Transnational capital unbound? A critical institutionalist perspective on the marketization of corporate control in Serbia and Turkey

Abstract

Although active markets for corporate control have proliferated beyond liberal market economies, marketization has not become universal and indeed takes different forms. Although there is a growing body of literature that analyses marketization, systemic underlying dynamics shaping the specific trajectory of marketization have been scarcely addressed. Drawing on a critical institutionalist perspective, this article analyzes the marketization of corporate control against the backdrop of the structural problem of overaccumulation and locates the variegated trajectory of marketization in the specific interplay between the state and different capital fractions. This article focuses on Serbia and Turkey. Serbia has witnessed a substantial marketization of corporate control which comprises the adoption of (foreign) investor friendly market-enabling regulations and a growing number of majority acquisitions which were often followed by efficiency-oriented restructurings. By contrast, in Turkey, state capital alliances hampered the marketization of corporate control, and advocated for regulations which still allow for the selective prioritization of certain capital fractions.

Keywords

Europe varieties of capitalism transnational corporations foreign direct investment dependence capitalist system institutional change

Introduction

When foreign investors submitted their takeover bids for the largely state-owned Telekom Serbia in 2015, thousands of citizens took to the streets in Belgrade in order to rally against the selling off of state assets. The rally was primarily organized by trade unions which were afraid that a foreign takeover of an important Serbian company would have a detrimental effect on the Serbian economy and ultimately result in severe job cuts (CATUS, 2015b). The protest against the foreign takeover of Telekom Serbia epitomizes the controversies surrounding mergers and acquisitions (M&As) in general. The buying and selling of company assets or entire companies have become a major and highly contentious issue in both advanced and peripheral economies (Armour et al., 2011; Callaghan, 2015a). To grow in size has always been a strategy for companies seeking to outdo their competitors in the endless fight for survival in capitalist competition. However, according to a Financial Times article, recent M&A waves have reached unprecedented levels (Massoudi and Fontanella-Khan, 2016). Not only have the number and volume of M&As grown, but the mode of takeovers has also changed. Majority acquisitions, which are followed by efficiency-oriented restructurings, increasingly prevail in economies which were formerly dominated by stable ownership structures and more cooperative modes of acquisition (Callaghan, 2015b; Morgan, 2016; van der Zwan, 2014: 108). These phenomena are part and parcel of the so-called marketization of corporate control. This development is defined as the process through which market mechanisms are extended to the sphere of corporate control and corporate takeovers. Accordingly, corporations are literally turned into commodities and the holding, buying and selling of corporate shares is increasingly seen as a way to generate and maximize profit (van Apeldoorn and Horn, 2007: 219). The regulatory framework which sets the preconditions for markets to arise and develop is integral to such marketization processes. Most notably, market-enabling antitrust and corporate governance regulations promote the marketization of corporate control. In fact, many jurisdictions including the EU have adopted more market-enabling regulations since the 1980s. Such regulations allow investors to gain additional profit through the trade in corporate shares and entire corporations (Buch-Hansen, 2012; Horn, 2012; Poli, 2016).

M&As have often been heralded for promoting efficiencies, such as technological spillovers (Hall and Soskice, 2001: 40f.).¹ However, active markets for corporate control have significant detrimental ramifications, especially for labour. They require flexible labour markets and lead to insecure employment conditions. Moreover, the marketization of corporate control has decisive distributional consequences since it increases downward wage pressure, with corporate acquisitions often resulting in dismissals of employees (Culpepper, 2011: 3; Darcillon, 2015; Pendleton, 2016).

Most of the literature dealing with the marketization of corporate control draws on varieties of capitalism (VoC) approach. VoC literature has developed illuminating typologies to characterize the institutional interplay between different national capitalist systems located in the capitalist core. This literature has primarily focused on liberal market economies and coordinated market economies (e.g. Gospel et al., 2014; Thelen, 2014). A burgeoning strand of literature also analyses capitalist systems on the EU’s periphery by attempting to find suitable typologies for peripheral economies (Ban, 2013; Farkas, 2011; Markus and Mendelski, 2015). Most notably, Nölke and Vliegenthart (2009) identified dependence on foreign direct investment (FDI) as a distinctive feature of peripheral economies. Dependence on FDI influences key socio-economic institutions in these capitalist systems, such as corporate governance or industrial relations. Moreover, it accounts for their relative comparative advantage in the world market.

By defining typologies to trace capitalist diversity, VoC scholars highlight the complementary interplay between socio-economic institutions. They understand institutions predominantly as equilibrium-like solutions for social coordination problems. However, the strong focus on self-reinforcing complementarity and the understanding of socio-economic institutions as economic equilibria carries a stability bias. Confronted with the critique of statism, VoC scholars have begun to examine mechanisms that induce institutional change. They highlight the importance of endogenous and often unintended effects, or exogenous shocks such as the world economic crisis, to explain institutional change (e.g. Feldmann, 2017; Orenstein, 2014). At the same time, most VoC scholars consider institutional change to be limited to the sphere of socio-economic institutional configurations. Accordingly, marketization is considered to be only loosely coupled with regulatory change (see for example Farkas, 2016; Höpner and Jackson, 2006). This understanding of institutional change is problematic because it neglects the ways in which marketization is shaped by the inherent contradictions of capitalist production, as well as the conflicting social forces and global power asymmetries deriving from it.

