Turkey-State Economic Enterprises and Privatization Etatism

An important tool of etatism to further government economic policies, State Economic Enterprises (SEEs) are variously organized, but the government owns at least a 50 percent share in each of them. SEEs are set up by the government, and each has a board that reflects the ownership of the particular SEE, combining government representatives, who direct the enterprise, with private interests. During the etatist industrialization campaign of the 1930s, the government set up many industrial SEEs. In the mid-1990s, SEEs continue to dominate sectors considered to be of national importance or sectors where private investors have hesitated to invest because capital requirements are too great in light of expected returns. SEEs include national transportation, communications, and energy enterprises; banks that own companies, in particular branches such as textiles or refining; and conglomerates with holdings in many fields. Some SEEs control companies in which ownership is shared with private and foreign investors. In 1964 the State Investment Bank was established to provide long-term investment credits to SEEs. Credits from the Central Bank of Turkey, transfers from the Treasury, and capital markets also finance SEEs.

In the mid-1990s, SEEs accounted for more than 40 percent of value added in manufacturing and employed about 550,000 workers, or about 20 percent of the industrial work force. Until 1980 SEEs set their prices in accordance with government directives, but after the introduction of that year's reform package, they were expected to set prices independently. Nevertheless, prices of some major commodities, such as fertilizers, continue to be determined by the government. SEEs also influence markets, especially those for agricultural goods, by establishing guaranteed minimum prices for commodities.

Aside from their role in industrial development, SEEs are charged with social goals. The farm-support program stabilizes farmers' incomes, while low consumer prices for food, energy, and transportation help the urban poor. SEEs also provide training and employ surplus university graduates and constituents of influential politicians, contributing to overstaffing. Some SEEs are placed in underdeveloped regions to spur industrial development, a practice that increases transportation and infrastructure costs.

One objective of the Özal reforms was to improve SEEs' efficiency and reduce their need for subsidies. By 1982 the government had freed most SEE prices and had given SEE managers greater autonomy and responsibility. The administration favored opening state monopolies to outside competition and decided in 1983 to limit SEE investments in manufacturing. Nevertheless, in the mid-1980s the state sector had to take over several failed banks that had significant industrial holdings, and the low rate of private investment meant that the public share in industrial investment actually rose. By the mid-1990s, SEEs remained a major burden on the public exchequer. Of the fifty SEEs, only fifteen were expected to report profits in 1994. Funding the operating losses of the SEEs--TL90 trillion in 1994 alone--annually cost the Treasury around TL20 trillion (about US$70 billion) in 1993 and 1994; the remainder was borrowed from banks. The total debt stock of the public enterprises by late 1994 was estimated at TL250 trillion, the bulk of which was owed to the Treasury and Central Bank. This debt generated an interest charge of around TL60 trillion in 1994 alone on collective sales of TL550 trillion. Deepening economic problems in the 1990s were part of the reason for the losses. This situation was exacerbated by a requirement that took effect after 1989 stipulating that SEEs borrow at high market rates.

Major plans for privatization of SEEs were supposed to go into effect as early as 1987 but as of early 1995 had not yet occurred. Prime candidates for sale include the state airline, the cement industry, and the textile industry. Almost all SEEs are considered potentially suitable for privatization except for certain infrastructure facilities such as power plants and railroads.

Some SEE managers and unions oppose privatization, fearing that, once under private management, the enterprises will eliminate unprofitable subsidiaries or aggressively reduce overstaffing. Some opposition parties also fear that public assets will be allocated among "friends" of government officials, with the result being the creation of private monopolies. Observers anticipate that certain "strategic" industries, including much mining and defense production, will remain in the public sector and that the best the administration can hope for would be to force them to approximate private- sector practices. Moreover, certain privatization moves, particularly the sale of cement mills belonging to the public enterprise Citosan, and a controlling stake in the airport management company Havas, were reversed by the Constitutional Court on administrative grounds.

After becoming prime minister, Çiller accepted the existing legislation on privatization and even sought wider powers to hasten the process. Law 3291, passed in 1986, had established the Public Participation Administration, which would control SEEs designated for privatization and prepare them for the process. In late 1994, the National Assembly passed a bill introduced by Çiller to revamp the administrative procedures dealing with privatization.

