State-Business Alliances and Economic Development: Turkey, Mexico and North Africa 2013050695, 9780415529808, 9781315818757

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State–Business Alliances and Economic Development

This book argues that a key dynamic behind economic development in the emerging markets is the coordination between the state and businesses. Exploring the links between institutions, state–business alliances and economic development in the context of tumultuous market transitions since the 1980s, the book tackles the formation and sustainability of coordination-inducing institutions besides their mere existence, and points out the new modalities of coordination in the age of new developmentalism. Based on extensive original research in Turkey and Mexico embedded in a comparative historical analysis, the book shows how state–business alliances have been formed, collapsed and re-formed between the respective states and shifting business actors since the launching of market transitions. It demonstrates how both the state and business actors, and their cohesiveness vs. fragmentation, play crucial roles in the making and sustainability of the institutions, which are central to state–business alliances. It explores the emergence of new actors, the diversification of the organizational landscape, and the evolution of the ways in which the states interacted with businesses throughout major economic and political transformations that helped transform the respective states and their interactions with the non-state actors. It draws on the meandering developmental trajectories of Turkey and Mexico from the 1970s to the present and goes on to draw some lessons for institutionbuilding and market reforms in selected countries in North Africa. Işık Özel is Associate Professor of Political Science at Sabancı University, Istanbul, Turkey.

The Routledge Political Economy of the Middle East and North Africa Series Series editor: Hassan Hakimian London Middle East Institute, School of Oriental and African Studies, University of London

The aim of the London Middle East Institute (LMEI), through education and research, is to promote knowledge of all aspects of the Middle East including its complexities, problems, achievements and assets, both among the general public and those who have specialist interests in the region. The LMEI is based in the School of Oriental and African Studies (SOAS), which hosts the largest concentration of Middle Eastern expertise in any European university. The LMEI provides teaching, training, research, publication, consultancy, outreach and other services related to the Middle East. It serves as a neutral forum for the study of issues concerning the region and helps to link individuals and institutions with academic, commercial, diplomatic, media or other specialisations. Editorial board David Cobham, Professor of Economics at Heriot Watt University, UK. Nu’man Kanafani, Associate Professor of Economics at the University of Copenhagen, Denmark. Massoud Karshenas, Professor of Economics at the School of Oriental and African Studies (SOAS), University of London, UK. Jeffrey B. Nugent, Professor of Economics at the University of Southern California, Los Angeles, USA. Jennifer Olmsted, Associate Professor of Economics at Drew University, New Jersey, USA. Karen Pfeifer, Professor of Economics at Smith College, Northampton, Massachusetts, USA. Wassim Shahin, Professor of Economics and Dean of Business School at the Lebanese American University (LAU), Byblos, Lebanon. Subidey Togan, Professor of Economics and Director of the Centre for International Economics at Bilkent University, Ankara, Turkey. Jackline Wahba, Reader in Economics at the University of Southampton, UK. Tarik Yousef, Dean of the Dubai School of Government, UAE.

1 Trade Policy and Economic Integration in the Middle East and North Africa Economic boundaries in flux Edited by Hassan Hakimian and Jeffrey B. Nugent 2 State Formation in Palestine Viability and governance during a social transformation Edited by Mushtaq Husain Khan 3 Palestinian Labour Migration to Israel Land, labour and migration Leila H Farsakh 4 Islam and the Everyday World Public policy dilemmas Edited by Sohrab Behdad and Farhad Nomani 5 Monetary Policy and Central Banking in the Middle East and North Africa Edited by David Cobham and Ghassan Dibeh 6 Economic Performance in the Middle East and North Africa Institutions, corruption and reform Edited by Serdar Sayan 7 Economic Liberalization and Turkey Sübidey Togan 8 The Political Economy of Aid in Palestine Relief from conflict or development delayed? Sahar Taghdisi-Rad 9 Money in the Middle East and North Africa Monetary policy frameworks and strategies Edited by David Cobham and Ghassan Dibeh 10 Iran’s Struggle for Economic Independence Reform and counter-reform in the post-revolutionary era Evaleila Pesaran 11 Economic and Trade Policies in the Arab World Employment, poverty reduction and integration Edited by Mahmoud A.T. Elkhafif, Sahar Taghdisi-Rad and Mutasim Elagraa

12 Iran and the Global Economy Petro populism, Islam and economic sanctions Edited by Parvin Alizadeh and Hassan Hakimian 13 State–Business Alliances and Economic Development Turkey, Mexico and North Africa Işık Özel

State–Business Alliances and Economic Development Turkey, Mexico and North Africa

Işık Özel

First published 2015 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2015 Işık Özel The right of Işık Özel to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Özel, Isik, author. State-business alliances and economic development : Turkey, Mexico and North Africa / Isik Özel. pages cm. – (Routledge Political economy of the Middle East and North Africa series; 13) 1. Industrial policy–Mexico. 2. Industrial policy–Turkey. 3. Industrial policy–Africa, North. 4. Business and politics–Mexico. 5. Business and politics–Turkey. 6. Business and politics–Africa, North. 7. Mexico– Economic conditions. 8. Turkey–Economic conditions. 9. Africa, North–Economic conditions. I. Title. II. Series: Routledge political economy of the Middle East and North Africa series ; 13. HD3616.M43O94 2014 322.3–dc23 2013050695 ISBN: 978-0-415-52980-8 (hbk) ISBN: 978-1-315-81875-7 (ebk) Typeset in Times New Roman by Wearset Ltd, Boldon, Tyne and Wear

Contents

List of figures List of tables List of abbreviations Acknowledgements Introduction Why Mexico and Turkey? A case for the cases 6 Model, data, and methods 11 The plan of the book 11 1

Market transitions, business, and the state in emerging countries Adjusting in coordination: actors and institutions 18 Formation and evolution of institutions: coordination between state and business 24

2

Diverging pioneers: trajectories of Mexico and Turkey in the first phases of market transitions Introduction 28 Antecedents of market reforms and reform alliances: the ISI pact, crises and the responses 29 Zigzagging reforms and shaky alliances in Turkey 40 Concessions and emergence of a narrow alliance in Mexico 49 Conclusion 56

3

Increasing fragmentation and weak coordination in Turkey Introduction 58 Turkish business: increasing fragmentation in the first phase of market transitions 59 The Turkish state: fragmentation and de-institutionalization 70 Conclusion 79

x xi xii xiv 1

13

28

58

viii Contents 4

5

Increasing cohesiveness and coordination in Mexico in the first phase of the transitions Introduction 82 Gradual emergence of business cohesiveness 82 Increasing state cohesiveness in the first phase of transitions 89 Increasing coordination through cohesive actors 92 Conclusion 102 Tamed by crises, eager to build institutions: the second phase of market transitions in Mexico and Turkey Introduction 105 The rise of a regulatory state in Mexico? 107 The rise of a regulatory state in Turkey? 112 Resilient, but vulnerable: Turkish and Mexican economies encountering the 2008 crisis 125 Conclusion 131

6

Increasing cohesiveness and a big spurt in Turkey Introduction 134 Becoming cohesive with a twist: polar cohesiveness in the making 136 Rising state cohesion: increasing capacity and institution building 147 Increasing coordination between the state and business 149 Conclusion 155

7

Increasing fragmentation, institutional change, and slowdown in the second phase of transitions in Mexico Increasing fragmentation within business 159 Diminishing state cohesiveness 168 Ad hoc coordination in the second phase of the transitions: lobbying vs. concertation 169 Conclusion 172

8

Market transitions and state–business alliances in selected MENA countries Introduction 175 State–business relations at the juncture of transitions in MENA 177 Fragmentation, cronyism, and hesitant opening: the case of Egypt 184

82

105

134

158

175

Contents ix Increasing cohesion and coordination: the case of Morocco 192 Increasing fragmentation and repression: the case of Tunisia 195 Conclusion 198 9

Concluding remarks Institutions, transitions, and challenges ahead 200 Material incentives and value systems 206 Lessons for MENA countries 208

200

Appendix: list of interviewees Bibliography Index

211 213 232

Figures

2.1 2.2 5.1 5.2 5.3 5.4 5.5 8.1 8.2 8.3 8.4 8.5

Per capita GDP, Turkey and Mexico, 1961–2012 (constant 2005 US$) Public debt/GDP (%), Turkey and Mexico, 1980–2010 Correlated growth: exports and GDP, Turkey and Mexico, 1960–2012 Growth of exports and export-dependency, Turkey and Mexico, 1980–2012 Current account deficit/GDP (%), Turkey and Mexico, 1980–2012 FDI inflows and outflows, Turkey and Mexico, 1970–2010 Bank credits/GDP (%), 1960–2011, Turkey and Mexico (total domestic) GDP per capita, 1960–2012, Egypt, Morocco, Tunisia, Turkey, and Mexico (constant 2005 US$) Current account deficit/GDP (%), Egypt, Morocco, Tunisia, and Turkey Openness in Egypt, Morocco, and Tunisia (foreign trade/GDP, %) Export growth and GDP growth, selected MENA countries Inward FDI flows in Egypt, Morocco, and Tunisia (US$ million)

33 47 126 127 128 128 129 179 180 181 182 183

Tables

2.1 4.1 6.1

Motives behind big business’s support for market reforms in the first phase of transitions Selected coordination-inducing institutions in Mexico: level of coordination, lifespan, and endogenous changes Selected coordination-inducing institutions in Turkey: level of coordination, lifespan, and endogenous changes

39 93 141

Abbreviations

Acronym

Organization

Country

ABM AKP AMITH ANAP ANIERM

Mexican Banking Association Justice and Development Party Moroccan Association of Textile and Apparel Industries Motherland Party National Association of Importers and Exporters of the Mexican Republic Justice Party Ankara Chamber of Industry Banking Regulation and Supervision Agency Information and Communication Technologies Authority National Chamber of Transformation Industries Business Coordinating Council Mexican Business Council for International Affairs Federal Competition Commission Republican People’s Party Mexican Council of Businessmen National Banking and Securities Commission Coordinating Council for Foreign Trade Federal Commission of Regulatory Improvement Federal Telecommunications Commission Mexican Business Council for Foreign Trade, Investment and Technology Mexican Council on Foreign Relations National Council of Foreign Trade Confederation of Industrial Chambers of Mexico Confederation of National Chambers of Commerce, Services and Tourism Employers’ Confederation of the Mexican Republic Customs Union Foreign Economic Relations Board Confederation of Progressive Trade Unions Democrat Party State Planning Organization Democratic Left Party Democratic Turkey Party True Path Party Egyptian Businessmen’s Association

Mexico Turkey Morocco Turkey Mexico

AP ASO BDDK BTA CANACINTRA CCE CEMAI CFC CHP CMHN CNBV COECE COFEMER COFETEL COMCE COMEXI CONACEX CONCAMIN CONCANACOSERVYTUR COPARMEX CU DEİK DİSK DP DPT DSP DTP DYP EBA

Turkey Turkey Turkey Turkey Mexico Mexico Mexico Mexico Turkey Mexico Mexico Mexico Mexico Mexico Mexico Mexico Mexico Mexico Mexico Mexico – Turkey Turkey Turkey Turkey Turkey Turkey Turkey Egypt

Abbreviations xiii Acronym

Organization

Country

EKK EMAA ENP ESDK ESK ETUF FEI FJP GATT İSO İŞHAD İTO MHP MÜSİAD NAFTA OECD PAN PRD PRI RK SECOFI TBB TESK TİM TİSK TOBB TPSC TÜİK Türk-İş TÜRKONFED TÜSİAD TUSKON TZOB UTICA YOİKK

Economic Coordination Board Euro-Med Association Agreements European Neighbourhood Policy Evaluation Board for Economic Issues Economic and Social Council Egyptian Trade Union Federation Federation of Egyptian Industries Freedom and Justice Party General Agreement on Tariffs and Trade Istanbul Chamber of Industry Business Life Cooperation Association Istanbul Chamber of Commerce Turkish Statistical Institute Independent Industrialists’ and Businessmen’s Association North American Free Trade Agreement Organisation for Economic Cooperation and Development National Action Party Party of the Democratic Revolution Institutional Revolutionary Party Turkish Competition Authority Secretariat of Commerce and Industrial Development Banks Association of Turkey Confederation of Turkish Tradesmen and Craftsmen Turkish Exporters’ Assembly Turkish Confederation of Employer Associations Union of Chambers and Commodity Exchanges of Turkey Turkish Private Sector Council Turkish Statistical Institute Confederation of Turkish Trade Unions Turkish Enterprise and Business Confederation Turkish Industry and Business Association Turkish Confederation of Businessmen and Industrialists Union of Turkish Chambers of Agriculture Tunisian Union for Industry, Commerce and Handicrafts Coordination Council for the Improvement of Investment Environment

Turkey – – Turkey Turkey Egypt Egypt Egypt – Turkey Turkey Turkey Turkey Turkey – – Mexico Mexico Mexico Turkey Mexico Turkey Turkey Turkey Turkey Turkey Turkey Turkey Turkey Turkey Turkey Turkey Turkey Tunisia Turkey

Acknowledgements

Many people and institutions contributed to the writing of this book. A short acknowledgement would not do justice to all the support I have received along the way. Sabancı University provided me with a wonderful academic community, and made it possible for me to conduct research in Mexico. El Colegio de México (COLMEX), el Centro de Investigación y Docencia Económicas (CIDE), the Kolleg-Forschergruppe at Freie Universität Berlin (KFG), and the Hertie School of Governance hosted me at different stages of this project, and provided me with resources and hospitality which made my stay productive and pleasant. Earlier, I was granted with fellowships offered by the University of Washington (UW) and the Institute for Humane Studies to carry out initial research that sowed the seeds of this book. At the UW, Joel Migdal and Reşat Kasaba played indispensable roles in setting this project on route. They have been great sources of inspiration for both research and teaching. I also thank Erik Wibbels whose expertise in Latin American politics offered an invaluable supervision in the earlier stages of my research. At different stages of working on the manuscript, a number of people have contributed with their support and feedback. I want to thank especially my colleagues and friends, Ayşe Gül Altınay and Serdar Sayan, for encouraging me to start writing this book. Kim Brauer, Yaprak Gürsoy, Başak Kuş, Jennifer Petzen, and Sabri Sayarı read and commented on various parts of the manuscript. I am grateful to their great minds, critical thinking, positive spirits, and friendship. The research I conducted for this book necessitated extensive fieldworks in Mexico and Turkey for long periods of stay. A number of colleagues and friends assisted me on this enterprise. While in Mexico, a number of scholars helped me understand Mexican business politics better. I am especially indebted to Carlos Alba, Ilán Bizberg, Blanca Heredia Rubio, Matilda Luna, Ricardo Tirado, and Juan Manuel Ortega for generously sharing their knowledge and resources with me. Librarians at the CIDE, CANACINTRA, CONCAMIN, and COLMEX put at my disposal everything I needed. Without Guadalupe Becerra’s diligent assistantship, I could not have carried out the last round of the fieldwork. I was also fortunate to have met friends in Mexico whose insights as to politics and day-today dynamics in Mexico were all precious to me. Ira Franco, Epipanio

Acknowledgements xv López Sánchez, Carlos Schaffer, Alicia Silva, Témoris Greco, Sergio Freidberg, Roberto Frau, and Maribel Lara always made my stays so enjoyable that I never wanted to leave. I am thankful for their friendship, sense of humor, and affection. While doing my fieldwork in Turkey, I received enormous support from Soli Özel whose grasp and vision on business politics was particularly valuable. Many people were incredibly generous to share their discernment and connections. Among the many who kindly helped me I would like to acknowledge specifically Ziya Öniş and Fuat Keyman who provided me with an assistantship at Koç University to pursue my research in Turkey. During my stay at Koç, I learned a lot from their wisdom and compassion. I am also thankful to the hard work of the librarians at Sabancı University, Istanbul Chamber of Industry (Barış, most particularly), the Orient Institute, and Koç University. Finally, I owe great debt to all my interviewees in Mexico and Turkey, who were accessible and willing to share their experiences. And I appreciate the meticulous work of the editors and copy-editors of Routledge. They have done a great job and it has been a wonderful experience to work with them since the inception of the book project. Throughout the journey leading to this book, I have been lucky to have a solid support from my friends—Rabih Aboujaude, Jane Boyajian, Maria Fontanals, Gülayşe Koçak, Ezogelin Oflazoğlu, Yasemin Sarıkaya, Barry Shaw, Betsy Visco, and Ann Vogel have been great sources of inspiration, creativity and joy. My family has been very generous with their never-ending support. My parents, Hasibe and Selim Özel, have always been there for me along the way. Their passion for learning and teaching, and their endless encouragement and confidence in me kept me going. My brother Mehmet Yıldırım Özel provided me with brotherhood fellowships whenever I needed, besides care and understanding. Ayşegül Aydoğdu Özel continually provided friendship, affection, and laughter. Deniz and Zeynep cheered me up throughout the long days of writing. Başak Kuş and Yelda Ugan have been the greatest adopted sisters to whom I am greatly indebted. I cannot thank them enough for always being there for me and for keeping me going in the moments of frustration. Last but not least, my deepest thanks to my husband Salvador Parrado without whose support, enthusiasm, and love, this book would not have come to light. I dedicate this book to him.

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Introduction

In the last three decades, many emerging economies have undertaken drastic transitions from state-led development strategies to market-oriented growth models, spawning a wide array of transformations at many levels as they travelled through state control to unfettered markets, and later taming the markets again with degrees of regulation. These transitions often lacked consistency due to muddling, backlash and policy reversals mostly caused by multi-layered resistance from state and societal actors. They have proceeded with difficulty in many countries given their evidently contentious nature, endangering a broad array of interests entrenched in the institutional arrangements of the past, besides the internalized statism and nationalism which often provided a suitable shelter for shades of state capitalism (Schmidt 2002). In the context of these sweeping transitions in emerging countries, not only policies and institutions have been transformed but also actors, their preferences and the ways in which they interact with one another. Multifarious challenges posed on both state and non-state actors have made their interactions much more complex than in the previous era of developmentalism. The unprecedented increase of mobility (of capital, goods, information and technology, if not of labor) in the context of expanding globalization, accompanied by financialization and transnationalization, has made most of the earlier institutional arrangements between the state and society nearly obsolete. As the state has had to bow to the pressures of globalization, financial markets and international and supranational organizations, the orchestrating of market players by the state has become an uneasy task. The challenge has been intensified by the accompanying process of democratization which appears in varying degrees in most emerging countries. Nonetheless, such tumultuous transitions have not caused the state to wither away. Instead, the state has kept its key role in the emerging countries, although transformed by the threatening forces of globalization. It has largely, albeit not fully, withdrawn from the markets as producer—and as consumer, price-setter and guardian at the gates of domestic markets. Its grip on the respective markets and players has not however entirely vanished, but has been modified in form and content. Although in the earlier phases of market transitions, state intervention in the markets used to be regarded as a ‘bull in a china shop,’ bound to

2

Introduction

break everything it hits notwithstanding its intention, more recently it has been considered an essential player able to devise and maneuver tactfully in the muddy waters of globalization. Yet, the devices employed by the state during most of the twentieth century are no longer apt for coping with the complexities and challenges posed by the forces of globalization, regionalization and transnationalization. Following the crises in emerging markets in the 1990s and 2000s, even the policy-makers with seeming allegiance to the teachings of the so-called ‘Washington Consensus’ have moved away from their earlier prescriptions. Currently, a fledgling consensus is in the making regarding the key role played by the state in economic development, acknowledged even by various international organizations that previously preached unfettered markets. This new perspective on the re-appraised role of the state has gained further weight since the emergence of a global financial crisis in 2008, and this time has influenced the advanced countries as well. In a way, the idea of a developmental state is still intact, but it now requires novel perspectives to cope with the complex dynamics of globalized markets and actors (Bresser-Pereira 2009; Evans 2008). Drastic transformations in middle-income countries triggered major changes for domestic businesses. As the previously closed domestic markets were opened up to international competition, some businesses not only survived such exposure to fierce international competition but also have been increasingly transnationalized, becoming regional and global players in their respective sectors. Previous ‘infants’ have evolved into giant multinationals investing in both their regional hinterlands as well as in the markets of their omnipotent neighbors. Some acquired such power by means of financialization, others by exportation, privatization, or investing and collaboration with foreign capital at home or abroad. Nonetheless, many have not been so lucky in reaping the benefits of global integration, and have ended up bankrupt, highly localized or mere suppliers of powerful multinational companies (MNCs). Meanwhile, new actors have appeared on the stage, seemingly from out of nowhere, and have formed new alliances with the state actors, creating major rivalry in their respective markets. Conflict between the old and the new actors has engendered power struggles, which in turn have triggered changes in institutional arrangements. Generally, market transitions in the emerging countries have given rise to a substantial diversification of actors and organizations, with proliferated links at domestic, regional and global levels, necessitating diversified strategies on the part of the state, which increasingly incorporated transnational actors into various domestic institutional arrangements. These interactions between domestic, transnational capital and the states promote, filter or resist globalization, while these shifting alliances transform the state through their ‘organization, goals, means, partners, and operative rules’ (Migdal and Schlichte 2005: 19). In this dynamic context, the ways in which the state interacts with businesses has proved crucial, varying within a range between fostering institutional changes to create incentives for many businesses in a more inclusive fashion,

Introduction 3 and perpetuating the provision of selective incentives for an exclusive few. Political openings have created new spaces for establishing inclusive institutions (Acemoğlu and Robinson 2012). Yet, the link between the expansion of inclusive political and economic institutions has been stronger in some countries than in others. Although policy-makers across the world have employed similar reform rhetoric, their trajectories to generate market economies have taken different routes, through multifarious exposures of domestic institutional structures, historical evolution of state–society relations and resulting political conflicts, interactions with supranational and regional actors, and prevalent ideas. Alliances that the state actors have formed with various societal groups have partially smoothed out the tumultuous processes of dual transitions entailing openings in economic and political realms. State–business alliances are particularly important due to the sheer necessity of coordination between the two parties over the course of costly transitions. They have proven instrumental in weathering the costs of transition, and have played a decisive role in shaping reform outcomes. In a puzzling fashion, some businesses in middle-income countries have formed alliances with the reforming governments at the onset of market transitions, agreeing to forgo the lucrative protectionist shield they had enjoyed under the state-led development era. They have mobilized to support market reforms in general and reforming governments in particular, forming reform alliances of two distinct—yet related—varieties: electoral alliances in which business and state coalesce behind a party or candidate; and governing alliances in which they coalesce through actions aimed at supporting specific policies (Kingstone 1999; Thacker 2000). While electoral alliances play an important role regarding the interactions among businesses and the state actors, governing alliances and their sustainability over time are key factors to understand the width, depth and impact of market transitions, and will thus be the main focus of this book. Nevertheless, the experiences of many countries that undertook market reforms demonstrate that alliances are not stable formations; they are vulnerable and may easily wear down, as the examples of Turkey and Mexico—as well as those in the Middle East and North Africa (MENA)—prove. In fact, state–business alliances formed in a number of middle-income countries, such as Turkey, Mexico, Argentina, Brazil, Egypt, Morocco, and Tunisia. A common occurrence across these countries is that especially big business1 that had been the beneficiaries of the former development strategy also became the winners in market liberalization, indicating the resilience of pre-reform elites. In some countries, like Turkey and Morocco, some small- and medium-sized enterprises (SMEs) have also become beneficiaries of the new era, and mobilization through business organizations played an important role in that (Cammett 2007; Özel 2010). Some of the major characteristics of the developmental states set up in these polities in the former era persist. The state elites continue to pick and choose winners throughout the market transitions, at times to make up for their inability to stabilize the economy. Implementation of vertical industrial policy instruments targeting economic output of specific industries has reinforced this pattern of preferential selection. Only in some cases have market transitions espoused a

4

Introduction

relative adoption of horizontal policy instruments entailing investment in infrastructure, research, development, and vocational training, thus improving the quality of inputs for businesses (Nabli et al. 2008: 111). These instruments are not often preferred by the governments, since their benefits are diffused across sectors and businesses, hence their implementation does not mobilize short-term support for the incumbents. Business organizations, like those in Turkey and Morocco, have played considerable roles in this adaptation process. In countries like Turkey, where integration to global markets coincided with intense power struggles, the state built zigzagging alliances with different groups, including the medium-sized businesses of which some also became beneficiaries of market liberalization.2 Such unsteady nature of alliances triggers several questions in connection with how alliances are formed, sustained and operate: Why do some governing alliances survive the pressures they face, while others crumble? Why is the path of business support for market reforms erratic in some countries—wavering between zealous support and extreme opposition— while it remains steady in others? In other words, what accounts for the sustainability of such alliances in some countries, whereas similar alliances collapse in others? This empirical puzzle has been highlighted by recent literature on market transitions, which generally argues that in a severe crisis, if big businesses can adjust to reforms and see the opportunities offered by the market, they may build an alliance with the state to implement reforms and become the new beneficiaries of export-oriented strategies (Silva 1996; Kingstone 1999). Partially explaining the formation of alliances, this literature mostly treats state–business alliances as stable formations, focusing on their initial establishment (Durand and Silva 1998; Thacker 2000; Maxfield and Schneider 1997; Schneider 1998). Nonetheless, alliances are vulnerable and subject to erosion unless the necessary institutional arrangements exist (Waterbury 1993; Buğra 1994; Haggard and Webb 1994). Hence, the analysis of alliance sustainability has been generally neglected in the literature, and this book hopes to fill this gap through examining the institutional underpinnings of state–business interactions in the long run. Political conflicts and institutions are key to understanding state–business alliances and their implications for economic development. Two groups of institutions matter the most for such growth-inducing collaboration: steering institutions and coordinating institutions. Evidently, the state’s coordination with all groups in society has an intrinsic value and importance. Its coordination with businesses bears great significance because of the necessary investment of business in the adjustment process. Coordination between state and business actors is vital to buffer the embedded cost of transition processes and to alleviate uncertainties. This book puts forward that institutions facilitating flexible but specilalized coordination between a broad range of actors are central to sustaining state–business alliances in the age of increased cross-national mobility. Nevertheless, building and sustaining institutions is not an easy task, notwithstanding the existence of ‘good’ models, best practices around the world and actors’ awareness—and even demands—about these. In many emerging

Introduction 5 countries, at times neither the state nor the society may have adequate capacity to build good institutions, despite the will to do so. In some cases or certain time frames, capacity to build institutions exists but is often jeopardized by the conflict of interests easily manipulated by veto players. Still, actors’ capacity is vital for establishing institutions. This book suggests that societal capacity is as important as that of the state, and that capacity at both levels is more likely to be attained in the existence of cohesive actors. In addition to treating institutions as central to explaining outcomes, the book aims to shed light on their emergence and evolution in time, focusing on both exogenous and endogenous changes of institutions. In many emerging countries, institutions suffer from an ephemeral quality: They can easily be followed by deinstitutionalization, or may drift become layered and converted, distancing from initial goals (Mahoney and Thelen 2010). The existence of strong veto players increases the likelihood of such endogenous changes, while exogenous changes are caused by severe crises, as well as international, regional or supranational actors. Hence, understanding the progression of these market transition processes and their diverse implications regarding developmental outcomes requires an analysis of state–business relations and reform alliances in this process. The bulk of the discussion in the book focuses on these questions and tackles them by analyzing the politics and institutional underpinnings of reform alliances and developmental outcomes in Turkey and Mexico, two upper-middle-income countries that have gone through nearly simultaneous transitions. Their developmental states with limited capacities, shades of authoritarianism, patrimonialism and clientelistic networks have been transformed in this process, while they have not lost some of their constituent properties. Trasnationalized domestic businesses and transnational businesses that operate in the domestic market forced the state to re-adjust its institutional capabilities, regulatory frameworks and instruments, as well as policies. Although political conflicts have created new spaces for entry for both business and state actors, the clientelistic networks and patrimonial patterns have largely persisted, thus by and large sustaining the ‘selective inclusion’ in varying forms. In Turkey, both the patrons and clients have been shuffled, and each incumbent created its own clientele followed by cozy ties, and the pattern of ‘selective inclusion’ persisted despite the so-called ‘economic democratization’, whereas in Mexico clients have more or less persisted. Both states have kept their grip on their respective markets to varying degrees, adopting curious mixes of liberal, patrimonial and statist market economies (Becker 2013; Özel 2013a). The central arguments based on a paired comparison of Mexico and Turkey are then applied to selected MENA (Middle East and North Africa) countries, namely Egypt, Morocco, and Tunisia, which have launched market transitions in successive phases since the 1970s, generally referred to as al-intifah, but followed a zigzagging–and mostly belated–trajectory like that of Turkey and now are going through considerable regime changes. These countries have sustained their former strategies longer than most other emerging markets, and such belated occurrence of

6

Introduction

transitions was brought about by the absence of severe balance-of-payments crises, maintaining the shield through oil revenues, foreign aid and workers’ remittances. Resistance to transitions has been equally strong given the vested interests in the former strategies along with ingrained nationalism—particularly important with respect to foreign capital in Morocco and Egypt, where Moroccanization and Egyptianization were central to the state-led development model, mirroring the process of Turkification in the first half of the twentieth century. With their historical trajectories shaped by state-led development, shades of authoritarian and semi-authoritarianism, large populations (and. accordingly, large markets), highly concentrated markets, family businesses and multi-sectoral conglomerate structures nurtured by the state elites, these cases have affinities with Mexico and Turkey. Historical trajectories of development, combined with the ways in which the market transitions and increasing integration to global markets have been carried out, have given rise to a certain level of divergence across these cases. Former patterns of narrow elite alliances between the state and business have been mostly sustained in Egypt and Tunisia, whereas in Morocco similar processes have given rise to a relative ease of barriers to entry, hence expansion of the beneficiaries of transitions within the business community and broadening of alliances. In this respect, the first two have evolved in a trajectory more similar to that of Mexico, while the Moroccan path has displayed certain similarities with that of Turkey. Needless to say, democratic openings in both Mexico and Turkey strike as a major contrast, while Egypt and Tunisia have just embarked on a political transition thats progress is marked by uncertainties at the time of the writing of this book. Such comparisons help to identify the lessons that countries of the MENA region could derive from the reform experiences of Turkey and Mexico, particularly in the current context of ‘dual transitions’ that several countries in the region have experienced in a belated fashion through the recent emergence of political opening commonly referred to as the ‘Arab Spring.’ Further, they might help delineate the institutions and policies for which countries like Turkey (or Mexico) can serve as a model or, rather, an anti-model for MENA.

Why Mexico and Turkey? A case for the cases This historical comparative study considers Mexico and Turkey as ‘the most similar cases’ for the study of market reforms, using Mill’s method of difference (Robson 1973; George and Bennett 2004). Allowing for variation in independent and dependent variables, the model relies on similar measures for independent variables with a broad variance on the outcomes. The arguments developed in this book are framed by the ‘structured method of comparison,’ which alleviates some of the problems posed by analysis of a small sample through not only comparing countries as distinct cases, but comparing distinct periods across the cases, allowing within-case analysis, while clarifying ‘small and medium-sized [causal] mechanisms for human action and interaction’ (Elster 1989). Inspired by this specific vein of qualitative methods, this book aims to tease out causal mechanisms based on an in-depth contextualized case comparison.

Introduction 7 Turkey and Mexico as similar cases provide useful insights about drastic market openings and shaky institutional grounds in the processes of integration to global markets and major regional blocs. Both of them are upper-middleincome countries with fairly developed industrial bases,3 which are placed in the fuzzy group of ‘emerging markets.’ Adjacent to the BRIC group (Brazil, Russia, India, and China), they have recently been grouped into the MIST (Mexico, Indonesia, South Korea, and Turkey), MINT (Mexico, Indonesia, Nigeria, and Turkey), and ‘Next 11’ groups based on their growing markets and demographics (O’Neill 2001; Goldman Sachs 2007).4 Furthermore, both countries are OECD members, albeit constant outliers in the group, and part of the G20 group striving to raise their voice at the international forums as well as in their own regional hinterlands. Like several other emerging countries, their relative resilience in the context of global economic crisis is praised by many, a rather unexpected phenomenon given these countries’ recent experiences with severe crises. Nonetheless, such praised resilience is tainted by severe vulnerabilities including dependency on foreign markets and capital, low savings and indebtedness—this time with a twist, as it is mostly accrued by private actors, rather than public— putting these markets and their players at serious risk. These countries’ market transitions have been more or less parallel, from the import substitution industrialization (ISI) strategy to becoming the forerunners of the market reform process among the middle-income countries, following a few cases like Chile. After having implemented the ISI for about five decades (with occasional attempts to open up), Mexico and Turkey developed considerable industrial bases accompanied by increasingly important domestic business interests. Despite the initial optimism acquired by the bright outcomes of the state-led development strategies, both countries were hit by severe crises in the late 1970s and early 1980s. Although it was Mexico that has been considered as the infamous bedrock of the debt crisis, the debt crisis had, indeed, hit the Turkish economy in 1977–1978. In the aftermath of these major economic crises, Turkey launched a thorough market reform program in 1980 and Mexico followed suit in 1982. Until the late 1980s, the two countries were the poster children of international financial institutions (IFIs) for their pioneering role and the speed of their reforms. In both countries, market transitions were initiated under the auspices of the IFIs and consolidated under the close scrutiny of different regional blocs. Both became the champion recipients of hefty IFI loans because of their geo-strategic importance. In addition to bowing to the overall pressure of globalization to open up, both countries made simultaneous commitments to major regional trade blocs: the North American Free Trade Agreement (NAFTA) in the case of Mexico (1994), and the Customs Union Agreement in the case of Turkey (1995). Situated on the fringes of great powers, they historically have had a close but thorny relationship with those powers, which have played key roles in the drastic changes both Turkey and Mexico have gone through in the last three decades. Thus, severe crises along with the impact of powerful international, regional and supranational players triggered exogenous changes in the institutional arrangements of these two countries. Power-distributional

8

Introduction

effects of existing and new institutions have caused endogenous changes, which played important roles in the actual operation of institutions. In both countries, domestic industry was nurtured by the state within the context of a state-led development strategy originally initiated in the 1930s. The outcome of such nurturing has been a high level of capital concentration, and the domination of mostly family-owned large conglomerates—with access to multi-sectoral investment and inter-firm proprietary structures—as the main corporate structure within big business. The ISI regime inevitably prioritized big business in both countries, providing businesses with a broad range of selective incentives and granting privileged access to state authorities as well as oligopolistic and monopolistic profits in large domestic markets (Buğra 1994; Luna 1992a; Özel 2003). State and big business in both cases maintained ‘implicit pacts’: the former providing generous rents and access to the latter; and the latter acquiescing to the respective semi-authoritarian regime (Barkey 1990; Heredia 1996; Luna 1992a). Nearly simultaneous transformations in political regimes and economic institutions engendered new incentives for the business actors, along with major challenges brought about by exposure to fierce international competition. There has been increasing diversification and transnationalization of businesses and their organizations since the 1990s, witnessing the flourishing of ‘multilatinas’ and ‘multiturks’ with expanding power in the international markets. Both markets, historically affected by major barriers to entry, have opened up to new entries, but in different levels. A common vein in the context of these transformations has been the declining power of labor in both cases. Regional integration processes facilitated export-led growth, accompanied by increasing dependency on the respective regional markets. Following the NAFTA process, about 78 percent of Mexican exports are oriented towards the US market only, whereas the dependency of Turkish exports on the EU markets has recently dropped from 55–60 percent in the late 1990s to 47 percent (INEGI 2012; TÜİK 2013a). Given the settling of export-oriented growth models and high levels of dependency in the respective regional markets, the business cycles in these countries have been highly synchronized with those in the US and Europe respectively (Suárez Dávila 2009; Altuğ and Bildirici 2010). Both Mexican and Turkish societies have been subject to degrees of polarization and business is no exception in this trend. The very dynamics of these countries’ interaction with the regional blocs has affected the direction of these changes, while engendering the establishment of a broad array of new institutions and organizations. New forms of state–business interactions have emerged out of these trends: while the old-school corporatism has been more or less dismantled in Mexico, a new form of corporatism has been further strengthened in Turkey, simultaneous with expanding pluralism. State–business interactions now take place at many different layers and in new modalities of governance with the participation of multifarious actors—national, transnational, regional and supranational alike—while the states embark on new roles vis-à-vis the workings of the respective markets, adopting degrees of developmental capabilities. The coming to power of the National Action Party (PAN) in Mexico and the Justice and Development Party (AKP) in Turkey at the turn of the twenty-first

Introduction 9 century epitomizes a major socio-political turn in both countries, the outcome of protracted political conflicts (Çarkoğlu and Kalaycıoğlu 2009; Loaeza 1999). In each case, the political movements that these parties stemmed from had been entrenched against the respective regimes and they finally took on the incumbency, reaping the benefits of political and economic openings and embracing globalization. Regime changes and the democratization process not only transformed the previously authoritarian states, but also the societies. An interesting similarity between these two parties is that their core constituency involves socially conservative and devout businesspeople who have wholeheartedly embraced globalization and accompanying market transitions (Gümüşçü 2010; Hale and Özbudun 2010; Mizrahi 2003; Öniş 2001, 2007; Yavuz 2003). Historically, these constituencies shared an important trait: their long-lasting struggle against secularist state establishments, thus their fervent effort to impact education and cultural policy as well as economic policies, since their opposition to the state establishment embodied a strong positioning against the multiple traits represented by the state in a range between the state’s strong grip on the markets and its strict secularism (Loaeza 1999; Özel 2010). In the Turkish case, cleavages have been more clearly marked, thus their power-distributional consequences are more drastic than in Mexico, often referred to as a ‘rapidly rising Islamic bourgeoisie’ closely linked to certain Islamic orders (Hale and Özbudun 2010: 3–13). Skeptics might suggest that, despite all these common features, important institutional traits make the two trajectories divergent: presidentialism in Mexico vs. parliamentarism in Turkey; Mexico’s long-lasting one-party dominant regime vs. Turkey’s fragmented multi-party regime; and finally, different interest mediation models, i.e., Mexico’s (in)famous corporatism vs. Turkey’s peculiar mix of corporatism and pluralism. Both cases have gone through changes regarding these institutions. First, the Turkish parliamentary system actually operates much like de facto presidentialism based on the enhanced veto power of the executive, while the presidentialism in Mexico has increasingly weakened (Hernández Rodríguez 2005; Özbudun 2012). In the prevalence of executive discretion operating through decrees plus increasing centralization and concentration of decision-making processes by an entourage of the Prime Minister, Turkey’s parliamentarism has increasingly adopted the characteristics of ‘presidentialized parliamentary systems,’ fulfilling the criteria set by Poguntke and Webb (2005). Hence, despite different regime types, the power of the executive can be considered a common trait in these cases, though the seemingly invincible executive in Mexico has lost considerable power in the last two decades (Béjar Algazi 2009; Alvarado 2009). Although Turkey has a parliamentary system, the executive has been empowered further at the expense of de facto diminishing power of the legislature, coined by Karahanoğulları (1998) as ‘parliamentarism without the parliament.’ Second, the one-party-dominant PRI (Institutional Revolutionary Party) regime withered away in Mexico when the PAN came to power in 2000. In Turkey, however, the party system has increasingly adopted a one-partydominant nature under the rule of the AKP, which self-identifies as a ‘conservative democratic party’ often rejecting continuity with ‘Muslim democrat’

10

Introduction

identity and links with the ‘National Outlook Movement,’ which espoused facets of political Islam (Hale and Özbudun 2010: 20). Last but not least, although Turkey was never considered a typical case of corporatism, some of the essential characteristics of corporatism have mostly prevailed (Parla 1989). The historical evolution of business representation in Turkey is fairly similar to its Mexican counterpart in the sense that most of the pluralist associations based on voluntary membership that were founded in the late nineteenth and early twentieth century became incorporated into the emerging semi-corporatist framework during the initiation of state-led industrialization in the mid-twentieth century. In both countries, businesses’ formal access to the state actors has always been accompanied by a variety of informal channels, epitomized by the vast presence of clientelistic mechanisms (Heper 1991; Heredia 2001; Sayarı 2011; Özel 2003). Considerable divergence across the two cases appeared recently as the compulsory membership in chambers, one of the central characteristics of corporatist systems, continues to prevail in Turkey, but was abolished in Mexico in 1996. A striking difference between these trajectories is that the power of all-encompassing organizations (mainly corporatist, but also pluralist) has declined in Mexico, in spite of their increasing role in Turkey by the beginning of the twenty-first century. Transnational ties, regional and supranational influences, have been influential in both cases, but their role has diverged regarding their impact on interest mediation. In Mexico they contributed to the emergence of an Anglo-Saxon style of lobbying, whereas in Turkey they helped strengthen all-encompassing organizations à la Europa, along with helping empower semi-corporatism. Mexico and Turkey have been greatly affected by the regional integration processes. Although the protracted Turkish accession to the EU has mostly stalled, the impact of the EU, often referred to as ‘Europeanization’, has been substantial (Müftüler-Baç 2005; Keyman and Öniş 2007; Öniş and Şenses 2009). Even though the NAFTA is limited in terms of its scope and institutionalization, it has also given rise to significant institutional changes, dubbed ‘NAFTAization’ (Aspinwall 2009). In both countries, domestic institutions and interests have filtered and reshaped the processes in which the changes occurred and operated in practice (Özel 2012). The interplay between the external sources of change and the adaptation of changes by the domestic actors on one hand, and the existing institutions and their defense by other domestic actors on the other, caused contestation of implanted institutions, often leading to conversion and drifting of institutions based on the extent of effective resistance. The discrepancy between de jure constellations of institutions and their de facto operation, i.e., conversion and drifting, is strongly marked in both countries. Egypt, Morocco, and Tunisia, as with several other countries in the MENA region, have also been engaged in regional integration processes. Since the late 1990s they have signed Euro-Med Association Agreements (EMAAs) with the European Union, aiming to establish free trade areas, and taken part in the European Neighbourhood Policy (ENP), aiming to undertake more comprehensive cooperation. It can be argued that these countries are also going through degrees of

Introduction 11 ‘Europeanization,’ as these agreements engender varying institutional reforms bringing about mixed results across countries and issue areas. The overall impact of the EMAAs and ENP has been limited compared to that of the Customs Union and NAFTA in the cases of Turkey and Mexico, as Chapter 8 will demonstrate.

Model, data, and methods This book employs a triangulation of qualitative methods including extensive archival work and in-depth interviews, analyzed through process tracing which proves useful in understanding the microfoundational dynamics of decision making, preference formation, motivations, and perceptions at both individual and organizational levels (Checkel 2002). Process tracing is germane to this study as it helps ‘narrow the list of potential causes’ of a particular outcome and identify the causal paths—along with those embedded in alternative explanations—while connecting the phases of the decision-making process (George and Bennett 2004: 206–207; Tarrow 2004: 173–174). Rather than focusing on the outcome of preference change alone, the study carries out an analysis by studying and disaggregating the preferences made under specific constraints, hence clarifying the mechanisms. The findings of this book are based on two years of extensive fieldwork in Mexico and Turkey. One-hundred-and-twenty in-depth, semi-structured interviews (59 in Mexico and 61 in Turkey) were conducted with business leaders, bureaucrats, and politicians including a number of former presidents and ministers who were actively involved in decision-making processes during market transitions, as well as managerial staff of business organizations, opinion leaders, academics and journalists. Content analysis was carried out based on extensive archival research on government and private sector statistics, documents and press releases along with media research, in addition to secondary research of various branches of the literature. Interview data have been analyzed by means of Atlas.ti software. After crosschecking with the archival data, the findings were used to establish sequences between events and changing preferences in different time periods and conditions. Interviews are displayed anonymously, since revealing the actual names of elite interviewees attached to their assertions could place them at risk. A list of the interviewees can be found in the Appendix. The use of elite interviews helped reveal how these actors were affected by changing conditions; how they perceived the prospects, uncertainty and threats they faced and evaluated their regime preferences accordingly; how they interacted with state and other non-state actors, regional and international organizations and transnational networks; and how they perceived market reforms in different time periods over the course of three decades regarding their shifting interests.

The plan of the book The following chapters will shed light on the role of the state throughout the process of market transitions between 1980 and 2012; examine the changes in

12

Introduction

institutional arrangements, particularly with respect to state–business interactions; and explore the creation of new resources to be distributed to business actors, thus generating new alliances and/or sustaining the old ones. In addition to providing a detailed analysis of coordination in two major emerging markets, Mexico and Turkey, the book will discuss similar transitions in the MENA region in light of the experiences of those two central cases. Chapter 1 lays out the theoretical and conceptual framework of the book, and situates it in various strands of the literature. Chapter 2 examines the first phase of market transitions in Turkey and Mexico (1980–2000 and 1982–1994 respectively), marked by liberalization without regulation, and state–business interactions. Chapter 3 examines increasing fragmentation in both business and the state in Turkey, which impaired the capacity to build coordination-inducing institutions in the first phase of Turkish transitions. Chapter 4 focuses on the increasing levels of cohesiveness within both business and the state in Mexico, which helped establish coordination-inducing institutions in the first phase of transitions. Chapter 5 considers the second phase of market transitions on Mexico and Turkey (1995–2012 and 2001–2012 respectively), marked by major institutional changes regarding regulation with varying degrees of competition, and state–business interactions. Chapter 6 explores the increasing cohesiveness juxtaposed with heightened polarization in Turkey, thus leading to ‘polarized cohesion’ and partially facilitating coordination, which has in turn had a positive impact on developmental outcomes. Chapter 7 scrutinizes the diminishing cohesiveness in Mexico of both the state and business, jeopardizing the efforts to build coordination-inducing institutions in the second half of the transitions. Chapter 8 applies the general framework of the book to three cases from MENA and poses questions about fragmentation vs. cohesiveness, institutions and their durability, and state–business alliances in the middle of dual transitions. It also inquires if Turkey and Mexico could be likely models for the MENA countries whose market transitions have proceeded in a protracted fashion. Chapter 9 concludes the work.

Notes 1 ‘Big business’ entails firms with more than 250 employees—and throughout the text it refers to firms and their owners. 2 During the production stage of this book, a major alliance which had been formed between the AKP government and TUSKON, the largest business association in Turkey, collapsed drastically due to a confrontation, indicating the unsteady nature of state–business alliances in Turkey. Chapter 6 discusses the emergence of that alliance and Chapter 9 briefly touches upon the developments which gave rise to this confrontation and then the collapse in 2013–2014. 3 By 2012, they have similar levels of gross domestic product per capita: US$10,666 in Turkey and US$9,749 in Mexico (in current US$) and US$13,563 and US$13,423 (in constant 2005 US$-PPP). Source: WDI 2013. 4 Evolution of the terminology referring to these countries from ‘less-developed’ and ‘developing’ to ‘emerging’ has been a recent phenomenon.

1

Market transitions, business, and the state in emerging countries

Opening of previously closed markets has never been popular, in spite of its alleged and anticipated benefits for the masses. Notwithstanding this seeming unpopularity, many emerging countries have gone through sweeping market transitions in the last three decades. These transitions have been extremely challenging for both state and society as they have affected interests through the remolding of institutional arrangements at many levels. Pressed by electoral concerns, state actors have had to invest in forming new alliances and sustaining some of the old ones. Outcomes of transitions have mostly depended on the form and content of these alliances with various societal interests. Market transitions brought about higher levels of economic development in some countries than in others, and in some time periods within the same country, too. The first wave of studies on market reforms associated successful reforms with a central and autonomous authority insulated from societal interests and political pressures. Underlining the key role played by an insulated central authority as pivotal for overcoming collective action problems and distributive conflicts, the literature drew from the examples of early liberalizers and their insulated technocratic teams. The ‘Chicago boys’ in Chile, tecnoburócratas in Mexico, ‘change teams’ in Egypt and ‘Özal’s princes’ in Turkey were pinpointed as examples of technocratic elites who implemented drastic market reforms with little input from business or society. This vein of analysis generally underlined the role of autonomous technocrats and IFIs in market reforms, along with state leadership, while largely disregarding societal actors who would potentially resist the reforms (Nelson 1990; Waterbury 1993). Haggard and Kaufman (1995: 9) argue that the successful initiation of reform depended on rulers who had personal control over economic decision making, a cohesive ‘reform team’, and the political authority to override bureaucratic and political opposition to policy change. Domestic business, predominantly the industrialists as the main beneficiaries of the previous development strategy, was considered to adapt to the new policies after they were implemented. Yet its potential influence in policy-making was neglected, or worse, seen as an obstacle to reform (Haggard and Kaufman 1992). Considering societal actors as largely pliant, state-centric models often assumed resistance on the part of business and then emphasized the need to concentrate power by forming an autonomous technocratic team to overcome that resistance to reform.

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Market transitions, business, and the state

Such state-centric models of the first wave of the market reform literature have been subject to extensive criticism (Remmer 1998). Building on this critical stance, the second wave of the literature suggests that a subtle balance of government, bureaucracy, and business determine the outcomes of market liberalization. As opposed to top-down state-centric approaches, this perspective emphasizes the crucial role of societal actors, especially business, and their necessary cooperation in the reform process (Durand and Silva 1998; Thacker 2000; Kingstone 1999; Maxfield and Schneider 1997; Silva 1996). Schneider (1998) asserts that business–state relations determine the variation in economic performance among developing countries, and successful cooperation between the two results in successfully implemented reforms. This newer wave speaks to the literature on developmental states by underscoring the important role of interactions between domestic business and state elites in the reform process. Mainly drawing from East Asia’s ‘miraculous’ development trajectory, the literature on developmental states emphasizes the importance of state capacity to intervene, control, and orchestrate societal interests, emphasizing the role of ‘Weberesque’ meritocratic bureaucracy and its close ties with business (Amsden 1989; Deyo 1987; Evans 1995; Johnson 1982; Kohli 2004; Wade 1990). It has shown in detail that the strategic and selective use of protectionism, selective provision of government subsidies, design and implementation of incentives for industrial production and exports, and generation of synergies between industry, finance and the state were all part and parcel of the good developmental outcomes between the 1950s and 1990s (Amsden 1989; Akyüz 2005; Chang 1993; Evans 1995; Johnson 1982; Wade 1990; Waldner 1999; Woo-Cummings 1999). In fact, most of these instruments were utilized by many states, including Mexico and Turkey along with MENA countries, a trend which to some extent continued even after the launching of sweeping market reforms in the 1980s. But in most of these countries informal networks between the state and business, which tend to be eulogized in East Asian cases, aggravated patrimonialism and expanded clientelistic networks, rather than bringing about productive synergies. In fact, earlier approaches to the developmental state were largely contingent to a specific time and context determined by a few players and limited fluidity (Wade 1990: 320), thus they cannot easily be applied to the new dynamics marked by fluidity in increasingly globalized markets. The industrial policy of the old regimes can no longer suffice, however selective and strategic it may be, given the increasing weight of services over manufacturing, mobile vs. fixed assets, financial vs. the real sector. The small contingents of coordination between the state and a few business actors, a determining characteristic of the former developmental states, are not apt in the new era marked by complex transnationalized links. A central authority facilitating coordination between a few state and non-state actors is too narrow for an era where an upper hand of the state over businesses to control, orchestrate and discipline often fails to serve today’s complexities (Evans 1995; Kohli 2004; Chibber 2003; Wade 1990). Instead, this highly diversified and fluid era requires branched-out synergies between the state and non-state actors, with a reach beyond the narrow elites, a characteristic trait

Market transitions, business, and the state 15 of the developmental states. Due to the increasing diversity of key actors, including domestic and transnational businesses and at times international organizations, old forms of coordination are unlikely to operate effectively. Hence, one can witness the broader incorporation of business actors into flexible platforms operating at multiple levels in order to respond to the shuffling needs of increasingly financialized and transnationalized forms in emerging economies. The state’s mediating between local and global networks in a model of flexible developmental state seems to be more apt for the current context (O’Riain 2000). Emphasizing the necessity of the new-developmental states incorporating diverse actors, this book suggests that the broader inclusion of actors—at times in transnationalized coordination platforms installed in multiple layers— increases the likelihood of effective coordination and the sustainability of institutional structures, as such structures operate as a filter against conversion and drifting. Despite the flexibility regarding the profile of the participants, these platforms still require relatively strict designs delineating the particular tasks, targets, and monitoring instruments for all actors included. This book also underscores that multi-layered and flexible coordination with the broader inclusion of actors still necessitates capacity on the part of the state and society, the capacity to build and sustain institutions, and the capacity to negotiate. The recent strands of the literature on market transitions point out a striking empirical puzzle that occurs when a domestic business supports market reforms: namely, it gives up the protection of the state and subjects itself to fierce international competition. Several studies assert that in a severe crisis, if big businesses can adjust to reforms and see the opportunities offered by the market, they may build an alliance with the state to implement reforms and become the new beneficiaries of export-oriented strategies (Kingstone 1999; Thacker 2000). Among this group, multi-sectoral conglomerates can adapt more easily as they have the capability to shift resources within their group from losing subsidiaries to winning ones (Silva 1996; Schneider 1998). Additionally, these giant entities can become the beneficiaries of financialization, which then fosters adjustment capabilities, a link inadequately examined in the respective literature. Most typologies to classify business preferences—business-as-capital (the Stolper-Samuelson approach), business-as-sector (the Ricardo–Viner approach), business-as-firm, business-as-association, and business-as-personal-networks (Haggard and Kaufman 1997)—ignore multi-sector conglomerates, whose affiliated companies spread over many sectors, ranging across import-competing and export-oriented categories. Multi-sectoral conglomerates dominate in both Turkish and Mexican markets, as well as those of MENA. Their responses to market transitions challenge the common assumption that import-competing interests would oppose trade liberalization while exporting interests would support it (Frieden 1991). Such assumptions, based on the sectoral approach, are used in reference to cases including Mexico where export-oriented big business was allegedly supporting liberalization, while import-competing business opposed it (Puga and Tirado 1992). These claims often lack adequate empirical support: they appear to be based on post hoc observations, as the export

16

Market transitions, business, and the state

orientation of Mexican big business (except for the foreign-owned maquiladoras) mostly emerged later in the 1980s (Heredia 1996: 185). Likewise, the Turkish big business also became exporters mostly in the 1980s and 1990s. In both cases, the same actors became both import competing and export oriented, sometimes in the same sectors. Thus, the assertion that the big business supported liberalization from the beginning is subject to question. As Heredia (1996: 95) asserts, all businesses, including big business, opposed opening in the beginning, and ‘more conservative and anti-statist in outlook, large industrial firms . . . tended to be as protectionist as the rest.’ Market transitions offered trade-offs between different policies and institutional changes, which involved ‘comprehensive policy bundles’ promising a wide range of benefits such as easing state regulation, maintaining a marketbased price mechanism, and facilitating stabilization, besides the costs. Therefore, it is a challenging task to delineate business’s response to distinct components of the bundle. Decreasing public debt, alleviating inflationary pressures, creating new finance sources for the private sector (as state borrowing causes a crowding-out effect on private investment), and enhancing investment infrastructure were protracted demands of domestic businesses. Simultaneous implementation of these measures, including stabilization and liberalization, complicates the analysis of industrialists’ responses to independent components. In some instances, implementation of anti-inflationary measures was so urgent that, when liberalization of the import regime came along with those measures, industrialists’ response was supportive of the whole package—or at least they did not oppose it, perceiving liberalization as a necessary component of stabilization packages. Thus, certain benefits of transitions might compensate the cost of competition, or certain costs might be higher than others. Governments that were able to construct issue linkages to persuade businesses about the benefits proceeded with reforms more steadily than the others, and coordination-inducing institutions eased persuasion. This is what happened in Mexico: government’s issue linkages helped persuade business, as liberalization was justified and instrumentally used towards a larger goal of stabilization. Seizing the window of opportunity to access global markets, and collaboration with foreign capital, while bearing the cost of adjustment, became key to such persuasion. The strategy through which industry adjusts to trade liberalization particularly has three central aspects, all contingent on the capabilities of domestic businesses and those of the states: adjusting to import; adjusting to compete; and room to adjust. The adjustment to import refers to the ease of importation through abolition of protectionist barriers. This challenging shift created benefits because businesses could import lower-cost inputs for manufacturing, highly important for countries like Turkey, where import dependency is higher. The adjustment to compete refers to the manufacturing sector’s ability to compete with imports through strategies including shifting resources from import competing to exporting sectors, as well as mergers, acquisitions, joint ventures, and sub-contracts. The conglomerates’ multi-sectoral structure gives them increased scope to implement such adjustment strategies, and in particular to shift

Market transitions, business, and the state 17 resources between affiliates that are spread across both import-competing and export-oriented categories. This advantage allowed former beneficiaries of the ISI strategy to become the new beneficiaries of opening. Therefore, sector-based explanations become obsolete regarding the responses of big business, whose activities are not restricted to a particular sector. In cases like Turkey and Morocco, some SMEs have also benefited from opening; they have increasingly integrated into the global economy as sub-contractors and exporters. Room to adjust is generated by the time lag between the initiation of liberalization and the threat of increasing imports. It may result from the inherently weak capacity to import of markets in the throes of severe debt and foreign exchange crises, and the concomitant scarcity of foreign exchange, as in the case of Turkey. Demand-restraint policies implemented under the surveillance of the IFIs contribute to this lag, constituting a natural barrier to imports. Governments’ deliberate policies and concessions may shape the room to adjust for businesses. Some recent studies point out the essential importance of cooperation between business and state actors through consultative mechanisms or the means by which business has ‘access’ to policy-making (Kingstone 1999; Schneider 2004; Thacker 2000). Access is definitely important, but in addition to the sheer existence of access, ‘how to access’ and ‘whose access’ equally matter in shaping the dynamics and outcomes of coordination. Where there is narrow access by a few, the alliances adopt an exclusionary format that reproduces the arrangements of political and economic institutions, generating ‘limited access social orders’ (North et al. 2013). Although the adjustment capacity of big business has mostly held true, in most countries business’s stance towards reforms has oscillated between support and opposition, at times manifesting itself with extreme resistance. Such fluctuating behavior is also reflected in the attitude of state elites toward the reforms, even during the tenure of a single government. Thus, preference and policy shifts have been more common than the steady preferences and accompanying linear progression of reforms assumed in much of the literature. The literature on state–business interactions in market transitions partially explains the formation of alliances. Although these studies have offered compelling accounts on state–business interactions and alliances in market reforms, they mostly treat alliances as stable formations, generally focusing on their initial establishment (Durand and Silva 1998; Thacker 2000; Kingstone 1999; Maxfield and Schneider 1997; Schneider 1998). In reality, alliances are not stable formations; they are vulnerable and subject to erosion unless the necessary institutional arrangements exist. Reform alliances in general are vulnerable to electoral pressures in a protracted crisis (Waterbury 1993; Buğra 1994; Haggard and Webb 1994). Increasing electoral pressure leads to the political insecurity of the incumbent, hence higher discount rates. Inherent political costs of reforms make distributive strategies that undermine reform a likely option for state officials seeking to retain office (Geddes 1994). Political cost and alliance erosion may aggravate such backlash, causing even greater electoral pressure on incumbents, and leading to further degradation of state–business ties: a vicious,

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Market transitions, business, and the state

degenerative cycle. In short, the picture is incomplete without a frame tracing the dynamics of state–business alliances in the long term, which has been often neglected in the literature. This book hopes to fill this gap through examining the institutional underpinnings of state–business interactions and scrutinizing the formation and evolution of institutions that facilitate state–business coordination. Thirty years into their market reforms, Mexico and Turkey provide good cases to explore cross-case and cross-temporal variations in respect of these questions. This book conceptualizes reform alliances through two distinct—yet related— sets of alliances: electoral alliances in which business and the state coalesce behind a party or candidate; and governing alliances in which they coalesce through actions aimed at supporting specific policies.1 A good indicator for alliances is business’s mobilization to show its support for the reform process in general and reforming governments in particular. The existence or absence of such mobilization can be analyzed by examining business’s lobbying for or against the reforms or reforming governments. Alliance sustainability refers to the continuity of business’s support for reforming governments (the same or different). Businesses’ preferences are not static and are not simply direct reflections of market positioning; they are continuously shaped by exigent political institutions and the conflict these might engender. They are molded by particular institutional arrangements that often go through endogenous changes (Thelen 1997).

Adjusting in coordination: actors and institutions Market transitions are inherently costly processes for business actors, who are more likely to invest in adjustment once they perceive others’ commitments as credible (Kingstone 1999; Rodrik 1989). Where there are credible commitments, reform alliances are more likely to be formed and sustained, but they are difficult to materialize due to prevalent uncertainties. Institutions that reduce uncertainties and provide actors with instruments to exchange information and monitor others’ behavior would enhance the ability of actors to make such commitments (Ostrom 1990). Such institutions which facilitate information exchange and monitoring have been mostly studied in the context of old-school corporatist platforms, both by the literature on market reforms (Schneider 1998; Thacker 2000) and that on neo-corporatism (Streeck and Kenworthy 2005; Schmitter and Lehmbruch 1992). Taking institutions at face value, most studies gloss over the discrepancy between de jure constellation and de facto operation of institutions, thus dismissing effectiveness in neo-corporatist arrangements (Culpepper 2003). Furthermore, in the new era of state–business interactions, information flow and coordination may be facilitated by platforms other than the neo-corporatist arrangements. Coordination with the state tends to be a common demand across businesses in emerging countries. But it is difficult to attain, since attempts to coordinate might easily fail in the absence of cohesive actors, and particularistic lobbying becomes common practice (Kingstone 1999: 255). In polities with a strong

Market transitions, business, and the state 19 legacy of authoritarianism, state elites tend to consider policy networks as threats to their power and autonomy. Mexico and Turkey, as well as most MENA countries, have such legacies of authoritarianism, accompanied by heightened veto power of the executive. But in Mexico, there was a considerable level of consultation with business during the first phase of market transitions. In Turkey, in contrast, repeated attempts by business actors (in some instances also by state actors) to become involved in the policy-making process failed to produce similar results in the first phase of transitions. In the second phase of transitions, however, there has been a higher degree of coordination between the state and businesses, indicating considerable within-case variation. Why are some states capable of building such institutions, while repeated attempts elsewhere or in similar other time period within the same state fail? The trajectories of Mexico and Turkey as well as the MENA countries demonstrate that capacities of the state and business matter in building such institutions, and higher capacity is mostly brought about by cohesive actors. They indicate that institution-building attempts are prone to fail when fragmented actors exist in both the state and society. Where business and state actors are more cohesive, their respective capacities will be enhanced, increasing the likelihood of institution building. Long before the market transitions became a prevalent trend in emerging countries, Hirschman (1970: 119) suggested that ‘only a cohesive, vocal and highly influential national bourgeoisie is likely to carry industrialization beyond relatively safe import substitution to the risky export-oriented state’. Given that perfectly cohesive actors do not exist in empirical reality, there can only be degrees of and approximation to cohesiveness, rather than absolute values. Embedded or crony? Based on a near-consensus on the need to interact with society, the literature generally underscores the importance of the state’s formal and informal ties with domestic business (Evans 1995; Kohli 2004). Wade (1990) suggests that the norms of developmental states originate from intense dialogs with business. Evans’s famous concept of ‘embedded autonomy’ refers to: a concrete set of connections that link the state intimately and aggressively to particular social groups with whom the state shares a joint project of transformation. . . . [But] either autonomy or embeddedness may produce perverse results without the other . . . [and] the secret . . . lies in the amalgam’ (Evans 1995: 49, 59) Without autonomy, according to Evans, embeddedness may become captured. And without embeddedness, autonomy might not result in an interest in development, pointing out the importance of networks among the bureaucrats, networks between the bureaucrats and the private sector, and networks between bureaucratic agencies. Referring to Johnson (1982: 57–59) and his analysis of informal networks in Japanese bureaucracy, Evans underlines the centrality of

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gakubatsu (ties among classmates at the elite universities from which officials are recruited) as epitomizing such close-knit networks. Nonetheless, the boundaries between embeddedness and cronyism can easily become blurred in many polities as the informal networks succumb to opportunistic cycles (Barkey 1990). Indeed, similar close-knit networks existed in Mexico and Turkey, as well as various MENA countries, and did not necessarily yield virtuous cycles. For instance, in Turkey, for most of the twentieth century top bureaucratic agencies (including the foreign service) hired nearly exclusively from the Mülkiye school, whose graduates had been dominant in the state since the late Ottoman Empire. The importance of this school was embodied by the expression ‘first Mülkiye, then Türkiye’. In Egypt, the ‘Dufaa networks’ associated with school ties (secondary school, universities and military schools) have historically been influential, entailing exclusionary power to affect policymaking, and constitute and access state cadres (Waterbury 1983; Devlin 2010). Yet, such shared origins and network creation has not prevented fragmentation; networks within and between bureaucracy and the private sector in Egypt and Turkey have similarly failed to generate cohesiveness. The amakudari (‘descent from heaven,’ i.e., the tendency of the private sector to hire retiring bureaucrats) phenomenon also exists in many countries, including Mexico, Turkey, Egypt, Morocco, and Tunisia, since most bureaucrats having held top positions in the economic bureaucracy are hired by private companies later. Yet this practice often furthers fragmentation by bolstering particularistic ties. Thus, embedded autonomy is a powerful concept to help understand the interactions between the state and business. However, the outcomes of such embedded autonomy might not necessarily bolster good developmental outcomes, but rather reproduce ‘clientelistic’ relationships, benefiting a few. Which informal networks, then, lead to cronyism, while others are considered ideally embedded à la Evans? Why has institution building been so hard in many polities, despite the fact that examples of successful developmental states were known? The toolbox was there, but using the tools was not, indeed, an easy task. State cohesiveness State cohesiveness refers to the state elites’ ability to generate collective action regarding economic development in general, and reform making in particular. State actors might share collective goals and strategies, but in practice such collective action depends on the authority constellation within the state, which often becomes an arena of rivalry with overlapping claims across actors and agencies. Coordination of authority between agencies is key to execute economic policies and long-term strategies. In the era of state-led development, such coordination tended to be maintained by a lead agency charged with overseeing the other agencies in all issue areas. However, today’s liberalized and globalized setting often hosts multiple actors in a more flexible format. Shedding light on this intermediate level, this book examines how different agencies within the state interact with one another and how the authority constellation is established.