This article starts from the assumption that a more comprehensive understanding of institutional change is warranted. It draws on a critical institutionalist approach to analyse how dependence on FDI shapes the marketization of corporate control and its regulatory framework on the EU’s periphery. Critical institutionalists apply concepts from the VoC literature, but develop them further with insights from critical (neo)Marxist theory, in order to contribute to a more comprehensive understanding of capitalist development (Drahokoupil and Myant, 2015; Ebenau, 2012; May and Nölke, 2015; Nölke, 2016). VoC scholars and critical institutionalists share the definition of institutions as solutions for social coordination problems, but critical institutionalists consider the shape such solutions take as being deeply influenced by social forces and societal power relations (May and Nölke, 2013: 105). In addition, they do not consider state regulation as an external variable which might under certain circumstances affect socio-economic institutions such as the governance of corporations and dominant corporate strategies. Rather, critical institutionalists analyse the marketization of corporate control as a form of institutional change which comprises a state regulatory and a socio-economic dimension, and analyses both as shaped and permeated by capitalist power relations.

The main argument presented in this article is that the interplay between transnational capitalist forces, domestic capital fractions and the state accounts for varied patterns of FDI dependence, which in turn results in variegated trajectories of marketization in peripheral economies. Although the debate up until now has mainly centred on dependent market economies in Central and Eastern Europe, this article analyses two hitherto unexplored economies. Located on the periphery of the EU Single market, Turkey and Serbia display different patterns of FDI dependence, resulting in variegated forms of marketization. Serbia has witnessed substantial marketization dynamics. This includes the proliferation of majority acquisitions, the fact that majority acquisitions are often followed by efficiency-oriented consolidation, and the adoption of market-enabling regulations. By contrast, in Turkey, FDI dependence has only slightly boosted acquisitions. Acquisitions are rarely followed by efficiency-oriented rationalization. Market-enabling regulations have been adopted in a way which still leaves some leeway for the selective prioritization of certain national capital fractions.

Turkey’s and Serbia’s economies differ in size. They have followed different trajectories in terms of capitalist development. As a result, the composition and orientation of their industries are also different. This article does not treat Turkey and Serbia as cases which account for generalizable regularities which could be extended to other economies on the EU’s periphery. However, the analysis of both countries allows us to demonstrate that the interplay between conflicting capitalist forces has taken centre stage in the emergence of variegated marketization in peripheral economies, and that these variegated trajectories of this form of institutional change are a historically contingent phenomenon which demands an analysis of the power relations between capitalist forces.

Methodologically, the analysis is based on descriptive statistics and a textual analysis of governmental reports, official documents, secondary literature and 59 semi-structured expert interviews. The interviews were conducted during March and June 2014 with officials from EU, Turkish and Serbian competition authorities, including officials who have been involved in the drafting of competition law reforms, representatives of business organizations, foreign investors, and lawyers and economists from the professional services industry. A semi-structured questionnaire was used for the interviews and all interviews were transcribed. The interviews have been used to complement the findings from the textual analysis of official documents and governmental reports. The interviews have played a pivotal role in identifying the different views of capital fractions and their relative success in influencing institutional change. The article focuses on a time span from 2000 until today. Before that, FDI played a different role in these economies and corporate governance and antitrust regulations were either not yet established or played a less significant role. Earlier developments thus require further analysis and lie beyond the scope of this article.

The article is structured as follows: It first presents the theoretical framework of the article. The following sections analyse the influence of Western European FDI on the Serbian and the Turkish marketization of corporate control. A summarizing section compares the marketization trajectory of both countries. In the last section, the findings are then summarized and placed in a broader research context.

Theoretical framework: A critical institutionalist perspective

Critical institutionalist approaches have much to contribute to the debate surrounding institutional change. By building a middle ground between macro-oriented critical Marxist approaches and micro-oriented institutionalism, they combine the strengths of both strands of literature and help to address explanatory weaknesses (Bohle, 2016; Bruff and Ebenau, 2014; Coates, 2015; Nölke, 2016). The combination of these two different strands of theory allows critical institutionalist perspectives to develop a comprehensive understanding of capitalist diversity and institutional change. Although critical institutionalism does not deliver fixed theoretical assumptions, it offers illuminating insights into the development of capitalist institutions and their underlying dynamics.

The strength of the micro-oriented comparative capitalism literature is in its development of useful analytical categories to determine significant socio-economic dimensions of capitalist systems. VoC scholars have delineated the differentiated shape of holistic concepts, such as capital, in order to make capitalist diversity more tangible (May and Nölke, 2015). Most notably, comparative capitalism literature has identified the market for corporate control as a key institutional dimension, which allows us to determine the significant characteristics of a capitalist system, distinguishing it from other systems (Culpepper, 2011: 25). While active markets for corporate control were initially typical of liberal market economies, they have since proliferated in economies with stable ownership structures (Callaghan, 2015b; van Apeldoorn and Horn, 2007: 215). Marketization involves ‘extending the market mechanism to new areas of social life’ hitherto not subject to market forces (van Apeldoorn and Horn, 2007: 215). While institutionalist approaches keep track of such contemporary developments, they scantly address the more systemic, underlying dynamics shaping institutional change in general and the specific trajectory of marketization in particular. By contrast, critical neo-Marxists have comprehensively theorized the structural power dynamics that mould the development of capitalist institutions. Rather than considering institutional change in terms of endogenous and unintended institutional shifts, critical political economy scholars analyse it against the backdrop of the fundamental and inherent contradictory elements of capitalist accumulation.

One of the main contradictory elements of capitalist production is the phenomenon of overaccumulation (Overbeek, 2012). Overaccumulation surfaces when the productive sphere of capitalist accumulation, i.e. the production and distribution of goods, suffers from the absence of possibilities to profitably reinvest surplus value. Overaccumulation forces capitalists to find ways to reinvest their profits and restore profitability (Harvey, 2007). One example is the expansion of market relations to the corporation itself. The holding of and trading with corporate shares is increasingly seen as an opportunity to restore profit. This commodification of corporations is a major impetus of marketization. Markets for corporate control which absorb capital stemming from overaccumulation crisis thus engender the marketization of corporate control.

