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The Evolution of Privatization in Turkey: The Institutional Context of Public-Enterprise Reform

Published online by Cambridge University Press:  29 January 2009

Ziya Üniş
Ziya Üniş
Affiliation:
Department of EconomicsBoğaziçi University
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Abstract

In the 1980s public policy shifted sharply in favor of market-based solutions, in contrast to the previously dominant “Keynesian” approach to economic management. A number of countries, irrespective of their regimes or stages of development, are currently implementing programs designed to reduce the size and scope of the public sector and strengthen the market. The privatization of public enterprises constitutes a key element in such a strategy.1 Yet hitherto, the extent of privatization—the number of enterprises involved as well as the scale of divestiture—has been extremely limited, especially considering the amount of rhetoric the idea has generated. In addition, the vigor with which privatization policies have been pursued also shows considerable variation among countries. These “stylized facts” of privatization clearly merit an explanation.2 Here I will look for that explanation by using the Turkish experience with privatization between 1980 and 1989 as a case study.

Type
Articles
Information
International Journal of Middle East Studies , Volume 23 , Issue 2 , May 1991 , pp. 163 - 176
Copyright
Copyright © Cambridge University Press 1991

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References

NOTES

Author's note: The present article is part of a larger project supported by the Middle East Research Committee of the Ford Foundation. An early draft of the article was presented to the conference, “Dynamics of States and Societies in the Middle East”, organized by the Center of Political Research, Cairo University, on June 18, 1989. Subsequently, I benefited from four anonymous referees of IJMES. I would also like to thank Colin Kirkpatrick, Ilkay Sunar, and John Waterbury for their help and encouragement. The final version of the article was completed while I was a Fulbright fellow at the Center of International Studies, Princeton University.

1 For expositions of the theoretical and empirical arguments associated with the neo-classical school in general, and the “public choice” and “property rights” perspectives in particular, see John, Kay, Colin, Mayer, and David, Thompson, eds., Privatisation and Regulation (Oxford, 1986);Google ScholarPaul, Starr, “The Meaning of Privatization”, Yale Law and Policy Review, 6 (1987), 11101–36;Google ScholarJohn, Vickers and George, Yarrow, Privatization: An Economic Analysis (Cambridge, Mass., 1988).Google Scholar

2 For empirical evidence concerning the limited number and scale of divestitures, see Elliot, Berg, “Divestitures of State-Owned Enterprises in LDCs”, report prepared for the World Bank (Washington, D.C., 1985);Google Scholar and Elliot, Berg and Mary, Shirley, “Divestitures in Developing Countries”, World Bank Discussion Papers (Washington, D.C., 1987).Google ScholarJohn, Vickers and Vincent, Wright, eds., “The Politics of Industrial Privatization in Western Europe”, West European Politics, 12, 3 (09, 1988), illuminates the variations in privatization experienced by the major European economies. Paul Sigmund, “Chile:Privatization, Reprivatization and Hyperprivatization”, and John Waterbury, “The Political Context of Public Sector Reform in Egypt, India, Mexico and Turkey”, both of which were presented to the Conference on Public Sector Reform and Privatization, Center of International Studies, Princeton University, April 1988, illustrate the contrasting patterns of privatization in the context of developing countries.Google Scholar

3 A comprehensive analysis of the origins, development, and subsequent problems confronted by the state economic enterprises is provided by Bertil, Walstadt, State Manufacturing Enterprise in a Mixed Economy: The Turkish Case (Baltimore, 1980).Google ScholarMustafa, Aysan and Selahattin, Üzmen, Türkiye'de ve Dünyada Kamu Iktisadi Teşebbüsleri (State Economic Enterprises in Turkey and the World Economy) (Istanbul, 1981), is a valuable source concerning the organization and performance in the pre—1980 era.Google Scholar