Market transitions, business, and the state 21 Achieving and maintaining state cohesiveness is often difficult. In democratic and semi-democratic regimes alike, the hierarchy among agencies is often unclear, causing competition for authority and resources, while impairing vital horizontal information exchanges. Lack of compliance within the state becomes a severe problem in such settings, as one agency’s goals and undertakings meet challenges from others, resulting in uncoordinated acts. Market transitions broaden potential conflict areas between agencies. Given the entrenched interests of some bureaucrats in pre-transition economic strategies, as well as their ideological dispositions, which tend to be strong in countries like Turkey and Mexico, strong bureaucracies can easily act like stumbling blocks over the course of market transitions. In fragmented states, bureaucracy becomes a politicized and partitioned instrument for competing political actors, who shuffle alliances with multiple entities, while business actors search out multiple venues to form new allegiances. In fragmented settings, transition can easily become an ad hoc process with diminishing predictability, as incumbents compete in highly volatile political settings that open up endless opportunities for the business actors to undertake particularistic lobbying with a politicized and partitioned bureaucracy, as well as with politicians themselves. Wide patronage networks ease such shuffling between actors, as those networks are also reproduced in this process. Given the fragmentation and resulting instability, such an erratic pattern also gives rise to repeated shifts between support and opposition for economic reforms, support and opposition for the incumbent, and support and opposition for multiple opposition parties. In many countries, bureaucracies are highly subject to political maneuvering. Turkey’s State Planning Organization (SPO) and Mexico’s Secretary of Programming and Budget (SPB) were founded around the same time period as South Korea’s Economic Planning Board (EPB); each of these bodies was similarly granted authority to oversee development strategies and economic policies. Yet the outcomes diverged over time, so that the EPB became a ‘super agency’ regarding the execution of development strategy (Evans 1995: 52), while the SPO suffered from rivalry from within and outside, subjecting its authority constellation to repeated changes, and the SPB was dismantled and merged into the Finance Ministry in 1992 by President Carlos Salinas de Gortari, who had run the SPB before his presidency. The all-powerful EPB was also dismantled in 1996, but the SPO has gone through a major revival. Its status has recently been entirely changed: it is now the Ministry of Development. In fact, Turkey’s late President Turgut Özal, the architect of market reforms in Turkey, had attempted to dismantle the SPO, the agency that he had managed before becoming the Minister of Economy in 1980, but could only succeed in weakening it—and then bypassing it whenever necessary. Despite the day-to-day occurrence of such political maneuvering in bureaucratic agencies, institutional designs are depicted in most studies on East Asian developmental states as insulated from politics, based on the assumption that rational Weberian bureaucracies are impermeable and cannot be affected by political struggles or informal contacts. As the examples of the SPO, EPB and

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SPB indicate, in the real world bureaucracies are often penetrated and tend to be ‘used’ based on varying political interests. Thus, politics—negotiation, give-and-take, struggle, and conflict—needs to be brought back into the discussion. Migdal (2001: 22) emphasizes the ‘paradoxical quality of the state’, its dual nature oscillating between the ‘powerful image of a clearly bounded, unified organization’ and ‘practices of a heap of loosely connected parts or fragments’. Therefore, the distance between the idea and the practices of the state is generally large, as images of coherence and unity are not necessarily reflected in practices characterized by fragmentation and conflict. Business cohesiveness The literature on capacity to build consultative institutions is mostly statecentered and tends to reduce social actors’ capacity to state-controlled labor and business organizations (Hall and Soskice 2001; Weiss 1998; Schmitter and Lehmbruch 1979). State capacity per se, though accentuated in both scholarly literature and policy-making circles as the key determinant of a number of positive outcomes, is necessary but not sufficient for establishing coordination-inducing institutions. Business cohesiveness matters to build coordination-inducing institutions, and may be defined as businesses’ generating collective action to mobilize towards a common perspective about specific policies or strategies. In practice, such collective action is best achieved by peak actors who aggregate diverse interests in the business community and become interlocutors vis-à-vis the state (Schneider 1998, 2004; Silva 1996). Nonetheless, all-encompassing business organizations exist in many countries without representative legitimacy, or they lose their legitimacy over time. Thus, what matters is the presence of organizations (be they corporatist or semi-corporatist chambers, confederations, unions of chambers or pluralist associations, confederations, councils, and the like) that have representative legitimacy in relation to their constituencies, and that maintain the capability to aggregate and mobilize diverse interests towards collective action.2 Fragmentation in the business community curtails coordination within business and between business and the state. It is reflected at the state level as business seeks to maximize its short-term benefits via personal access to rulers, and politicians tend to use private-sector cleavages to their own advantage. Migdal (1988) elucidates how fragmented societies give rise to a politics of survival, weakening states’ abilities. Actors in such settings, like in Turkey, shuffle their alliances based on shifting political allegiances, and often such subtle balances are sustained through rent-distribution (Barkey 1990: 168). Bureaucracy becomes the central battlefield in this process, and serves as an instrument to distribute patronage. Fragmentation in both state and business diminishes the actors’ capacity to generate long-term goals and implement them. The outcome is usually inconsistent economic policy-making, endangering the stability of market reform processes. In fragmented contexts, state–business relations tend

Market transitions, business, and the state 23 to be unsteady, vacillating within a broad range between intense conflict and productive cooperation (Kingstone 1999; Kohli 2004). In his canonical comparative study on Latin America, Schneider (2004: 5) suggests that it is the states that ‘organize and disorganize business.’ Yet, in some settings, the state’s intentional or unintentional attempts to organize business may further fragment the business sector. Although so-called ‘defensive organizations’ emerged in many countries in response to heavy-handed state maneuvers, they were mostly too weak or too small to lead to a peak organization. The literature generally considers threats generated by the labor movement as subsumed by the state, as if labor and the state become one single entity when it comes to threatening business actors (Schneider 2004; Briz Garizurieta 2002; Alba Vega 2003). In Turkey, as well as in several other MENA countries, state actors never allied with labor, and even the most reformist governments could not ‘own’ the threats generated by labor, though some governments were ‘closer’ to labor than others. Indeed, the historical evolution of state–labor relations in Mexico and Turkey has been remarkably different and the different paths have persisted throughout the market transitions. In Mexico, a centralized and cohesive union movement has been increasingly fragmented, while in Turkey, the fragmented union movement has become increasingly centralized and cohesive during the same timeframe (Kuş and Özel 2010). Hence state-centric approaches are inadequate to explain business cohesiveness, because threats perceived by business actors are sometimes posed by forces independent of the state. Business actors’ perceptions can be shaped by threats against property rights, and actual and/or rhetorical antagonism. Threats from labor can also take explicit and implicit forms along a wide range, from economy-wide or sectoral strikes (or anticipation of these), to attacks against private property or against businesspeople themselves. In settings where the state aligns with labor, threats can become more severe, or can be perceived as such by businesspeople. In addition, business can be threatened by the other actors within the business community, their growing power, and their links with the state actors. Such perceptions may be heightened by severe crises, economic and political alike. The severity of threat perception is inevitably a subjective matter, but a careful qualitative study can pinpoint the instances where threats become severe for businesses, so that the stakes would be too high for them not to invest in cohesiveness. Thus, the likelihood of attaining cohesiveness increases when the stakes are high: the actual or anticipated cost resulting from exogenous shocks or endogenous changes. Severe crises (economic, political or social) increase the stakes, intensifying the perception of threat, often leading to business investing in cohesiveness. Severe economic crisis, a probable or actual regime change, and state alliances with rival social groups (labor and/or alternative groups within businesses) all increase the likelihood of cohesiveness. In the Turkish case, the stakes included the EU accession process, perceived threat of regime change, and the rivalry posed by newcomers and the state’s alliance with those, along with severe crises. In the Mexican case, they involved perceived threats on

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property rights, labor’s increasing power, the state tilting to the left and forging strong alliances with labor, and severe crises along with the NAFTA accession. Thus, this book will examine processes of mobilization to generate collective action, delineating the conditions under which such processes come into existence and are sustained through an analysis of historical trajectories, institutions and the patterns of internationalization and transnationalization.

Formation and evolution of institutions: coordination between state and business Coordination-inducing institutions help gather and disperse information on policies, regulations, strategies, and investment plans, and distribute responsibilities between state and business actors, thus serving to diminish transaction costs. Helping internalize coordination failures, these institutions increase the likelihood of strategic collaboration between the key actors (Rodrik 2004). Commensurate with the diversified nature of globalized interactions, coordination usually takes place at different levels between multiple actors. Coordination-inducing institutions include platforms or mechanisms for consultation embedded in various forms of institutional structures, and bear different names in different settings: assemblies, boards, councils, committees, public–private networks, and pacts. They may be centralized or decentralized; and they can include different actors at different levels, regional, national, supranational and transnational alike. The design of these institutions—with respect to their authority constellations, profile and roles of participating actors, effectiveness of their participation, monitoring and sanctioning mechanisms—matter, because they might evolve into futile platforms established as window dressing under the pressure of external actors, or into outlets of rent-seeking activity between the state and business actors. Although the mere existence of these institutions linking state to business does matter, they take different forms that shape coordination. It is possible to schematically plot out these diverse forms in a range between facilitating communication and information exchange without necessarily including consultation, and maintaining well-defined constraints for all parties including the state. Where these institutions are limited to open communication channels and information exchange, they will be considered to generate low levels of coordination. Where they seek consultation, but application of results to actual policies is dependent on state actors’ discretion, they will be considered to produce medium-level coordination. If they operate through the formation of joint committees and/or project teams, and then reach joint decisions, they will be considered to yield medium-high levels of coordination. Finally, where targets are set for all actors, subject to monitoring by other participants, or even sanctioning in certain cases, then they will be considered to result in a high level of coordination—a rare occurrence in most emerging countries. Paradoxically, the higher levels of coordination are attained at the times of lower level trust between business and the state, as in the case of Mexico’s

Market transitions, business, and the state 25 Pact of Solidarity in the midst of a severe crisis in 1987, and Turkey’s Economic Issues Evaluation Board which was established following a severe crisis in 2001. Willingness to attain higher levels of coordination is often brought about by the urgency of yielding credible commitments in low-trust environments, which is indeed in line with what the literature on credible commitments widely argues (North and Weingast 1989; Ostrom 1999; Rodrik 1989). This book will apply this scale to the major coordination-inducing institutions that have existed in Turkey and Mexico in the last three decades, with varying life cycles. It would be a mistake to assume that these institutions are likely to endure through pressures, political conflicts and power struggles. Indeed, they can be extremely short-lived, despite their effectiveness during their brief lifespan. The empirical reality demonstrates that those facilitating the highest levels of coordination fade away sooner than the others, because of the constraints they pose on the actors with high veto power. This book considers three life trajectories for these institutions: 1 2 3

one-shot occurrences that tend to be established at times when the stakes are high (e.g., severe crises) and are then dismantled or disappear; occurrences that are repeated in times of crisis although they are not regularized; occurrences that are regularized in the sense that they become habitual.

Nonetheless, even in case of regularized institutions, their de facto operation might significantly diverge from their de jure status and they may end up drifting, layering or being converted, mostly by the interference of veto players, as the following sections will discuss. A common phenomenon in emerging countries is that establishment of institutions does not necessarily guarantee their effective operation, notwithstanding how formally and rigidly institutionalized they are. They might be undermined in day-to-day practice, adopting new formats at the discretion of the individuals who are in charge of governing them; they might just fade away, or never be implemented based on the explicit or implicit preferences of the actors, particularly those with greater veto power in given polities. Although institutional analyses have pervaded contemporary social sciences for the last few decades, many studies in different branches of the literature sidestep institutional change, failing to explain how institutions deemed to cause a number of significant outcomes come into existence in the first place. All variants of institutional approaches—rational choice, and historical and sociological institutionalism alike—mostly tackle the self-perpetuating nature of institutions rather than their evolution, based on varying perspectives on path-dependency (Levi 1997; Pierson 2004). Taking institutions as constants, implicitly or explicitly, these approaches mostly focus on explaining the persistence of institutional patterns along with their impact on varying outcomes, unintentionally trapped by a rather static account (Mahoney and Thelen 2010).

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Institutions often evolve in different directions and diverge from their initial goals, as their reproduction is a political process on its own (Streeck and Thelen 2005). Recent studies tackling endogenous change underline the significance of power-distributional issues in fostering institutional change. Pointing out the role of ‘soft spots’ between the rules and their interpretations, along with enforcement, in triggering institutional change, Mahoney and Thelen (2010: 14) assert: ‘What animates change is the power-distributional implications of institutions.’ The grounds for the existence of institutions are constantly contested by many actors, including those who are placed in alliances ruling certain institutions. Thus, institutional change might occur through intended or unintended consequences of such contestations. When the balance of power shifts between the actors, contestation over the rules and their interpretation becomes more pronounced, and institutional re-arrangement will be a likely outcome. Hence, distribution of resources in particular ways may give rise to a gradual evolution of institutions that may ultimately be as substantial as the changes induced by exogenous shocks. In a similar vein, Acemoğlu and Robinson (2012) emphasize the role of political conflict in bringing about institutional change. Delineating the differences between extractive and inclusive political institutions along with the resulting variation in developmental outcomes, they consider institutions that maintain the concentration of power in the hands of a narrow elite who do not face adequate constraints as extractive, and those which are ‘sufficiently centralized and pluralistic’ as inclusive, whereby they treat both traits as necessary but not sufficient (2012: 43). In a feedback loop, they state that extractive economic institutions depend on extractive political institutions, and help consolidate the political dominance of a narrow elite through reproducing their wealth and power (2012: 81). Thus, the contestation of political power which distributes the resources narrowly is essential to facilitate institutional change from extractive to inclusive institutions. In Mexico and Turkey, as well as MENA countries, both exogenous and endogenous changes have been significant in causing changes in institutional arrangements. Exogenous institutional changes have been widespread as severe crises and impositions by international and regional agents have marked the transitions in the last 30 years. The interplay between the external sources of change, the adoption of changes by some domestic actors, and the defense of existing institutions by others, have caused substantial tension and contestation of the institutions implanted by direct and/or indirect pressures by external actors. Such contestation becomes more effective at the level of implementation, as is displayed by the discrepancy between de jure constellations of institutions and their de facto operation, i.e., institutional decoupling, a common occurrence in most emerging countries (Özel 2012). Institutions might be intact on paper, but in practice they might be manipulated through a number of mechanisms, leading to their conversion, which ‘occurs when rules remain formally the same but are interpreted and enacted in new ways’ (Mahoney and Thelen 2010: 17).

Market transitions, business, and the state 27 In many emerging countries, institutions tend to be established with ambiguities that are later used by key actors—public and private alike—to tilt distributive consequences. Hence, both public and private actors can trigger institutional changes by raising manifold demands regarding the implementation and/or interpretation of the rules. More often than not, these actors opt to use the ambiguous spaces that the institutional arrangements provide, so that they can produce favorable outcomes from unfavorable arrangements. They create overlapping rules and norms without dismantling the existing ones, a process Mahoney and Thelen (2010: 16) call layering which ‘occurs when rules are attached to existing ones, thereby changing the ways in which the original rules structure behavior.’ Those interventions in the form of amendments and revisions of the existing rules might bring about major institutional changes, diverging from the initial institutional arrangements. Last, but not least, political ownership of institutions by political agents is crucial, particularly in cases where there are strong veto players and institutional changes may take place in the aegis of international, regional and supranational organizations. When institutions are not (owned), they are easily converted by strong veto players, so that they lack effectiveness in their de facto operations, or diverge from the logic of their de jure constellations. Therefore, they remain as window dressing to fulfill varying conditionalities, policy recommendations, and the like. An important institutional characteristic is the presence of strong veto players in particular polities; and constraints on those. As Mahoney and Thelen (2010: 17, 19) point out, where there are strong veto players then layering, conversion and drifting (which occurs ‘when rules remain formally the same but their impact changes as a result of shifts in external conditions’) become likely strategies. The following chapters on Mexico, Turkey and three MENA countries will delineate the ways in which such endogenous changes take place, along with exogenous ones. They will explore the ways in which varying forms of institutions bring about varying forms of alliances between the state and business actors in contexts shaped by expanding links to global markets and networks.

Notes 1 This conceptualization originated with Kingstone (1999: xxi). 2 Throughout this book, the phrase ‘corporatist organizations’ will refer to those having semi-public legal status—and usually based on compulsory membership—while ‘pluralist organizations’ will refer to those based on voluntary membership.

2

Diverging pioneers Trajectories of Mexico and Turkey in the first phases of market transitions

Introduction In both Mexico and Turkey, severe economic crises have brought about drastic changes in institutional frameworks, policies and policy-making processes, and fostered degrees of market liberalization. A puzzling pro-liberalization alliance between the state and big business emerged in the 1980s in both countries, despite the fact that comprehensive market transition programs would halt some of the earlier benefits provided for domestic businesses. Institutions facilitating coordination between the state and business helped sustain these alliances. In the first phase of transitions, such institutions were mostly lacking or were weak in Turkey, while they were present in Mexico. In both cases, they have been subject to processes of drifting and conversion. In Mexico, the first phase of market transitions was carried out by the PRI regime, exemplifying ‘change within continuity’ (Elizondo Mayer-Serra 2002). Nonetheless, political institutions changed substantially, notwithstanding the PRI’s continuing rule through the 1980s and 1990s. A new group of elites with a drastically different profile replaced the so-called ‘revolutionary family’ within the PRI (Alba Vega 2003). Despite the multiple critical junctures induced by military interventions and economic crises, some of the old institutions in Turkey also survived, similarly embodying continuity within change. For businesses, the severity of a crisis can make the status quo more costly than a potential change, so that especially big business becomes more willing to take risks during severe crises that threaten its survival. Business’s capability to adjust to reforms is another factor behind initial reform alliances, and dominant corporate structures in big business in both Mexico and Turkey engendered such capabilities. However, it is misleading to view business’s seemingly paradoxical stance towards market transitions as an ad hoc occurrence as it evolved in time, resulting in backlashes in some cases. In Mexico, there was a steady progression of business’s support for market reforms in general and trade liberalization in particular in the 1980s and 1990s. In Turkey, however, business’s response took on a zigzagging pattern of support and opposition. Examining the first phases of market transitions in Mexico (1982–1994) and Turkey (1980–2000), this chapter discusses the formation of state–business alliances. It accounts for the historical

Diverging pioneers: Mexico and Turkey, 1st phase 29 antecedents of these alliances, especially the dynamics of state–business interaction throughout the state-led development era. It demonstrates how exogenous shocks affected state–business relations and the formation of reform alliances. It then sheds light on the impact of coordination-inducing institutions on the evolution of these alliances.

Antecedents of market reforms and reform alliances: the ISI pact, crises and the responses Launching of the market transitions in both Mexico and Turkey in the early 1980s and the support of the business community was puzzling given the ‘implicit pact’ between the state and businesses (especially industrialists). This pact was based on the former’s provision of substantial benefits in the context of the ISI regime and its adjoining arrangements, which created high levels of capital concentration in the hands of a few while setting direct and indirect barriers to entry. But the beneficiaries of these arrangements initially supported the reforms at the cost of foregoing hefty benefits. The ISI pact In both countries, the state created and/or nurtured domestic industry, supporting the formation and growth of private capital, despite the emphasis on the state’s leading role in the economy set in the respective constitutions (Alba Vega 2006; Buğra 1994). State-led development was launched in the context of nationbuilding process in both cases, interlacing with one another based on a powerful discourse that the creation of a strong nation needed a strong national industry. Both countries went through a tumultuous period of armed conflict in the 1910s and early 1920s. Although the ‘revolutionary’ paths were different, the resulting nationalistic spirit with a heightened sense of sovereignty was similar, with different meanings in both countries (Özbudun 1970). Industrialists became the key elements of Mexico’s ‘revolutionary family’ and Turkey’s ‘national economy,’ closely allying with the newly emerging semi-authoritarian regimes based respectively on one-party-dominant and single-party rule (Alba Vega 2003; Toprak 1995). Turkey’s transition to multi-party regime in 1950 did not halt this alliance, but made it stronger through the institutionalization of the importsubstitution industrialization (ISI) regime. Both states became highly interventionist, while eagerly supporting capitalistic development and offering carrots and sticks to domestic capitalists. In Mexico, the PRI regime’s stance towards private enterprise went through several shifts, adopting an anti-business tone particularly during Cardenismo (1934–1940) and Echevarrismo (1976–1982), heightening the perceived threats for businesses (Puga 2004, Luna 1992b). In Turkey, such threats were relatively less, accompanied by the state’s steadier support and business’s higher dependency on the state (Buğra 1994). A major difference is that a formidable business community preceded the Mexican revolution, which posed actual threats against

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Diverging pioneers: Mexico and Turkey, 1st phase

property rights and a state-formation period, while such a community was largely absent in Turkey. Some Mexican businesses entrenched themselves against the new regime and its alliance with labor, establishing an anti-statist stance by the late 1920s (see Chapter 4). Another structural difference is that Mexican business enjoyed an ‘exit option,’ i.e., disinvestment and capital flight, that was non-existent for Turkish business before the mid-1980s (Hirschman 1970; Heredia 1996). In Turkey, a codependent relationship was formed at the juncture of stateformation (Keyder 1987). The roots of today’s big business in Turkey reach back only to the 1930s at the most, and even to the 1950s and 1960s for many firms, increasing Turkish business’s dependency on the state (Buğra 1994). Higher levels of dependency of Turkish business was compensated by scarce threats from the state. Weakness of labor was another distinguishing factor. Although the labor movement strengthened in Turkey during the 1960s and 1970s, with some governments showing more sympathy to the unions than others, its link to the state was never like in Mexico, where the PRI incorporated the organized labor, effectively controlling and co-opting it later on (Kuş and Özel 2010). Despite their nationalistic discourse entailing a strong resentment against foreign capital, both markets hosted foreign investment during the era of stateled developmentalism. The Mexican case is more striking, since Cardenismo’s strong entrenchment against foreign capital and nationalization did not thwart foreign investment in the later periods, even in the most strategic sectors. Multinational companies (MNCs) always played a greater role in Mexico than in Turkey, creating narrow opportunities with limited domestic linkages for Mexican businesses. In Turkey, the competition between foreign and domestic capital was highly restrained and higher level of domestic linkages have been established, and the largest enterprises came in joint ventures with domestic capital and the pension fund of the Turkish army. Carrots The ISI pact was lucrative for domestic industry under the auspices of both interventionist states, which applied a wide range of instruments: protectionist foreign trade regimes, generous subsidies, cheap credits, tax and investment incentives, government contracts, and favorable interest and exchange rate regimes accompanied by subsidized purchasing power. High tariff and non-tariff barriers shielded big business from foreign competition and sometimes from small- and mediumsized domestic competitors. Concomitant to the ISI strategy’s core principles, exchange rates were kept at a ‘desired level,’ and importation was controlled through quotas, licenses and import lists, accompanied by complex procedures, giving rise to highly politicized processes of resource distribution. Access to these resources often required ‘priority’ from the related offices, and it was mostly big business that acquired these resources. The insulated market had the additional benefit of a large population with an inflated purchasing power, as the state in both countries—the largest employer—instituted high wage policies and subsidized the

Diverging pioneers: Mexico and Turkey, 1st phase 31 agricultural sector, pumping the demand for domestically manufactured products (Pamuk 2008). Markets expanded further through widespread use of such instruments, incorporating an increasing urban and rural population into the consumption chains (Boratav 1988; Ortiz Mena 1998). The Turkish state deliberately sustained the band between inflation and real interest rates by fixing real interest rates at negative levels, creating a strong investment incentive for big business. State-owned enterprises (SOEs) were part of the implicit pact in both countries. Although the SOEs were engaged in many sectors, from milk to oil, and provided concessional credits, they generally did not rival the private sector. Initially launched in the 1930s in the spirit of etatism by the reformist Lázaro Cárdenas and the statist İnönü governments, SOEs were considered complementary to private enterprises. SOEs had a strategic role and were designed to produce cheap commodities—by means of price controls—to bolster the profitability of private industrial enterprises (Boratav and Yeldan 2002). Even more noteworthy than this was the provision of credits at substantially low costs and favorable terms by the state-owned banks. In time, the SOEs expanded significantly. Turkish SOEs made about 60 percent of total value added in manufacturing in the 1960s, 40 percent in the early 1980s, and 18.5 percent in 2000 (OECD 2011). These arrangements engendered large multi-sectoral conglomerates and interfirm proprietary structures, providing incentives towards monopolization and oligopolization. Conglomerates were often encouraged to specialize in distinct fields, partitioning the production of consumer products (especially in Turkey). Regulations such as prohibitions on second-hand machinery imports often precluded small- and medium-sized domestic enterprises from making costeffective investments in the Turkish case, thereby neutralizing any potential challenge to big business. This law was revised in the 1980s, paving the way for the SMEs expanding. Another major incentive, which was abolished in 1986, was the tax advantage provided for holding companies to avoid double taxation in multiple firms (Buğra 1994). Hence, the playing field was nearly competitionfree for big players, maintained by extensive barriers to entry against newcomers, generating oligopolistic profits in large protected markets and a major resource transfer to big business. Moreover, in both countries, big businesses often had privileged—individual and organizational—access to the state elites. According to interviews with big businesses, until the crisis struck the state-led development era was generally lucrative, through protected market and investment incentives, which allowed them to contribute to industrialization. Both states were indeed fairly ‘embedded’ in business, but their autonomy varied across time and the cases (Evans 1995). Moreover, in both polities, the states were subject to varying degrees of demands and pressures that they often mediated through distributing further rents (Barkey 1990; Hamilton 1982; Teichman 1995). Sticks State actors also opted for sticks, by unpredicted intervention in business activity, arbitrary law enforcement like selective tax auditing, and excluding

32

Diverging pioneers: Mexico and Turkey, 1st phase

businesses from a variety of public resources such as permits, quotas, contracts, and other deals. Historically suffering from low extractive capacity, both states tolerated tax evasion at times, while on occasions they ‘punished’ the noncompliant businesses by charging taxes, fines, and overly regulating their sectors. In both countries, the ISI pact between state and business was based on tacit agreements, most important of which was submission to the semi-authoritarian regimes and its foundational institutions. Businesses avoided challenging the respective regimes and did not generally take part in politics actively. In return, Mexican businesses reserved their exit option—disinvestment and fleeing capital abroad—whenever threatened by the state (Luna 1992b; Heredia 1996), while Turkish businesses did not have an exit option in a comparatively less threatening environment. In Mexico, businesses were excluded from the PRI’s formal incorporation of societal groups in the 1930s (Luna 1987). According to business actors, ‘PRI’s hegemony needed to be obeyed to maintain the permits among other incentives’ (Martínez 2002). Resulting depoliticization lasted five decades and eventually dissolved in the 1980s following the debt crisis and the bank nationalization. Although a similar implicit pact did not exist in Turkey, business—and big business especially—shied away from political engagement. Since the late 1980s, there has been increasing engagement in politics, much more in Mexico than in Turkey. The presidency of Vicente Fox Quesada (2000–2006), a former businessman, signifies this trend. Secularism and cultural policy as an additional layer? In both countries, secularism was an essential element of the respective regimes, affecting the historical entrenchment of businesses in Turkey and Mexico since the 1920s. In Turkey, it became an additional layer in the implicit ISI pact between the state and big businesses, and helped shape big business’s cozy ties with the state establishment, most importantly the military, the self-proclaimed guardian of Turkish secularism for about eight decades (see Chapter 3). Only in the 2000s did such a layer disappear with AKP’s coming to power. The conflict prompted in the society by the state-imposed strict secularism was intensified by the enmeshing of secularism into the ISI pact, which gave rise to the concentration of economic power in the hands of the secular(ist) business elite (Özel 2010). This dynamic mostly persisted despite the fact that following the transition to a multi-party regime several political parties, including the Democrat Party, Justice Party, and National Salvation Party, all entrenched against the exclusionary institutional arrangements of the single-party regime and had aspirations to eradicate it. Comparative growth by ISI—with/without stability Despite the widespread criticism about the inefficiencies of the ISI regime, both countries performed fairly well in terms of growth of GDP—particularly of industry—between the 1950s and 1970s. Mexico’s record was even better than

Diverging pioneers: Mexico and Turkey, 1st phase 33 9,000 8,000

Mexico Turkey

7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

Figure 2.1 Per capita GDP, Turkey and Mexico, 1961–2012 (constant 2005 US$) (source: World Bank, 2014).

Turkey’s as the GDP growth was accompanied by stability, whereas in Turkey growth was attained often with severe macroeconomic instability, particularly following the oil crises in the 1970s. Figure 2.1 illustrates the growth in per capita GDP in Turkey and Mexico in the last half-a-century. Mexico became one of the more successful cases of ISI-based development between the 1940s and the 1970s. The period of ‘stabilizing development’ or the ‘Mexican miracle’ signified high economic growth and low inflation rates, accompanied by political stability and continuity (Cárdenas 1996; Ortiz 1998; Heredia 2002). The most important determinant of such stability was evidently oil resources and exports, which Turkey did not have. However, discovery of vast oil reserves in the 1970s was no panacea to the crises of the 1980s. Despite the absence of such natural resources, Turkey’s growth performance in the ISI period was fairly good (5 percent GDP growth on average). The main difference was the prevalence of macroeconomic instability marked by inflationary cycles (97.1 percent in 1980) exacerbated by oil crises (TÜİK 2013b). Paradoxically, these instabilities were both risky and partly beneficial for businesses. According to Üzeyir Garih, a former council member of the Istanbul Chamber of Industry (İSO), ‘part of the money which inflation pulled out from public’s pocket indeed was put into industrialists’ pockets. . . . This is one of the factors explaining capital accumulation in industry.’1 An exogenous shock, increasing stakes, and different ways of reconciliation The implicit ISI pacts in Mexico and Turkey began to falter in the late 1970s and early 1980s as an exogenous shock changed the earlier equilibrium. Although

34

Diverging pioneers: Mexico and Turkey, 1st phase

the debt crisis has always been associated with Mexico and later other countries in Latin America, it first emerged in Turkey in the late 1970s, while Mexico’s debt crisis shook in 1982, instigating the ‘lost decade.’ Crises, threats and reconciliation in Turkey Debt crisis emerged in Turkey in 1977–1978 following the oil crises, which led to extensive foreign borrowing, stagflationary cycles, and a foreign exchange crisis. This led to hobbling of import capacity, declining private investment and widespread shortages, accompanied by stocking and dual pricing (Krueger 1995; Rodrik 1991). By the end of the decade, Turkey was unable to import some basic products, including sugar, coal and oil, and the Prime Ministry office could not be heated. When the opposition leader Süleyman Demirel uttered his famous words, ‘Turkey is in need of 70 cents and the Government of Ecevit is responsible for that,’ his rhetoric, indeed, stemmed from alarming depletion of reserves.2 The economic crisis was coupled with heightened socio-political tension, paralyzing governments’ attempts at achieving and commitment to stabilization in the late 1970s (Krueger 1995). In addition to a prolonged impasse which gridlocked the presidential elections in 1979–1980, the country had become highly polarized: armed groups from the extreme left and right engaged in assaults; there was industrial sabotage, assassinations, kidnappings, and large-scale robberies; and clashes between extremist groups and the state’s security forces intensified, while labor militancy increased (Bianchi 1984; Kazgan 2005). For business, the crisis was doubled: a severe debt crisis and a political deadlock with the government signaling a further leftist turn. Not only their production came to a halt because of the foreign exchange crisis, but also they perceived threats to their property rights. Several factors in the late 1970s—including the impact of ‘still intact communism’ on the Turkish left, a strong labor movement, and the ruling left-of-center Republican People’s Party (CHP) shifting further left, entailing an adopted rhetoric towards furthering etatism— intensified the perception of threat for business that ‘their survival was at stake’ and ‘expropriation seemed close’ based on ‘antagonistic’ signals from the Ecevit government.3a Business interpreted these as a threat against private property and considered that the government’s program was a ‘shift from populism to communism’ when referring to the government’s stance towards statization of mines, increases in public investment, and limitation on importation. Further, they criticized the fourth Five-Year Development Plan as unacceptably etatist, since it called for state control of production and distribution of basic consumer goods.3b Although expropriation never occurred, unlike in Mexico, increasing stakes fostered mobilization across different business organizations, a rare occurrence in Turkey. The Union of Chambers and Commodity Exchanges of Turkey (TOBB), Ankara Chamber of Industry (ASO), Union of Turkish Chambers of Agriculture (TZOB), Confederation of Turkish Tradesmen and Craftsmen (TESK), Turkish Confederation of Employer Associations (TİSK) and Turkish

Diverging pioneers: Mexico and Turkey, 1st phase 35 Industry and Business Association (TÜSİAD) initiated the Turkish Private Sector Council (TPSC), which issued declarations against the government: Instead of the national anthem, the International [referring to the socialist international] is sung in the current context, the peace and trust in our society have been eroded. The actor responsible for the current crisis including the shortages is the government, rather than the private sector which is often accused by the government.4 Besides such collective mobilization, the peak organization TOBB, known for its loyalty to the Justice Party (AP), campaigned for toppling the Ecevit government asserting that ‘the philosophy and mentality of the governing regime were responsible for the aggravated crisis.’5 TOBB, ASO, İSO and TÜSİAD stated that the Ecevit government dispensed an anti-business rhetoric, using the statemonopolized television (TRT) to portray a negative image of business, blamed for profiteering by shortages and high inflation rates. The tension was heightened by TÜSİAD’s media campaign in 1979, with full-page advertisements—with titles such as ‘Sharing Scarcity or Providing Plenty’—in seven daily papers criticizing the government and promoting major economic policy changes. TÜSİAD’s call for early elections was reflected in public opinion as ‘big bosses toppling the government’ (Arat 1991; Buğra 1994). Early elections were held, the Ecevit government resigned, and Demirel’s center-right AP formed a minority government, with the endorsement of the Islamist MSP and the farright MHP. One of the first appointees of the new government was Turgut Özal, architect of Turkish market reforms, as the Undersecretary of Prime Ministry, also in charge of State Planning Organization (SPO). The market transitions in Turkey were launched in this context of a layered crisis. Tension between the state and business was soon reconciled by a comprehensive reform program launched in 1980, followed by a regime change caused by the coup d’etat in 1980, which contributed to mollify the threats perceived by businesses, while the TPSC proved ephemeral. The transitions were initiated— and minimally implemented—by a short-lived democratically elected Justice Party (AP) government (1979–1980). Then the military government (1980–1983) implemented the transitions—particularly the stabilization program—and the reform process was furthered by the Motherland Party (ANAP) governments (1983–1987 and 1987–1991) and others in a highly erratic form. ‘Crisis of trust’ in Mexico: twin shocks and politicization of business The Mexican economy plunged into severe crisis in the early 1980s: following the rise of interest rates and falling oil prices, Mexico’s debt service increased to 90 percent of GDP, triggering the infamous ‘debt crisis’ (Aspe Armella 1993a; Pérez López 1987; Tello 1984). In 1982, an executive decree issued by President José López Portillo announced a default on Mexico’s debt obligations, accompanied by expropriation (‘nationalization’) of private banks and some dollar-based

36

Diverging pioneers: Mexico and Turkey, 1st phase

assets, along with exchange and import controls. This decree came as a big shock to the business community, which interpreted it as ‘a major threat, an unacceptable assault on private property,’ increasing the stakes that would later become instrumental in mobilizing diverse interests.6 For many businesses, this turned into a fully fledged political crisis through which businesses began to contest the PRI regime. Crisis of distrust between the state and business, which had started earlier during Luis Echeverría’s ‘sexenio’ (six-year rule) (1970–1976) was heightened by the nationalization, which became a catalyst to expand the anti-PRI constituency and became a rallying point for businesses. Mobilization was initiated by rallying initiatives across the country, leading to business’s politicization. Among the rallying business organizations, three were the most audacious: the Business Coordinating Council (CCE, the peak voluntary organization), the Employers’ Confederation of the Mexican Republic (COPARMEX) and Confederation of National Chambers of Commerce, Services and Tourism (CONCANACO). The Confederation of Industrial Chambers of Mexico (CONCAMIN) followed course, but with a time lag and only moderately. COPARMEX and the CCE launched an extensive public campaign, ‘Mexico in Liberty,’ propagating that the crisis was more political than economic because of ‘the state’s absolutist use of power’ which needed be transformed.7 In his famous speech referred as ‘Where are we going towards, Mr. President?’ Manuel Clouthier, the CCE’s president, asserted that: The country distances from the constitution and democracy. . . . We go towards totalitarianism. It is crucial to delineate the limits of state’s acts. . . . Mexico cannot be a country of caudillos anymore, nor can it be subject to government’s arbitrary acts. It is necessary to create a counterweight to power and fight against it. (Millán 1988: 154) For these confrontational businesses (especially those affiliated with COPARMEX and CONCANACO), bank nationalization denoted the collapse of the rule of law, authoritarian presidentialism, arbitrary interventionism, a ‘Kafka-esque metamorphosis of the system’ and even a move towards socialism, voiced in the statement ‘if there is reality after God, that reality is that we live in socialism.’8 Of the business interviewees, 90 percent brought up bank nationalization as an ‘unacceptable act’ and some organizations’ fierce response as a ‘necessary outcome,’ emphasizing the need for collective action against the state’s arbitrary acts. The years following the bank nationalization in 1982 became a historic juncture, epitomizing business’s ‘constitution as a distinct class’ (Luna 1992b: 46), re-defining its identity and relations with the state along with its ability to generate collective action, which occurred in Turkey with a phase lag in the 1990s and 2000s. Following the nationalization, which was perceived as a severe threat, some business organizations became a vocal critic of not only the government and PRI, but also of the fundamental state institutions, breaking the tacit agreement

Diverging pioneers: Mexico and Turkey, 1st phase 37 of business refraining from politics (Puga and Tirado 1992). Some businesses in the ranks of those organizations began to be engaged in party politics (on PRI or PAN tickets): some became advisors to the President, many got involved in civil campaigns and platforms such as the National Council of Publicity (CNP)’s ‘Mexico Dialogue,’ which helped generate a cohesive stance within business and organized successive public campaigns (Contreras Montiel 2002: 132). These platforms helped solidify an anti-statist perspective, emphasizing threats against property rights and the need for reforming the state. ‘A closed country is an obsolete country’: business’s response to market reforms, Mexico and Turkey The sections above showed the increasing perception of threat in both Mexico and Turkey starting from the 1970s, not only caused by the economic crisis, but also by actual and/or potential threats to property rights. In both cases, increasing power of the labor movement and the state’s stance towards it (between close alliance and ‘tolerance’ to activism) helped shape perceptions. Crises, which increase the cost of the status quo, often make businesses less risk-averse than usual, particularly when they are provided with new incentives. À la Gourevitch (1986), ‘hard times’ caused changes in preferences. In both Turkey and Mexico, the initial support of domestic industrialists can be explained by the changing cost of the status quo and business’s adjustment capabilities (Özel 2003; Thacker 2000). The strategies laid out in the previous chapter, adjustment to compete, adjustment to import, and room to adjust, all played essential roles linked with governments’ policies. Some businesses shifted their resources across sectors, got linked to transnational production networks or became importers of the consumer products that they competed with, undertaking their nationwide distribution thanks to their control over distribution channels. Export promotion programs expanded the room to adjust by providing domestic business with generous incentives. In the 1980s, such programs were implemented in both Turkey and Mexico. Distancing from what was suggested by the IFIs and, later, the de jure Washington consensus, these programs shaped the initial phases of market transitions resembling Asian Tigers’ inside-out trade patterns. As export promotion was launched before import liberalization, industrialists were given considerable room to adjust and it became easier to ask for compromises. The rules imposed by the GATT brought the export incentives to an end by the late 1980s. Although domestic businesses proved to have more flexibility than the literature assumed, they still lobbied for maintaining protectionist measures through safeguard measures and/or non-tariff barriers allowed by the GATT/WTO. The pace of opening for different product groups and sectors generally became a major concern. In Mexico particularly, organizations representing SMEs, like the National Chamber of Transformation Industries (CANACINTRA) and CONCAMIN called for a gradual and selective opening, so that each sector would adjust and reach competitiveness over time, akin to industrialists in Turkey.9 Business groups with interests in the financial sector called for a faster

38

Diverging pioneers: Mexico and Turkey, 1st phase

track.10 In Turkey, the European market was open for Turkish manufacturing exports since the early 1980s, thus exporting to the European markets without barriers was not a new incentive and so industrialists lobbied for a gradual opening. The above factors help explain initial support among industrialists in the early stages of market liberalization processes. But industrialists’ stance has swung between support and staunch opposition in countries like Turkey. Some continued lobbying to get particularistic benefits. In countries where stabilization could not be attained, the adjustment costs increased and such lobbying intensified. With their wide range of resources, including media access, industrialists can mobilize anti-reform groups and exercise leverage via disinvestment and capital flight whenever available. Although a widespread discourse of businesses in both Mexico and Turkey has been ‘getting rid of ’ the interventionist state, often considered to impose uncertainties, whenever businesses had the chance they sought to use interventionism in their favor. Businesses considered accession to regional blocs on a similar perception: that they would tie the hands of the interventionist states, helping enhance the predictability, stability, and credibility of their respective markets. Yet in both countries, big business’s actual behavior often deviated from its rhetoric. Organizations representing big business and individual businesspeople generally used a pro-liberalization rhetoric, displaying a proreform image, while in practice they still lobbied for particularistic protection. Table 2.1 summarizes the motives of businesses for supporting or opposing market reforms, particularly trade liberalization, in both Mexico and Turkey, based on analysis conducted through the Atlas.ti program, which helped clarify the links between different processes and the perceptions of the actors. Interview data clearly indicate the presence of multiple and, at times, contradictory motives of businesspeople. For instance, some of the interviewees who asserted that the market reforms were entirely imposed by the IFIs also suggested that they understood the benefits of regional and global integration, and the risks of closed markets. In both countries, the risk of isolation and inability to seize the benefits of globalization was expressed in varying forms, including ‘Mexico cannot be left behind,’ ‘Turkey cannot miss the train of globalization,’ and ‘A closed country is obsolete given that the world has changed.’ As a common thread, accession to regional blocs was perceived as part and parcel of globalization—and, often, used interchangeably. Evidently, the Customs Union embodied a much broader agenda for Turkish businesses. According to 90 percent of businesses interviewed, the cost of adjustment would be worth it; if Turkey would become a full member, credibility would increase and risk premium would diminish. In Mexico, trade liberalization was associated with varying components of stabilization (lowering down the inflation rate, government debt, etc.) as it was understood as ‘a necessary, albeit costly, sacrifice for attaining stability,’ in line with the issue framing carried out by the reforming governments as well as the empirical record regarding the simultaneity between the two. In Turkey, however,

40

90

85

40

75 80

85

‘No way out’ IFIs’ conditionalities

‘World is changing’ Risk of isolation from the global economy

Benefits of regional blocs (NAFTA and the Customs Union/EU)

Ease and benefits of import

Need for foreign capital/technology

Links with multinationals

‘Tying the state’s hands’ A trustworthy state

Predictability and credibility Less/no intervention End of PRI’s hegemony Political opening

Capital inflows Technology transfer System change

NAFTA membership Stabilization

Control of distribution channels

Access to the US market Benefits of exportation Capital inflows Technology transfer

Missing the benefits of globalization Punishment by big MNCs and the US

Stabilization Sound investment environment US influence/imposition

Opportunities of opening Debt crisis

Note * Percentage of interviewees who mentioned these motives at least once.

85

55

40

60

70

75

80

65

75

Percent*

Percent*

Links

Turkey

Mexico

High cost of crisis and need to stabilize

Motives

Table 2.1 Motives behind big business’s support for market reforms in the first phase of transitions

Predictability and stability Less intervention Credibility

Capital inflows Technology transfer

EU membership Stabilization

Control of distribution channels (consumer products) Easing the import dependency (in manufacturing)

Acceding to the first league Lower risk premium Capital inflows and joint ventures

Missing EU membership Risk of detaching from ‘the West’ Political uncertainty

Stabilization Sound investment environment

Opportunities of opening Ability to import, thus produce

Links

40

Diverging pioneers: Mexico and Turkey, 1st phase

such a link did not exist in the first phase of transitions, which was largely associated with severe instabilities. Except for those who had extensive ties with the multinationals (particularly in Mexico), businesses in both countries expected the state’s buffering adjustment costs. At the same time, some interviewees also purported that a central motive to support market reforms stemmed from the expectation that state intervention would diminish, and ‘the state’s hands would be tied’ in the process of increasing integration to global and regional markets/blocs. Diminishing interventionism is associated with increased credibility of the countries, markets, and policy-making, and increased predictability in the investment environment (much more so in Mexico than in Turkey). In Mexico, political opening is more closely associated with economic opening, and the market reforms were perceived to result in the end of the PRI regime, authoritarianism, and/or corporatism—highly loaded terms that are at times used interchangeably. In Turkey, interviewees did not make such a link between economic and political opening, but began to demand the latter in the late 1990s.

Zigzagging reforms and shaky alliances in Turkey The first phase of market transitions in Turkey (1980–2000) proceeded in a zigzagging fashion with frequent changes in the rules. The comprehensive changes in policies and institutions created contentions and strong resistance out of which, in the absence of a broad reform alliance and the existence of strong veto players with vested interests in the former institutional arrangements, the transition process often stagnated or reversed. In this phase, both the reforming parties and their leaders lacked a consistent programmatic approach to market reforms, including the Motherland Party (ANAP), which executed a broad range of reforms during its incumbency (1983–1991). As Düşkün (2009) demonstrates, party programs (including that of ANAP which also had a timid stance regarding reforms) included only some of the components of market reforms, while dismissing some of the most essential ones. Political parties changed stances towards reforms quickly, particularly when in opposition. This trend is epitomized by Süleyman Demirel, known as the political will behind the launching of reforms in 1980 when he was the Prime Minister. In the late 1980s, in fierce opposition to some of the market reforms undertaken by the ANAP government, he allied with anti-liberalization cliques, often using populist discourses such that he ‘would not let anyone sell the state-owned enterprises on which the little orphans had their rights.’11 The fragmentation in the state and in business provided ample space for shifting stances, and this was further intensified by major ruptures. In this milieu of intensive fragmentation, the state’s capacity to design, steer, and implement diminished. Coordination between the state and business actors in this early phase mostly took an ad hoc format in the absence of cohesiveness and appropriate institutions. In the first phase of transitions, ‘getting the reforms done quickly’ was prioritized without establishing an appropriate institutional framework (Öniş 2004). In such heightened pragmatism, the executive’s use of discretionary power became

Diverging pioneers: Mexico and Turkey, 1st phase 41 a solution to overcome resistance, turning the reform making into an increasingly exclusionary process. Centralization of decision making through the executive’s bypassing of the legislature was facilitated by the 1982 constitution. Indeed, many institutional changes since the early 1980s have been introduced through executive decrees to circumvent the legislature, and, at times, reversed by other decrees, exemplifying the prevalence of drifting and conversion (Özel 2012). These processes augmented uncertainties and volatility (Buğra 1994). Business often critiqued such uncertainties, as they were ‘encouraged to export by by-laws and, later, penalized by laws.’12 Businesspeople often accused the governments of being ‘schizophrenic’ as the reform process lacked coherence and generated contradictory policies.13 Nonetheless, business aggravated these volatilities further, as its responses to different components of transitions shifted frequently in line with short-term pursuits. It lacked consensus regarding policy and institutional changes, and continued its particularistic lobbying. Thus, business and state constantly reproduced unpredictability in policy-making, though they both criticized one another for it from the 1970s to the 2000s. Turkey provides a good example for the coexistence of drastic change and continuity: a weak developmental state with a weak producing capacity, but strong intervention in market mechanisms and its players throughout reforms. Political conflict over resource distribution (especially between big business and the rest, old money and the new, secular(ist)s and the devout,14 among other cleavages) intensified in the first phase of reforms where institutions became even more exclusionary. The next section of this chapter explores the first phase of the reform process where rules were created, circumvented, reversed, and regenerated, resulting in drifting, layering, and conversion. Burgeoning of a reform alliance A radical reform package, popularly known as the ‘January 24 decisions,’ was launched in 1980 by Turgut Özal (de facto Minister of Economy), making Turkey one of the forerunners of the neoliberal-reform wave. Prepared under the auspices of the IMF, this policy package aimed for the liberalization of financial markets and foreign trade, and privatization of public enterprises, among many other changes (Nas and Odekon 1988). Businesses across sectors, sizes, and business organizations welcomed both the new Demirel government and Özal’s appointment and his immediate reforms as the ‘courageous and right thing to do . . . perfectly in line with the constitutional preferences and the core principles of the regime,’15 signifying the beginning of an electoral and a governing alliance between business and the government. Business generally considered the January 24 reform program a ‘fire extinguisher’ as banks started receiving foreign exchange, then imports, and production resumed.16 The implementation of the program waited until after the military intervention in September 1980. Initially, it engendered effective anti-stabilization measures, and the inflation rate declined from 100 percent in 1980 to 25 percent in 1982 (CBT 2011). The implementation of the reform program was highly

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Diverging pioneers: Mexico and Turkey, 1st phase

beneficial for business, prioritizing the liberalization of the exchange rate regime and financial markets, besides stabilization, rather than prioritizing import liberalization, which stalled until 1984 and only accelerated after 1989. The announced ‘opening of the Turkish economy’ of the 1980 program was initially one-sided, like in Mexico, as it emphasized export promotion, shifting towards mercantilism and providing the industrialists room to adjust. Demand-restraint policies, including wage repression and devaluation, kept the demand for imports low, thus facilitating virtual protectionism. Until 1988, export promotion provided substantial formal and informal incentives for big business, such as tax rebates for exportation, cheaper credits, holding foreign exchange earnings to be used in importation of inputs, and foreign trade capital companies, as well as a new exchange rate regime, devaluation, and abolition of quantity and price controls (Rodrik 1991: 328). The debt crisis was overcome and macroeconomic indicators improved, signifying credible commitments on the part of the state. Business actors responded to the incentives through the increase of private investment and exporting for the first time in some cases. Except for eradicating most quotas and licenses, the government did not implement tariff reductions until 1984, but eased the importation of raw materials needed for manufacturing. Until 1988, incentivizing exports expanded government’s allies in the business community. Those incentives included devaluated currency, tax rebates, and pegging the exchange rate to the inflation rate, as the former was always kept higher than the latter until 1987–1988. Holding foreign exchange earnings to be used in importation of inputs, and minimized red tape for exportation both operated as additional incentives. The most effective incentive was the tax rebates on exports, which gave rise to successive scandals of ‘fictitious exportation,’ referring to over-invoicing in tax rebates. The loose stance of the government towards this practice, which was abolished in 1988 due to its nonconformity with GATT, generated vast public debate, impairing its credibility. Besides formal incentives, Turgut Özal and his cadre used informal incentives, deepening the patterns of personalistic relations between business and the state. Özal’s team took individual businesspeople along on official visits to potential markets for Turkish exports, and ‘Özal would bargain on behalf of the exporters.’17 This pattern was revived in the 2000s by the AKP governments, perpetuating selective inclusion. As a result of these incentives, exports doubled between 1980 and 1982 and then quadrupled by 1985, from 4 percent to 14 percent of the GNP, while the share of manufacturing in exports increased from 33 percent in the late 1970s to 80 percent in 1989 (TSI 2013a, Şenses 1988). As the incentives gradually diminished and the inflation rate increased in the second half of the decade, growth of exports decelerated. Politics of (dis)invitation, ad hoc consultation, and shaky coordination In the first half of the 1980s, business actors in Turkey were frequently consulted by the state in ad hoc brainstorming meetings that convened regularly. Although these meetings were fairly effective in the beginning, they gradually became

Diverging pioneers: Mexico and Turkey, 1st phase 43 narrow gatherings and diminished in effectiveness. Based on their ambiguous structure without established procedures, these meetings and participants were contingent on the executive’s discretion, mainly on that of Prime Minister Özal. They spawned the ‘politics of (dis)invitation,’ where participants who took critical stances to the government’s policies would not be invited to forthcoming meetings. Reacting to criticisms, the ANAP government halted consultation with business groups, a common response of ‘punishment.’ Lack of systematic consultation and coordination between state and business engendered erratic responses from both sides, disintegrating the reform alliance. A vicious cycle took place throughout the late 1980s and 1990s. As the business–state alliance started eroding, governments ‘threatened’ industrialists and changed policies and regulations without any consultation. The fragmentation in the business community obstructed the chances of business’s incorporation into reform making as a collective actor. Different groups, often in intense rivalry, continued their particularistic bargaining with the state actors. Business in general and big business in particular lacked a common perspective about the proceedings of market reforms. In the absence of cohesive actors, both the state and business had a weak capacity to generate coordinated action. Throughout the 1990s, reform packages were implemented without consultation, and credibility on both sides diminished. Consultation with business was ad hoc. It usually occurred at the beginning of each incumbent’s tenure, and failed following business’s critiques as incumbents distanced themselves from their earlier commitments. State actors usually shuffled different organizations and individual businesses to consult with. Lack of a cohesive voice in the business community intertwined with state fragmentation to create scattered interactions between various business organizations and the state, along with those between the individual businessmen and the state. Fragmentation impaired the actors’ capacity to institutionalize coordination-inducing institutions, and those that were institutionalized were converted easily (see Chapter 3). Collapse and resurgence of short-term alliances In the late 1980s, most big businesses withdrew their support from the ANAP government publicly and supported the opposition parties, predominantly Süleyman Demirel’s center-right True Path Party (DYP). Paradoxically, Demirel— ally of the business community since the 1960s with Justice Party governments, and the political will behind the neoliberal reforms in 1980—shifted his market reform discourse to pro-protectionism. Endorsed by Demirel, the outcry for incumbency turned into an anti-reform rhetoric: ‘the Turkish industry will be destroyed unless it is supported and protected.’ Revival of the labor movement, and its protesting against the wage restraint policies and privatization prospects, generated sizeable unrest against the reforming Motherland Party. With a former ally in place, some business flipped to a pro-protectionist position. İbrahim Bodur, the chair of İSO Council, posed: ‘Let’s be competitive, but how? It is impossible to catch up with the West unless we are protected.’18

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A major cause of the collapse of the governing alliance between the Motherland Party government and business was the former’s unpredictable policymaking without consultation and losing credibility regarding macroeconomic stabilization (Rodrik 1991). Inflation rates increased from 25 percent in 1982 to 70 percent in 1987–1988, accompanied by higher real interest rates—8–9 percent in 1986–1987 from negative 25–40 percent in 1979–1980 (CBT 2011). In the late 1980s, TÜSİAD’s chairman, Cem Boyner, accused the ‘Özal economics’ of creating ‘complete chaos’ from a paternalistic stance on the state: The freedom to make arbitrary policies is called free market economy in Turkey. . . . Why is the government willing to kill its own children? What is being carried out is interventionism par excellence. It will be too optimistic to expect a productive dialog between the business community and the government.19 Unlike the Mexican case, where credibility was regained in 1987 through coordinated stabilization, successive governments until the 2000s aggravated macroeconomic indicators, while changing policies and regulations without any consultation, or ad hoc and ineffective consultation. In 1990, industrialists were ‘shocked’ by customs tariffs decreasing at an average rate of 50 percent, about which they were neither consulted nor informed, and interpreted this as Özal’s ‘coup d’état’ on industry and his ‘personal revenge’ on industrialists who distanced themselves from ANAP and allied with Demirel’s DYP. Özal threatened the industrialists that if they increased their prices or practiced speculative activity ‘again,’ he would diminish the tariffs even further, completely opening the market to foreigners.20 Following a heightening of the tension, the import regime was liberalized further in 1990, as customs tariffs on thousands of commodities were abolished or diminished drastically. Reacting against big business’s allying with Demirel, who was in opposition, Özal vowed to end the ‘hegemony of the Istanbul dukedom,’ referring to big businesses, mainly the members of TÜSİAD. Then, the Motherland government began to support new business groups, by helping expand some large firms into conglomerates, and some medium-sized firms into big firms, in line with the legacy of facilitated capital accumulation (see Chapter 3). To weaken the socalled ‘dukedom,’ Özal often emphasized the need to strengthen the ‘Anatolian bourgeoisie,’ mostly representing SMEs, an ambition he inherited from Necmettin Erbakan, late legendary leader of the Islamist politics in Turkey, and predecessor of Recep Tayyip Erdoğan, the Prime Minister as of 2013. The use of media became a contentious issue between the state and business, besides an instrument of appeasing or intensifying conflict. Business used the media to retaliate against the government, publicly criticizing the government, trying to shape public opinion.21 This was often followed by a series of threats to the critical voices and their organizations and sectors, a pattern that still prevails. In 1989, the Ministers of Economy and Finance threatened some businesses’ use of media:

Diverging pioneers: Mexico and Turkey, 1st phase 45 Why do we need to show our dirty laundry before the media? . . . You don’t even pay taxes as much as a tea-server would. You ought to bear some responsibility at least.22 In the 1990s, short-term alliances were built between big business and government actors, but could not be sustained. In 1991, ‘the Istanbul dukedom’ formed a governing alliance with the new government (a coalition of the DYP and the Social Democratic Party), starting a decade of coalition governments whose longevity was between 6 and 27 months. However, the business community’s expectations of the new government were not fulfilled and macroeconomic indicators worsened, leading to a destructive cycle of high interest rates and inflation, aggravated by increasing public deficits financed by volatile short-term capital flows. All leading business organizations, including TÜSİAD, TOBB, İTO, and İSO, submitted to the government extensive reports on the macroeconomic situation and policy suggestions, most of which were not reflected in the actual policies.23 Belated lobbying against liberalization and competition: Customs Union Agreement Anti-liberalization lobbying led by a few conglomerates peaked before the Customs Union Agreement was signed in 1995, as the tariffs would be abolished in accord with the conditions imposed by the EU. Alleging that trade liberalization would be the ‘doomsday’ for Turkish industry, as many industries would ‘naturally go bankrupt overnight,’ some major conglomerates diverged from their previous proliberalization stance (Eder 2001). Koç and Eczacıbaşı groups’ lobbying was significant at the time. The former also lobbied for forestalling the anti-trust law, a prerequisite of the Customs Union. Indeed, a competition law had initially been drafted in 1984 but could not be enacted until 1994 because of the resistance of some conglomerates (Özel 2013b). The 1994 law was followed by the Communiqué on Mergers and Acquisitions in 1997, also to fulfill obligations for the Customs Union. Large conglomerates that turned partially pro-protectionist found allies in economic bureaucracy. Tevfik Altınok, the then Undersecretary of Treasury, argued that the automotive sector would go bankrupt if liberalized.24 Nevertheless, this lobbying cannot be generalized to the whole business community, not even to big businesses. While some of its own members opposed individually, TÜSİAD, representing big businesses, endorsed the pro-CU alliance. This support was mostly based on the perceived benefits (access to the European markets and signaling to foreign investors, among others) against the perceived cost of the anti-trust law (Özel 2013b). As the competition law cuts through sectors horizontally, affecting diverse economic interests, most business organizations supported the competition law, including the peak business organization, the TOBB, which represented millions of businesspeople, most of who associated with SMEs. The opposition of some large conglomerates to the Customs Union created severe confrontations with the Çiller government. As a response, Tansu Çiller

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accused business of poking its nose in politics, referring to industrialists as ‘profiteering tin-makers’ in a public meeting.25 When business people are asked retrospectively why they opposed import liberalization, which they had supported initially, they assert that they reacted against: (1) the pace of import liberalization; (2) macroeconomic instabilities; (3) the incumbent’s changing of policies without even informing the business community, let alone coordinating with them.26 The government and bureaucracy that make these ‘surprises’ must be thinking that we are all magicians, as they let us know a month in advance about these crucial policy changes. We are not against the Customs Union, but we can’t let the state play with our fate.27 Financialization: new dynamics between business and the state actors The decade of the 1990s, referred to as ‘the Lost Decade’ in Turkey, was marked by financialization, heightening macroeconomic instabilities, increasing volatility, successive financial crises, and seven different governments, along with intensified tension between and within the state and business. Capital account liberalization and full convertibility of the Turkish Lira, instituted in 1989, opened the Turkish market to the vagaries of financial flows, thus finance gained a remarkable leverage over the real sector. This new phase was marked by the prevalence of arbitrage-seeking capital flows, i.e., hot money, which generated a spiral of high levels of debt, interest rates, and inflation leading to severe crises in 1994 and 2001. Drowning in the lure of hot money, successive governments used liberalization and resulting inflows to finance their expansionary fiscal policies and debt, causing a spiral-like process between governments (borrowing through government debt instruments – GDIs – at high interest rates), commercial banks (clients of GDIs and hosts of short-term foreign capital inflows), and individual investors (lending to commercial banks at extremely high overnight interest rates). As the public sector borrowing requirement (PSBR) increased, the public sector’s share in the financial markets increased by means of GDIs. State securities/GNP increased from 7 percent in 1988 to 39 percent in 1999, while that of the private sector increased from 1 to 4.5 percent (Akçay et al. 2002). Big business was, indeed, an accomplice in this. Because of the short-term speculative capital inflows, industry stagnated as big business transferred its resources into financial markets, virtually quitting manufacturing and profiting from high returns. Non-operational pre-tax profits are a good measure to show this trend of ‘becoming rentiers,’ as the rate of big business’s pre-tax profits in overall profits rose from 24 percent in 1985 to 31 percent in 1989 and 219 percent in 1999, a process referred to as a ‘fake Swiss-ization’ through a ‘chain of happiness’ (Ekinci 1998; Köse and Yeldan 1998). Therefore, a number of businesses promoted the state’s further indebtedness. The state used GDIs as ‘buffer instruments,’ helping industrialists and banks

Diverging pioneers: Mexico and Turkey, 1st phase 47 make big profits, while it compensated its deficits with further borrowing, crowding out the financial markets. This was particularly risky for the real sector: high interest rates and inflation made investment difficult, and public– private competition in the financial markets (and the former’s virtual hegemony in those markets) diminished the availability of credits, crowding out a market that was already shallow. Most industrialists stopped their investment in manufacturing, worked with low capacity, and transferred their resources to securities. Between 1989 and 2000, fixed private investment increased 5.2 percent on average, while changes in private stock (contribution to growth) averaged 0.17 percent (UT 2004: 5). The state became both an arbitrator and a player in this process. In the 1990s a new alliance was built between bankers, who benefited from hefty arbitrage profits, and governments that used financialization for electoral survival. Short-term capital inflows served to finance public deficits, and regulatory deficit in the financial sector pushed the Turkish economy into a new debt crisis in the 1990s. Over-heating was essential to sustain this arrangement, which triggered a debt–inflation–interest rates spiral and eventually caused major crises in 1994, 2000, and 2001, making Turkey a pioneer of financial crises in emerging economies. The Turkish economy contracted by 6 percent, monthly inflation rates reached 150 percent, and the public sector borrowing requirement/GNP (PSBR) rose up to 12 percent (OECD 2006). The discrepancy between public revenue and expenses broadened further in the 1990s, through increasing public debt and declining taxing capacity. Figure 2.2 displays the changes in public debt/GDP ratio in both Turkey and Mexico.

80 70

Mexico Turkey

Percentage

60 50 40 30 20 10 0 1980

1985

1990

1995

2000

2005

2010

Figure 2.2 Public debt/GDP (%), Turkey and Mexico, 1980–2010 (source: CBT and Banxico).

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Scarce coordination and intensifying tension under the shade of increasing polarization In the second half of the 1990s, the tension between big business and the governments leaped into new venues, in a context where polarization intensified in politics and society. Extremist parties such as the Welfare Party (RP), with proIslamist leanings, and Nationalist Action Party (MHP) expanded their constituencies in an environment where economic indicators worsened further. RP in particular began to attract businesses, especially those with devout Muslim identities and a shared sense of exclusion. The business community became more fragmented, the conflicts within and across business organizations intensified, and new organizations were formed, particularly by the newly emerging businesses. For big businesses, strictly political issues were added onto the agenda, while the crisis-prone volatile economy was still prevalent. The tension emerged out of several areas of conflict including macroeconomic instabilities, democratization, perceived threats against secularism, and concerns about increasing rivalry in the domestic market. Market reforms relatively eased new entries into the Turkish domestic market, both by foreign and domestic businesses. New domestic entrants, often referred to as the ‘Anatolian Tigers’ that were mostly small or medium-sized enterprises (SMEs), began to grow starting from the 1980s, and some accumulated noteworthy wealth through export revenues (Buğra 1987). The new entrants, mostly with devout Muslim identities, have challenged the virtual hegemony of (secularist) big business in the Turkish market, engendering new sources of rivalry along with claims for political power (Öniş 2001, Özel 2012). Initially allying with the Motherland Party in the 1980s, their allegiances diversified in the 1990s, with the rise of extremist parties. Allying with the Welfare Party in the 1990s and with the Justice and Development Party (AKP) in the 2000s, these newcomers were provided with selective incentives and established alliances with local and central governments, generating rivalry and uncertainties for big businesses (see Chapters 4 and 7). Some of these newcomers formed alliances with the Welfare Party and with the coalition government formed by the Welfare Party and True Path Party (1996–1997), triggering a strong reaction from various business organizations and individual businesses. In 1997, the National Security Council issued a memorandum endorsed by the military, precipitating the end of the coalition government and the resignation of Prime Minister Necmettin Erbakan. The February 28 Process, or the ‘post-modern coup’, as the memorandum is called in Turkish political jargon, was applauded by many business organizations and individual businesspeople (see Chapter 3). Brought about by such conflicts and alignment of businesses with different camps, business politics became increasingly polarized particularly after the emergence of the organizations predominantly representing devout businesses, aligning with the ‘pro-Islamist’ parties, and forming a new category. Throughout this book, the category of devout businesses refers to the businesspeople with

Diverging pioneers: Mexico and Turkey, 1st phase 49 conservative Muslim identities. It additionally entails an entrenchment against the (previously) strict secularist stances of the Turkish state along with its secular(ist) alliance with (especially) big businesses and an alliance with political parties known for their conservative Muslim-cum-‘pro-Islamist’ ideological stances. I opt to use the term ‘devout businesses’ as a category (though far from a monolith on its own), rather than Islamist or Muslim businesses, to indicate this historical tension and accompanying collective identity, except in cases where they were referred to explicitly as ‘Islamist’ by others. At the organizational level, however, I choose to use the qualifier ‘Islamist’ or ‘pro-Islamist’ for the business organizations predominantly representing devout businesspeople, because of the close ties they have built with the political parties which are commonly labeled as ‘Islamist’ or ‘pro-Islamists.’ Likewise, I also use ‘Islamist’ in the context of the cleavages, divides, and poles within the business community.

Concessions and emergence of a narrow alliance in Mexico The first phase of reform in Mexico (1982–1987) started with a ‘crisis of trust’ inherited from the 1982 debt crisis and bank nationalization (Tirado 1987). On the one hand, the Miguel de la Madrid government (1982–1988) appeased tensions between the business community and the state by attempting to undo the damage of bank nationalization and compensate its ‘losers’; on the other hand, he yielded mixed messages through affirming his belief in a mixed economy and his goal of taking a conservative turn. In the beginning of the 1980s, both political and economic institutions were highly exclusionary in Mexico. Mexico’s presidentialism granted the executive with an enormous degree of discretion, and PRI’s majority in the Congress further enhanced the unconstrained space for policy-making, without well-established checks and balances. In the economic realm, power concentration echoed that of politics. Financialization began to shape the dynamics of state–business relations in the 1980s. In order to rebuild trust between the state and business, and compensate for instabilities and thwart capital flight, the de la Madrid government provided various concessions to big businesses. In 1983, the Trust for Foreign Exchange Protection (FICORCA) program was introduced to bail out indebted firms, mainly benefitting the big conglomerates (Teichman 1995: 184). In 1984, an apology was provided for ex-bankers entailing generous indemnification and sale of the banks’ non-banking financial operations to the private sector (Hernández Rodríguez 1991). New capital accumulation took place based on stock brokerage houses, and most big business transferred their resources from industry to the stock markets. Akin to what occurred in Turkey in the 1990s, the power balance began to shift toward the financial sector. As in Turkey, export promotion programs created additional incentives for Mexican big businesses. A special program called ALTEX, introduced in 1986, provided selective incentives to exporting companies through credits and tax relief. Given that only large companies had some exportation by 1986, they were the only beneficiaries of the export promotion program. Privatization programs

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launched in the second half of the 1980s provided privileged access to a few businesspeople on the bids. As these informal networks were based on particularistic favors, they were insufficient to solidify a reform alliance between the state and big business. Capital concentration increased in this period, and institutional arrangements mostly sustained their exclusionary characteristics, despite the launching of the market liberalization in several stages. Instigated by severe crises, the first wave of market reforms in Mexico was launched through implementation of successive ‘programs’ entailing comprehensive policy bundles constituted of degrees of stabilization and liberalization. The initial programs were less comprehensive than their Turkish counterparts. However, similar to the first phase of Turkish transitions, an export promotion program was coupled with limited import liberalization, granting big business the time to adjust. In this initial phase of reform, industrial interests were against changes in the import regime but were in general supportive of export promotion strategies and stabilization. Between 1982 and 1986, several stabilization programs were implemented based on the common objectives of recovering growth, maintaining fiscal discipline, and diminishing the inflation rate, mostly under the aegis of the IMF: the Program for Immediate Economic Structuring (PIRE) in 1982 entailed stabilization and replacing import licenses with tariffs; the National Program for Industrial Development and Foreign Trade (PRONAFICE) in 1984 entailed more extensive trade liberalization and export promotion; the July Reforms in 1985 incorporated a privatization program; and the Growth Pact (PAC) in 1986 mostly focused on stabilization (Teichman 1995). These programs mostly failed to attain stabilization goals, but increasingly linked trade liberalization to stabilization. In these initial years, consultation was largely ineffective, generating low to medium levels of coordination between the state and business, mainly due to the very design of the consultation platforms. In the second half of the 1980s, consultative platforms generated high levels of coordination and reduced uncertainties. Worsening indicators increased stakes for both business and the state. Coordination became vital, as emphasized by Claudio X. González, the President of CCE: Crisis and recession gave us an opportunity to coordinate and unify our actions and submit them in a concerted effort. . . . The solution lies in cooperation with state actors. But, to achieve that, we, the business, should be cohesive first coordinating our activities . . .28 With an urgent need for foreign exchange to finance debt, the de la Madrid government pushed for the GATT accession in 1986, signaling state elites’ commitment to freer trade. By 1986, the large resistance bloc of 1979 had already weakened and bureaucratic resistance had been virtually eliminated by replacing statist cadres with pro-market hires, which helped signal to the IFIs (see Chapter 4). In the second half of the 1980s, elite bureaucratic agencies were more cohesively committed to liberalization, including the Secretariat of Commerce and Industrial Development (SECOFI), a central opposition actor in 1979, that switched to the pro-liberalization camp by 1986 (Heredia 1996: 152).

