The Political Economy of Market and Regulatory Reforms in Turkey: The Logic and Unintended Consequences of Ad-hoc Strategies

Abstract

Regulatory reforms which are implemented in many developing countries after market reforms constitute a conflict-ridden process generating complex tensions between governments, independent regulatory agencies, international institutions and private interest groups. By criticising the mainstream a-historical approaches, which reduce those tensions to the reluctance of interest-maximising politicians to delegate power, this article locates current reforms within the historical context of the trajectory of neoliberalism. In the case of Turkey, rather than undertaking comprehensive regulatory reform, the governments of the 1980s implemented ad-hoc strategies within the existing system, which corroded and de-legitimised the old institutional structures and facilitated market reforms. Yet, the same strategies created an institutional structure producing its own vested political and economic interests which gave its specific colour to the form and pace of current regulatory reform. The article derives insights from the Turkish case in order to re-think the crucial relation between politics and regulation, and between choices available to and constraints faced by policy makers and to re-conceptualise the role of unintended consequences by refuting any ideal typical understanding of neoliberalism.

Keywords:

• regulation
• reform
• neoliberalism
• bricolage
• Turkey

Notes

The author wishes to thank three anonymous referees who commented on the initial version of this piece.

Another version of this argument on the relations between state and business groups can be found in Heper (1991). According to Heper, a strong state tradition was an obstacle to the free development of interest groups.

The term bricolage was used by Claude Levi-Strauss in his book the Savage Mind (1966). It has then been used in the disciplines of anthropology, management and organisational studies. In this article the term is found to be applicable to the field of politics.

The Constitutional Court is the highest legal body for constitutional review; the Council of State the highest administrative court in Turkey.

The Democratic Left Party, Nationalist Action Party and Motherland Party were the members of the coalition.

For similar cases in Latin America, see Weyland (1996), Teichman (1997) and Williams (2002).

In 1994, this Undersecretariat was split into two, and the Undersecretariat of Treasury and the Undersecretariat of Foreign Trade were established as two distinct authorities operating separately.

Decrees having the force of law were originally introduced as an exceptional, limited authority delegated by the legislative body, by a time-limited law of authorisation, to the executive on urgent and primary issues. While only seventeen DFLs were used from 1972 to 1978, 305 (261 of which were related to decisions on administrative structure) were deployed between 1982 and 1990.

The relationship between technocrats, government politicians and parliamentarians deserves special attention and analysis. Özal did not face opposition initially because strong political leaders of the pre-1980 period were legally forbidden from engaging in politics. The rise of the opposition would alter the coordinates of the political scene, and Özal would need to legitimise his contested policies.

Within the scope of this article, specific reforms are discussed that are relevant for its main argument. For a deeper analysis of Özal's economic and social policies and their implications, useful sources include Boratav (1991), Eralp, Tünay and Yeşilada (1993), Sönmez (1992), Buğra (1994), Öniş (1998) and Balkan and Savran (2002). Changing bureaucratic structures are discussed separately from this literature on political economy. See Aksoy (1985), Karaer (1987) and Sezen (2003).

Manzetti and Blake (1996) demonstrated the relationship between market reforms and new forms of corruption and rent seeking in the Latin American case. For a critical approach to corruption in the case of Turkey, see Bedirhanoğlu (2007).

Real depreciation raised the domestic-currency cost of servicing the foreign debt and increased the public sector borrowing requirement, since most of the foreign debt was the liability of the public sector (Aşıkoğlu 1992).

Köse and Yeldan (1997) argue that internal borrowing functioned as a mechanism of wealth transfer to finance capital.

For an enumeration of privatisation methods applied in Turkey, see <www.oib.gov.tr>.

In the BOT model, all the physical assets of the private producer are returned to the state at the end of the contract period, with no financial liabilities incurred by the state. In the TOOR model, a private company operates a plant formally owned by the state for a contracted time. These models may increase private participation, but do not contribute to competition very much due to the guaranteed sale of goods and services at a specified price (generally determined by a specific formula) for a fixed term by contract.

For a comparative analysis through a Gramscian framework of Thatcher and Özal in terms of their attempts at building neoliberal hegemony, see Tünay (1993).

See, for examples of those developmental states in Asia, Amsden (1989) and Wade (1992).

All in 1983 prices, calculated from State Planning Organisation figures by Türel (1993).

Weyland (1996) has pointed out to the affinities between neoliberalism and populism for the Latin American case.

TPP, which had a strong rural support base, was founded in 1983 and was the heir of the right wing Justice Party (JP), one of the ruling parties of the 1960s and 1970s in Turkey. SDPP was established in 1985 in order to appeal to the voters of the centre-left Republican People's Party (RPP), which was closed down with the military intervention of 1980. RPP was the political party, which founded the Turkish Republic and stayed in power from 1923 to 1950.

For instance in 1996, a coalition was formed between True Path Party and Welfare Party (WP) – an Islamist party supported by the marginalised urban poor and the small and medium-sized business groups unable to benefit from the economic policies favouring big business. For the sake of simplicity, I am excluding a detailed analysis of periods of political instability and a full list of different coalition governments. See <www.tbmm.gov.tr>. The nature of political parties requires also a more detailed discussion that cannot be made within the scope of this article. See Heper and Landau (1991), Ayata (1993) and Cizre-Sakallıoğlu (1997).