The marketization of corporate control also interferes with the way in which companies are incorporated. To restore profitability, acquisitions are often followed by the termination of non-profitable parts of the company, such as a redundant workforce (Wigger, 2012). Rather than creating synergies through the cooperative reorganization of merged corporate entities, M&As are increasingly followed by efficiency-oriented rationalization (Horn, 2012: 49ff.).

Marketization is not solely confined to the corporate sphere. Rather, it includes ‘bringing about the institutional (regulatory) preconditions for markets to arise and develop’ (van Apeldoorn and Horn, 2007: 215). Corporate governance and merger rules form part of an entire array of regulatory tools with which the state apparatus may restrict or enable the trade with corporate assets.

The substantive nature of governmental rules is never predetermined; rather, it is politically determined. Those regulated by competition and corporate governance rules, i.e. capital fractions, may hold divergent views about how to regulate the trade in corporate assets. While large and transnational-oriented capitalist forces tend to support market-enabling regulations, smaller capital fractions which fear larger competitors are more inclined to maintain protectionist elements. Driven by the need to find new and profitable investment possibilities through the widening of market relations, transnational capital fractions organized in interest groups, such as the European Roundtable of Industrialists (ERT) and BusinessEurope have advocated for market-enabling antitrust and corporate governance regulations at the EU level (ERT, 1983, 2010). They also promoted the integration of such regulations into the EU accession conditionalities in order to benefit from a level playing field in the common market and beyond (BusinessEurope, 2008). In fact, the demands of transnational business organization were well received at EU level. Subsequently, EU corporate governance and merger control regimes have undergone a series of liberalizations since the 1980s. The adoption of market-enabling company law and antitrust rules also now form part of accession requirements for EU candidates (Buch-Hansen and Wigger, 2011; Horn, 2012; Vliegenthart and Horn, 2007).

This successful articulation of such class-based interests regarding antitrust rules and corporate governance rules at the EU level must not distract from the fact that governmental rules are never fully determined by the wider power balance between rival capitalist forces. Rather, the state is characterized by a certain autonomy, which allows capitalist forces to pursue their interests through the control they have over state capacities. Yet at the same time, the state remains strategically selective in privileging some class-based interests and agents over others (Jessop, 1990, 2002).

The marketization of corporate control includes the proliferation of market-enabling rules on merger control, which separate merging activities from market-correcting measures through depoliticized decision-making in independent regulatory competition authorities (Buch-Hansen and Wigger, 2011: 22). Broader macro-economic considerations are replaced by a narrow, competition-only focus, which takes consumer welfare to be its one and only yardstick in relation to enforcement. Here, consumer welfare is defined as reduced consumer prices resulting from fierce competition. As a consequence, econometric modelling, used to assess the impact of economic concentration on the price levels for consumers, has become a top priority in the enforcement of merger control regulation (Wigger and Nölke, 2007).

The marketization of corporate control also relies on market-enabling corporate governance regulations. In its literal sense, corporate governance refers to how a company is organized and controlled. Most notably, it refers to the relationship between management and the board of directors and has important repercussions for shareholders and stakeholders. Corporate governance regulation is defined as the ‘formal as well as informal and self-regulatory rules that shape the governance and power relations’ within a company (Horn, 2012: 16). In general, corporate governance regulations refer to joint-stock companies which are publicly traded in security markets. However, ‘sound’ corporate governance ‘principles’ are increasingly considered important for the organization and management of state-owned companies and non-listed companies (OECD, 2015: 9). In the 1990s, the OECD developed corporate governance principles which became the yardstick for many international institutions such as the World Bank and also for many EU member states and the EU. The OECD Principles are based on the assumption that transparent corporate control and shareholder protection are key for the successful management of joint-stock companies and efficient capital markets which both underpin long-term economic growth (OECD, 2004: 11).

So-called ‘sound’ corporate governance rules aim to remove organizational and regulatory barriers to active markets for corporate control. Usually, corporate governance regulations are included in company, financial market and labour laws. Fairness is a key pillar of such corporate governance principles. For a market for corporate control to arise and develop, the abolition of special voting rights which privilege certain shareholders over others is presented as essential. In addition, disclosure provisions, most notably the enhancement of financial and non-financial reporting, which form part of corporate governance best practice, play a key role for (foreign) investors when making investment decisions. Transparent monitoring processes, for example through independent board members or mandatory auditing commissions, also create confidence and predictability for investors and are thus integral to the development of an active market for corporate control (Horn, 2012: 147ff.).

Marketization has a global dimension. Overaccumulation perpetuates the asymmetrical distribution of global power on which capitalist production relations rely. In fact, transnational operations relocate overaccumulated capital through FDI in production sites located in the periphery, where cheap and highly skilled labour creates profitable investment conditions (Vliegenthart and Overbeek, 2010). In other words, lingering overaccumulation in advanced capitalist economies manifests itself in the dependent relationship between peripheral production sites and the capitalist core. However, these dynamics neither proceed linearly nor uniformly. The dependence of the periphery on FDI from the capitalist core is not a stable and infinite relation which results in predetermined institutional dynamics in peripheral economies. Rather, conflicting social forces permanently reshape and mould the relation between the capitalist core and the periphery and its implications for socio-economic institutions. Drawing on a critical institutionalist approach, the contestation of rival social forces resulting in varied forms of FDI dependence must be the starting point for the analysis of the transformative dynamics in capitalist systems on the periphery.