Diverging pioneers: Mexico and Turkey, 1st phase 51 Initially, most businesses across different sizes and sectors were not in favor of opening either (Flores Quiroga 1998). Even big business only called for stabilization in the beginning, based on the view that ‘opening without stabilizing the economy and fixing the inflation problem would be suicidal’. But a parallel change also took place in business circles. Most organizations that had opposed the GATT accession in 1979 changed their stances by 1986. Though big business only called for stabilization in the first half of the 1980s, they were persuaded in time by linkages built between liberalization and stabilization, and more importantly effective stabilization through coordination starting from 1987. The thin pro-trade liberalization alliance in 1979 was constituted by the Mexican Business Council for International Affairs (CEMAI), the National Association of Importers and Exporters of the Mexican Republic (ANIERM), and CONCANACO, whose presence in the alliance was endorsed by multinationals. CONCAMIN and CANACINTRA, representing industrialists, opposed the GATT accession in 1979, effectively lobbying state elites to reject it (Flores 1998). Before the actual accession in 1986, CONCAMIN joined the pro-GATT alliance and began to disseminate pro-liberalization views, such that liberalization was a ‘necessity, commensurate with the changes in global economy,’ while potential isolation was a major risk, as pointed out by Silvestre Fernández, an ex-president of CONCAMIN. Nonetheless, there was no consensus even within the same organizations; some members of CONCAMIN anticipated that opening would destroy industry and turn Mexico into a producer of primary products’ (Velasco 1988). CANACINTRA, however, continued its opposition until the NAFTA negotiations in the early 1990s.29 High levels of coordination and stabilization: the economic solidarity pact The Pact of Economic Solidarity (PSE) created a turning point in Mexico in the course of market reforms by solidifying a reform alliance and incorporating all peak organizations. Launched in an alarmingly unstable macroeconomic environment in 1987, it incorporated business actors into the stabilization process and into market transition through issue framing. It became instrumental in solidifying the alliance between the state and business actors by facilitating coordinated adjustment of cohesive actors (see Chapter 4). PSE differed from the earlier corporatist platforms, which businessmen usually recall as ‘mere impositions from the state, while showing off that social actors were consulted,’30 in two respects: (1) It set monitoring and sanctioning mechanisms available for all actors involved: state, labor and business (Jarque and Tellez 1993: 145–46); (2) It was carried out through the capacity of the state and business actors, and the presence of cohesive actors helped achieve compliance. All major business organizations supported the pact and the CCE, as the peak organization, used its organizational capacity to consolidate business’s support through ‘concerted solidarity.’31

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The PSE was a heterodox stabilization program designed by Pedro Aspe Armella (Secretary of Finance between 1988 and 1994). Unlike the orthodox programs promoted by the IMF, the PSE—akin to Spain’s Moncloa Pact of 1977 and Israel’s Economic Stabilization Program of 1985—focused on social consultation and consensus regarding partial-to-global freezing of prices, wages and the exchange rate, while also entailing some orthodox components such as fiscal discipline that helped the government signal credibility (Aspe Armella 1993b). When the PSE was launched in 1987, the rate of inflation was about 132 percent, public debt had reached alarming levels, capital flight had accelerated, and labor unrest was perceived as a credible threat (Aspe Armella 1993a; Banxico 2014). Pedro Aspe, the architect of the pact, underlines the prevalent mistrust: Nobody trusted us [the government] in the beginning. Miguel de la Madrid told me to ‘go and try to convince [business leaders] for a year.’ The response was, ‘Go to hell! . . . We don’t trust you.’ . . . Then, we went back to the CCE and asked if they would agree on a shorter commitment. . . . The response was, ‘Only for a month. I would trust even the government for a month.’ . . . We went to the President and said we had good and bad news: ‘We have an agreement, but for a month.’ He said, ‘We didn’t deserve more.’32 The commitment for cooperation was first launched on a short-term basis. Both demand and supply would be controlled for a month by partially freezing prices and controlling the wages, while the government would control public finances. The PSE aimed to achieve: 1 2 3 4 5

commitment to the permanent correction of public finances; implementation of an ex-ante wage indexation; negotiation with the price-setters to create consensus on prices in leading sectors, and adoption of price-controlling measures for a ‘basic consumption goods basket’; application of a tight monetary policy; trade liberalization. (Aspe 1993b: 23–24)

By means of coordinated acts by the state, labor and business, the PSE yielded positive results: inflation diminished to 52 percent in 1988 and then 20 percent in 1989; the public deficit decreased from 16 percent of GDP in 1987 to 3.5 percent in 1990; and the growth rate recovered (Aspe 1993b; Jarque and Tellez 1993). PSE and effective issue linkages: from stabilization to fully fledged market transition Although the PSE was primarily formulated as an anti-inflationary program, it gradually became more comprehensive by means of issue framing where privatization and trade liberalization were linked to anti-inflationary policies

Diverging pioneers: Mexico and Turkey, 1st phase 53 (Schneider 2004; Ortega Riquelme 2003; Heredia 1996). By the end of 1988, most protectionist barriers had been unilaterally abolished. Additionally, foreign investment was also linked to stabilization. As a result of institutionalized coordination among the state and societal actors, the continuous flow of information and monitoring helped attain stabilization and diminish some of the uncertainties. Hence PSE’s participants, who had previously been skeptical about each other’s objectives and credibility, were able to coordinate, for which the cohesiveness of the participants played a vital role (see Chapter 4). The PSE was completed in five distinct phases in 1987–1988, attaining most of its objectives. Following the PSE, successive pacts were signed: the Pact for Stability and Economic Growth (PECE, January 1989– October 1992); the Pact for Stability, Competitiveness and Employment (October 1992–September 1994); and the Pact for Welfare, Stability and Growth (September 1994–December 1994). Drifting in the context of financialization Paradoxically, the increasing macroeconomic stability facilitated by the PSE paved the ground for a major crisis in the Mexican market, in the context of expanding financialization coupled with the easing of short-term capital inflows. Although the increase in foreign capital initially helped stabilization proceed, it intensified the vulnerability of the Mexican market to short-term capital movements, which triggered a severe crisis in 1994 (Teichman 1995). The Salinas government heavily used government debt instruments, such as tesebonos (shortterm instruments indexed to US$), to finance its increasing spending. Only from March to December in 1994, tesebono obligations rose from US$3 billion to 29.2 billion. As in Turkey, expanding capital inflows facilitated high levels of indebtedness of the government. Some domestic big businesses became culprits in increasing the risks, by transferring their resources to lucrative financial assets. A vicious cycle similar to the one in the Turkish economy took place in Mexico a few months later, as a spiral of high interest rates led to a major crisis. After the first phases of the PSE, the operation of the coordinating platforms began to diverge from what was written on paper. Monitoring and sanctioning, which worked effectively in the first phases, were mostly undermined. According to interviewed businesspeople, the coordination generated by the PSE process could not be sustained as consultation was increasingly undermined and the binding nature of the agreements weakened, while monitoring and sanctioning mechanisms were mostly neglected. Liberalizing through bilateral elite coordination: NAFTA and the COECE The North American Free Trade Agreement (NAFTA) between Mexico, the United States and Canada came into force in 1994. Besides reducing tariff and non-tariff barriers, Mexico was required to implement certain institutional

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reforms as a condition of accession, including a Competition Law enacted in 1992 (see Chapter 5). Despite the Competition Law, monopolies and oligopolies persisted in Mexico, a major source of dispute between the organizations representing the SMEs and big business. By 1992, prominent organizations representing the SMEs, including the CANACINTRA, which had opposed GATT in 1986, had engaged in a proliberalization coalition, supporting NAFTA. The new perspective across organizations was that protectionism was not beneficial for Mexican industry, as it was the main culprit behind amplified uncertainties, chronic public deficit, and accompanying inflation.33 According to this perspective: free trade will benefit the SMEs, if the negotiations allow them some time to adjust. . . . Free trade will help increase foreign investment . . . [which] will stimulate our internal market and bolster employment, [a] very positive aspect for the SMEs.34 Accordingly, both CANACINTRA and CONCAMIN called for gradual opening. A former president of CONCAMIN explains his own persuasion: We were convinced that NAFTA would be instrumental for granting Mexican economy with stability. What did we need to achieve that? We had to get rid of the inflation, we needed foreign capital and healthier public finances. We were convinced that these would be improved if we secured an agreement with the US. NAFTA would make a great selling point to attract foreign investment.35 During the NAFTA negotiations, a coordination platform called the Coordinating Council for Foreign Trade (COECE) was created to facilitate state–business coordination (see Chapter 4). As Thacker (2000: 156) suggests, the COECE helped consolidate Mexico’s free trade alliance by incorporating big business into the trade liberalization process. However, it further enhanced the weight of big business interests in policy-making (Puga 2004; Schneider 1995). Thus, the exclusionary nature of the institutional arrangements was perpetuated by the COECE process, while the power of the SMEs weakened further. The COECE process also excluded labor, a vital party to the earlier pacts, signifying a turning point in Mexican state–society relations. COECE became yet another step in the process of labor’s weakening vis-à-vis the state and business in the context of market transitions (Kuş and Özel 2010). Key players were mostly the same between the COECE and PSE, and there was considerable continuity between both organizations. Both state and business actors who were involved in the COECE process underline the legacy of reciprocity and consensus that had been built by the PSE. The latter also emphasize the exceptional quality of the ‘advisory role of business’ vis-à-vis the state: If you look at the history of the Mexican private sector, you notice that playing a real advisory role did not really exist before. The pattern was that

Diverging pioneers: Mexico and Turkey, 1st phase 55 we were taken on a few trips by the government officials and were given briefs. . . . We finally realized that if we were going to play a role in this case, it was very important that it would be a real role.36 Solidifying a narrow alliance: the COECE process Participation of the businesses in the NAFTA negotiations was based on a newly founded preference. In the late 1980s, CEMAI and ANIERM, which had promoted a pro-liberalization stance since the failed GATT accession in 1979, proactively lobbied for a free trade agreement in the US and Mexico with bureaucrats, politicians, businesspeople, academics, and opinion leaders. These organizations’ proposals were, initially, opposed by Carlos Salinas, who, in 1990, announced his commitment to pursue NAFTA. According to former executives of CEMAI, it was particularly difficult to persuade big business: After we decided that we got to open up, we realized that our most staunch opponents were big monopolies. . . . Then, we organized meetings with 20 or so big companies. We had to get their support to open up. We created studies, expert reports and so forth. Finally, they all understood that opening was must. Otherwise, we would go into a chaos and may be a revolution would have threatened the country.37 CEMAI and other leading organizations within the pro-free trade bloc played an important role in establishing issue linkages, marketing NAFTA based on several lines, including that Mexico’s credibility vis-à-vis foreign investors would be enhanced by the clear rules of the game, foreign investment would follow suit, and the hands of Mexico’s presidentialism, widely perceived as ‘omnipotent’, would be tied up. Starting from 1990, CEMAI’s NAFTA campaigning was appropriated by the government. President Salinas adopted the idea following his return from Davos, when he ‘[understood] where the world was going. After coming to terms with how globalization could harm the countries which were left behind.’ Salinas’ government announced its commitment to pursue NAFTA in 1990, carrying out negotiations for the next two years. Between 1990 and 1992, SECOFI organized various meetings and workshops to ‘train’ industrialists about the advantages of NAFTA. As in the PSE process, cohesive state actors carefully ‘marketed’ NAFTA to the industrialists, highlighting issue linkages: NAFTA would increase capital inflows, bring technology, bolster employment, and help further macroeconomic stabilization and growth.38 The COECE process facilitated coordination between the cohesive state and business elites, solidifying a narrow alliance. Although all organizations more or less agree on the existence of consultation, confirming their participation throughout the COECE process, organizations like CONCAMIN and CANACINTRA emphasize the domination of the process by big interests in close collaboration with the state elites.39

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Conclusion This chapter explored the first phase of market transitions in both Turkey and Mexico from the early 1980s and early 2000s respectively to the mid-1990s. It inquired about the ways in which the respective states engaged with businesses to execute market reforms, emphasizing low levels of coordination between the said actors in Turkey and increasing levels of coordination in Mexico. In a transition context where stabilization fails and liberalization is on the agenda, then domestic businesses, even those that had previously supported liberalization, shy away from the pro-liberalization alliance. But if the government yields positive signals through its commitment to stabilization, then the uncertainties business faces might diminish. This is more or less what happened in Mexico. From the little-to-low credibility in the first half of the 1980s to increasing credibility after 1987, business observed the positive signals first, then used its adjustment capability for competing, and mostly supported the liberalization afterwards. In Turkey, where instabilities worsened in the late 1980s and 1990s, business’s support has taken a highly unstable pattern. Business’s preferences adopted a baffling form in which they picked and chose different policies and instruments at different times, lacking consistency, in a way mirroring the politicians. Multinational companies and transnational business communities in Mexico played an important role in pushing for liberalization and forming alliances. Although barriers to entry diminished in both countries, monopolies and oligopolies, along with the selective provision of benefits to businesses, persisted. Contrary to what was anticipated, market transitions did not eradicate the exclusionary nature of economic institutions. Opening in political institutions also remained limited in the first phase of transitions.

Notes 1 İSO Dergisi, May 1990, 25 (291), p. 7. 2 Interviews with former bureaucrats and politicians, November 19, 2003 Istanbul; December 12, 2003 Ankara. 3a Interviews with leading industrialists and officials of chambers of industry, 7–8 November 2003, 6 January 2004, Istanbul. 3b Yazar, Mehmet, ‘Görüşümüz: Bütün Tedbirlere Rağmen Sanayimiz Durgunluk Ortamından Çıkartılamadı,’ ASO Bülteni, August 1979, pp. 3–5. 4 Türk Hür Teşebbüs Konseyi Başkanlık Divanı Toplandi ASO Bulteni, August 1979, p. 7. 5 Yazar, Mehmet, ‘Oda’dan Haberler,’ ASO Dergisi, September 1979, p. 6. 6 Interviews with businesspeople, May 10, 2004 Mexico City and June 9, 2004, Mexico City. 7 El Universal, January 4, 1984. 8 Muggemburg, Federico, ‘Metamorfosis Kafkiana del Sistema,’ Decision, 4(46), December 1982. 9 ‘Asamblea,’ CONCAMIN, April 1985, 30(775): 10–11. 10 ‘Por que y como firmar el Tratado de Libre Comercio?’ Industria, CONCAMIN, 3(29), July 1991.

Diverging pioneers: Mexico and Turkey, 1st phase 57 11 Interviews with former ANAP deputies, September 6–7, 2014, Ankara. 12 Şerif Egeli (Enka Holding), Sabah, January 28, 1990, p. 7. 13 Interviews with leading industrialists and former chairs of İSO and TÜSİAD. 6–7 November 2003; 6 January 2004, İstanbul. 14 I choose to use the term ‘devout businesses’ rather than ‘Islamist’ or ‘Muslim businesses’ throughout the book. See Chapter 3 for the rationale behind such choice. 15 All business organizations responded positively to these reforms and appointments. As an example, see Görüş (TOBB publication) November and December 1979, and March 1980. 16 Interview with a former chair of İSO, January 5, 2004, Ankara. 17 Interviews with businessmen and former politicians, November 20, 2003, Istanbul, and November 25, 2003, Ankara. 18 İSO Journal, No. 263. 19 Cumhuriyet, August 14, 1989. 20 Sabah, August 12, 1989, pp. 5–6. 21 ‘Industry is upside down,’ Sabah, April 21, 1989, p. 5. 22 Sabah, August 23, 1989, p. 5. 23 Sabah, November 21, 1991, p. 7. 24 Sabah, November 9, 1992, p. 1. 25 Excerpt from Tansu Çiller’s Sultanahmet meeting, 1995. 26 Interviews with leading industrialists and former chairs of İSO and TÜSİAD, November 6–7, 2003 and January 6, 2004, İstanbul. 27 İSO Chair Memduh Hacıoğlu’s speech at the İSO meeting, November 27, 1992, Sabah Ekonomi, November 28, 1992, p. 1. 28 CONCAMIN, March 1986, 31 (786): 9–11, 21. 29 Interviews with former presidents of CANACINTRA, June 21 and 25, 2004, Mexico City. 30 Interviews with businessmen who were involved in previous concertacions, May 3 and June 8, 2004, Mexico City. 31 Legorreta, Agustin F. ‘Pacto,’ Excelsior, January 1, 1988. 32 Interviews with Pedro Aspe, May 8, 2004 and September 6, 2012, Mexico City. 33 ‘La Perspectiva empresarial en el Mexico nuevo,’ Industria, CONCAMIN, November 1992, 5(45): 5–8. 34 ‘Empresarios,’ Revista Empresarial Internacional, CONCAMIN, September 1992, 1(0): 20–21. 35 Interview with a former president of CONCAMIN, May 25, 2004, Mexico City. 36 Interview with a COECE executive, April 29, 2004, Mexico City. 37 Interview with a former president of CEMAI, May 20, 2004, Mexico City. 38 Tratado de Libre Comercio de América del Norte, SECOFI, 1992. 39 Industria, monthly Journal of CONCAMIN, October 1992, Vol. 5, No. 44, p. 1 and interviews.

3

Increasing fragmentation and weak coordination in Turkey

Introduction The business community in Turkey lacks a unified voice to criticize government’s policies. TOBB, the umbrella organization, expresses its support to the government in all policies. Another major organization [referring to TÜSİAD] is against the government in all policies. Now, this organization is preparing a draft for a new constitution. As if everything else is resolved in Turkey, TÜSİAD is now focusing on municipal administrations, how the constitution will change and so on.1 Coordination failures between the state and business have been historically pervasive in Turkey, where fragmented business actors interacted with fragmented state actors. This chapter discusses such failures in the first phase of market transitions in Turkey (1980–2000), pointing out the role of fragmented business and state actors behind those. In this phase, state–business interactions and policy-making were mostly dominated by the short-term interests of increasingly fragmented actors who suffered from extensive inter- and intra-organizational rivalries. Given the coordination failures, state–business reform alliances in Turkey were tenuous at best. What occurred was a series of ad hoc alliances of fragmented business groups with successive governments that perpetuated particularistic clientele ties between business and the state. A symbiotic relationship prevailed in the lack of an institutionalized platform for coordination: each incumbent tended to shuffle businesses to consult with in a search for its loyal business allies. Shuffling operated through a repetitive sequence of cozy relations, business’s criticism, government’s threats and/or punishment, and at times reconciliation through tailored incentives and rents. This chapter expounds the historical evolution of increasing fragmentation and rivalry within Turkish business. It examines the intensification of such rivalry in the first phase of transitions across different organizations and cleavages, along with the rise of an additional cleavage in the 1990s between the secular(ist) vs. devout Muslim bourgeoisie (Hale and Özbudun 2010; Gümüşçü 2010; Özel 2010). Underlining the difficulties of collective action in a prevalence

Fragmentation and weak coordination in Turkey 59 of intensified rivalries, it demonstrates the conditions under which business seldom invested in mobilization to generate collective action across diverse interests. It inquires about the impact of Turkey’s protracted journey towards prospective EU-membership in this process, along with transnationalization of businesses and their organizations. Contrary to the common discourse, depicting the Turkish state as ‘strong,’ the chapter asserts the state’s weakening through increasing fragmentation in the first phase of the market transitions. Fragmentation at both state and business levels provided a suitable ground for the shuffling of ad hoc alliances, mostly built on particularistic lobbying.

Turkish business: increasing fragmentation in the first phase of market transitions Antecedents of fragmentation in the business community In both Mexico and Turkey, pluralist and corporatist organizations have coexisted and competed for representation and power to access state actors and resources. Although Turkey is not generally labeled as a corporatist case, it has had the fundamental institutions of corporatism regarding business’s interest representation (Bianchi 1984). Compulsory membership in state-controlled chambers has been a central element that has persisted in Turkey since its inception in the 1920s, despite the abolition of compulsory membership in Mexico in 1996. From pluralist organizations to emerging state-control and corporatism: 1870–1950 The first business organizations in Turkey—in the ‘modern’ sense of the term— were founded based on voluntary membership and dated back to the late nineteenth century, as in Mexico. The first chambers of commerce and industry, Dersaadet, were established in Istanbul in 1874, and followed by the other major cities of the late Ottoman Empire, such as Thessaloniki, Beirut and Damascus. Starting from the early twentieth century, the state increasingly controlled business organizations. The first signs of control emerged in the aftermath of the 1908 revolution, when in 1910 the Committee of Union and Progress government passed a law to control the chambers, without changing the chambers’ status as pluralist organizations that were not restricted to Ottoman citizens (Koraltürk 2002). The major attempts of control emerged after the foundation of the Republic, by the legislation of the Law on Chambers of Commerce and Industry in 1925, which changed the chambers’ status as ‘public corporate bodies,’ made membership to the chambers compulsory for all businesses, and brought the chambers under the jurisdiction of the Ministry of Commerce (Öncü 1980). The same law made membership exclusive to Turkish citizens, reflecting the prevailing discourse of the ‘nationalization of the economy’ (Toprak 1995). Hence, the so-called ‘Turkification’ process of business organizations was

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accompanied by major legal changes that re-shaped the organizations’ relationship to the state and solidified state control, fuelled by the state’s suspicion of organized interest groups (Başar 1967). Paradoxically, major pluralist business organizations of the time, like the Turkish National Commerce Union, lobbied for compulsory membership to strengthen the chambers financially. A critical juncture: the foundation of the Republic and weakness of domestic business The 1920s prompted a critical juncture for state–business relations in Turkey, not only through the foundation of the republic and its adjoining institutions, but by the relative weakness of domestic business as a social actor. The dependence on state resources of newly emerging business actors heightened the symbiosis between the state and the businesses nurtured by it (Buğra 1994; Keyder 1987). In fact, a history of a state-nurtured business in Turkey resembles that of Mexico and other late-developers. The important difference between the two is the absence of strong business elements in Turkey along with a collective memory of expropriation, actual violation of private property, thus severe threats, which affected state–business relations in Mexico throughout the twentieth century. Thus, the social fabric these increasingly authoritarian states encountered at the rise of corporatism and initiation of state-led development differed: in Mexico, the state confronted well-organized business interests, whereas state-led development was initiated in Turkey in the presence of a weak business community. Turkish state-led development—coinciding with Turkish state building— began after the business actors of the late Ottoman Empire were all but eliminated during the dissolution of the empire at the beginning of the twentieth century (Kasaba 2006; Göcek 1996; Aktar 2006). The discourse on economic nationalism was accompanied by wars, the massacre, deportation and exodus of the Armenian community, and the population exchange of 1923–1924 between Greece and Turkey. As a result of these disasters, the domestic business sector, which had overwhelmingly consisted of non-Muslims, virtually disappeared (Keyder 1987). State leaders were eager to replace them with a so-called ‘national bourgeoisie,’ which had to be created practically from scratch (Toprak 1995). The fledgling business community was made entirely dependent on the domestic market by a law legislated in the aftermath of the Great Depression, ruling out the ‘exit option.’ The Law on Protecting the Value of the Turkish Lira (#1567), which was legislated in 1930, remained intact until 1983, entirely restricting the option of capital outflow and impairing a structural leverage of the business actors for five decades, in contrast to their counterparts in Mexico.2 State control of business organizations increased further in the 1930s and 1940s. The 1938 Law on Associations restricting association formation was followed by a 1943 law authorizing the Ministry of Trade to found any chambers and mitigate their activities on the basis of economic and/or social ‘rationales’ (Öncü 1980; Buğra 1994; Koraltürk 2002). The merchants were re-organized

Fragmentation and weak coordination in Turkey 61 into the Turkish Merchants Association, challenging the compulsory membership, while the emerging industrialists in the Turkish Industrialists’ Union propagated it, illustrating divisions across cleavages. State control was solidified by the 1940s, accompanied by newly established etatism. The 1943 law granted the Ministry of Trade exclusive authority to appoint a chamber’s board chairman, and the Law on National Protection and Capital Levy in 1943 brusquely stated that ‘there is no doubt that members of these chambers would pursue national interests rather than individual ones.’ The levy was the first ‘severe threat’ against property rights and triggered severe reactions, particularly from the merchants (Barkey 1990). As it was unequally levied on non-Muslim businesses and caused a new wave of emigration, it caused further erosion of the business community (Aktar 2000). However, even threats like this did not lead to mobilization against increasing state control. Corporatism in the making: foundation of a ‘state within the state,’ 1950– The 1950 law on chambers engendered an all-encompassing and hierarchical business organization: the Union of Chambers and Commodity Exchanges (TOBB). Since it was founded in 1952 as a ‘legal’ (read as ‘official’ or quasipublic) business organization, all industrial and commercial interests have been compulsory members of TOBB, through their individual chambers and unions. TOBB helped solidify and centralize state control over business interests, while it became highly co-opted by the state for decades. Its ambiguous and continuously changing status—vacillating between a bureaucratic agent, party affiliate, and business organization—as well as the state’s co-optation, generated problems of legitimacy of representation until the 2000s. Although it is authorized by law to be incorporated into policy-making, its de facto incorporation oscillated between non-existent and high until the 2000s, depending on successive governments’ discretion in the first phase of market transitions. TOBB has undoubtedly surpassed the intended functioning of a peak business organization, becoming an extremely powerful entity, almost a ‘state within the state’ through its vast resources that it has been endowed with.3 Empowered by 362 chambers and 1.2 million firms as members, it has become the wealthiest public institution in Turkey (see Chapter 6). Emergence of this giant entity was an unintended consequence of its initial design and subsequent politicization process. Interestingly, TOBB’s power has expanded further in the second phase of transitions, unlike Mexican corporatist organizations that have increasingly weakened. Cleavages within TOBB: commercial vs. industrial interests Initially, the central cleavage within TOBB was between commercial interests (a majority in its membership) and industrial interests, the latter demanding a distinct peak organization. Cleavages over the numeric advantages of the merchant interests within the TOBB vs. the capital concentration of the industrialists generated tensions over representation. This, in turn, gave rise to the latter’s demands to form

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a separate organization, a demand TOBB’s managerial cadre opposed, arguing that such a divide would diminish private sector’s bargaining power vis-à-vis the state (Barkey 1990: 135). Industrialists founded the Association of Chambers of Industry in the 1960s, and an ‘unofficial’ Union of Chambers of Industry in the 1970s, but they mostly failed to be effective (Öncü 1980: 475). Although on paper the TOBB always represented all business interests, its capacity to do so was limited in the first phase of market transitions, caused by its ambiguous status, politicization that turned the organization into a subsidiary of distinct political parties, and confrontation with pluralist organizations, especially that of big business. Big business mostly confronted TOBB in the first phase of transitions based on claims of an absence of representative legitimacy, though it did not invest in a pluralist peak organization, unlike its Mexican counterparts. The coincidence of the foundation of the TOBB with the beginning of the multiparty regime in Turkey, and the Democrat Party (DP)’s rise to power, led to identification of TOBB with the DP, a political alignment that would continue with DP’s successors, i.e., the Justice Party (AP) and the True Path Party (DYP). TOBB’s sphere of authority was enhanced in exchange for cooptation and politicization. Posts at TOBB and major chambers became stepping stones for political careers, epitomized by top management becoming prime ministers and ministers, a non-exhaustive list including Necmettin Erbakan (PM in 1996–1997), Mehmet Yazar, Ersin Faralyalı, Ali Coşkun, Yalım Erez, and Zafer Çağlayan—all became ministers, the last being the current Minister of Economy as of 2013 (Buğra 1994, 1998; Buğra and Usdiken 1997). TOBB’s status as a ‘quasi-public business organization’ allowed it to conduct a broad range of bureaucratic functions that were granted, de-granted, and regranted based on the governments’ discretion and the organization’s acquiescence to the incumbent. Vital public resources which were hard to access in the ISI era, such as foreign exchange licenses, import quotas and lists, were often granted as a reward for co-optation, and rescinded as a punishment for challenging the incumbent (Öncü 1980; Barkey 1990; Buğra 1997; Sönmez 2010). Precarious status has also been reflected in the level of coordination between the government and the TOBB, which was consulted in good times, while it was dismissed whenever the incumbent faced criticism. Revival of pluralist organizations and emerging inter-organizational rivalry: 1971– The rights of assembly and unionization granted by the 1961 Constitution paved the way for flourishing of unions, associations and confederations, at both pluralist and corporatist ends, while also leading to emergence and strengthening of labor unions. Threatened by such expanding power, the state founded the Turkish Confederation of Employer Associations (TİSK), which, ever since, has had a niche on employer–labor relations, mostly fighting against labor unions (Barkey 1990; Buğra 1997). Despite the growing threat perception through

Fragmentation and weak coordination in Turkey 63 labor’s increasing power, such threats were much less intense than those in Mexico, and Turkish business was often entrenched against labor by the lead of the state. Failed attempts to mobilize: peak pluralist organizations In spite of the rapidly increasing number of pluralist organizations since 1960 (with the exception of the periods of military rule), only a few attempts to found an all-encompassing pluralist organization took place, and they were mostly ineffective. The first was the foundation of the Turkish Free Enterprise Council, initiated in 1977 by TİSK, and composed of TİSK as well as TÜSİAD, TOBB, TESK (Confederation of Turkish Tradesmen and Craftsmen), and TZOB (Union of Turkish Chambers of Agriculture). The Council, well-received initially, failed shortly afterwards due to the conflicting agendas of the constituent members, personal power struggles over the presidency, and partisanship. It convened seldom yet made public declarations, particularly when labor appeared to be a threat in the first phase of market transitions. Its virtual decline is indicated by the fact that 80 percent of businesspeople interviewed had not even heard about the Council. The Council appeared again in 2001. Alarmed by the severity of the 2001 crisis, some prominent businesspeople discussed the re-organization of the Council, or the potential creation of a new platform that would aggregate major organizations.4 Following tension between the banking sector and industry brought about by post-crisis measures, big business actors used the Council’s platform, as well as that of TÜSİAD.5 Although attempts to revive the Council remained ineffective, the prominent business leaders convened in the wake of the 2001 crisis—along with the presidents and chairs of chambers, and some pluralist associations—and made a joint declaration to support the reform program (see Chapter 5). This group convened a few times during the period but was dismantled after the first signs of economic recovery. The erratic history of the Free Enterprise Council indicates the higher likelihood of sustaining an organization when the stakes are high. Big business’s organizing By the early 1970s, an important cleavage within the business community appeared as big business vs. the rest, brought about by the growth of ‘groups,’ i.e., large conglomerates incorporating both industrial and commercial interests. Concerned about TOBB’s politicization and its domination by commercial interests, a small group of big business (12 founders and 86 members) established the Turkish Industry and Business Association (TÜSİAD) in 1971, based on selective pluralist membership. Known as the ‘club of the bosses’ or the ‘club of the rich,’ TÜSİAD is similar to the Mexican Council of Businessmen (CMHN), formed in 1962, except that the latter is even more exclusive than the former regarding its membership base. Since its foundation, TÜSİAD has caused

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varying degrees of power struggle with different organizations including the TOBB, and later with younger organizations like MÜSİAD and Turkish Confederation of Businessmen and Industrialists (TUSKON). Until the mid-1990s, TÜSİAD did not invest in generating collective action across organizations. The privileged access of TÜSİAD and its individual members to the state actors, their domination in several sectors, and their influence in policies was an important element in contestation against the organization.6 In the first phase of market transitions, TÜSİAD and TOBB went through a heightened power struggle, which boiled down to the question of who represented business’s interests: TOBB, the peak association of business with 1.2 million members (firms), or TÜSİAD, currently representing 600 businesspeople and 3,500 companies, controlling about 50 percent of the total value-added in production and employment in the private sector, and creating 80 percent of the foreign trade (except energy).7 TÜSİAD’s proposals for policy initiatives were usually resisted by TOBB and vice versa. According to a former president of TÜSİAD: TOBB is like an empire whose chairs act like emperors. They are the prominent members of the state aristocracy and act like ministers. As a public institution, TOBB represents the state, thus cannot represent business interests.8 Intra-organizational rivalry also existed, even in small associations like TÜSİAD. When governments attempted to consult with big business, such disagreements obstructed coordinated action. Only when the stakes were high did rivalry subside. The stabilization programs of 1980 and 2001 constituted the few instances where business across organizations had consensus (see Chapters 2 and 5). Inter- and intra-organizational rivalry: who represents business? Inter-organizational rivalry heightened throughout the first phase of market transitions. Chambers vs. associations became an important nexus of rivalry. Starting from the late 1980s, TÜSİAD’s increasingly vocal attitude triggered severe reactions from corporatist organizations (peak organization and chambers), challenging the representative legitimacy of the ‘club of the rich.’ Niyazi Adıgüzel, chairman of the Istanbul Chamber of Commerce (İTO) at the time, emphasized the lack of representational legitimacy from a paternalistic view of the state: A couple of associations whose membership is limited to hundreds cannot represent business, though they pretend to do so. Chambers are the legal and exclusive representatives of the private sector. Associations’ claims over representation generate a complication and offend the chambers. . . . How responsible are these associations to the state?9

Fragmentation and weak coordination in Turkey 65 In a common declaration, İTO, İSO, and the Maritime Chambers asserted that they would not allow any confusion regarding business representation, and that they were disturbed by government consulting with pluralist organizations, as only chambers should be considered legitimate actors to be consulted. Ali Coşkun, TOBB’s chairman then, underlined that ‘TOBB was the highest organ of Turkish private sector,’ and Deputy Prime Minister Kaya Erdem and State Minister Yusuf Özal considered TOBB as the main actor to be consulted.10 In return, TOBB often sided with the government’s policy positions against pluralist business organizations.11 However, this was not a solid alliance, either: whenever TOBB’s relations with the government soured, it allied with other business organizations that contended government’s policies and perspectives. In such intensified rivalry, ad hoc consultation and shuffling the organizations to consult with became the prevalent approach, which tended to exclude any organization with a critical tone against the executive. But, even ad hoc inclusion of TÜSİAD in some summit meetings caused severe reactions from the chambers and TOBB. Tensions between TOBB and TÜSIAD are exemplified in the aggressive tone of Yalım Erez, the TOBB chair in the mid-1990s, who described TÜSİAD as ‘a handful of profiteers,’12 echoed by Cavit Çağlar, the State Minister, who alleged: Who do these guys think they are? They are used to profiteering. Are we going to let a club govern the country . . . [who] dare to rule from their villas on the shores of Bosphorus? No sir! This is not acceptable.13 According to a former chairman of TÜSİAD, such attacks from government have become a pattern, as good relations following the incumbent’s coming to power will turn sour immediately due to the state’s ‘showing off ’ to the public that they do not make concessions to the rich and ‘give them a big lesson,’ which would automatically increase its popularity.14 The threatening tone of the government against big business after a short ‘honeymoon’15 varied between ‘expropriation of villas in cases taxes are not paid properly’ and ‘liberalizing the market overnight,’ uttered by Ekrem Pakdemirli, the Minister of Finance in the second ANAP government.16 Late Prime Minister Turgut Özal often said that ‘business should mind its own business’ claiming that: We have protected the industry for too long. . . . It is enough, we protected it excessively. Now, we have to think of the public. It is not acceptable to produce garbage behind the customs walls and sell your garbage at the price you want. No, we won’t let that happen anymore. You should compete, bro!17 Business contesting the regime In the 1990s, Turkish business organizations began to contest the political regime, besides economic policies. Both corporatist and pluralist organizations

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got engaged in this contestation to varying degrees in different time periods. TOBB and TÜSİAD prepared bold reports on the deficiencies of the Turkish democracy, entailing the Kurdish problem and the military’s role in politics, which drew harsh reactions from the executive and the military elite (TOBB 1995, TÜSİAD 1997 and 1998). Tansu Çiller, the Prime Minister of the time, reacted to the TOBB report on the Kurdish problem by claiming that ‘If PKK [the Kurdistan Workers’ Party] were to prepare it, it could not have done a better job.’18 By publishing audacious reports and advertising them through the media, some organizations instigated significant controversy in the political arena, as well as within the business community. The EU integration process, which speeded up in the 1990s, and business taking part in regional and transnational business networks, played important roles in the business organizations’ change of scope and increasing contestation of the state (Özel 2013c). Expanding scope of contestation led to severe tensions within the organizations. The board members, particularly the chairs, became subject to harsh critiques from the other members due to their criticism of the government and regime’s ‘untouchable characteristics,’ indicating the lack of cohesiveness even in the smallest organizations like TÜSİAD. Such splits in terms of vision and attitude towards the state and ‘sensitive’ issues was a seminal phenomenon between the mid-1980s and the late 1990s, which Buğra (1997) depicts as the tension between the ‘vanguards’ and the older generation. Often, the split was more complex than a generational issue. The degree of dependency on the state (in the form of contracts, joint ventures, and concessional deals—tax breaks, sectional protection etc.) was inversely linked to willingness to side with the contestations. Generally, individual organizations’ contestation was not endorsed either by other organizations nor their own membership base. Political conflict, ‘economic democratization,’ and intensifying fragmentation: ‘devout’ businesses on the rise On top of all existing cleavages in Turkish business—such as corporatist vs. pluralist organizations (chambers vs. associations), SMEs vs. big business, exportoriented vs. import-oriented business, and Istanbul vs. the rest of Turkey—yet another cleavage emerged in the 1990s between the secular(ist) vs. devout Muslim bourgeoisie (Hale and Özbudun 2010; Gümüşçü 2010; Özel 2010). The alliance between big business and the Kemalist state establishment, and its implicit secularist component, gave rise to a political conflict over the distribution of public resources as well as the political power. Business actors who shared a predominantly Muslim identity and a sense of marginalization marked by exclusion from the previous ruling alliance began to mobilize in the early 1990s. The said marginalization was based on these actors’ limited access to state resources and a domestic market barred with entry barriers. They established business organizations such as the Independent Industrialists and Businessmen’s Association (MÜSİAD, founded in 1990) and Business Life Cooperation Association (İŞHAD, founded in 1993), among several others.

Fragmentation and weak coordination in Turkey 67 Expanding their membership and political influence staggeringly, both organizations have become major sites of new businesses’ mobilization, constituting a considerable rivalry against the hegemony of TÜSİAD, TOBB and the others. Hence, the Turkish business community, which was already multi-layered and fragmented, has become polarized further through the expansion of ‘Islamist’ organizations and their secular(ist) counterparts. In fact, a call for action against the hegemony of big business in Turkey had emerged long before market transitions were launched. The political entrepreneurs of this mobilization were mostly political parties with roots in political Islam/religious conservatism. Akin to PAN’s mobilization campaigns in Mexico against the secular state establishment, which led an interventionist development strategy between the 1930s and 1980s, Islamist politics also meshed religious conservatism with economic conservatism. Back in the 1960s, late Necmettin Erbakan, the emblem of Islamist politics in Turkey and the leader of National Outlook Movement, accused big business of having profiteered from monopolistic rents, asserting that his ‘mission’ was ‘to end the hegemony of Istanbul bourgeoisie.’19 In the 1980s, a similar discourse was used by late Turgut Özal, the architect of market reforms (previously deputy in Erbakan’s National Salvation Party), whenever his government faced resistance from big business. In the 1990s, this mission of ‘breaking the big business’ hegemony’ was appropriated by the newly founded parties with roots in political Islam, the crossbreds of the National Salvation Party, and preserved by the Justice and Development Party (AKP) in the 2000s. This mission was appropriated and furthered by the newly flourishing business organizations such as MÜSİAD and TUSKON under the banner of ‘economic democratization.’20 The lack of concrete data makes delineation of specific interests within these organizations difficult, as they are allencompassing across size, sector, regions, and exporting vs. domestic-market oriented classifications. The only clear demarcation is their overwhelming representation of SMEs, notwithstanding some member firms’ becoming big businesses lately. The organizations’ deliberate efforts to increase the capacity of their members, and selective incentives provided by the local and central governments, played key roles in such recent growth. The literature widely discussed the unprecedented rise of these business actors, who shared common identities based on their piety-cum-religious affiliations (Buğra 1999; Gümüşçü 2010; Hale and Özbudun 2010; Öniş 2001; Özel 2010). Although initially the geographic base of these actors was mostly claimed as outside Istanbul and other main hubs of industry and commerce in western Turkey, bringing the title ‘Anatolian Tigers,’ recent research suggests that the considerable increase in the share of new hubs is an unfounded claim (Buğra and Savaşkan 2010). The ideational basis of such alliance between the pro-Islamist business organizations and the political parties embracing liberalization and globalization, mostly stemmed from the ideas dispersed by distinct Islamic orders and communities affiliated with those which played important roles first in the ideational

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transformation, then, the expansion and transnationalization of business networks (Buğra 1999; Özel 2010). Business organizations which are either affiliated with or have shown allegiance to these orders and communities have become instrumental in transmitting these ideas to devout businessmen, along with forming extensive networks of businesses. MÜSİAD and TUSKON, considered to be affiliated with the Naqshbandi order; and the Gülen community/ movement (born within the larger Nur movement) have been the most important organizations which built close alliances with Welfare Party, Virtue Party, and later the successive AKP governments. Interestingly enough, the prevalent fragmentation within Turkish business also permeated into these organizations which were established to generate collective action across devout businesspeople against the hegemony of secularist businesspeople. Although these two organizations by-and-large allied with the AKP in the 2000s, the conflict between the two would emerge in 2013, as the close alliance between TUSKON and the AKP government collapsed drastically following the emergence of severe antagonism between the Gülen community and the AKP government, while MÜSİAD largely sustained its alliance with the government, causing tensions between the two organizations. Thus, just like the other groups within the broader business community in Turkey, devout businesses and their organizations are far from cohesive. Political conflict created the will to challenge the status quo; ideational transformation in religious orders framed neoliberalism largely congruent with the teachings of Islamic orders; new business organizations aggregated the interests of these businesses and mobilized them for collective action; and the new political parties translated their demands to the political arena (Özel 2010). Accompanying their increasing market shares, these actors began to raise claims for political power, allying with distinct political parties including the Motherland Party in the 1980s, the Welfare Party and Virtue Party in the 1990s and later with the AKP in the 2000s and 2010s. The growth of these new businesses was increasingly facilitated by the transfer of a broad range of public resources, a process that started in the 1990s at the level of municipalities during the Welfare Party’s rule in major cities, expanded to central government as well, and peaked in the 2000s and 2010s during the second and third tenure of AKP governments (Buğra and Savaşkan 2010). Selective use of state resources and facilitated access of hand-picked contingents gave rise to an intense power struggle between the two poles of the business community represented by distinct business organizations. These resources included bids, contracting, outsourcing, and public-bank credits, constituting new instruments to redistribute public resources to business allies. Through clientelistic ties, government also facilitated capital accumulation in distinct circles where solidarity and identity-based networking generated a positive feedback loop. Over the course of a few decades, some of these new businesses, which were SMEs in the 1980s and 1990s, turned into large conglomerates that have invested in broad range of industries from energy to media, beginning to rival the old conglomerates, former allies of the secularist state. Use of vertical industrial policy instruments that target specific industries

Fragmentation and weak coordination in Turkey 69 and branches paved the way for selective distribution of incentives. Often than not, businesses would not have adequate information about the specific incentives attached to those instruments, a prevalent pattern since the 1980s (Buğra 1994; Taymaz and Voyvoda 2012). The unanticipated rise and growth of new actors began to challenge big business’s hegemony and alliance with the state. Some of the newcomers’ credentials embedded in their devout Muslim identities (including the links to Islamic orders for some) contrasted with the overtly secularist credentials of most big businesses, who were in close alliance with the Turkish army, a self-acclaimed guardian of Turkish secularism (Özel 2010 and 2013c). The new entries to the market generated concerns for businesses. After the Refah Party came to power in coalition in 1996, perception of threat was exacerbated by the alleged threats against the secular regime posed by the Islamist parties. According to former Welfare Party politicians, big business’s interests were harmed by the ‘pool system’ established by the Erbakan government in 1996, which cut off some of the ‘rents’ generated by big business lending to the state at high interests.21 ‘Civil initiative’ and memorandum: mobilizing business and labor on the same front In the second half of the 1990s, intensifying perceptions of threat led to mobilization of some of the major business organizations, particularly the corporatist ones which included two major labor confederations, an unusual act in Turkish civil society’s history. During the RefahYol government (1996–1997), TOBB, TİSK, TESK, Türk-İş (the Confederation of Turkish Trade Unions), and DİSK (the Confederation of Progressive Trade Unions) formed a group called the ‘Civil Initiative’. It indicates that the actors mobilize to generate collective action when the stakes were high. The Civil Initiative called for an urgent change of government based on the perceived threat to democracy and the secular republic; it lobbied with the opposition to end RefahYol’s tenure.22 TÜSİAD was not included in this initiative, but it did express its concerns about the RefahYol government, and especially about Prime Minister Erbakan’s lax attitude to secular principles, notwithstanding the individual stances of some of its prominent members.23 Concerns about the rise of ‘Islamist politics’ triggered a military memorandum in 1997 whose consequences are key to explain both political and economic changes within the last two decades. Referred to as the ‘February 28 Process,’ and aiming to halt ‘the anti-secular policies and acts of the government,’ the memorandum virtually ended the RefahYol coalition government (1996–1997) headed by Erbakan, later banning the Welfare Party (Toprak 2005a, 2005b). Following the memorandum, the Civil Initiative held several meetings in different parts of the country, endorsing the end of the RefahYol government, while emphasizing the risk of social upheaval in the context of increasing polarization and impoverishment in the society (Baydur 2008). This unusual collective action initiative, bringing together business and labor, expanded from the ‘Civil

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Initiative of Five’ referring to the participant organizations, to the ‘Civil Initiative of Six’ with the inclusion of Hak-İş (the Confederation of ‘Just/Fair’ Labor Unions,24 representing unions with national and religious values), and later to the ‘Civil Initiative of Seven’ with the incorporation of TZOB (Union of Turkish Chambers of Agriculture, a corporatist organization) by the end of the 1990s.25 Intensifying threats of economic crises in 2000–2001 worked as a leitmotif to mobilize organizations across substantially different interests. Based on prevalent concerns about the absence of effective coordination platforms that would bring together social actors and the government, the Civil Initiative eagerly lobbied to change the status of the Economic and Social Council (ESK) through a distinct law. The secularist state establishment declared a fierce war against ‘Islamist’ businesses, the so-called ‘green capital’ that commonly referred to capital owned by ideologically and politically ‘pro-Islamist’ actors, undertaking a major intervention in the economic arena. Many businesses and financial institutions were subject to inspection, inquiring into the political links and the funds of Islamist conglomerates, which had begun to compete with secular big business in various areas, including privatization bids and state contracts (Howe 2010). Alarmed by their growing presence in strategic sectors, the military prepared a ‘list of fundamentalist companies’ considered as ‘threats,’ and denounced about 100 ‘suspicious’ Islamist businessmen for exploiting people’s religious beliefs for the benefit of around 30 radical organizations. Islamic banks were accused of having funneled some US$250 million into Islamist activities against the secularist state establishment. These actions caused bankruptcy and/or weakening of some of these businesses (Özcan and Çokgezen 2003). As the businesses close to the Welfare Party were considered accomplices to threats against secularism, the memorandum launched a fully fledged campaign against them, and MÜSİAD was identified as an organization representing the ‘suspicious’ companies and businessmen.26 The memorandum of 1997 aggravated the political conflict across business community to access public resources and increase market shares. It further strengthened the link between businesses and political parties as well as social movements with roots in political Islam. After the collapse of the RefahYol coalition government and the ban of the Welfare Party from politics, most businesspeople and major organizations like MÜSİAD and İŞHAD (which became part of TUSKON in 2005) in this pole allied tightly with the moderate revisionist offspring of the Welfare Party, which later gathered in the AKP.

The Turkish state: fragmentation and de-institutionalization Throughout the market reform process, the Turkish state first became more fragmented, and then began to acquire some cohesion, displaying a substantial withincase variation. In the first phase of transitions (1980–2000), fragmentation intensified, leading to declining state capacity to design, steer, coordinate, and implement. The resulting inter-agency rivalry mimicked the inter-organizational

Fragmentation and weak coordination in Turkey 71 and intra-organizational rivalry in business: many agencies were established with overlapping functions and competed with one another to maintain authority, constituting a process of layering. Governments often used a ‘divide and rule’ strategy in order to overcome bureaucratic resistance, changing the authority constellations and coordinating principles of agencies. The ways in which the rules operated in practice deviated from what was on paper, as the strong veto players caused conversion of bureaucratic institutions. Literature generally depicts the Turkish state as having high capacity or strength (Turan 1991; Heper 1985, 1987). The attribute of a strong state is often conflated with authoritarianism and discretionary power—explicitly or implicitly—while the Turkish society is widely described as weak vis-à-vis a strong state, considered to be a legacy of the Ottoman Empire (Bianchi 1984; Mardin 1978). Nonetheless, the Turkish state rendered weak was marred with fragmentation, intensified by military interventions despite their goal of preventing fragmentation (Evren 1990). In each intervention, the military used a different tactic, mostly in complete contradiction with its predecessors: it empowered the economic bureaucracy by the 1960 coup, while mostly withholding its power by the 1980 coup. Besides changing agencies’ spheres of authority, it empowered the executive through the 1982 constitution, leading to the executive’s incessant interventions in bureaucracy and circumventing the legislature whenever necessary (Özbudun 2000). Political and civil rights were severely restrained: former political party leaders and prominent members were banned from politics for five to 10 years, the National Security Council was empowered, and linkages between interest groups and political parties were dismantled. Bureaucracy vs. democracy: a constant battle In Turkey, the interaction between bureaucracy and the government has been historically marked by constant conflict, making coordination among the state elites a difficult task. Top-level agencies in the economic bureaucracy have been subject to the governments’ attempts ‘to conquer the state through bureaucracy.’ The historical root of this tension between the government and bureaucratic agencies goes back to a juncture where multi-party regime was instituted in 1950. As the Turkish Republic had been founded based on a strong alliance between the bureaucracy and military, the bureaucracy became the main pillar of the single-party regime (1923–1950), whereby the Republican People’s Party (CHP) encroached into all bureaucratic agencies, akin to Mexico’s PRI (Heper 1987; Özbudun 1970). The transition to a multi-party regime in 1950 was the origin of this tension, since the bureaucracy initially preserved its loyalty to the CHP, resisting Democrat Party (DP) rule (Özbudun 2000: 31). Depicted by a center-periphery dichotomy, CHP represented the ‘bureaucratic center’ thus ‘the state,’ whereas the DP represented the ‘democratic periphery’ and ‘national will’ (Mardin 1978). The DP’s identity was established based on a counter-bureaucracy stance, implying an entrenchment against the secularist–Kemalist state establishment, and this

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gathered a popular allegiance that was used by the DP and its offshoots. From the 1950s onwards, center-right populist parties have addressed the tension between the Kemalist elite—the bureaucracy and military—and ‘the people’ by using religious symbols and the secular vs. anti-secular cleavage as a major point of contestation. Although the 1961 constitution solidified the core alliance between the military and bureaucracy by granting the bureaucracy substantial authority in decision making and policy implementation, such authority dwindled over time, challenged by the strong veto power of the politicians (Heper 1987). As the constitution expanded the sovereignty of the bureaucracy (Mardin 1978: 186), political parties have aimed to become entrenched within the bureaucratic cadres, to conquer the bureaucracy from within and to diminish its authority by various tactics. During the first phase of transitions, the so-called ‘bureaucracy’s hegemony’ was often challenged by politicians, most prominently by the late Özal, himself a former bureaucrat, and the tension intensified. Thus, the ingrained distrust between politicians and bureaucrats prevailed until the 2000s, as politicization ‘subjected the bureaucracy to the political whims of competing groups’ (Heper and Evin 1988: 207). Conflict between bureaucrats and politicians gave rise to immense resistance in policy implementation, particularly at times of major transitions. Bureaucracy’s sabotaging of politicians hindered implementation, causing deadlocks. A case of power struggle in economic bureaucracy: state planning organization The tension between politicians and bureaucrats affected economic policymaking and implementation: incumbents attempted to bypass bureaucracy, while bureaucracy, at times, sabotaged the incumbents’ policies. The State Planning Organization (DPT), which was founded by the 1961 constitution, provides a good example for this power struggle. Since the early 1960s, the DPT, which was designed as the central agency to oversee economic policies and implement development strategy, has been subject to politicization, partitioning and capture, engendering processes of layering and conversion (Kansu 2004). It became an arena where not only ideologies clashed—left vs. right and statist vs. anti-statist/less statist,—but also cleavages became embedded into a secular(ist) vs. Islamist divide. Partisanship and devout Muslim identities divided the agency between the ‘pro-growth clique’ (with conservative leanings—economic and religious alike) and the ‘pro-development clique’ (statist, left-leaning, predominantly secularist).27 The Özal team’s appointment in the 1960s was important because of the former clique’s entry into the elite economic bureaucracy.28 Conversion and layering through frequent change of rules applied to specific departments within agencies, which have been (re)located based on the governments’ discretion and the state of interactions between the governments and agencies. Partisanship and/or submissiveness (or the lack thereof ), along with

Fragmentation and weak coordination in Turkey 73 the significance of the agency in distributing public resources, shaped the (de) granting of authority. One of the important examples in this respect is the Department of Incentives and Applications (TUD), granted with substantial authority over incentives and subsidies in the 1960s. Stemming from its direct links to businesses, TUD became subject to successive political relocations as the ultimate rent-distribution organ (Kansu 2004: 285). It was relocated into the Secretariat of Foreign Trade in the 1970s, then transferred back to the DPT in 1979 but this time attached to the Prime Ministry. In the 1980s, it was relocated again to the Undersecretariat of Treasury and Foreign Trade, and in 1991 back to the DPT again. Similar legacies of de-institutionalization and centralization of policymaking intensified in the first phase of transitions, and dominated over consultative institutions. The High Planning Council (YPK), a platform of consultation institutionalized by the 1961 constitution, became subject to successive rounds of layering. Constituted by representatives of bureaucratic elites and government, the YPK was designed as a ‘consultation organ’ based on equal voting rights granted to the government and the DPT, making the YPK a de facto decision-maker and the DPT an essential veto player (Kansu 2004: 63). Governments’ reluctance to share voting rights even with the central planning agency first curtailed the DPT’s voting rights and then discharged the DPT from the YPK in 1984, providing it with observer status. Another tactic to bypass the DPT’s veto power was the formation of alternative platforms, undermining those where the DPT had a voice. The Justice Party government founded an alternative platform called the ‘Board of Economic and Social Affairs’ under the charge of the Prime Ministry, appointing hand-picked bureaucrats to key posts and bypassing the DPT. These patterns still prevail for all agencies with designated power. Before the 1980s, center-right governments clashed with the bureaucracy due to the latter’s statist-leftist ideological leanings. In the first phase of transitions, the clash was based less on ideology than on legitimacy, since the use of executive discretion peaked and intensified the politicians’ pragmatic stance to bypass economic bureaucracy. The 1982 constitution revoked some bureaucratic authorities, increasing the military government’s ‘containment of civil bureaucracy’ and diminishing the bureaucracy’s role in the ruling coalition (Heper 1987). Successive governments developed different tactics to bypass bureaucratic resistance, but one tactic was common: agencies and their personnel along with the rules of interaction were continuously modified, leading to layering. Intervention in the hiring processes of bureaucratic agencies facilitated the governments’ ‘allies’ taking on key positions, causing major shuffling at the initiation of each incumbency. Throughout the first phase of transitions, the widespread use of executive discretion ‘eased’ altering the rules regarding authority constellations of bureaucratic agencies. Decrees caused fragmentation and formation of new agencies directly attached to the Prime Ministry’s office, centralizing the economic policy-making further, a practice that became prevalent again since the late 2000s.

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Bureaucracy’s counter-attack: principles, partisanship, or ideological conviction? In the first phase of transitions, Turkish economic bureaucracy partially resisted reforming governments and their policy-making. When the former bureaucrats who held key positions at that time are asked, they emphasize the inappropriate (at times unlawful) proceeding of reforms, especially the Motherland Party governments’ undermining of the institutions to bypass resistance and expedite the process. The politicians, however, particularly those from the Motherland Party cadres, explain the tension by the bureaucracy’s ideological convictions, mainly loyalty to old school statist ideology and/ or allegiance to political parties which were rivals of the incumbent. The resistance was centered on the Undersecretariat of Treasury and Foreign Trade and the Ministry of Finance. Most of my interviewees who were in the resistance clique asserted that they did not resist because of ideological convictions against reforms, but because they were against how the reforms were undertaken, how ‘lawlessness became the rule of the game,’ and how Prime Minister Özal’s team tried to use short-cut solutions to bypass laws. In return, Özal and his close circles accused those bureaucrats of being ‘too rigid, statist, and old school.’29 Thus, legitimacy vs. pragmatism became a central debate in the first phase of market transitions (Öniş 2004). To counterbalance the resistance, governments created alternative agencies with more power, or opted for top-down appointments. Appointment of Özal’s ‘princes,’ Turkey’s Chicago boys, to the highest positions in the economic bureaucracy triggered considerable resistance from career bureaucrats. Özal’s princes were mostly US-educated technocrats who did not have any experience with Turkish bureaucracy, but were hired to head agencies that were granted considerable autonomy and discretionary power, forming a ‘change team’ (Waterbury 1993). Although the cadres were changed in Mexico as well, it usually took place through shuffling within bureaucracy. Özal’s princes entertained top-down authority, misusing the autonomy of the newly founded agencies and extra budgetary funds as political tools. Whenever these new technocrats were critiqued, Özal would defend them by saying: ‘My bureaucrats know their business.’30 Bureaucratic agencies’ capture by appointments became a common strategy. An early example of this was the Central Bank, which joined the thin reform coalition after Özal appointed one of his ‘princes’ as its chair. According to former bureaucrats interviewed, these hand-picked ‘princes’ (some being acquaintances of the Özal family) harmed the bureaucratic apparatus as they mostly undermined the established rules, contributing to their conversion. Hence, a severe tension emerged between the old bureaucrats and new technocrats: Özal’s princes might have brought human capital, but more importantly they brought a crisis of trust, challenging the established traditions of administration within Turkish bureaucracy. They did not know how the rules worked, nor did they care. . . . Personally endorsed by Özal, they wanted to get away

Fragmentation and weak coordination in Turkey 75 with pragmatism. . . . Princes called us [the old-school Ministry of Finance bureaucrats] as ‘black financiers,’ and we called them the ‘tyros of Ankara’ since they did not know what the state was all about.31 Competing for authority: inter-agency rivalry Since the launching of market transitions, the authority transferred to the newly established agencies and the privileges provided by the new appointees gave rise to substantial inter-agency rivalry within Turkish bureaucracy (Biddle and Milor 1997). Most interviewed businesspeople expressed concerns about the constantly changing structure of authority among the state agencies, asserting that they had to interact with many agencies in a given issue area. Fragmented business elements’ interaction with the fragmented state caused a number of coordination failures. The agencies established as virtual ‘allies’ of reforming governments perpetuated the selective relocation of authority and privileges. The Undersecretariat of Treasury and Foreign Trade went through similar political maneuvering. Founded in 1983 by Decree #188, the Undersecretariat brought together the General Administration of Treasury and the General Secretariat of International Economic Cooperation (previously under the Ministry of Finance), and that of Foreign Trade and Standardization (previously under the Ministry of Commerce), and attached them to the Prime Ministry, another step in the process of centralization of decision-making in the direction of the executive. In 1984, another decree (Decree #232) changed the status of the departments of Banking and Foreign Exchange, Public Finance, and Foreign Economic Relations as General Administration, enacted as Law 3274 in 1986. Then, in 1989, another decree (Decree #376) redefined the authority of departments in the Undersecretariat. The organization of the Treasury was expanded again in 1991 by another decree (Decree #436) by the inclusion of a few departments, including the DPT’s TUD as mentioned above. Some of these functions and authority constellations were altered again in 1993 (Decree #508), and finally the Treasury was separated from the Undersecretariat of Foreign Trade in 1994 by Law 4059. Politics of (dis)invitation in fragmented polities: shuffling businesses to coordinate with In the first phase of market transitions, coordination between the Turkish state and businesses adopted a highly ad hoc and erratic character mostly shaped by the executive’s discretion, intensifying the uncertainties and high costs posed by the transitions along with the lack of a common perspective within business. Apropos the politics of (dis)invitation, businesses across the board—organizations and individuals alike—used to be consulted in ‘good times’ (i.e., enjoyed good relations with the government) but excluded in ‘bad times’ (i.e., during dire relations with the government, mostly because of business’s criticism of the government and the government’s retaliation).

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During the 1980s and 1990s, each incumbent would initially consult with business organizations, particularly with the TOBB (the official ‘organ of consultation’ as a public corporate body) and others like TÜSİAD, İSO and ASO. The mechanism of consultation was either through formal participation in the public policy platforms or via informal visits (Biddle and Milor 1997). In good times, the ministers and the prime minister would visit the business organizations, briefing businesspeople about policies, regulations and probable changes, and receiving feedback from them. Government officials and high-level bureaucrats were invited to the general assemblies and to certain meetings called by the organizations. These visits would be reciprocated by the organizations in good times, apropos the politics of (dis)invitation. The frequency and content of the ad hoc meetings were contingent on the current state of the relations between the actors. Whenever incumbents received critiques from business organizations, the frequency of their meetings with the representative organizations diminished accordingly. The profile of the particular business actors/organizations consulted was shaped by the inclusion of those who publicly supported the government vs. the exclusion of those who criticized it at a given time period. The pattern of erratic and often ineffective dialog was noted by an İSO chair in the late 1980s: We meet with the Prime Minister and Minister of Economy all the time, without any results. I’ve already told them that if they’d do whatever they want to do despite the things we talk here, neither they nor we should bother to show up.32 TOBB, as the official organ of consultation, was involved in a number of platforms without much effectiveness, as executive discretion also applied to TOBB, rendering its voice ineffective. Moreover, throughout the first phase of transitions, TOBB’s representative legitimacy was widely contested by other organizations, particularly by big businesses, as its co-optation by the governments impaired its capacity to represent. The ad hoc quality of consultation prevailed throughout the Customs Union Agreement negotiations in the early 1990s. Neither the peak organization TOBB nor the chambers and associations (semi-public and voluntary alike) were systematically incorporated into the negotiation process. Organizations were consulted erratically during the negotiations, and their input was not effectively articulated into the policy proposals of the Turkish delegation (Ülgen and Zahariadis 2004). Despite the increasing power, recognition and mobilization capacity of several business organizations (most importantly TOBB) in the second half of the transitions, this pattern of ad hoc and erratic consultation persisted in EUaccession negotiations, launched in 2005. In the context of intensified fragmentation, a number of incorporation attempts failed, and erratic ad hoc efforts continued through sidestepping organizational channels and furthering patterns of particularism through access to toplevel bureaucrats and the executive, generating a vicious cycle. A few vanguard

Fragmentation and weak coordination in Turkey 77 businesspeople were willing to halt personalistic politics and establish an institutionalized relationship with the government. But business actors faced a dilemma between their short- and long-term interests, where most actors wanted to benefit from selective incentives provided by the government based on their personal contacts and resulting access to those who make the policies. As cited by Buğra (1994: 248–255), ‘everybody had some business in Ankara the next day,’ meaning many business people pursued their short-term interests via particularistic access. They were wary about the potential ‘sticks’ that they might have been subjected to.33 The largest conglomerates have almost always had their particularistic connections with the governments beyond the organizational channels, but even these connections would be jeopardized when the incumbent became subject to a criticism. Without institutionalized dialog, the pattern of top-down policy-making prevailed in the first phase of market transitions. Increasing fragmentation of business and the state impaired capacity at both levels to maintain dialog and coordination, while perpetuating clientelistic networks. Failed attempts towards formal consultation: formation of a tripartite council Despite the generally ad hoc character of consultation between the state and businesses in the first phase of Turkish market transitions, a number of attempts to institutionalize consultation emerged, the most significant being the establishment of the Economic and Social Council (ESK) in 1995. In the 1980s and 1990s, both business (especially TÜSİAD, İSO, and ASO) and labor organizations promoted such an institution. Similar proposals had been discussed during the preparation process of the 1961 and 1982 constitutions, but they failed to be institutionalized (Sezen 2003: 74). Eventually, the recommendations of the EU regarding civil society dialog, coinciding with the conventions of the International Labour Organization (ILO), joined the demands from domestic actors, and the Council was founded through an executive decree. Its composition and functions were changed six times between 1995 and 2001 by ‘decree inflation’ (Işığıçok 2002: 55); its status was again changed by a later law, and finally it got articulated into the constitution in 2010, exemplifying institutional change through layering. Despite serving as a window dressing vis-à-vis the EU and ILO, ESK failed to function effectively because of intensive inter-organizational rivalry over representation, the broad nature of its agendas, and the general reluctance of state actors to incorporate societal actors into policy-making. ESK’s contentious nature marked by rivalries at multiple levels has prevailed since the launching of the institution. Türk-İş did not participate in the very first meeting of the ESK on October 11, 1995 due to the ongoing strikes in the public sector, and disputes between the unions and the state. The labor representatives, who had promoted the ESK earlier, declared that ‘the ultimate decision-maker was the parliament, and it was wrong that a council like the ESK would pressure the parliament.’34 The representation of both labor and business changed several

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times. In 1995, business was represented by four seats (TOBB and TİSK with two seats each); in 1996 by six seats as TÜSİAD and TİM were incorporated with one seat each; in 1997 TÜSİAD was removed and replaced by the Banks Association of Turkey (TBB); the same year representation diminished to three, as TİM and TBB were removed and TİSK’s seats were reduced to two; and in 2001 it rose up to six, as TOBB and TİSK were provided with three seats each (with the others’ removed). Inter-organizational rivalry, particularly the opposition of TOBB and İTO, and labor’s opposition impeded TÜSİAD’s incorporation as a member on its own (except between 1996 and 1997), despite its zealous lobbying for the Council’s establishment, leading to the claim that ‘the ESK was born dead.’35 Since 1997, TÜSİAD participates in the ESK meetings through TOBB. Business acted in similar ways. The Employers Union (TİSK) first threatened to boycott the meetings as long as the law on employment security was discussed, then actively boycotted later.36 Labor’s representation in the ESK followed a similar pattern, reflecting the prevalent fragmentation among labor organizations. In 1995, labor had two seats (only Türk-İş); in 1996 it increased to four by the incorporation of Hak-İş and DİSK; in 1997 it declined to three (one seat for each organization) and rose back to four by the opposition of Türk-İş; and in 2001 it increased to nine (three seats each). Despite the incorporation of major labor confederations, even on an equal footing, confederations protested at the meetings for varying reasons, such as business’s over-representation, labor’s declining seats, and the ESK defending government policies which align with those of the ‘bosses.’37 Besides such contentions, both business and labor agreed that the most striking problem for the ESK was its extremely ‘statist’ nature, i.e., the overwhelming representation of state actors at the expense of limited representation of civil society. Over-representation of state actors was criticized by business, while labor claimed and protested that business was over-represented. A similar rivalry prevailed within these groups in terms of which specific organization represented business and labor. These concerns and resulting protests, indeed, were influential to change the ESK’s composition several times. As a common pattern, each government changed the rules, granting and revoking representation to particular civil actors, changing the weight of their representation to reward or punish. The increasing concentration of power within the state was also reflected in the ESK, since gradually only ministers and the undersecretaries attached to ministries were provided with seats, while the seats of the public agencies were removed. Between 1995 and 2000, the ESK convened seven times on an ad hoc basis. Only one meeting was held during the DYP-CHP government, while no meetings were held during the ANAP-DYP government in 1996. The exception was the DSP-ANAP-DTP coalition in 1997, when six meetings were held, though the participants mostly emphasized the ineffectiveness of the consultation.38 In the 1990s, attaining consensus at the ESK was exceptional, limited to occasions when stakes became very high towards the end of the decade because of increasing destabilization of the economy. Following the ninth meeting of ESK on February 8, 1999, which convened to evaluate the developments in 1998, parties to

Fragmentation and weak coordination in Turkey 79 the ESK issued ‘declarations of national consensus’ to yield positive signals to the international financial institutions as well as to investors.39 Despite its seeming importance, this was limited to the determination of macro objectives and intentions to achieve those. All in all, the ESK became an arena of conflict, rather than consensus; participants uttered threats against the other parties. None of the parties of the ESK, including the governments, used the Council as a platform to seek consensus, but as an instrument of pressure. Several organizations, including TÜSİAD, İSO, and ASO, along with the Civil Initiative and prominent businesspeople, pushed for social consensus, lobbying for proper legislation of the ESK.40 The legislation was enacted and the ESK even adopted constitutional status in the 2000s, but failed to achieve its goals, notwithstanding fulfillment of de jure conditions imposed by the ILO and EU. When participants of the ESK are asked about the reasons behind its failure, they underline ‘the lack of a culture of consensus’ and ‘the state’s unwillingness to effectively consult with the civil actors.’41 When the state actors who have taken part in the ESK are asked, they suggest otherwise, that ‘it was impossible to coordinate when all societal interests, including particular organizations, pursued their own short-term interests and tried to manipulate the Council and the policies accordingly.’42 Chapter 6 presents the evolution of the ESK, with a comparison against the institutions founded in the second phase of transitions, assessing the levels of coordination.

