Question

Question 2. (30pts.) Suppose that you are journalist who is asked to write an opinion piece on the subject of “privatization and deregulation of the railroad industry in Turkey” by his/her editor. Indeed, a fast online search reveals that in a piece published in the Washington Post on 04.06.2015 sponsored (paid for!) by the Association of American Railroads, it is claimed that:1

Railroad regulation began in the late 19th century, when the rail industry faced virtually no competition from other modes of transportation. Over time, the regulations became far-reaching and greatly limited the ability of railroads to determine services, set prices and even build new rail lines.

It then continues to argue in favor of deregulation by pointing out the following:

“America has the greatest economic system in the world. Lets reduce government interference and give it a chance to work.” President Jimmy Carter used this line during his 1979 State of the Union address to demand that Congress deregulate the freight rail industry.

That article continues to claim that deregulation of the railroad industry has been a big success in the US.
Using the knowledge accumulated in this course, write a structured essay analyzing this subject. Would the

deregulated and private markets (wild capitalism) work in the railroad industry in Turkey?

Answer 1

De-regulated and private markets in railroad industry in Turkey

Pros of private markets

• Private capital can finance infrastructure projects
• Realization of efficiency
• Provision of public infrastructure using PPP through long-term solutions; the private partner will operate the asset for 20-30 years
• Risk gets transferred to the private project
• Potential cost over-runs in mega projects can be covered through PPP projects

PPP projects' risk-allocation

• Risk is borne by the agent with control over risk and impression on outcome
• Agent who beats the risk at lowest cost

PPP ENABLING TRANSPORT LAWS IN TURKEY

Law No - Effective since

• 3464   Appointment of institutions other than the General Directorate of Highways for the construction, maintenance and operation of access-controlled highways; Effective since 28 May 1988
• 3996   Realization of certain projects under the BOT model Associated Council of Ministers Decision No: 2011/1087 Effective Since 18 June 1994
• 4046 Privatization Law Effective Since 24 November 1994
• 5335 State Airports Authority to partially transfer its airports to the private sector through the transfer of operation rights methods or long-term leasing Effective Since 21 April 2005
• 655 Ministry of Transport, Maritime Affairs and Communications Structure and Duties Effective Since 1 November 2011
• 6461 Deregulation/privatization of the TCDD Effective Since 1 May 2013

PPP can lead to a reduction of deadweight loss in Turkey; this is due to Government monopoly in railroad sector. Due to 2008's global crisis, private funds can be mobilized through private expansion. Acceleration of PPP approach is required for Turkey's global positioning.