To sum up, a critical institutionalist perspective focuses on the interplay between different capitalist forces in order to assess the underlying dynamics of institutional change. In doing so, it analyses institutional change against the backdrop of the inherent contradictory tendencies of capitalist accumulation and the (global) power asymmetries evolving from the capitalist mode of production. The next sections analyse how the specific interplay between social forces has shaped different patterns of dependence on FDI which, in turn, have resulted in the variegated marketization of corporate control in Serbia and Turkey.

Foreign investors setting the scene: Varied patterns of FDI dependence in Serbia and Turkey

The next sections will briefly introduce the main preconditions of FDI dependence in both countries in order to contextualize the varied forms of FDI dependence. Subsequently, they will then delineate the transformative influence of FDI dependence on Serbia’s and Turkey’s markets for corporate control. A summarizing section will then compare these developments in both countries.

Serbia: Easy access for transnational Capital and substantial marketization

The disintegration of the Yugoslav economic union in 1991 and the Balkan Wars (1991–2001) had severe consequences for the economy of the Federal Republic of Yugoslavia (1992–2006), of which Serbia formed a part until 2006, when Serbia and Montenegro became sovereign states. While the Yugoslav economy was relatively open and thus well-integrated into global production, the war period resulted in international isolation. International sanctions disrupted foreign capital inflows and contributed to the collapse of the economy. The war led to far-reaching deindustrialization and the economy suffered from hyperinflation and large macro-economic imbalances (Estrin and Uvalic, 2016). Major economic reforms were undertaken and foreign capital started to develop a strategic interest in the Serbian economy again only when the regime of Milosevic fell in 2000.

The International Monetary Fund (IMF), the World Bank and the EU encouraged Serbian officials to launch large-scale privatization programmes, to lift trade barriers and, lastly, to abolish the concept of social property in 2006. Consequently, the Serbian economy received large inflows of foreign capital throughout the 2000s and particularly after 2003 (wiiw, 2016). Serbia benefited from stable growth rates right up until the economic crisis in, 2008 but this economic success also resulted in some weaknesses. The adoption of an export-led growth regime in conjunction with Serbia’s strong dependence on foreign capital, turned foreign investors into powerful forces in Serbia’s political economy. The rapid expansion of foreign trade went hand-in-hand with a large trade deficit that the EU, as Serbia’s main trade partner, enjoys vis-a-vis Serbia. This deficit and Serbia’s current account deficit have made the inflow of foreign capital an urgent necessity (World Bank, 2017). The dependence on foreign capital is best illustrated, if we consider to what extent FDI from the EU contributes to Serbia’s GDP: Between 2005 and 2013, EU FDI as a percentage of GDP has ranged between 15% and 43%. These figures bring the Serbian economy close to those economies which are regarded as dependent market economies, such as Poland or Hungary.²

The strong influence of foreign investors on the Serbian market for corporate control has to be analysed against the backdrop of this latent structural dependence on foreign capital. FDI, resulting from lingering overaccumulation, has been increasingly absorbed by the Serbian market for corporate control since the 2000s, as the majority of transnational capital has been invested in M&A rather than in real production (Uvalic, 2010: 188). In addition, the investment in the financial service sector allowed transnational capital to benefit from quick and high profits, rather than investment in new employment-generating production capacities. The percentage of foreign-owned assets in the Serbian banking sector reached 74.5% in 2013 (World Bank, 2014a: 9).

The marketization of corporate control was, however, not limited to the increased dynamism in the M&A market. For overaccumulated capital to be reinvested profitably, M&As based on FDI are mostly realized in a way which allows the buying company to rationalize the acquired corporate entity. In this way, foreign investors can extract additional profits more easily by getting rid of unprofitable elements of the acquired corporations. In Serbia, foreign investors often buy majority shares in either former state-owned or domestic Serbian companies, which can hardly be said to have ‘a partnership of equals’; rather, FDI usually results in majority acquisitions which allow the efficiency-oriented restructuring of the acquired company (Interview Deloitte).

While FDI has been a major impetus for the marketization of corporate control in Serbia, domestic capital fractions have not become major players in the Serbian market for corporate control. Only a few large Serbian holding companies were able to actively participate in the Serbian market for corporate control in recent years. One example is Delta Holding which not only bought a large number of smaller domestic Serbian companies, but also invested beyond Serbia, creating a ‘real retail empire in the region’, whilst selling some of its subsidiaries to foreign investors (Interview American Chamber of Commerce 1). As a result of insider privatization during the initial transition period, a few large Serbian holding companies owned by single individuals who enjoyed privileged access to governing elites, often referred to as ‘tycoons’, emerged (Uvalic, 2010: 205). While such businesses are in some ways linked to transnational production chains, the Serbian small- and medium-sized enterprises sector and the broad shadow economy is largely detached from transnational accumulation patterns. Both contribute only moderately to Serbia’s export performance and attract limited amounts of FDI (European Commission, 2015: 30).

In combination with other FDI-attracting measures, privatization programmes have managed to attract substantial FDI inflows to Serbia (Sabić et al., 2012: 79). In fact, the majority of FDI inflows not only cover privatization projects, mainly in the banking sector, but also in telecommunication and retail (Uvalic, 2010: 158). At the same time, domestic investors have remained largely absent from large privatization auctions. Moreover, Serbian trade unions, afraid of distressing mass dismissals, were not successful in preventing the Serbian state from creating favourable conditions for foreign capital to buy state-owned entities (CATUS, 2015a).