4 For a useful discussion of the basic principles associated with Turkish etatism, see Osman, Okyar, “The Concept of Etatism”, Economic Journal, 95, 297, (1965), 98–111.Google Scholar The problems posed by the absence of an indigenous business class and the role performed by the bureaucratic elite in undertaking economic transformation are analyzed by Çağlar, Keyder, State and Class in Turkey: A Study in Capitalist Development (London, 1987).Google Scholar Mustafa Aysan was an academic as well as a minister of transport in the transitional government of Bülent Ulusu during the military interlude of 1980–83. A comprehensive discussion of the reform proposals aimed toward organizational restructuring, including the Aysan report, is provided by Cevat, Karataş, “Public Enterprises in Turkey: Reform Proposals, Pricing and Investment Policies”, METU Studies in Development, 13, 1(1986), 135–69.Google Scholar

5 For a comprehensive discussion of Turkey's “state tradition”, as well as the nature and evolution of Turkish bureaucracy, see Metin, Heper, The State Tradition in Turkey (London, 1985).Google Scholar

6 The contents of the SAL programs in Turkey, the nature of the World Bank conditions, and the nature and extent of collaboration between the IMF and the World Bank are examined by Colin Kirkpatrick and Ziya Üniş, “Structural Adjustment Lending and Policy Reform in Turkey, 1980–1986”, paper presented to the U.K. Development Studies ssociation Conference, Birmingham, September 1988; and Peter, Wolff, Stabilization Policy and Structural Adjustment in Turkey: 1980–1985: The Role of the IMF and the World Bank in an Externally Supported Adjustment Process (Berlin, 1987).Google Scholar

7 The quotation is from Paul, Mosley, “Privatisation, Policy Based Lending and World Bank Conditionality”, in Paul, Cook and Colin, Kirkpatrick, eds., Privatisation in Developing Countries (Brighton, 1988), 125–40;Google Scholar see also Don, Babai, “The World Bank and the IMF: Rolling Back the State or Backing Its Role?” in Raymond, Vernon, ed., The Promise of Privatization: A Challenge for U.S. Policy (New York, 1988), pp. 254–85, with reference to the significance attached to privatization per se in the context of the World Bank's structural adjustment lending programs.Google Scholar

8 See Kirkpatrick and Üniş, “Structural Adjustment Lending and Policy Reform in Turkey”.

9 For empirical evidence underlying the propositions put forward in this section, see Ziya Üniş and Süleyman Üzmucur, “The Role of the Financial System in the Creation and Resolution of Macroeconomic Crises in Turkey”, paper presented to the World Bank Conference on “Macroeconomic Policies, Crisis and Growth in the Long Run”, Madrid, May 1988. The important point emphasized in the paper is that the elimination of the automatic link to the budget was replaced, in part, by the creation of new avenues for satisfying the financial requirements of the SEEs. We demonstrate that external borrowing became an increasingly significant source of finance for the state-enterprise sector in the course of the 1980s. Furthermore, the ability to borrow on concessional terms from public banks also represented a form of subsidy to the SEE sector.

10 Süleyman, Üzmucur and Yilmaz, Esmer, “Total Factor Productivity in Turkey: A Longitudinal and Comparative Analysis of Total Factor Productivity Growth in Turkish Manufacturing Industries, 1970–1985,” mimeographed, Department of Economics, Boğaziçi University (07, 1988) demonstrates, on the basis of total factor productivity estimates, that the overall productivity performance of the public-manufacturing sector failed to register an improvement in the 1980s.Google Scholar

11 For evidence concerning the liberalization of foreign trade and capital account, see Sübidey, Togan, Hasan, Olgun, and Halis, Akder, External Economic Relations of Turkey (Istanbul, 1988);Google ScholarTevfik, Nas and Mehmet, Odekon, eds., Liberalization and the Turkish Economy (New York, 1988).Google Scholar

12 State Planning Organization, Privatization Master Plan, prepared by the Morgan Guaranty Trust (Ankara, 1986).Google Scholar

13 For investigations concerning the limitations of transfer of ownership unless accompanied by measures to increase competition, see John, A. Kay and David, Thompson, “Privatisation: A Policy in Search of a Rationale”, Economic Journal, 96, no. 1 (1986), 18–32;Google Scholar and George, Yarrow, “Privatization in Theory and Practice”, Economic Policy: A European Forum, 1, no. 2 (1986), 324–77.Google Scholar