Conclusion This chapter analyzed increasing fragmentation in both business and the state in Turkey’s first phase of market transitions. By examining the evolution of business representation and state–business interactions in Turkey, the chapter identified some of the historical legacies that prevailed in this initial phase. It explored the erratic collective action initiatives within business, and scrutinized the milieu in which these efforts failed or succeeded. Business’s weakness during the state-formation period, its resulting dependency on the state’s resources, and its lack of cohesion have extensively been used by politicians to constrain business. Suffering from collective action problems, business has shuffled its alliances with various political actors in attempts to influence policy-making. Political allegiances of business have constantly changed depending on short-term interests, causing an unstable state–business interaction. Politicians made extensive use of private-sector cleavages and the resulting rivalry at organizational, sectoral and individual levels. The chapter also looked into increasing fragmentation within the state, which mirrored the fragmentation in business and expanded the space for the politics of survival. In the context of multiple actors’ advancement of uncoordinated demands based on short-term concerns (of businesses and politicians alike), the capacity to coordinate was largely impaired. Fragmented interests and intensive inter- and intra-organizational rivalry endangered coordinated action. Ad hoc consultation platforms, where the state actors shuffled the business organizations

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and individual businesses to consult with, became the common form of interaction between state and business actors. In such vacillating contexts, state–business interaction followed a recurring vicious cycle: reaction, punishment, retaliation, and reconciliation. This cycle has been aggravated by the short-term tenure of politicians and coalition governments, and the centrality of short-term goals and competing claims on the state made cohesion a distant prospect. In turn, lack of cohesiveness impaired coordination between business and state elites until the stakes became very high.

Notes 1 An excerpt from Nurullah Gezgin’s (İSO Council member) speech, İSO Dergisi, June 1992, 27(316): 56. 2 Law #1567, February 20, 1930, available at www.tcmb.gov.tr/yeni/mevzuat/BANKACILIK/TPKKhakkinda1567Sayilikanun.htm (date of access: March 2, 2014). 3 A common expression used by businesses in Turkey in reference to TOBB’s virtual power. 4 Özkök, Ertuğrul, ‘Nakkaştepe’de Süper Patronlar Zirvesi,’ Hürriyet, February 27, 2001. 5 Berberoğlu, Enis, ‘Hazine-banka takasta, üretim yine makasta,’ Hürriyet, June 20, 2001. 6 TÜSİAD became a voting member of the Economic and Social Council (ESK) temporarily in the 1990s. 7 Source: www.tusiad.org/tusiad/verilerle-tusiad (date of access: April 14, 2013). 8 Although most big businesses made statements along these lines, this particular quote belongs to a former bureaucrat; September 2, 2004, Istanbul. 9 Cumhuriyet, January 15, 1988, p. 11. 10 Cumhuriyet, January 14, 1988, p. 11. 11 Türkiye İktisat, TOBB, No. 1763, December 8–12, 1987. 12 Sabah Ekonomi, November 16, 1992, p. 1. 13 Sabah Ekonomi, December 16, 1992, p. 1 and January 1, 1993, p. 1. 14 Interview with a former chair of TÜSİAD. January 12, 2004. 15 Commonly used as a metaphor by businessmen. 16 Cumhuriyet, August 10, 1989, p. 1. 17 Cumhuriyet, August 17, 1989, p. 1. 18 Akşam, September 8, 1995. This was the time period when the armed conflict between the PKK, the central actor of the Kurdish separatist movement, and the Turkish armed and security forces heightened. 19 Following his presidency of the TOBB, Necmettin Erbakan founded the National Order Party in 1970, of which the so-called Anatolian bourgeoisie was a significant constituency. 20 Interviews with officials of TUSKON and MÜSİAD, September 3, 2004 and February 25, 2009, Istanbul. 21 Interviews with a former deputy of the Welfare Party, December 11, 2003, Istanbul. 22 Cumhuriyet, February 2, 1997, p. 5. 23 Interviews with TÜSİAD members, January 5–6, 2004 and July 25, 2004, Istanbul. 24 ‘Hak’ in Turkish has multiple meanings including right, just, fair and God(ly). 25 Yeni Şafak, January 19, 2000. 26 While some MÜSİAD members were accused of financing Islamist activities, some others lost their contracts with the military as suppliers. 27 This team’s slogan was: ‘We promise pilav [a rice dish, connoting prosperity], rather than plans.’

Fragmentation and weak coordination in Turkey 81 28 Turgut Özal and Korkut Özal would be pejoratively called ‘brothers with slippers’ (takunyalı biraderler) because of their outfits in prayer times, unprecedented in the secular cadres of the bureaucratic elite. 29 Interviews with former bureaucrats, January 9, 2004 and July 15, 2004, Istanbul. 30 Hürriyet, October 3, 1989. 31 Interview with a former bureaucrat and former deputy of DYP, July 3, 2004, Istanbul. 32 Cumhuriyet, May 27, 1988, p. 11. 33 Interviews with businesspeople, January 6–8, 2004 and February 26, 2009, Istanbul. 34 Milliyet, October 12, 1995. 35 Interview with a former chair of TÜSİAD, January 8, 2004, Istanbul. 36 ‘The Declaration of Turkish Private Sector,’ Milliyet, October 7, 2000. 37 Milliyet, March 27, 1997. 38 Interviews with businessmen who participated in the Council meetings, January 5, 2004, Ankara, and January 8, 2004. 39 ‘Ulusal Uzlaşma Metni,’ Milliyet, February 9, 1999. 40 ‘Toplumsal Uzlaşma,’ İSO Dergisi, April 1996, 361(25). 41 Interview with a former chair of TÜSİAD, September 20, 2012, Istanbul. 42 Interviews with former politicians from DYP and SHP, November 19, 2003, Ankara, and September 22, 2004.

4

Increasing cohesiveness and coordination in Mexico in the first phase of the transitions

Introduction In both Mexico and Turkey, the coexistence of various forms of interest representation brings about a complex and multi-layered interaction between business and state. A combination of formal and informal access to the state elites has been present in both cases, while the rivalry between business organizations to access the state elites and selective incentives provided by the respective states has been prevalent since the formation of the new states at the beginning of the twentieth century. What is striking in Mexico is the increasing capacity of the state and business actors to establish coordination-inducing institutions in the first phase of market transitions, facilitated by the interaction of cohesive business and state actors. However, coordination increasingly tilted towards a narrow alliance between big business and the state at the expense of others. This chapter explores the evolution of cohesiveness among business actors and the state agencies in Mexico despite intra- and inter-organizational rivalries. It scrutinizes the ways in which coordination-inducing institutions were designed, implemented and consented upon, engendering varying degrees of coordinated action. Delineating the links between increasing stakes and cohesiveness, enhanced capacity of cohesive actors, and institution building, the chapter examines the evolution of these institutions in different directions.

Gradual emergence of business cohesiveness Like in Turkey, interest representation of Mexican business has historically been multi-layered, consisting of both semi-public corporatist organizations based on compulsory membership, and pluralist organizations based on voluntary membership. An important difference was the existence of nationwide peak sectoral pluralist organizations before the launching of state-led development strategy in the 1930s. Those pluralist business organizations had been established in the context of severe antagonism between the state and businesses, preceding the state-led industrialization. Literature usually describes Mexico as a corporatist case regarding centralized interest representation, classifying it as either state corporatist (Schmitter

Cohesiveness and coordination in Mexico 83 and Lehmbruch 1992) or party corporatist (Collier and Collier 1991). In fact, corporatism and shades of pluralism have always coexisted, as semi-public and pluralist organizations have been juxtaposed since the formative years of the Mexican state and its institutions. Formal access to the state, established by corporatist instruments, did not forestall the widespread use of informal contacts, thus clientelistic and personalistic ties coexisted with corporatist channels, diffusing the rigidity of the latter (Heredia 2001; Luna 1987: 459). In fact, a major incentive to take part in the management of corporatist organizations was the prospect of personal contact with the state elites. Inter- and intra-organizational rivalry across business organizations to access the state and influence policies has also prevailed in Mexico, entailing complexity regarding representation based on sectors, sizes, and regions. Some corporatist confederations like CONCAMIN are organized based on sectoral chambers, whereas others, like CONCANACO and chambers like CANACINTRA, have divisions based on regions (Hernández Rodríguez 1991). Corporatist organizations also competed with one another to enhance their own power, often shaped by acquiescence to PRI governments. The alliances among pluralist and corporatist organizations have also shuffled. Among those, the one that has survived the longest is the alliance within the two camps: radicals vs. moderates (Luna 1987; Puga and Tirado 1992). Alba Vega (2003) re-groups these cleavages in three clusters: moderates (CANACINTRA, CONCAMIN, CANACO, CNG, and ANIT); radicals (CCE, CMHN, CAMCO, ABM, and AMIS); and extreme opponents (COPARMEX and CONCANACO). Several pluralist associations were founded at times when stakes were high and took a ‘defensive’ position (Schneider 2004) based on ‘protest and struggle against the state.’1 Extreme opponents were entrenched against the state since the 1930s and became particularly confrontational in the 1970s and 1980s, taking the radicals on board. This group opposed not only state interventionism and sporadic leftward turns of the PRI regime, but also strict secularism through an ingrained conviction in Catholicism (Luna 1992b: 29). The moderates were less radical in their criticism and generally allied with the PRI governments. Mexican organizations disprove a clear-cut cleavage between semi-public/corporatist and pluralist categories. Despite the widely discussed state control and cooptation over the former, some organizations like CONCANACO were among the ranks of the radicals, while some pluralist organizations were placed in the moderate group. Even in the hey-day of Mexican corporatism, pluralist and corporatist organizations were always juxtaposed, usually cross-membered, and aligned and de-aligned contingent upon their relations vis-à-vis the government. Despite historical cleavages, business became more cohesive in Mexico than in Turkey, partly due to a more intensified perception of threats to property rights shaped by the collective memory of the Mexican revolution. The historical alliance of the Mexican state with organized labor was a core element in the formation of threat perceptions and increasing the stakes, whereas fragmented labor never had such an alliance with the Kemalist regime, despite its rising power by the 1970s.

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The weakening of labor through the market transitions, curtailing the political power of the unions and dismantling of the state–labor alliance is a widely discussed phenomenon (Bizberg 2003; Paczynska 2009; Kuş and Özel 2010). This critical juncture gave rise to a strong entrenchment of some businesses against the newly established State, a striking difference compared with Turkey. In the 1980s, two additional factors increased business’s perception of threat: bank nationalization, debt crisis, and the rise of a leftist clique, which divided the PRI and gave birth to the Party of the Democratic Revolution (PRD). The emergence of the PRD, whose presidential candidate was Cuahtémoc Cárdenas, awakened business’s internalized perception of threats and ‘fear of communism’ associated with the candidate’s father, Lázaro Cárdenas, the president from 1934–1940 when the conflict between the state and big business became more severe (Corona Armenta 2003). Based on heightened perceptions of threat, big business invested in mobilization of diverse interests towards collective action. Keeping business at bay: from pluralist chambers to emerging corporatism, 1870s–1940s As in Turkey, the initial formation of modern business organizations in Mexico goes back to the early twentieth century. Although corporatism in Mexico was institutionalized in the 1930s, the 1908 Law of Chambers recognized the chambers as intermediaries with the government under the supervision of the Minister of Finance, in return for a broad range of services including access to publications, fairs, and contacts with foreign associations (Schneider 2004: 61). Commerce, industry, and the financial sector had their peak organizations by the late 1920s, namely CONCANACO, CONCAMIN and ABM (the Mexican Banking Association). The foundation of Mexican business confederations in the 1910s was an outcome of multiple dynamics that associational rights were granted, and business elements were strong enough to mobilize, particularly important given the ongoing social turmoil. As an important feature of state building meshed with the establishment of the PRI regime, business was excluded from the PRI apparatus, despite the incorporation of other organized interests, leading to depoliticization (Heredia 1996). The 1936 Law on Chambers had already defined business organizations as quasi-public entities, with strict limits on politicization. Although individual businessmen were not prohibited from active participation in politics, a tacit agreement between business and the state prevailed in time, causing business’s abstention from politics, a ‘taboo’ that withered away in the 1980s (Garrido and Puga 1992: 132–142). Tirado (1987) suggests that in the 1980s that they needed to enter into the ranks of political parties to make the influence they sought. Institutionalizing state control, the 1936 Law on Chambers made membership compulsory for all businesses, established that chambers and confederations would be the ‘organs for state consultation,’ and prohibited their participation in politics (Alba Vega 2003; Puga and Tirado 1992; Luna 1992b). A 1941 law altered the status of chambers and confederations, making them ‘public

Cohesiveness and coordination in Mexico 85 institutions,’ almost at the same time (1943) as in Turkey. The institutionalization of corporatism and of state control helped to pacify the antagonism arising from the Employers’ Confederation (COPARMEX), a pluralist organization founded in 1929 to defend business interests against the new Mexican state and its flourishing alliance with labor. The early existence of strong antagonism posed by established business interests (particularly from the North) has been an important aspect of Mexican state–business relations. Solidifying corporatism: the state organizes business, 1930s–1940s CONCAMIN and CANACINTRA, which affiliated to CONCAMIN, have been focal players in state–industry relations. CONCAMIN is an umbrella organization representing industries of different sizes and in different sectors, while CANACINTRA, as a provisionary chamber, mostly represents small- and medium-sized enterprises (SMEs), although Coca-Cola and Modelo beer are also members (Luna 1992a). Although it was originally just a chamber affiliated with CONCAMIN, CANACINTRA became more powerful than the confederation itself for decades. It was designed by the state to create a solid ally in ISI strategy, facilitated by CANACINTRA’s nationwide representation and broad membership base (Shadlen 2004: 63–64). That alliance was particularly strong during the so-called ‘stabilizing development’ period, 1940–1968, while it eroded later (Ortiz Mena 1998; Cárdenas 1996). State interventionism, set in the constitution (Article 27), underscored that a strong national bourgeoisie would necessitate vigorous state action. Industrialists represented by CANACINTRA and CONCAMIN consented to interventionism and largely benefited from it, creating a symbiotic relationship as in Turkey. CANACINTRA’s statist stance generated the label ‘Marxist businessmen’ in the 1960s and early 1970s (Shadlen 2004). Until the 1990s, CANACINTRA was mostly pro-protectionist, embedded in state interventionism ‘reviving the principles of the Mexican Revolution’ (Shadlen 2004). In exchange for its acquiescence to the PRI regime, CANACINTRA secured important leverage and influence in the negotiations between the government and diverse business sectors, particularly in policy formulation, strategy development, and international negotiations. Akin to Turkish chambers, CANACINTRA and CONCAMIN became stepping stones for political careers for top-level officials. Nevertheless, their influence diminished considerably throughout the market transitions (see Chapter 7). Business on the defensive: pluralist organizations, 1920s–1970s COPARMEX: historical animosity against the state The Employers’ Confederation of the Mexican Republic (COPARMEX), a pluralist and multi-sectoral organization that represents businesses of all sizes (the majority being SMEs, although some of the largest conglomerates are also

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members), has been one of the most vocal business organizations in Mexico. Between the 1930s and 1980s it pursued an antagonistic stance against the PRI regime, and was often referred to as the leader of the ‘radical group’ (Tirado 1987; Luna 1992a; Alba Vega 2003). According to Claudio X. González, expresident of the CCE (Business Coordinating Council), ‘COPARMEX was the conscience of the private sector.’2 Founded in 1929 in reaction to a proposal for a new labor law, COPARMEX’s identity was shaped as anti-state, anti-corporatist, anti-labor, and anti-secularist (Tirado 1979). The Monterrey Group, representing some of the largest conglomerates in Mexico, has been prominent in COPARMEX. COPARMEX fought against ‘Mexican corporatism,’ a loaded concept in business’s perception, entailing authoritarianism, interventionism, and secularism among others: COPARMEX has always demanded that the Mexican corporatism should come to an end . . . because we want democracy within business; we want equal access to the state. We do not approve of state’s authoritarian control over business; some corrupt business organizations’ close alliance with the state; and their leaders’ co-optation by the state in return for political careers.3 COPARMEX played an important role in the first phase of transitions. It submitted proposals for reforming the state, state–labor relations, state–business relations, and presidentialism.4 It lobbied adamantly to reform education policy, a major concern for the organization since the 1930s due to its pronounced Catholic identity.5 Despite its opposition to the state, successive governments have consulted with COPARMEX before implementing major policy initiatives (Schneider 2004: 68–69). But, as COPARMEX’s critics of the government increased, the inclusion of COPARMEX in state decision-making was endangered. Big business is organizing: Mexican Council of Businessmen Confrontation between the state and big business, and the latter’s perception of threats, triggered the foundation of the most elite business organization in Mexico in 1962. A small group of twelve elite businessmen (known as ‘the club of millionaire friends’) founded the Mexican Council of Businessmen (CMHN). Following President Adolfo López Mateos’ support for the Cuban revolution and declaring his political stance as ‘the extreme left within the boundaries of the constitution,’ the CMHN aggressively launched a campaign against the government, publicizing a manifesto entitled ‘To which way, Mr. President?’ Despite this initial confrontation, CMHN has been cautious in its contact with the state, and it was mostly acquiescent to the PRI regime. Similar to their Turkish counterparts, Mexican big businesses were mostly loyal to the incumbents, the PRI regime in the Mexican case, especially until 1982, as very few businesspeople openly supported the PAN (Salas-Porras 2000: 56, 75–76). The impact of the CMHN on the Mexican political economy has been massive, not only in terms of its members’ privileged access to the executive,

Cohesiveness and coordination in Mexico 87 and thus to policy-making, during the PRI regime, but also regarding its endorsement of a powerful organization, the CCE. CMHN members have direct access to the executive, mostly through informal contacts (even monthly luncheons at times) with the presidents and/or acting secretaries and other top-level bureaucrats (Schneider 2004; Briz Garizurieta 2002). The state–big business confrontation intensified in the 1970s under Echeverría’s governments (1970–1976) that tilted to the left, with antagonistic policies and discourse against business (Contreras Montiel 2002). In a tone similar to the late Prime Minister Bülent Ecevit’s in Turkey in the 1970s, businesses were often accused by President Echeverría and his close circles as having furthered their oligarchic interests, while impairing national interests (Casar and Peres 1988; Calderón 2001). Although all organizations were wary of the state’s ‘threatening tone and increasing populism,’ it was CMHN that had the resources to invest in mobilization (Briz Garizurieta 2002). CMHN founded the Center for Economic Studies of the Private Sector (CEESP), which helped disperse a proprivate-property discourse throughout the society. Although COPARMEX seemed to have been the main actor behind the CCE’s foundation, it was CMHN’s 40 businessmen who pressurized COPARMEX regarding the vital need for a peak organization (Luna 1992b). Since the 1940s, the Mexican business community had been engaged in ad hoc attempts to generate a unified stance across organizations. Individual organizations generated issue-based alliances, publicizing joint positions on distinct economic and political issues, and changes in policies and regulations (Schneider 2004: 65). Nevertheless, the impact of these ad hoc attempts was limited, as each time alliances between organizations shuffled. Intensifying distress and the foundation of a peak organization The conflict between the Echeverría government and business leaders intensified as the ideological orientation of the president was perceived as the ‘path toward socialism’6 and to be propagating socialist revolution to Latin America (Calderón 2001: 17–18). The endorsement of organized labor by the state, a rising left-ward shift in some other countries in Latin America and Echeverría’s favorable rhetoric towards Cuba, accompanied with expansion of the SOEs and increasing public deficit, alarmed Mexican businesses. Poor policy performance and perceived threats to property rights led businesspeople to recall the two successive six-year presidential terms between 1970 and 1982—of Echeverría and López Portillo—as a ‘tragic twelve years’ (Contreras Montiel 2002). Given such high stakes, fragmented business representation in both corporatist and pluralist organizations became an obstacle for collective action, although several organizations aimed to form a broad-based alliance of business, similar to the Civil Association (Associación Civil) of the 1930s formed against Cárdenas’ ‘populist alliance.’ The then-presidents of CONCANACO, CONCAMIN and COPARMEX agreed on forming an organization like the Labor Congress to coordinate and unify business’s voice vis-à-vis the state and labor,

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operating as the ‘dome of the domes’ and aggregating diverse interests (Calderón 2001). Hence, six organizations—CMHN, AMIS (the Insurers’ Association), ABM, COPARMEX, CONCANACO, and CONCAMIN—launched the Business Coordinating Council (CCE) in 1975, also incorporating the CEESP and the Mexican Business Council for International Affairs (CEMAI) as ‘subordinate mechanisms’. Although CCE seemingly represents all interests, it has lacked representational legitimacy as it embodies the hegemony of big interests. Certain interests are doubly represented in the CCE, since three organizations (CMHN, AMIS, and ABM) have 42 percent of the votes, big corporations hold 50 percent of the votes despite constituting only 0.011 percent of indirect affiliations with the CCE, and the 40 or so businessmen of the CMHN were granted the same voting rights as the thousands of businessmen represented by CONCAMIN and CONCANACO (Luna and Tirado 1992). Overall, the CCE has given rise to further concentration of power and evidently enhanced the power of big business in Mexican politics (Hernandez 1991; Luna 1987, 1992a). The CCE critiqued the government and state institutions only cautiously until 1982. Then the organization’s tone turned bolder, the first major campaign being ‘Everything can be done by liberty,’ which was critical regarding inflation fuelled by public spending, interventionism, and the government’s support of leftist movements. In the late 1970s, the CCE organized seminars, targeted journalists to ‘influence the ones who influence,’7 launched campaigns, and held conferences and seminars to propagate its pro-market views, trying to influence public opinion and businesspeople. The turning point for CCE’s campaigns came in 1982, in the aftermath of bank nationalization against which the CCE fiercely reacted, launching a nationwide campaign called ‘Mexico in Liberty.’ Clouthier, the then-president of the CCE, gave public speeches and held conferences with various business groups delineating the state as the underlying cause of the debt crisis. This campaign and mutual accusations between President López Portillo and CCE president Clouthier heightened the tension: the latter accused the former of tilting the country towards communism, while the former accused the latter of fleeing capital from the country. Since 1982, the CCE has been politically vocal, epitomizing the end of the tacit agreement that business would stay away from politics (Tirado 1987). The debt crisis and bank nationalization in 1982 helped solidify cohesiveness in the business community, since the perceived threats against property rights intensified and the organizations like CCE and COPARMEX were instrumental in dispersing a pro-reform stance—pertinent to reforming the state institutions and education policy as well as economic policies. In the mid-1980s, the CCE started its first campaign about school books which, from their point of view, had presented ‘apologies for communism’ and ‘attacked the market economy‘ since the 1930s. It proposed major changes regarding the curricula and the content of the school books, similar to Turkish business organizations’ raising—often opposing—demands about education policy in Turkey (see Chapter 6). CCE’s campaigns and overall diffusion of ideas played an important

Cohesiveness and coordination in Mexico 89 role in generating and propagating a long-term perspective within business. In 1985–1986, Strategy 2000, published by CEESP, which included objectives and an action plan for the CCE, emphasizing private property rights but not liberalization, was promoted to other confederations and associations. Overall, CCE’s campaigns dispersed a distinct perspective, solidified around anti-corporatism, anti-presidentialism, anti-interventionism, and pro-market ideas. Undoubtedly, the umbrella structure of CCE could not be immune to conflicts. A striking example was the Economic Solidarity Pact (PSE) in 1987, as CCE’s compliance was not approved by radicals like COPARMEX and CONCANACO, and was especially protested against by the Monterrey Chamber of Commerce and CONCANACO. Then, the CCE initiated new efforts to regain unity. In 1989, a new entity was founded by the CCE: the National Congress of Businessmen, echoing the Labor Congress. Acknowledging the threats to cohesiveness, big business was behind the Congress’s foundation (Calderón 2001: 118). The state’s recognition of CCE as the peak representative body of all business interests materialized gradually. In the early 1980s, CCE were invited to tripartite consultative meetings as the Consulting Forums for Democratic Planning, and Ministers of Finance and of Commerce and Industry often attended CCE’s general assemblies. Yet, it was not considered an exclusive interlocutor until the late 1980s, when it became as the key interlocutor of business, facilitating coordination within business, and business vis-à-vis the Mexican state (Alba 2003; Puga 2004; Schneider 2004; Thacker 2000; Ortega Riquelme 2003). Such protagonist positioning further pronounced the role of big business in market transitions, based on their over-representation within the CCE, while discounting the role of SMEs. Hence, participation remained narrow, despite the claims of the peak organization regarding its representation.

Increasing state cohesiveness in the first phase of transitions In the first phase of market reforms, Mexican state and business mirrored one another with respect to increasing levels of cohesiveness, enhancing their capacity to engage in coordinated action. In fact, the first phase of market reforms was instrumental in the reconstruction of state capacity in Mexico (Elizondo and Heredia 1999: 71). Akin to the Turkish state, the Mexican state’s capacity is conflated with its authoritarianism, interventionism, and executive discretion. State fragmentation and center-periphery conflict shaped by the colonial legacy bolstered intra-elite conflict that surfaced within and between bureaucratic agencies (Heredia 2002a, 2002b). Enclaves of bureaucratic resistance and their defeat Like their Turkish counterparts, some agencies in the Mexican bureaucracy initially resisted market transitions, but their resistance was defeated by the late 1980s. Mexican bureaucracy has historically suffered from fragmentation

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and intra-agency rivalry, despite the one-party dominant regime and its hegemonic power over bureaucracy. Starting from the 1970s, fragmentation began to diminish across the elite agencies of economic bureaucracy. This decline was partly due to ideological cohesion between the bureaucratic elites and their agencies through the ‘victory’ of the neoliberal clique vs. the nationalist clique. A new group of elites with a drastically different profile replaced the so-called ‘revolutionary family’ (Tirado 1987; Alba Vega 2003). Branches like the Industrial Promotion Department that had been known for their staunch opposition to opening went through major shuffling: some of the key names in the opposition front were fired and the authority scheme of the department became highly restrained. The Ministry of Commerce and Industrial Development (SECOFI), the Ministry of Finance (Hacienda), and the Central Bank (Bank of Mexico) maintained increasing coordination since the mid-1980s (Heredia 1996). The previous cleavage was between the SECOFI—which promoted a more inwardoriented development, later adopting ‘managed opening’—and the latter two, which since the 1970s promoted freer markets and trade. The conservative alliance among the finance-related bureaucratic agencies was inevitably linked with international financiers as well as international financial institutions (Teichman 1995). Faced with a firm alliance of the conservative faction entrenched in the finance bureaucracy, SECOFI’s resistance was discarded by changing the authority schemes of the agencies, replacing them with acquiescent alternatives, and persuading or firing the teams of resistance. During the debt crisis, economic bureaucracy suffered from intensified conflicts (Teichman 1988: 119). During the first years of de la Madrid’s term (1983–1984), a number of top-level bureaucrats resisted the IMF ’s recommendations on liberalization and stabilization. Resistance was centered in the statist-nationalist clique within the bureaucracy, allied with business organizations like CANACINTRA. This group gradually lost its influence within bureaucratic cadres as a result of two developments: some changed their allegiance as a result of social learning, and those who remained loyal to statist/nationalist perspectives were marginalized by the neoliberalistas. Although the resistance continued erratically until the late 1980s, it later dissolved due to the dominance of the conservative faction within top bureaucratic agencies and within the executive branch (Heredia 1996, Teichman 1995). During the GATT accession in 1985–1986, a comprehensive alliance emerged within the top economic bureaucracy, with a burgeoning ideological coherence in favor of freer trade and markets. The Pact of Economic Solidarity (PSE) in 1987 further solidified dismantling of the protectionist faction (Heredia 1996: 40). Since the early 1980s, the so-called ‘Chicago boys,’ US-educated conservative technocrats, began to take over top bureaucratic agencies. The weight of appointments from the ranks of finance-related branches of bureaucracy, namely the Ministry of Finance and the Central Bank, both known to have conservative stances, substantially increased (Camp 1985: 100). This new team considered

Cohesiveness and coordination in Mexico 91 their predecessors ‘financial populists’ who had ‘caused’ the debt crisis, and their primary objective was to purge these former bureaucrats. These technocratic teams of Chicago boys, however, were different from ‘Özal’s princes’ in Turkey: they were mostly career bureaucrats, with former or simultaneous experience within academia, while Özal’s princes were political appointees. Unlike the engineer-dominated team of Özal and Demirel, the tecnoburocratas were economics or finance PhDs, mostly from the same or similar US universities. According to de los Angeles Pozas (2002: 122), tecnoburocratas weakened the revolutionary family with neoliberal ideas, most returned with a firm commitment ‘to transform Mexico,’ and to eradicate the ‘obsolete ISI regime which could not take Mexico to the next century.’8 The dominance of financeoriented teams increased further in the sexenios of Salinas and Zedillo in the late 1980s and 1990s, a trend which persisted during the tenures of PAN governments in the 2000s (Teichman 1988, 1995; Heredia 1996), as well as the new PRI government that was formed in 2012. Hence, the Central Bank and the Ministry of Finance increasingly ‘captured a hegemonic power within the state elite,’ becoming the key agencies steering the transition process.9 The debt crisis of 1982 and its aftermath, which gave rise to various negotiations with the IFIs during the 1980s, was central to such empowerment, as they were the ones who led the Mexican negotiation teams and supervised the flow of liquidity (de la Madrid and Lajous 2004). Such links facilitated a cozy interaction between Mexican bureaucrats and IFI officials during the stabilization programs, helping direct exceptional technical and financial support to Mexico (Teichman 1995, 2001). These interactions were intensified in the case of Mexico than those in Turkey. Bureaucratic agencies’ hiring of individuals with training in neoclassical economics was largely interpreted as part of signaling to the IFIs in a context where Mexico was dependent on the receipt of loans provided by those. Ideological coherence between top-level bureaucrats and their close-knit networks in academia are a distinguishing feature in Mexico. First, a number of prominent bureaucrats had held academic positions at leading universities in Mexico and the US prior to or between bureaucratic positions. Some scholars from these institutions, like Pedro Aspe and Jaime Serra, became Ministers of Budget and Planning, and of Finance, masterminding the first phase of transitions. Between 1977 and 1988, seminars organized during major crises by ITAM (Instituto Tecnológico Autónomo de México) and COLMEX (El Colegio de Mexico) engaged academics and bureaucrats to discuss solutions to Mexico’s economic problems, helping shape the ideational formation and networking between the actors who embarked on key roles in market transitions. A central emphasis of these seminars was that ‘statist/nationalist dinosaurs of the bureaucracy’ needed to be replaced, fiscal austerity had to be maintained, and Mexico had to open up.10 The rivalry between these academic institutions affected all the others, and multilayered alliances were formed among universities, and between universities and bureaucratic factions. According to a former politicians’ account, the cohesion was a natural outcome:

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Cohesiveness and coordination in Mexico We all went to the same schools, our thinking was shaped by the same perspectives, and we all firmly believed in the need for a drastic change in the Mexican economy, as we believed in the virtue of the free markets. If one goes through our dissertations, s/he would see the same argument: development strategies pursued before, thus the transformation is vital.11

When compared to its Turkish counterpart, the Mexican economic bureaucracy was subject to a different kind of socialization and politicization, mostly limited to the PRI’s political machine, rather than a partitioning among political parties. The PRI’s monopoly, however, was increasingly challenged, particularly starting from the debt crisis in the 1980s after which the PRI was split and PAN (PRI’s historic rival) expanded its constituency, particularly among the business community.

Increasing coordination through cohesive actors Historically, numerous consultation platforms bringing the state and business together existed in Mexico, mostly adopting a tripartite format, including the state, business and labor. Although Mexican law requires consultation with peak organizations in policy-making, some of those platforms did not generate effective coordination. The businesses to consult were often shuffled, at times based on presidents’ personal preferences. Like in Turkey, whenever an organization voiced criticism against the government and its policy-making, the consultation process was disrupted. A common practice used by the government was attending the assemblies of business organizations. For example, when COPARMEX raised its voice against Miguel de la Madrid’s policy-making and discourse on ‘state’s leadership in economy’ in the early 1980s, he stopped attending COPARMEX’s assemblies and excluded the organization from various public policy platforms. Consultation was fairly arbitrary before. . . . For instance, the president of CONCAMIN or CANACINTRA would be invited to a trip to Punto de Este [to the Uruguay round of GATT negotiations], but not included in negotiations. Though he could be asked what he thought about the agreement, he was a figurine there and informed about whatever was agreed upon . . . in terms of international trade agreements, consultation would depend on the mood of the minister (or the president) who would invite whoever they felt like without any prior structure.12 The ‘culture of concertation’ and limited coordination The coordination between state and business in Mexico is usually explained by the legacies of concertation and the state’s capacity to pact with collective actors, usually in tripartite platforms (Alba Vega 2003; Ortega 2003). Even for some businesspeople who radically oppose corporatism, the so-called ‘culture of corporatism’ is an explanatory factor behind the establishment of consultative

Low Communication channels open, information exchange.

Medium Consultation exists, but implementation depends on executive discretion.

Low Communication channels open, information exchange, but limited-to-no consultation.

High Effective consultation, well-established monitoring mechanisms.

Medium Consultation exists, weak monitoring and implementation depends on executive discretion.

Medium-high Effective consultation,joint committees, joint decisions.

Low Communication channels open, information exchange, but limited-to-no consultation.

National Tripartite Commission (1971–1976)

Popular and Democratic Alliance for Production (1976–1982)

Popular Consulting Forums (1982–1986)

The Pact of Economic Solidarity (PSE, 1987–1989)

The Pact for Stability and Economic Growth (PECE, 1989–1994)

Coordinating Council for Foreign Trade (COECE)

The Council for Dialog for the Productive Sectors (2001–)

Level of coordination

Drifting Conversion

Drifting Conversion

Drifting Layering

Conversion

Drifting Conversion

Endogenous change

Repeated a few times.

Conversion

Repeated frequently. Drifting Established for a specific task, thus de facto dismantling after the task is done.

Repeated infrequently.

Repeated frequently but for a relatively short term. Established during a severe crisis, dismantled after the recovery.

Relatively habitual.

Relatively habitual.

Relatively habitual.

Lifespan

Table 4.1 Selected coordination-inducing institutions in Mexico: level of coordination, lifespan, and endogenous changes

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mechanisms in the late 1980s and in the 1990s. The PRI regime often used concertation not only as an instrument of interest mediation and negotiation with societal actors, but also to enhance its political support, produce social consensus and its hegemony, and as a remedy to resolve conflict and recover from crisis (Corona 2003, Luna 2010). Although the legacy of concertation and the state’s capacity— and the PRI regime’s ‘know how’—to do so is considerably important, it seems inadequate to fully explain the variation regarding the level of effectiveness of coordination-inducing institutions between the 1980s and 2010s. Some of the major examples of earlier tripartite pacts between the state, business and labor were the National Tripartite Commission (1971–1976), the Popular and Democratic Alliance for Production (1976–1982), and the Popular Consulting Forums from the early 1980s (Luna, 1992: 61). All these pacts and forums provided some form of consultation but the level of coordination they maintained was limited to low to medium according to the criteria introduced earlier. The National Tripartite Commission was established by the Echeverría government (1970–1976) and institutionalized consultation mechanisms based on a corporatist design. The Commission failed to generate coordinated action between the state and businesses, mostly due to the ‘politicization of conflict’ between the state and business, and the latter’s reluctance based on its view that the Eceverria government’s alliance with labor against business marked an antagonistic discourse (Corona 2003). The level of coordination facilitated by the Commission was low because the communication channels were relatively open and some degree of information exchange took place, but it did not go beyond that, according to the interviewees.13 The Popular Democratic National Alliance for Production was a consultation platform created by the López Portillo administration (1976–1982). Based on López Portillo’s endeavor to prove that unlike Echeverría he would not alienate business, the Popular Alliance was oriented towards productivity and had a rather pro-business character. The level of coordination maintained through the National Alliance was medium because it, in fact, sought consultation, whereas its implementation was highly dependent on the executive’s discretion. López Portillo zealously worked to replace Echeverría’s legacy by a business-friendly rhetoric and practice (Luna 1992b: 61). Although the Alliance was called a tripartite pact, it was based on the state’s bilateral negotiations with business and with labor, partially displacing labor in the decision-making process, substituting it with business (Corona 2003; Luna 1992b). Nevertheless, when prominent businesspeople are asked about the effectiveness of this particular platform, they state: They were not effective at all. . . . Did they care about what we said . . . our input for policy-making? No. . . . We participated in those meetings; sometimes our opinion would not even be asked. It all depended upon government’s discretion. This was used by López Portillo to save PRI’s image, that he was different from Echeverría, as he was afraid of capital flight. It was mostly a window dressing.14

Cohesiveness and coordination in Mexico 95 Popular Consulting Forums were established by the de la Madrid administration, based on broad participation, to transform the limited corporatist character of consulting platforms. They diversified the social basis of concertation by bringing together a broad range of actors, such as labor, business, farmers, the media, PRI organs, other parties, academics and students, housewives, and so forth. Consequently, issues discussed were too broad, as portrayed by a businessman: Miguel de la Madrid’s Popular Consulting Forums were way too popular, because everybody was included: villagers, workers, housewives, you name it. . . . We [business] were the wall decorations of the forums, nothing else. You can’t get any productive results out of those mishmash forums. You just talk and talk.15 This new model of participation turned into a space for confrontation in the absence of a clear design. Thus, its effectiveness was fairly limited, mostly due to the existence of too many players and the resulting collective action problems. Some business actors were doubly represented by certain organizations included in the forum. Neither the interest groups’ representation nor the functioning of the forums was institutionalized properly. The level of coordination attained by the forums was low, because they were limited to open communication channels and information exchange between the parties. Credible commitments and high levels of coordination What changed in Mexico in the second half of the 1980s was the establishment of a consultation platform that yielded high levels of coordination. The Pact of Economic Solidarity (PSE), established in the midst of a severe crisis in 1987, generated a turning point in market transitions, through coordinated acts of the state, business and labor (see Chapter 2). As a rare occurrence in Mexico as well as in other emerging countries, the PSE was designed to set targets for all actors involved, including the state, and settle on monitoring mechanisms so that all parties could check on others’ compliance. The willingness of the ‘invincible’ Mexican state to coordinate effectively with the societal actors, and to be monitored, can be explained by the urgency of yielding credible commitments in a context of extreme low trust, while the cohesive actors made the implementation possible. Peak pluralist and corporatist business organizations were incorporated into the Pact of Economic Solidarity, including the CCE, CMHN, CONCAMIN, CANACINTRA, CONCANACO, ANTAD (National Association of Department Stores and Supermarkets), AMCB, COPARMEX, AMB, and the CNA. Initial pacts were signed on a short-term basis (one-to-four months) and targets were set for all actors due to the prevalence of mistrust and consequent anticipation of lack of credibility in commitments. At the end of a particular term, the government’s pre-determined goals (such as reducing public deficit) would be monitored by business actors—and vice versa—and the successive agreements would

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be signed accordingly. After credibility was achieved in the initial phases, longer-term agreements were signed. According to a businessman: We were all surprised that for the first time the King of Mexico wanted to share some power with us, or at least hear our voice. It was shocking even for us that we were not there to ask for favors from his Excellency, but to discuss economic issues.16 This perspective—that the earlier pacts were ‘imposed’ on business as ultimatums by the ‘king’ and his inner circle—is highly common across businesses.17 During the PSE process, coordination was institutionalized through binding agreements. After the successful results of the first phases, the participants’ commitments proved credible, leading to broader support across the business community. In 1988, almost 70 percent of businesspeople expressed increasing support for the government,18 reaching 99.6 percent of trust in economic policies at the beginning of 1990.19 After stabilization was ensured, the PSE was supported by nearly all business organizations. PSE fostered credible commitments thanks to the institutionalization of monitoring mechanisms, signifying a turning point in state–business interactions, and because for the first time the state granted the business actors such authority. Thus, the norm of reciprocity became a vital part of the PSE process. Issue framing between stabilization and liberalization, a significant trade-off for businesses, was effective thanks to such reciprocity: stability through government’s lowering of the public deficit, which helped diminish the inflation rate, was traded with business adjusting to import liberalization. Periodic meetings generated a platform in which participants checked to see if the commitments had been fulfilled. As the broader issues of market transition were gradually incorporated, those meetings also became a venue where the intertwined processes of stabilization, privatization, and trade liberalization were supervised. These meetings, held on Friday afternoons and headed by the Secretary of Labor, with the participation of Secretary of Trade and Industry and the Secretary of Budget and Planning, and peak representatives of business and labor, usually ended Saturday mornings so that the stock markets would not be affected (Ortega Riquelme 2003). Information flow between the participating actors was an important outcome of those meetings, helping the public and private actors coordinate accordingly. The formation of a follow-up commission (the Evaluation and Follow-up Commission of the Pact, CSEP) provided an enforcement mechanism for the PSE to proceed. Between 1989 and 1995, CSEP held 295 weekly meetings in which the government was represented by all the ministers in charge of the economy and labor, and business was represented by their peak organizations. The commission facilitated cooperation through the discussion of the program’s evolution (Jarque and Tellez 1993: 145–146). The puzzling acquiescence of labor to costly stabilization measures is good evidence for co-optation and partisanship of labor leaders, a product of the long-lasting PRI–labor alliance. Most of the interviewees mentioned the key

Cohesiveness and coordination in Mexico 97 importance of Fidel Velázquez, the legendary leader of the CTM for five decades in the ‘success’ of the PSE, some underlining his co-optation by the government, and some others emphasizing his know-how in concertation as well as personal charisma. Although labor was incorporated as part-and-parcel of the legacy of tripartite concertation, the PSE was shaped by negotiations and agreements between the state and businesses, indicating the PRI regime’s marginalization of labor, and shifting its alliances toward business (Corona Armenta 2003). The PSE represented a turning point in terms of the state’s recognition of the CCE, along with its role in fostering the cooperation of business actors. It represented diverse interests and functioned as the main coordinator by maintaining communication and coordination within business. The CCE also launched an extensive campaign supporting the viability and necessity of the Pact and trying to shape public opinion about it. Signaling its commitment to the pact, the CCE monitored compliance across sectors and regions through individual business chambers. It also monitored the progress in their initial commitments of the other parties, namely labor and government. Cohesiveness, then, not only made initial incorporation possible, but also enabled the functioning of the monitoring process by maintaining compliance. Alba (2003: 31) asserts that the PSE was ‘unique in Latin America,’ emphasizing its differences from its counterparts such as Plan Real, Plan Austral and Plan Cruzado in Argentina and Brazil. This distinction lies in the existence of consensus-making mechanisms in PSE which made it different from some of the earlier concertations in Mexico, including those specialized in minimum wage commission, social security institute (IMSS) and the National Workers’ Housing Fund Institute (INFONAVIT). Regarding life trajectories presupposed for coordinating institutions, the PSE has adopted a frequently repeated platform (of about two years) and generated high levels of coordination in the context of a severe crisis. The pacts were not immune from pressures from the veto players, thus sustaining them proved challenging. In 1989, another pact, named the Pact for Stability and Economic Growth (PECE), was instituted. Although the PECE was designed as a continuation of the PSE—aiming to maintain anti-inflationary policy-making through controlling public finances along with proceeding with trade liberalization, modernization of industry, and improving the investment environment—the level of coordination dwindled after its launch. Compared to the PSE, the PECE was weaker regarding clarity of objectives, and well-defined monitoring mechanisms and their implementation. Thus, it proved to be an imperfect substitute of the PSE and became subject to conversion by strong veto players; its de facto operation diverged from its de jure design, which was already less constraining than in the PSE. Novel designs and medium-to-high levels of coordination Coordination between business and state elites developed on the basis of the credibility and issue linkages generated by the PSE, and continued in the context of the

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NAFTA negotiations by the formation of another consultative platform between the SECOFI and the COECE, Coordinating Council for Foreign Trade, initiated by the CCE. Designed as an ‘advisory committee to the government,’ rather than an organization of its own, COECE was consulted throughout the NAFTA negotiations as the key interlocutor representing business, helping consolidate a free-trade coalition (Ortega Riquelme 2003; Thacker 2000). COECE signifies a medium-high level of coordination, as it operated through joint committees where joint decisions were made, but monitoring mechanisms were not settled. An obvious difference of the COECE process from previous consultative processes was its bilateral character based on the exclusion of labor. This became yet another stone in the process of labor’s weakening vis-à-vis the state and business in the context of market transitions. The COECE was designed following the statement of Jaime Serra, Minister of Trade and Industrial Development, that ‘he wanted to interact with only one actor from the business side.’ Serra, a key player in the PSE process, was the head of the NAFTA negotiation team. Thus, the PSE and the COECE entailed a degree of continuity: the key players from business and the state were mostly the same, and trade liberalization had already been linked to stabilization, thus to the PSE. A chief negotiator in COECE from the side of business connected these two platforms accordingly: Obviously, the consultation in NAFTA negotiations did not come out of the blue, but came from the Pacto negotiations. What was important in Pacto was consensus and reciprocity, also present in the COECE process.20 A top COECE executive emphasizes the advisory role that COECE played, underlining its ‘exceptional’ effectiveness, diverging from the earlier practices of consultation: If you look at the history of the Mexican private sector, playing a real advisory role did not really exist before. The pattern was that we were taken on a few trips by the government officials and were given briefs. That was about it. . . . We finally realized that if we were going to play a role in this case, it was very important that it would be a ‘real role.’21 Acting as the key interlocutor, the COECE generated sectoral advisory committees in addition to issue-based negotiation groups covering a broad range of issues between market access and dispute resolution. It worked with 2,500 CEOs from 170 sub-sectoral groups who were asked to put together detailed monographs for their own sectors and assess the potential impact of a free trade agreement with the US (Kleinberg 1999; Ortega Riquelme 2003; Puga 2004; Schneider 2004; Thacker 2000). According to a negotiator: Not that all of the monographs were high quality, but the process was useful, because private sector got involved having had the opportunity to pursue the process by their own people.22

Cohesiveness and coordination in Mexico 99 The COECE provided exclusive access between the SECOFI and the business community, and led the lobbying by Mexican business through meetings with US congressmen, and coordinated offices of Mexican business organizations in the US (Calderón 2001: 129). The exclusive access through COECE aimed to prevent personalistic access to the negotiation process, and this created severe tensions according to a top-level executive of the COECE: Some of the big business wanted to access the Minister and his close circle directly, as they were so used to it. . . . They once challenged me, saying that they would go see the Minister directly and I said, ‘Sure, try it if you can. But he would not accept you as you do not represent your sectors. Then, you will come back to me.’23 An innovative consultation mechanism: ‘room next door’ Given the difficulty of civil actors’ participation in the formal NAFTA meetings, a creative formula, ‘room next door,’ was invented for sector representatives who then had access to all drafts of the negotiations and discussed them with the official negotiation team before and after official meetings with the US and Canadian delegations (Thacker 2000). Interviewees who were involved in this consultation process recall the ‘room next door’ as an effective consultation mechanism, stating that ‘at least they knew that their perspectives and demands made it to the negotiation tables, independent of the responses of US and Canadian teams.’24 Mexico’s chief negotiator in the NAFTA process underlines the importance of the ‘room next door’ which: helped businesspeople understand the complexities of actual negotiation processes, because all 19 sector groups were brought to Dallas where they were briefed before and after the negotiations. They understood the complexities of the negotiations thanks to the preparatory work of previous years and all this made them to feel part of the agreements.25 COECE never had its own charter, budget or formal employees. The general coordinator and the executive director of this coordinating entity were appointed by the CCE (Calderón 2001: 128). The members of COECE’s executive council came from pluralist and corporatist business organizations, yet they were ‘considered’ independent of their organizations in order to exclude potential pressure. The general coordinator and some staff members came from the Mexican Business Council for International Affairs (CEMAI), which had been the most zealous advocate of free trade (Thacker 2000: 145). CEMAI played an important role in persuading both the state and business elites while offering its personnel and resources, including its office in Washington D.C., for the use of COECE. COECE coordinated all other foreign offices of Mexican business organizations in the US. It also cooperated with CCE, whose CEESP research center undertook 60 presentations at various venues, including the US Chamber of

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Commerce, the National Manufacturers Association, and the Conference Board of Canada (Calderón 2001: 129). The funding for these activities initially came from CCE and the Mexican Council of Businessmen (CMHN). Additionally, most businessmen who were actively involved in the process sponsored the visits (to and from the US and Canada) and activities, boosting the domination of big business within COECE. Although the state officials and business representatives who steered the COECE process put great emphasis in its broad representation, the representative legitimacy of the COECE has been subject to contestation, mainly because of the domination of big business interests within the CCE which executed the COECE. According to a top-level COECE executive, however, all sectors and all sizes were represented: We asked all sectors to come up with a sector representative. They went and chose the best people . . . from avocado growers to petrochemicals . . . all sectors did the same, only representatives were granted with authority and resources . . . The whole process was dependent upon self-sponsoring because it was in businessmen’s interest, in addition to sectoral and national interests.26 Throughout the negotiations (1990–1992), government conducted a total of 2,600 meetings with business representatives (Puga 2004; Schneider 2004). Regular meetings between the top executives of COECE and government negotiators indicate the level of institutionalization of the coordination. Highest-level representatives in the negotiations met at least once a week. The Advisory Council, led by Jaime Serra, the Secretary of SECOFI, would meet regularly, and those meetings would not only include COECE officials but also union leaders along with several academics.27 Although the businesspeople interviewed across sectors and various sizes generally recall a highly effective consultation through COECE, the most critical concern is the over-representation of big business and resulting reflection of their interests in the final decision-making (Biddle et al. 2000: 26). Indeed, CANACINTRA and CONCAMIN officials, both representing industry, affirmed their participation in the negotiations process through the COECE. Vicente Guiterrez, president of CANACINTRA, asserted that SMEs would benefit from NAFTA through increasing foreign investment as a by-product of NAFTA.28 Nevertheless, officials of CANACINTRA, mostly representing the SMEs, emphasized the domination of big business’s interests and voice in the NAFTA process.29 According to a previous president of the chamber: [COECE] was an excellent mechanism. Yes, it established enormous dialog between the government and the business sector. The Government brought every single point which came to the formal negotiation table to the business sector next door and the decisions were taken together. But, my question here is if all who had to be there were there, or if they represented whom they were supposed to represent.30

Cohesiveness and coordination in Mexico 101 Further domination of big business and limited inclusion Despite the claims on broad representation of businesses of all sizes and from all sectors, this has been subject to debate (Luna and Tirado 1992; Garrido and Puga 1992; Puga and Tirado 1992). Given the said representation problems within the CCE—over-representation of big business—and that COECE was founded by the CCE’s initiative, big business’s interests (those of large financial/industrial groups) were magnified also in the COECE process (Biddle et al. 2000: 26). This illustrates the increasingly limited inclusionary character of institutions in Mexico’s market transitions, where big business’s domination was maintained through its domination of leading organizations (peak and others) and those organizations’ lead in key platforms that determined the fate of transitions. This trend has intensified at the expense of SMEs in Mexico. Accordingly, several presidents and officials of CANACINTRA, which mostly represents the SMEs, consider the COECE ‘a forum of concession, rather than negotiation,’ and ‘completely exclusive to big business’s interests and their incorporation, excluding the SMEs.’ These officials assert that COECE ‘perpetuated big business’s hegemony, not only in representation, but also in Mexican the economy, while giving a false image of the “incorporation of all businessmen” on the surface.’31 A former president of CANACINTRA asserts that: COECE was entirely tailored for big business by big business itself in collaboration with the government. Only the voices who did not oppose NAFTA were taken into account. The rest was completely disregarded. . . . It was the culmination of Salinas’s larger design to sell the country to the big business’s interests in the United States, in collaboration with the big business in Mexico. It was a signal [that] big conglomerates would be given priority by the new development strategy, i.e., neoliberalism.32 CANACINTRA officials mentioned that they were asked to come up with monographs and participate in the working sessions, but their concerns over the speed and form of opening were not taken into account. Some other CANACINTRA and CONCAMIN officials, on the other hand, claim that their voices were taken into account, and their monographs were discussed in the negotiations. There are also those (both in CANACINTRA and CONCAMIN) who assert that the COECE process was completely democratic, that it represented all business interests across the board—except the ones that chose not to join the process. The COECE officials’ response to criticisms of over-representation—even exclusive representation—of big business is so firm that they claim to have created space for all sectors in which all sizes could be represented, ‘from broom manufacturers to automotive sector. Broom people participated in every single negotiation related to their sector, and now they export [brooms] all over the world’.33 COECE’s top cadre responds to similar criticisms as follows:

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Cohesiveness and coordination in Mexico You can criticize the CCE for various issues . . . we did not emulate the CCE in the COECE. We directly went to the sectors and formed committees looking at technical procedures, dispute settlement, etc. . . . But you can’t involve all the sectors in that . . . but you needed experts, like lawyers who were in charge of intellectual property rights.34

Nonetheless, for those who opposed NAFTA and COECE’s legitimacy, the process of participation was nothing other than ‘being part of a disaster,’ while for those who supported NAFTA, it was an effective consultation. The COECE process, which had been initially founded by big business, solidified the big business–state alliance in the neoliberal era. Big business continued to dominate, becoming the winners of the liberalization because of their adjustment capacities. The COECE continued its advisory role in the negotiation of foreign trade agreements in the 1990s, since it took on the role of a quasi-professional consultative private sector body specialized in trade negotiations. After the NAFTA negotiations were completed, COECE participated in the trade negotiations with the EU, leading to the signing of ‘Economic Partnership, Political Coordination and Cooperation Agreement between the European Community and its Member States, of the one part, and the United Mexican States, of the other part’ in 1997, which entailed distinct provisions on international trade between these parties.35 This, then, brought about a comprehensive Free Trade Agreement regarding goods (enforced in 2000), and services (2001). After these major trade agreements were signed, in the 2000s the COECE mostly faded and was later replaced by other organizations (see Chapter 7). Hence, the lifespan of the COECE was less than a decade and it has not become habitual, despite the fact that it operated during the negotiations with the EU. The completion of major trade negotiations is a factor behind its relatively short lifespan, which may qualify for drifting in case of changing conditions.

Conclusion In Mexico, increasingly cohesive actors on both state and business levels helped build coordination-inducing institutions in the first phase of the market transitions. Some of these institutions served to stabilize following severe crises, carrying out an effective issue linkage between stabilization and liberalization, and then solidifying a market-reform alliance. The historical evolution of business representation and state–business interaction in Mexico shows the challenges of mobilizing business interests and generating effective coordination mechanisms. But these institutions are not immune from endogenous changes, as they were subject to drifting, conversion and layering. Additionally, despite their fire-extinguishing capacity, most of these institutions have been captured by concentrated interests whose influence has expanded since the launching of market transitions. An important turning point in the Mexican case was the increasing exclusion of not only labor, but also SMEs from policy-making platforms. Thus, the

Cohesiveness and coordination in Mexico 103 trilateral concertations of the past have taken on bilateral format. Although the Pact of Economic Solidarity involved all peak actors, including labor, the labor leaders were co-opted and submitted to state–big business domination. All in all, the coordination mechanisms were built by the presence of cohesive actors and they worked fairly effectively in the first phase of market transition. Nonetheless, an important cost appeared to be the discrepancy between the seemingly broad coalitions on paper and their design and benefits on highly narrow interests, mainly big businesses.

Notes 1 Interview with Lorenzo Servitje, ‘70 años al Servicio de Mexico,’ Historia Ultima Parte, COPARMEX publications, 1999, p. 7. 2 Interview with Alfredo Sandoval Gonzales, a former president of Coparmex (1984–1986), quoted in ‘70 años al Servicio de Mexico,’ Historia Parte IV, COPARMEX, 1999, p. 18. 3 ‘La Fuerza de los Principios y de las ideas,’ Entorno, COPARMEX, April 1992, 116: 3. 4 ‘El Empresario en la Reforma del Estado,’ Entorno, November 1996, 99. 5 ‘Propuestas del Sector privado,’ Entorno, April 1994, 71: 3–25. 6 Interviews with businessmen, June 11–17, 2004, Mexico City. 7 Interviews with CCE and COPARMEX officials, May 28–30, 2004, Mexico City. 8 Interviews with former bureaucrats, June 3 and 17, 2004, Mexico City. 9 Interviews with former bureaucrats, June 4 and 14, 2004, Mexico City. 10 Interviews with academics and bureaucrats who participated in the ITAM–COLMEX seminars, May 24, 2004 and June 14, 2004, Mexico City. 11 Interview with a former bureaucrat and prominent politician from PRI who played a key role in policy reforms in the late 1980s and early 1990s. 12 Interview with a businessman who personally participated in NAFTA negotiations. May 20, 2004, Mexico City. 13 Interviews with businesspeople, CANACINTRA and CONCAMIN officials, May 11–12, 2004, June 1, 2004 and August 29, 2012, Mexico City. 14 Interview with a former president of CONCAMIN, May 3, 2004, Mexico City. 15 Interview with a former president of CONCAMIN, May 11, 2004, Mexico City. 16 In the Mexican business community, the ‘king’ commonly refers to the president. Interview with a businessman, June 17, 2004, Mexico City. 17 Interviews with previous presidents of CONCAMIN and two chambers of industry, May 11–12, 2004 and May 17, 2004, Mexico City. 18 ‘Apreciación de las Industrias respecto a su situación y perspectivas,’ Actividad Económica, CEESP, August 1988, No. 126. 19 ‘Encuesta,’ Actividad Económica, CEESP, April 1990, No. 145. 20 Interview with a former bureaucrat, May 11, 2004, Mexico City. 21 Interview with a high-level COECE executive, May 20, 2004, Mexico City. 22 Interview with a chief negotiator of NAFTA, June 7, 2004, Mexico City. 23 Interview with a high-level COECE executive, May 20, 2004, Mexico City. 24 Interviews with previous presidents of CONCAMIN and CANACINTRA, 17 May, 16 June 2004, Mexico City. 25 Interview with a chief negotiator of NAFTA, June 7, 2004, Mexico City. 26 Ibid. 27 Ibid. 28 ‘Empresarios,’ Revista Empresarial Internacional, CONCAMIN, September 1992, 1(0): 20–21. For CONCAMIN’s participation, see Industria, CONCAMIN, October 1992, 5(44): 1.

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29 Interviews with former presidents of CANACINTRA, Mexico City, June 16 and 21, 2004, Mexico City 30 Interview with a former president of CANACINTRA, June 16, 2004, Mexico City. 31 Interviews with CANACINTRA officials, June 21, 2004 and August 28–29, 2012, Mexico City. 32 An interview with a CANACINTRA official, August 23, 2012, Mexico City. 33 Interview with a chief negotiator of NAFTA, April 22, 2004, Mexico City. 34 Interview with a high-level COECE executive, May 20, 2004, Mexico City. 35 Official Journal of the European Communities, L 276/45, October 28, 2000.

5

Tamed by crises, eager to build institutions The second phase of market transitions in Mexico and Turkey

Introduction In both Turkey and Mexico, severe crises shook the respective markets following high levels of financialization coupled with widespread regulatory failures, triggering new critical junctures where economic governance has become subject to major changes. Such a juncture took place in Mexico following the 1994–1995 crisis, while it occurred with a phase lag in Turkey following the 2000–2001 crisis. As severe as they were, these crises created a window of opportunity for the design and implementation of a broad range of institutions, and brought about macroeconomic stabilization (Öniş 2010). Having increased the stakes for both the state and business actors, while weakening the power of the strong veto players, they helped increase cohesion, which facilitated the establishment of coordination-inducing institutions. Fragmentation re-appeared after the heat of the crises cooled off, albeit more in Mexico than in Turkey. The relative resilience of both markets when they encountered the 2008 global financial crisis was mostly dependent on these institutional reforms undertaken in the aftermath of previous home-grown crises. Nonetheless, the sustainability of growth in these emerging markets is subject to question, given the vulnerability of respective growth paths ridden by precarious dependencies (on individual markets and capital inflows) and increasing indebtedness (this time shifted from public to private actors). Learning from the previous experiences has been important in both Turkey and Mexico. Although neither country diverted from the neoliberal path, and even held onto it more tightly following a new wave of institutionalization, the form of economic governance has shifted from one of lax regulation coupled with imprudent macroeconomic policy-making towards one of re-regulation and prudent macroeconomic policy-making. International, regional and supranational organizations, as well as transnational networks, played important roles in such institutional re-arrangements: the EU and the IMF were central in the transformations in the Turkish case, while it was the IMF, NAFTA, the US, and transnational networks in the Mexican case. Some of the institutional changes carried out in the process of incorporation to regional blocs signify the processes of Europeanization and ‘NAFTA-ization’ respectively, notwithstanding the

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variation in between (Aspinwall 2009; Özel 2013b). In some issue areas, intertwined sources of change operated as a strong anchor to ‘lock in’ the reforms, in some others it could not go beyond window dressing to fulfill the respective requirements. In both cases, the encounter between these newly implanted institutions and the respective institutional legacies has given rise to tension and contestation, particularly in the existence of strong veto players, jeopardizing the institution and causing it to drift and/or convert gradually. In both countries, the reforms included new institutional arrangements for making monetary and fiscal policies coupled with a broad range of new rules about economic governance, along with enhancing regulatory and supervisory frameworks. Nevertheless, enhancing competition, a central objective of regulatory reforms, remained on the paper for some sectors, as the public and private monopolies persist. Implanting independent regulators into these countries’ bureaucratic apparatus proved to be a challenging task given highly centralized administrative systems and executive discretion. Thus, they have been crafted by innovative methods that often involved legal and judicial ambiguities and overlapping authority constellations, while, by and large, preserving centralization and executive control. Jurisdictional ambiguities, and fragmented and unclear authority constellations paved the way for manipulation of these new agencies by public and private actors alike, resulting in discrepancies between the de jure configuration and the de facto implementation of institutions, as well as their gradual dismantling. While various features of regulatory states are prevalent in both Turkey and Mexico, the illiberal variety of the regulatory state has prevailed particularly in the former (Levi-Faur 2011; Özel 2012). New resources have been allocated to selected groups of business elites in both countries, as ‘know who’ rather than ‘know how’ continued to prevail (Young 2003: 249). In the Turkish case, new elites have been created at the juncture of transformations, while the former elites mostly proved resilient though trapped into the necessity of sharing the market and resources. Both the state and businesses became more cohesive in the second phase of transitions, but cohesion has increasingly taken place in a polarized fashion. Coordination improved, but some of the recently established coordinationinducing institutions already weakened or disappeared, brought about by increasing centralization and concentration of power marked by executive discretion. In Mexico, however, narrow alliances mostly persisted in the presence of more or less the same business elites, despite changing political balances. Both the state and businesses became increasingly fragmented, jeopardizing coordination (see Chapters 6 and 7). These transformations interacted with/are shaped by substantial changes in the respective regimes and their institutional arrangements. The central political institution evolved in different directions in these two countries: executive discretion diminished in Mexico, while it has increased further in Turkey, coupled with declining presidentalism in the former and the prevalence of de facto semipresidentialism or a ‘presidentialized parliamentary system’ in the latter

Tamed by crises, eager to build institutions, 2nd phase 107 (Poguntke and Webb 2005). Checks and balances over the executive, the most important component of which being the increasing power of a legislature, have been strengthened in the former, while the trend has been more or less the contrary in the latter (Özbudun 2012). Political freedoms and pluralism expanded in both, facilitating broader participation in institutions, yet they are juxtaposed to multifarious processes of exclusion and shades of authoritarianism, particularly in Turkey. The re-arrangement of the institutions is a process in the making, as it is yet to be seen what kind of an impact such contradictory qualities of development will bear on economic institutions and their outcomes.