To examine how the interplay between transnational capital fractions, domestic social forces and the state has evolved in a specific pattern of FDI dependence, which in turn distinctively shaped the marketization of corporate control in Serbia, we also have to analyse the regulatory dimension of marketization. As indicated, the regulatory apparatus of the state sets the preconditions for capitalist accumulation and mediates the interests of dominant capital fractions without being determined by them. In Serbia, foreign investors successfully advocated for the adoption of a market-enabling merger control regime in the 2000s. The ‘Strategy for Attracting Foreign Investment’ points to the importance of an EU-compatible competition policy that creates a level playing field for foreign investors and promotes market entry for Western European companies (European Commission, 2011: 5). As mentioned earlier, since the late 1980s, the EU has gradually liberalized its merger control regime. This includes simplified merger control procedures, increased thresholds for obligatory merger notifications and increasingly depoliticized decision-making based on econometric modelling. Accession countries such as Serbia are obliged to follow these developments. Article 21–30 of the Serbian Law on the Protection of Competition, which was adopted in 2005, defines anti-competitive concentrations and provided for the setting up of an EU-compatible pre-notification system for mergers. Accordingly, mergers which meet a certain threshold have to be registered and authorized by the Commission for the Protection of Competition (CPC). After the establishment of the Serbian merger control regime, several reform endeavours substantiated this liberalization trajectory of Serbian competition policy.

Organized business groups representing the interests of foreign investors have been a major driving force in this process. In contrast, business organizations representing national capital have been almost invisible in the reforming of Serbian legislation regarding mergers (Interview Serbian Office for EU Integration). Western European foreign investors are organized in business associations such as AmCham Serbia and the Foreign Investment Council (FIC). AmCham was founded in 2002 and two-thirds of its members are based in the EU single market (Interview AmCham 2). The FIC was founded in 2001. European foreign investors form 70% of its membership (FIC, 2015a). Both organizations have actively contributed to reform endeavours in relation to Serbian competition law (Interview EU Project Leader).

Amcham and FIC have successfully promoted a permissive stance on concentration as well as on less bureaucratic burdens. The FIC recommended a higher threshold for obligatory notifications to improve market-entry conditions for investors (Foreign Investor Council, 2006: 29). Subsequently, in 2009, a new competition law introduced significantly increased thresholds for merging corporations. In 2016, a new merger control regulation came into force, allowing speedier decision-making. Foreign investors praised it for ‘simplify(ing) merger control proceedings’ (FIC, 2015b: 76).

Amcham and FIC have also supported depoliticized enforcement practices which focus on the measuring of economic effects rather than on balancing enforcement decisions with macro-economic considerations (Interview AmCham 1). They successfully recommended a fixed ratio of economists in the CPC’s decision-making body. Such economists are expected to make micro-economic assessment a priority in decision-making (Interview FIC). In fact, the CPC has given increased priority to consumer welfare and has increasingly focused on micro-economic assessment in merger cases in subsequent enforcement (Interview CPC Economist).

The marketization of corporate control was also based on the adoption of market-enabling corporate governance regulations. The main regulatory framework for corporate governance in Serbia comprises the Law on Companies, a capital market law and a Corporate Governance Code which was adopted by the Belgrade Stock Exchange in 2006. After it was amended in 2008, listed companies were obliged to publish regular reports on compliance with the Code in 2011 (EBRD, 2016: 5).

These Serbian corporate governance regulations were set up in the context of far-reaching privatization programmes in the 2000s. They replaced remnants of socialist ownership and management concepts and made Serbia’s regulations more compatible with EU standards (European Commission, 2010). Transnational capital, in tandem with the EU and international organizations such as the World Bank played a vanguard role in promoting regulations which reduced obstacles to the emergence of markets for corporate control. The FIC successfully promoted unambiguous and consistent regulations that create a transparent and predictable business environment for investors entering the market (FIC, 2010). The Serbian corporate governance regulations include provisions which require the disclosure of investment-relevant corporate information. For example, in 2004, the Law on Companies introduced financial and non-financial reporting requirements to enhance investor confidence (EBRD, 2016: 5). The FIC also welcomed a new company law which was adopted in 2011 and enhanced transparency and disclosure requirements (FIC, 2011: 55). In addition, Serbia’s regulatory framework has suspended further barriers to the market for corporate control. Most notably, it guarantees the proportionality of ownership rights and voting rights in joint-stock companies (EBRD, 2016: 13). Such proportionality rules out voting privileges for dominant shareholders which might act as an obstacle to the acquisition of corporate shares by (foreign) investors.

In sum, Serbia has undergone a substantial marketization of corporate control. This process was promoted by a massive amount of FDI from Western European transnational corporations looking for profitable outlets for the reinvestment of surplus capital. Neither the presence of domestic capitalist forces nor the resistance of labour could halt this process. The adoption of an export-led growth strategy which was based on deregulation, privatization and the adoption of market-enabling regulations created favourable preconditions for the substantial marketization of corporate control. While the regulatory apparatus of the Serbian state privileged the interests of foreign investors and a few domestic corporate holdings, labour and small- and medium-sized enterprises lacked comparable political influence. This stands in contrast to Turkey, where state business alliances hampered marketization. The next section will analyse the variegated marketization of corporate control in Turkey.