Cortell and Peterson (2001) argue that, in the British case, the bureaucratic mechanisms created by the Thatcher government were used for different purposes by the Major government, thus illustrating the unintended consequences of institutional reform.

See <ekodialog.com/Konular/1994_krizi.html?> for a detailed analysis of the decisions.

The JDP was formed after a split from the Virtue Party (which took that name after the winding up of the Welfare Party), and has close ties with what is called in the literature ‘Islamic capital’ (small and medium-sized businesses that grew in the provinces, some of which accumulated more capital in the 1990s and 2000s). In the 2002 elections, it was able to win the majority of votes, just as the Motherland Party had done in 1983 – by appealing to the working classes and winning the support of major business groups as well.

Independent regulatory agencies did not initially emerge with neoliberalism. There were regulatory commissions in the late nineteenth century in the US, the first of which was the Interstate Commission. In 1948, the Competition Commission was established in the UK; and in 1957, in Germany, the Federal Cartel Office was established. But that kind of practice was extended neither to other sectors nor to other countries. See Wilks and Bartle (2002).

Independent regulatory agencies are not completely new phenomena in Turkey. The Capital Market Board (1981), the Higher Board of Radio and Television (1994) and the Competition Agency (1994) were all established before 1999. But the proliferation of IRAs regulating different markets occurred only after 1999.

It is not without significance that when IRAs were established in the 1980s in the UK – the main topics of debate were within the literature of the ‘economics of regulation’ (for example, on regulatory price caps). Yet few policies generate the outcomes anticipated by their initiators. Liberalisation would create its own conflicts, and IRAs would assume new functions in social regulation, becoming important actors involved in conflicts and alliances with other institutions and political actors in the 1990s. It is in that conjuncture that the literature on the ‘politics of regulation’ rose to prominence. See Young (2001) and Jordana and Levi-Faur (2004).

The Sugar Agency and the Tobacco, Tobacco Products and Alcoholic Beverages Market Regulation Agency illustrate this case well.

For a theoretical analysis of the rise of approaches on governance and their effect on IRAs, see Sönmez (2004).

Similar to its predecessors, the JDP had to manage both the vicissitudes of financial liberalisation and social conflicts sharpened by market reforms. The macroeconomic balances depended on speculative growth and short-term capital flows. An overvalued currency could be considered as a negative outcome of this type of growth. Yet, if the analysis made by Kessler (1998) for Mexico is applied to the Turkish case, the political benefits of an overvalued currency can be revealed. Strong lira meant greater purchasing power for consumers and working classes; a relative stability of the foreign debt (if not its decline) and cheaper inputs for the industries which depended on imports (such as subcontractors or assembly industries such as car) for production.

In the banking sector, some of the banks could not survive under the pressures of the financial crisis, whereas others were involved directly in corruption. See, for the cases of corrupt banks, Arslan (2001). For public procurement corruption cases, see Doğaner (1997). In the energy sector, the politicised nature of the corruption was illustrated by the fact that the former ministers of energy and natural resources (Cumhur Ersümer, 1997–2001, and Zeki Çakan, 2001–2002) were referred, in 2004, to ‘Yüce Divan’ (the name given to the Constitutional Court when it investigates cases in which members of the important state bodies, such as the Council of Ministers and Council of State, among others, are considered to have abused their duties).

First established in 1983, and governed under the authority of the Central Bank, the SDIF started operating under the BRSA from 1999. It is responsible for protecting the rights of depositors – maintaining the stability of the banking system – and dealing with the ownership of those banks whose assets are transferred to it. See <www.tmsf.org.tr/>.

Further changes were made in May 2001 by Law no. 4672 and in January 2002 by Law no. 4743.

For instance, in 2001, at the request of the relevant minister, an additional article was added to Law no. 4672, which was making a change to Banking Law no. 4389, and the functions of the existing members ended after 14 months (Sönmez 2004).

Between 2005 and 2009 Sitebank was sold to Greek Novabank, Demirbank to HSBC, Oyakbank to Dutch ING Group, 20 per cent of Akbank to Citibank, 74.99 per cent of Denizbank to Dexia, 46 per cent of Finansbank to National Bank of Greece, 89 per cent of Disbank to Fortisbank, 34 per cent of Sekerbank to Kazak Bank Turan group, 70 per cent of Tekfenbank to Eurobank Ergasias, 50 per cent of TEB to BNP Paribas, 25.5 per cent of Garanti Bank to General Electric Group (see Ergüneş 2009).

MÜSİAD (the Association of Private Industrialists and Businessmen) was established in 1991 as an alternative to TÜSİAD (the Association of Turkish Industrialists and Businessmen), which historically represented the interests of big business groups that had close ties with the Motherland Party. MÜSİAD, on the other hand, has close links with the Justice and Development Party. For a more detailed analysis of the differences between TÜSİAD and MÜSİAD, see Buğra (1998).

For the necessity of disaggregating the state and examining the interactions of its various components with different social groups, see Migdal (1994).

This point regarding ‘negotiated reform’ is supported by the findings of two other studies. Olhan (2006) and Güven (2008) show, for the case of agricultural reform, how the initial reform package had to be amended over time (such as the inclusion of new support instruments for farmers after 2006). Moreover, Güven (2008) gives evidence about criticisms from lower level bureaucrats and parliamentarians regarding certain aspects of the reforms regulating the public finance. Those two sectors (agriculture and public finance) are not within the scope of this study.