The rise of a regulatory state in Mexico? A broad range of institutional re-arrangements has taken place in Mexico in the second phase of market transitions, starting from the aftermath of the peso crisis in 1994–1995. New institutions facilitated prudent macroeconomic policymaking by means of increasing checks and balances in the making and implementation of policies. Regulatory institutions were established in several sectors in addition to competition policy that cuts across sectors. Most of these institutions and policies have been sustained despite the regime change, epitomized by the division of Congress in 1997 and PAN’s taking on the incumbency in 2000, resulting in a remarkable continuity between the PRI and PAN. Stabilizing with stronger institutions A significant change in this juncture is the re-establishment of independence of the Central Bank in 1995. Although the Central Bank became independent in 1993, this was fairly limited in the beginning, due to the legal dependency of the Banxico on the Exchange Commission affiliated with the Ministry of Finance. Following the peso crisis, this structure—which caused coordination failures and contestation of authority between Banxico and the Ministry of Finance— changed. The contestation intensified in 1995 with the firing of the Ministry of Finance’s top management by the new President Ernesto Zedillo Ponce de León in the midst of the peso crisis. The Zedillo government restricted the authority of the Ministry and re-instituted the independence of Banxico, appointing the Minister of Finance, Guillermo Ortiz, as the Chair of Banxico in 1998, a post he kept until 2009, partly facilitating the continuity in policy-making between the PRI and PAN. In governing public finances, budgetary institutions were partially reformed in the 1990s, although some of the pending reforms were implemented following the 2008 crisis. Ceilings were set for external and internal debt at both federal and local levels. The rules on budgetary expenses (Art. 74-IV), public debt (Art. 73-VIII), and auditing (Art. 74-IV) have been re-arranged. An important institutional change in the aftermath of the 2008 crisis was the enactment of the Law on Auditing and Accountability of the Federation, which established the Superior Auditor of the Federation (ASF ).

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Regulation, but lax competition In the second phase of transitions in Mexico, institutions of regulation and supervision have been established and/or reformed. Yet powerful public and private interests have often impaired the operation of these institutions, and the loose design of some of these institutions provided an apt space for manipulation, allowing gradual conversion of the institutions. Enhancing competition as a central objective of regulatory reforms failed in various sectors, having faced the existence of concentrated interests, institutional barriers (especially the constitutional immunity of state-owned strategic firms), inadequacy of sanctions, judicial complexities, and lack of an established culture of competition (Castaneda Sabido 2010). In sectors like telecommunications, privatization was carried out prior to strengthening of the regulatory frameworks and that gave rise to serious concerns among the business community. Economic concentration increased further in several sectors, mostly facilitated by exclusive contracts, privileged access, and persisting barriers to entry (Acemoğlu and Robinson 2012: 38–40; Cypher and Delgado Wise 2010: 2–3; Hogenboom and Fernández Jilberto 2012). By the early 2000s 61 percent of the shares of the Mexican stock market are controlled by 10 family-owned companies, whose 64 percent of shares are controlled by the top three shareholders. Large firms make of 74 percent of the total value-added in the Mexican market (de María y Campos et al. 2009: 88–89). The fact that these firms employ more than half of the formal labor, and create an overwhelming percentage of the export revenues, make the governments dependent on them, regardless of their ideological alignments. As Chapters 4 and 7 demonstrate, big business’s interests have largely shaped the path of transition since the late 1980s through their privileged access to reforming executives, as well as their dominance of the business organizations. In several sectors like telecommunications and energy, independent regulatory agencies were established with limited autonomy, particularly compared with their Turkish counterparts (Jordana and Ramiro 2010; Armendariz Guerra 2009). These agencies were incorporated into the Mexican administrative system based on a special status of ‘deconcentrated bodies’ subordinate to parent ministries, endowing ministries with strong veto power over the regulators (Prado 2010). Paralleling the diminishing power of executive discretion, there has been a certain increase of autonomy in the 2000s (Jordana 2010: 775). The overlaps and conflicts between the agencies and the ministries regarding the authority constellations have prevailed, and this ambiguous division of power across these actors and between federal and local levels complicate the regulatory processes, providing regulators with ‘double windows,’ which increases the likelihood of manipulation (OECD 2012: 16). NAFTA-ization? Accession to NAFTA and settling a weak competition regime A significant institutional change in the context of regulatory reforms in Mexico has been establishing the rules of competition. The Federal Law of Economic

Tamed by crises, eager to build institutions, 2nd phase 109 Competition was enacted in 1993, and the Federal Competition Commission (CFC) was founded as a requirement of the NAFTA accession process, like that of Customs Union in Turkey. Although the competition policy posed a challenge in a highly concentrated market, it did not trigger a major reaction from big businesses, based on their perceived benefits of NAFTA.1 Nevertheless, concentrated interests have later undertaken many attempts to circumvent the law and the accompanying regulations about monopolies and oligopolies, and more often than not they succeeded in preserving their anti-competitive status and/or practices. CFC has been unable to prevent some of the most significant monopolies in the Mexican market, despite the fact that Article 28 of the constitution prohibits monopolies (exempting public monopolies in strategic sectors). Monopolies and oligopolies keep undermining the competition law due to the manipulation of rules, inadequacy of monitoring and sanctions, and limited expertise on the intricacies of competition law (Castaneda 2010: 159–167). The most important practice of manipulation by concentrated interests is the use—and abuse—of ‘the amparo appeal,’ which is a constitutional guarantee to protect individual rights granted by the 1857 constitution (OECD 2012: 63). The CFC has generally lacked power to oversee the anti-competitive decisions ruled by the sectoral regulators (OECD 1999 and 2012). The status, authority and independence of the CFC, which is attached to the Ministry of Economy, have gone through several changes: the law was amended in 2006, 2007, and 2010, bringing about higher levels of accountability, transparency, and some more autonomy (Jordana 2010: 763–764; Prado 2010: 92). Yet, the lack of a well-established coordination mechanism between the CFC and the sectoral agencies fosters uncompetitive practices, and telecommunications is a good case to demonstrate that. Established in 1995 by a presidential decree, the Federal Telecommunications Commission (COFETEL) has been highly dependent on the Ministry of Communications and Transport, diminishing its role to one of a consultant (Tovar 2000: 30, 51–52; OECD 2008, 2012). Like in Turkey, privatization of the incumbent operator Telmex did not abolish the monopoly in telecommunications, but converted a public monopoly to a private one in several segments. Telmex still has 86 percent of the market share in fixed-telephony (93 percent for its Turkish counterpart) (Castaneda 2010: 130; BTK 2011: 17–19). Although its monopoly has been contested, its use of amparo appeal facilitated its persistence. In 1996, Telmex used this appeal for protection against the contestation of a telecommunications firm, Avantel. Even though CFC acknowledged the contestation, COFETEL aligned with Telmex, helping sustain its monopoly (Castaneda 2010: 162–163, 166; Acemoğlu and Robinson 2012: 40). Although COFETEL’s autonomy increased relatively, the agency is still subordinate to the Ministry and the judicial ambiguities paralyze the regulatory processes (Mariscal and Rivera 2007; Jordana 2010; Prado 2010). Likewise, a regulatory agency in the energy sector, the Energy Regulatory Commission (CRE), was established in 1993 with considerable authority and relative autonomy. But, like in Turkey, monopolies in the distribution of electricity and gas are intact.

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Regulation in banking is considered to work relatively effectively, considered as having provided a shield against the impact of the global financial crisis in 2008, as well as the shocks in 1997 and 1999. The establishment of the National Banking and Securities Commission (CNBV) in 1995 was indeed a direct response to the crisis in 1994–1995. Consolidating the functions of two different agencies—the National Banking Commission (1925) and the National Commission of Values (1946)—along with some of Ministry of Finance, the authority of CNBV increased over time, the last change being in 2008 (Jordana 2010: 770). Nevertheless, effective implementation of regulations was no panacea against concentration, which increased further after the 1990s. Regime changes, but policies continue The changes in Mexican political regime introduced new checks and balances. The division of the Congress in 1997, caused by PRI losing its majority in the Congress—though not in the Senate—made the Congress a strong veto player. Since 1997, Mexican governments have been divided, virtually ending the president’s monopoly over the legislative initiatives. The relative weakening of executive discretion has transformed the policy-making process and reshaped state–society relations on many fronts (Alvarado 2009; Loaeza 2010, Prud’homme 2010). In the previous regime, a unified government had full power over bureaucratic agents and access to important tools to incorporate social actors into policy-making, with varying levels of effectiveness in different time periods. A small circle of individuals composed of the president, ministers, some key bureaucrats, and sometimes political advisors would make the policies and consult with the representatives of organized interests, including business, in various policy platforms, some of which were concertations. In the new regime with an empowered legislature, lobbying has become a prevalent instrument to affect policy-making, even undertaken by the president (Lehoucq et al. 2005). The weakening of corporatist institutions, and increasing fragmentation in both the state and business since the 1990s, have contributed to the changes in policymaking processes. In the context of the regime change in Mexico, the participatory quality of political institutions and political freedoms generally both expanded. Interestingly, despite the absence of a strong anchor like the EU, freedoms in a number of areas (such as freedom of speech) have been attained at greater levels in Mexico than in Turkey. Nonetheless, opening up of the political space for broader participation, which has engendered more inclusionary political institutions, has not been directly reflected in the realm of economic institutions, unlike what Acemoğlu and Robinson assert (2012: 81–82), as they entail exclusionary characteristics, notwithstanding the regulations set in place to guarantee free entry. Despite the major changes in the regime and the PRI losing the incumbency after 71 years in office, and PAN’s rise from historical opposition to the incumbency in 2000, the economic policies have preserved a continuity set by the

Tamed by crises, eager to build institutions, 2nd phase 111 conservative wings of the PRI, particularly the Salinas team (1988–1994), and furthered by the Zedillo government (1994–2000). The PAN governments of Vicente Fox Quesada and Felipe de Jesús Calderón Hinojosa (2000–2012) mostly sustained the prudent policy-making settled on in the wake of the 1994–1995 crisis. Despite macroeconomic stability, the overall economic performance of Mexico is commonly considered mediocre since the late-1990s (Elizondo MayerSerra 2011; Ortiz 2009). Ineffective operation and the exclusionary nature of institutions are among the major determinants of this mediocrity. As Acemoğlu and Robinson argue (2012), such institutions might bring about high growth rates for limited time periods, but sustainability of growth might be at stake. The continuity in policy-making across the PRI and PAN governments between 1988 and 2012 is likely to be preserved in the PRI government formed by Enrique Peña Nieto government, whose cabinet is commonly referred to as one of a ‘Salinas team.’ Continuities in Mexican politics are brought about by the institutional reforms, the NAFTA membership which tied the hands of the executives, and the increasing ideological convergence between the PRI and the PAN in the last three decades. Inclusion, exclusion, and business’s responses Contrary to the Turkish case, where political conflict led to a shuffling of alliances, the alliance between the state and big businesses in Mexico that was formed in the first phase of market transitions has been more or less stable despite the regime change and the transfer of power from PRI to PAN, and later from PAN to PRI. Big businesses, who had become the beneficiaries of market transitions based on increasingly concentrated institutional arrangements, preserved their beneficial status (high levels of concentration, at times in the form of monopolistic power) in the second phase of transitions as well, without having been subject to any noteworthy rivalries (from the business community) or challenges (by the successive governments). But the expanded participatory quality of political institutions has not been reflected in economic institutions, as the Mexican market is stricken with barriers to entry, entrenched in multiple realms. Weakening of corporatism and the emergence of new forms of business’ access to policy-making—like lobbying, which has prevailed after the division of the Congress in 1997—intensified concentration further. In a way, lobbying has raised concerns about over-representation of big businesses and some firms in particular (given the structure of the CCE and platforms of coordination, as discussed in Chapter 4), as the representative power of the big firms has increased further while the power of the chambers has decreased (see Chapter 6). Thus, the unequal representation of big businesses over the SMEs, and their privileged access to state elites, perpetuated. Despite the exclusionary nature of alliances across different governments, businesses of different sizes and organizational affiliations commonly support some of the key institutional and policy changes in the second phase of transitions. Interviewees generally underline the role of regulation in the financial sector, including

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the rules and restrictions about poisonous assets and liquidity transfer from foreign bank branches in the relative recovery of the Mexican economy from the crisis. Interviewees also suggest that consultation mechanisms instituted by the Federal Commission of Regulatory Improvement (COFEMER), which oversees all regulations, work relatively well: opinions of the stakeholders are asked for, and varying inputs are published on a web-based platform. Nonetheless, the very institutional design of COFEMER diminishes the potential effectiveness of consultation as it is not legally binding (see Chapter 6). Businesspeople’s stances about the regulatory institutions vary. Eighty-five percent of the interviewees suggested that the regulatory agencies and COFEMER protect the state-owned enterprises; 70 percent asserted that both the agencies and the ministries protect the monopolies and/or big companies, private and public alike. All interviewees expressed their approval for Banxico’s handling the crisis, emphasizing the effective coordination between Banxico, CNBV and the ministries. Unlike in Turkey, none (politicians included) expressed concerns about its independence and/or incompatibility between the government’s policy objectives and Banxico’s policy-making. In Mexico, a greater level of consensus and trust, compared to that in Turkey, prevail with respect to Banxico’s independent status, authority, and competence over policy instruments and their proper implementation, which is closely associated with macroeconomic stability.

The rise of a regulatory state in Turkey? Throughout the 1980s and 1990s, the Turkish economy had become extremely vulnerable to shocks, mainly because of imprudent public finances and consequent debt accumulation under the shade of populist cycles and large scale financialization of the economy. Following a rather disastrous macroeconomic context where the inflation rate went up to 75 percent in 1988 and was around 60 percent in the 1990s, coupled with large fiscal deficits and insurmountable financial and exchange-rate-related risks, the ‘twin crises’ which struck in November 2000 and February 2001 eventually brought these intertwined processes into an abyss, causing a 5.7 percent drop in GDP at constant 1998 prices (TÜİK 2014a). The first stage of the crises was triggered by a bank failure in November 2000 which emerged out of a rise in interest rates, basically because of a rather common dynamic of the 1990s: getting foreign funds to purchase government bonds. The second stage emerged in February 2001 out of a disagreement between the president and the prime minister regarding the supervision of the banking system. Consequent capital outflows responding to the risk signals in the Turkish market resulted in a depletion of reserves. On the day of the National Security Council—when the president of the time, Ahmet Necdet Sezer, threw a copy of the constitution to then prime minister, Bülent Ecevit—total volume of capital outflow was worth US$5.1 billion followed by a near 30 percent decline in the stock market and 40 percent depreciation of the Turkish lira against the US dollar within the course of a few days, indicating the fragility of the Turkish market (Alper and Saglam 2001; Tekeoğlu 2001; Yeldan 2006).

Tamed by crises, eager to build institutions, 2nd phase 113 The financial crisis that broke out in 2000–2001 has generated a major critical juncture regarding the wide range of institutional reforms, including the regulation and supervision over the markets, the conduct of and constraints on the monetary policy, the new rules about fiscal policy, overall improvement of the business environment, and re-arrangement of the social policy, among many others. The severity of the crisis and concomitant nature of the external pressures, often referred to as ‘double anchors,’ played central roles in the undertaking of such sweeping reforms and partial divergence from those played in the first phase of transitions (Öniş and Şenses 2009; Öniş 2012; Pamuk 2012). For both state and business actors, the stakes were extremely high to the extent that they both perceived major threats to their survival, and a consensus for major reforms emerged accordingly. Following a period when public–private dialog had de facto come to a halt, the crisis helped generate an unprecedented cohesion within the state and within the business community, facilitating the establishment of coordination-inducing institutions. As stated by several interviewees, ‘everybody came to terms with “the end of the sea” ’ (a Turkish expression connoting the exhaustion of all possible options) and the level of trust was drastically low. The enactment and implementation of these difficult reforms were only possible because of the drastic change in power balances, and increasing coordination within the state and between the state and societal actors. As Derviş et al. (2004) generally argue, Turkey’s experience in 2001 ‘shows how reformers can “seize the moment” at a time of crisis and achieve structural reforms which would be extremely difficult in more normal times.’ The severity of the crises diminished resistance by the veto players. A highly divided legislature of the period enacted 19 significant laws in the sphere of structural reforms in less than a year during 2001. These laws included the controversial independence of the Central Bank, public debt management, public procurement, diminishing agricultural subsidies, re-structuring of the public banks, establishment of independent regulatory agencies in some sectors and strengthening of those in the others, and many others. What is of particular concern for this chapter is the range of reforms that directly affected the business environment, including the sound macroeconomic policy-making and regulatory and supervisory policy, along with others. Atiyas (2012) suggests that the establishment of the rules limiting executive discretion has become a key reform in post-2001 governance, given that the transitions had been previously marked by discretionary policy-making. Nonetheless, this could not be sustained for long as the executive began to intervene in the markets, as the following sections demonstrate. Coordinating when the stakes are high The appointment of Kemal Derviş as the Minister of State in Charge of Economy, endowed with special authorities—including responsibility for coordination with the Central Bank and the Banking Regulation and Supervision Agency (BDDK), and handling negotiations with the IMF—was a key

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step that sent credible signals to the international organizations and investors. Derviş formed a team of bureaucrats in charge of designing and steering the reform process; this team maintained coordination between agents of economic bureaucracy, and ‘played an important policy entrepreneurship and mediation role between domestic and transnational policy communities’ (Bakır and Öniş 2010: 86; Kutlay 2012). Surprisingly, the coordination was attained during the incumbency of a highly fragmented coalition government where coordination had been scarce between the key ministries, and between the ministries and bureaucratic agencies, because the three coalition partners had ‘jealously guarded their turf ’ (Derviş 2003: 65). The Derviş team launched the Transition to Strong Economy Program for which political commitment was solidified and facilitated by broad public support.2 Such a call for radical change would later be resonated in the public’s blunt rejection of most political parties in the 2002 general elections by voting for a newcomer, i.e., the Justice and Development Party (AKP), which combined a commitment to freer markets with its social conservatism, à la Christian Democrats in Europe, as Chapter 6 explains in further detail (Öniş 2007). Particularly in its first term (2002–2007), the AKP government embraced the EU-accession process, accelerating the pace of reforms in economic and political institutions, along with sustaining earlier commitments to the IMF (Hale and Özbudun 2010: 114–115). This commitment subsided in the second and third terms of the AKP government, converting some of the recently-built institutions in the absence of political leadership. Accompanying the coordination within the state, coordination between the state and business actors also expanded in the second phase of transitions in Turkey. Kutlay underscores the role of the EU-accession process, which accelerated between 2002 and 2006, as a catalyst for the relative formation of ‘social synergy’ between the state and businesses that had historically lacked ‘collective targeting’ (Kutlay 2012: 121). A key institutional reform in facilitating public– private dialog was the establishment of platforms like the Coordination Council for the Improvement of Investment Environment (YOİKK). Built based on an innovative perspective incorporating transnational, international and national actors, public and private alike, while mostly excluding labor (see Chapter 6), the coordination maintained in the YOİKK process has played an important role in a range of reforms, particularly in the first AKP government (2002–2007). The reforms initiated by YOİKK involved the enactment of a new laws on foreign direct investment (Law #25141), easing starting new firms, establishment of investment agencies, tax regulations, improvements in intellectual property rights, automation, ease of acquiring permits and licenses, and rise in support for SMEs.3 Despite such a role, the absence of monitoring and sanctioning mechanisms, along with ineffective incorporation in the policy outcomes, generally have weakened the institution. Industrial policy has only been partially incorporated the post-2001 governance in general, and in the YOİKK process in particular. Despite the improvement in policy design, particularly with respect to alleviating cross-regional inequalities, the industrial policy lacks clear incentive structures and monitoring

Tamed by crises, eager to build institutions, 2nd phase 115 mechanisms (Buğra and Savaşkan 2010; Kutlay 2012; Şenses and Taymaz 2003; Taymaz and Voyvoda 2012). In the second phase of transitions, there has been a partial adoption of horizontal industrial policy instruments that espouse investment in vocational training, infrastructure, and research and development, among others (Nabli et al. 2008: 111). Business organizations, particularly the TOBB and its affiliated chambers, have played significant roles in the design and implementation of these instruments. Nonetheless, this did not thwart the vertical instruments, which often target specific industries and even firms, hence often resulting in government’s picking and choosing the recipients of these incentives in a highly preferential format. In 2011, a new industrial strategy was designed but its fragmented structure, with overlaps between different policies and instruments, and ambiguities in the framework, endangered effectiveness along with substantial transformation of industry. As Taymaz and Voyvoda (2012: 85, 104–105) argue, the transformation of Turkish industry has been limited and could not adopt high-level technology, rendering Turkey a ‘late drummer’ regarding industrial transformation. As a result, Turkish industry generally suffers from low value-added production and exports. Further, the way the industrial policy is designed lacks a clear perspective on systematic transfer of technology, and the way it is implemented expands spaces for selective inclusion, as the organizations close to the incumbent are particularly informed about the instruments and incentives, and their access to those incentives is facilitated (see Chapter 6). Another coordination platform where industrial policy and other issues were assessed in the aftermath of the 2001 crisis was the Evaluation Board for Economic Issues. This effective coordination platform, which brought together state and business actors, worked effectively for about five years. Later, the contentions raised by the state actors about the relatively equal footing given to business actors, along with the end of recovery urgency, brought this platform to an end. The Economic and Social Council is another platform that could have potentially bolstered, but it has never functioned effectively, and has become subject to layering and converting (see Chapter 6). External anchors at work: Europeanization and the IFIs The concurrence of the EU-accession process (particularly after the announcement of Turkey’s candidacy in 1999), the crisis, and the approximate conformity regarding the road-maps imposed by the IFIs and the EU were important elements in Turkey’s institutional reforms (Öniş and Şenses 2009). The reform program that the EU’s acquis communautaire necessitated included a broad agenda that largely coincided with the reforms that the IMF asked for in return for its hefty loans for the recovery of the Turkish economy from the crisis. Despite the presence of strict conditionalities in many fields, the implementation of those depended on the existence of ‘policy entrepreneurs’ committed to reforms and linked with the IFIs and transnational networks (Bakır 2009).

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Fulfillment of the acquis entailed completion of a long laundry list encapsulated by 35 distinct chapters of EU law, of which only 13 chapters were opened and one was provisionally closed as of 2013. In the wake and aftermath of the launching of EU-accession negotiations in 2005, a broad range of reforms were carried out, giving rise to political and economic opening, and enhancing the inclusionary qualities of many institutions. This extensive institutional rearrangement included the increase in civil–military relations, expansion of human rights, setting of explicit rules about good governance principles (including accountability and transparency of institutions), and settlement of various institutions in the economic sphere which alleviated barriers to entry, thus promoting the inclusionary quality of institutions. Undertaken the political ownership of the first AKP government, these reforms were generally applauded by businesses as a pro-democratization stance had been already consolidated within the business community by the beginning of the twenty-first century and prospect of EU membership created concrete incentives (Özel 2013c). Although the negotiation process has come to a stalemate since 2007, the prospect of EU membership helped build and solidify consensus between the actors within the state and business. As for the regulatory reforms, the initial push stemmed from the IMF, the World Bank, the WTO and the OECD, as well as the EU. The IMF ’s letters of intent became key sources of change in energy and finance; the EU’s conditionality to accede to the Customs Union was central in competition; both the EU and the IMF played critical roles in public procurement; and the World Bank and later the EU were leading actors in regulatory reforms in telecommunications (Özel and Atiyas 2011). New institutions and macroeconomic stabilization One of the key reforms introduced in the post-2001 governments was the establishment of Central Bank independence through an amendment to the respective law in 2001, halting the bank’s provision of advances and credits to the Treasury and other public entities. The frequent use of executive discretion throughout the 1980s and 1990s, coupled with loose rules constraining the Central Bank, had paved the way for the executive’s intrusion into using monetary policy instruments to further political goals (Atiyas 2012). The independence of the Central Bank, its disinflationary measures, and the coordination between the Central Bank and the BDDK with its newly acquired authority to regulate and supervise, along with the floating exchange rate regime, played essential roles in the macroeconomic stabilization attained after decades of instability (Alper and Hatipoğlu 2009: 59–60; Bakır 2009; Atiyas 2012). As public borrowing was commonly used to finance the skyrocketing budget deficits of the coalition governments in the 1990s, several restraining rules were established, including preventing the public banks from incurring duty losses and setting transparent instruments in budgetary supervision (Derviş et al. 2006). Reforms in fiscal institutions initiated during the crisis, and furthered during the first AKP government, were key to sound public finances: in 2002, the Public

Tamed by crises, eager to build institutions, 2nd phase 117 Financing and Debt Management Law required all ministries to report on debt and the guarantees they issue, and in 2003 the Public Financial Management and Control Law imposed more constraints on the expenses of the ministries, enhancing transparency requirements and introducing performance planning and targeting, and restraining extra-budget expenses, mostly undermined later as they were vetoed by the ministries (Atiyas 2012). Yet the remake of the fiscal institutions has improved public finances, maintaining an important shield against the shocks caused by the global financial crisis (Ersel 2009). Regulation and supervision of the markets The third key change was the broad range of regulatory reforms in various policy areas, accompanied by the establishment of regulatory and supervisory agencies to generate and execute secondary legislation.4 These agencies contradicted fundamental institutions in Turkey as the constitution puts forward that the administrative structure is ‘unitary,’ based on the ‘indivisibility of the administration’ (Sezen 2003; Ulusoy 2011). Thus, they were instituted in an overly centralized institutional context with a special status, through ‘affiliation’ with respective ministries in Turkey rather than directly linked. Such special status created a major tension against the authority and independence of these agencies. This provided justification for the veto players, whose resistance led to significant changes in the status of these agencies, resulting in the process of conversion (Özel 2012, 2013b). Although the process of regulatory reforms had been initiated earlier in certain sectors, and they had been articulated into the conditionalities of the IMF and the EU, the implementation of the reforms mostly waited until 2001 due to the presence of strong veto players (Çetin and Oğuz 2011). The resistance was mostly entrenched among political actors—against the delegation of authority to regulocrats—and some bureaucratic actors—against the privileges of these new agencies. The establishment of these agencies caused heated debates in the National Assembly (Özel 2012). In a polity where the tension between politics (usually framed as ‘public’) vs. bureaucracy has had an historical legacy since the 1950s, the prevalent debate (academic and political alike) on the democratic legitimacy of—or rather democratic deficit created by—these agencies gained extra ground based on the arguments that these agencies would bring about a ‘hegemony of bureaucracy’5 and that such ‘bureaucratic dominance would not bear any political responsibility to the public.’6 Echoing the internalized fear of bureaucracy embedded in Turkish politics, exemplified by the Democrat Party’s and the Motherland Party’s fight against bureaucracy in the 1950s and 1980s, the resistance of the political actors across various ideological positions was intense, as depicted in the following quote: In Turkey, we [pull] apart the political authority, politicians, the elected ones, and the democracy as a whole . . . and we leave Turkey in the hands of a board that is constituted by bureaucrats. We turn our democratic republic into a bureaucratic republic.7

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In the midst of the financial crisis in 2001, there emerged a thin regulatoryreform coalition mostly consisting of distinct cadres of economic bureaucracy. The initial reports, pointing out the necessity of reforms and independent regulatory agencies in telecommunications and electricity, were published by the State Planning Organization, the Treasury, and the Scientific and Technological Research Council of Turkey. Thus, the contingent in bureaucracy who believed in the necessity of regulating markets and building independent agencies played an important role in the initiation of regulatory reforms.8 The political commitment and the public support for regulation and supervision expanded during and in the immediate aftermath of the crisis, but weakened later. In sectors where regulatory reforms involved privatization of state-owned enterprises or promoted competition between public and private firms, like in energy and telecommunications, it was particularly difficult to aggregate support (Özel 2013b). Both the formal and informal rules about the regulatory agencies have gone through various amendments regarding autonomy, authority, and links with the executive.9 The agencies, which were initially provided with considerably high levels of autonomy and authority, began to work as ‘extensions of the ministries’ (European Commission 2010). As the initial eagerness for regulatory reforms has been lost following the signs of more or less sustained growth in the context of a financial crisis, the AKP governments increased their control over the regulatory agencies, impairing the autonomy of the IRAs, notwithstanding the differences across agencies (Atiyas 2012; Özel and Atiyas 2011; Özel 2013b). In 2011, two decrees (#643 and #649) made the regulatory agencies permeable to their respective ministry’s intrusion, signifying a process of backlash and ‘dedelegation’ (Özel 2012).10 Relegation of regulatory authority to the executive was followed by dismantling of the Tobacco and Alcohol Market Regulatory Agency in 2012. These changes signify yet another incidence of conversion through the interference of veto players in the absence of constitutional protection, and indicate increasingly centralized decision-making. Incomplete reforms, weak transplants: regulatory agencies and increasing subordination Regulatory reforms in competition were installed in 1994 by the direct transposition of EU legislation into Turkish law based on strict conditionality of accession to the Customs Union, signed in 1995, given that competition policy is an essential part of the acquis (as outlined in its Chapter 10). Existence of an established competition regime at the EU level contributed to the clarity of conditionality, thus the adopted rules. In general, regulatory reforms in competition have worked more effectively than in the distinct sectors, and this can be partly explained by the absence of a strong institutional veto player and the presence of a broad coalition whose perceived benefits exceeded costs in the context of prospective EU membership (Özel 2013b). The legal changes in competition were established in 1994 and 1997: the Law on Protection of Competition in 1994

Tamed by crises, eager to build institutions, 2nd phase 119 (No. 2054) and the Communiqué on Mergers and Acquisitions in 1997. The Turkish Competition Authority (RK) was founded by Law No. 2054 in 1994 to oversee the protection of competition, but it became operational in 1997 (Özel and Atiyas 2011). Especially in anti-trust, it steered the alignment of the Turkish competition regime towards that of the EU in both rule transfer and implementation, which is also acknowledged as ‘satisfactory’ by the EC (European Commission 2000: 39 and 2011: 62–63). Despite the generally effective operation of the competition law, monopolies persist in sectors like telecommunications and energy, and they are partially protected by the respective sectoral agencies and their ministries, which provide various concessions to public and private monopolies (Atiyas 2011; Özel 2013b). The absence of a well-established coordination mechanism and framing law between the Competition Agency and the sectoral agencies, along with the existence of strong veto players such as the ministries that protect the monopolies, often impair competition (DDK 2010). Telecommunications regulation demonstrates the extent of capture by strong veto players, despite the strong involvement of the IMF, the WTO and the EU in different stages. The Information and Communication Technologies Authority (BTK) was founded in 2000 and reformed in 2008 with expanded authority to design and implement secondary legislation.11 Although generating a competitive telecommunication market was the central objective of the competition laws, the competition in several segments—such as broadband and fixed telephony—could not be enhanced, given the persistent monopoly of Turkish Telekom whose privatization was completed in 2005 (Atiyas and Doğan 2009: 6). Currently, the BTK’s ruling has largely been subordinate to the Ministry of Transportation, Maritime Affairs and Communications (European Commission 2011: 65). Intricate links between the Ministry and Turkish Telekom prevent the proper implementation of rules regarding competition, licensing and other issues (Atiyas 2011). Regulatory reforms in the Turkish energy market have also been filtered by the discretion of the executive, while only partially enhancing competition. The Energy Market Regulatory Authority (EPDK) was established in 2001 to be in charge of first network industries (electricity and natural gas), and later petroleum and LPG. Despite the fact that EPDK was endowed with a high level of autonomy and authority (in licensing, pricing, and auditing), it has been unable to exert authority over the market players, the most important of which are stateowned companies, because of the substantial executive control over the agency (Atiyas 2010, Özel and Atiyas 2011, European Commission 2011). The BDDK, which had been established in 1999 based on a new banking law (#4389), could not begin to operate until 2001 because of infighting within the coalition government (Bakır and Öniş 2010: 85). BDDK’s independence has been relatively higher than the other regulators (Özel and Atiyas 2011). BDDK regulations included requirements on capital adequacy, inspection, risk management, international accounting standards, and caps on foreign exchange, interest rate and liquidity risks, which helped the resilience of Turkish banking against

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the 2008 global financial crisis (OECD 2010). Now, the Turkish banking system is subject to regulations that are more strict than international standards—for instance, the capital requirement ratio is 17.5 percent, exceeding the 12 percent suggested by Basel III (BDDK 2013). But the trade-off for strong banking has been higher levels of concentration and increased foreign ownership in the Turkish banking sector, as in Mexico. Paradoxically, the independence of the Central Bank has been largely maintained, despite the increasing subordination of regulatory agencies to the executive. Its somewhat ‘untouchable’ status is explained by the Turkish economy’s persistent dependency on foreign capital inflows for which the independence of the Central Bank has foremost significance for signaling purposes (Özel 2012). Nonetheless, the executive began to threaten the independence of the Central Bank based on an urge to intervene in monetary policy instruments. The tension between Ministers of Economy and the chairs of the Central Bank, which occurred periodically in the late 2000s and early 2010s, indicate that the independence of the Central Bank might indeed be at stake in the medium term (at least at a de facto level). Exemplifying the absence of such belief in the virtues of the institution of independence, Zafer Çağlayan, Minister of Economy, menaced Erdem Başçı, the chair of the Central Bank, by saying: ‘He is just a civil servant. He has come to this position by a decree, and he can go away by another one.’12 Such contestation of authority echoes the debate in the 1950s between those who were elected vs. those who were appointed. Politicians’ urge to tame bureaucrats whenever capture proves difficult has not waned in Turkey, despite the sweeping reforms in economic governance. Now the risk is jeopardizing some of the key institutions that helped maintain resilience in the context of the 2008 financial crisis as the AKP governments curtail the independent status of these agencies. The executive’s reluctance for delegation is often justified by the objective of enhancing capacity to respond flexibly to the global crisis. Overall, the Turkish regulatory state has espoused an increasingly illiberal character and the deadlock in EU negotiations accelerated this trend. Regulatory reforms and business’s responses Business’s responses to regulatory reforms varied across time, issue areas and size. Access to selective incentives—and, at times, to privileges—provided by the executive and/or the regulator has also played a role, as new regulatory reforms have created and distributed new resources (Özel and Atiyas 2011). First and foremost, the establishment of a regulatory regime in competition was challenging given the prevalence of large conglomerates, some of whom zealously lobbied against an anti-trust law in the 1980s and early 1990s.13 Nonetheless, since the competition regime was a sine qua non of the Customs Union membership, which was in turn a sine qua non of potential membership of the EU, big business’s preference shifted through weighing the perceived benefits of CU

Tamed by crises, eager to build institutions, 2nd phase 121 membership against the perceived cost of the anti-trust law (Özel 2013b). Besides, given the nature of the competition law, which cuts across sectors horizontally, it served the interests of the majority of businesses, mostly constituted of SMEs. Although general consciousness about the competition law was very limited at the time, the TOBB, the peak organization, supported it.14 Business’s stance vis-à-vis sectoral regulations was shaped by the severity of the financial crisis in 2000–2001, and was mostly positive, albeit post-hoc. According to the interviews with the bureaucrats and politicians of the time who constituted a small contingent, businesses were not very well informed about the regulatory reforms (including those relating to competition), thus they did not have clear preferences.15 One exception to this general pattern was banking, where actors were relatively more informed about the regulatory and supervisory instruments, particularly through the existence of well-established transnational regimes and expertise in the sector (Özel 2013b). Given the close link between banking and macroeconomic stability, the stakes were higher in banking, thus there was demand arising from the stakeholders and the public, especially with respect to supervision.16 Such a link also matters for relatively more autonomy that the BDDK has had (both de jure and de facto) compared with the other sectoral regulators where political intervention has been prevalent. Consequentially, banking regulations have been essential in partially weathering the storm of the global financial crisis in 2008. Nonetheless, one major cost has been increasing concentration in the banking sector following the regulatory reforms and the financial crisis that preceded those. After regulatory reforms were set in place, they triggered major contentions, particularly in sectors like energy and telecommunications where markets are partially liberalized coupled with privatization in certain segments, but without abolishing the barriers to entry for newcomers. Persistent public and private monopolies and the respective regulatory agencies’ guarding of those monopolies (in collaboration with the line ministries in most cases) by providing them various privileges at the expense of engendering competition created major tensions between the state and business actors. The executive’s increasing interference in the agencies, thus the discrepancy between de jure autonomy and its de facto implementation, and later legal changes to the status of the agencies—i.e., conversion regarding increasing subordination to the executive—constitute other sources of tension.17 An illiberal state in the making: democratic opening and increasing authoritarianism juxtaposed The increasingly illiberal character of economic governance in Turkey reflects the state and the evolution of political institutions and policy-making processes. In a context where checks and balances on the executive have weakened despite the overall process of democratic opening since the 1990s, policy and regulationmaking processes have been increasingly centralized. Hence, the Turkish case defies anticipations of a linear trajectory in terms of the evolution of institutions,

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along with the processes of opening in both economic and political realms. In both realms, the democratization processes, i.e., facilitating broader participation to institutions, has been coupled by significant reversals. In the political realm, democratic opening has been juxtaposed by increasing authoritarianism; in the economic realm, so-called economic democratization (see Chapter 6) has been juxtaposed to selective inclusion. Two simultaneous trends have facilitated the coexistence of these contradictory processes: increasing polarization in the society, and the lack of institutional checks and balances. The executive’s bypassing of the legislature was basically institutionalized by the 1982 constitution, which enabled the executive’s ‘sharing’ of legislative power even though the 7th Article of the Constitution strictly prohibits the delegation of legislative power. The widespread use of executive discretion was facilitated by the constitutional changes in the first phase of market transitions, and the increasing public support for the AKP rule bolstered the use of decrees, thus circumventing the legislative processes. The emergence of polarized cohesion in the business community made selective inclusion possible, thus impairing the inclusionary qualities of the new economic institutions. Endorsed by its majority in parliament and the absence of checks and balances—both institutional (the constitutionally granted space for decrees) and political (lack of a noteworthy opposition)—the AKP governments increasingly used their veto power, giving rise to substantial drifting of institutions ,while expanding selective provision of incentives and distribution of state resources to their new allies in an increasingly polarized society along the Islamist–secular(ist) lines. In fact, this is nothing else than an institutional legacy inherited from the first phase of market transitions where the incumbents bypassed the legislature by using discretionary tools whenever they encountered resistance (be it from opposition parties, bureaucratic cadres or the general public), exemplifying a process of ‘parliamentarism without a parliament’ (Karahanoğulları 1998) and liberalization accompanied by deinstitutionalization (Eder 2004; Özel 2012). The legacies of the centralization and politicization of bureaucracy exacerbated the use and impact of executive discretion. Indeed, the commonly asserted pattern of pragmatism (short-cut problem solving), adopted by successive incumbents but most infamously by the ANAP governments in the 1980s and 1990s, is only an outcome of such institutional determinants, rather than the cause (Öniş 2004). In the prevalence of executive discretion operating through decrees and increasing centralization of decision-making process by an entourage of the Prime Minister, Turkey’s parliamentarism has increasingly adopted the characteristics of ‘presidentialized parliamentary systems,’ fulfilling the criteria set by Poguntke and Webb (2005). Increasing concentration of power and weakening checks and balances indicate the emergence of an illiberal state, despite the large-scale liberalization in both political and economic realms carried out in recent decades, accompanied by the gradual emergence of de facto semipresidentialism in Turkey (Özbudun 2012), settled in a one-party dominant regime particularly following the constitutional amendment in 2010. Hence, the

Tamed by crises, eager to build institutions, 2nd phase 123 Turkish state has preserved some of its central characteristics as a developmental state with limited capacity in several dimensions (Waldner 1999; Özel 2012). Moreover, varying shades of authoritarian tendencies have coupled with the democratization process since the early 2000s, increasing constraints on political freedoms. This intertwined trend has also affected the state’s interactions with the increasingly polarized business community in a context where inclusionary and exclusionary political and economic institutions have been juxtaposed. Centralization, selective inclusion and polarized responses of business Political conflict and changing power relations have led to the emergence of new business actors and alliances in Turkey, along with increasing polarization within society and the business community (see Chapter 6). Although polarization had begun in the 1990s, an unprecedented consensus was built in the business community during and in the aftermath of the 2001 crisis, regarding stances towards market liberalization accompanied by regulation and stabilization. Most businesses with varying allegiances (secularists and Islamists) supported the first AKP government and allied with it in its undertaking of major reforms necessitated in the context of the EU-accession process, and continuing the ones established in the aftermath of the 2001 crisis. Thus, the governing alliance in the first term of the AKP expanded to include many business organizations, including those in the secularist pole. This alliance, however, became increasingly narrow starting from the AKP government’s second term, caused by two major trends: (1) the slowing down of reforms, and hence of the EU-accession process; (2) the AKP government’s opting for selective inclusion of businesses in the distribution of resources as well as in coordination platforms, and its increasing control and intensifying threats marked by an authoritarian overtone. Starting from the third term of the AKP government, the threats became explicit in the sense that they entailed ‘punishment’ of those who are not acquiescent to or were publicly critical of the government. The AKP governments lost steam for reforms coupled with their rising selfconfidence about the fast economic recovery and increasing electoral power. Coupled with the prevalence of increasing polarization, this led to contentions between the government and some businesses, particularly those on the secularist pole. Especially the stalemate in the EU accession process caused severe criticism from some business circles, predominantly originating from TÜSİAD and İSO. This revived a former pattern: governments taking on an offensive position, showing a stick to businesses whenever businesses—especially the media—took a critical stance publicly. Hence, the fledgling governing alliance that emerged in the initial years of the AKP government has dismantled. The AKP government has increasingly opted for directly threatening and punishing any dissent of business actors, be it in the economic realm or not, impairing the process of democratization, hence reinforcing exclusionary institutions. Following such threats, the markets also penalize those particular businesses especially through the stock markets, anticipating material losses through various instruments that

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government can use. Currently, this pattern is not limited to only business circles but has expanded to include any critical voices independent of its source, as the AKP government—especially in its third term—has become increasingly authoritarian in silencing dissent. One of the most contentious issues between the government and some (especially the secularist) businesses has been the constitution-making. Before the Referendum on Constitutional Amendments in September 2010, Prime Minister Recep Tayyip Erdoğan accused TÜSİAD of not having been ‘sincere enough’ about its ‘alleged’ pro-democratic stance, and threatened the organization. He stated that ‘those who choose to remain impartial today will find themselves excluded later,’ referring to TÜSİAD’s refusal to publicly endorse a ‘yes’ vote in the referendum.18 Referring to Erdoğan’s statement as ‘unfortunate,’ TÜSİAD took on a defensive stance, suggesting that it was not convinced that doing so would lead to higher democratic standards in Turkey.19 Erdoğan’s threat was widely perceived as ‘taming’ big business into adopting positions in line with the government’s preferences, a common practice in Turkish state–business relations based on the government using carrots and sticks to give lessons. Carrots are perceived to include use of measures including access to state resources such as subsidies, concessional loans from public banks, public bids, and policy platforms, while sticks include government’s refusal to use state resources, and arbitrary intervention such as selective tax auditing or arbitrary law enforcement (Kalaycıoğlu 2002; Özel 2012). The incident of a tax penalty imposed on Doğan Medya Holding in 2009 has been widely interpreted as a stick and a ‘revenge of the government on criticism.’20 Selective inclusion has increasingly been a common characteristic of economic governance since the early 2000s. Juxtaposed to its showing sticks to some businesses, the AKP governments have offered carrots to some other businesses that have eagerly supported—and thus become close allies with—the AKP governments. Chapter 6 discusses the simultaneous trends of increasing polarization and emerging cohesion within the business community, framing it as ‘polarized cohesion.’ The rivalry between the two poles (i.e., secularists vs. Islamists) has given rise to the provision of selective benefits, with selective distribution of state resources to the emerging and expanding business allies of the government. Creating new uncertainties, this process jeopardizes the inclusionary characteristics of the new economic institutions and the new space created for new business actors’ entry into markets that previously had major barriers. Some of these actors have become the AKP government’s close allies. Increasing internationalization of the market provided these actors with new opportunities, while the selective incentives offered by the central state and/or municipalities accelerated the process of empowerment (Buğra and Savaşkan 2010: 98–102; Özel 2010; Sönmez 2010). In order to strengthen and broaden the support base of the government, new resources were created along with innovative instruments to distribute them, in line with the legacy of facilitated accumulation of wealth (Buğra 1994; Kutlay 2012; Özel 2003). The most central instruments in this process have been contracts (both from the central government and the municipalities) for infrastructure and construction projects,

Tamed by crises, eager to build institutions, 2nd phase 125 along with privatization bids. Especially in sectors like construction, as in the case of mass-housing bids, undertaken by the Housing Development Administration (TOKİ), large chains of supplier networks helped expand the base of beneficiaries of the new forms of resource distribution, besides enriching the big firms (Buğra and Savaşkan 2010: 98–102). On one hand, these processes have expanded the inclusionary characteristics of economic institutions by broadening their base and trickling down the benefits to businesses across different sizes and locations. On the other, they have created new exclusionary spaces where they provided extensive privileges to a selected group of businesses. In this context, selected businesses have been enabled to grow, diversifying their activities. Having jumped through leagues, Çalık Holding is a typical example of such transformation from a medium-sized enterprise to a large multi-sector conglomerate, epitomizing a facilitated wealth accumulation. The Higher Board of Auditing, which examined the sale of ATV-Sabah Medya to Çalık Holding, asserted that the sale was possible through the placement of a TL 750 million-worth credit from public banks which had been acquired based on a misassessment of the holding’s assets.21 Although such shifting of alliances does not necessarily mean that the old conglomerates, previous allies of the Turkish state, were entirely replaced by the new actors in the Turkish market, a sizeable portion of the newly added sections of the expanded pie has been distributed to the latter. The supporters of the AKP government from the business community are increasingly gathered in distinct business organizations, such as MÜSİAD and TUSKON, which mostly ally with the government regarding a broad range of issues including constitutional amendments and responses to the global financial crisis, while the organizations on the secularist pole criticize it. (Increasing polarization and the cohesion within the poles, along with the allegiances of specific business organizations, are discussed in detail in Chapter 6. Criticism, explicit and implicit alike, of businesses often caused contentions and at times punishment. For instance, when the hardship that some industrialists went through in the 2008 financial crisis was expressed publicly by the Istanbul Chamber of Industry (İSO), the Minister of Economy accused İSO of having misled the public by misinterpreting the data, causing important contentions again.22

Resilient, but vulnerable: Turkish and Mexican economies encountering the 2008 crisis When Mexico and Turkey faced the global financial crisis of 2008, they had better-established rules of the game for the market players than in the 1980s and 1990s, and were on a steady growth track. Sound public finances and strong regulatory institutions, particularly in banking, played an important role of filtering during the crisis and its aftermath. This was mostly facilitated by the institutional reforms and macroeconomic stabilization undertaken in the aftermath of severe home-grown crises that shook these markets in their infamous ‘lost decades’ in the 1980s and 1990s.

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By an average annual growth rate of 5.2 percent between 2002 and 2012, in Turkey the GDP reached US$789 billion in 2012, making Turkey the 16th largest economy, following after Mexico with a GDP of US$1,178 billion and an average growth rate of 2.4 percent in the same period. In terms of GDP per capita, Turkey’s GDP per capita increased to US$10,666, while Mexico’s went up to US$9,749 (World Bank 2013a). Both countries have taken on an exportled growth trajectory, indicating a major transformation since the 1980s with increasing levels of foreign trade openness: from 17 percent in 1980 to 56.3 percent in 2011 in Turkey with a total exports volume of US$184 billion, and from 23.4 percent to 64.7 percent in Mexico with a total exports volume of US$365 billion (TÜİK 2014b; WTO 2013). Figure 5.1 shows the correlation between exports and GDP in Turkey and Mexico. The composition of exports also changed substantially towards predominantly manufacturing in both countries (automotive, consumer electronics, textiles and clothing, etc.). Nearly half of all exports revenues in Mexico originated in the maquiladoras, mostly owned by US capital, whereas a considerable volume of overall Turkish manufacturing exports originated in domestic capital or joint ventures between domestic capital and multinationals (90 percent of total export volume constituted by manufacturing products) (TÜİK 2012). In both cases, domestic industry across different sizes and sectors got integrated into global markets mostly as subcontractors. Generally, low-cost, low-value-added production and exports marked both markets. In Turkey, backward linkages generated by foreign investment, and domestic capital’s joint ventures with these, have expanded more than in Mexico, and the SMEs also became part of these processes, particularly in sectors like automotives (particularly in the sub-sector of automotive parts), and textiles and clothing. Business organizations have played important roles in enabling the SMEs in this trajectory. 35

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Figure 5.1 Correlated growth: exports and GDP, Turkey and Mexico, 1960–2012 (source: World Bank 2013a).

Tamed by crises, eager to build institutions, 2nd phase 127 When the crisis hit in 2008, relatively sound public finances was a key feature of these two economies. In 2007, Mexico’s public debt/GDP was 21 percent, and Turkey’s was 40 percent. These rates were down from 61.7 percent in 1987 and 37 percent in 1995 in Mexico, and from 74 percent in 2001 in Turkey (Banxico 2012a, CBT 2013a). Figure 5.2 demonstrates increasing public debt and the public sector’s borrowing requirements in their respective ‘lost decades,’ with both diminishing within the last two decades and then a slight rise following the global crisis in 2008. Transmission of the global crisis and privatization of debt The initial shock generated by the global financial crisis was strong because of the dependency of Turkey and Mexico on the European and US markets which had been hit severely. The crisis was transmitted to Mexican and Turkish markets through several dynamics, most importantly the decline in demand in major export markets, diminishing foreign investment, a decline in workers’ remittances, restricted access to financial markets, and the increase in the risk premium of emerging countries. In Mexico, the dependency on the US market for exports is a major concern as 80 percent of overall exports are directed to the US markets and exports/ GDP is 26 percent. Five years before the emergence of the crisis, exports to the US market had increased to 78 percent, while a year after the crisis they had dropped to 18 percent (WTO 2013). The diversification in exports as an objective has mostly failed so far because 45 percent of the total exports and 35 percent of the total imports are through maquiladoras, representing another source of vulnerability (INEGI 2012). The crisis in the US market caused a decline in the Mexican manufacturing industry from 6 percent in 2006 to –4 percent in 2009, but it has started recovering since 2010 (INEGI 2012). Although export dependency on Europe is a problem for the Turkish economy, diversification of the export markets has proceeded more effectively than in

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Figure 5.2 Growth of exports and export-dependency, Turkey and Mexico, 1980–2012 (sources: INEGI, OECD, TSI, World Bank).

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Mexico. The share of outlets outside Europe has increased in the recent decade, but particularly after the global financial crisis. The share of the Middle East and Africa increased (from 11 percent to 18 percent between 2002 and 2012) in line with the recent changes in Turkey’s foreign policy towards ‘Euro-Asianism’ (Hale and Özbudun 2010; Kirişçi 2009; Öniş and Yılmaz 2009). Despite the recovery of the exports volume and a relative rise of foreign direct investment (FDI), the current account deficit continues to be a major concern, making the Turkish market in need of short-term capital flows, intensifying vulnerability to external shocks. In Mexico, the oil revenues make a major difference. The changes in the current account deficit of both Mexico and Turkey are shown in Figure 5.3. 6 4

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Figure 5.3 Current account deficit/GDP (%), Turkey and Mexico, 1980–2012 (source: IMF World Economic Outlook, 2012). 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1970 –5,000

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Turkey – inward FDI Mexico – inward FDI

Figure 5.4 FDI inflows and outflows, Turkey and Mexico (source: UNCTAD 2012).

Tamed by crises, eager to build institutions, 2nd phase 129 Before the 2008 crisis, FDI inflows increased in both markets. In Turkey, FDI inflows increased significantly after having had a sluggish path in the 1990s, from US$1 billion in 2000 to US$22 billion in 2007 (UNCTAD 2010: 43). Recent institutional changes undertaken, particularly through the YOİKK process, coupled with stabilization, privatization and the EU accession process, prompted FDI inflows. In Mexico, FDI flows increased after the NAFTA accession in 1995, reaching US$32 billion in 2008. Then, after the crisis, FDI dropped in both cases: in Mexico to US$16.1 billion in 2009—44 percent originating from US firms—and in Turkey to US$9 billion in 2009. As a result of transnationalization of big domestic firms, FDI outflows originating in ‘multilationas’ in Mexico and ‘multiturks’ in Turkey increased even after the 2008 crisis (from US$8.3 billion to US$13.6 billion in Mexico, and from US$2.1 to US$2.5 billion in Turkey between 2000 and 2007) (UNCTAD 2012). Figure 5.4 illustrates the recent trends in FDI inflows and outflows in both Turkey and Mexico. On a stable but mediocre path: the Mexican economy after the global crisis Both markets succumbed to fragile growth paths ridden by layers of dependencies (on exports and capital inflows) and increasing indebtedness. Increasing stakes in the context of the global crisis gave rise to coordinated acts between the state actors in Mexico, who were increasingly fragmented. A coordination mechanism was established between Banxico, CNBV, and the Financial Stability Board. Coordination between the financial agencies works more effectively than that between the financial agencies and the other ministries (and among these) that suffer from fragmentation. 80 70

Mexico Turkey

Percentage

60 50 40 30 20 10 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Figure 5.5 Bank credits/GDP (%), 1960–2011, Turkey and Mexico (total domestic) (source: World Bank Development Indicators).

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As Chapter 7 discusses, in Mexico the coordination attained previously between the state and the business actors has become hard to establish because of fragmentation at both levels. The peak organizations have lost their former power, and despite their attempts to gather collective action in the business community, they could only achieve consensus on broad policy issues and reforms, most of which have remained on paper because of resistance by special interests. Like in Turkey, macroeconomic stability and the previous institutional reforms partially protected the Mexican economy from the global financial crisis. Mexico’s sound public finances when the crisis hit was brought about by prudent policymaking since 1995, along with the increased oil prices. PBSR/GDP and public debt went down to 28 and 7.4 percent respectively (INEGI 2010). Nonetheless, given the level of openness in the Mexican economy (58.6 percent–foreign trade/GDP) and the share of the US market in total exports (nearly 80 percent), being immune from shocks originating in the US market would be impossible (INEGI 2012). Recently, there is an increasing synchronization between the two economies (Delajara 2012). Indeed, the initial impact of the 2008 crisis on the GDP within Latin America was largest in Mexico, as the GDP shrank by 6.6 percent in 2009 (Banxico 2012a). Depreciation of the peso and volatility in exchange rates followed course, increasing the risk premium in Mexico. Regulatory and supervisory instruments established since the 1990s proved to be good filters against external shocks. Banxico attained the inflation target, decreased the interest rate, and kept the flexible exchange regime and international reserves at the peak, a performance commonly praised by businesses across organizations and sectors as the main determinant of stability in the Mexican economy.23 The government’s guaranteeing US$30 billion and 47 billion worth of credit from the US and the IMF helped recover investors’ confidence, although the credit was never used. A fragile growth and ‘privatized’ debt: the Turkish economy after the 2008 crisis The Turkish economy showed relative resilience to the global financial crisis, despite the fact that the initial shock was severe: unemployment went up to 10.3 percent, industrial output went down 14 percent, and the current account deficit went up to 9 percent of the GDP in 2010 (TÜİK 2014a). The Central Bank decreased interest rates to increase liquidity and revive the economy, which was applauded by businesses. Later, the government (and at times businesses) often expressed discontent about the insufficiency of the Central Bank’s responses to the crisis, which became a contentious issue between the Ministry of Economy and the Central Bank.24 In addition to a stronger banking sector, the commitment of the AKP governments to fiscal prudency and monetary policy helped maintain resilience, epitomized by the famous phrase of Prime Minister Erdoğan that ‘the crisis crossed the Turkish economy tangentially.’25 The most contentious issue during the global crisis was the refusal by the AKP government of an IMF stand-by agreement. The last IMF stand-by agreement expired in 2008, and the government announced that it would not need a new

Tamed by crises, eager to build institutions, 2nd phase 131 agreement, causing disagreements with the business community, especially with TÜSİAD and TÜRKONFED, the organizations aligned in the secularist pole (see Chapter 6). A credit-line of US$19 billion and 25 billion would be negotiated, but the agreement stalled because the government avoided potential constraints on its spending before the elections—particularly contentious were the spending constraints on municipalities and the autonomy for the government-controlled tax administration. Turkey closed its final debt to the IMF in 2013, after having signed 19 stand-by agreements by 38 different governments since 1961 (IMF 2013). Although the Turkish economy is considered to have weathered the storm relatively well without the IMF ’s support, vulnerability in the market persists brought about by a high current account deficit, a low savings rate, and resultant dependency on short-term capital inflows, a vicious cycle that became intensified in the times of crises, leaving Turkey at the mercy of changing risk premiums and sudden stops. Another alarming trend is a new phenomenon, which is the indebtedness of the private sector, replacing that of the public sector, a factor behind the 2001 crisis. The substantial increase in private short-term external debt (US$107 billion, comprising 86 percent of the overall external debt as of 2013) does not only stem from big businesses, as SMEs have also taken part in this rising phenomenon (CBT 2013a). Indebtedness is not limited to that of businesses, but the populace in general has been increasingly indebted, through eased access to consumer and housing credits. These trends intensify the risks for the Turkish economy, making it extremely vulnerable to shocks. Additionally, macroeconomic indicators like the rate of inflation (7.4 percent in 2013) have been worsening, and unemployment rates, though in a substantial decline compared to the previous decades, have been mediocre, at best, compared with those in other emerging markets including Mexico (CBT 2013b).

Conclusion In both Turkey and Mexico, macroeconomic stabilization and regulatory reforms undertaken following the home-grown crises of 1994–1995 and 2000–2001 in Mexico and Turkey respectively helped partially shield these emerging markets from the global financial crisis of 2008. These home-grown crises increased the stakes and led to major institutional reforms, along with the creation of coordination-inducing institutions (see Chapters 6 and 7). Nonetheless, the institutions built in the aftermath of these crises have gone through changes, as they have become layered, drifted, and converted in time, losing their initial effectiveness. Both markets succumb to fragile growth paths ridden by layers of dependencies (on exports and capital inflows) and increasing private indebtedness. In the second phase of transitions, coordination in Turkey within the state and between the state and business actors has relatively improved, but polarization began to jeopardize collective action and coordination. In Mexico, coordination has mostly taken an issue-based form, and increasingly between the state and special interests fostered by increasing fragmentation within the Mexican state and business.

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In Mexico, narrow alliances that were set in the late 1980s have been more or less sustained despite the changing regime, while in Turkey new alliances were born and expanded since the 1990s, in line with increasing polarization in the society in general and in the business community in particular. The former pattern of business’s criticisms followed by government threats and exclusion intensified further and took on the form of explicit punishment of particular businesses, increasing uncertainties. In both countries, precarious regulatory states have come into existence molded by institutional legacies and the resistance and manipulation of veto players. Barriers to entry have persisted despite the establishment of competition regimes in both countries: concentration has increased further in some sectors, and regulators have been captured by strong players. Thus, the market transition process has only partially enhanced the inclusionary quality of economic institutions. Political opening has taken place in both countries. In Mexico, it has resulted in diminished executive discretion, while in Turkey executive discretion has further increased, accompanied by increasing authoritarianism and interventionism. In both cases, the link between political and economic openings has not been straightforward.

Notes 1 Interviews with the CCE and COECE officials, May 20, 2004 and August 22, 2012, Mexico City. 2 Interview with former politicians and bureaucrats who led the program, December 27, 2011 and February 1, 2012, Istanbul. 3 ‘YOİKK Değerlendirme Toplantısı’ [YOİKK Assessment Meeting], Daha İyi Bir Gelecek İçin Görüş ve Öneriler-VII, January 30, 2008, Ankara: TOBB. 4 Currently there are eight independent regulatory agencies (IRAs) in Turkey: the Capital Markets Board (established in 1982), the Higher Board for Radio and TV (1994), the Turkish Competition Authority (1994 and 1997), the Banking Regulation and Supervision Agency (1999), the Information and Communications Technologies Authority (2000), the Energy Markets Regulatory Agency (2001), the Sugar Agency (2001), and the Public Procurement Agency (2002). 5 Genç, Kamer, 17th session, June 17, 1999, T.B.M.M. Tutanak Dergisi, Period: 21, Vol. 1, Legislative year: 1, p. 133. 6 Coşkun, Ali, 18th session, June 17, 1999 and June 18, 1999, T.B.M.M. Tutanak Dergisi, Period: 21, Vol. 1, Legislative year: 1. 7 Söylemez, Ufuk, 17th session, June 17, 1999, T.B.M.M. Tutanak Dergisi, Period: 21, Vol. 1, Legislative year: 1, p. 134. 8 Interviews with former bureaucrats, February 1, 2012, Istanbul. 9 State Audit Board, ‘Düzenleyici ve Denetleyici Kurumların Oluşumu, Teşkilatı, Yetki ve Görevleri, Denetlenmeleri ve Kurul Üyeleri ile Çalışanlarının Statüsüne İlişkin Hususların İrdelenmesi’ [An Analysis of the Emergence of Regulatory and Auditing Agencies, their Organization, Authority and Duties, their Auditing, the Status of Their Board Members and Employees], May 14, 2010, No. 2010/11. 10 According to Decree #KHK/649 (August 17, 2011), ‘the [respective] minister has the authority over all transactions and activities of the related, attached and affiliated agencies’ which, by definition, includes the IRAs. 11 Even after the enactment of Law No. 4502, privatization did not progress smoothly. The tender was launched in 2000, cancelled in 2001, re-launched in 2004, and finalized in 2005.

Tamed by crises, eager to build institutions, 2nd phase 133 12 For an example of this tension, see ‘Çağlayan, Başçı’ya tepkisini sertleştirdi,’ Dünya, February 4, 2013, p. 1 and p. 4. 13 Interviews with officials of TOBB, TUSKON and MÜSİAD, January 5 and December 9–10, 2010. 14 Interviews with TOBB officials, January 5, 2010, Ankara. 15 Interviews with former bureaucrats and politicians, January 6–7, 2010, Ankara. 16 Interviews with the Turkish Bankers’ Association, March 4, 2010, Istanbul. 17 Interviews with businesspeople, August 18–19, 2011, Ankara. 18 Prime Minister Erdoğan’s speech at the Çorum Meeting, August 17, 2010, available at www.dha.com.tr/n.php?n=0b8dc886–2010_08_17 (date of access: November 19, 2010). 19 Available at www.milliyet.com.tr/TÜSİAD-bitaraf-olan-bertaraf-olur-uyarisi-talihsizbir-yaklasim/ekonomi/sondakika/18.08.2010/1277905/default.htm (date of access: November 19, 2010). 20 Interviews with TÜSİAD members, July 3–5, 2008 and June 10, 2010, Istanbul. 21 Hürriyet Ekonomi, April 5, 2009. Also see Sönmez (2010: 105). 22 ‘İSO’dan Babacan’a Mektuplu Yanıt’, Milliyet, August 11, 2010. 23 Interviews with businesspeople and officials of CONCAMIN, CANACINTRA and CCE, August 20–23 and September 3–4, 2012. 24 For the direct contestation by the Minister of Economy, see ‘Hele Şükür, Bankaların da Kredi Faizleri Düşmeli,’ Milliyet, April 17, 2013, p. 10. 25 http://gundem.bugun.com.tr/erdogan-net-konustu–haberi/88079 (date of access: March 30, 2013).

6

Increasing cohesiveness and a big spurt in Turkey

Introduction This chapter examines the emergence of partial cohesion within Turkish business and the state in the 2000s, demonstrating the ways in which increasing cohesiveness enhanced actors’ capacity and helped build coordination-inducing institutions in the second phase of market transitions. It points out the role of increasing stakes in the late 1990s and early 2000s in bringing about partial cohesiveness in the business community, which then contributed to the formation and operation of coordination-inducing institutions. It illustrates the processes in which business organizations expanded their capacities to mobilize diverse interests and invest in collective action, pointing out an unusual phenomenon of the strengthening of organizations representing SMEs. Discussing these complex processes with respect to the evolution of state–business relations, the chapter’s time frame is limited to 2000–2012. Thus, it does not cover the creation of new layers of antagonism and the collapse of a strong alliance between the state and some business groups during the production stage of this book in 2013–2014. Possible negative effects of these developments on cohesiveness and coordination will yet to be seen. The chapter demonstrates ways in which the increasing power of strong veto players has jeopardized the operation of some of these institutions, leading to their layering and conversion. Lack of effective checks and balances on the discretion of the executive has proved to be a major impediment against the operation of these institutions. This phenomenon exemplifies the continuity of historical legacies like centralization of decisionmaking in the hands of the few, signified by the increasing power of the executive, and, within the executive, the amplified authority of the Office of the Prime Ministry to which all key agencies, boards and councils (including coordinationinducing institutions) have been attached since the late 2000s. In Turkey, unlike in Mexico, a significant trend in business representation is the empowerment of peak organizations. More striking has been the further expansion and strengthening of semi-public business organizations in the 2000s, a trend that more or less provides counter-evidence to the dismantling of corporatism in the age of neoliberal turns in similar countries like Mexico (Luna 2010). Within this context, some semi-public organizations have displayed high

Increasing cohesiveness and a big spurt, Turkey 135 levels of adaptive capacity, exemplified by the Union of Chambers and Commodity Exchanges (TOBB), the peak semi-public organization in Turkey. which previously had been largely politicized and co-opted, but has embarked upon a new role in the context of expanding transnationalization and globalization, acting as a mediator between the state and business, as well as between domestic business and domestic/foreign capital. The emergence and rising importance of semi-public organizations like the Turkish Exporters’ Assembly (TİM) is another example of the restructuring, reformation, and repositioning of business organizations bolstered by state actors. The chapter examines the making of ‘polar cohesiveness’ within the category of pluralist organizations based on voluntary organizations, reflecting the polarization of Turkish society between secular(ist) and devout-cum-Islamist cleavages. In this phase of transitions, the Turkish state has become more cohesive, enhancing its capacity. This played a central role in establishing institutions of coordination such as the Evaluation Board for Economic Issues, the Economic Coordination Board (EKK) and the Coordination Council for the Improvement of Investment Environment (YOİKK). However, increasing capacity did not entirely undermine the old legacies, as the rules of the game about the new agencies and institutions have been subject to constant changes, bringing about drifting and conversion of the newly established and fairly effective institutions, while a major discrepancy appeared between the de jure institutions and their de facto operation in practice. The chapter explores these new institutions along with the Economic and Social Council (ESK), which has acquired a highly formalized status in the second phase of transitions, albeit having less effectiveness. It also briefly discusses the consultation mechanisms hosted by the regulatory agencies, together with cross-sectoral variation regarding the effectiveness of consultation between the regulatory agencies and the regulatees. Despite recent changes within business and the state, a historical pattern has largely persisted in Turkish state–business interactions: The state has played an important role in the creation, expansion, or reduction of wealth in the hands of business actors, and some business organizations have become mediators in this process. Such a symbiotic relationship between business and the state mostly prevailed over the course of market transitions: each incumbent tended to create and support its own business allies, while enriching them further to guarantee their sustained support through innovative distribution of state resources, preserving the legacy of facilitated capital accumulation. Indeed, the partial withdrawal of the state from the market has not halted this process, but it paved the way for the creation of new spaces where the privatization of services, placement of the funds of public banks, bids and contracts at municipal and central administration level, and tax and investment incentives have been utilized effectively to empower selected businesses (Buğra and Savaşkan 2010). While this process partially broadened the base through the enhancement of the inclusionary qualities of economic institutions, inclusion came with a twist in the Turkish case, where increasing polarization and the emergence of polar cohesion within business prepared an apt ground for selective inclusion. Despite such cozy

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alliances formed based on selective inclusion, the state has seldom been willing to coordinate with the businesses effectively, except for during severe crises. This chapter will demonstrate the hegemonic presence of this legacy in spite of the drastic changes regarding economic governance, actors, politics, and their alliances. It will assess the role of international and transnational constraints on executive discretion in explaining the sustainability of coordination-inducing institutions.