Mitigated marketization in Turkey

Before we turn to the marketization of corporate control in Turkey, it is worth briefly summarizing the context of Turkey’s pattern of FDI dependence. Turkey underwent several liberalization programmes during the 1980s. Its economic policy shifted from an import substituting industrialization policy, adopted after the Second World War, to an export-led growth strategy. Because of macro-economic instabilities, remaining regulatory barriers to FDI and the banking crisis of 2001, Turkey did not attract significant amounts of FDI before the 2000s (Aydin-Düzgit and Tocci, 2015; wiiw, 2016). The considerable GDP growth rates in the Turkish economy were accompanied by a large and increasing current account deficit, which hit a negative record in 2011. This deficit is strengthened by Turkey’s trade imbalance with the EU single market, which not only provide Turkey with its main source of FDI but also remains its main trading partner (wiiw, 2016; World Bank, 2017). Nonetheless, the Turkish economy is based on a profitable domestic industrial base which acts as a stronghold for Turkey’s economic success. Turkey’s dependence on foreign capital in terms of EU FDI as a percentage of GDP is still considerable, although lower than in the ideal-typical dependent market economies. It only ranged from 8% to 13% between 2005 and 2013. Against this backdrop, we have to analyse how the interplay between foreign capital, domestic capital and the state has shaped the marketization of corporate control in Turkey.

In Turkey, the acquisition of local assets afforded foreign investors ample opportunity to restore profitability through FDI. A large part of FDI materializes in M&As (UNCTAD, 2016). However, although FDI enhances the trade with corporate assets, its influence is differentiated. Turkey’s political economy is dominated by influential domestic capital fractions whose resilience hampers the marketization dynamics resulting from FDI-based M&A.

Broadly speaking, the domestic capital base is divided into two parts: large conglomerates and emerging small- and medium-sized enterprises. The large and often family-owned conglomerates, which emerged during early industrialization in the 1930s, still form the backbone of the Turkish economy. These conglomerates are characterized by multi-sectoral engagement and a pyramidal ownership structure (Babacan, 2014). More recently, a new capital fraction emerged, mainly composed of small- and medium-sized enterprises from the Anatolian region, and with an Islamic background. This capital fraction is concentrated in labour-intensive manufacturing sectors and contributes to Turkey’s export performance, even though it is less integrated into transnational production chains than the large conglomerates. The Anatolian Tigers emerged after, 2002 when the Justice and Development Party (AKP) came to power. They predominantly profited from small-scale privatizations in the municipalities. Due to their close ties with the AKP government, they benefited from subsidized loans from smaller Turkish banks (World Bank, 2014b: 36, 119).

The emergence of industrial productive capacities in the Anatolian region afforded foreign investors the opportunity to restore much-needed profitability for their overaccumulated capital. The newly emerged small- and medium-sized enterprises sector thus attracted a large amount of M&A-based FDI flows in recent years, which is reflected in the strong interest of Western European foreign investors in such companies (Ernst and Young, 2013: 6). The acquisition of small- and medium-sized enterprises created a welcome opportunity to rationalize the acquired companies in a way which enabled foreign capital to extract high returns and thus displace overaccumulated capital profitably to the periphery. Consequently, FDI flows to the Anatolian region brought more dynamism to the Turkish market for corporate control and thus strengthened marketization. In contrast, large conglomerates have proved to be much more resilient which has in turn hampered FDI-induced marketization. Although the larger business groups were in need of foreign capital to expand into new sectors and to grow in size, acquisitions based on FDI that would have resulted in the efficiency-oriented restructuring of acquired companies rarely materialized here. Larger company groups prefer joint ventures and strategic partnerships with transnational corporations in order to maintain ownership control. Well-known examples of joint ventures with Western European corporations are Sabanci and Heidelberg Cement, and Koç Holding and UniCredit (Heidelberg Cement, 2016; Koç, 2016). These partnerships make it more difficult for foreign investors to extract large and fast returns, since the rationalization and restructuring of acquired enterprises require the consent of dominant shareholders.

In addition, in Turkey, FDI-based acquisitions of former state-owned entities have played a minor role in the marketization of corporate control. In Turkey, privatization was also highly beneficial for domestic capital fractions. In total, between, 2000 and 2010, only 17.8% of FDI inflows covered privatization projects (Ministry of Economy, 2012: 15). Former state-owned companies were often acquired by domestic investors, as happened in 2007 when Türk Telekom was bought by Ojer Telekomünikasyon A.S. (Ministry of Economy, 2008: 13), or when domestic investors entered strategic partnerships with foreign capital to bid in privatization auctions, as happened with Enerjisa – a joint venture between the Sabanci group and Verbund of Austria – which was created to participate in auctions during the privatization of Turkey’s electricity market (The Economist, 2014).

As indicated, corporate governance and merger regulation, play a pivotal role in enabling markets for corporate control to arise and develop. The state’s regulatory tools may ease or impinge on the deepening of market relations. Although the state apparatus permeates the interests of dominant class fractions, it may strategically select some interests over others. In Turkey, foreign investors have actively promoted market-enabling regulations. In 2001, the Coordination Council for the Improvement of Investment Environment (YOIKK) was launched to improve the investment climate, bringing together representatives of national business groups and foreign investors (YOIKK, 2016). However, Western European companies have been only partly successful in advocating for foreign investor friendly regulation. National capital fractions were quite influential in shaping the regulation of economic concentration and corporate governance. Turkish national capital is permanently represented in the competition authority’s executive body. The Turkish Competition Act stipulates that one member of the Turkish Competition Authority (TCA) board has to be a representative of the Turkish Union of Chambers and Commodity Exchanges (TOBB) (Article 22, Act No. 4054 on the Protection of Competition). This is a quasi-public business organization in which all local chambers and commodity exchanges are obligatory members. Through this TOBB representative, national capital fractions have had a voice in decision-making processes since the TCA came into existence (Interview TCA board member).

