INTERVIEW: Esra Gürakar on cronyism in public procurement in Turkey
William Armstrong - email@example.com
Locals wait near a ferry station in the Karaköy neighborhood of Istanbul. AA photo
When the AKP came to power in 2002, many voters saw it as a clean break with corrupt old-school parties that had mismanaged Turkey’s economy and brought about a massive economic crisis in 2000-01. In recent years, however, the country has fallen steadily in Transparency International’s annual Corruption Perceptions Index.
The central importance of state contracts in the economy and the close ties that companies must have with the government is among the main drivers of corruption in Turkey today. “Politics of Favoritism in Public Procurement in Turkey” by academic Esra Gürakar examines the issue through changes to the Public Procurement Law (PPL) that was introduced after the 2000-01 economic crisis in a bid to make such contracts more transparent and efficient. The Justice and Development Party (AKP) government subsequently made over 150 amendments to the law, essentially reopening the door to widespread cronyism and favoritism.
Gürakar spoke to the Hürriyet Daily News about her book (reviewed in HDN here), and what it tells us about the economic environment in today’s Turkey.
Outline the details of the PPL change in 2002 and compare the situation before and after the AKP came to power.
In 2002 Turkey drafted a new PPL with the push of the IMF, the World Bank and the EU. Just before its planned enactment the AKP, as a totally new political party, came to power as a majority government. The AKP actually wanted to postpone the law’s enactment, but it couldn't do so because of severe criticisms in the country, among international financial institutions and in the EU. It instead chose a different path and tried to amend the law. As a result, since the AKP came to power the PPL has been amended more than 150 times. I wrote the book to find out why the AKP passed these amendments. I wanted to find out whether the AKP government was in an effort to distribute public resources to certain AKP-affiliated companies.
Corruption is not unique to the AKP government. But the difference between before and after 2002 in terms of corruption in public procurement policy is that corruption before 2002 occurred irregularly, on an individual basis. For example, a minister may have favored the firm of his cousin or his son-in-law, or a bureaucrat may have favored some firms that paid bribes. But after 2002 corruption in public procurement started to occur in a more systematic, centralized way. It was aided by the passing of controversial and highly debated amendments to the PPL, which had originally been drafted in order to foster transparency, competitiveness, accountability, and to depoliticize the public procurement process.
Basically the original aim of the law was reversed through these amendments.
Public procurement processes used to be governed under another law, called the State Procurement Law. This law was deficient, allowing procurement processes to be politicized and non-transparent. Many irregular and illegal practices took place. People got used to reading about corruption scandals throughout the 1990s and there were recurring economic crises in 1994, 1997 and 2001. The 2001 financial crisis brought Turkey’s economy to the brink of collapse. It was particularly important because it forced politicians to take serious steps in institutional reform. It also coincided with the EU membership process, because Turkey's official candidacy was declared in 1999.
After the financial crisis the country was desperately in need of money. The IMF said public sector reform was necessary in order for Turkey to receive credit. Turkey - confronted by three external anchors: The World Bank, the IMF, the EU - had to undertake steps to reform its economic and institutional structure. The new PPL was drafted as part of these reforms, which were part of loan and aid conditionality. The PPL was discussed with the EU and the World Bank and drafted based on essential standards of transparency, accountability and competitiveness. So it was not as if the government of the time in 2002 suddenly thought: "The system is too corrupt, let's reform it." The external push was crucial.
You also write about how infrastructure development has been useful for the government's political narrative, because it combines electoral appeal to voters with the opportunity to cultivate cronyistic ties with companies. It basically kills two birds with one stone.
While I was working on the book I realized that the AKP's durability can to a large extent be explained by its establishing, maintaining and developing of an extensive network of privileges and dependency. Through these dependency networks, the AKP maintains its ties both with private sector firms and with voters, using new methods to create and allocate resources. Public procurement is one of the most influential tools used by the AKP to build and expand these dependency networks. The system has three main building blocks: Rent creation via law-making; rent-distribution to create AKP-dependent private sector firms; and new forms of reallocating resources to the voters. At the local level, for instance, shareholders and board members of contract-awarded firms are often directly connected to the AKP, serving as AKP cadres or being relatives of party MPs or officials. So the party relies on politically connected firms for donations: You get a contract and then you donate. It relies on municipalities for targeting potential voters as well as some Islamic NGOs for distributing resources.
