Turkish Sovereign Welfare Fund: Vision and objectives
Turkey has started the week discussing the Sovereign Welfare Fund (SWF). The public stakes of major branded values in Turkey such as the state-owned Halkbank, Turkish Airlines (THY) and Ziraat Bank, which dates back to the pre-Republic period, were transferred to the SWF. It would seem that the SWF, which has set to work bringing together the most important economic values in Turkey under its roof, is poised to be one of the most assertive and innovative state funds in the world.
We knew that the Turkish SWF would be different from the state funds established in various countries in terms of vision and function. Therefore, we have previously tried to explain that it would follow a different path from the classic funds of the Norwegian or Gulf economies, which manage natural resource surpluses or from the traditional understanding of countries that run budget surpluses.
The SWF is emerging as a contemporary institution and goes beyond the notion of brutal privatization, which almost turned into a robbery mechanism that was inaccurate and incompatible with market functioning. While doing this, it is also leaving behind the dilemma of expropriation and privatization and is not shifting its ground to the outdated path of statism. So, Turkey is leaving behind the brutal privatization mechanism that started in the U.K. in the early 1980s. The argument that an economic enterprise has to be in state ownership in order to be for the public weal has decayed within this time frame. Similarly, the argument that an economic enterprise has to be a private property in order to be productive and profitable has also waned. The most concrete example of the latter is Turkish public banks. Therefore, the productivity problem of economic enterprises is not a property issue, but an issue of management and the economic policy of a country. What is important is not to betray the market mechanism. In that case, the understanding that productivity is only possible with private ownership and that enterprises must be privatized at all costs has become a thing of the past. However, addressing privatization in this way has been very costly for developing countries like Turkey.
This is because privatization was addressed as direct bloc asset sales - as a result of which many developing countries transferred funds to the outside. As such, developing countries with current account deficits turned into import economies that continuously produced debts, which were vulnerable to external financial attacks and transferred funds to the outside with a high interest rate cycle.
Of course, the external deficits of these countries were financed by vulture funds that were established in developed countries. In other words, while debt and investment deficits grew in countries like Turkey, fund sizes geometrically increased in centers that controlled wealth funds. On the other hand, money and capital markets were not deepened in countries with deficits. In other words, the national assets of these countries were sold in blocks and privatization did not take place in the form of securitization.
Now Turkey is overcoming this robbery mechanism. We have not established the welfare fund with a traditional understanding, and we will not go on with a traditional understanding. It is not a classic fund of stability and savings. It is a new step that includes both but goes beyond both of them. With the welfare fund, Turkey will securitize its national resources and savings, and will give these resources and savings to their owners, the nation. This is the fundamental source and the logic of the welfare fund. With this fund, Turkey will nationalize the mechanism of converting savings into investments.
Thus, we will have developed an effective and controlled new financing model other than the budget and build-operate-transfer model for investments that will create huge economic externalities.
In such periods, no levelheaded country sells its strategic assets to private monopolies in blocks for a song. This is because, in such periods, no price is reasonable. Also, the block sale of public monopolies, which have strategic and social influence, namely their transfer to private monopolies, goes against both the economic interests of the country and the market economy.
If a private monopoly that buys these assets acts like collaborative monopolies like in Vichy France, can a country like Turkey exist?
During the period of the Vichy government during World War II, the French bourgeoisie peaked in betrayal. In this period, French capital owners, who cooperated with the Nazis, achieved a great warfare rent. The post-war France began punishing Nazi collaborators with the new Republic.