The bill established the Privatization Administration to carry out technical work and a Privatization High Board to make final decisions. The latter would control the Privatization Fund into which revenues were to be channeled. The Privatization High Board would consist of the prime minister, the minister of state "responsible for privatization," and the ministers of finance and industry and trade. The board was also to be responsible for deciding which public enterprises are of special strategic importance and in which the state should retain preference shares. Turkish Petroleum, Ziraat Bank, Halk Bank, Turkish Airlines, and the Soil Products Office Alkaloid Plant were placed in the latter category. Railroads, airports, and the General Management for Trade in Tobacco, Tobacco Products, and Alcoholic Spirits (Tütün, Tütün Mamülleri, Tuz ve Alkol Isletmeleri Genel Müdürlügü--TEKEL) were not designated to be privatized in the mid-1990s. Privatization of telecommunications and the electricity production and distribution board were to be dealt with in separate legislation. All other types of SEEs were again targeted for privatization in various ways, including the sale of all or parts of a company through share offers, block sales, auctions, and the transfer of plants to private domestic and foreign entities and to companies formed by workers and local townspeople. Some of the early candidates were the Eregli Iron and Steelworks, the Turkish Petroleum Refineries Corporation (Türkiye Petrol Refinerileri As--TÜPRAS), the state oil products distributor (Petrol Ofisi), the petrochemicals company (Petkim), the industrial interests of the state holding company, Sumerbank, the national airline (Turkish Airlines), and the airport company (Havas). The bill also set guidelines to prevent the formation of private monopolies and methods for dealing with workers who lose their jobs. Workers made redundant would continue to receive their wages for up to eight months and, depending on length of service, would get pensions or severance pay.

Data as of January 1995

At its 1931 congress, the Republican People's Party (Cumhuriyet Halk Partisi--CHP) adopted etatism, one of Atatürk's Six Arrows, as its official economic strategy. According to this program, individual enterprise was to retain a fundamental role in the economy, but active government intervention was necessary to boost the nation's welfare and the state's prosperity. The CHP also declared that etatism was an intermediate road between capitalism and socialism. In practice, etatism entailed the promotion of industrialization by means of five-year plans and the creation of public enterprises. Comprehensive protective tariffs also were introduced during the 1930s, establishing a pattern of import-substitution industrialization that would continue for many years.

After World War II, all major parties claimed to support etatism. The sharp reorientation of Turkey's economic policies after 1980 included a repudiation of much etatist doctrine, which, however, still influenced Turkish economic thinking. Inasmuch as Atatürk had declared that once Turkey had reached a satisfactory level of development certain state enterprises could be returned to private control, the post-1980s economic reforms perhaps could be considered a continuation of one aspect of the original etatist program. Moreover, the government continued to use policy tools such as SEEs and development planning that had originated during the etatist period. Nonetheless, by the mid-1990s deepening government indebtedness dictated a faster reduction of the state's economic commitments. Given Turkey's high inflation, job insecurity, and unemployment, etatism could be in vogue again, but in the mid-1990s no major opposition party was calling for the wholesale renationalization of the economy. .

State Economic Enterprises and Privatization

An important tool of etatism to further government economic policies, State Economic Enterprises (SEEs) are variously organized, but the government owns at least a 50 percent share in each of them. SEEs are set up by the government, and each has a board that reflects the ownership of the particular SEE, combining government representatives, who direct the enterprise, with private interests. During the etatist industrialization campaign of the 1930s, the government set up many industrial SEEs. In the mid-1990s, SEEs continue to dominate sectors considered to be of national importance or sectors where private investors have hesitated to invest because capital requirements are too great in light of expected returns. SEEs include national transportation, communications, and energy enterprises; banks that own companies, in particular branches such as textiles or refining; and conglomerates with holdings in many fields. Some SEEs control companies in which ownership is shared with private and foreign investors. In 1964 the State Investment Bank was established to provide long-term investment credits to SEEs. Credits from the Central Bank of Turkey, transfers from the Treasury, and capital markets also finance SEEs.

In the mid-1990s, SEEs accounted for more than 40 percent of value added in manufacturing and employed about 550,000 workers, or about 20 percent of the industrial work force. Until 1980 SEEs set their prices in accordance with government directives, but after the introduction of that year's reform package, they were expected to set prices independently. Nevertheless, prices of some major commodities, such as fertilizers, continue to be determined by the government. SEEs also influence markets, especially those for agricultural goods, by establishing guaranteed minimum prices for commodities.

