Privatization in a developing economy: Lessons from the Turkish cement industry

This dissertation analyses the Turkish cement industry's 41 firms, and focuses on the 18 privatizations completed between 1989 and the end of 1992. Privatization is analyzed in terms of its effects on economic efficiency, and for its potential impact on larger, more general business conditions such as secure property rights. The statistical information was obtained from income statements and balance sheets, official government sources, and the reports of independent auditors. These sources were supplemented by structured interviews with the management of many of the cement firms, elected officials, the privatization authority, and academics. Economic efficiency, as measured by capacity utilization, labor productivity, and net margin on sales, was found to be not significantly different between state-owned, newly-privatized, and private cement firms. Other factors such as regional location, age and size of cement plants, as well as the extent of market competition were found to be as important. Three general patterns emerge regarding the process of privatization. First was a tendency to sell the more productive and profitable plants before the lesser performers. Second, the transfers proceeded from older to newer plants, coinciding with a west-to-east pattern of sales. Third, cement plants tended to be purchased by their nearest competitor, leading to increased concentration of regional ownership. These patterns can be traced to the government's overriding desire to maximize the revenues from privatization. The loss of competition in regional markets undermined the efficiency objectives of privatization. Institutional effects were disappointing. Privatization is intended to signal a governmental commitment to reduced policy interference in market mechanisms. It should also reinforce both the incentive structure based on private property and increase investor confidence in market institutions. However, the shifting objectives and changing implementation methods of Turkey's privatization program did little to increase the security of individual property from adverse policy changes, alleviate asymmetries of information in market exchange, bolster investor confidence, or advance the legitimacy of the Turkish capital market.