The most famous example is Renault. Louis Renault, the owner of the famous automotive company, was arrested in September 1944 on charges of cooperating with the Nazis, and Renault was nationalized in 1945. However, this was not limited to Renault, and until 1950, capitalism was transformed into state capitalism in France. In 1950, public economic power in the country had reached 30 percent of the national wealth. In this period, the state did not touch small and medium-sized enterprises (SMEs), but protected and encouraged private ownership in this area. By 1970, the share of the state in the national wealth had reached 50 percent in France. The French call this period "the Glorious Thirty." In other words, the period from 1945 to 1975 was a new experience of economy (capitalism) that had striking results. So, we can suggest that a nation-state built the economy of a country where liberalism was brought to power with the revolt of the masses. Even this reality and experience alone shows us that the so-called liberalism is de jure (on paper alone) for the capitalist system as well. Liberalism has been merely a utopia for capitalism since Adam Smith, so it does not and cannot de facto exist.
But the end of the state economy process in France is interesting. The neoliberal wave that started in the 1980s and concomitant privatizations dominated France, and even the socialist government continued to expand its privatization program from 1988 to 1993. Well, what happened to Renault and Telecom, the two strategic enterprises that were crucial for France? Renault was incorporated and was offered to the public in 1990, and Telecom was converted to French Telecom and was offered to the public as well. Keeping up with the times throughout this period, France privatized its strategic public assets, but failed to prevent public debt growth. In addition, although labor productivity increased in enterprises that were directly privatized in blocks, profitability fell in the long term. So, the economy never experienced another golden period like the one that prevailed from 1945 to 1975.
The public assets that were offered to the public in very small shares grew and became profitable. Apart from this, as the whole world experienced, public monopolies that were transferred to private monopolies - which are very few in number - took a financial bath and formed the major dynamic of the current crisis. With the SWF, Turkey will offer public assets to the public through securitization. It is a market-friendly and innovative approach and a solution that goes beyond the understanding of outdated statism.
The period we are in is a strategic transition period just like World War II. In such periods, no levelheaded country sells its strategic assets to private monopolies in blocks for a song. This is because, in such periods, no price is reasonable. Also, the block sale of public monopolies, which have strategic and social influence, namely their transfer to private monopolies, goes against both the economic interests of the country and the market economy.
Turkey's strategic public assets cannot be sold in blocks any longer, otherwise it would have severe consequences.
On the other hand, it is the nation that will supervise the SWF. However, for the fund to be effective and efficient, international supervision and transparency at the highest level is essential. Unless being an auditable mechanism, the welfare fund cannot survive even for a day. In this respect, it is very bad propaganda that says the SWF does not have auditing mechanisms.
We knew that the Turkish SWF would be different from the state funds established in various countries in terms of vision and function. Therefore, we have previously tried to explain that it would follow a different path from the classic funds of the Norwegian or Gulf economies, which manage natural resource surpluses or from the traditional understanding of countries that run budget surpluses.
The SWF is emerging as a contemporary institution and goes beyond the notion of brutal privatization, which almost turned into a robbery mechanism that was inaccurate and incompatible with market functioning. While doing this, it is also leaving behind the dilemma of expropriation and privatization and is not shifting its ground to the outdated path of statism. So, Turkey is leaving behind the brutal privatization mechanism that started in the U.K. in the early 1980s. The argument that an economic enterprise has to be in state ownership in order to be for the public weal has decayed within this time frame. Similarly, the argument that an economic enterprise has to be a private property in order to be productive and profitable has also waned. The most concrete example of the latter is Turkish public banks. Therefore, the productivity problem of economic enterprises is not a property issue, but an issue of management and the economic policy of a country. What is important is not to betray the market mechanism. In that case, the understanding that productivity is only possible with private ownership and that enterprises must be privatized at all costs has become a thing of the past. However, addressing privatization in this way has been very costly for developing countries like Turkey.
This is because privatization was addressed as direct bloc asset sales - as a result of which many developing countries transferred funds to the outside. As such, developing countries with current account deficits turned into import economies that continuously produced debts, which were vulnerable to external financial attacks and transferred funds to the outside with a high interest rate cycle.
Of course, the external deficits of these countries were financed by vulture funds that were established in developed countries. In other words, while debt and investment deficits grew in countries like Turkey, fund sizes geometrically increased in centers that controlled wealth funds. On the other hand, money and capital markets were not deepened in countries with deficits. In other words, the national assets of these countries were sold in blocks and privatization did not take place in the form of securitization.