Aside from their role in industrial development, SEEs are charged with social goals. The farm-support program stabilizes farmers' incomes, while low consumer prices for food, energy, and transportation help the urban poor. SEEs also provide training and employ surplus university graduates and constituents of influential politicians, contributing to overstaffing. Some SEEs are placed in underdeveloped regions to spur industrial development, a practice that increases transportation and infrastructure costs.

One objective of the Özal reforms was to improve SEEs' efficiency and reduce their need for subsidies. By 1982 the government had freed most SEE prices and had given SEE managers greater autonomy and responsibility. The administration favored opening state monopolies to outside competition and decided in 1983 to limit SEE investments in manufacturing. Nevertheless, in the mid-1980s the state sector had to take over several failed banks that had significant industrial holdings, and the low rate of private investment meant that the public share in industrial investment actually rose. By the mid-1990s, SEEs remained a major burden on the public exchequer. Of the fifty SEEs, only fifteen were expected to report profits in 1994. Funding the operating losses of the SEEs--TL90 trillion in 1994 alone--annually cost the Treasury around TL20 trillion (about US$70 billion) in 1993 and 1994; the remainder was borrowed from banks. The total debt stock of the public enterprises by late 1994 was estimated at TL250 trillion, the bulk of which was owed to the Treasury and Central Bank. This debt generated an interest charge of around TL60 trillion in 1994 alone on collective sales of TL550 trillion. Deepening economic problems in the 1990s were part of the reason for the losses. This situation was exacerbated by a requirement that took effect after 1989 stipulating that SEEs borrow at high market rates.

Major plans for privatization of SEEs were supposed to go into effect as early as 1987 but as of early 1995 had not yet occurred. Prime candidates for sale include the state airline, the cement industry, and the textile industry. Almost all SEEs are considered potentially suitable for privatization except for certain infrastructure facilities such as power plants and railroads.

Some SEE managers and unions oppose privatization, fearing that, once under private management, the enterprises will eliminate unprofitable subsidiaries or aggressively reduce overstaffing. Some opposition parties also fear that public assets will be allocated among "friends" of government officials, with the result being the creation of private monopolies. Observers anticipate that certain "strategic" industries, including much mining and defense production, will remain in the public sector and that the best the administration can hope for would be to force them to approximate private- sector practices. Moreover, certain privatization moves, particularly the sale of cement mills belonging to the public enterprise Citosan, and a controlling stake in the airport management company Havas, were reversed by the Constitutional Court on administrative grounds.

After becoming prime minister, Çiller accepted the existing legislation on privatization and even sought wider powers to hasten the process. Law 3291, passed in 1986, had established the Public Participation Administration, which would control SEEs designated for privatization and prepare them for the process. In late 1994, the National Assembly passed a bill introduced by Çiller to revamp the administrative procedures dealing with privatization.

The bill established the Privatization Administration to carry out technical work and a Privatization High Board to make final decisions. The latter would control the Privatization Fund into which revenues were to be channeled. The Privatization High Board would consist of the prime minister, the minister of state "responsible for privatization," and the ministers of finance and industry and trade. The board was also to be responsible for deciding which public enterprises are of special strategic importance and in which the state should retain preference shares. Turkish Petroleum, Ziraat Bank, Halk Bank, Turkish Airlines, and the Soil Products Office Alkaloid Plant were placed in the latter category. Railroads, airports, and the General Management for Trade in Tobacco, Tobacco Products, and Alcoholic Spirits (Tütün, Tütün Mamülleri, Tuz ve Alkol Isletmeleri Genel Müdürlügü--TEKEL) were not designated to be privatized in the mid-1990s. Privatization of telecommunications and the electricity production and distribution board were to be dealt with in separate legislation. All other types of SEEs were again targeted for privatization in various ways, including the sale of all or parts of a company through share offers, block sales, auctions, and the transfer of plants to private domestic and foreign entities and to companies formed by workers and local townspeople. Some of the early candidates were the Eregli Iron and Steelworks, the Turkish Petroleum Refineries Corporation (Türkiye Petrol Refinerileri As--TÜPRAS), the state oil products distributor (Petrol Ofisi), the petrochemicals company (Petkim), the industrial interests of the state holding company, Sumerbank, the national airline (Turkish Airlines), and the airport company (Havas). The bill also set guidelines to prevent the formation of private monopolies and methods for dealing with workers who lose their jobs. Workers made redundant would continue to receive their wages for up to eight months and, depending on length of service, would get pensions or severance pay.

Data as of January 1995