In Turkey, national business organizations have also actively contributed to merger control reforms (Interview TCA employee). A broad coalition of Turkish business associations supported the establishment of an EU-compatible market-enabling competition policy regime, including merger control rules in the 1990s (Özel, 2015: 120). In 1997, Turkey adopted ‘Communiqué 1997/1 on Mergers and Acquisitions Requiring the Approval of the Competition Board’. This merger communiqué emulated the main elements of EU Merger Regulation 17/62 and established a pre-notification system for mergers. In 2010, this communiqué was replaced by Communiqué 2010/4. This reform simplified the merger control procedure, replacing the restrictive market share criteria with turnover thresholds similar to those established in the liberalized EU Merger Regulation 139/2004. It also introduced new notification forms that resemble the EU’s, requesting statistical data to assess the ‘pro-consumer efficiency gains’ of mergers (Article 8, Communiqué 2010/4). The new Communiqué 2017/2 also introduced more legal certainty for (foreign) investors, by simplifying control procedures for the majority acquisition of listed companies (Article 3, Article, Communiqué 2017/2).

Generally, national business groups such as Tüsiad (Association of Turkish Industrialists and Businessmen) have welcomed the liberalization of the merger control regime and the new simplified procedure. Moreover, while transnational capital has promoted consumer welfare oriented enforcement, Turkish business groups have rejected such a narrow focus on enforcement. Tüsiad was established in, 1971 and represents Turkey’s larger industrialists and family-owned conglomerates. It represents CEOs from roughly 3,500 companies and its members account for 65% of Turkey’s industrial production and 80% of Turkey’s foreign trade (Tüsiad, 2012). National business groups support a multi-goal orientation, which leaves room for macro-economic considerations in enforcement. Tüsiad criticized the bureaucratic burden that statistical assessments used to estimate potential effects on consumer prices would create for the merging parties and the TCA (Tüsiad, 2010). Müsiad – the Association of Independent Industrialists and Businessmen, which was established in, 1990 and composed of 10,000 export-oriented small- and medium-sized enterprises, mostly from central and eastern Anatolian cities – also supports a multi-goal-oriented approach (Interview Müsiad). So far, the TCA has refused to apply an effect-based approach with micro-economic modelling in merger control and still maintains a broader multi-goal orientation in decision-making (Interview TCA employee). Moreover, this multi-goal orientation is reflected in the exemptions established in the Turkish merger control regime to protect national capital in strategically important sectors, such as banking. On the basis of Turkish Banking Law No. 5411, which was adopted after the Turkish banking crisis in 2001, Turkish banking mergers with a market share below 20% are exempt from the obligation to notify the transaction. This protectionist rule aims to facilitate the concentration of small Turkish banks in stabilizing the banking sector. Although the EU and OECD have repeatedly recommended it be abolished, Turkey has retained this exemption rule (Interview TCA board member).

In the 2000s, the adoption of corporate governance regulations gained momentum in Turkey. A commission was set-up to draft a new Turkish Commercial Code to replace the Code from 1956. In 2012, the new Commercial Code entered into force and it is now the major centrepiece of Turkish company law. It regulates the establishment and control of corporations in Turkey. Corporate governance of listed joint-stock companies is regulated by the Turkish Capital Market Law, which also established the Capital Market Board in 1981. This board is equipped with far-reaching powers and oversees the Turkish capital market and public offering of company assets.

Foreign investors promoted the adoption of market-enabling corporate governance principles in Turkey. In 2001, YOIKK established a special technical committee dealing with corporate governance issues. The YOIKK Action Plan promoted the adoption of corporate governance principles by the capital market board and the extension of corporate governance principles to SMEs and non-joint-stock companies (YOIKK Action Plan, 2011: 28). European investors set up the Business Enlargement Council (TEBC) to advise the Turkish government in priority areas. In this context, transnational corporations, organized through the ERT of Industrialists, promoted the publication of corporate governance principles, making enhanced corporate transparency and disclosure requirements a top priority (European Round Table of Industrialists, 2004). Foreign investors also supported the abolition of privileged rights for majority shareholders to reduce obstacles to the emergence of markets for corporate control (IIF Equity Advisory Group, 2005: 8).

More recently, a series of initiatives and amendments have enhanced market-enabling corporate governance regulations and, at the same time, brought Turkish corporate regulations more in line with EU standards. Most notably, in 2012, the new Commercial Code introduced international standards of financial reporting and auditing principles and thus increased transparency and fairness for investors. For example, it established a mandatory e-voting system for listed joint-stock companies. This allowed foreign investors to attend online shareholder meetings and increased the transparency of decision-making processes (Kelleher, 2012). In 2003, the Capital Market Board published non-binding corporate governance principles based on the OECD principles (Nilsson, 2010: 3179). In 2005, it became mandatory for listed companies to publish an annual report in which they explain to what degree they comply with these principles (Ararat, 2011: 356). In 2011, the Capital Market Board issued a Communiqué (IV, No: 56) which introduced mandatory corporate governance rules for companies listed on the stock exchange.

In general, national business organizations were also among the supporters of sound corporate governance principles. Most notably, Tüsiad played a vanguard role in this regard. However, although Tüsiad proactively supported the adoption of corporate governance principles for listed joint-stock companies, it emphasized that while drafting corporate governance principles ‘the individual requirements of each country’ (Tüsiad, 2002: 10) should be taken into account. In fact, Turkish corporate governance regulations did not fully embrace market-enabling principles. For example, the initial draft of the new TCC faced fierce protest from the Turkish business community for its far-reaching disclosure and transparency requirements. In the end, transparency and disclosure requirements were lifted, especially for small- and medium-sized enterprises (Nilsson, 2017: 191). Moreover, the Turkish Commercial Code does not include the proportionality of ownership and voting rights. It still allows dominant shareholders to determine the nomination of board members through special voting rights which could act as an obstacle for (foreign) investors to acquire a company without the consent of the dominant shareholders (Nilsson, 2017: 184).

