction of seven industrial plants in Turkey through Soviet loans and technical support. This unprecedented deal was finalized in October 1965 under Süleyman Demirel’s AP government.

During his 1965 visit, Ürgüplü proposed forty projects, mostly industrial plants, including a third iron and steel plant, in addition to KARDEMİR and ERDEMİR.Footnote ³ The proposal reflected the government’s ambitious industrialization goals and high expectations of the Soviet Union. Ultimately, only seven projects were accepted.

The Turkish press published numerous articles on the Soviet–Turkish rapprochement, ranging from critical to supportive. Cumhuriyet adopted a particularly favorable stance. Its owner, Nadir Nadi, responded to criticism by writing: “Let us not be afraid of normalizing relations with the Soviets. While all NATO countries, including the USA, improve relations with them, let us do it too” (Nadi Reference Nadi1965). The chief editor Selçuk (Reference Selçuk1965b) also reiterated his criticism of ERDEMİR while praising the advantages of Soviet aid.

A milestone followed by Soviet Prime Minister Kosygin’s state visit to Turkey in December 1966, the first by a Soviet prime minister. His visit reflected the Soviet authorities’ twofold strategy: encouraging the quasi-neutrality of Turkey with the support given to Turkey in the Cyprus issue; and assisting Turkey’s industrialization efforts. Kosygin expressed this viewpoint, stating that economic cooperation was only possible under mutual political understanding (Kosigin Ekonomik Yardımlaşma için Siyasi Anlayış İstiyor 1966).

On March 25, 1967, Turkey and the Soviet Union signed an agreement in Moscow covering the delivery of equipment and materials for seven industrial facilities as well as technical services and payment terms (Resmi Gazete 1967).Footnote ⁴ The projects included an integrated iron and steel plant, aluminum factory, hydroelectric plant, oil refinery, sulfuric acid plant, fiberboard plant, and additional units for existing glass and alcohol factories. The annual capacity of iron and steel plants was projected at 1,000 tons. Repayment terms were highly favorable: Turkey would repay the loan over fifteen years at 2.5 percent interest – lower than other loans at the time, such as a 1967 European Monetary Agreement (EMA) loan of 25 million dollars at 3.7 percent interest (Kısa Vadeli, Yüksek Faizli Kredi Anlaşması İmzalandı Reference Vadeli1967). Moreover, repayment rather than cash was to be made in agricultural products such as tobacco, nuts, raisins, and olive oil, giving Turkey the added benefit of increasing its overall export rates.

In his discussion of the reasons behind the choice of technology supplier, Wallace (Reference Wallace1990) argues that financial considerations and Western refusal to sell certain technologies were the main reasons for Turkey’s willingness to opt for Soviet aid. In the same study, Demirel, the Prime Minister who signed the 1967 aid agreement, stated that he accepted Soviet aid because Western countries and multilateral institutions were unwilling to provide the necessary credit for industrialization projects (Wallace Reference Wallace1990, 130, 147).Footnote ⁵

On the other hand, the effectiveness and novelty of the technology provided by Soviet aid were called into question. ISDEMİR personnel and government officials held a perception that Soviet equipment and production processes were inferior to those of Western suppliers (TMMOB 1978; Wallace Reference Wallace1990, 150). Similarly, an American writer Szyliowicz noted that machines of modern Soviet technology present at İSDEMİR “proved to be of inferior design and could not be made to work properly” (Szyliowicz Reference Szyliowicz1991, 165, 185). By contrast, a DPT expert involved in the project argued that İSDEMİR was the result of the most advanced technology available to the Soviets at the time, although the Americans had superior technology in the iron and steel sector, but he emphasized the durability and resilience of Soviet engineering (Örnek et al. Reference Örnek, Başaran and Somel2022a); plant personnel also credited Soviet equipment with durability and reliability (Wallace Reference Wallace1990, 172). The experts from the DPT emphasized favorable credit terms, suitability of the technology, comprehensive training provided by the Soviets, and repayment conditions in goods as the main advantages of Soviet aid (Wallace Reference Wallace1990, 132, 148–150).

Demirel and other AP members were also worried that rapprochement with the Soviet Union might undermine their anti-communist rhetoric and damage their standing in domestic politics. Some AP members, such as Industry Minister Mehmet Turgut, were reluctant to cooperate with the Soviets or prepare adequately after the 1967 agreement (Örnek et al. Reference Örnek, Başaran and Somel2022a). There was also concern that rapprochement with the USSR could fuel socialist propaganda or increase sympathy for the Soviet Union within Turkey (Yön Dergisi Reference Müzakereleri1966, 4).

Construction of İSDEMİR began in October 1970 and was completed in December 1975. A 1972 agreement with the USSR doubled the plant capacity from 1 to 2 million tons. Built on 1,750 hectares, it has become the largest iron and steel plant in the Middle East. After its inauguration in 1975, further expansion followed, including a third furnace, steel construction factory, and new port in 1977. By 1985, İSDEMİR had reached an annual capacity of 2.2 million tons (Polatoğlu Reference Polatoğlu2018).