In this way the AKP government successfully addresses the wishes of voters - social housing projects, municipal services - while at the same time empowering its own business elite through the procurement of construction work projects or municipal services. One result is that voters don't tend to see public services as a right, in which they pay taxes and therefore deserve services. Rather, services are seen as a form of aid, like charitable giving rather than systematic rights.
What about the question of inefficiency? People often imagine corruption as purely a kind of moral issue, but you emphasize that it is enormously wasteful. Linked to that is the question of state guarantees for various infrastructure projects. There have been reports about how the third bridge over the Bosphorus, for example, has been under-performing – not receiving the number of passengers originally expected. The public is paying the price for this because of the guarantees offered by the government to the companies running the project.
Projects like the third bridge or the new Istanbul airport are exempted from the scope of the PPL. They are public-private partnership projects. This is another problematic issue about public procurement in Turkey, because when the PPL was first drafted energy, telecommunication, transport projects also came under the scope of the law. But right after its enactment such projects like the third bridge, the new Istanbul airport, and energy investments were all exempted from the PPL. Normally in EU countries projects in energy and telecommunication, for example, are similarly exempted from PPLs but there is still another framework that governs them In Turkey, however, although these projects are exempted from the PPL, the government has been reluctant to form a new coherent framework to regulate these projects, despite pressure from the EU.
In terms of state guarantees, Turkey used to have state guarantees in the past, and when the AKP came to power it proudly announced that such state guarantees would never apply again. But now we see them once again.
Another important but little-mentioned factor is the almost total emasculation of the Court of Accounts (Sayıştay) in recent years. The court is responsible for monitoring the use of public resources but it has been non-functional for many years as a result of legal changes limiting its scope.
Parliament passed a law in 2013, as far as I remember, that dismantled all the authority of the Court of Accounts. Luckily the law was canceled by the Constitutional Court, The media considered this partial cancellation as a kind of revolution. But since then the Court of Accounts still hasn't functioned properly. Now we often hear and read about the court drafting fake audits, some AKP municipalities not being audited at all, and even copy-paste audit reports. These are major problems.
Also, before the 2013 law, the Court of Accounts decided to exclude the "public loss" section from its audit reports for 2011. This meant that the public losses of state institutions went unrecorded. Right after that, with another regulatory change for the years 2013, 2014, and 2015 the Finance Ministry was authorized to forward only brief and consolidated reports on the spending of government institutions to the Court of Accounts. This was also an impediment to the inspection of government spending. Also interesting is the fact that the audit reports for pre-2012 have been removed from the Court of Accounts’ website.
So there's a general reduction in transparency and accessibility of audits. It's not functioning well. There is also a legally ambiguous environment because of the state of emergency in which many Court of Accounts employees have been fired over alleged Gülen links. All this being the case, it is not surprising that the European Court of Auditors announced recently that it would audit EU financial support for Turkey in order to check whether the money has been used properly.
You also talk about opposition-held local municipalities. Data you studied shows that they exhibit similar behavior as the government. You particularly examine the main opposition CHP-held municipality of İzmir.
In AKP-governed municipalities, around three-quarters of contracts go to politically connected firms. In the İzmir Municipality, however, the municipality also exercises discretion to favor firms connected to the CHP. Around half of contracts awarded by the İzmir Municipality go to firms connected to the main opposition party. Of course, the total value of these contracts is much less than the contracts awarded in Ankara and Istanbul, which are run by the AKP.
When I asked members of the İzmir Municipality, they said that because the AKP is exercising excessive control, firms not affiliated with the AKP are put at a disadvantage through legal arrangements that impede competition. In such an environment, they claim, the İzmir Municipality is left with no other options.
Another change from the situation before 2002 is the fact that the AKP has now been in office for 15 years. Over that time it has been able to gradually monopolize all institutions, fully exploiting all opportunities of being in power.
Yes, the AKP was able to form a majority government in 2002 and this was the first majority government in Turkey since 1987. Between 1987 and 2002 Turkey had no majority governments, it was always ruled by coalitions. This gave it some indigenous checks and balances. President Erdoğan today often talks about how it was hard to get anything done in this era, but in a sense the coalitions were a kind of clever form of checks and balances for a country like Turkey at the time.
* Follow the Turkey Book Talk podcast via iTunes here, Stitcher here, Podbean here, or Facebook here.