Becoming cohesive with a twist: polar cohesiveness in the making Revival of corporatist organizations on the eve of the twenty-first century One of the most striking developments in Turkey recently is the increasing power of corporatist business organizations, signifying almost a counter-trend when the decline of corporatism is considered in similar countries. Unlike in Mexico, contestation of compulsory membership in chambers has been minimal in Turkey, and the services provided by the chambers and TOBB, the peak organization, play an important role in that. Lately, some opinions to abolish compulsory membership have been voiced based on the argument that ‘the chambers run firms, start universities, and thus become competitors of their own members.’1 Evidently, the most important business organization in this regard is TOBB, which has displayed a remarkable resilience, enhancing its adaptive capacity in line with the demands stemming from forces of globalization and increasingly internationalized domestic business. By the first decade of the twenty-first century, TOBB has become a strong organization with greater legitimacy of representation vis-à-vis its constituents and governments. It has evolved into a more effective mediator between the government, multinational corporations, and domestic firms. Several factors helped increase TOBB’s capacity, such as its financial resources and their effective use to undertake state-like functions by investing in public goods—particularly important in a crisis-ridden economy of the early 2000s. It has also been boosted by the impact of the European Union (EU) accession process and transnational networks, and adoption of novel sector-based representation rather than the geographical representation. In a redefinition process of its identity in the aftermath of the 2000–2001 crisis, TOBB organized ‘Search Conferences’ between 2002 and 2012, with a pronounced commitment to the EU accession, good governance, and embracing globalization, while emphasizing the need for restructuring the state (Özkaban 2011). The conferences gave rise to the foundation of the TOBB Economy and Technology University and the Turkish Economic and Political Research Foundation (TEPAV), affiliated with the TOBB, which have played important roles in enhancing the capacity of TOBB through expertise. A major impact of the TEPAV on the TOBB has been the latter’s increasing activism in monitoring

Increasing cohesiveness and a big spurt, Turkey 137 the state in multifarious dimensions, including substantial institutional changes such as constitutional reform and the EU-accession negotiations. Fostered by such expertise and novel vision, in 2007 TOBB launched its ‘Constitution Platform’ with the incorporation of 12 more organizations with semi-public status and nationwide representation (labor confederations included) to facilitate civil actors’ participation in the making of the new constitution.2 Other organizations—such as TUSKON, TÜRKONFED, MÜSİAD, and the like—have also been invited to meetings of the Platform. Although this effort is significant in itself to show TOBB’s increasing capacity to invest in collective action, the stalling of the process of constitution-making due to lack of consensus (by 2013) has thwarted TOBB’s potential impact (if any) on the new constitution. A similar deadlock has prevailed in the EU-accession process. Although TOBB has strived to participate in the accession process, the state actors were reluctant to share authority, and the stalling of the accession negotiations made such demands obsolete. Despite the lack of actual impact of some of TOBB’s collective action initiatives, its capacity to adapt and strengthen in the era of globalization has been noteworthy. The Foreign Economic Relations Board (DEİK)—affiliated with TOBB but as a separate entity—plays an important role in enhancing such capacity. Founded in 1987 with the endorsement of TOBB, DEİK’s design was reformed in 2004 as it was authorized by the Law #5174 to determine the foreign economic relations policies of the Turkish private sector. DEİK has become an influential actor in the 2000s in enabling business’s links in international markets, promoting trade and other foreign economic relations between Turkey and other countries, especially through its business councils (112 in total worldwide), and facilitating interaction between business, the public sector, and international organizations, among others. DEİK is a good example to show the layered and intertwined structure in Turkey’s corporatist and pluralist organizations, as has 750 member firms (which are also members of TOBB), 40 founding organizations (semi-public and pluralist, including TÜSİAD, TÜRKONFED, and TİM), and 129 member chambers (semi-public by definition). Since the 1990s, semi-public organizations have expanded in number and influence. TİM is a good example, founded in 1993 as an umbrella organization to aggregate the interests of exporters, which consisted of 60 exporters’ unions at the time of writing. TİM echoes TOBB’s vertical hierarchical structure and represents 52,000 exporting firms. State within a state: TOBB’s vast resources and increasing capacity The most important factor behind TOBB’s increasing power and adaptive capacity is its financial resources and their use through market mechanisms. In 2012, its total revenues totaled US$206 million, US$44 million of which came from membership fees accrued by 1.3 million members, in addition to revenues based on truck certificates for long-distance transportation, custom transit licenses, barcode license rights, and the gazette of revenues and registration.

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With such large resources, TOBB lends to the state whenever the state needs it, sponsors large-scale public projects, provides credits and other services for the SMEs, and funds a prominent university and a think-tank, besides representing business interests vis-à-vis the state—and at times vis-à-vis foreign capital. TOBB has invested in a broad range of areas that the private sector eschewed, such as the provision of funds for credit guarantees, storages, renovation of customs offices, etc. The organization often operates like a state agency undertaking state-like functions, and at other times a consultancy firm that provides data and expertise for domestic and international investors. A good indicator of TOBB’s investment in state-like functions is the volume of its donations, which constitute an important part of overall expenses, US$27 million in 2012 (TOBB 2012a). The state’s prevalent use of TOBB’s vast resources in a broad range of activities can be depicted through a statement made by Prime Minister Erdoğan at the opening of the new Stock Exchange of Istanbul in April 2013. Referring to the expenses of an employee at the Istanbul Stock Exchange, he asserted that ‘they could be covered by Father Rıfat,’ referring to Rıfat Hisarcıklıoğlu, the TOBB Chair.3 This depicts the paradoxical quality of the Turkish state’s capabilities; that despite the insignificant increase in its taxing capacity, it has been able to extract revenues, which in practice work like quasisubstitutes for taxes, through other sources such as the corporatist interest organizations and regulatory agencies. A major change in TOBB’s structure and interest mediation has been its shift from geographic to sectoral representation by means of 60 sectoral councils. The sectoral councils helped generate networks both within distinct sectors across businesses, and between the business representatives in these sectors and the public agencies. Providing good examples for decentralized and sector-specific coordination platforms, these councils convene regularly to discuss the issues and potential solutions in specific sectors, and they interact with particular public agencies to take charge in distinct issue areas. TOBB organizes regular conventions to bring all the councils together in order to maintain coordination across actors, sectors, and agencies (TOBB 2012b). All interviewees who participated in these meetings pointed out the greater efficiency of sectoral councils, with an emphasis on the incorporation of respective public agencies for specific sectors as well as the respective business organizations. The development of the Turkish SMEs and their expanding international exposure appears as a noteworthy phenomenon, given the prevalent trend in emerging markets, including Mexico, where market liberalization and globalization empower big business actors at the expense of SMEs. Increasing capacity of the business organizations, both corporatist and pluralist alike, has contributed to SMEs’ flourishing. As SMEs are the largest constitutive base of TOBB, TOBB’s contribution has been significant in enhancing the capacity of the SMEs by providing credits, training, information, and a wide range of other services through the affiliated chambers, as well as incorporation to international networks, and mediating between the EU and the SMEs. The EU has also played an important role in capacity development, credit provision, and technology transfer, among

Increasing cohesiveness and a big spurt, Turkey 139 other services, through collaborating with the Small and Medium Enterprises Development Organization (KOSGEB), TOBB and particular chambers (European Commission 2011). EU-accession negotiations, transnational networks, and strengthening corporatism The EU-accession process has played a noteworthy role in enhancing the capacity of the Turkish semi-public organizations to mobilize diverse interests. In fact, incorporation of organizations (pluralistic and corporatist alike) into the accession negotiations has been highly limited and has not been institutionalized, despite this being proposed by the organizations, including TOBB. Since the negotiations of the Customs Union, consultation process with business organizations has been erratic and mostly arbitrary regarding the issues discussed and the profile of the participants.4 But semi-public organizations, especially TOBB, have joined the ranks of the protagonists of EU accession, turning into watchdogs of the harmonization process into zealous supporters. This capacity has been enhanced by undertaking mutual projects, collaboration, technical support, sharing best practices in Europe, matching chambers, and provision of project-based funding, as well as helping to set a long-term vision. EU–Turkey Global Business Bridges, administered by the EU Delegation in Turkey in partnership with the Ministry of Economy, is one of the platforms that facilitate collaboration between TOBB and the Eurochambers, contributing to the recognition of TOBB as a key representative of Turkish business. Established in 2001, the Turkey–EU Chambers Forum project launched a broad range of instruments and helped found new organizations, including companies under TOBB management. These companies have sponsored major projects, like the renovation of the Customs Offices operating at the borders of Turkey. Turkey–EU Business Development Centers (ABİGEMs) have contributed to increasing capacity of the chambers and their influence vis-à-vis their members in 19 provinces (Özkaban 2011). TOBB has embarked on a broad range of state-like functions in this process of empowerment. Endorsed by the EU, and co-steered and co-financed by TOBB, the Ministry of Labour and Social Security, the Ministry of Education, and the TOBB Economy and Technology University, the Vocational Training Project (UMEM) provides training for the low-skilled labor force, and matches employers and employees. This signifies an important development, contributing to adopting horizontal industrial policy instruments, besides those of vertical industrial policy. Other functions of TOBB include railway renovation between Turkey and Pakistan, training programs provided for chambers in the Middle East, and incentives for businesses to invest in Palestine (the Industry for Peace Program). TOBB has taken part in various transnational networks that have contributed to its increasing capacity and changing vision. It is an active member of the Association of European Chambers of Commerce and Industry (Eurochambers),

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as well as the Business and Industry Advisory Committee (BIAC) of the OECD, and it uses its extensive transnational links to lobby in the European Union. Besides membership, it has taken part in the management of the World Chambers Federation, International Chambers of Commerce, Islamic Chamber of Commerce and Industry, and Confederation of Asia-Pacific Chambers of Commerce and Industry, among several others. Such interactions with transnational networks affected business’s stance in many issue areas, including the economic and political institutions, helping solidify a pro-democratization, pro-market, and pro-EU stance and mobilization. TOBB and other organizations lobbied in these networks for the launching of accession and proceeding with the negotiations.5 A recent trend is that they play active roles in the formation of transnational networks in Turkey’s neighborhood—including the Union of Black Sea and Caspian Confederation of Enterprises (UBCCE) and the Union of Mediterranean Confederations of Enterprises (BusinessMed), fostering new ties with business organizations in the MENA region, as well as other neighboring regions. Fostering fragmentation or polar cohesion? The emergence of new business actors and pluralist organizations Inter-organizational rivalry, which intensified in the 1990s, has given rise to two simultaneous and seemingly contradictory trends: increasing fragmentation on the one hand, and unprecedented cohesion on the other. In the 2000s, however, a ‘polar cohesion’ has emerged. On one hand, polar cohesion enhances the capacity of the actors for coordinated action; on the other hand, it endangers coordination due to selective inclusion, by and large at the discretion of the executive. The nearly simultaneous emergence of two pluralist peak organizations with similar claims for representativeness illustrates the emergence of polar cohesion in the Turkish business community: the Turkish Enterprise and Business Confederation (TÜRKONFED, founded in 2004), representing secular(ist) businesses, and the Confederation of Turkish Businessmen and Industrialists (TUSKON, founded in 2005), representing devout businesses affiliated with a particular Islamic network, a microcosm of the current polarization in Turkish society.6 The establishment of these two confederations was facilitated by the 2004 Law on Associations, in accordance with the EU’s classification on territorial federations.7 Turkey’s partial Europeanization process has empowered both pluralist and corporatist business organizations. The EU endorsed this law in order to foster civil-society organizations’ active participation in the negotiations and harmonization processes.8 Although both confederations claim to be the umbrella pluralist organization (TÜRKONFED with over 11,000 businesspeople, 20 federations, and 141 affiliated associations; and TUSKON consisting of 55,000 individual members, aggregated in 211 affiliated business associations, and 7 federations9), their self-proclaimed titles are contested. Rivalry between the poles became significant as the newly emerging business actors and their organizations have been strengthened and empowered through internationalization and selective provision of incentives by the central state and

Relatively habitual.

Relatively habitual.

Medium-high Joint committees, joint decisions.

Medium Consultation exists when business actors are incorporated, which is contingent on government’s discretion.

Low to medium-high Substantial cross-sectoral variation. Communication channels open, information exchange. Joint committees, joint decisions.

Coordination Council for the Improvement of Investment Environment (YOİKK, 2001–)

Economic Coordination Board (EKK, 2009–)

Independent regulatory agencies (1990s–)

Layering Conversion

Endogenous change

Between scarce repetition and habitual. Varying across sectors.

Layering Conversion

Conversion (slight)

Layering

Frequently repeated (only 5 years). Drifting Conversion

Medium-high Information exchange. Effective consultation. Joint committees, joint decisions.

the Evaluation Board for Economic Issues (ESDK, 2003–2008)

Scarcely repeated.

None to low Communication channels open, limited information exchange.

Lifespan

Economic and Social Council (ESK, 1995, 2001, 2010)

Level of coordination

Table 6.1 Selected coordination-inducing institutions in Turkey: level of coordination, lifespan, and endogenous changes

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municipalities (Buğra and Savaşkan 2010; Öniş 2007; Özel 2010, 2012; Sönmez 2010). At the level of organizations, the rivalry mostly prevails between the leading organizations on both sides: MÜSİAD and TUSKON, with a predominant devout Muslim identity, and TÜSİAD and TÜRKONFED, mostly representing the secular(ist)s. Recently this competition has also spread to the semi-public organizations, like the Turkish Exporters Assembly (TİM) and Istanbul Chamber of Commerce (İTO), aligning with these two poles respectively. Despite the recent alignment of these chambers and assemblies, TOBB, the semi-public umbrella organization that aggregates all these chambers and assemblies, does not take sides with any poles, but increasingly incorporates the organizations and individuals on the Islamist pole to its management structure. Mirroring ideological polarization in society and identity-based politics, a number of religious, ethnic, ideological, and home-town-based business organizations have emerged, including the Association of Nationalist Industrialists and Businessmen—tandemed with the National Action Party (MHP)—and the Association of Democratic Industrialists and Businessmen, representing the center-right Alevis, among many others. By the second decade of the twenty-first century, both poles have been increasingly diversified, involving interests from all sectors, sizes, and levels of domestic vs. international exposure, as well as identity-based groupings. Reflecting the trend of internationalization of their members through foreign trade, investment, joint ventures, contracting, outsourcing, and franchise and distribution network deals, among other channels, these organizations have transnationalized through their links to transnational business networks and their presence in the major global centers such as Beijing, Brussels, Paris, and Washington DC. The process of Turkey’s protracted EU accession has also contributed to the expansion of these trends through fostering changes in the legal framework of interest representation, and offering instruments for which fierce competition prevails between the two poles. Cohesiveness in the making on the Islamist pole MÜSİAD and TUSKON both represent diverse interests across different sizes, sectors, and regions, have built vast national and transnational networks, facilitating access to new markets as well as vast range of transactions between business people with ‘similar religious and cultural identities.’10 Both organizations play noteworthy roles in enabling SMEs, whose exposure used to be fairly local, to expand to the national market and also internationalize. TUSKON’s ‘Foreign Trade Bridges’ are specifically designed to encourage SMEs to export. A motto utilized by TUSKON is that ‘TUSKON’s target is to help transform pettymerchants to businessmen, businessmen to industrialists, industrialists to exporters, and exporters to multinationals.’11 Hence, a shared identity bolstered by exclusion from previous ruling alliances has engendered mobilization of these new business actors, challenging the hegemony of big business. The interviews conducted with TUSKON and MÜSİAD officials and members suggest that the

Increasing cohesiveness and a big spurt, Turkey 143 entry and empowerment of new business actors signify a process of ‘economic democratization’ with respect to the widening of the social base of capital accumulation. They widely assert that big business in Turkey used to be the only beneficiaries of the incentives distributed by the state. But now the base of capital has broadened, signifying the process of democratization in the economic domain.12 The process of ‘economic democratization,’ promoted since the 1960s, has emerged with a particular twist in the Turkish case, replacing the exclusionary institutions of the past with selective inclusion. These business organizations have acquired a noteworthy political influence during the AKP governments of the 2000s and 2010s through their expanding bases, increasing economic power, and stable support for the government. In turn, they have been provided with selective incentives: they are incorporated into various consultation platforms, apropos the politics of invitation, and promoted as taking part in and managing new organizations like the Development Agencies (Kalkınma Ajansları) which were founded during the process of EU-accession negotiations. They normally thwart any blunt criticism about government policies, particularly through the mass media, and they generally support the government’s acts. According to an official of TUSKON: The ways in which TUSKON interact with the government is very different from that of TÜSİAD and others. TUSKON members do not want to change economic policies, we do not use the media to make our voices heard, we just go to the Minister and explain our concerns and demands. . . . [We] focus on practical things, we inform and enable our members to do business, to export, to get exposed to new markets, rather than propagating a particular view for or against the government.13 MÜSİAD and TUSKON have been provided with selective incentives from the state in the form of privileged access and distribution of public resources. Given that the incorporation of distinct organizations into the operation and management of various agencies and platforms is mostly contingent upon the discretion of the executive, the organizations that closely ally with the government are more likely to take part in such boards. The composition of the board of the Development Agencies, is a good indicator of facilitated access, since four of the five slots allocated for business organizations belong to organizations that are close allies of the AKP government, while three of the eight slots belong to the provincial and municipal administrations. TÜSİAD and TÜRKONFED reacted fiercely not only against such privileged access, but also against the structuring of these agencies, a process interpreted as ‘statization of civil society organizations.’14 Closeness to the government brings these organizations’ privileged incorporation into all policy-making and consultative platforms. In the context of selective inclusion, the state sponsors some of the activities of its ally organizations, such as large fairs. A recent phenomenon is the close alliances between these pluralist Islamist organizations and semi-public,

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and TİM and İTO. The lobbying of Islamist organizations to take over the management of TİM turned out effective, giving rise to a new leadership in 2009. Mehmet Büyükekşi’s election as the chairperson in 2009 has been considered as an indicator of AKP’s intrusion in the election process.15 Sönmez (2010: 58) asserts that this power struggle aims beyond capturing the leadership of individual chambers, but targets to influence TOBB’s management. Likewise, the election of a new cadre for the management of İTO, with links to MÜSİAD and TUSKON, is widely interpreted as ‘capturing’ of the chamber by the Islamist pole. As a result of such redistribution of access, benefits, and incentives, new businesses achieved considerable capital accumulation since the 1990s. Although there is no explicit data on output or exports generated by the members of these organizations, an available indicator of enrichment is that some of the companies in the list of ‘the largest 500 companies in Turkey’ are in the ranks of these organizations. Another indicator is the increase of the share of companies located outside Istanbul, signifying a process of ‘eastward shift’: between 1999 and 2009, the number of companies that made it into the ‘largest 1,000’ list rose from 16 to 32 in Gaziantep, and from 18 to 26 in Kayseri, provinces popularly known as the ‘Anatolian Tigers’ (Çağlar and Kurtsal 2011). Thus, the facilitated access to state resources and networks offered by the business organizations contributed to this impressive growth in a market previously dominated by the stateowned enterprises and companies of large conglomerates mostly based in Western parts of Turkey. In sum, in line with the legacies of the previous incumbents, the AKP governments leaned toward these businesses and organizations whenever it was challenged by secular(ist) business groups, opting for distributing public resources to its allies and consulting with them in policy-making at the expense of others’ exclusion. Despite the novel instruments that the AKP governments have utilized in the process of generating and distributing public resources to business allies, the pattern resonates an old legacy of facilitated capital accumulation from throughout the history of Turkish Republic where ‘incumbents’ created new allies by enriching them (Buğra and Savaşkan 2010). Additionally, the process of breaking-up the exclusionary character of economic institutions has not necessarily brought about inclusionary institutions, but it has generated new exclusionary institutions. Increasing cohesiveness on the secularist pole Rivaled by the expansion of new businesses and their networks, TÜSİAD— representing big business, and often referred to as the ‘club of the rich’ regarding its narrow elite status—had begun to invest in organizing business interests in the 1990s (Öniş and Keyman 2003; Keyman and Öniş 2007). One of the initial attempts was the foundation of the Associations of Industrialists and Businessmen (SİADs) in provinces throughout Turkey, which constituted the Platform of Turkish Industrialists’ and Businessmen’s Associations in 1996 and took up the

Increasing cohesiveness and a big spurt, Turkey 145 title of the SİAD Platform of Turkey in 2000. TÜSİAD’s endorsement of the foundation of SİADs and the Platform indicates the organization’s search for enhanced representational legitimacy, and the intensity of perceived threats from rivals. In the 1990s, TÜSİAD also sought to diminish the influence of TOBB, with which it had a severe tension. TÜRKONFED was endorsed by TÜSİAD in order to enhance TÜSİAD’s representative legitimacy, which the EU criticized as lacking.16 Using a window of opportunity provided by the new law on civil society organizations, TÜSİAD fostered the establishment of sectoral and regional federations, which in turn gave way to the confederation and umbrella organization, TÜRKONFED. The law was enacted in accordance with the EU’s classification on territorial federations, based on the aim of monitoring the accession negotiations and harmonization processes.17 Nevertheless, such supranational acknowledgement is not echoed at national level due to the contested power of TÜRKONFED, despite its representation of 11,000 businesspeople. The increasing power of TUSKON as an alternative pluralist peak organization with its own claims to represent business, and its overt alliance with the AKP governments, impairs TÜRKONFED’s capacity to represent. Given the rivalry between TOBB, TÜRKONFED, and TUSKON, with all three claiming to be peak organizations, integration into consultative platforms becomes difficult for business organizations. In the 2000s, a number of conflicts emerged between the two poles around the AKP governments’ policies, along with demands for institutional reforms and policy changes. Organizations in the Islamist poles mostly sided with the successive AKP governments. Although the organizations in the secularist pole also applauded most of the policies of the first AKP government, they began to raise critiques by the end of the AKP’s first tenure following the stalling of the EU-induced reforms and relative worsening of public finances. Such critiques triggered tensions between these organizations and the government, the latter backed by the organizations on the Islamist pole. In the aftermath of the 2008 global crisis, TÜSİAD and MÜSİAD had strikingly conflicting views about the probable IMF stand-by agreement, the former pushing for the agreement and the latter opposing it, aligning with the AKP government’s staunch opposition to it. Ömer Cihad Vardan, the chairman of MÜSİAD, publicly declared that ‘the answer to the IMF and those [who] are urging the country to accept a new agreement with the IMF: Thanks, but no thanks.’18 Approving the government’s responses to the global financial crisis without having received an IMF loan, Vardan suggested that ‘what Turkey needed was structural reforms, not the IMF loan . . . which is supported by the oligarchy. But the era of “public elects and oligarchy rules” has long ended.’19 Undoubtedly, the ‘rule of oligarchy’ phrase referred to TÜSİAD, with Vardan insisting that it should give up insisting on stand-by. TÜSİAD’s chair, Arzuhan Doğan Yalçındağ, asserted that ‘it was difficult to understand the lagging in signing the standby agreement.’20 The AKP government reacted severely against the critique of TÜSİAD about not signing a new

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agreement.21 Although this issue was framed by the government as an issue of ‘national pride’ that the Turkish economy was strong enough not to need IMF loans, a discourse that still persisted in 2013 when the last payment of installments of previous loans was considered a major turning point by the government. Organizations close to the AKP government strongly shared this perspective. Nail Olpak, the President of MÜSİAD, called May 14, 2013—the day of the last payment—‘a major milestone’ for the Turkish economy.22 Besides general macroeconomic stabilization measures, one of the key reforms that TÜSİAD promoted—and anticipated that a potential stand-by agreement would have as a conditionality—was tax reform entailing the autonomy of tax institutions. This potential reform would touch upon a highly sensitive issue in the Turkish political economy: the presence of millions of SMEs that do not pay taxes adequately, while big business pays it. Thus, the opposition of MÜSİAD—whose constituency is mostly comprised of SMEs—to such a change in tax reform, and that of the government, can be explained by the importance of those interests which would have been jeopardized by the existence of a stand-by agreement. Another major concern for the government was the budgetary controls that the potential stand-by agreement would involve as conditionality, based on the emphasis of the IMF to restrain the channeling of funds from the central government to the municipal administrations, an important source of resource distribution used by successive AKP governments (see Chapters 2 and 5). Different sources of financing that are used by big business and SMEs also differentiate the variation in organizations’ preferences regarding a stand-by agreement. The debt accumulated by big business has been mostly foreign financed, thus the risk premiums are highly important for these actors who considered a potential stand-by agreement instrumental to diminish the premium, thus the indebtedness in foreign currency. SMEs, on the other hand, have less access to foreign credits (albeit increasing recently), thus risk premiums do not play a major importance in their interest calculations. Nevertheless, access to credit is an important issue that MÜSİAD underscored and raised demands about.23 Besides such material-interest-based cleavages between the poles, nonmaterial interests also generated striking cleavages, leading to substantial conflicts. Like in Mexico, where business organizations did care about the curricula in public schools in addition to the school books (particularly in the 1980s and 1990s), education policy and institutions have become important arenas of conflict between business organizations and the governments, and among business organizations. An important disagreement entrenched in the poles was about the changes in criteria in the university entrance exams and the status of the vocational high-schools (including those specialized in training imams) in this context.24 This politically loaded issue ended up in agreement with the MÜSİAD–TUSKON line, which was eagerly supported by the government. TÜSİAD has had several other disagreements with other organizations aligning with the government, one of which was with TİM, whose management was recently ‘taken over’ by candidates endorsed by MÜSİAD. TÜSİAD, and TİM

Increasing cohesiveness and a big spurt, Turkey 147 have gone through several conflicts primarily brought about by representational issues. TÜSİAD, which had initially opposed the establishment of TİM, increased its reaction following the increasing influence (and taking over of the management) of Islamist businesses in 2009, arguing that exportation was not a vocation, thus organization of the exporters in an umbrella entity was unnecessary; the anticipated revenues of TİM would increase the cost of exports, thus endangering the competitiveness of Turkish products.25 Such tensions between these new organizations aligned in distinct poles have been reflected in the interactions with the AKP governments.

Rising state cohesion: increasing capacity and institution building In the second phase of market transitions in Turkey, cohesiveness within the state also increased, leading to higher levels of coordination. Following the severe crises in 2000–2001, which increased the stakes for all actors, major institutional reforms have taken place and they include the establishment of coordination-inducing institutions, along with regulatory institutions, which contributed to the fast recovery of the Turkish economy after 2001 (see Chapter 5). Nonetheless, after attaining significant growth rates, veto players began to convert and drift some of those institutions that had facilitated the recovery. Institutionalization was followed by layering and conversion in many instances, giving rise to the juxtaposed presence of effective and ineffective institutions. The prevalent use of executive discretion, and the diminishing presence of checks and balances on the executive, accelerated this process. This section will discuss the evolution, sustainability, drifting, and virtual abolition of the major coordination institutions, namely ESDK, EKK, YOİKK, and ESK, scrutinizing the processes in which these platforms generated varying degrees of coordination, drifted from their original design, converted to different forms in practice, or more or less sustained. It points out the unconventional design and profile of some of these platforms that incorporate international and transnational actors, and their role in signaling to the global players. The rise and collapse of a coordination inducing-institution: the board for the assessment of economic issues One of the most important coordination platforms in the post-2001 governance was the Evaluation Board for Economic Issues (ESDK), which was built in a low-trust environment where the stakes were high. Established in 2003, ESDK generated medium-to-high levels of coordination within the state actors (within the government, and between the government and public agencies), and between the state and business actors. It created a venue for discussing major issues, and helped generate a common strategy across the ministries and between the state actors and the private sector. The then Prime Minister Abdullah Gül and Rıfat Hisarcıklıoğlu, the then chair of TOBB, played important roles in institutionalizing such a platform.

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TOBB was provided with the authority to determine the agenda and invite the relevant business representatives accordingly, while state actors were invited by the Ministry of Industry and Trade, which acted as the lead agency on the part of the state. ESDK focused on specific sector-based issues, brought all key actors together in a given sector and issue, and generated a flexible and inclusionary platform for coordination, which then played an important role in the recovery of the Turkish economy after 2002. The non-state actors were provided with a voice in the ESDK, which worked effectively for five years. Within its five-year lifespan, coordination took on a repeated format, if not becoming habitual. Nonetheless, the ministries in the ESDK began to react against the non-state actors (especially TOBB) taking a major—at times ‘equal’—role with that of the state actors. These strong veto players then impaired the operation of the platform, as ‘they could not take so much power of business.’26 First, the platform was gradually undermined, and then ceased to operate in 2008. Thus, ESDK exemplifies a case of drifting as the changing conditions affected the institution; in this case, the recovery of the economy in the aftermath of the 2001 crisis subsided the urgency of coordination. It also represents the process of conversion because of the role played by the strong veto players, in this case the ministers and the Prime Minister themselves. The evolution of the ESDK illustrates increasing centralization of policy-making, reinforced by legacies in Turkish economic governance where sharing power is ‘tolerable’ by the executive only when the stakes are very high. Such phenomenon has been increasingly prevalent since the beginning of the second AKP government in 2007. Coordination within the government: Economic Coordination Board In the aftermath of the global financial crisis, the objective of protecting the Turkish economy from the effects of the crisis by maintaining coordination between the prime minister and ministers in charge of economic issues (a total of six, besides the Deputy Prime Minister in charge of economic affairs) gave rise to the foundation of the Economic Coordination Board (EKK). Established by the Law #5838 in 2009, the EKK centralizes decision-making in the Prime Ministry’s office, as the participants to the board are determined by the Prime Minister, the Board is headed and its agenda set by the Deputy Prime Minister in charge of Economic Affairs, and the secretariat is undertaken by the Undersecretary of Treasury which is also attached to the Office of the Prime Ministry. In the EKK, non-state actors are not de jure members, as the Board ‘invites’ representatives of the private sector, academia, and civil society whenever deemed necessary. Accordingly, business’s participation in this platform, including that of TOBB, is ad hoc. The EKK is in charge of coordination between the Office of the Prime Ministry and respective ministries with respect to maintaining economic stability, thus it oversees a broad range of agencies that are in charge of distinct policy instruments. Between 2009 and 2013, the EKK convened periodically, focusing on distinct themes with the participation of varying public and private actors.

Increasing cohesiveness and a big spurt, Turkey 149 Although the frequency is not set, coordination has taken on a repeated format. The EKK has a loosely defined institutional structure as to its operation, procedures, and other organizational aspects. It does not have well-defined monitoring and sanctioning mechanisms, although it is in charge of monitoring and evaluating the coordination process, according to its job definition. Currently, major economic issues are assessed at the EKK, but it has only generated low-to-medium level coordination between the state and business actors, as information exchange takes place and at times consultation is also sought, though the impact of consultation on actual policies is highly dependent on state actors’ discretion. Despite the coordination within the state maintained by the EKK, this exemplifies the increasing centralization of decision-making within the state, concentrated in the enhanced authority of the Prime Ministry. This recent trend, indeed, indicates a continuation and furthering of an old legacy of the Turkish state, i.e., centralization of power without well-established checks and balances. The executive decrees amplify the power of the government, and the changing constellation of agencies and newly established boards amplify the power of the Prime Ministry within the government.

Increasing coordination between the state and business The coordination between the state and business actors expanded in the post2001 economic governance, taking on a more institutionalized form compared to in the 1980s and 1990s. Nonetheless, some of these coordination platforms, which contributed to the economic recovery, have already been drifted, leading to de facto dismantling (a good example being the ESDK). So far, there has been a significant degree of variation between the coordination platforms with respect to their effectiveness since, paradoxically, those that have had the greatest degree of formal institutionalization have the least effectiveness, while some others have been more effective. An unusual feature of these relatively more effective platforms is their flexible structure and the unusual profile of the participants, with the incorporation of international and transnational actors, as well as the state’s ‘tolerance’ towards having these actors on board. Transnational actors and coordinating platforms: the YOİKK process An important institution of coordination in the post-2001 governance is the Coordination Council for the Improvement of Investment Environment (YOİKK), which has generated medium-to-medium-high levels of coordination between the state and business actors, depending on the issue area and time period. The consultation has taken place in several issues, but mostly dependent on the discretion on the state actors, which qualifies as the medium level of coordination. Additionally, joint committees have been formed yielding some joint decisions, attaining medium-high levels of coordination. Established by an executive decree in the midst of the crisis in 2001 under the close surveillance of the Foreign Investment Advisory Service (FIAS, a joint

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establishment of the World Bank’s International Finance Corporation), this policy coordination platform aimed to improve the investment environment to attract more FDI into the Turkish market. YOİKK began to operate in 2002 as an advisory committee to the Council of Ministers. In line with the legacy of institutional layering in Turkish governance, YOİKK’s institutional configuration has changed several times: the lead agent was the Undersecretary of the Prime Ministry, later replaced when the Deputy Prime Minister in charge of Economic Affairs became the lead agent, exemplifying the increasing centralization of decision-making in the entourage of the Office of the Prime Ministry, where most important agencies, commissions, and platforms are attached. YOİKK provides a platform for cooperation and coordination between ministries, undersecretariats and respective state institutions as it involves the key ministers and undersecretaries in charge of economic affairs, and incorporates the chairpersons of the technical committees representing five ministries and other state institutions. Besides, the platform includes business representatives. In 2005, the Steering Committee was founded to maintain coordination between YOİKK and the technical committees, including deputy undersecretaries of the Prime Ministry, the State Planning Organisation, the Undersecretariat of Foreign Trade, the Ministry of Finance, and the Ministry of Industry and Commerce, plus the chairs of the member business organizations. The committee holds regular monthly meetings under the chairing of the Undersecretariat of Treasury, attached to the Office of the Prime Ministry, which collects opinions and recommendations from the private sector organizations and is required to submit quarterly reports to the Council of Ministers. Similar to the evolution of coordination platforms in Mexico, effective operation of the YOİKK, as opposed to the virtual collapse of the ESK, shows the prevalence of bilateral forums between the state and business, at the cost of excluding labor. The incorporation of private actors in the YOİKK process has been an important feature of the platform. The chairs of the Union of Chambers and Commodity Exchanges (TOBB), the Turkish Industry and Business Association (TÜSİAD), the International Investors’ Association of Turkey (YASED), and the Turkish Exporters’ Assembly (TİM) are ex officio members of YOİKK. Based on its flexible structure, YOİKK has incorporated a broad range of policy areas besides FDI through issue linkages. It suggests new primary and secondary legislation to the Council of Ministers, and the drafts are prepared in 10 technical committees in charge of specific policy areas with an obligation to submit monthly reports. Significant laws have been enacted based on the drafts prepared and presented by YOİKK. The amended FDI Law of 2003 and a law on the new investment system are the most important. Others laws in which YOİKK has taken part—like the ones on Simplification of Business Start-Up, Company Registration, Enhanced Credit Guarantee System, Law on Enhancing Research & Development, Investment Support and Promotion Agency of Turkey, Corporate Income Tax, Intellectual Property Protection, and State Aid and the Promotion of Small and Medium-sized Enterprises—have had substantial outcomes for businesses of different sizes and sectors.

Increasing cohesiveness and a big spurt, Turkey 151 Mechanisms of reporting established within YOİKK help maintain information flow between public and private (and domestic and transnational) actors. Institutional innovations and relative flexibility to accommodate the dynamic nature of the global economy—particularly with respect to its transnational composition including corporate, transnational actors, and international organizations—provide YOİKK with an unusual character in Turkish economic governance. Three factors are especially important in the relative effectiveness of the YOİKK: its issue-based operation; the voice provided for private-sector representation; and the flexibility of its structure in hosting actors at several levels: national, transnational, public, and private alike. The Investment Advisory Council (IAC) exemplifies the transnational character of YOİKK, incorporating executives of leading multinational firms, heads of international institutions (the IMF, World Bank, and European Investment Bank), chairs of major business organizations (TOBB, TÜSİAD, YASED, and TİM) along with the Prime Minister, Deputy Prime Minister in Charge of Economic Affairs, the Minister of Finance, and other ministers based on the issues discussed. Meeting annually since 2004, the IAC’s reports include investors’ demands and suggestions for legal changes, regulations, and procedures, which are then elaborated on by the Secretariat of the YOİKK, and incorporated into the action plans of the technical committees. Although the IAC reports are published annually and are important for providing inputs and agenda items in the overall YOİKK process, the overlap between the members of the IAC and the actors in charge of policy-making and implementation is another unusual feature of YOİKK’s institutional set-up and operation, which inevitably involves signaling to international players and markets, but without establishing well-designed monitoring mechanisms. TOBB has played a particularly important role in the institutionalization and operation of YOİKK by helping generate collective action within business and coordinating with other business organizations. In the initial phase, it helped conduct the fieldwork for the FIAS’ Report on the ‘Administrative Barriers to Investment’ through the Chambers of Industry. It has a designated YOİKK Secretariat which coordinates the studies of working groups, facilitates cooperation with Technical Committees, the Treasury, and private sector organizations, besides helping organize biannual Kızılcahamam Investment Conferences which host the Steering Committee, Technical Committees, private-sector representatives, and a select group of NGOs and individuals. Stop-and-go and constant change of rules The innovative characteristics of YOİKK could not impede the impact of historical legacies in Turkish governance. Having gone through many steps of institutionalization (and de-institutionalization), it has a layered structure that hosts overlaps between forums, players, and the mechanisms. Right after its foundation in 2002, the process stalled following Kemal Derviş resigning his post as the Minister in charge of Economic Affairs. Then, attempts to invigorate the

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YOİKK process gave rise to new laws, decrees, and resulting changes in YOİKK’s structure and operation, resulted in layering. Despite its comprehensive nature with regard to the incorporation of various policy areas, the YOİKK process has not included important issues like labormarket policy. It does not offer a specific design in terms of the resources and expertise (needed by the secretariat, technical committees, and other collective bodies) that would be apportioned by the participating organizations. The central weakness of YOİKK is the absence of a monitoring mechanism. Although monitoring has been redefined recently, it is highly restricted to impact analysis in selected issues. Additionally, there are no sanctioning mechanisms.27 Its effectiveness and sustainability might be at stake because of such loose institutionalization. Concentrated interests and coordination platforms: coordination in regulation Facilitating coordination with stakeholders by means of consultative mechanisms enfolded by independent regulatory agencies was an important objective of regulatory reforms. Notwithstanding the cross-sectoral differences, coordination fostered by the regulatory agencies has been limited—particularly in sectors dominated by monopolies and oligopolies. Consultation with stakeholders was emphasized in the institutional framework of all agencies, but the rules have changed and/or been implemented with discretion. In sectors like banking, the level of coordination has been medium-high as there are joint committees that often make joint decisions, whereas in sectors like telecommunications it has been low and medium in the presence of information exchange and communication. The collective action capacity of sectoral organizations plays an important role in demanding, pressuring for, and monitoring effective consultation. Nonetheless, this bears the risk of domination of concentrated interests with high leverage vis-à-vis the regulators, accompanied by the cost of exclusion of interests that lack adequate leverage. A common institutional weakness regarding consultation is the ambiguities in the rules set by the founding laws of the regulatory agencies. In most cases, the boards of the agencies are provided with considerable discretion to determine the ways in which consultation would take place. According to the 87th article of Law No. 5411, the proceedings of the board with respect to the making of regulations and consulting with stakeholders are determined by the board’s head and its members.28 In sectors like banking, the board’s discretion increasingly worked to enhance consultation mechanisms and effective incorporation of the stakeholders’ opinions, while in sectors like telecommunications and energy such discretion worked the other way around. In banking, de facto implementation of consultation has even surpassed what is put forward by de jure rules. The Banks Association of Turkey (TBB) has a say in decision-making and oversight processes in various issue areas. The leverage and organizational capacity of the TBB preceding the establishment of the Banking Regulation and Supervision

Increasing cohesiveness and a big spurt, Turkey 153 Agency (BDDK) has played an important role in the incorporation of stakeholders into regulation-making processes.29 According to the sectoral representatives in banking, there is an ‘intensive’ flow of information between the stakeholders and the BDDK, which collects opinions ex-ante from both the Turkish Banking Association—which in turn collects opinions from individual banks and submits the ‘sector’s opinion’—and the banks which separately submit their own. All regulations are evaluated ex-ante by TBB’s working groups. Besides, there are commissions on various issue areas like credit cards, accounting, and risks, as well as the ad hoc commissions constituted by the representatives of the sector, and the experts at the BDDK.30 Although such capacity and its resulting incorporation matters in terms of coordination outcomes, the risk is the exclusion of consumers’ associations and other interest groups who are affected by banking regulations. In sectors like telecommunications and energy, de facto consultation takes place at much lower level than is suggested on paper. Stakeholders are asked to provide ex-post comments on regulations rather than ex-ante opinions, thus voices are heard without affecting regulation making. Sectoral associations in telecommunications assert that ‘they are incorporated into a few committees, and even such incorporation does not mean much because their demands are usually disregarded, especially when they are in conflict with the interests of the Turkish Telecom.’31 Thus, the persistent monopolies jeopardize the ways in which consultative mechanisms (and regulatory agencies at large) operate, based on discretionary (and selective) inclusion of stakeholders. Under the shade of old legacies: the failure of the ESK Chapter 3 discussed the emergence and zigzagging evolution of the Economic and Social Council (ESK), which was founded in 1995 and went through frequent changes until 2010, giving rise to a layered structure. Recently, conversion replaced layering because the ESK has not even convened, despite the fact that its legal status was upgraded to constitutional status in 2010. Following the launching of the EU-accession negotiations in 2005, the attempts to revive the ESK took on a new pace, leading to its articulation in the constitution by the 2010 referendum following successive remarks by the EU about ESK’s ambiguous legal status. The level of coordination attained by the ESK has been none-tolow, as it maintained communication channels and information exchange only in some of its meetings. Over the course of 18 years since its establishment, the ESK met 20 times, the last time being on February 5, 2009. Most of the meetings became fora for intensified contentions between and within the state and non-state actors, which stemmed from a broad range of issues including the composition of the ESK and the representative legitimacy of participants, as well as crisis measures, labor law, and tax law, among others. Representational legitimacy boils down to contestation regarding ‘who is at the table and who grants that right?’ a contested issue inherited from the first phase of transitions.

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As in the first phase of transitions, consensus was a rare occurrence and it emerged only when the stakes were very high. In the midst of the most severe crisis in Turkish history, the ESK convened for its 12th time on March 30, 2001 to evaluate the overall state of the Turkish economy. State Minister Kemal Derviş emphasized that ‘Korea attained recovery by means of social consensus, while Indonesia cannot attain it because it cannot maintain consensus. Let’s reach consensus to recover, like Korea did.’32 Given the severity of the crisis, the parties to the ESK declared their support for the government’s emergency measures, though threatening messages persisted, so much so that Bayram Meral, the chair of Türk-İş, asserted that they ‘would pour the workers to the streets in case the program does not work the way they wanted.’33 In spite of that rare emergence of consensus, contentions began right after the first signs of recovery. One of the most contentious meetings was its 16th meeting in November 2003, when the chair of the Confederation of Progressive Trade Unions (DİSK) left the meeting due to the over-representation of business.34 In other meetings, the ESK and the meetings themselves were boycotted by several participants, including TÜSİAD. The last meeting of the ESK also failed to generate consensus. Labor and business organizations, business organizations within themselves, and non-state actors with the state could not come to an agreement on any of the contentious issues. Furthermore, the executive has not taken any initiatives to invest in building consensus. In a way, the ESK’s design—based on broad participation of many state, business and labor representatives—has become a hindrance to its operation. Interviewees assert that the ESK has been overtly ‘statist’ from the beginning, as bureaucracy and the executive were represented heavily without any sincere intention to incorporate the non-state actors’ views. Thus, it was just a window-dressing for the EU.35 From the beginning onwards, the representation of the state exceeded the representation of civil society, indicating the former’s hesitation to incorporate the latter into decision making (Sezen 2003). At the 14th meeting of the ESK on April 16, 2003, the YOİKK process was discussed. TÜSİAD issued a report with respect to the content of that meeting as well as the particular demands of big business, one of which was the institutionalization of YOİKK into the framework of ESK, along with speeding up the process of respective legislation. This proposal was not taken into consideration as the YOİKK and ESK continued to be distinct platforms until 2009 when the last meeting of the ESK took place, pursuing the legacy of fragmentation as to actors and institutions in Turkey. At the 20th and the last meeting of the ESK on February 5, 2009, in the aftermath of the global financial crisis, the government’s measures against the impact of the crisis were criticized widely by most parties to the ESK, except for the Confederation of Labour Unions (Hak-İş) which has been closely aligned with the government. Hak-İş and Türk-İş came into conflict over the number of people unemployed (fired after the crisis), the former accusing the latter of exaggerating the numbers and ‘in case those numbers were correct, a major social crisis would explode.’36 Representatives of TİSK and the Union

Increasing cohesiveness and a big spurt, Turkey 155 of Turkish Chambers of Agriculture (TZOB) criticized the inadequacy of measures the government had taken. Despite the fact that the Council was set in the constitution in 2010, it has failed to work, exemplifying a high degree of institutional decoupling between de jure form and de facto operation of the ESK. Thus, a historic attempt towards an institutionalized social dialog in Turkey failed to meet its goals.37 Such failure has been pointed out in successive EC progress reports (European Commission 2011: 36, 78), underlining ‘limited progress in social dialogue’ and suggesting that ‘social dialogue mechanisms were not effectively used . . . [The] ESK has not yet convened.’ Although the ESK still exists on paper, it only fulfils the de jure conditions imposed by the ILO and EU. When participants of the ESK are asked about the reasons behind ESK’s failure, they underline ‘the lack of a culture of consensus’ and ‘the state’s unwillingness to effectively consult with the civil actors.’38 The de facto dismantling of the ESK as a formal institution indicates the failure of trilateral coordination platforms. As the most recent EC progress report (European Commission 2013a: 10) underlines, ‘consultation of civil society remains the exception rather than the rule.’ Polarization in the society inevitably affects the operation of consultation platforms. Usually, the inclusion and/or the effective incorporation of specific business organizations is contingent on their ideological and/or identity-based allegiances. Even in cases where participants are formally determined, the rules might be subject to change and the former ‘allies’ who are included in those platforms, can turn into ‘enemies’ who would be excluded based on politics of (dis) invitation.

Conclusion This chapter illustrated the emergence of coordination-inducing institutions within the state, and between the state and business, in the second phase of the market transitions in Turkey. Inquiring about the conditions under which such institutions were built and gave rise to varying levels of coordination, the chapter explored the role of increasing partial cohesiveness at the level of the state and business in the first decade of the 2000s. A central feature of the second phase of transitions in Turkey has been the rise of polarized cohesion within the business organizations, and the juxtaposed presence of the process of increasing inclusion and exclusion at the levels of both economic and political institutions. Although increasing cohesiveness within business and the state in this phase helped institute coordination-inducing institutions, some of the most important institutions have proven to be volatile, and unsustainable in the existence of strong veto players. The coordination platforms have mostly adopted a bilateral format, excluding labor, like in Mexico. The effective platforms such as the YOİKK have increasingly adopted flexible and innovative instruments in which novel actors like the representatives of multinational corporations and international organizations are incorporated into decision-making processes. As an interesting twist in the post-2001 governance,

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the invincible Turkish state agrees on incorporating transnational and international actors that then act as ‘disciplining forces,’ helping Turkish economic governance yield positive signals for foreign investors. The chapter explored past legacies, and thus continuity, regarding institutional patterns, such as the centralization of decision-making, concentration of power in the hands of a few, and the executive’s reluctance to share power by opening up the policy-making process, which it only tolerates at times when the stakes are extremely high. Thus, several contradicting trends have been juxtaposed in Turkey: increasing polarization and cohesion, the formation and dismantling of institutions, the inclusion and exclusion of different actors (within the state and businesses) into policy-making, and both effective coordination and coordination failures. In the meanwhile, the centralization of decision-making intensified in multiple layers, including executive discretion over the legislature, independent agencies, and the social actors, and the Prime Ministry’s Office over other branches within the state apparatus. The strong power of veto players gave rise to intertwined processes of layering and subversion, and many of the institutions that were established in the post-2001 governance have been dismantled—de jure or de facto. Political opening has only partially accompanied economic opening. Empowerment of semi-public organizations is another important development in the second phase of transitions. TOBB, as the peak organization, as well as the individual chambers and assemblies, have increased their capacity to mobilize across diverse interests, a trend countering the one in Mexico where semi-public organizations have lost some of their previous power. Nonetheless, accompanying their increased financial resources and political salience, Turkish chambers have also become the arenas of power struggle between various divisions: size, sectors, trade vs. industry, and finally secularists vs. devout-cum-Islamists. The chapter also examined the diversification and expanding capacity of pluralistic organizations, which are increasingly situated in two contrasting poles reflecting the overall polarization in Turkish society. Like in Mexico, business organizations have become watchdogs in multifarious levels, monitoring not only the economic governance but also the essential institutions of the respective political regimes, along with the democratization process. Political opening has been more limited in Turkey than in Mexico, and this is partially reflected in the economic institutions where the initial rise in inclusive features has partially adopted a selective character.

Notes 1 Emrullah Turanlı (of Taşyapı İnşaat), ‘Zorunlu oda üyeliği için dava açacak’ [He will start a case for chamber membership], HaberTürk, February 4, 2013, p. 10. 2 For more information on the platform, see www.anayasaplatformu.net/ (date of access: January 12, 2012). 3 In addition to its paternalistic connotation, ‘father’ is used to symbolize wealth and generosity in colloquial Turkish. Haber Türk, April 18, 2013, ‘Rıfat Baba Faizi Bağışladı,’ p. 9. 4 Interviews with TOBB officials, January 5, 2010, Ankara.

Increasing cohesiveness and a big spurt, Turkey 157 5 An interview with a former President of TÜSİAD, July 3, 2008, Istanbul. 6 Often referred to as ‘Islamist,’ TUSKON is known as the confederation closely affiliated with the Gülen community, an Islamic network active in many different layers including education and media, as well as in business. 7 Law No. 5253, published in Official Gazette #25649, Vol. 44, November 11, 2004. 8 www.TÜRKONFED.org/indexeng.htm (date of access: September 1, 2012). 9 www.tuskon.org/?p=content&cl=kurumsal&l=kurumsal (date of access: February 26, 2013). 10 Interviews with TUSKON and MÜSİAD officials, December 9–10, 2010, Istanbul. 11 Zaman Ekonomi, March 6, 2010, excerpt from an interview with Rızanur Meral, chair of TUSKON, available at www.zaman.com.tr/haber.do?haberno=958685 (date of access: May 12, 2011). 12 Interviews with TUSKON and MÜSİAD officials, August 4, 2004 and December 9, 2010, Istanbul. 13 Interview with TUSKON officials, December 9, 2010, Istanbul 14 Interview with a former chair of TÜRKONFED, September 10, 2009, Bursa. 15 Yılmaz, Serpil, Radikal, February 26, 2009. 16 www.TÜRKONFED.org/indexeng.htm (date of access: September 1, 2009) and interview with a former chair of TÜRKONFED, September 10, 2009, Bursa. 17 www.TÜRKONFED.org/indexeng.htm (date of access: September 1, 2009). 18 ‘MÜSİAD wary of possible IMF stand-by deal,’ Today’s Zaman, February 23, 2009, available at www.todayszaman.com/newsDetail_getNewsById.action?load=detay&link =167710 (date of access: April 1, 2013). 19 ‘MÜSİAD: Reform, rather than the IMF, is what is needed,’ available at www.milliyet.com.tr/Ekonomi/HaberDetay.aspx?aType=HaberDetayArsiv&ArticleID=1104330 &Kategori=ekonomi&b=MUSIAD:%20IMF%20yerine%20reform%20gerek (date of access: May 1, 2013). 20 ‘TÜSİAD insists on the agreement with the IMF,’ Yeni Şafak, March 5, 2009. 21 ‘Prime Minister’s Answer to TÜSİAD on the IMF,’ Radikal, March 11, 2009. 22 www.cihan.com.tr/news/MUSIAD-dan-IMF-yorumu-Borclarin-kapanacagi-14Mayis-milat-CHMTAyOTc2NS8z (date of access: June 8, 2013). 23 Interviews with officials of MÜSİAD and TUSKON, December 9–10, 2010. 24 Milliyet, July 24, 2009. 25 Interviews with former chairs of TÜSİAD, September 2013, Istanbul. 26 Interview with TOBB officials, January 5, 2010, Ankara. 27 Interview with a TOBB official, March 19, 2013. 28 Banking Law No. 5411, October 19, 2005, Resmi Gazete [Official Gazette], Edition 5, Vol. 45, Article 87. 29 Interviews with former and current board members of BDDK and representatives of the Turkish Bankers’ Association, March 3–4, 2011, Ankara and April 2–3, 2011, Istanbul. 30 Interviews with TBB officials, March 15, 2011, Istanbul. 31 Interviews with sectoral associations and stakeholders in telecommunications, June 1, 2011, Istanbul. 32 ‘Korea recovered, so can we,’ Hürriyet, April 1, 2001. 33 Ibid. 34 Hürriyet, November 7, 2003. 35 Interviews with businesspeople, 2004 and 2012, Istanbul. 36 ‘Critique of the government on the absence of a crisis-package at the ESK,’ Hürriyet, February 6, 2009. 37 All interviewees emphasized the ‘lack of a culture of consensus’ as a factor behind such ineffectiveness of the ESK, and some businessmen underlined the state-like character and formation of the ESK. 38 Interview with a former chair of TÜSİAD, September 20, 2012, Istanbul.

7

Increasing fragmentation, institutional change, and slowdown in the second phase of transitions in Mexico

This chapter explores the diminishing cohesiveness at the level of the state and business in Mexico’s second phase of market transitions. It examines the processes in which peak business organizations have partially lost their former capacity to mobilize across diverse interests, and links such weakening to broader institutional changes at regime level. Exploring the dismantling of corporatist mechanisms, it demonstrates the weakening capacity of the Mexican state to negotiate with societal actors, and the diminishing use and power of pacts between peak organizations and governments. It shows the ways in which increasing fragmentation jeopardizes coordination between the state and business actors, and delineates the perseverance of selective inclusion fostered by the changing forms of interest mediation. In the second phase of market transitions in Mexico, cohesiveness of the state and business actors weakened. Regime change re-shaped the incentives, accompanied by a restructuring of interest mediation and the organizational landscape regarding business representation. Division of the legislature in 1997, which increased the number and power of veto players, partial dismantling of corporatism, and a rise of pluralism altered the ways in which business actors access the state (Luna 2010). Businesses who became diversified and fragmented have aggressively endeavored to access multiple actors in the increasingly fragmented legislature, unlike in the previous era where access was focalized on the executive (even the President per se). In this process, issue-based lobbying (through individual sectors or across sectors) has mostly substituted former concertations; some of the former mechanisms of coordination between business and the state declined, while more flexible and specialized forms of coordination began to prevail. The diminishing power of all-encompassing organizations (pluralist and corporatist alike) and the rise of pluralistic forms mark the new era of interest mediation. Coinciding with NAFTA integration, thus expanding presence and influence of the US-based companies along with transnational networks, new forms of interest mediation have been largely influenced by the Anglo-Saxon type of pluralism. As in Turkey, Mexican business organizations adopted new ways in which they represent diverse interests and interact with state actors, along with other societal actors. Having gone through a new self-identification since the second

Increasing fragmentation and slowdown, Mexico 159 half of the 1990s, most business organizations have become providers of services, information, data, and access to decision-makers that evolved into commodities. In the diversified space of Mexican interest mediation, most companies and businesspeople are members of multiple organizations and platforms. Businesses use multiple platforms, instruments, and alliances for different purposes, thereby ‘choosing their battle fields in different issue areas.’1 Although these changes en route to pluralism point out an inclusionary process by introducing new actors to the game, the limited representation of most of these actors endanger inclusion. They endow these new dynamics with an exclusionary character due to the accentuated representation of concentrated interests in business organizations, lobbying firms, think tanks, and NGOs that are in close contact with the executive, the legislature, and the judiciary. Hence, the rise of pluralism does not undermine the importance of privileged access and ‘know who,’ which then facilitates exclusive contracts and concessions, perpetuating the concentration in various sectors (Acemoğlu and Robinson 2012; Cypher and Delgado Wise 2012; Hogenboom and Fernández Jilberto 2012; Salas-Porras 2000; Young 2003). The power-distributional conflicts between the large and concentrated, and the small and medium-sized interests that emerged in the first phase of transitions have perpetuated into the second phase, where the leverage of the former along with its alliance with the Mexican state has been solidified further.

Increasing fragmentation within business Businesses in Mexico became increasingly fragmented in the second phase of the market transitions, fostered by major changes in the political regime. Business’s interest mediation in Mexico has changed considerably following the division of the congress in 1997, when PRI lost its majority. Former processes of concertation have been mostly substituted in the new era by lobbying, carried out by recently established lobbying firms, along with old business organizations, corporatist and pluralist alike. In this changing institutional landscape that offers new incentives, the actors became much more diversified. New actors were born, while the old ones transformed the ways in which they aggregate interests, relate to their constituencies, and act and interact with the state actors. As part of their survival strategy, they carved new identities as well as new instruments to access the state and their constituents. All business organizations, regardless of their age, status, and representation, along with many corporate firms, shifted their focus towards the legislature by means of instituting designated departments to interact with congress’s designated commissions (Alvarado 2009). Newly established think tanks, NGOs, and consultancy and lobbying firms have increasingly become important players, as opposed to labor’s dwindling importance in policy-making processes (Luna 2010). Hence, diversified business actors now try to influence policies through accessing ‘scattered dots’ in the legislature, which used to be perceived as an ‘ornament,’ rather than taking part in old-school broad-based pacts and concertations.2

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Dwindling power of the peak organizations In Mexico, all-encompassing organizations that had played major roles in the late 1980s and early 1990s have lost some of their power in aggregating and representing business interests. Although they are still intact and active, mobilizing across diverse interests and generating collective action has become more difficult for organizations like the CCE. The relative failure of the peak organizations in pushing for reforms in labor law, and re-election and constitutional reform, among others, contributed to their diminishing influence. In the case of the CCE, intra-organizational fragmentation endangered representational legitimacy. Starting from the 1990s, some of the member organizations challenged the CCE’s authority to negotiate on behalf of the whole private sector (Luna 2004: 339). In the 2000s, the domination of concentrated interests within organizations, thus within the CCE, blocked some of the reform packages and policy changes promoted by the PAN governments, due to the potential impact of the packages on concentrated interests. According to the interviewees, in the 2000s some of the CCE presidents did not invest in collective action, since they represented—and worked to further—special interests.3 As in Turkey, individuals play significant roles in Mexico in terms of shaping organizations and institutions. Fragmentation within business organizations renders a consensus difficult. When such divisions encounter the divisions in the Congress, then it becomes much harder to reach an agreement, even for relatively minor issues. Collective action has proven increasingly challenging as the conflicting stances of business organizations rendered consensus impossible. The conflict between CCE and COPARMEX about labor reform signifies such a difficulty. Particularistic interests often resisted investment in reform programs that they initially endorsed, like fiscal and labor reforms. However, when it comes to complying with the specific contents of these reform programs, including taxation, free riding becomes common practice as businesses usually shy away as they do not want to invest in reforms promoted by the respective organizations. Despite diminishing power, the CCE still invests resources to generate consensus across organizations, though the effectiveness might be subject to debate. Before each presidential election, CCE puts together a ‘unique agenda’ through the participation of all member organizations and then asks for the candidates from all political parties to sign the agenda, generating pressure for commitment.4 In the last three general elections, these agendas have been signed by most presidential candidates and major business organizations, the last one being the ‘Sexennial Agenda for Growth’ of the 2012 elections after which PRI came back to power following a 12-year break.5 Launching of these agendas become public events where key actors (candidates, business leaders, and representatives of business organizations including the lobbyists) convene to sign the document to make commitments to a ‘shared goal’ of Mexico’s sustained growth, along with a range of reforms in fiscal institutions, labor, tax, energy, social security, the rule of law, eradication of monopolies, and competitiveness. Although this

Increasing fragmentation and slowdown, Mexico 161 initiative is noteworthy to show private sector’s promoting a consensus regarding the general trajectory of Mexico’s economic governance, and that it indicates business organizations evolving into effective watchdogs, the agendas happen to be too broad and without any strings attached; the commitment is mostly limited to rhetorical level, hence it is relatively easy to get the consent of many. According to an interviewee: ‘The agendas are too broad that it is impossible not to agree, they are “show cases” for individual businessmen and organizations, too loose of a contract.’6An important weakness of these collective efforts of the peak organization is that the agendas do not involve specific proposals and steps as to the proceedings for the policy changes, specific analyzes of cost of changes, nor the type of coordination they require between the state and businesses. As symbolic and broad as these agendas might be, they indicate a certain level of consensus in fragmented organizational space, particularly when compared with Turkey where such a sharing of a general agenda across polarized organizations can only take place at times of severe economic crises. Polarization also exists in Mexico, but it is more delineated by interest-based cleavages. Although a religious-identity-based cleavage previously existed (epitomized in the historical alliance between PAN and COPARMEX, see Chapter 4), it has largely subsided. Now, the main cleavages are between highly concentrated interests in business vs. the rest, financial vs. industrial interests, and multinationalized vs. purely domestic businesses. In the second phase of transitions in Mexico, the capacity of the state and business to negotiate through pacts (or other forms) diminished considerably, despite the fact that ‘the culture of signing pacts’ is still intact (albeit with limited effectiveness). The CCE, as the peak organization, initiates collective agendas, trying to generate consensus across organizations and the government, but it lost its hegemony in doing so. In the 2000s, initiatives for such pacts also came from organizations other than the CCE. Flexible, broad or issue-based pacts have been signed among varying combinations of business organizations, and between those organizations and the state. After the formation of each government, several organizations initiate pacts, at times at the cost of fragmented efforts. For instance, at the beginning of the first government of PAN, COPARMEX, CONCANACO and the National Council of the Maquiladora Export Industry signed an Agreement for National Development following the Political Agreement with the Federal Executive on National Development, signed by all major political parties. Right after the 2012 elections, a similar initiative emerged by several organizations’ simultaneous lead, mostly called ‘private initiative,’ and based on claims for broad representation of the private sector. In July 2012, a ‘private initiative’ was launched by CONCAMIN and Concanaco-Servytur, representing industrial and commercial interests respectively, to set a common national agenda. These two organizations organized meetings with the team of the Peña Nieto government, which formed in December 2012. The initiative included proposals on industrial policy and enhancing security, and reforms in a broad range of areas including energy, labor law,

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budget, education, heath, employment, housing, and credit facilities for SMEs. The president of CONCAMIN, Francisco Javier Funtanet, emphasized the need for such an initiative, with collective action across private-sector organizations, so that unilateral acts of the government would be prevented. He said this would help ensure that the ‘Calderón government’s undertakings which were done without consultation with the private sector would not be repeated,’ underscoring that their power stemmed from the representation of ‘300 chambers . . . and more than three millions of firms in Mexico,’ which the government has the obligation to consult with.7 Organizations often carry out issue framing across many issue areas, thus it becomes likely to witness lobbying about industrial policy by commercial interests. With vested interests in industrial policy, CANACINTRA and CONCAMIN—whose presidents often underscored the absence of a long-term strategy in that regard—allied with several organizations, including CCE and CONANACO, to further this objective.8 Thus, promotion of common goals to impact on public policy has become a prevalent practice in Mexico, and organizations often make references to the models promoted by international organizations—like the ‘best practices’ of the OECD—to endorse their policy preferences. Along these lines, multifarious interactions prevail between organizations representing different interests, such as regularized meetings in some issue areas between the organizations, including those between CANACINTRA (mostly representing SMEs), COPARMEX, and CCE (dominated by big business), that used to diverge considerably regarding respective preferences towards public policy and other issues.9 Some campaigns are led by CANACINTRA, some others by CONCAMIN, and organizations exchange experts’ views, data, and agendas, since all major organizations point out similar issues such as competitiveness, efficiency, red tape, tax reform, and social security reform.10 Such widespread interaction and cooperation are rare in Turkey’s polarized landscape where business organizations are entrenched in two poles, think tanks and NGOs are aligned accordingly. Shooting for scattered dots by many In the new era, businesses endeavor to generate collective action within sectors and specific issue areas using instruments of lobbying at multiple levels. As the president of a chamber put it: In the past, the CEO of a prominent company would call the Minister of Treasury or even the President to let them know about his industry’s concerns and demands. Now the same CEO should work hard to reach many deputies at the Congress, and do this at both federal and municipal levels, also form alliances with NGOs, think tanks, along with other business organizations and lobbying firms that support the same cause.11 As the pacts—legacies of the former era—have been mostly replaced by issuebased lobbying carried out by a wide array of actors, and the compulsory

Increasing fragmentation and slowdown, Mexico 163 membership in the chambers—and hence confederations—was abolished, the demarcation between the corporatist and pluralist organizations has weakened. Semi-public organizations increasingly embody multifaceted functions including those of lobbying and consultancy firms. They dedicate resources to develop expertise in legislative and judicial processes and technical matters. In the current milieu of state–business interactions, the power of the ‘experts’ and technical expertise mostly replaced that of encompassing organizations (Luna 2010). Data and information are deemed untouchable and detached from political calculations, while experts have taken on a role of ‘informing to influence.’12 Based on a self-identification with ‘neutrality’ brought about by technical knowledge, these experts and their undertakings—at lobbying firms, think tanks, semi-public organizations, or associations—have been entrenched against the ‘politicized’ access of the former institutional and organizational setting. Changing regime and the re-invention of organizational identities: transformation of semi-public organizations Corporatist institutions and organizations in Mexico have gone through a substantial transformation in the last two decades. In fact, long before the changes in the Chambers Law in 1996, a new form of corporatism was on the rise as the role of business had become much more significant regarding the tripartite pacts and other consultative platforms, and this new model was coined as ‘two-party corporatism,’ ‘business corporatism,’ or ‘liberal corporatism’ (Luna 1987, 1992a). A significant impulse for such changes stemmed from part of the business community. For decades, leading pluralist business organizations fought against corporatism, which they perceived as a comprehensive instrument of the invincible Mexican state. According to this view, the said instrument entailed not only the control and co-optation of societal interests, but also widespread interventionism, authoritarianism, presidentialism, and domination. It was understood as dictatorship of the PRI, and at times secularism, simply containing most, if not all, elements of the Mexican political regime.13 Some pluralist business organizations, such as COPARMEX and CCE, lobbied against corporatism, which they perceived as state co-optation not only of business but also of labor, entailing a ‘threatening alliance’ between labor and the state (see Chapter 4). Compulsory membership in chambers and confederations was eventually abolished in 1996, accelerating the process of the dismantling of corporatism. Although the law did not abolish the legal status of the chambers and confederations as the ‘organs of consultation,’ both the incorporation of these organizations to policy-making platforms and its effectiveness have relatively diminished. Prior to such de jure institutional change, the de facto power of organizations like CONCAMIN and CANACINTRA had started to weaken since the 1980s. The increasing power of pluralist organizations over the semi-public organizations throughout the market transitions, exemplified by the PSE and COECE processes, had already endangered their protagonist presence as the exclusive organs of representation and consultation (Luna 2004). Such gradual weakening

