İzak Atiyas - Sabanci University Esra Çeviker Gürakar - Okan University Ozan Bakış ERF Seminar on The Political Economy of the Private Sector in the Middle East Marrakech, Morocco, December 21-22, 2016 www.erf.org.eg

1. Anatolian Tigers and the Emergence of the Devout
Bourgeoisie in the Turkish Manufacturing Industry:
An Empirical Analysis
İzak Atiyas, Ozan Bakış and Esra Çeviker Gürakar
ERF Seminar on
The Political Economy of The Private Sector In The Middle East
December 21-22, 2016
Marrakech, Morocco
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2. Motivation
• Important component of AKP social base: Emerging
devout bourgeoisie, especially in new growth centers
in Anatolia, the so-called Anatolian Tigers
• Our objective is to use firm level data to investigate in
more detail the emergence of Anatolian Tigers and the
devout industrial bourgeoisie
• Main questions: Is there evidence of inclusion? In what
form? When? How do economic characteristics of the
devout bourgeoisie in manufacturing compare with
those of the traditional secular industrial elite.
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3. Focus
• Manufacturing Industry
• Especially after mid-1990s possibilities for favoritism
through traditional instruments of protection (trade,
discretionary subsidies) limited due to Customs Union
with the EU and membership to WTO (1995)
• Different from rent-thick sectors/activities such as
public procurement, construction, energy
• We presume that remaining instruments of favoritism
in manufacturing (land allocation, uneven application
of regulations, «soft» support for export markets) is
relatively «benign».
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4. Data
• Anatolian Tigers: Annual Manufacturing Industry Statistics ,
1982-2000 (10+ firms); Annual Industry and Service
Statistics (2005-2012) (sample of 20- firms, census of 20+
firms)
• Anatolian Tigers defined as NUTS2 regions where Welfare
Party received at least 20 percent of the vote.
• Devout bourgeoisie: data on largest manufacturing firms
put together by the Istanbul Chamber of Industry (500
firms for 1980-1996; 1000 firms for 1997-2014.
• Firms identified as belonging to «religious network» (RN) vs
«secular network» (SN) based on membership to business
associations in 2013: MUSIAD, TUSKON and ASKON for RN;
TUSIAD, TURKONFED for SN.
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5. 1980s and 1990s
• Pre-1980 legacy: import substitution industrialization; emergence
of the traditional industrial elite
– Deals space highly closed; entry barriers as access to foreign exchange,
import quotas and credit
• Özal reforms: Trade and financial liberalization, opening of capital
account
• Fierce political competition especially in the 1990s; significant
fragmentation in both the left and the right
• Short lived coalition governments, «populism» (use of public
resources for political competition) resulting in fiscal-driven macro
instability in the 1990s
• In terms of economic institutions generally a discretionary and non-
rule based environment
• But: Customs Union in 1995; Turkey becomes a candidate country in
1999
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6. Political Islam and the pious
bourgeoisie
• Electoral victories by Islamist parties especially
at the local level
• Emergence of self-declared Muslim
businesses:
– liberalization allowed expanded access to foreign
exchange, imported inputs and credit;
– access to resources allocated by local
governments
• Emergence of «Special Finance Institutions»
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7. AKP regime in 2002-2011
• Financial crisis in 2001
• AKP won elections in 2002 and formed a single party majority government
– Platform of EU orientation
• Economic recovery program launched by the previous government
adopted by the AKP
• Major reform of economic institutions guided by EU legislation
– Central Bank independence; independent regulatory authorities in banking,
telecoms and energy; enhanced fiscal transparency and control; new public
procurement law
• A general increase in economic space governed by formal predictable
rules
– Implementation sometimes discretionary, depending on the sector and area
– Eg application of competition law quite rule based
– By contrast procurement law started to change right after AKP came to power
• A hybrid regime of state business relations
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8. Economic growth in the early 2000s
• 2002-2007 per capita gdp growth higher than 3
percent in 6 consecutive years (the only such
episode since 1961).