14 See Selahattin, Üzmen, Türkiye'de ve Dünyada KIT'lerin Üzelleştirilmesi (Privatization of Public Enterprises: The Turkish Case and the International Context) (Istanbul, 1987), for a comprehensive discussion of the legal framework underlying the privatization program in Turkey. Üzmen also documents the pre–1980 debate on the privatization issue. Privatization had appeared on the agenda of the newly elected Menderes government in 1950 as part of its broader program of liberalization. That election marked the transition to multi-party democracy. The new government displayed a clear commitment to privatization, and indicated that it would contemplate the divestiture of certain types of SEEs under appropriate conditions. Yet no actual divestitures occurred. In fact, the relative weight of the state-enterprise sector continued to expand during the Menderes era.Google Scholar

15 For an analysis of the changing nature of the bureaucracy in the 1980s, see Metin, Heper, “The Motherland Party Governments and Bureaucracy in Turkey, 1983–1988”, Governance: An International Journal of Policy and Administration, 2 (1989), 457–68.Google Scholar On the notion of state autonomy and state capacity, see Peter, Evans, Dietrich, Rueschemeyer, and Theda, Skocpol, eds., Bringing the State Back In (New York, 1985).Google Scholar

16 For a comprehensive treatment of “extra-budgetary funds”, see Oğuz, Oyan and Ali, Riza Aydin, Istikrar Programindan Fon Ekonomisine (From the Stabilization Program to Extra-Budgetary Funds) (Ankara, 1987).Google Scholar

17 See Toplu, Konut Fonu ve Kamu Ortakliği Idaresi Başkanliği (The Board of the Mass Housing and Public Participation Fund), 1984–1988 Faaliyetleri (Activities in 1984–1988) (Ankara, 1988);Google Scholar and Yeniden Yapilanma (Restructuring) (Ankara, 1988, 1989) for an official evaluation on the part of the policymakers involved in the preparation and implementation of the privatization program.Google Scholar

18 For a recent interpretation of the Turkish privatization experiment, see Roger, Leeds, “Turkey:Rhetoric and Reality”, in Raymond, Vernon, ed., The Promise of Privatization: A Challenge for U.S. Policy (New York, 1988), 149–78.Google Scholar

19 An interview with Cengiz Israfil, the vice-president of PPF, is highly illuminating regarding the Teletaş experiment. See Cengiz, Israfil, “Üzellştirmede Finans Reformu Yaşandi” (Privatization and Financial Reform), Istanbul Sanayi Odasi Dergisi, 269 (1988), 30–31.Google Scholar The U.K. experiment, which hitherto has proved to be the most extensive program on a sustained basis, has generated a large literature. For a valuable investigation of the U.K. experience, see David, Heald, “The United Kingdom: Privatisation and Its Political Context”, West European Politics, 12, 3 (1988), 31–48.Google Scholar

20 Consider the U.K. experiment in this context. Initially, the principal concern was to improve efficiency. Subsequently, the focus shifted to the macroeconomic advantages of privatization as the proceeds from the sale of the public assets made an important contribution to the reduction of the public-sector borrowing requirement. More recently, the emphasis has been on the spread of ownership. See Ezra, Suleiman, “The Politics of Privatization in Britain and France”, paper presented to the Conference on “Public Sector Reform and Privatization”, Center of International Studies, Princeton University.Google Scholar

21 The interactions between privatization and capital markets are examined by Tony, Killick and Simon, Commander, “State Divestitures as a Policy Instrument in Developing Countries”, World Development, 16, no. 2 (1988), 1465–79.Google Scholar See Fatih, Coşan and Hasan, Ersel, “The Turkish Financial System: Its Evolution and Performance, 1980–1986”, Capital Marker Board Publications, 7 (1986), 27–88;Google Scholar Organisation of Economic Co-operation and Development, Turkey: Annual Country Survey (Paris, 1988);Google Scholar and Işik, Inselbag and Bülent, Gültekin, “Financial Markets in Turkey”, in Tevfik, Nas and Mehmet, Odekon, eds., Liberalization and the Turkish Economy (New York, 1988), pp. 129–40, concerning the characteristics, performance, and shortcomings of the financial system in Turkey.Google Scholar