Now Turkey is overcoming this robbery mechanism. We have not established the welfare fund with a traditional understanding, and we will not go on with a traditional understanding. It is not a classic fund of stability and savings. It is a new step that includes both but goes beyond both of them. With the welfare fund, Turkey will securitize its national resources and savings, and will give these resources and savings to their owners, the nation. This is the fundamental source and the logic of the welfare fund. With this fund, Turkey will nationalize the mechanism of converting savings into investments.
Thus, we will have developed an effective and controlled new financing model other than the budget and build-operate-transfer model for investments that will create huge economic externalities.
In such periods, no levelheaded country sells its strategic assets to private monopolies in blocks for a song. This is because, in such periods, no price is reasonable. Also, the block sale of public monopolies, which have strategic and social influence, namely their transfer to private monopolies, goes against both the economic interests of the country and the market economy.
If a private monopoly that buys these assets acts like collaborative monopolies like in Vichy France, can a country like Turkey exist?
During the period of the Vichy government during World War II, the French bourgeoisie peaked in betrayal. In this period, French capital owners, who cooperated with the Nazis, achieved a great warfare rent. The post-war France began punishing Nazi collaborators with the new Republic.
The most famous example is Renault. Louis Renault, the owner of the famous automotive company, was arrested in September 1944 on charges of cooperating with the Nazis, and Renault was nationalized in 1945. However, this was not limited to Renault, and until 1950, capitalism was transformed into state capitalism in France. In 1950, public economic power in the country had reached 30 percent of the national wealth. In this period, the state did not touch small and medium-sized enterprises (SMEs), but protected and encouraged private ownership in this area. By 1970, the share of the state in the national wealth had reached 50 percent in France. The French call this period "the Glorious Thirty." In other words, the period from 1945 to 1975 was a new experience of economy (capitalism) that had striking results. So, we can suggest that a nation-state built the economy of a country where liberalism was brought to power with the revolt of the masses. Even this reality and experience alone shows us that the so-called liberalism is de jure (on paper alone) for the capitalist system as well. Liberalism has been merely a utopia for capitalism since Adam Smith, so it does not and cannot de facto exist.
But the end of the state economy process in France is interesting. The neoliberal wave that started in the 1980s and concomitant privatizations dominated France, and even the socialist government continued to expand its privatization program from 1988 to 1993. Well, what happened to Renault and Telecom, the two strategic enterprises that were crucial for France? Renault was incorporated and was offered to the public in 1990, and Telecom was converted to French Telecom and was offered to the public as well. Keeping up with the times throughout this period, France privatized its strategic public assets, but failed to prevent public debt growth. In addition, although labor productivity increased in enterprises that were directly privatized in blocks, profitability fell in the long term. So, the economy never experienced another golden period like the one that prevailed from 1945 to 1975.
The public assets that were offered to the public in very small shares grew and became profitable. Apart from this, as the whole world experienced, public monopolies that were transferred to private monopolies - which are very few in number - took a financial bath and formed the major dynamic of the current crisis. With the SWF, Turkey will offer public assets to the public through securitization. It is a market-friendly and innovative approach and a solution that goes beyond the understanding of outdated statism.
The period we are in is a strategic transition period just like World War II. In such periods, no levelheaded country sells its strategic assets to private monopolies in blocks for a song. This is because, in such periods, no price is reasonable. Also, the block sale of public monopolies, which have strategic and social influence, namely their transfer to private monopolies, goes against both the economic interests of the country and the market economy.
Turkey's strategic public assets cannot be sold in blocks any longer, otherwise it would have severe consequences.
On the other hand, it is the nation that will supervise the SWF. However, for the fund to be effective and efficient, international supervision and transparency at the highest level is essential. Unless being an auditable mechanism, the welfare fund cannot survive even for a day. In this respect, it is very bad propaganda that says the SWF does not have auditing mechanisms.