Institutional influences on economic policy in Turkey : a three industry comparison

Why is it that seeminly similar instruments of industrial promotion produces vastly dissimilar economic outcomes across countries? Why do such instruments result in rent seeking in some countries, and promote productivity in others? This paper attempts to provide an answer by examining whether institutional variables, namely the nature of policy networks, the characteristics of incentive and accountability mechanisms, and the degree of bureaucratic insulation have an impact on the effectiveness of state intervention, where effectiveness is associated with the degree to which incentives are used for their stated purposes. More specifically, the paper addresses two questions: 1) what are the institutional properties of the Turkish industrial incentive (subsidy) regime and how these properties condition the attainment of stated policy goals, and, 2) do these properties exhibit significant differences between the ready-wear clothing, automotive and glass industries? The overall finding of the paper is that certain institutional features of the Turkish incentive system exacerbate tendencies towards rent seeking. In Turkey, the bureaucracy is not well insulated from political pressures; incentive policies are hence discretionary and erratic. Morevover, state officials are generally unable or unwilling to monitor recipient performance for compliance; hence; enforcement is quite lax. Such tendancies were exacerbated by a restructuring of the public administration in the late 1980s, which while it proved helpful to overcome a statist bureaucratic culture, also unduly politicized the economic bureaucracy. Nevertheless, the organizational structure of industry and the nature of the relation between business and the state can still have an independent effect on the effectiveness of policy. This was evident in the ready-wear industry, where the delegation of the monitoring function to an industry association has worked effectively. The mediation of the industry association between subsidy recipients and the state generated mechanisms of self-regulation whereby discipline was imposed by the association as a collective enforcement mechanism of the members. These findings have important implications for policy making. First, the findings question the notion, prevalent in some instiutionalist literature, that it is easier to monitor the behavior of incentive beneficiaries in concentrated industries. Project findings would suggest that this argument is premised on the prior existence of an inslated and competent bureaucratic corps. When this institutional precondition is lacking, the decentralization of these tasks to self-regulating bodies is a possible solution. This solution is more likely to work in competitive rather than concentrated industries.