In sum, the Turkish pattern of FDI dependence has led to the marketization of corporate control. However, Turkish national capital partly proved to be resilient in maintaining existing ownership structures, which acted as an obstacle to the dynamization of the market for corporate control. Moreover, national capital managed to benefit from privatization initiatives and to shape the development of the national merger control regime. This also includes deviations from the EU model, which are supportive of national capital fractions.

Serbia and Turkey: A comparison

Since the early 2000s, the markets for corporate control in Serbia and Turkey have increasingly absorbed overaccumulated capital from the Western European core. FDI by transnational corporations was a major driving force for the marketization of corporate control in both countries, which materialized in increasing trade with company assets and the proliferation of majority acquisitions which are typically followed by efficiency-oriented restructurings. Marketization also included the adoption of market-enabling regulations. Nonetheless, the interplay between transnational corporations, domestic capital fractions and the state has resulted in variegated forms of marketization.

While in Serbia, FDI has boosted the market for corporate control and national capital plays only a minor role, in Turkey, domestic capital fractions are actively participating in it. In Serbia, the majority of FDI resulted in majority acquisitions which are often followed by efficiency-oriented rationalization measures, allowing foreign investors to restore profitability through the displacement of overaccumulated capital to the EU periphery. By contrast, in Turkey, large holding companies aim to maintain ownership control when entering into strategic partnerships or joint ventures with foreign investors; it is mainly small- and medium-sized companies which are acquired and consolidated by transnational corporations.

In terms of regulations, transnational corporations were successful in promoting a merger control regime that has lifted bureaucratic burdens and is based on a permissive stance on concentration in Serbia. Here, sound economic analysis which gives priority to consumer welfare has replaced broader macro-economic considerations as a yardstick for enforcement. Moreover, foreign investors have successfully promoted transparency and disclosure requirements for companies. They also succeeded in demanding the removal of privileged voting rights which could act as an obstacle to active markets for corporate control. In Serbia, domestic capital fractions did not actively follow these developments and labour protests remained unsuccessful. In Turkey, Western European foreign investors have shaped the regulation of corporate conduct in a less sustainable fashion than that which was achieved in Serbia. Transnational and domestic capital fractions agreed to establish EU-compatible merger control and corporate governance rules to create a favourable business environment for (foreign) investors. However, national capital fractions organized through Tüsiad, representing large business conglomerates, and Müsiad, representing small- and medium-sized companies mostly from the Anatolian region, successfully promoted the maintenance of protectionist elements. Both rejected the adoption of a merger control regime which gives priority to consumer welfare. Turkey still applies a multi-goal orientation in the enforcement of merger control rules. Moreover, in Turkey, small- and medium-sized companies remain partly exempt from far-reaching transparency and disclosure requirements. In addition, specialized voting rights that give majority shareholders the opportunity to prevent takeovers have been maintained and have still not been fully removed.

Conclusions

Trade union activism against the foreign takeover of Telekom Serbia finally contributed to the postponement of its privatization (CATUS, 2015a). However, this successful resistance by trade unions is a rather exceptional case and must not distract from the fact that transnational corporations that export overaccumulated capital from the capitalist core contribute intensely to the marketization of corporate control on the EU’s periphery. Nonetheless, the influence of foreign capital is far from uniform. This article has shed light on how different patterns of FDI dependence have resulted in variegated marketization of corporate control in Serbia and Turkey.

This article has embedded the variegated trajectories of marketization in global power asymmetries and the conflicting social forces deriving from the capitalist mode of production. A critical institutionalist approach can thus help in overcoming of the stability bias observed in many VoC studies, providing useful insights into how institutional change is driven by the underlying dynamics of capitalist production. This allows us to adopt a more comprehensive perspective on institutional change. Moreover, VoC accounts have often exclusively focused on socio-economic institutional configurations, such as dominant corporate governance systems to map institutional change, while treating the regulatory framework in which socio-economic configurations are embedded as independent variables which might, but need not, affect institutional change. By contrast, this analysis has demonstrated that institutional change is not limited to the socio-economic sphere; rather, a critical institutionalist approach enables us to trace the underlying power relations which shape both the corporate sphere and the regulatory framework in which corporate conduct is embedded. Finally, in terms of VoC categories, the analysis of Serbia and Turkey has shown that not all economies dependent on FDI follow the same trajectories of institutional change; rather, the varied patterns of FDI may indeed evolve different patterns of institutional change. Revealing the variegated trajectories of marketization points to the limited but existing leeway capitalist forces on the periphery have to influence institutional change and to benefit from its specific manifestation.

Taking the transformative power of FDI dependence into account opens up an entire array of related research questions. How are other key institutions in peripheral political economies affected by patterns of FDI dependence? For example, it would be intriguing to investigate how patterns of FDI dependence shape labour relations.

List of interviews

Deloitte, June 2014, Belgrade.

AmCham 1, May 2014, Belgrade.

AmCham 2, June 2014, Belgrade.

EU Project Leader, June 2014, Belgrade.

Serbian Office for EU Integration, June 2014, Belgrade.

FIC, June 2014, Belgrade.

CPC economist, June 2014, Belgrade.

TCA board member, April 2014, Ankara.

TCA employee, April 2014, Ankara.

Müsiad, April 2014, Ankara.

Footnotes

Acknowledgements

I would like to thank Joachim Blatter, Andreas Nölke, Tobias ten Brink, Maria Turner and Denis Maier for their help and their comments in the preparation of this article.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Notes

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