Particularistic Distribution of Investment Subsidies under Coalition Governments: The Case of Turkey

Abstract

Subsidies provided to private investors by governments have played an important role in shaping industrial development in Turkey. ' However, the manner through which they are distributed to businesses has been a concern for both scholars and the public in general.2 The main worry has been that the political ambitions of individual politicians and their personal (and perhaps clientelistic) networks usually take precedence over priorities for economic development in the allocation of these subsidies. Yet a systematic analysis of how electoral competition through channels of political institutions such as coalition governments affects the particularistic distribution of these subsidies has not been con ducted. A statistical analysis of investment subsidies that were received by provinces in Turkey between 1992 and 1997 and examination of how parties in coalition governments allocated these subsidies across their stronghold provinces can fill this gap. Responsibility-claiming mechanisms under coalition governments affect particularistic distribution of material goods like subsidies. When a single party in a coalition govern ment has almost complete control over the allocation of a good, it limits the access of its coalition partners' constituencies to this benefit in order to prevent its coalition partners from claiming the responsibility for providing this good. Studies of economic development and industrial policy have emphasized how governments can use distribution of subsidies as a policy tool to change the investment decisions of private and public industrial actors and characteristics of the industrial sec tor. Subsidies can help regional development within a country, aid the growth of certain sectors, and/or be distributed along factor lines.3 Since politicians' survival and success depend on their popularity and relations with their constituencies, it is expected that politicians' choices on how to allocate subsidies are shaped by the preferences of their constituencies.4 However, at the same time, as studies of the developmental state have emphasized, it is critical to prevent the degeneration of the use of selective subsidies into rent-seeking mechanisms.5 In order for the subsidies to be effective, the state needs to have the capacity to impose performance criteria on the private actors in the economy to ensure that these subsidies are used for improving industrial production.6 However, if particularistic (clientelistic/patronage) networks constitute the predominant mode of linkage between politicians and their constituencies, it is harder for the state to have this desired monitoring capacity.