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and sidestepping was intensified by the ‘dismantling of the industrial policy and the absence of any long-term perspectives to establish a new one,’ a major concern for both CONCAMIN and CANACINTRA.14 These changes are crucial to understanding the power struggle across pluralist and corporatist organizations, and the struggle ended up with the ‘victory’ of the former which used the crises as junctures to challenge the institutional arrangements relying on distinct alliances. Division in the congress in 1997 constituted another drastic change for chambers and confederations, as access to the executive lost its previous importance. Nevertheless, these new arrangements did not entirely bring the old corporatist organizations to an end, but clearly caused these organizations to lose some of their former power and capacity. Currently, shades of corporatism and pluralism coexist in both the organizational milieu and the process of interest mediation in Mexico. Offering ‘statistics and analysis’ vs. politics As a survival strategy, many corporatist organizations have re-invented themselves, adopting flexible forms to represent business and become service providers, lobbyists, and consultancy firms at the same time. Providing information and statistics—underlined as ‘the most important assets in the age of information’— along with a broad array of services framed as ‘enhancing capacity’ of their members is one of the mediums by which organizations like CANACINTRA and CONCAMIN keep most of their membership and even increase their revenues, operating like corporate entities. Access to the decision-makers has become a valuable ‘commodity’ in this new era. According to their officials, the membership in the organizations provides access, thus the members are willing to pay for it. These organizations began to carry out lobbying at different levels—legislature, judiciary, and executive—while training their members regarding the ways in which lobbying is and ought to be done. CONCAMIN has increasingly pronounced that successful strategies of business lobbying include ‘using precise data and clear and understandable information’ about the sector and the issue, and to frame it ‘using the language of the legislature’ such as ‘employment, investment, closing of businesses, impact on community, and their repercussions.’15 According to consultants of CONCAMIN, organizations like CONCAMIN became the ultimate lobbyists in the new era, ‘providing precious data to one party, and strategies for the other.’16 CANACINTRA officials assert that ‘chambers have become pragmatic in order to survive, and now they play by the rules of the new game to regain their power.’17 These strategies helped these organizations maintain their membership following the initial drop after the abolition of compulsory membership. Especially in organizations like CANACINTRA, the membership profile shifted so that the weight of the SMEs dwindled slightly. Currently, membership dues accrued by the chambers have been replaced by registration fees to the Information System of Mexican Business, to which all

Increasing fragmentation and slowdown, Mexico 165 businesses have to register. Hence, an indirect taxing mechanism has been created. Both organizations have created new revenues since the 1990s. Despite their diminished membership, most chambers and confederations have come to terms with the need for ‘creating new value added based on creativity;’ these organizations began to be run as corporate entities selling access, data, and strategy. They started organizing special events where high-level government officials are invited, thus they facilitated a near-monopolistic channel of communication. In return, those who wanted to take part in these meetings to defend their business interests were willing to pay the entrance fees.18 According to the officials of CANACINTRA, revenues have been increased by renting out property that CANACINTRA owns, parking facilities, and declining expenses by means of decreasing its number of staff members almost by a half. Lobbying: shift from ‘focalized contact’ to going after ‘scattered dots’ A striking development regarding business’s interest mediation in Mexico is the emergence of lobbying firms, mostly inspired by their counterparts in the US. Coinciding with the division in the congress, expansion of trade and investment transactions with the US through the NAFTA agreement and the resultant flourishing of transnational networks contributed to the emergence of an AngloSaxon style of lobbying in Mexico. This is in stark contrast to the prevalent process in Turkey vis-à-vis the influence of the EU-integration process, which helped strengthen corporatist organizations along with the all-encompassing pluralist ones (see Chapter 6). Lobbying firms facilitate business’s access to the decision-makers, they frame issues raised by businesses to be presented to the congress members, while they also ‘sell ideas’ to businesses. These self-identified ‘political operators’ turn the demands of the clients into ‘concrete and convincing arguments with distinct economic, political and social implications, through packaging those demands into an acceptable political jargon.’19a They, then, facilitate communication between clients and the congress by means of their knowledge of both worlds, along with the technical expertise. We’re political operators. You give me the argument, I’ll give you the knowledge of who is going to take the decision . . . which actors would be involved in the decision-making. Public and private sector speak different languages, we translate it.19b A number of former public officials, politicians, bureaucrats, ambassadors, and advisors got into the ranks of lobbyists after 1997. Some of the very first lobbying firms were founded by former politicians. Some politicians from the ranks of PRI and PAN, who had foreseen the changing institutional setting before the division in the congress, started lobbying businesses as early as 1996. Rapid expansion of lobbying activity helped empower a wide array of actors. For instance, congress people have taken on a new role as they

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constituted a new veto power, thus became targets of lobbying. And in bureaucratic ranks, general directors, undersecretaries etc. have been empowered as they became major actors compared with their inferior role in the previous system, where the ministers gathered concentrated power, thus accessing them would suffice. The impact of the US-based lobbying firms and MNCs played an important role in the emergence of lobbying activity in Mexico. A former ambassador of the US, Jim Jones, also became a lobbyist in Mexico and helped hiring by the new lobbying firms. In addition to such a direct impact, a learning process through interactions with the US has been important. Founders and employees of the lobbying firms, along with the newly hired personnel of the legislative departments of business organizations and corporations, have been mostly trained in the US, specifically in the issues of political communication and negotiation. Some universities in Mexico, like the Technical University of Monterrey, offered specialized training for lobbying. Regulation of lobbying Lobbying was mostly self-regulated until 2010, based on the Norms of Conduct—ethical codes in line with international standards—set by the Association of Lobbyists (PROCAB). In 2010, congress incorporated Chapter III to the Regulation of the Congress, called ‘Of lobbying activities.’ In 2012, some new amendments were added to these regulations, especially on the registration of the lobbyists as well as their activities. Although it was left ambiguous as to how to register, the amendment granted the Board of the House the authority of registration, putting together a database of the lobbyists and publishing it in the Official Gazette, together with the website of the congress. The same amendment limited the number of lobbyists to 20 per committee, without specifying the sanctions otherwise, and set the rule of reporting by the committees to the Board about all lobbying activities including the documents, projects, and minutes. Among the 254 lobbyists registered in 2012, lobbying firms are only one category; others include CCE, the peak organization, chambers, NGOs, and individual companies that have their own lobbying departments. The new regulation put in distinct clauses to maintain transparency in lobbying activities (including the publication of the documents used in the lobbying process on the website of the congress) and to prevent ‘harassment’ of the deputies by the lobbyists. A major concern of the lobbyists about these recent regulations has been that they could encourage illegal lobbying, and that the regulations are framed so loosely that they leave a large space for individual discretion, particularly at the level of the Board of the Congress. The most frequently applied commissions in 2012 were the Commission of Finance (321), Commission of Economic Affairs (281), and Budgetary Affairs (254). Lobbyists in Mexico generally work with diverse clientele, active in many sectors including energy, cosmetics, consumer products, railroads, maquiladora, and pharmaceuticals. They facilitate access to the decision-makers and provide

Increasing fragmentation and slowdown, Mexico 167 ‘information,’ often underlined as ‘the most precious tool in today’s world.’20 Interestingly enough, some of the lobbyist firms also provide services for the chambers, thus semi-public organizations have become the clients of the lobbyists and do their own lobbying accordingly. International organizations and NGOs are also included in the clientele of the lobbying firms. Another layer to lobbying is the formation of designated departments for lobbying in big firms, domestic and international alike. In some instances, pluralistic business organizations become clients of lobbying firms, or they bandwagon with those firms in particular issue areas, led by distinct chambers or associations. Besides the prevalence of lobbying firms that cater to a range of clients but mostly big firms, clusters of big firms in a given sector have been formed to generate collective strategies and influence the decision-making process. Some of these new entities operate like lobbying firms and are often managed by people who previously held high-level public sector positions, endowing the organizations with significant know how regarding procedures and personal contacts. In an attempt to gain pseudo-autonomy, these organizations facilitate collective action across members, undertake self-regulation over member companies, and monitor compliance, besides representing the industry before the executive, legislative, and judicial processes, informing its clients about competing views in congress.21 Lobbying continues after Congress, particularly at the stage of consultancy mechanism hosted by the Federal Commission of Regulatory Improvement (COFEMER), which, by law, has to incorporate the opinions of stakeholders. COFEMER uses an internet-based platform to gather opinions that are responded to, with justifications. Although the COFEMER process works and is used effectively, the fact that it is not legally binding undermines its effectiveness. Besides this essential institutional weakness, a major concern of the business sector is that whenever there is an issue relating to public and private companies, COFEMER usually makes a decision in favor of the former.22 New spheres of influence in Mexico: think tanks, NGOS, and consultancy firms The emergence and expansion of new actors of interest mediation includes a new set of actors including the think thanks, NGOs, and consultancy firms endorsed by various business firms and organizations, as well as international and transnational organizations (Luna 2010). The Mexican Institute for Competitiveness (IMCO) is one of the prominent think tanks, exemplifying the emergence of new spheres of influence on economic policies, besides other realms. Partially funded by the Mexican Council of Businessmen (CMHN), representing the largest interests in Mexico, the IMCO initiates or aligns with pressure groups for a broad range of issues like macroeconomic stability, good governance, and rule of law, all framed in the context of increasing Mexico’s competitiveness. Carrying out research into the subject matter, IMCO aims to influence public opinion as well as the actual making of the policies, and it

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gets engaged in actual lobbying of the legislature, the judiciary, and the executive, just like the lobbying firms. The Mexican Council on Foreign Relations (COMEXI) is another important actor articulated to the new spheres of influence in the new era. Instituted as a non-profit organization and inspired by the US’s Council of Foreign Affairs, COMEXI brings together experts on international affairs, diplomats, former diplomats, experts, and representatives of big companies and aims to contribute to the repositioning of Mexico in international affairs, and of its market in the global economy. Working like an exclusive club where membership requires invitation and a large amount of fees, the organization undertakes closed-door meetings where prominent speakers are invited, including the presidents and prime ministers of different countries, along with the experts. It generates alliances between different organizations to influence the policy-making process. Consultancy firms are other additions to the diversified milieu and many of them were established during the NAFTA process, mostly initiated by the former bureaucrats and politicians who previously held key positions at SECOFI, the Treasury, or the Central Bank, or who worked as consultants to the reforming governments. The central claim of these new entities is their distance from politics, which is presented as an asset, as they assert to provide ‘actual data’ and analysis beyond ‘vague and manipulated politics.’23 Many of these organizations, old and new alike, have evolved into watchdogs in Mexico’s protracted democratic transition, monitoring elections and scrutinizing party programs and candidates, and this new role has provided them with enhanced legitimacy.

Diminishing state cohesiveness The end of the hegemonic one-party-dominant regime in Mexico engendered a wide array of changes in the state apparatus, as the 70-year-long know how of the PRI was replaced by PAN’s inexperienced cadres whose tenure began in the context of a divided congress. In this process of transition from PRI to PAN, state cohesiveness diminished considerably, endangering the state’s capacity to facilitate coordination across agencies and with non-state actors. The increasing fragmentation and decreasing cohesiveness of both business and the state have mirrored one another. Dismantling of the PRI regime in 2000 caused a major shuffling within bureaucracy at the level of both the agencies and individuals, jeopardizing the know how and continuity at many levels. Drifting and layering became common practices during the PAN governments (2000–2012). New agencies were established with overlapping authority constellations, and at times adopting considerably different perspectives, giving rise to widespread layering. Drifting occurred, as some of the old mechanisms and institutions have become obsolete because of the changing conditions brought about by institutional transformation, most importantly the division of congress and the decline of corporatism. An important fault line of the PAN governments, as most of the interviewees pointed out, was the ‘shuffling of the bureaucratic cadres in economic

Increasing fragmentation and slowdown, Mexico 169 bureaucracy based on a partisan move, appointment of new cadre who did not know how to walk around Mexican bureaucracy.’24 The changing of cadres by the PAN governments created a number of coordination failures. The new bureaucrats—some of them coming from the ranks of businesses with overt allegiances to PAN—did not have bureaucratic experience before, as opposed to the ‘know how’ of the previous cadres who were ‘nearly ingrained in the regime’ and ‘knew the subtleties of it as they knew one another.’ The fragmentation and use of partisan appointments intensified during the Calderón government (2006–2012), widely referred to as the ‘Cabinet of Friends.’25 A similar process of partisan appointments also took place in Turkey, but mostly in the second and third AKP governments, particularly for the elite economic bureaucracy. Thus AKP used the know how of the established bureaucracy relatively longer than PAN did. In Mexico, continuity within bureaucracy, which had marked the PRI regime, has been dismantled, despite the fact that the ideological underpinnings of economic policy-making had already converged between the two political parties. It is yet to be seen what kind of a shuffling the Peña Nieto PRI government will undertake. In the first phase of market transitions, SECOFI’s leadership was crucial in facilitating coordination within the state and between the state and business. In the second phase, SECOFI has turned into the Ministry of Economy and it now lacks such a leadership role. In the 2000s, many different agencies have come into existence, generally suffering from overlapping authority constellations that generate inter-agency rivalry within the state, similar to the Turkish polity in the 1990s. Coupled with the fragmentation in business, fragmentation within the state made coordination between the state and business a difficult task, similar to that in Turkey in the first phase of transitions.

Ad hoc coordination in the second phase of the transitions: lobbying vs. concertation Throughout Mexico’s second phase of transitions, a divided legislature, the dismantling of corporatism, and the increasing incorporation of transnational actors transformed the ways in which business actors access the state, where lobbying began to substitute former large-scale, economy-wide concertations. Besides Mexico’s domestic institutional changes, transnational and international actors and dynamics, such as the US and MNCs, played a major role in this process. Hence, some of the key institutional arrangements of the ‘post-revolutionary social pact’ have been replaced by new rules, norms, and forms of interaction between the state and business actors. In this context, most of the former consultative mechanisms collapsed (at least de facto) and were replaced by narrowfocused, specialized issue-based lobbying. The COECE, PSE, and PECE largely drifted because the ground on which they were installed has been transformed. Important preferential trade agreements were signed, thus the trade regime has already changed, the stabilization has been more or less settled, and the executive power that steered most of the previous coordination platforms dwindled.

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Nonetheless, pacts still persist, albeit in new forms. The way the pacts were previously established and operated has become mostly obsolete, and they have been mostly replaced by specialized, sector- and issue-based lobbying. Capacity to negotiate sector-wide or across-sectors pacts declined because of the changing constellation of actors on both sides. Increasing internationalization, democratization, and political competition largely undermined the corporatist instruments (Luna 2004: 349). Most of the new pacts have limited effectiveness, yet they still serve as sources of legitimacy. According to an official of CANACINTRA, ‘pacts have become outlets of showing off for media coverage, they are good for handsome photography of handshaking between the government and the organizations.’26 All-encompassing organizations interacting with the executive at the national level have mostly disappeared, and those that remained intact lost their former effectiveness. In the new era, macro agreements at the national or sectoral level can hardly proceed because of the diversification of actors and intensified fragmentation inside the organizations in terms of varying perspectives. In the absence of clear rules of negotiation and consultation, personalistic networks prevail, resulting in privileged access. Although even the Peña Nieto government that came to power in 2012 still refer to pacts, the new meaning of these ambiguously defined pacts mostly connote the aspirations of the state actors for being backed up by a broad consensus in order to enhance legitimacy. One of the major initiatives of pacts in the 2000s was the establishment of the Council for Dialog for the Productive Sectors (2001), followed by the Agreement for Competitiveness, Employment and Social Justice (2004). Established during the Fox government (2000–2006) to address major issues such as fiscal and labor reform, among others, these pacts show both the willingness to use old instruments to attain social consensus, and the failure of attaining consensus and coordination.27 The council ceased to generate agreement in some critical issues, but some noteworthy changes in the fiscal code and consolidation of fiscal institutions were maintained. Like the former pacts, the procedural rules were fairly clear and routine: the council gathered every first Monday of the month with the participation of all major private sector organizations and the peak labor organizations. Intra-organizational rivalry between CCE, COPARMEX, and CONCAMIN, especially about the labor reforms, contributed to the stalling of the process. Some of these actors, such as COPARMEX and CONCANACO, fought with one another for recognition and leadership of certain issues. Interviewees suggest that the council was too broad in terms of both the participation of diverse actors and the designated agendas. The council was subject to conversion and lost effectiveness during the Calderón governments, although it still existed on paper. Meetings first diminished in numbers, and in the last few years of the Calderón administration they were not held at all. Another initiative was the Economic and Social Council of the State, which was initiated by the Senate based on the inspiration of the Economic and Social Councils in Europe, which provided inspiration for Turkey as well. The Mexican Congress did not ratify the Senate’s proposal. The design of the Council was largely interpreted by the potential participants as too vague and too inclusive to be effective. Interestingly, most interviewees are not even aware of the attempts

Increasing fragmentation and slowdown, Mexico 171 to establish such a council, and those who are aware assert that Mexico does not need such big platforms anymore.28 Exclusionary coordination in international trade COECE, which had facilitated coordination within the private sector and between the private sector and the government during the NAFTA negotiations, mostly faded in the 2000s after ‘having completed its mission,’ since the trade negotiations with NAFTA and the EU were complete. Following the end of COECE, several organizations came into existence to take part in international trade-related matters, mostly representing special concentrated interests, domestic and transnational alike. Initiated by CCE, the peak organization, the COECE had—at least on paper—the goal of representing the whole business community, notwithstanding the de facto domination of the big interests. New organizations generally lack such objectives of inclusiveness. One of the new organizations has been COMCE (Mexican Business Council for Foreign Trade, Investment and Technology) founded by the merger of CEMAI (Mexican Business Council for Foreign Affairs)—which played a major role in marketing the idea of a free-trade agreement as well as in the NAFTA negotiations—and CONACEX (National Council of Foreign Trade) in 1999. Working through bilateral business committees and regional delegations, COMCE engage in transnational contacts with similar business organizations of different countries— Mexico’s trade and investment partners. It aims to enable both potential Mexican exporters and potential foreign investors in the Mexican market and has built such contacts with Turkish business organizations as well. COMCE’s reach within the Mexican business community is rather limited because of the domination of special and extremely concentrated interests. Moreover, some of those big firms shifted their positions, as they opposed further liberalization of the trade regime in some issue areas. Paradoxically, the organization that was established to promote free trade began to oppose some trade agreements, such as the one with Brazil initiated in 2010 but stalled in 2012. Special interests began to monopolize trade agreements in distinct sectors, including petrochemicals and steel among others. COMCE is deemed ‘ineffective’ by 85 percent of the interviewees, some of whom claim that ‘it is entirely taken hostage by the interests of a few conglomerates’ as it has long become ‘the toy of Valentín Diez,’ hence Grupo Modelo, the giant conglomerate.29 Many businesses are concerned that big interests not only control their respective sectors by their extensive shares but also monopolize the ‘free trade’ agreements through the organizations and lobbies they lead, despite the fact that promoting internationalization of SMEs is one of the key objectives of the organization.30 Privatization of development planning and articulation of ‘professionals of development’ An interesting recent development in Mexico has been the emergence of private forums specialized in development-related issues, exemplifying the

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pseudo-substitution of the state’s lead in generating collective action and planning for major developmental goals, including sustainable development, energy, diminishing inequalities, etc. The Mexican Council of Economic and Social Development (COMDES) is one of several private forums, which focus on bettering the public policies and decision-making processes through ‘reliable analysis and investigation.’31 Established in 2005 by the endorsement of various businesses—specifically COPARMEX—COMDES aims to promote a common vision for development and facilitate cooperation, emphasizing the importance of coordinated action between the public sector, private sector, and the civil society in designing and implementing strategies. The organization is involved in a broad range of issues including increasing productivity, alleviating poverty, fighting against corruption, promoting employment creation, financing, sustainable energy and the environment, rule of law and security, democracy, and international relations. Signifying the diversification of actors and their links, COMDES works closely with the public and private sector’s international organizations—including the OECD, World Bank, UNDP and the others—civil society, and universities. It established the National Center for Economic Development (CNDE) in collaboration with the United States-Mexico Business Council, aiming to strengthen the capacities of ‘professionals’ of economic development to improve coordination at different levels of the government. The Chapultepec Agreement is another private initiative aiming to develop a common vision for development and coordinated strategies for specific problems of the Mexican economy. The Agreement was initiated in 2005 by Carlos Slim Helú, tycoon of telecommunications. It proposes a non-partisan development program ‘without ideological questions involved’ to create another ‘Mexican miracle’ for the new century. After presenting the agreement to business representatives, delegates of the civil society, and state officials, Slim emphasized that the agreement would not be limited to a discursive statement, and it was necessary to take ‘actions with clear results.’ Underlining that ‘two of the five candidates for the 2006 elections [Roberto Madrazo and Felipe Calderón] consented with the agreement,’ Slim proposed (at least rhetorically) sustained growth coupled with stability and distribution.32 Slim’s initiative to generate consensus failed to be effective as it did not have any clear design in terms of agenda, participants, and instruments, and was limited to a list of objectives in the context of the Mexican economy’s development and resolving major issues. Most interviewees refer to it as ‘wishful thinking,’ and ‘rhetorical showing-off ’ by Slim. Despite its general weakness, the Chapultepec Agreement is noteworthy in the sense that a private initiative by one single individual’s lead entailed state-like goals.

Conclusion In Mexico, business–state interactions, along with the actors themselves, have transformed substantially since the second half of the 1990s, mainly brought about by two institutional changes: the division of congress and the weakening of

Increasing fragmentation and slowdown, Mexico 173 corporatism, of which abolition of compulsory membership in chambers played a crucial role. The changing context has given rise to drifting of former institutional arrangements, particularly overarching cross-sectoral pacts. Moreover, coordinationinducing institutions have been subject to conversion, drifting, and layering. This chapter examined the processes in which such major changes have taken place, emphasizing the diminishing capacities of increasingly fragmented actors. A major diversification process has emerged and pluralism has expanded, while both the business community and the state have become increasingly fragmented. Severe threats through economic and political crises, which had previously helped increase cohesiveness, have lessened in the second phase of transitions, particularly after the recovery from the 1994–1995 peso crisis. In the new era, new actors emerged and old actors’ behaviors have been transformed through changing incentive structures. Specialized sectoral organizations, lobbying firms, and designated legislative commissions of business organizations (corporatist and pluralist alike) have become interlocutors with the legislature (at both federal and local levels), the executive, and the judiciary, as well as the independent agencies at different stages of the making of primary and secondary legislation. These new actors began to juxtapose and replace the oncepowerful confederations and/or all-encompassing pluralist organizations, which have also taken on new identities through redefinition of their roles and new ways of interacting with the state as well as their members. Think tanks and consultancy firms have evolved into important actors in the new scene, situating themselves within the ranks of the flourishing civil society. In the context of these changes, former pacts have been mostly replaced by specialized, issue-based platforms and lobbying. Although the Peña Nieto government that came to power in 2012 still refers to pacts, the new meaning of ‘pact’ mostly connotes the aspirations of the state actors for a broad consensus in order to enhance legitimacy. Despite all these changes, the alliance between the state and big businesses has been more or less sustained, despite the regime change as well as changes in corporatist arrangements. While Turkish crises opened up new spaces for reshuffling of power balances, Mexican crises perpetuated existing balances that had been established between the state and big businesses in the first phase of market transitions.

Notes 1 Interview with a lobbying firm, August 27, 2012, Mexico City. 2 Interviews with lobbying firms and president of chambers, September 4–5, 2012, Mexico City. 3 Ibid. 4 ‘CCE y candidatos pactan agenda para el desarrollo,’ available at http://eleconomista. com.mx/industrias/2012/05/07/cce-candidatos-pactan-agenda-desarrollo (date of access: August 14, 2012). 5 ‘Agenda por Mexico’, CCE, October 2012, available at http://cce.org.mx/sites/default/ files/Agenda%20por%20M%C3%A9xico/Agenda_por__M%C3%A9xico.pdf (date of access: November 3, 2012).

174 6 7 8 9 10 11 12 13 14 15 16 17 18 19a 19b 20 21 22 23 24 25 26 27 28 29 30 31 32

Increasing fragmentation and slowdown, Mexico Interview with officials from CANACINTRA, CONCAMIN, and lobbying firms, August 21–September 5, 2012, Mexico City. El Economista, July 17, 2012. Interview with ex-presidents and officials of CONCAMIN and CANACINTRA, August 28–29, 2012, Mexico City. Interviews with CANACINTRA officials, August 28, 2012, Mexico City. For instance, CONCAMIN’s periodical Industria often placed articles written by experts from CEESP, affiliated with the CCE. See Rodarte E., Mario, ‘Costos de Iniciar un Negocio en Mexico,’ Industria, March 2004, pp. 12–15. Interview with the president of a chamber, August 29, 2012, Mexico City. Interviews with lobbying firms, September 4–5, 2012, Mexico City. Interviews with officials of CCE and CONCAMIN, 15–17 August 2012, Mexico City. Interviews with a former president of CONCAMIN. September 4, 2012, Mexico City. Barrios, Gerardo, 2004, ‘Cabildeo Efectivo de Los Organismos Empresariales,’ Politica Industrial, March, p. 11. Interview with a lobbying firm, August 29, 2012, Mexico City. Interview with CANACINTRA officials, September 4, 2012, Mexico City. For instance, CONCAMIN charged US$200–300 per event in the 2000s. Interview with a lobbying firm, September 2, 2012, Mexico City. Interview with a lobbying firm, 29 August 2012, Mexico City. Interviews with lobbying firms, August 29 and September 4, 2012, Mexico City. ConMexico which aggregates 45 leading firms in food and beverages, tobacco, personal care, and textiles, is an example of such recent organizations. Interviews with officials from CCE and CONCAMIN, August 15–16, 2012, Mexico City. Interviews with lobbying firms and chambers, August 28–29 and September 4–5, 2012, Mexico City. See also Luna (2004). Interviews with businesspeople, August 19–23, 2012, Mexico City. Ibid. Interview with a CANACINTRA official, September 3, 2012, Mexico City. www.stps.gob.mx/bp/secciones/conoce/marco_juridico/archivos/presiden24V01.pdf (date of access: August 4, 2012). Interviews with officials of CONCAMIN, CCE and lobbyists, August 26–29 and September 3–5, 2012, Mexico City. Interviews with officials of CONCAMIN, CANACINTRA and lobbyists, August 19 and 29, and September 3–5, 2012, Mexico City. www.comce.org.mx/contenido1.php?id_contenido=1&con=contenidos (date of access: September 3, 2013). www.consejomexicano.org.mx/el-consejo/acerca-del-consejo ‘Slim: reto del Pacto de Chapultepec, otro “milagro mexicano”,’ La Jornada, February 21, 2006, available at www.jornada.unam.mx/2006/02/21/index.php?section=ec onomia&article=030n1eco.

8

Market transitions and state–business alliances in selected MENA countries

Introduction Many countries in the MENA region share a common history of state-led development that was considered the central path to industrialization, accompanied by shades of economic nationalism and anti-imperialism (Issawi 1982; Richards and Waterbury 2008). In a broad spectrum where the post-colonial regimes of Nasser’s Egypt launched a socialist path akin to Cárdenas’ Mexico in the 1930s, and Ben Ali Bourguiba’s Tunisia and King Hassan II’s Morocco took a predominantly capitalistic trajectory akin to Atatürk’s Turkey in the 1920s, these states used degrees of state interventionism coupled with shades of authoritarianism. The implementation of the ISI regime in most MENA countries concurred with the preponderance of economic nationalism in the post-colonial state-building process. Thus, the institutions were shaped at this very juncture, and representation of interests and the state’s interaction with societal groups were remolded accordingly. Where this juncture took on a capitalistic trajectory, like in Tunisia and Morocco, domestic businesses became close allies of the respective regimes, since they were considered vital to the building of national industry. Accordingly, they were provided with support schemes and generous subsidies in addition to high barriers to international trade. Turkish state-led development oriented towards the ISI had become a model for several countries, Tunisia being the most quintessential example in this regard. This generated a ‘replicated paradigm’ for several semi-authoritarian regimes with a strong grip on their economy (Richards and Waterbury 2008: 185–187). Still in a similar vein with the Turkish model, these states did not coordinate with beneficiaries in a systematic pattern, but mostly opted for ad hoc contact in a context where degrees of fragmentation prevailed at the level of both the state and business. Until the 1980s, ‘Arab socialism’ inspired by Nasser’s Egypt provided another model for many countries in MENA (Cammett 2007: 31). Although an interventionist state that dominated the markets as the producer and rule maker was a common pattern in almost all MENA countries, the way such interventionism was designed and executed displayed noteworthy variation across the region. The Egyptian model entailed the state marginalizing domestic businesses until the 1970s. The initial design in terms of interactions between public and private

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actors, the impact of these interactions on the representation of business interests, and the collective action engendered important legacies with respect to state–business relations. Despite the longevity of these legacies, new paths have come into existence in some countries, brought about by the ways in which domestic businesses have been integrated into global markets and the format by which market transitions have been steered by the respective states. Market transitions have taken on a belated character in the MENA region, where most countries adopted a stop-and-go pattern of reform-making and suffered from implementation failures, often criticized by international donors and organizations (Hakimian and Nugent 2005; Owen and Pamuk 1998; Sfakianis 2004; Waterbury 1998). Domestic institutions shaped by historical legacies proved to be difficult to be transformed, as interests entrenched in those allied with veto players within the state to resist the transitions. One of the stickiest legacies, which have been extremely difficult to alter, has been the way that entry to the markets was structured and it gave rise to giant firms and conglomerate structures, mostly based on family ownership. In spite of regulatory reforms implemented in the later phases of transitions, as in Mexico and Turkey, high levels of concentration persisted in many sectors. Competition policy has been instituted in many places, but a number of sectors are still dominated by monopolies or oligopolies, thus sustaining the entry barriers (Devlin 2010). The cases in this chapter disprove that political opening necessarily precedes economic opening (Acemoğlu and Robinson 2012). In Egypt, Morocco and Tunisia, the opening-up of the political institutions did neither precede nor accompany market openings to the extent that it occurred in Latin American emerging markets. A major dilemma emerges at this point: where economic institutions become more inclusive, as in Morocco (this also applies to the Turkish case, to a certain extent), regime stability is maintained without major demands for political opening. Still similarly, Morocco is one of the few MENA countries with a history of resilient business whose organizations have increasingly played important roles in policy formulation and implementation (Moore 2004: 3). Where institutions fail to broaden the base of beneficiaries, demands for regime change are more likely, as in the cases of Egypt and Tunisia, the pioneers of the Arab Spring. State–business relations are likely to be transformed through the institutional changes entailed by the Arab Spring, as well as by processes of transnationalization and globalization. Currently, there is an increasing interest in replicating the ‘Turkish model’ in both economic and political realms, notwithstanding the fact that the content of the model—particularly with respect to market transitions—is hardly delineated. This chapter will discuss state–business relations in selected MENA countries that have gone through similar transitions as in Mexico and Turkey in the last twothree decades. Drawing from Egypt, Morocco and Tunisia, which have implemented major market transitions after having followed state-led development strategies for several decades, the chapter explores state–business interactions in the context of these transitions, inquiring about coordination-inducing institutions and the degree of cohesion vs. fragmentation at the level of business and the state.

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State–business relations at the juncture of transitions in MENA In MENA countries, state-led development wrapped into nationalism of both capitalistic and socialistic varieties, espousing various shades of interventionism and authoritarianism, and necessitating business allies in their vociferous drive for industrialization. The outcome was an implicit pact between the state and business: the states distributed a wide range of resources to business actors, particularly industrialists, in return for acquiescence to highly repressive regimes governed by high levels of executive discretion. In most countries, these business actors became the accomplices of protracted development trajectories through their pursuit of short-term interests (Richards and Waterbury 2008). Seeking to generate developmental states, the state elites designed industrial policies most of which tended to fall into the category of ‘vertical’ policy, devising particular incentives and instruments. In countries like Morocco, similar to Turkey, there has been a partial transition from vertical to horizontal industrial policy-making, while in Egypt and Tunisia vertical design mostly stuck. In both countries, state elites picked and chose the particular businesses that would benefit from such privileged access to incentives, and the symbiosis between business and the state resulted in the co-optation of business interests and collective action problems. The liberalization process began in MENA earlier than in Turkey and Mexico. Egypt launched its partial liberalization, infitah (open door policy) in the mid1970s. However, the transition trajectory has become highly protracted with major backlashes in most countries, especially Egypt. The nature of state–business relations played an important role in generating such a zigzagging pattern. Akin to other emerging markets, market opening did not halt the selective intervention of the state in the market but intensified it, leading to the creation and distribution of selective incentives for businesses to adapt to the new era, and enabling the private actors’ integration into the global markets. They evolved from export and investment incentives in the 1980s and 1990s, to energy subsidies, tax exemptions, and subsidized interest rates for SMEs in the 2000s (Galal and El-Megharbel 2008: 11). The industrial policy implemented in Egypt has led to only limited diversification and limited improvement in total-factor productivity, although the policy recommendations stemmed from the effective use of industrial policy in East Asia. The poor design of these policies, without identifying the activities to be supported, their measurable outcomes, timeframes, and monitoring and sanctioning mechanisms, is considered as the main culprit behind poor results. The incentives were usually designed broadly and directed towards sectors, rather than specific activities. Based on lax frameworks, they generally lacked concrete measures for the production of high-value added new products. Hence, the states and the way they steered the process, sequence, design, and implementation of reforms mattered throughout the market transitions. As with their Turkish counterparts, big businesses in most MENA countries seemed to support transitions, but behind the curtains they lobbied for keeping

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the benefits they were used to, including protectionist trade policies, state subsidies, and favorable interest and exchange rate regimes, and most important of all highly concentrated markets from which they acquired monopolistic and oligopolistic rents. Thus, in most cases, domestic businesses failed to act as agents of change, due to prioritizing short-term profits in environments with degrees of uncertainty. The close ties between the state elites and business elites—often referred to as dynasties, tycoons, captains of industry, troika, or whales—have been sustained in most MENA countries, and this helped the resilience of repressive regimes for a long time. Only in countries like Morocco and Turkey have the benefits of market transitions, at least in some sectors, been distributed more broadly than in others. As a general phenomenon, pre-reform elites in the MENA countries have proved resilient since they have been able to sustain their power and privileges through their adjustment capabilities, which they mostly owe to reorganized incentives and opportunities for rent seeking (Nabli et al. 2008: 114). However, new elites also came into existence and began to reap such opportunities. Hence, in a few countries like Morocco, economic institutions have become relatively more inclusive over the course of transitions and global integration, whereas in countries like Egypt and Tunisia institutions more or less sustained their exclusionary nature, restricting free entry to the markets and easy access to the policy-making processes. In Egypt and Tunisia, as in Mexico, the benefits of the openings have been mostly allocated to big businesses, intensifying the contestation of privileges by the rest of the business community (Gümüşçü 2010; Sfakianis 2004). Except for a few countries like Morocco and Turkey, most MENA countries had weak business elements at the juncture of transition from the state-led, ISIoriented development trajectory to market transitions, launched between the 1970s and 1990s (Waterbury 1998: 162). Fragmentation of both the state and businesses was also a common trait, which endowed coordination with an oscillating character. Like Turkey, some cases—like Morocco—achieved partial cohesion over the course of market transitions. Despite the commonly used rhetoric of ‘economic democratization,’ state-led development created highly concentrated markets where a few select businesspeople reaped most of the benefits, and this pattern has mostly echoed further throughout market transitions. Respective states have kept close contact with narrow groups of businesses, mostly based on informal networks, and this helped further concentration and limit access (Heydeman 2004). In countries like Morocco, akin to Turkey, this pattern has been partially broken as new players came onto the stage. Driven by a shared sense of ‘perceived marginalization’ during the state-led development era, new Moroccan entrepreneurs united against the narrow coalitions of big businesses and state officials. Echoing the flourishing Islamist business organizations in Turkey, mostly representing SMEs, such shared identity contributed to increasing cohesion, facilitating aggressive mobilization (Cammett 2007: 149, 168). The levels of economic development (in GDP per capita terms) in these MENA countries have been considerably lower than those of Mexico and Turkey. In nominal terms, it is US$4,237, US$2,902 and US$2,628 for

Transitions and alliances in North Africa 179 Tunisia, Morocco, and Egypt respectively (2012 figures). In real terms, in half-a-century between 1962 and 2012, Egypt’s GDP per capita increased from US$342 to US$1,560, Morocco’s from US$797 to US$2,516, and Tunisia’s from US$859 to US$3,783. In comparison, Turkish GDP per capita increased from US$2,387 to US$8,493, and Mexico’s rose from US$3,416 to US$8,545 (all based in constant 2005 US$, World Bank 2013a). Figure 8.1 shows the growth of GDP per capita in these three MENA countries, along with Mexico and Turkey. Like Turkey but unlike oil-rich Mexico, growing current account deficits posed serious problems in a number of MENA countries as well, particularly in the 2000s, making these markets highly vulnerable to external shocks. In Morocco, for instance, the CAD/GDP rose from –1.3 percent in 2000 to nearly 8 percent in 2012 (compared with from –3.8 percent to 7.9 percent in Tunisia; –1.2 percent to 3.4 percent in Egypt; and –3.7 percent to 7.5 percent in Turkey) (IMF 2012). Figure 8.2 illustrates this trend of increasing vulnerability, since the deficit is usually covered by short-term capital flows. Despite the ‘dilatory’ nature and zigzagging quality of market reforms in general, these countries have had much higher levels of openness to international trade in the last half-a-century—compared to Turkey and Mexico. The ratio of openness rose from 46 percent to 76 percent in Morocco from 1960 to 2010, and from 33 percent to 105 percent in Tunisia. Despite the fact that trade liberalization was launched in the 1970s in Egypt, its change was relatively modest (from 40 percent to 47 percent).1 In Turkey, these ratios were 6 percent and 48 percent, 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 Mexico Turkey

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Figure 8.1 GDP per capita (Constant 2005 US$), 1960–2012, Egypt, Morocco, Tunisia, Turkey, and Mexico (current US$) (source: World Bank 2013a).

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Figure 8.2 Current account deficit/GDP (%), Egypt, Morocco, Tunisia, and Turkey (source: IMF World Economic Outlook, 2012).

and in Mexico 20 percent and 62 percent (oil included). Unlike in Turkey and Mexico, the composition of exports has not changed drastically in these countries. Tunisia has performed relatively better in manufacturing exports starting from the 1990s, and Morocco did considerably progress in the 2000s (Ghali and Mohnen 2005). Regional integration initiatives, one of them being the Arab Maghreb Union (consisting of Algeria, Libya, Mauritania, Morocco, and Tunisia, signed in 1989), did not bring about the anticipated expansion in intraregion trade, and, despite these countries taking part in these initiatives, trade reforms have mostly remained limited (Hakimian and Nugent 2005). Since the 1990s, Tunisia, Morocco, and Egypt have signed Euro-Med Association Agreements (EMAAs) with the European Union (in 1998, 2000, and 2004 respectively) entailing cooperation in a number of issues, most important of which is the establishment of free trade areas. Taking part in the European Neighbourhood Policy (ENP), these countries have expanded interactions with the EU, fostered by ENP instruments like cross-border cooperation, twinning, and technical assistance and information exchange. Currently, they are in the process of ‘deepening’ the contents of those agreements, bringing about distinct institutional reforms with a certain touch of ‘Europeanization.’ Secondgeneration market reforms, in particular, which include re-regulation of the markets as an essential component promoted by the EU, have yielded mixed results. Despite their ambitious goals, the impact of the EMAAs has been

Transitions and alliances in North Africa 181 limited, mostly caused by the restricted nature of the agreements, which exclude several sectors like agriculture where these countries have a comparative advantage (Montanari 2007). Compared with the Turkish and Mexican cases, where Customs Union Agreement and NAFTA were signed in the 1990s, the EMAAs have had a limited impact on trade patterns and domestic markets. Although the rate of openness in countries like Morocco and Tunisia is higher than in Mexico and Turkey, the total volume of exports is much lower than in Mexico and Turkey. Likewise, these three MENA countries have not embarked on the export-led growth trajectory (an exception might be Tunisia) attained in Turkish and Mexican markets. Figures 8.3 and 8.4 display the changes in the rate of openness (foreign trade/GDP) in these three countries between 1960 and 2010, and the correlation between exports and GDP growth. Unlike the expansion of foreign trade, market transitions did not lead to a noteworthy increase in foreign direct investment (FDI) flows in the MENA countries, a counter-phenomenon when the expansion of FDI flows in other emerging countries before the 2008 global crisis is considered. Often referred to as ‘MENA exceptionalism,’ this phenomenon included Turkey as well, as Chapters 2 and 5 explored briefly (Devlin 2010, Kamaly 2002). For instance, in 2000 Morocco received US$422 million FDI, while Mexico received US$18 billion. (Egypt received US$1,235 million, Tunisia received US$779 million, and Turkey received US$982 million.) During the liquidity boom of the 2000s, Egypt’s FDI inflows attained a peak of US$12 billion, though Morocco and Tunisia received only US$2.8 billion and US$1.6 billion

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Figure 8.3 Openness in Egypt, Morocco, and Tunisia (foreign trade/GDP, %) (source: World Bank 2013a).

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Figure 8.4 Export growth and GDP growth, selected MENA countries (source: World Bank 2013a).

(compared with US$22 billion in Turkey and US$31.5 billion in Mexico) (UNCTAD 2012). Weak institutions and pervasive uncertainties are among the factors explaining such mediocre performance. The reluctance of the respective states and societies towards foreign capital is another reason to explain the stagnant institutional frameworks for FDI in countries where mutually enforcing cultural traditions and legacies, anti-imperialism, and nationalism (and socialism in certain cases) generated substantial resistance against foreign capital. Transitions and state–society relations A common heritage between Turkey and the MENA countries is the state’s fear of organized interest groups, a long-lasting legacy of the Ottoman Empire in most parts of the region (Sunar 1994). The outcome of such fear has been that the states opted for controlling the interests that they could not penetrate into. In the case of domestic businesses, several dynamics shaped the interactions. Historical hostility and suspicion of capital and the problematic legitimacy of businesspeople coexisted with the class vacuum that the new MENA states encountered in their state-building processes. This triggered symbiosis between the state, as the central agent of steering economic development, and domestic businesses, whose loyalty to the emerging semi-authoritarian or authoritarian states was subject to question.

Transitions and alliances in North Africa 183 14,000

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Figure 8.5 Inward FDI flows in Egypt, Morocco, and Tunisia (US$ million) (source: UNCTAD 2012).

State control evolved into substantial repression in several countries where degrees of state repression over dissident voices have prevailed, and market opening has not changed this phenomenon. Associational rights as well as other civic rights have been limited under the domination of interventionist-cum-auth oritarian states. As a general trait, the state has been reluctant to incorporate societal elements into policy-making processes, and the corporatist frameworks built in several countries during the state-led development era did not alter this trait. Although corporatism was instrumental to control societal interests wherever it prevailed, the MENA version of corporatism adopted a pattern where control was not necessarily accompanied by systematic consultation with organized interests, a common trade-off in corporatist regimes like Mexico. Some varieties of corporatism never excluded pluralistic interest organizations, a long-standing tradition in some countries like Morocco. In a way, the presence of pluralist organizations helped legitimize authoritarianism, maintaining a ‘façade of voluntarism’ and associational rights vis-à-vis the international community of donors and organizations, in spite of intolerance of dissent (Bianchi 1989: 23–25). Despite the rather widespread portrayal of the states in MENA as ‘strong,’ based on the conflation between authoritarianism, coercion and strength, these states have suffered from substantial weaknesses. Some of these ‘despotic regimes’ were indeed weak (Ayubi 1995; Migdal 1988; Sadowski 1991). These states have had mostly low capacity in a number of dimensions including taxing

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their citizens, penetrating into societal groups, and designing and implementing economic policies, disproving the myth of a strong Arab state (Ayubi 1995: 447). Hence, these low-capacity states usually opted for suppressing societal interests which, at times, were much stronger than they are commonly depicted (Sadowski 1991: 90). Inclusionary practices in the early phases of state-led development, particularly under the framework of emerging corporatism, did not last long, and they ended up with increasing co-optation (Ayubi 1995: 35). State control over organized interests took on varying forms, but always included selective use of carrots and sticks. It increasingly adopted a repressive pattern in countries like Egypt and Tunisia, and the collective action capacity of business became contingent on degrees of repression. The intensity of threats against property rights did not bring about cohesiveness where associational rights were extremely limited and the cost of becoming cohesive was too high.

Fragmentation, cronyism, and hesitant opening: the case of Egypt The initiation of market reforms in Egypt preceded those in Mexico and Turkey. A partial liberalization program had been launched in the early 1970s. Following the establishment of free zones in 1971 to attract foreign investment, the infitah—open door policy—was launched in 1974 in the aftermath of the Yom Kippur War (1973), which reshaped the country’s domestic politics as well as international alliances. Despite such a relatively early start to the process of liberalization, Egyptian market transitions have proceeded in a protracted fashion, which Richards (1991) called ‘dilatory reforms.’ Sadowski (1991) suggests that despite the presence of a political will for reforms, political capacity was largely missing. Lack of adequate support by business actors as well as the rest of society, and the pursuit of shortterm benefits by both the state and businesses, shaped the reforms into a protracted track. Seeking to reap the benefits of expansion of services and financialization, many businesses shifted their resources from manufacturing to more profitable activities, becoming importers, dealers, and investors in financial and real estate markets. Market transitions aggravated the concentration of capital, and the narrow nature of the state–business alliances built on particularistic access and networks of favoritism, which particularly intensified during the Mubarak regime (El-Mikawy 2011: 8). Diverging from their Turkish counterparts, Egyptian infant industries that were nurtured throughout the state-led development era since the 1960s had not grown enough, and infitah was introduced in the absence of strong businesses (Richards and Waterbury 2008: 209). The 1952 revolution in Egypt gave rise to the domination of the state over the market, and state-led development became highly embedded in nationalistic and anti-imperialistic ideology in the context of building of a new Egyptian state (Tignor 1998; Vitalis 1995). Akin to what occurred in Turkey and Mexico, the new state created and manipulated businesses, which used the state policy as an instrument to further their interests. Following a decade-long private-sector-led development trajectory (1945–1956), the state’s strong grip began to prevail, and the

Transitions and alliances in North Africa 185 state-owned enterprises (SOEs) began to constitute the most important source of creation of employment under the framework of five-year plans designed in the spirit of Gamal Abdel Nasser Hussein’s ‘socialist transformation’ (Richard and Waterbury 2008: 190). The ideal of a ‘harmonious society’ that was propagated during Nasserism (1956–1970) could not wipe out the existing clashes and polarization within Egyptian society. By and large, it marginalized private capital, perpetuated the patrimonial state structure, and hindered the development of civil society in general and business organizations in particular. Threats against businesses increased in the 1950s and 1960s, by means of land reform, socialist decrees of 1961, and a broad range of uncertainties brought by the regime of the Free Officers. Businesses were allowed to become subcontractors in public companies in the late 1960s (Owen and Pamuk 1998: 124, 129; Richard and Waterbury, 2008: 207). As ambitious and radical as it was, Nasser’s regime was unable to transform Egyptian society through agrarian reform, nor through securing its control over the society (Migdal 1988). In the context of increasing control over the market and societal actors, business became mostly co-opted, and consultation between state and business was scarce (Richards and Waterbury 2008: 189). Although Nasserism established a corporatist framework, the interest mediation capacity of Egypt’s corporatist experiment was generally weak and it even reduced the ability of various groups to organize and mobilize (Sunar 1994: 100). The Nasser regime seemingly allied with labor through its ‘populist laws’ and accompanying measures, as well as giving privileges for the union leaders. Akin to Mexico’s 1930s, this effort generated a dependent, centralized, and highly co-opted labor movement where ‘union bosses’ were provided with hefty benefits in return for acquiescence. Nasser’s ‘populist authoritarianism’ created—and was based on—a coalition of military officers, technocrats and businesses, which did not lead to further industrialization on a bureaucratic-authoritarian route à la Latin America due to widespread fragmentation within the state apparatus and society (Bianchi 1989: 12). Fragmentation in the society began to involve a flourishing Islamist movement after the Nasser era, and this exacerbated the ongoing contentions, like in Turkey. After the end of Nasser’s rule, Egypt went through major changes regarding its development strategy and the state’s interacting with societal actors, including businesses. Akin to Miguel Alemán’s and López Portillo’s apologies following the left-leaning regimes of Cárdenas and Echeverría in Mexico, President Muhammad Anwar El Sadat’s rule (1970–1981) took up on a similar apologetic stance toward the private sector, emphasizing the need to ‘encourage private initiative and get rid of a state model that sacrificed individual interests.’2 Sadat’s discourse found its echo in the creation and provision of large scale use of incentives for businesses across different sectors, especially industrialists. Unlike the long-lasting effects of the threats perceived during the revolution and then during the Cárdenas regime in Mexico, the legacy of marginalization of businesses and the threats of socialist transformation were mostly wiped out by the apologies of the Sadat and then the Mubarak regimes consecutively. Nonetheless, the strong hold of the state over businesses, and its skepticism and fear of organized interests, have persisted in the new era, largely referred to as al-infitah. Preceding the launching of market

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transitions in Turkey and Mexico, al-infitah was initiated in 1974 and entailed a large-scale liberalization program that included the promotion of foreign investment (initially targeting oil-rich Gulf states). By and large, the Egyptian state has kept its reluctance to consult and coordinate with organized interests including those of businesses, giving rise to an ‘unruly’ variety of corporatism, as coined by Bianchi (1989). The weakness in terms of incorporating societal voices, including those of business, into policy-making prevailed after the end of Nasser’s rule, persisting throughout the market openings since the 1970s, notwithstanding some exceptional time periods. Patrimonialism has been largely reproduced over the course of al-infitah, as business’s personalistic access to the state actors as well as the patronage networks has been mostly sustained (Bianchi 1989; Vitalis 1995). As with the first phase of market transitions in Turkey, fragmented business actors in rivalry with one another used multifarious channels of access to the fragmented state actors to acquire rents. Particularistic interactions between a few businesspeople and state officials (at times including the military bureaucracy) became a pattern that intensified during the Mubarak regime. Besides the old ‘informal networks’ between the state and business elites, new ones were created during the Mubarak regime where privatization, public projects, and the army’s investment and transactions created new opportunities for elite businesses, some of whom constituted from the ranks of former bureaucrats, in the same vein with South Korea’s well-praised amakudari. The entry of new actors and their empowerment through these new opportunities did not necessarily indicate the dismantling of barriers to entry. Indeed, they exacerbated the exclusive and non-competitive nature of the economic institutions and transactions, meaning barriers to entry for nonelite businessmen were raised further, accompanied by further restrained transparency (Sfakianis 2004: 79, 82). As in Turkey and Mexico, high stakes increased the likelihood of cohesiveness and investment in collective action by Egyptian business. The debt crisis in Egypt emerged with a phase difference compared to Mexico and Turkey, in 1987. Although market reforms had been launched in the 1970s, they proceeded in an extremely protracted and zigzagging fashion, an outcome of not only the lack of willingness on the part of state officials, especially Mubarak and his close circles, but also resistance by the business networks, with whom the Mubarak team had crony-like relationships (Waterbury 1998). The severity of the crisis in 1987 provided a push for reforms under the supervision of the IMF and the World Bank, yet Egypt’s failure in complying with the conditionalities of the structural adjustment programs led to renegotiation for a few years, and only in the 1990s did the pace of reforms relatively accelerate (Owen and Pamuk 1998: 138). Increasing fragmentation in Egypt The Egyptian state has not been able to generate consensus throughout the transitions as well as in the state-led development era. Coordination within

Transitions and alliances in North Africa 187 the state has mostly been difficult, given the rivalry among—and the complicated and layered constellation of authority of—the agencies. The state has been highly fragmented, riddled with heightened conflicts with regard to development strategies in general, and policies and regulations in particular. Akin to Turkey, inter-agency rivalry has been a prevalent pattern in Egypt, making state cohesion an unlikely outcome. This fragmentation at the level of the state reflects multiple cleavages within society, including the business community. The conflicts between the ministries often resulted in reversals of policies (Bianchi 1989: 15). Decades into the oscillated process of market transitions, such conflicts mostly continued. Since the 1990s, the clashes began to involve regulatory agencies, which have been highly subject to business’s ‘capture,’ along with executive intervention. It is yet to be seen what the outcome will be in the context of more recent major changes in Egypt’s political regime, which might possibly empower new business actors either at the expense or juxtaposed to the old ones, the latter being the recently implemented Turkish path of selective inclusion. Intensive inter-agency rivalry provided an apt ground for furthering the fragmented demands of businesses. The Mubarak regime responded to these demands by providing them with selective incentives and privileges, offering concessions to neutralize discontent and opposition. Using both organizational and individual channels of access, businesses endeavored to influence policies and used the lack of consensus across rivaling agencies to further their particularistic interests. In spite of lacking consensus themselves, businesses have been able to push for or reverse policies and regulations through such pressures and fragmentation within the state. Such a particularistic stance oriented towards short-term benefits prevented the regime from attaining its goal of steering the private sector. The Mubarak regime aimed to tilt the route of opening from consumptive opening, entailing a preponderance of finance and services, to a productive opening, which would aim increased investment at manufacturing and agriculture. This strategy created very limited coordination between the state and businesses (Bianchi 1989: 16). In fact, the Mubarak regime identified some coordination failures and designed support schemes accordingly. Nonetheless, these schemes were implemented through patronage-distribution via selective incentives for a considerably small group of businesses, coupled with increasing authoritarianism. What emerged out of this setting was increasingly crony-based ‘informal networks’ through which ‘whales,’ i.e., businesses capturing the benefits of partial reform, were created and nurtured at the expense of the others (Sfakianis 2004: 86). Hence, despite its good intentions, the use of policy instruments and selective incentives largely failed to achieve their designated objectives. The power of the privileged networks with capacity to influence policies and particularistic interests that often riddled bureaucracy have been major impediments against aggregate benefits of industrial policy (Bianchi 1989: 9; Galal and El-Megharbel 2008: 9).

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Like in Mexico, Egyptian businesspeople have increasingly taken part in political parties, occupying ministerial posts and parliamentary seats. This trend started in the 1980s and accelerated in the 1990s. Between 1995 and 2000, 71 MPs (representing 8 percent of the total) were businesspeople, the highest hitherto representation of business in the parliament (El-Mikawy et al. 2000: 29). A select group of businesspeople had a close relationship with the Mubarak regime, constituting a crony network. Increasing executive discretion and Egypt’s market transitions Akin to the Turkish trajectory, the market transitions in Egypt have been carried out in the context of increasing executive discretion through which the legislature (thus its resistance to reforms) has often been circumvented. The executive opted to issue decrees not only for highly sensitive issues like privatization of the state-owned enterprises, but also on a broad range of other issue areas, including investments for exports and other investments that would not have created as much contention and resistance in the legislature (El-Mikawy et al. 2000: 17–18). A prevalent phenomenon in Egypt, as it was in Turkey, was a widespread reaction against privatization by political parties across different shades of the ideological spectrum, despite the fact that liberalization and structural adjustment did not generate such a reaction (Abdel Elah 1996: 272). As alSayyid (1996: 326) asserts, some degree of persuasion was maintained by the mid-1990s and it was conditioned on alleviating the social impact of privatization. This is an illustration of the deeply entrenched conviction in the state’s lead and direct engagement in the economy which, to this day, is hard to challenge. As the reform-making became increasingly centralized through the extensive use of executive degrees, parliament was largely undermined, evolving into an ‘opinion forum’ (El-Mikawy et al. 2000: 27). Incompatibility between executive decrees and existing laws has created plethora of complications, which were then challenged based on the former’s unconstitutionality. A good example for such incompatibility emerged in 1999 when the decrees on export incentives hit the wall because the constitution required proper legislation for distinct issue areas including taxes, leading to the pronouncement of the decree as unconstitutional (El-Mikawy et al. 2000: 19). A number of incidences followed course, but despite the presence of such institutional contestation regarding the unconstitutionality of certain decrees, market transitions have been marked by a high level of discretion without necessary checks and balances. Besides decrees, the executive also attempted to by-pass resistance by further centralizing the process of legislation. In 1988, a presidential decree (#439) established the Higher Council for Legislation (which only became active in 1994) to reform the legislative system and induce economic development by means of productive investment. Such councils were also founded to speed up certain components of market transitions. For instance, another presidential decree (#86) gave rise to the establishment of the Higher Council for Export in 1996. Headed by President Mubarak himself, the council aimed to

Transitions and alliances in North Africa 189 distribute export incentives, deemed vital by most businesses. Though most of these councils had remarkably short life spans, they demonstrate the zeal for further centralization, as well as the constant change of the rules throughout the transitions. The Egyptian variety of corporatism and pluralism Since the 1940s, a complex network of corporatist and pluralist organizations coexisted in Egypt. Although historically the corporatist organizations had apparent dominance over the pluralist ones, heterogeneous representation prevailed without clear hegemony. The latter did not invest in collective action against the former, and preserved its flexible and at times unstable alliances with it. Like in Turkey, religious associations became a ‘major preserve of pluralism’ (Bianchi 1989: 21). The incumbents at times feared organized business, including the corporatist organizations, until able to take them under control. The Nasser regime institutionalized corporatist organizations as bureaucratic agents endowed with a broad range of functions like price controls, licenses, and franchises. Still similar to its Turkish counterparts, such functions were provided as a reward for acquiescence and taken away as a punishment, a pattern that persisted through different regimes. Yet systematic consultation with chambers and federations in policy-making was limited, despite their ad hoc policy advice. Similarly, Egyptian industrialists lobbied for the chambers of industry to adopt semi-public status to acquire facilitated access to generous incentives. Like Turkification and Moroccanization, ‘Egyptinization of industrial management’ provided the legitimacy for further corporatization and state control, which took a more direct form like appointing the board members rather than influencing the election process (Bianchi 1989: 169). Authority, structure, and the ‘responsibility’ of the chambers have been re-arranged a number of times, but the control persisted in different formats. Anwar Sadat regime’s lukewarm stance towards corporatist organizations inherited from its predecessor, the Nasser regime exemplifies such a fear, since Sadat regarded these organizations as ‘the reminiscence of authoritarian socialism,’ which he later replaced with authoritarian corporatism through co-optation of the managerial elite of the organizations. Managerial posts at the corporatist organizations served as a stepping stone for political careers at the National Democratic Party (NDP), and these incentives kept compliance and a submissive approach to the dominant party. This was not coupled with consultation and coordination, but gave rise to ‘counter-mobilization’ of both pluralist and corporatist organizations (Bianchi 1989: 21–22). The Sadat regime took a contentious and repressive stance against business organizations, restricting associational liberties whenever the critiques got severe, while sustaining patronage distribution to a narrow elite. Nevertheless, it promoted the revival of pluralism to counterbalance the powerful corporatist organizations, and this trend was bolstered by a capitalist renaissance and an Islamic awakening, while also not precluding the emergence of new corporatist organizations like the middle-class

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syndicates of the 1970s. Following the assassination of Sadat, the Mubarak regime came to power in the midst of intensified conflicts. It avoided antagonism and opted for a softer approach in order to accommodate powerful particularistic interests, while providing the pluralist organizations more room to influence based on the expectation that they would cooperate in the economic recovery and market transitions in the 1980s. Based on compulsory membership, corporatist organizations are grouped in Chambers of Commerce and Industry, which are aggregated hierarchically in distinct federations. Some chambers, like the Egyptian Confederation of Chambers of Commerce (founded in 1955), became close allies of the NDP. Under Sadat and Mubarak, it was empowered and became an important ‘instrument of the ruling party’ (Bianchi 1989: 166). Historically, the Federation of Egyptian Industries (FEI) has had a more cohesive and centralized structure. Endowed with the authority to advise policy-making, the FEI participated in various consultation platforms, but its actual impact on final policies and instruments varied contingent on the discretion of the executive. The federation usually raised contradictory demands throughout the market transitions, including less state intervention and more assistance against foreign competition, based on the claim that the infitah was consistent with the continued protection of domestic industry. These demands coincided and reproduced Mubarak’s discourse on ‘correcting infitah’ based on a ‘guided capitalism’ on a sui-generis developmental state model. Indeed, the FEI was able to facilitate a certain degree of coordination with the state, and between private and public companies (Bianchi 1989: 172). Yet the particularistic demands of big interests impaired its capacity to generate collective action, which is vital for coordination outcomes. In the context of a pluralist revival, big business also launched its voluntary organization. The Egyptian Businessmen’s Association (EBA) was established in 1975, four years later than Turkey’s TÜSİAD, and formally registered in 1979. Comprised of some 450 individuals, the EBA mostly represents multisectoral conglomerates, like CMHN in Mexico and TÜSİAD in Turkey. EBA’s interaction with state actors has always been based on a subtle balance: excluded from formal consultation mechanisms, except for a few ones in certain time periods, its members’ impact on policy-making has nonetheless been substantial. Similar to the common practices in Turkey, the politics of (dis)invitation operates in Egypt, as EBA’s participation in platforms is mostly based on invitation, thus by and large contingent upon executive discretion. Like TÜSİAD, in good times EBA is invited to various platforms but it would be disregarded in sour times (following confrontations and/or disagreements on certain policy issues). The more common format is ad hoc meetings between EBA executives and ministers, or the president as well as high-ranking bureaucrats. On several occasions, such meetings have been ‘much more effective’ than other platforms with respect to the incorporation of big business’s perspective into policy and regulation-making (El-Mikawy et al. 2000: 41). Egyptian big business’s influence increased considerably over the course of market transitions especially in the 1980s. EBA became a leading negotiator in

Transitions and alliances in North Africa 191 the 1980s and its policy advice was increasingly taken into account. For instance, in 1984 the organization opposed Mubarak’s plans for new interventionism, and managed to stop changes in regulations. However, it lobbied for selective incentives for exports, which were mostly adopted from Turkey. By the second half of the 1980s, EBA’s interaction with the government upgraded from ad hoc luncheons to formal consultation in joint commissions, making the organization a ‘semi-official spokesman of infitah entrepreneurs,’ promoted by the increasingly more pro-business profile of the executive (Bianchi 1989: 165, 176). Despite the centralized policy-making of the Mubarak regime, multidimensional negotiations with multiple business factions affected policy-making since the 1980s. The Mubarak regime’s increasing orientation towards transnationalized big business and the EBA developed at the expense of its interactions with the corporatist organizations, which represent millions of businesses. Akin to their Turkish counterparts, the Egyptian business community has also suffered from intensive fragmentation which was aggravated in the first decades of al-infitah (Vitalis 1995). Given the availability of selective incentives, business—especially big business—did not invest in cohesiveness in the absence of major threats. Interestingly, the repressive Mubarak regime kept its continuous contact and partial alliance with organized labor, officially represented by the Egyptian Trade Union Federation (ETUF ) (El-Mikawy 2000: 45). However, ETUF ’s highly co-opted nature and loyalty to the Mubarak regime thwarted its representative legitimacy and capability, which ruled out business’s potential perception of threats. Government’s consultation with pluralist organizations, especially that of big business, triggered fierce reactions from corporatist organizations, which raised concerns of legitimacy (Bianchi 1989). Inter-organizational rivalry (even among the chambers) made coordination within business and between the state and business a very difficult task. In the prevalence of such fragmentation, coordination-inducing institutions have been difficult to establish and sustain. A number of attempts took place, but most of these attempts have taken up an exclusionary character, then their legitimacy has been challenged. One of those efforts was the establishment of the Joint Council between the EBA and government representatives, based on a decree issued in 1986. The council organized meetings whose regularity diminished over time. Initially some other organizations, such as the Alexandria Businessmen Association and the American Chamber of Commerce, also attended the meetings, which became instrumental in certain policy and regulatory changes. Besides such increasingly ad hoc meetings, the conferences and seminars organized by EBA are often attended by government representatives and bureaucrats, which facilitates a certain degree of information exchange. Generally, the Egyptian state has shown a reluctance to incorporate the business actors (particularly those out of its control, i.e., voluntary associations), similar to its Turkish counterpart.3 The zigzagging quality of reforms, policies, and regulations has been a pattern in Egypt, reproduced by business’s particularistic lobbying interacting with fragmented state elites. Narrow alliances between state officials and a small group of

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business elites were formed mostly at the expense of exclusion of the millions. Thus, competitiveness remained a distant goal in many sectors, and the barriers to entry even increased further. Such exclusivity in the market reform alliance and an accompanying absence of distribution of benefits endangered the legitimacy of the repressive Mubarak regime even further. Similar to the dynamics in Turkey, cultural identity based on religious conviction also created new cleavages within business, whose exclusion from the patronage networks of the Mubarak regime became a uniting factor based on ‘perceived marginalization’ (Cammett 2007). Gümüşçü (2010) asserts, however, that a major difference between the two cases is the transformation of the Islamist movement into a centrist conservative party in Turkey by moderate Islamists, endorsed by a ‘devout bourgeoisie,’ and the absence of such a transformation in Egypt. These dynamics contributed to pave the ground for the Egyptian Spring in January 2011. Previously entrenched against the Mubarak regime, these businesses formed a close alliance with the regime launched by the Freedom and Justice Party (FJP), affiliated with the Muslim Brotherhood. During its short tenure, the FJP government (2012–2013) mimicked the AKP of Turkey in a number of respects (even including its very name) and received endorsement from AKP. From the beginning of the Egyptian Spring to the ousting of Morsi by a coup d’état in July 2013, the AKP provided support and tutelage for the Muslim Brotherhood and the FJP, along with the so-called ‘Nahda [renaissance] project,’ based on an internalized ambition of offering a ‘role model.’ Political institutions in Egypt kept their exclusionary character throughout the market transitions. The state’s repression over society restrained political and civic rights, and associational liberties and civic participation (El-Mikawy et al. 2000). The cost of being a dissident was high, thus business’s collective action against the government’s zigzagging behavior was problematic, and most businessmen sought for short-term benefits through particularistic access and resulting transactions. Some businessmen have used the limited freedom of public space—e.g., in Egypt where three businessmen own three media outlets with wide audiences—to promote liberal thinking and accountability; however, their respect for ‘red lines’ that protected the stability of the regime has been unwavering.

Increasing cohesion and coordination: the case of Morocco Since its independence in 1956, the Moroccan state has designed and implemented various incentive schemes and intervened in the markets by the use of different policy instruments to promote the growth of private capital. Such interventions and the provision of selective incentives took on a more ‘activist’ stance until the early 1980s, when it adopted a relatively more passive perspective. As with other emerging markets, selective incentives that had been provided for businesses (especially industrialists) throughout the ISI era continued during the market transitions as well. They unavoidably entailed the palace ‘picking winners and losers’ among firms, industries and regions.