• High TFP growth
• Structural change in exports: decline in share of
traditional manufactured exports, increase in
share of mid-tech exports
– between 2000-2010 share of textiles and garments
declined from 35 to 20 percent, share of machinery
and equipment went up from 5 to 9 and of motor
vehicles from 6 to 12 percent.
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9. Tiger share in manufacturing
employment
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10. Tiger share in manufacturing value
added
0
2
4
6
8
10
12
14
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
tiger other
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11. Relative labor productivity 1982-2000
(West=1)
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12. Thickening of the middle
Table 1: Distribution of employment by plant size (%)
10-19 20-49 50-99 100-249 250-499 500+
West
1980s 5.4 11.2 9.3 14.3 14.0 45.9
1990s 4.0 12.5 11.0 18.6 16.2 37.8
Tiger
1980s 3.6 8.4 6.2 8.9 11.4 61.5
1990s 4.0 10.7 8.7 15.2 12.5 48.9
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13. 2000s: Some evidence of productivity
convergence
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14. Change in distribution of employment
across size classes
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15. Productivity convergence especially
among large firms
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16. Catch-up especially among high-
productivity firms
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17. Who are the high productivity firms?
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18. Increased Tiger share in exports
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19. Summary on Tigers
• Thickening of the middle in the 1990s, some
evidence of productivity convergence in the
2000s
• Convergence between the West and Tigers is
uneven: catch-up among high productivity
firms, divergence among low productivity
firms
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20. Share of RN firms increased especially
in the 2000s
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21. 60 percent of large RN firms
established after 1980s
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22. Relative to SN firms, RN firms more concentrated in labor intensive
industries textile and garments, furniture, as well as basic metals. High
SN presence in automotive and chemicals.
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23. RN firms smaller than SN firms
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24. RN firms export oriented. However, in 2012, the share of SN
firms in total exports of top 1000 firms was 61 percent against 15
percent for RN firms
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25. RN firms have lower productivity
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26. Summary
• In the 1980s and early 1990s there were already a handful of firms (around 20-25
of the largest 500 firms) belonging to the RN network that were relatively large
(average size close to 80-90 percent of SN), relatively highly export oriented, with
labor productivity around 60 percent of their counterparts in the SN
• The share of RN firms increased from less than 5 percent (of largest 500 firms) in
the early 1980s to more than 20 percent (of largest 1000 firms, against a share of
about 35 percent for SN firms) in the late 2000s.
• New additions are generally smaller than but as export oriented as the incumbent
RN firms.
• Firms belonging to the RN network are concentrated in more traditional industries
such as food and beverages, textiles and garments and furniture. By contrast, firms
belonging to the SN network have relatively more presence in more capital
intensive industries such as machinery and equipment and chemicals.
• On average RN firms are smaller than SN firms and the gap is size has increased in
the 2000s.
• SN firms still quite dominant in manufacturing
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27. Post 2011
• Weakening of the EU anchor
• Desire on the part of Erdogan to centralize political power and
weaken checks and balances
• Gezi protests in 2013
• But most importantly unraveling of the coalition with the Gulen
movement
– Gulen associated prosecutors attacking the undersecretary of the
National Intelligence Organization (an Erdogan associate)
– Move to close down Gulen establishments in the education sector
– December 2013 graft investigations by Gulenist prosecutors against
the government
• The July 2015 coup attempt
– Expropriation of Gulen-associated businesses
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28. State Business Relations in transition
• SBR moving from a hybrid regime to one where
there is less protection against predation?
• The scope of rules-based governance narrowing
down
– Independence of regulatory agencies as well as the
judiciary already weakened before coup attempt
– Prospects for the EU anchor very dim
• Tremendous increase in political uncertainty,
violence associated with the Kurdish issue and
risks associated with Syria
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