Saturday, September 20, 2008

Since the financial markets started recovering already (not by themselves, of course, only when provided by the right incentives), I decided to go back to what I wanted to write about in the first place.

My perfectly flawed country

The story between our prime minister Erdoğan and media tycoon Aydın Doğan has several veins.

Chapter 1 - Government tainted by corruption scandal
A Germany-based Turkish charity (Deniz Feneri) collects money from devout Muslim Turks in Germany, only to send it to affiliated Turkish businesses, such as Kanal 7, a pro-government TV channel. German investigators claim that Turkish authorities applied political pressure for the release of those detained in Germany, and the prime minister's office received some funds from the charity to help tsunami victims. Meanwhile, one of the guys who worked as a "courier" between Germany and Turkey is appointed as the chairman of the Radio Television Supreme Council (RTUK).

Chapter 2 - Freedom of media?
The coverage of the scandal features prominently in Doğan newspapers, which have been critical of the government for a while. In a furious (and public) address at a party meeting, Erdoğan claims that Doğan is seeking revenge because the government didn't agree to the favours he requested for his other businesses. These include the changing of a development license for the land where the Hilton Hotel stands in Istanbul, and an overland broadcasting license for CNN Turk from RTUK. More allegations appear on pro-government newspapers about allegedly illegal practices of Doğan Group. Doğan Group shares fall in the stock market.

Chapter 3 - Political risk: Independence and impartiality of regulatory agencies
Doğan responds that he has not requested anything illegal, he is just seeking his legal rights as a citizen and business man (which is a fair point, I must say.) He goes on to claim that the Energy Markets Regulatory Agency (EPDK) has been denying his oil distribution business Petrol Ofisi a license for the construction of an oil refinery in Ceyhan. He says that Erdoğan told him Çalık Holding would remain the sole license-holder in the port city. Çalık is also building the oil pipeline from Ünye to Ceyhan in a consortium with Italian Eni.

EPDK claims the site proposed by Petrol Ofisi for the refinery belongs to another company, which wants to build a power utility on the same site.

Chapter 4 - Freedom of media?
Çalık Holding, run by Erdoğan's son-in-law, was the sole bidder for our second largest media group, Sabah-ATV. State banks provided financing for the acquisition, and a Qatari investment fund chipped in by buying a 25% stake (the largest interest a foreign entity can hold in a Turkish media company). There were rumors that this limitation (if nothing else!) deterred other bidders, including foreign private equity groups and media companies, from bidding for Sabah-ATV. The government is now planning to lift this rule to comply with EU legislation. Then Çalık could sell Sabah-ATV to one of the foreign suitors for a decent profit.

I admire the intricacy of the story, and I think we can recognize several themes here. First of all, the story casts doubt over the independence and impartiality of regulatory agencies, municipalities and state banks. These institutions are clearly open to political influence. The destiny of a business is determined by its relationship to power circles, not its economic efficiency or integrity.

Once we identify this structural flaw as the root problem, it is easy to see why media groups might want to leverage their influence over public opinion to receive favours from the government, or how the government might be able to use these licenses as a stick to punish a media group for its unfavourable coverage. People do things when they are able to.

This is a high price to pay. Journalists play a very important role in the healthy functioning of a democracy. Their job is to raise awareness by providing correct, comprehensive and balanced information and analysis. People can make sound choices and hold decision makers accountable only when they have sufficient information. The independence and freedom of media groups is therefore very important, and media is not just an ordinary economic sector. However, in practical terms, I don't know how we could oblige media tycoons to shed their other business interests in countries where we cannot disentangle politics from business. This would be a second-best solution aimed at curing the symptom of the problem, not the problem itself.

Finally - a word on journalism ethics. Some of the journalists and columnists in Turkey suck. My question is, do these journalists genuinely believe in what they write, or have they lost all respect for themselves, their audience and their job - so that they don't care anymore? Are they aware that they suck?

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