Transitions and alliances in North Africa 193 In line with facilitated capital accumulation in Turkey and many other emerging markets, the Moroccan state—or rather its particular interventions in the rules governing the markets—also created new interests overnight and molded the existing ones. Policy instruments used in the activist phase included incentive programs for manufacturing, subsidized loans for investors in selected sectors, and transfer of foreign ownership to Moroccans, accompanied by high protectionist walls in the context of a so-called ‘Moroccanization’ policy—akin to Turkey, Mexico, and Egypt. In the Moroccan case, this policy was codified by law in 1973, followed by an investment law, so that two different lists of select industries needed to be Moroccanized by 1974 and 1975 respectively. These lists included a broad range of sectors from banking to fertilizers. Although economic nationalism, solidified by entrenched anti-imperialism, used to be a central feature of all state-led development strategies, the Moroccan version was striking in terms of its formalized character, and the particular timeframe to fulfill the conditions, called ‘capital substitution’ of foreign capital by national capital (Harabi 2008: 54). This period engendered the consolidation of both protectionism and domestic businesses as a distinct class in which powerful interests with close linkages to the palace were generated (Cammett 2007: 94, 102). An important aspect of the state-led development in Morocco was its credit policy, which still continues to a certain degree. Subsidized credit and loans were allocated to selected sector—including tourism, housing, and agriculture, besides manufacturing—facilitating long credit repayment periods and financing 60–70 percent of investment through state credits with a fixed interest rate system (Harabi 2008: 53). Founded in 1959, the National Bank of Economic Development (BNDE) was designed solely to provide loans for investment projects in selected industries, and it provided a major contribution to the growth of tourism, agro-food, and textiles. Like in Turkey, the cost of capital was held substantially lower than the market level, a major incentive for domestic industry. Businesses’ access to public procurement was facilitated, but only the selected firms would have state contracts in sectors like construction and public works, and furniture. All these policies worked to the benefit of big businesses, accordingly bolstering their concentration and big business’s bargaining power as well as access to policy-making processes. Morocco’s market transitions were launched in 1983 under the auspices of the IMF and World Bank’s structural adjustment policies. Expectedly, transitions proceeded under the shade of similar goals and instruments including sound macroeconomic policy-making, privatization, trade liberalization etc. What is interesting in the Moroccan case is the relatively more gradual approach that the palace has adopted in implementing these reforms, such that quantitative restrictions on imports were removed as late as 1996, and the reduction of subsidies and customs tariffs took place by the 2000s, particularly caused by the Free Trade Agreement signed with the EU in 2000. Three decades into market transitions, Morocco has been considerably successful in stabilization: budget deficit went down from 12 percent to 4 percent in the 2000s, inflation diminished to 2 percent, and the country has a balance of payments surplus—thanks to

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remittances (IMF 2012). Currently, Morocco is proceeding towards a ‘deepening’ process with respect to its relations with the EU, as negotiations for a Deep and Comprehensive Free Trade Area (DCFTA) were launched in March 2013 and the first round of negotiations started in April 2013, based on the prospect of extending the FTA to services and undertaking institutional reforms in fields like government procurement, competition, intellectual property rights, and investment protection (European Commission 2013b). As in Turkey and Mexico, the ISI elites and the Moroccan state built close relations for nearly three decades. Since the 1980s, gradual trade liberalization and increasing integration into global markets, particularly through manufacturing exportation, engendered new entrepreneurs who got incorporated into global product chains as subcontractors and contractors. Akin to its Turkish counterpart—where the rise of SMEs integrated to global markets through manufacturing exports has become a significant phenomenon since the 1990s—Morocco has gone through a similar development in certain sectors like apparels. Also similarly, a perceived sense of marginalization in the ISI-era that was dominated by big businesses helped bind these new entrepreneurs together, giving rise to collective action (Cammett 2007: 209). These newly growing businesses, self-identified as ‘self-made men’ as opposed to ‘fat cats’ (i.e., the big businesses nurtured by the ISI regime) aggregated into business organizations, and endeavored to access the palace through formal channels, influence policymaking, and rival the fat cats’ previous hegemony (Cammett 2007, 148–153, 209). In the textile and apparel sector, these newly flourishing actors founded the Moroccan Association of Textile and Apparel Industries (AMITH) to aggregate diverse interests and further their goals. The politicization of these industrialists, particularly entrenching against the alliance between the palace and big businesses, exemplifies an important attempt at collective action, which helped found new coordination mechanisms with the state. Such politicization of the previously marginalized SMEs, their collective action formation, and the resulting coordination with state actors in Morocco is similar to what happened in Turkey since the 1990s. The EU’s facilitating and guiding impact has also been noteworthy in this regard including, but not limited to, establishing Regional Investment Centers. Still similarly, such growth and increasing power did not necessarily replace that of big businesses, but instead this phenomenon has been juxtaposed to the sustained power and influence of most big business actors. The palace’s policies promoted the SMEs’ development, while bolstering ‘national champions’ à la Francais by means of selective incentives. Still akin to its Turkish counterpart, the Moroccan government promoted domestic linkages while providing incentives for MNCs. The autoassembly industry is a good example for this, as 60–70 percent of auto-parts are provided by domestic producers (Harabi 2008: 55). Like in Mexico and Turkey, institutional reforms including those in competition policy (enacted in 2001) and other regulatory issues like public procurement (instituted in 1999) were undertaken around the turn of the twenty-first century. Despite these reforms and the recent rise of SMEs, barriers to entry remain a

Transitions and alliances in North Africa 195 pressing problem in several sectors where concentration is remarkably high. Although regulatory reforms have been undertaken in several sectors, Morocco only established a few independent regulatory agencies, unlike Turkey. The most important of those agencies is the National Telecommunication Regulatory Agency (NTRA), founded in 1997 after the enactment of a new law on telecommunications (passed in 1996) in line with the commitments vis-à-vis the WTO. NTRA has been considered highly ‘effective’ by the International Telecommunications Union, based on the partial privatization of the state-owned telecommunications company and a relatively enhanced competitive environment (ITU 2002 and 2004). Although ANRT was provided with broad authority, particularly when compared with other public institutions in Morocco, the state still keeps a close oversight, especially over finances. Morocco does not have a distinct regulatory agency in the banking sector, but the banking industry is highly regulated by the Moroccan Central Bank. The regulatory framework previously set by the 1967 Banking Law was replaced by a 1993 law that oversees the financial sector. An interesting aspect of the Moroccan transitions is the stability of the political regime. So far, market liberalization has not been reflected in political opening, an empirical challenge for the arguments put forward by Acemoğlu and Robinson (2012). In a puzzling fashion, the expansion of the inclusionary nature of economic institutions and a broader distribution of benefits help sustain the regime, rather than challenging it. Notwithstanding the major differences between the two regimes, this trend includes some similarities with that of Turkey, where the emergence of undemocratic practices and increasing centralization of power without checks and balances do not trigger any meaningful resistance, in the presence of economic growth and easier entry to the marketplace.

Increasing fragmentation and repression: the case of Tunisia In Tunisia, unlike in Morocco, market transitions and increasing integration into global markets did not enhance the inclusionary character of economic institutions, but intensified concentration without distributing the benefits. Such distributional consequences are considered among the triggering factors behind the emergence of the Arab Spring in 2011 in Tunisia. The state’s control over societal interests increasingly took on an extreme path in Tunisia, where executive discretion silenced not only societal voices (except for those of the ‘favorites’ of the Zine El Abidine Ben Ali regime), but also that of the National Constitutional Assembly. Thus, the power was centralized, and the authoritarian regime involved extremely weak checks and balances. Having suffered from fragmentation, collective action within business has proved challenging despite the existence of a peak corporatist organization. Furthering sectional interests prevailed, particularly by big businesses through particularistic lobbying, and intensified further in the absence of coordinating institutions, giving rise to highly exclusionary cozy contact between a few businesspeople and a small circle of state actors.

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In fact, the state-led development era and the ways in which it constructed a close alliance between a narrow elite within business and the state was similar in Tunisia as well. What Tunisia inherited at the time of its independence in 1956 in terms of a business profile was mostly comprised of commercial interests. As in Turkey, after independence the rupture with the past was outstanding in many respects, as the new elite was ‘created’ from scratch with very limited continuity from the past and the new elite became highly dependent on the state regarding both its economic undertakings and its organizational capabilities (Cammett 2007). Thus, unlike Moroccan and Mexican businesses, the Tunisian business community, like its Turkish counterpart, was entirely a product of the new regime and it had to or opted to acquiesce to the authoritarian, single-party state, which contributed to the absence of business’s political mobilization. This symbiotic relationship between the state and business was based on repressive mechanisms, which also thwarted business from investing in collective action. This indicates that the degree of threat that matters for business’s mobilization can reach a certain level above which mobilization becomes too costly for business. Industrialization in Tunisia was launched in the 1960s by means of hefty incentives (in the form of protectionist walls, access to licenses, and credits, among other incentives) for newly flourishing industrialists, who later became close allies of the regime. Through an eager rally to industrialize, the National Company for Investment (SNI) was founded to establish industrial enterprises directly or indirectly controlled by the state. From the beginning of the state-led development onwards, state control over the fledgling business community and its organizations was extensive, and the allocation of incentives was shaped by such extensive control. Business’s access to the state and coordination were shaped under the shade of different forms and levels of repression, as well as very high levels of executive discretion, which made the legislature subordinate to the executive (Angrist 1999). In such an authoritarian context, the executive’s incorporation of the social actors into policy-making processes became an exception, and when it happened it expectedly took on a selective and crony-like pattern between a few business actors and Ben Ali’s close circle, including his own family. Despite such an apparent reluctance to incorporate and coordinate into an overly centralized policy-making process, even the Tunisian state built certain platforms for that purpose. Akin to its Turkish counterpart, it established boards and councils as platforms of coordination. However, they all remained on paper and fulfilled their window dressing vis-à-vis the international observers, without facilitating de facto coordination between the actors. The Economic and Social Council (ESK) exemplifies this pattern. Broader than a tripartite consultation platform based on the inclusion of civil society organizations, regional delegates, and representatives of public enterprises, ESK had been promoted by Ben Ali as soon as he took over power in 1987 and convened sporadically based on the discretion of his government, but it did not facilitate coordination, given that its decisions were nonbinding and dissent was costly.

Transitions and alliances in North Africa 197 A bifurcated business class was created by state policies that separated onshore and off-shore economies, facilitating the peaceful coexistence of exporters and industrialists (Cammett 2007: 79). This pattern largely shaped state–business interactions after the launch of market transitions in the 1980s and 1990s. A year later than Turkey’s signing the Customs Union agreement, Tunisia signed a European Union Association Agreement in 1996, resulting in costly trade liberalization, particularly for industrialists. Nonetheless, the response of the industrialists with respect to trade liberalization demonstrated their ‘docility,’ as they ‘neither pushed for the agreement nor attempted to block or delay it’ (Cammett 2007: 112). Such a strikingly passive stance to the state’s policies and important changes in trajectories was just an example of Tunisian business’s historical acquiescence to the state. Like in Turkey, and earlier in Mexico, the repressive state opted for sticks whenever it was challenged by businesses. The threat of tax penalties was commonly used, and the Brigades Economique, the tax audit agency attached to the Ministry of Finance, acted on fiscal blackmailing on the companies owned by dissidents of the regime (Cammett 2007: 117). Short-term benefits outweighed long-term ones, and as in the first phase of transitions in Turkey, industrialists in fact shifted their resources toward imports, becoming the distributers/dealers of foreign brands rather than producing their own, a prevalent trend in several sectors like textiles. State-led development in Tunisia was implemented in the prevalence of high levels of repression. Until the 1980s, interest representation was highly centralized and limited to a corporatist framework, under a hierarchical organization (Bellin 2002). The Tunisian Union for Industry, Commerce and Handicrafts (UTICA) became the epitome of co-optation by the state, thus the inability to generate collective action across the diverse interests that it—on paper— represents. Akin to Turkey’s TOBB in distinct time periods, UTICA lost its representative legitimacy vis-à-vis many groups in the business community, particularly industrialists (Cammett 2007: 121–126). Thus, the existence of a peak organization did not necessarily indicate cohesiveness in many emerging countries as in Tunisia as well as in Turkey in the first phase of transitions. UTICA’s ineffective representation and lack of capacity for collective action is reflected in many sectoral organizations in Tunisia. Concentration in the Tunisian market has increased since the 1980s, and in an anachronistic fashion UTICA, the peak organization, promoted the emergence and growth of big conglomerates to serve national interests (Cammett 2007: 138). The cleavage of big business and SMEs became more pronounced throughout the market transitions, as the latter has begun to raise its voice, drawing from a discourse on ‘economic democracy.’ But, compared with Turkey and Morocco, collective action efforts among a large number of fragmented SMEs has been limited, and despite their confrontational discourse, these businesses mimicked the internalized demands for an enabling state which would design and implement a proactive industrial policy. Thus the pattern of state-dependent business, a product of the critical juncture that emerged at the time of state-building, has mostly been sustained.

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Conclusion The process of al-infitah intertwined with the forces of globalization has particularly required coordination between business and the state. Although certain institutional channels have emerged since the 1980s to facilitate such coordination—such as the Economic and Social Council in Tunisia and the Exports Councils in Egypt—most of these efforts failed to be effective, while issue-based sectoral coordination undertaken by some business organizations in Morocco mostly operated effectively (Cammett 2007). Thus, in line with the framework laid out in the previous chapters, this chapter explained the generally weak coordination-inducing institutions in Egypt, Tunisia, and Morocco, notwithstanding the recent changes in Morocco, fostered through increasing cohesion and resulting collective action generated by business organizations. It explored the impact of varying historical legacies on state–business relations, and shifting alliances in the context of major transformations. The chapter demonstrated the preponderance of barriers to entry in both economic and political realms in MENA, a phenomenon particularly heightened in Egypt and Tunisia. It showed that the sequence of political opening followed by economic opening does not necessarily hold true for the three cases that the chapter examined (Acemoğlu and Robinson 2012). Despite the establishment of new institutions to abolish barriers and enhance competition in a number of sectors, records regarding the operation and impact of these new institutions are mixed, and mostly far from what was aimed for. Concentration prevails in many sectors; big firms dominate not only in their respective sectors, but also regarding access to state officials. This pattern has partially changed track in Morocco, where the newcomers have been able to reap the benefits of market transitions and increasing integration into global markets, relatively broadening alliances. It is yet to be seen if the new regimes in Egypt and Tunisia will enable newcomers without adopting new forms of crony links with businesses they might ally with. A potential outcome of broadening alliances in these countries might be the incorporation of devout/Islamist businesses into ruling alliances. Since the 1990s, students of the political economy of MENA have conjectured about the possibility of political Islam’s appeal, as it espouses anti-imperialism, liberation of the umma, distribution of resources, and forming coalitions of the marginalized with the claim to achieve what the secularist regimes did not (Waterbury 1998: 173). The rise of the Muslim Brotherhood to power in Egypt and the FJP’s short political tenure (2012–2013) exemplified this trend. Inspired by Turkey’s AKP and under its close supervision, the FJP government aimed to create/ incorporate new business actors and engender new alliances with those (often with devout Muslim identities) who had previously been excluded from ruling arrangements. As asserted by Richards and Waterbury (2008: 380–383), Islamism may generate new opportunities for upward mobility through which a new middle class is constituted. FJP’s political tenure was too short to judge if it would have the capacity to enable such upward mobility for newcomers.

Transitions and alliances in North Africa 199 Notwithstanding the widespread discussions that emerged right after the initiation of the Arab Spring with respect to Turkey’s providing a model for MENA, the Turkish case is far from a perfect model, despite its impressive performance since the early 2000s. In the political realm, there are increasing measures that endanger the inclusionary character of the regime, the most important of which is the extensive use of executive discretion and the absence of the checks and balances. In the economic realm, the barriers to entry have certainly dwindled, if not completely eroded. But concentration persists in some sectors and the pattern of the incumbent facilitating capital accumulation for its own allies persists. Additionally, the reversal of some of the structural reforms like those regulating the markets is a major risk, despite the fact that the Turkish economy owes some of its resilience to those reforms. Nonetheless, the Turkish trajectory might be inspiring for the new spaces opened during market transitions for new entry (yet, highly selected in its nature), unlike in Mexico where the existing power balances have been more or less sustained.

Notes 1 Source: World Economic Indicators. 2 Anwar Sadat’s speeches published in Al-Ahram, September 17, 1976 and May 2, 1977, cited in el-Mikawy et al. (2000: 7). 3 Interviews with EBA officials, quoted in El-Mikawy et al. 2000: 43.

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Concluding remarks

In the last couple of decades, emerging economies have gone through drastic transformations regarding the ways in which their states interact with the respective markets and market players, as they have been increasingly incorporated into global markets. Leaving behind state-led development strategies, but sustaining the state’s stronghold on the market players in some way or another, they have adopted a broad range of policies and institutions to open up their markets, and later to regulate those markets. Despite similarities as to the triggers of change, the outcomes vary including the ways in which the state interacted with businesses to foster adjustment to the new era. In the context of these transformations entailing internationalization and transnationalization, signified by increasing fluidity on a myriad of fronts, the states have evolved in different directions, some adopting new characteristics of new-developmental states, while keeping some of their former traits. Notwithstanding the differences, all have readjusted their institutional capabilities, and changed their regulatory frameworks and instruments, along with their policies. Some states increased their capacities to design and/or implement institutions and to negotiate with societal actors, while some others partially lost such capacities. Societal actors have also changed in this process, some expanding their capacity to mobilize in the context of increasing fluidity, with some others losing their existing capacities. Businesses are no exception in this dynamic trend. Varying directions in these transformations have been shaped by the ways in which the actors have been linked to global and regional markets, the modalities of their interaction with the state actors in this dynamic process, as well as the historical trajectories that shape those modalities in varying degrees.

Institutions, transitions, and challenges ahead This book examined market transitions, the dynamics between the states and the markets in emerging countries in the context of such transitions, and shifting state–business alliances, focusing on Mexico and Turkey, as well as Egypt, Morocco, and Tunisia. It pointed out the legacies of state capitalism and developmental states in these countries, and the ways in which those legacies influenced the market transition processes, spawning new forms of developmental

Concluding remarks 201 states with varying capacities in the age of globalization. In some countries like Turkey, market transitions and integration into global markets coincided with intense power struggles across varying social cleavages, including businesses, resulting in more substantial changes with regard to alliances, and the state’s capabilities were influenced by those. In countries like Mexico, former alliances were more or less sustained, despite regime change. Political conflicts in Turkey created new spaces for entry, often referred to as ‘economic democratization.’ Despite the rhetoric of broad inclusion, the new constellations only gave rise to ‘selective inclusion’ through which new conglomerates and new privileges (including access to the state and public resources) were created, thus impairing competition. Generally, the Turkish state has aimed for adopting a more proactive developmental approach than its Mexican counterpart, a view that it partially attained in the 2000s, but some key institutions and policy instruments created in that period have been subject to erosion, signifying the constantly changing nature of institutions and the states per se. Investigating the institutions of coordination between the state and business actors, the book analyzed the formation and evolution of these institutions and pointed out the essential importance of cohesiveness to establish and sustain them. It explored the processes in which Turkish state and business became more fragmented in the first phase of market transitions before attaining relatively more cohesiveness in the second phase, while the contrary trend prevailed in Mexico. Business cohesiveness has appeared with a twist in the Turkish case under the pervasive impact of increasing polarization in Turkish society and politics, and adopted ‘polar cohesiveness’ between the Islamist and secularist poles. Yet, when the book was in the production stage, significant developments took place in Turkey, and the relative cohesiveness began to dwindle again especially following the tension between the AKP government and the Gülen community which arose in 2013 and intensified further in 2014. In Mexico, the cohesiveness increased in the first phase of transitions, although it began to debilitate in the second phase by the impact of major institutional changes. Fragmentation, which tends to describe many MENA countries as well, thwarts the likelihood of generating collective action, both within business and the state, and between the state and business, which then engenders a myriad of developmental consequences. The previous chapters aimed to explain links between cohesion, institution building, and alliances in the context of market transitions, exploring the ways in which coordination-inducing institutions come into existence, operate, and affect transitional and developmental outcomes. The comparison of Mexico’s and Turkey’s differing experiences with respect to state–business alliances can shed light on the challenges of building and sustaining institutions, particularly in the existence of strong veto players with entrenched interests. The book highlighted that state–business coordination is crucial in market transition processes, but it is difficult to generate and sustain. Considering both market transition processes and state–business alliances as non-linear processes, marked by zigzagging and

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erratic quality in most cases, this book challenges an underlying assumption in the relevant literature, deriving from steady preferences and accompanying reform processes. It purports that institutions, resulting coordination, and alliances ought to be analyzed as processes, rather than one-shot games. The developments which took place in Turkish politics during the production stage of this book (2013–2014) provide clear evidence for the unsteady nature of state–business alliances. Although the preceding chapters discussed the emergence of a close alliance between the AKP governments and particular business organizations representing devout businesses, the most important of these alliances, the one with TUSKON, collapsed drastically by the end of 2013. The collapse was due to the conflict between the government and the Gülen community with which TUSKON is known to be affiliated. Among other things, the concerning conflict arose mainly out of the closing down of schools, established by the large network of the Gülen community and sponsored by the businesses affiliated with TUSKON. This conflict triggered a severe animosity between the AKP government and TUSKON that were close allies until 2013, as Chapter 6 discussed in detail. As a former ally became the enemy of the government, the politics of invitation turned to the politics of disinvitation, reflected by TUSKON’s exclusion from consultation platforms. The long-lasting legacy in state–business relations was back in the scene, as the vicious cycle of criticism (by business) and threats (by government) was constantly reproduced. The corruption scandals which, starting from December 2013, exacerbated the tension between the said actors, as the government denigrated the Gülen community (and TUSKON via its members with the community) for an alleged civilian coup against its tenure, while the latter accused the government of having been involved in extensive corruption. The emergence of a severe animosity between the AKP government and TUSKON, added an extra layer to intensifying confrontation between the state and business actors grouped in major organizations. It is yet to be seen if the intensifying confrontation will bear concrete consequences regarding longevity and effectiveness of institutions as well as developmental outcomes, besides furthering exclusion of those who are not publicly supporting the incumbents. In all emerging countries, including those included in this book, big businesses—who had been the beneficiaries of former development strategies—have proven more or less resilient to market liberalization, despite what was initially anticipated given the challenges of global competition. They have been able to expand their reach, particularly to regional and global markets, and even become multinationals, undertaking major investment out of their home markets. Increasing financialization, which made these markets vulnerable to external shocks, worked to the benefit of big players that expanded their conglomerate structures further. A major difference among the cases the book discusses is that in some cases—like Mexico, Egypt, and Tunisia—the big players have been more or less the same since the beginning of market transitions, while in Turkey and—to a certain extent—Morocco, newcomers appeared and formed new alliances with the state elites. This trend of an expanding pool of businesses also entailed small

Concluding remarks 203 and medium-sized enterprises. In Turkey and Morocco, some of those SMEs have been able to reap the benefits of increasing integration of home markets into global markets, while in the other cases this has occurred to a relatively limited extent. Nonetheless, in all cases, high levels of concentration in the markets have partially persisted in some sectors where monopolistic and oligopolistic structures endured. Despite the regulatory reforms and competition regimes installed in these markets, public and private monopolies have been sustained, indicating the precarious and rather illiberal nature of the emerging regulatory states in these polities. In all these cases, the state’s control over the market and its players have been maintained in different forms, such as picking the winners and losers in successive phases of market transitions, albeit in different degrees. Although the inclusivity of economic institutions increased, especially in Mexico, Turkey, and Morocco, the process has taken on a selective format in many instances. The respective state actors kept their clientelistic networks, despite the shuffling of both patrons and clients in some countries like Turkey. New patrons continued to distribute public resources effectively towards a selected clientele, creating new alliances. In countries like Mexico, the clientele did not change much in spite of alternating patrons within the last decade. Thus, patrimonialism has been by and large sustained, juxtaposing liberalism and statism among the varieties of capitalism construed for emerging economies (Becker 2013). Business actors generally expanded their power vis-à-vis the other societal actors and mostly also vis-à-vis the state, and increased their voice through forming new organizations, reviving and transforming the old ones. Business organizations (pluralist associations and/or chambers) became important sites of mobilizing diverse interests. The associational landscape enlarged and diversified, acquiring wider networks, while business actors demanded to enhance their influence in policy-making processes. Notwithstanding similarities across cases, the ways in which such diversification has taken place and such demands have been voiced differ considerably. In Turkey, the flourishing of pluralist organizations has been accompanied by the revival of corporatist organizations, which have increased their capacities to mobilize their resources and generate collective action across diverse interests. In Turkey, severe crises and Turkey’s EU-accession process contributed to the emergence of collective action within business actors. Only in the aftermath of the 2000–2001 crisis did a broad consensus emerge regarding the need for a radical change in the rules of the game. Public support and political will for reforms accompanied by the weakening of strong veto players gave rise to major institutional changes, one of which has been the creation of coordinationinducing institutions. Facilitated by the lead of cohesive actors from both business and the state, an interesting feature of some of these institutions has been their issue-specific focus and flexibility regarding the incorporation of unconventional actors, such as transnational firms, leading executives, and opinion makers. Enhanced coordination contributed to the fast recovery followed by a period of sustained growth.

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In Mexico, however, the capacity of corporatist organizations has diminished; interest mediation has also gone through major changes. Institutionalized dialog between the state and peak societal actors, including businesses, which was a central legacy of the post-revolutionary institutions, has mostly been dismantled. Paradoxically, some of the pacts as part-and-parcel of such legacy brought about the end of some of those institutions, by giving a concerted (and largely coopted) go-ahead to liberalization. Nearly simultaneous transformations in political and social institutions engendered new incentives for the business actors. Changing executive–legislature relations, weakening of the previously omnipotent executive, and the empowerment of the latter by the emergence of a divided legislature in 1997, increased the number of veto players within the state. This change was accompanied by dismantling of corporatism in various steps, most important being the abolition of compulsory membership in the chambers, evidently restraining the power of the corporatist organizations. Confederations and chambers have lost resources, members, and relative power, and they have adopted innovative instruments as survival strategies while losing some of their former collective action capacity. Crises generally created windows of opportunity for major institutional reforms in all the cases examined in this book. The severity of economic crises in Turkey and Mexico in 1979–1980 and 1982 respectively had triggered the first phase of market transitions. Similarly, the severity of the 1994–1995 and 2000–2001 crises in Mexico and Turkey respectively helped launch the second phase of market transitions, which entailed a broad range of institutional changes including regulatory reforms. Indebtedness has been a major problem in both countries, changing only its form across the two phases. In the first phase, it was the state that was increasingly indebted, rendering the respective economies to disastrous inflationary cycles, whereas in the second phase it is the private actors—businesses across both size and sectors, and consumers— who have been increasingly indebted. The short-term external constituent of this phenomenon poses a particularly serious risk for businesses, given the volatility of exchange rates especially after the 2008 global crisis. The vulnerability of these economies is aggravated by other forms of dependency, such as on export markets and capital inflows, which in turn exposes these economies to external shocks. In these emerging economies, establishing institutions has granted neither survival nor effectiveness. Institutions have been subject to successive changes by the resistance of vested interests and veto players. At times, these changes occurred formally, by successive enactment of laws and decrees, at other times by the discrepancy between their de jure design and de facto operation. Thus, they get drifted, layered, and/or converted. Similarly, individuals have played a major role in shaping the operation and effectiveness of institutions and organizations. In some countries, crises not only triggered substantial institutional reforms but also opened new spaced for reshuffling of power balances, partially changing the power–distributional arrangements at the state–business nexus. This has been

Concluding remarks 205 an ongoing process in several emerging countries, like Turkey and Morocco, where market transitions and crises enabled new actors to enter the game with enhanced capacities to mobilize vis-à-vis the respective states—and, at times, vis-à-vis the rest of business community. Interestingly, crises and transitions in several other emerging countries, most importantly Mexico and Egypt, mostly perpetuated the previous power balances. In Turkey, the pattern of selective inclusion of businesses along with the exclusionary characteristics of the new-developmental state intensified in the 2000s and 2010s, perpetuating the legacy of ‘each patron creating its own clientele.’ Starting from its second term (2007–2012), the AKP government adopted an increasingly authoritarian stance, entailing explicit threats to particular businesses. The Gezi Protests of June 2013, which had begun out of the environmentalist concerns of a small group resisting the destruction of a park in downtown Istanbul, expanded to become a mass-protest against the government, and the following statements of the Prime Minister Recep Tayyip Erdoğan provide evidence for such explicit threats. Having claimed that the protests were the products of ‘business conspiracy’ or ‘the interest lobby’ (referring to big businesses (but particularly those from the ranks of the secularist pole who allegedly profiteer from high interest rates), Prime Minister Erdoğan threatened individual businesses and organizations ferociously. Organizations like TÜSİAD are generally concerned about the potential ramifications of such threats, given the collective memory of such threats and their concrete consequences, some of which were pointed out in the preceding chapters. Other organizations like TUSKON share similar concerns, since they have taken on a highly critical stance against the government since 2013. As touched upon earlier, TUSKON, which had been a very close ally of the government, went through an overt confrontation with the government. Evaluation of historical trajectories of state–business interactions and business’s varying stances to development strategies and components of market transitions indicates that business’s preferences are not fixed in time, but change. Business’s strategies are products of bargaining and political struggles between the state and businesses—historical and current, but particularly shaped at the junctures—that are also contingent upon the interactions with links to global markets and foreign capital. The dependency of business on the state is also a product of historical processes but it is also subject to change, particularly in the context of increasing globalization and transnationalization. Hence, the historical evolution of state–business interactions shaped by a variety of institutions and practices—including the provision of incentives, rents, access to international markets, the level of competition and dependency on the state, economic and political costs of business’s mobilization, as well as the collective identities— has affected the interactions and coordination between these actors during the market transitions. This book demonstrated that domestic institutions matter, despite the allegedly homogenizing forces imposed by international financial institutions and market dynamics. As pervasive and demanding as they are, the global forces do

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not affect all countries in the same way, but policies, institutions, and ideas take different forms when filtered through domestic institutions and the particular domestic power-distributional constellations of a given country. Such filtering is not limited to a ‘one-shot game,’ but is rather shaped by a dynamic and ongoing interaction between actors at domestic, regional, international, and supranational level. The empirics analyzed in this book exemplify how the interactions between the international, transnational, and national spheres re-shape state– society relations. The preceding chapters have demonstrated the links between institutional development and growth outcomes. When one considers the growth performances of Mexico and Turkey over a large span of time, it is possible to notice considerably high growth rates in the post-war period, particularly until the 1970s, and a meandering path between the late 1970s and 1990s. In the 2000s, the growth rate has been sustained at mediocrity in Mexico, though it have been more impressive in Turkey, brought about by the recovery from a major downturn in 2001. Although in the upcoming years both Mexico and Turkey are expected to have a better growth performance than the advanced countries, this performance is predicted to be much less impressive than those in the leading emerging markets, most importantly China, India, and Russia (IMF 2013). These two countries might be trapped in the middle-income category for longer than they wish for, brought about by the institutional deficiencies, dependency, and/or vulnerability of their markets, and the traits of selective inclusion pertaining to their institutional arrangements as well as political alliances.

Material incentives and value systems One of the critiques this book poses for the existing analyses on business preferences is the contention that preferences are not solely derivations of materialistic incentive structures. Even though business actors are usually viewed as actors maximizing their material benefits, their preferences can be affected by nonmaterial incentive structures, besides the material ones. Based on the goal of transforming the state, businessmen and women attempted, in varying degrees, to intrude into the state’s sphere of authority. In both cases, business’s attempts embraced a broad range of issues including democratization, secularism, civil– military relations, and even the schoolbooks authorized by the respective states. In some instances, business interests seemed to care vigorously about these notpurely-economic issues. Is business interested in those issues because of pragmatic concerns, assuming that if democracy prevails then the international credibility of its country would increase, which would translate into greater flows of capital and new economic opportunities? Business’s aspirations to transform the state—both in economic and non-economic realms—open new areas for future research. Empowered by the opportunities provided through global markets, along with the new ways in which those markets operate, big business has carved a

Concluding remarks 207 new niche in which it has developed a broad range of aspirations, going beyond the economic sphere to challenge the respective states that they owe their very existence and/or power to, in an effort to re-mould the state and its myriad of institutional arrangements. A striking example of non-material pursuits has been the secularist vs. devout-cum-Islamist divide within the business communities, and some cliques’ vigorous battles to further their goals. Embedded into society’s ongoing contestations about these divides, business as a well-organized pressure group holds high stakes in those battles. In both Mexico and Turkey, religious identity partially influenced business actors’ preferences in different time periods. Some of the alliances formed in both cases among various business groups, and between those groups and the state actors, reflected businesspeople’s interests along the lines of secular(ist), moderately secular and anti-secular(ist) ideologies. All these dynamics proved the malleable character of alliances. The increasing appeal of value systems based on religious convictions within the business community in these two secular contexts, Mexico and Turkey, indicates the rebound effect of the suppression imposed during the respective secularization processes. As these states had imposed a certain way of living, subjugated meanings and value systems have struck back under the leadership of well-organized social groups with formidable resources, and business is one of the best candidates for such leadership. Having become a major societal force, business in many countries, including Mexico and Turkey, has been active in attempts to delineate and limit the borders of the state’s authority. Although aspirations like those already existed to varying degrees before the 1980s, they have accelerated in the last two decades, fostered by the major prevailing trends around the globe: political and economic opening. The first stemmed from the spread of democratization movements all around the world, which triggered a snowball reaction in many places, as opening-up of previously closed systems almost became the norm. The second is related to the forces of globalization, which intensified the rivalry between previously insulated domestic economies. Therefore, a struggle between prominent societal groups and states—over whose rules would dominate and whose value systems would thrive—has intensified. As some business sectors gained more leverage and bargaining power based on their recently acquired mobility, their aspirations to transform the state not only increased, but also gained further ground. In both Mexico and Turkey, some businesses’ underlying identities and motives have been partially based on the religious value systems, in addition to material motives. A striking simultaneity between Mexico and Turkey is found in PAN and AKP’s ascents to power in 2000 and 2002 respectively, backed by similar constituencies: some big business interests, but mainly small and medium-sized enterprises that have been as eager to achieve their identity-based goals so as to maximize their economic profits. Accordingly, they became involved in networks that acted to reinforce religious bonds and economic pursuits. The existence of these networks and those sub-groups within business

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communities verifies the need for more detailed research on those topics. Having been fostered by the rise of religious conservatism on the global scale, the expansion of religious business networks and their shared meanings pose important questions for the future.

Lessons for MENA countries Many lessons can be drawn from the market-transition experiences of Turkey and Mexico for the MENA countries whose transition processes have been launched in a protracted fashion, and where political openings have been highly limited. These two emerging countries cannot necessarily provide coherent models as a whole for MENA, given their colossal problems and pressing vulnerabilities, marred by exclusionary politics prevalent in different levels. Although the Turkish trajectory is often demarcated as a ‘model’ for MENA, particularly following the Arab Spring, its limitations in both the economic and the political realm, some of which were discussed throughout the book, thwart Turkey’s being a good model. Nonetheless, certain institutions, policies, and processes that these countries have had (sometimes only at a given point in time, as they change rapidly) can help mould roadmaps in MENA. Particularly, the crises that emerged in the first phase of transitions in both Mexico and Turkey show the importance of clear rules of the game, including those of competition, regulation, the status and operation of institutions, as well as coordination between the state and businesses. Regulatory reforms have particularly been crucial in the partial resilience of both markets when they encountered the 2008 global crisis. Both countries learned from their previous experiences with crises, and then implemented regulatory instruments in the surveillance of multiple external actors. Thus, integration into global markets with caution is essential for MENA countries whose regulatory reforms are either lagging, or where their effective operation is at stake. Business organizations have increasingly played important roles in aggregating and mobilizing interests, coordinating with state actors during the transitions. The book has shown the importance of enhancing the capacity of business organizations in their mobilization of interests, generating collective action, as well as their incorporation them into policy-making platforms. The Turkish and Mexican experiences show that the design of these institutions matters in the sense that ambiguities involved in those institutions pave the way for manipulation of institutions by strong veto players. Therefore, establishing well-defined monitoring and sanctioning mechanisms is as important as the inclusion of diverse actors into designated coordination platforms. Inclusivity of economic institutions as to a broader distribution of reform benefits plays a major role in support for reforms. Picking winners and losers, an old legacy that is sustained in different forms in both countries, impedes inclusivity in several dimensions. Such selective offering of incentives and other benefits helps maintain monopolies and oligopolies, narrows down the alliances, and perpetuates the pattern of incumbents nurturing their own business allies at

Concluding remarks 209 the expense of excluding the others, which in turn has major power–distributional consequences. Thus, the allocation of public resources and incentives through fair procedures and broadening-up alliances is essential. Recent research points out the vital role of democratic institutions for desirable economic outcomes, particularly underlining the necessity of inclusionary institutional arrangements in both the economic and the political spheres, which would give rise to ‘open order societies‘ (Acemoğlu and Robinson 2012, North et al. 2013). So far, neither the Turkish nor the Mexican trajectory has adopted ‘open order’ institutional arrangements. Although the states mostly let go of their grip on production, they have more or less kept their control in market mechanisms and its players, while new patrons offered new incentives to their new ‘clients’ as the transitions proceeded, thus renewing patrimonial ties and clientelistic networks. Given the shades of illiberal paths that Turkey and Mexico have embarked on with restrained capacities, limited access, and exclusion in different fronts, along with pressing vulnerabilities regarding economic indicators and governance structures, the extent to which they can provide ‘models‘ for the MENA countries is subject to debate. Rather than a full model that can be replicated easily, they can make partial models for sectional features, such as they make good models for strong public finances and macroeconomic stabilization by means of sound policy-making (though belatedly in the Turkish transitions), export-led growth as well as structural transformation of the composition of exports (and diversification of export markets in the case of Turkey), and regulatory reforms in certain fields. Although the growth of manufacturing is considerable in both markets, it is predominantly based on low productivity and low value-added production, as well as subcontracting. Both Turkish and Mexican transitions illustrated the perils of financialization of the markets, particularly before stability is attained and when dependency on external markets and players is high. Both markets suffered from the vagaries of public debt and accompanying inflationary pressures in the first phase of the transitions. Though they recovered from public debt in the second phase by means of sound public finances, this time they got trapped by private debt, rendering their markets highly vulnerable to external shocks. Thus, lessons ought to be drawn based on specific components of their often-praised trajectories of recovery from severe crises. The Turkish path might be inspirational not only for its impressive recovery and sustained growth in the last decade, but also for a relatively greater inclusion of new players in the market, through enabling SMEs to get incorporated into global production chains and form backward linkages in various sectors. This process is particularly striking when the unprecedented power of organized interests (aggregated by semi-public or pluralist organizations), and new forms of coordination and financing are taken into account. Unlike in Mexico, domestic ownership is historically predominant in Turkish industry and this has not changed drastically with increasing FDI in the 2000s. The Mexican path might provide useful inputs for sustained stability—macroeconomic and institutional alike—and the success of unorthodox stabilization programs coupled with carefully designed institutions which facilitate the building of trust between the state

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and business actors, particularly in the first phase of transitions. Expanding inclusion in the political sphere marked by major restriction of the executive discretion, increasing power of the legislature, and enhancing political freedoms may also provide good lessons for the MENA countries that have gone through authoritarian and semi-authoritarian regimes. Independent of models or anti-models and their self-appointed tutelage over newly rising political parties and movements, the future and character of the developmental states in the MENA countries will be shaped by dynamic interactions between the markets, evolving institutions and societies, and the state linked to the forces of globalization, and the ways in which they are tamed by the respective actors.

Appendix List of interviewees

Mexico

Turkey

Carlos José Alba Vega Gustavo Almaraz Luis Héctor Álvarez José Alberto Aguilar Iñárritu Pedro Alberto Oscar Alcantara Pedro Carlos Aspe Armella (two interviews) Odracir Barquera Gerardo Barrios Espinosa Rodolfo Becerril Ulises Beltran Marcela Britz Garizurieta Armando Cabra Gustavo Carvajal Jorge Calderón Carlos Chaurand Juan Elek Helios Eguiluz Adam Humberto Escoto Silvestre Fernández Barajas Juan Gallardo Thurlow Pedro García Guillermo Güémez Yusuf Haras Anthony Hatoum Blanca Heredia Rubio Francisco Hernández Sergio Hernández Marta Jara (email interview) Carlos Martín Jiménez Macías Jim Jones Francisco Hernández Juárez Armando Labra María de los Ángeles Pozas Miguel Ángel Mancera Espinosa

Engin Akçakoca Vedat Alaton Sedat Aloğlu Ahmet Kurtcebe Alptemoçin Mehmet Altınsoy Necati Arıkan Mehmet Balduk Mehmet Barlas Mustafa Bayburtlu Celal Beysel Cemal Boyalı Ümit Boyner Orhan Çakmakcı Cengiz Çandar Bulent Çaparoğlu Süleyman Demirel Toker Dereli Kemal Derviş Ebru Dicle Vehbi Dinçerler Hüsnü Doğan Bülent Eczacıbaşı Mahfi Eğilmez Barış Ekdi Vahit Erdem Murat Erenel Ertuğrul Ergöz Tuğrul Erkin Süleyman Gedik Mustafa Günay Çağrı Gürgür (email interview) Aydın Güven Gürkan Memduh Hacıoğlu Ahmet Helvacı Kemal Kabataş (two interviews) continued

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Appendix: list of interviewees

Mexico

Turkey

David Marquez Ifigenia Martha Martínez y Hernández Juan Manuel Martínez Carlos Mireles García Porfirio Muñoz Ledo Juan Manuel Ortega Gilberto Ortiz Muñiz Mariano Palacios Salomón Presburger Slovik Joaquín Pría Luis Rubio Armando Ruiz Rosemary Safie Clarissa Salas Chacón Fernando Salas Cuauhtémoc Sandoval Ramírez Alfonso Sandoval Olvera Armando Santiago John Saxe Fernández Jorge Tamayo Jorge Terrazas Ornelas Ricardo Tirado Jaime Zabludovsky (two interviews) Jacobo Zaidenweber

İsmail Hakkı Karakelle Aykut Kansu Hüsamettin Kavi Nazım Kaya İlker Keremoğlu Halis Komili Tanil Küçük İhsan Kulalı Murat Okçu Ali Rıza Oktay Korkut Özal Duru Özbakan (telephone interview) Soli Özel Erdogan Özotun Seriye Sezen Bülent Tanla Alp Taşkent Oktar Türel Arzu Turhan Osman Ulagay Cüneyt Ülsever Abdulkadir Uslu Özhan Üzümcüoğlu Tezcan Yaramancı Mustafa Yavuz Zekeriya Yıldırım

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Index

Page numbers in italics denote tables, those in bold denote figures. Agreement for Competitiveness, Employment and Social Justice (2004), Mexico 170 Alexandria Businessmen Association 191 al-intifah see infitah (open door policy) alliance sustainability 4, 18 ALTEX program, Mexico 49 amakudari 20, 186 American Chamber of Commerce 191 ‘Anatolian Tigers’ 48, 67, 144 anti-imperialism 175, 182, 193, 198 anti-trust law 45, 120–1 Arab Maghreb Union 180 Arab socialism 175 Arab Spring (2011) 6, 176, 195, 208 Association of European Chambers of Commerce and Industry (Eurochambers) 139–40 Association of Lobbyists (PROCAB) 166 autonomous technocrats 13 Avantel 109

bureaucracy, hegemony of 117 Business and Industry Advisory Committee (BIAC), OECD 140 business cohesiveness 22–4, 201; emergence of 82–4 business community, fragmentation in 22–3, 59 Business Coordinating Council (CCE), Mexico 36, 86, 88 business corporatism 163 Business Life Cooperation Association (İŞHAD), Turkey 66 business organizations: inter- and intraorganizational rivalry 83; semi-public 134; Turkification process of 59 business preferences, classification of 15, 206 businesses’ use of media 44–5 business’s bargaining power 193 business-state relations 14, 172

balance of power 26 balance-of-payments crises 6 bank credits 127 Banking Regulation and Supervision Agency (BDDK), Turkey 116, 119 banking sector, regulations in 110 bankruptcy 45, 70 Banks Association of Turkey (TBB) 78, 152–3 barcode license rights 137 Basel III agreement 120 brainstorming meetings 42 BRIC (Brazil, Russia, India, and China) countries 7 buffer instruments 46

capital accumulation 33, 44, 49, 68, 135, 143–4, 193, 199 capital flow 44–6, 128, 179 capital substitution, of foreign capital by national capital 193 capitalist renaissance 189 Center for Economic Studies of the Private Sector (CEESP), Mexico 87–9, 99 Central Bank, Mexico 107 Chapultepec Agreement (2005) 172 Civil Initiative 69–70, 79 civilian–military relations 116 civil–society organizations 140, 196 Confederation of Asia-Pacific Chambers of Commerce and Industry 140

Index 233 Confederation of Industrial Chambers of Mexico (CONCAMIN) 36–7, 51, 54–5, 83–5, 87–8, 92, 95, 100–1, 161–4, 170 Confederation of National Chambers of Commerce, Services and Tourism (CONCANACO-SERVYTUR) 36, 51, 83–4, 87–9, 95, 161, 170 conglomerates 6, 8, 15–16, 31, 44–5, 49, 63, 68, 70, 77, 85–6, 101, 120, 125, 144, 171, 176, 190, 197, 201–2 consumer products, production of 31 Coordinating Council for Foreign Trade (COECE), Mexico 54, 55, 98–9 Coordination Council for the Improvement of Investment Environment (YOİKK), Turkey 114, 135, 149–52 coordination-inducing institutions 22, 191; establishment of 105, 134, 147; operation of 134; rise and collapse of 147–8; sustainability of 136; in Turkey 141, 147 corporatist organizations 163; in Egypt 189–92; revival of 136–40 Council for Dialog for the Productive Sectors, Mexico 170 credit guarantees 138 cross-border cooperation 180 Cuban revolution 86 currency conversion 46 current account deficit 128, 130–1, 179, 180 custom transit licenses 137 customs tariffs 44, 193 Customs Union Agreement, Turkey 7, 45–6, 76, 139, 181, 197 debt-inflation-interest rates 47 decision making process, centralization of 41, 149–50 Deep and Comprehensive Free Trade Area (DCFTA) 194 defensive organizations 23 democratization, process of 1, 5, 9, 48, 66–7, 122–3, 140, 143, 170, 178, 201, 206–7 Derviş, Kemal 113–14, 151, 154 developmental states, characteristics of 2–5, 14–15, 19–20, 22, 41, 123, 177, 190, 200, 205, 210 disinvitation, politics of 42–3; in fragmented polities 75–7 ‘divide and rule’ strategy 71 Dufaa networks 20

economic bureaucracy: power struggle in 72–3; principles, partisanship, and ideological conviction 74–5 Economic Coordination Board (EKK), Turkey 135, 148–9 economic crisis (2008), Turkish and Mexican 125–31; fragile growth and ‘privatized’ debt 130–1; global crisis and privatization of debt 127–9 ‘economic democratization’ 5, 66–9, 122, 143, 178, 201 economic governance 105–6, 120–1, 136, 148–9, 151, 156, 161; characteristic of 124 economic institutions 3, 8, 17, 26, 49, 56, 107, 110–11, 122–4, 156, 176, 178, 186, 195, 203, 208; characteristics of 125, 144; quality of 132, 135 economic liberalization 14; through bilateral elite coordination 53–5 economic nationalism 60, 175, 193 Economic and Social Council (ESK), Turkey 77, 115, 135, 153, 170, 196, 198 Economic Solidarity Pact (PSE), Mexico 89 Economic Stabilization Program (1985), Israel 52 Egypt, market reforms in 184–92; benefits of industrial policy and 187; Chambers of Commerce and Industry 190; corporatism and pluralism, issue of 189–92; dilatory reforms 184; executive discretion and 188–9; free zones, establishment of 184; increasing fragmentation and 186–8; infitah (open door policy) 184, 186, 190–1; interagency rivalry and 187; Nahda (renaissance) project and 192; Nasser’s rule and 185; state-led developments 184 Egyptian Businessmen’s Association (EBA) 190–1 Egyptian Trade Union Federation (ETUF ) 191 El Colegio de Mexico (COLMEX) 91 embedded autonomy, concept of 19–20 emerging markets 2, 5, 7, 12, 105, 131, 138, 176, 177, 192–3, 206 employer–labor relations 62 Employers’ Confederation of the Mexican Republic (COPARMEX) 36, 83, 85–9, 92, 95, 160–3, 170, 172 Energy Market Regulatory Authority (EPDK), Turkey 119

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Energy Regulatory Commission (CRE), Mexico 109 Euro-Med Association Agreements (EMAAs) 10, 180–1 European Neighbourhood Policy (ENP) 10, 180 European Union (EU) 140; accession process of Turkey in 115, 136, 139–40, 203; classification on territorial federations 140; EU–Turkey Global Business Bridges 139; Turkey–EU Chambers Forum project 139 Evaluation Board for Economic Issues (ESDK), Turkey 115, 135, 147–9 Evaluation and Follow-up Commission of the Pact (CSEP), Mexico 96 export-oriented growth models 8

Mexican economy after 129–30; Turkish economy after 130–1 globalization 201, 205, 210; benefits of 38 Great Depression 60 green capital 70 growth-inducing collaboration 4 Gülen community/movement 68, 201–2, 205

February 28 Process 48, 69 Federal Commission of Regulatory Improvement (COFEMER), Mexico 112 Federal Competition Commission (CFC), Mexico 109 Federal Law of Economic Competition 108–9 Federal Telecommunications Commission (COFETEL), Mexico 109 Federation of Egyptian Industries (FEI) 190 financialization, concept of 46–7 foreign capital 2, 6, 16, 30, 46, 53–4, 120, 135, 138, 182, 193, 205 foreign credits 146 foreign currency, indebtedness in 146 foreign direct investment (FDI) 126, 128–9, 150, 181, 209; inflows and outflows 129 Foreign Economic Relations Board (DEİK), Turkey 137 Foreign Investment Advisory Service (FIAS) 149 foreign trade capital companies 42 Fox, Vicente 32 free market economy 44 free trade areas 10, 180, 194 free-trade agreement 171

import substitution industrialization (ISI) 7–8; business’s response to market reforms and 37–40; comparative growth by 32–3; exogenous shock and increasing stakes 33–4; intervention in business activity 31–2; lucrative for domestic industry 30–1; pact for 29–32; secularism and cultural policy 32 Independent Industrialists and Businessmen’s Association (MÜSİAD), Turkey 64, 66–8, 70, 115, 125, 137, 142–6, 154 infitah (open door policy) 5, 184, 186, 190–1, 198 inflation, rate of 131 Information and Communication Technologies Authority (BTK), Turkey 119 institutions: formation and evolution of 24–7; political conflict, role of 26; political ownership of 27 Instituto Tecnológico Autónomo de México (ITAM) 91 intellectual property rights 102, 114, 194 International Chambers of Commerce 140 international financial institutions (IFIs) 7, 79, 90, 206 International Investors’ Association of Turkey (YASED) 150–1 International Labour Organization (ILO) 77 International Monetary Fund (IMF) 41, 50, 52, 90, 105, 113–17, 119, 130–1, 145–6, 151, 186, 193 international trade, exclusionary coordination in 171

gakubatsu, concept of 20 gazette of revenues and registration 137 General Agreement on Tariffs and Trade (GATT) 37, 42, 51, 54, 90; Uruguay round 92 Gezi Protests (June 2013) 205 global financial crisis (2008) 7, 120, 125;

Hak-İş (Confederation of ‘Just/Fair’ Labor Unions) 70, 78, 154 harmonious society, ideal of 185 Higher Board of Auditing, Turkey 125 housing credits 131 Housing Development Administration (TOKİ), Turkey 125 human rights 116

Index 235 intra-organizational rivalry 58, 64, 79, 83, 170 Investment Advisory Council (IAC) 151 investment incentives 30–1, 135, 177 Islamic banks 70 Islamic Chamber of Commerce and Industry 140 Islamist business organizations 67, 178 Islamist politics, rise of 44, 67, 69 Istanbul Chamber of Commerce (İTO) 64, 142 Istanbul Chamber of Industry (İSO) 33, 125 joint ventures 16, 30, 66, 126, 142 Jones, Jim 166 Justice and Development Party (AKP), Turkey 8, 48, 67, 114 Latin America 23, 34, 87, 97, 130, 176, 185 layering, process of 27 liberal corporatism 163 lobbying 165–8; Anglo-Saxon style of 10; versus concertation 169–71; influence in Mexico 167–8; of Islamist organizations 144; against liberalization and competition 45–6; regulation of 166–7; US-based lobbying firms, impact of 166 macroeconomic stabilization 44, 53, 55, 105, 111–12, 116–17, 121, 125, 130–1, 146, 167, 209 maquiladoras 16, 126–7, 161, 166 market liberalization 3, 4, 28, 38, 50, 123, 138, 195 market reforms and reform alliances: business’s response to 37–40; comparative growth by ISI 32–3; exogenous shock and increasing stakes 33–7; ISI pact 29–32; motives behind business’s support for 39 market transitions: actors and institutions 18–24; business cohesiveness and 22–4; in Mexico 28, 158; policy-making process 19; state cohesiveness and 20–2; in Turkey see Turkish business, market transitions in material incentives 206–8 mergers and acquisitions 45, 119 Mexican Banking Association (ABM) 83–4, 88 Mexican Business Council for Foreign Affairs (CEMAI) 51, 55, 88, 99, 171

Mexican Business Council for Foreign Trade, Investment and Technology (COMCE) 171 Mexican Business Council for International Affairs (CEMAI) 51, 55, 88, 99, 171 Mexican Council of Businessmen (CMHN) 63, 86–8, 95, 100, 167, 190 Mexican Council of Economic and Social Development (COMDES) 172 Mexican Council on Foreign Relations (COMEXI) 168 Mexican economy, after the global crisis 129–30; FDI inflows and outflows 129 Mexican Institute for Competitiveness (IMCO) 167 Mexican miracle 33, 172 ‘Mexico in Liberty’ campaign 36, 88 Mexico, state-business alliances in: advisory role of business’ versus the state 54–5; ALTEX program 49; big business and limited inclusion, domination of 101–2; bureaucratic resistance and their defeat 89–92; business cohesiveness, emergence of 82–4; Business Council for International Affairs (CEMAI) 51; business’s support for market reforms 28, 37–40; commitments and high levels of coordination 95–7; concessions and emergence of 49–51; consultation mechanism for 99–100; Consulting Forums for Democratic Planning 89; and coordination through cohesive actors 92–5; coordination-inducing institutions in 93; corporatism in 85; ‘crisis of trust’ in 35–7, 49; ‘culture of concertation’ and limited coordination 92–5; debt crisis 33–4, 88, 90–1; diminishing state cohesiveness and 168–9; dwindling power of the peak organizations and 160–3; economic crisis and 125–31; economic liberalizing through bilateral elite coordination 53–5; Economic Solidarity Pact (PSE) 89; Employers’ Confederation of the Mexican Republic (COPARMEX) 36, 83, 85–9, 92, 95, 160–3, 170, 172; foreign investment and 30; foundation of a peak organization and 87–9; fragmentation within business and 159; free trade alliance 54; ISI-based development 33; Law on Chambers 84; lobbying for 167–8; market transitions

236

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Mexico, state-business continued in 28, 158; Mexican Council of Businessmen (CMHN) 63, 86–7; Mexican revolution 29, 83, 85; Mexico Dialogue 37; Ministry of Commerce and Industrial Development (SECOFI) 90; modern business organizations, formation of 84–5; National Association of Importers and Exporters of the Mexican Republic (ANIERM) 51; National Congress of Businessmen 89; National Program for Industrial Development and Foreign Trade (PRONAFICE) 50; National Tripartite Commission (1971–1976) 94; novel designs and medium-to-high levels of coordination 97–102; Pact for Stability and Economic Growth (PECE) 97; Pact of Economic Solidarity (PSE) 25, 51–2, 90, 95; Popular and Democratic Alliance for Production (1976–1982) 94; PRI–labor alliance and 96–7; private banks, nationalization of 35–6, 88; privatization of development planning and professionals of development 171–2; PSE and effective issue linkages 52–3; and re-invention of organizational identities 163–4; Secretariat of Commerce and Industrial Development (SECOFI) 50; Secretary of Programming and Budget (SPB) 21–2; solidifying narrow alliance, the COECE process 55; state cohesiveness, in first phase of transitions 89–92; state-labor relations in 23; ‘statistics and analysis’ versus politics 164–5; Trust for Foreign Exchange Protection (FICORCA) program 49; twin shocks and politicization of business in 35–7 Middle East and North Africa (MENA) 3, 5–6, 10, 15, 19–20, 201; economic democratization 178; economic development, levels of 178; economic liberalization 177; Egypt, market reforms in 184–92; Euro-Med Association Agreements (EMAAs) 10, 180–1; export growth and GDP growth 182; industrial policy 177; inward FDI flows in 183; lessons for 208–10; market transitions in 178; Morocco, market reforms in 192–5; regulatory reforms 208; state–business relations in 177–84; state-led developments in 175, 178;

transitions and state–society relations 182–4; Tunisia, market reforms in 195–7 Mill’s method of difference 6 MINT (Mexico, Indonesia, Nigeria, and Turkey) countries 7 MIST (Mexico, Indonesia, South Korea, and Turkey) countries 7 Moncloa Pact (1977), Spain 52 monopoly 31, 92, 110, 119 Moroccan Association of Textiles and Apparel Industries (AMITH) 194 Morocco: Banking Law (1967) 195; business’s bargaining power 193; Deep and Comprehensive Free Trade Area (DCFTA) 194; Free Trade Agreement signed with the EU 193; market reforms in 192–5; market transitions in 193; National Bank of Economic Development (BNDE) 193; National Telecommunication Regulatory Agency (NTRA) 195; state-owned telecommunications company, privatization of 195 Mülkiye school 20 multinational companies (MNCs) 2, 30, 56, 136 multi-sector conglomerates 15, 125 Muslim Brotherhood 192, 198 Nahda (renaissance) project, Egypt 192 National Action Party (PAN), Mexico 8 National Banking and Securities Commission (CNBV), Mexico 110 National Center for Economic Development (CNDE) 172 National Chamber of Transformation Industries (CANACINTRA), Mexico 37, 51, 54–5, 83, 85, 90, 92, 95, 100–1, 162–5, 170 National Council of Foreign Trade (CONACEX) 171 National Council of the Maquiladora Export Industry 161 National Outlook Movement 10, 67 National Security Council, Turkey 48, 71, 112 National Workers’ Housing Fund Institute (INFONAVIT), Mexico 97 ‘Next 11’ groups 7 North American Free Trade Agreement (NAFTA) 7–8, 10, 24, 53–5, 98–9, 158, 165, 168, 181; advantages of 55 Nur movement 68

Index 237 oligopoly 31, 109 Ottoman Empire 20, 59–60, 71, 182 Özal, Turgut 21, 35, 41–4, 67, 72, 74, 91 Pact for Stability and Economic Growth (PECE), Mexico 53, 97, 169 Pact of Economic Solidarity (PSE), Mexico 25, 51–2, 90, 95, 103 pluralism, revival of 189–92 political conflict, in bringing institutional change 26 political ownership, of institutions 27, 116 power-distributional issues, significance of 7–8, 26, 159, 204, 206, 209 pragmatism, pattern of 40, 74–5, 122 presidentialized parliamentary system 9, 106–7, 122 private banks, nationalization of 35–6, 88 private investment, crowding-out effect on 16 private-sector organizations 162 profiteering tin-makers 46 Program for Immediate Economic Structuring (PIRE) 50 public debt management 113 public deficit 45, 47, 52, 54, 87, 95–6 public finances 52, 54, 97, 107, 112, 117, 125, 127, 130, 145, 209 public sector borrowing requirement (PSBR) 46–7 public–private competition, in financial markets 47 regulatory state in Mexico, rise of: accession to NAFTA and 108–10; anticompetitive decisions and 109; Auditor of the Federation (ASF) and 107; change in regime and 110–11; inclusion, exclusion, and business’s responses 111–12; regulation and competition 108–10; stabilizing with stronger institutions 107 regulatory state in Turkey, rise of 112–13; centralization, selective inclusion and polarized responses of business 123–5; coordination with the Central Bank 113–15; democratic opening and increasing authoritarianism 121–3; Economic and Social Council 115; economic governance, characteristic of 124; EU-accession process and 115, 136, 139–40, 203; Europeanization and the IFIs 115–16; financial crisis and 113; incomplete reforms and weak

transplants 118–20; new institutions and macroeconomic stabilization 116–17; public financing and debt management law and 117; regulation and supervision of the markets 117–18; regulatory agencies and increasing subordination 118–20; regulatory reforms and business’s responses 120–1; Strong Economy Program and 114 rent-distribution 22, 73 risk management 119 secularism and cultural policy, impact on business development 32 semi-public organizations 135, 139, 156, 163, 167; transformation of 163–4 sexenios 36, 84, 90–1 Sexennial Agenda for Growth (2012) 160 Slim, Carlos 172 Small and Medium Enterprises Development Organization (KOSGEB), Turkey 139 small- and medium-sized enterprises (SMEs) 3, 17, 48, 85, 131, 138, 209; internationalization of 171 social sciences 25 South Korea 7; amakudari 186; Economic Planning Board (EPB) 21–2 state capitalism 1, 200 state planning organization (SPO) 21, 35, 72–3, 118 state-business alliances 3, 201; actors and institutions 18–24; advisory role of business’ versus the state 54–5; balance of power 26; collapse and resurgence of 43–9; coordination between 19, 24–7; degradation of 17–18; dynamics of 18; electoral alliances 18; financialization, issue of 46–9; formation of 28–9; governing alliances 18; in Mexico see Mexico, statebusiness alliances in; in Middle East and North Africa (MENA) 177–84; political conflict, role of 26; powerdistributional issues, significance of 26; reform alliances 17–18; tension between big business and the governments 48–9; in Turkey see Turkey, state-business alliances in; use of media and 44–5; vicious cycle of 43 state-control and corporatism, issue of 59–60 state-labor relations: evolution of 23; reforms in 86

238

Index

state-led development strategy 1, 7–8, 82, 176, 193, 200 state-monopolized television (TRT) 35 state-owned enterprises (SOEs) 31, 40, 112, 118, 144, 185; privatization of 188 state-society relations 54, 110, 206; evolution of 3; transitions and 182–4 stock markets 49, 96, 108, 112, 123 Strategy 2000 (CEESP) 89 tax: auditing 31, 124; reforms 146, 162 tecnoburocratas 91 Telmex 109 tesebonos 53 TOBB organization, Turkey see Union of Chambers and Commodity Exchanges (TOBB), Turkey trade liberalization 15–16, 28, 38, 45, 50–2, 54, 96–8, 171, 193–4, 197 transnationalization 1–2, 8, 24, 59, 68, 129, 135, 176, 200, 205 Trust for Foreign Exchange Protection (FICORCA) program, Mexico 49 Tunisia: Economic and Social Council (ESK) 196; European Union Association Agreement, signing of 197; industrialization in 196; market reforms in 195–7; National Company for Investment (SNI) 196; state-business interactions in 197; Union of Industry, Commerce and Craftsmanship (UTICA) 197 Turkey, state-business alliances in: Association of Chambers of Industry 62; banking regulations 153; banking sector 120; Board of Economic and Social Affairs 73; bureaucracy versus democracy 71–2; business actors and pluralist organizations, emergence of 140–2; business contesting the regime 65–6; business’s dependency on the state 30; business’s response to market reforms 37–40; cohesiveness on Islamist pole and 142–4; cohesiveness on secularist pole and 144–7; concentrated interests and coordination platforms 152–3; coordination between the state and business 149–52; coordination within the government and 148–9; coordination-inducing institutions in 141; corporatist organizations, revival of 136–40; crises, threats and reconciliation in 34–5; currency conversion 46; Customs Union

Agreement 7, 45–6, 139, 181; debt crisis 34; decision making, centralization of 41; ‘divide and rule’ strategy 71; Economic and Social Council (ESK), failure of 153–5; economic crisis and 125–31; Economic Issues Evaluation Board 25; education policy and institutions 146; etatism 61; Five-Year Development Plan 34; foreign exchange earnings 42; foreign policy towards ‘Euro-Asianism’ and 128; fragmentation and de-institutionalization 70–9; for increasing capacity and institution building 147–9; inflation rates 44; interagency rivalry 70–1, 75; (dis)invitation, politics of 42–3; Islamist politics, rise of 69; ‘the Istanbul dukedom’ 45; labor movement in 30, 34; Law on Associations 140; Law on Chambers of Commerce and Industry 59; Law on Protecting the Value of the Turkish Lira 46, 60; market transitions in see Turkish business, market transitions in; nationalization of the economy 59; power struggle in economic bureaucracy 72–3; RefahYol government 69; reform alliance, burgeoning of 41–2; reforms and shaky alliances in 40–9; rising state cohesion and 147–9; short-term alliances, collapse and resurgence of 43–9; state planning organization 72–3; State Planning Organization (SPO) 21–2, 35; ‘state within the state,’ foundation of 61–6, 137–9; state–labor relations in 23; stop-and-go and constant change of rules for 151–2; symbiotic relationship in 135; transition to multiparty democracy 29; transnational actors and coordinating platforms 149–52; tripartite council, formation of 77–9 Turkey-EU Business Development Centers (ABİGEMs) 139 Turkey-EU Chambers Forum project 139 Turkish business, market transitions in 35, 40, 147; business community, fragmentation in 59; ‘civil initiative’ and memorandum 69–70; domestic business, weakness of 60–1; FDI inflows and outflows and 129; foundation of a ‘state within the state’ and 61–6; foundation of the Republic and 60–1; inter- and intraorganizational rivalry and 64–5; Naqshbandi order 68; pluralist

Index 239 organizations and emerging interorganizational rivalry 62–3; pluralist organizations, failed attempts to mobilize 63; political conflict, economic democratization, and fragmentation 66–9; state-control and corporatism, issue of 59–60 Turkish Competition Authority (RK) 119 Turkish Confederation of Businessmen and Industrialists (TUSKON) 64, 67–8, 70, 115, 125, 137, 140, 142–5, 154, 202, 205 Turkish Confederation of Employer Associations (TİSK) 34, 62 Turkish Economic and Political Research Foundation (TEPAV) 136 Turkish Enterprise and Business Confederation (TÜRKONFED) 131, 137, 140, 142–3, 145 Turkish Exporters Assembly (TİM) 135, 142, 150 Turkish Free Enterprise Council 63 Turkish Industrialists’ Union 61 Turkish Industry and Business Association (TÜSİAD) 63, 131, 150 Turkish Merchants Association 61 Turkish National Commerce Union 60 Türk-İş (Confederation of Turkish Trade Unions) 69, 77–8 two-party corporatism 163 Union of Black Sea and Caspian Confederation of Enterprises (UBCCE) 140

Union of Chambers and Commodity Exchanges (TOBB), Turkey 64–5, 76, 115, 121, 135–6, 147, 150–1; commercial versus industrial interests 61–2; Constitution Platform 137; Economy and Technology University 136, 139; foundation of 61–2; functions of 139; investment in state-like functions 138; relations with the government 65; resources and increasing capacity of 137–9; Search Conferences 136; status as quasi-public business organization 62; structure and interest mediation 138 Union of Mediterranean Confederations of Enterprises (BusinessMed) 140 Union of Turkish Chambers of Agriculture (TZOB) 34, 63, 70, 155 United States-Mexico Business Council 172 US-based lobbying firms, impact of 166 Velazquez, Fidel 97 Vocational Training Project (UMEM), Turkey 139 Washington Consensus 2, 37 workers’ remittances 6, 127 World Bank 116, 151, 172, 186; International Finance Corporation 150; structural adjustment policies 193 World Chambers Federation 140 Yom Kippur War (1973) 184