İSDEMİR has never reached its full production potential. In 1977, while the plant’s liquid steel capacity was 1 million tons, the actual output was only 200,000 tons, which is only one-fifth of the capacity. The main causes of this decline in production levels were mismanagementFootnote ⁶ and problems in raw material supply (Çelebi Reference Çelebi1983, 156–157). A 1978 report by the Union of Chambers of Engineers and Architects of Turkey (TMMOB) attributed mismanagement primarily to political factors. Clientelist practices of government parties, especially under the right-wing National Front, led to overstaffing. Although the original plan projected 7,681 workers, by 1976 the workforce had reached 17,141, with the plant management hiring an additional 8,614 workers. Despite this surplus, the lack of qualified personnel, particularly engineers, meant that the blast furnace operated at only 78 percent capacity by 1977 (TMMOB 1978).

Soviet aid versus US aid

The two iron and steel factories discussed above, one built with US aid and the other supported by Soviet aid, sparked a debate in Turkey about the effects of such assistance. Each aid package came with unique conditions, leading to varying outcomes based on the specific circumstances of the Turkish economy. Additionally, the operations of these factories were criticized by various political actors in Turkey, who highlighted the implications of this aid. These discussions revealed differing perceptions of Soviet and US aid within the country.

ERDEMİR had starkly revealed the limitations of a US approach premised on private ownership and the leading role of private capital. The weakness of domestic private capital accumulation and its reluctance to invest in long-term, low-profit sectors such as heavy industry meant that the state assumed the financial burden of the investment. Yet managerial authority remained concentrated in the hands of Koppers, highlighting a fundamental inconsistency between state financing and managerial control. This arrangement undermined both the technical and administrative sustainability of the plant. At the same time, the declining American interest in heavy industrial projects further deepened frustration within Turkey. This shift reflected broader changes within US development thinking during the late 1960s, when economic and social problems in postcolonial countries prompted a reassessment of American aid policy itself, leading to a growing belief in Washington that economic growth driven by foreign capital was no longer sufficient to prevent social conflict and that greater emphasis on political order and stability was required (Gülseven Reference Gülseven2020, 241–242).

These economic frustrations coincided with a period of political tension in Turkish–American relations, shaped by the unresolved diplomatic fallout of the Cuban Missile Crisis – particularly the unconsulted removal of Jupiter missiles from Turkey – and by the shock created by President Johnson’s 1964 letter regarding Cyprus. These episodes did not realign Turkey’s foreign policy, but they contributed to an atmosphere in which Ankara became more receptive to exploring alternative partners for large-scale industrial projects. Thus, the difficulty did not lie solely in ERDEMİR’s technical or financial troubles; it also reflected the emergence of a Western financing framework increasingly out of sync with Turkey’s developmental agenda.

Moreover, the cost overruns, managerial asymmetries, and corruption allegations surrounding ERDEMİR exerted political pressure on successive governments. Even the AP, known for its strong anti-communist stance, found it increasingly difficult to defend the American model of heavy industrialization without jeopardizing its political legitimacy. In this context, Soviet proposals emerged not as ideological alternatives but as practical responses to concrete developmental challenges. ERDEMİR thus contributed not to an ideological rupture with the West, but to an accelerated process of institutional learning about which development model better suited the country’s material conditions.

Soviet-assisted facilities offered advantages over American- and Western-funded projects regarding the limitations imposed on business practices, the documentation required, and the training provided to personnel. The Soviets imposed a few restrictions on the utilization of their technology for enhancement and reuse by the Turks, whereas Westerners imposed such limitations through licensing and royalties. The documentation prepared by the Soviets for the use and repair of equipment was comprehensive and beneficial, whereas Westerners were reluctant to provide detailed instructions on how to solve problems, thereby fostering dependency. Furthermore, the Soviets provided a favorable training program for Turkish workers and engineers in factories in both the Soviet Union and Turkey, which was also advantageous in terms of personnel training (Wallace Reference Wallace1990, 151–187). Crucially, technology transfer, which allowed Turkey to develop its own capabilities, was feasible only in the context of Soviet projects, as the US withheld its most advanced industrial technologies to maintain Turkish dependence on US-sourced products (Örnek et al. Reference Örnek, Başaran and Somel2022a; Wallace Reference Wallace1990, 172–173).

Currently, we lack comprehensive research on the effectiveness of ERDEMİR and ISDEMİR regarding cost and product analysis. The only available statistics indicate that in the early 1980s, ERDEMİR’s productivity was slightly higher than that of İSDEMİR. However, both plants were operating at only half of their maximum capacity at that time, largely due to ineffective management (Szyliowicz Reference Szyliowicz1991, 181–188). Throughout the 1970s and 1980s, both plants played distinct roles in meeting Turkey’s growing demand for processed steel, producing different types of steel. Today, ERDEMİR and İSDEMİR still hold significant roles in the Turkish economy. ERDEMİR was nationalized and later privatized in the 2000s. In a 2022 survey conducted by the İstanbul Chamber of Industry (İstanbul Sanayi Odası; ISO) of the top 500 industrial companies, ERDEMİR ranked ninth and İSDEMİR ranked tenth. Even after the Cold War, these two plants continued to be the primary drivers of Turkey’s industrial production. Turkey’s industrial growth was substantially influenced by the development policies and aid competition from that era. According to the World Steel Association (2022), Turkey is now ranked eighth among the world’s major steel-producing countries.