Category Archives: procurement

Has the AKP facilitated cronyism through public procurement reforms in Turkey?

This year will mark the three-year anniversary of the Gezi protests which swept across most of Turkey during the summer of 2013. Many things contributed to the protests, but a major a factor in galvanizing such a large segment of the population was undeniably widespread view of severe government overreach in how it used construction to remodel Turkey’s urban landscape after its own design. Several of the so-called ‘crazy projects’ have not only laid bare the degree of government control over construction projects but also that the winners of public procurement projects typically constitute a relatively new niche of business entrepreneurs with strong connections to the AKP. Moreover, it also points to the public procurement sector – and in particular the role of state discretion therein – as the main instrument for this phenomenon.

Today, there are a number of sources pointing to the degree of political connections of public procurement winners in Turkey; ranging from the data visualizations of Mülksüzleştirme Ağları) to rich descriptions of how the political connections of public procurement winners have changed over time in parallell with legal reform giving the government greater say in allocation of contracts. Examples of these include a recent book by Ayğse Buğra and Osman Savaşkan qw well as a forthcoming book by Esra Gürakar (quoted here in the Economist). There are also several informative longer news articles (for example, here, here, and here) on the topic. With the resurgence of conflict in the southeast of Turkey, there are some concern that the Turkish government would confiscate conflict-torn land for the purpose of urban transformation, a process that might very well see government-linked firms gaining most of the contracts.

This begs the question to what extent the increase in AKP-connected firms winning procurement projects is also due to AKP’s changes in the procurement law? Moreover, has this had any economic consequences?

In order to shed light on this, Esra Gurakar and myself have a new paper looking at the effect of state discretion in construction public procurement. Here’s the abstract:

“We investigate whether increased state discretion in public procurement auctions affect economic costs and facilitate favoritism using data from the Turkish construction sector between 2005-2011. After parliament passed a legal amendment to the existing procurement law in 2008, construction auction projects with an estimated cost above a specific threshold became eligible for an auction procedure giving the contracting authority greater control over participating bidders through so-called restricted auctions. Using several identification strategies including difference-in-differences, instrumental variables, and regression discontinuity design, we find that increased discretion in public procurement not only increased costs – in terms of both the winning bid and rebate value – but also increased the likelihood of the winning firm being politically connected to the ruling AKP. Moreover, our analysis further shows that among varying forms of political connections to the AKP, the increased costs are particularly driven by winning firms connected to the two most powerful elites within the AKP during this period, namely individuals in the top political leadership as well as those affiliated with the Gülen movement.”

A noteworthy component here is that the main policy shift we examine occurred back in 2008, around the time when most observers were more focused on portraying the country as a model of Muslim democracy than really trying to understand how reforms were serving to shift power from one poorly accountable center to another.

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