22 The cautious approach and the limited privatization so far may be explained in part by the fact that privatization is confronted with severe technical problems regarding the proper evaluation of the company's assets and profitability. The problem of determining the appropriate sale price is accentuated by the fact that the accounting procedures of the SEEs had not previously complied with international norms. See Rifat, Esen, “Privatization in Developing Countries: The Objectives, Principles and Techniques”, Yapi Kredi Economic Review, 3, no.3 (04, 1989), 37–71, for the technical problems involved in the divestiture of SEEs.Google Scholar

23 For detailed considerations of the “logic of coalition building” in the Turkish case, see Ziya, Üniş and James, Riedel, “The Political Economy of Macroeconomic Policies, Crises and Growth in Turkey”, paper presented to the World Bank Conference, “Macroeconomic Policies, Crisis and Growth in the Long-Run”, Mexico City, 04 1989;Google ScholarJohn, Waterbury, “Coalition Building, Export-Led Growth and Public Sector in Turkey”, paper presented to the Middle East Studies Association Conference, Los Angeles, 11 1988. Leeds, “Turkey: Rhetoric and Reality”, also examines the constraints imposed on the privatization program by the deficiencies of the macroeconomic environment. Yet Leeds does not probe into the underlying political forces which account for the adoption of incoherent policies and the resultant macroeconomic disequilibrium.Google Scholar

24 For empirical evidence concerning the role of the public sector in the growth process during the 1983–87 phase, see TüSIAD, , 1980 Sonrasi Ekonomide Kamu-Üzel SektÜr Dengesi (Public—Private Balance in the Economy in the Post–1980 Era) (Istanbul, 1988). TüSIAd stands for Türk Sanayicileri ve Işadamlari Derneği or Turkish Industrialists and Businessmen's Association.Google Scholar

25 The data on the contribution of the SEEs to GNP are drawn from Yüksek, Denetleme Kurulu, Kamu Iktisadi Tesebbüsleri Genel Raporu (Higher Supervisory Board, Annual Report on the State Economic Enterprises, various years) (Ankara, çesitli Yillar).Google Scholar

26 For a valuable analysis of the causes underlying the mini-crisis of 1987, which led to the measures of February 1988, see Sena, Eken, Turkey: Economic Developments, Policies and Prospects (Ankara, 1988), report prepared jointly by the Central Bank, State Planning Organization, and the Under-Secretariat of Treasury and Foreign Trade.Google Scholar

27 For a detailed consideration of this issue, see Ziya, Üniş, “The Political Economy of Turkey in the 1980s: The Anatomy of Unorthodox Liberalism”, paper presented to the Middle East Studies Association Conference, Toronto, 11 1989.Google Scholar

28 See TüSIAD, , Üzelleştirme: KIT'lerin Halka Satişinda Başari Koşullari (Privatization: The Preconditions for Success in the Sale of SEEs to the General Public) (Istanbul, 1986), concerning the position of domestic business on the privatization issue.Google Scholar

29 For evidence regarding the dependence of Turkish firms on short-term bank financing, and the resulting high debt-equity ratios, see Betty, Yaşer et al. , A Comparison of the Selected Financial Ratios of Private Manufacturing Firms in Turkey and U.S.A., 1983–1984 (Istanbul, 1988);Google Scholar Istanbul Sanayi Odasi, Türkiye'nin Beşyüz Büyük Sanayi Kurulşu (The Istanbul Chamber of Industry, Turkey's Five Hundred Large Industrial Establishments, various years) (Istanbul, çeşitli Yillar).Google Scholar

30 The enterprises nominated for privatization in 1989 include Netaş (switchboard equipment), Yemsan (animal feed), Petkim (petrochemicals), and Sümerbank (textiles and clothing).