Neither monopolies nor resistance to them via smuggling were peculiar to Republican Turkey. In pre-modern states, monopolies financed states and their military campaigns. With the emergence of the modern state, they were used to support capital accumulation. Alongside taxes, monopolies were always the primary source of state revenues, even in Great Britain, the cradle of classical liberalism. In the Ottoman Empire, monopolies were used to enrich the sultans’ treasury. In the 20th century, the Young Turks used them to create a Muslim-Turkish bourgeoisie and generate revenues for state centralization and bureaucratic reform. 

The collapse of the Ottoman Empire in World War I culminated in the emergence of the Republic of Turkey. The new Turkish state embarked on several cultural, economic and political modernization projects. All of these projects were financed largely through taxes and state monopolies, which weighed heavily on low-income groups. The government monopolized the production and trade of items such as salt, tobacco, cigarettes and cigarette papers, alcoholic beverages, matches, and lighters. Meanwhile, the government sold monopoly-like licenses to a limited number of textile and sugar companies and established public sugar and textile enterprises that had monopoly status. The autonomous monopoly directorates established during the 1920s were merged in the Monopoly Administration General Directorate in 1932 under the Customs and Monopolies Ministry

The republican state enjoyed huge revenues from monopolies, which, on average, yielded about 14 percent of the total state income during this period. These revenues were vital to industrialization and infrastructure projects such as railway construction and state enterprises. On the other hand, the use of state monopolies as a form of indirect taxation was a painful blow to a large number of producers, traders, and consumers of the items subjected to the monopoly. Restricting and even preventing free production, trade and consumption of these items and serving the commercialization of the rural economy, monopolies jeopardized many people’s livelihoods.

Accordingly, the monopolies spurred the resistance of consumers, producers and traders in the form of smuggling. Smuggling was the illegal production and trade of items monopolized by the state and licensed companies. The production and trade of contraband items were peculiar neither to Turkey nor to the Republican era. It was a long-standing phenomenon that had already emerged in other places and during previous centuries as a response to strict tax regimens. During the early Republic, the more the state intervened in people’s economic affairs through monopolies, the faster the smuggling spread. The scale of smuggling can be seen in historical records, most of which are reports on smugglers captured by security forces. There were many more who were uncaught. 

Smuggling was not monopolized by the big smuggling bands making big fortunes via organized and large-scale activities. It functioned mostly as a survival method for peasants and had such a social dimension that I prefer to call it “social smuggling,” similar to Hobsbawm’s notion of “social banditry.” It was an informal web of daily transactions, involving untaxed goods, in which the great majority of the population engaged as producers, traders, or consumers. This largely make-shift economy for the low-income masses was made up of many small-scale tobacco cultivators as well as cigarette and tobacco traders who were discontented with the exploitation and restrictions imposed by the monopolies. Thus they continued to produce and trade tobacco and cigarettes illegally. People also challenged the monopolies. Thus they monopoly’s beverages by producing wine or distilling rakı illegally. A great part of salt smuggling was carried out on a small scale by peasants for their own personal use. Many people would spin ropes, weave fabrics, sew clothes, and trade them in local markets free from taxation. Perhaps the most important items coming from the neighboring countries were cheaper sugar and fabrics, which had a huge market throughout Anatolia.

In all respects, social smuggling was a life-improving activity that contested high monopoly prices and property rights. However, for the ruling circles, it fell into the category of crime against property. Therefore, the government initially fought against it in coercive ways. Special courts were established against smuggling. An anti-smuggling law was enacted in 1927. When it proved to be ineffective, it was amended in 1929, 1932, and 1938. Smuggling was stigmatized as grave crime and even an act of treason. 

When these measures fell short, the government resorted to economic recipes, reducing prices and custom duties or softening the restrictions on production and trade. This was the bargaining impact of smuggling. It served low-income consumers, producers and traders by providing consumers with cheaper and more useful alternatives and by curbing the limitations wrought by monopolies on producers and traders. Hence, smuggling, along with the slowdown of the international trade and overall collapse in prices, played a role in the decline of monopoly revenues by an average of 24 percent during the period. That is, the resources the government extracted through monopolies to assign to its modernization projects remained below expected levels. This was one of the Achilles’ heels of the new Republican state, which limited the modernization projects.