Turkey’s economic development story has always been something of a black box for scholars to understand, perhaps in part because many of the most successful business enterprises there have been in family hands and largely closed to public scrutiny.
The authors of a new edited volume hope to rectify that with the first scholarly business history of Modern Turkey. Business, Ethics and Institutions: The Evolution of Turkish Capitalism in Global Perspectives was co-edited by Asli M. Colpan, of the Kyoto University, Graduate School of Economics; and Geoffrey Jones, Isidor Straus Professor of Business History at Harvard Business School.
Jones talked with us about the book.
Sean Silverthorne: Given the growth of the Turkish economy and the country’s importance in geopolitical circles, it seems surprising that this book appears to be the first scholarly study on the business history of Turkey (and the Ottoman Empire) from the 19th century onward. What has taken so long for it to attract serious academic study?
Geoffrey Jones: I should emphasize that there is rich historical scholarship on Turkey and its extraordinary predecessor the Ottoman Empire, which covered many present day European and Middle Eastern states, including Albania, Bulgaria, Egypt, Greece, Hungary, Jordan, Lebanon, Iraq, Israel, Romania, Saudi Arabia and Syria. The issue is that this literature has focused heavily on broad macro-economic trends and political economy. This is partly the result of data availability. The business sector of modern Turkey has been dominated by closely held family business groups, which rarely allow access to their corporate archives, or else by a myriad of small businesses, which rarely keep any documentation. This has made it challenging to study business beyond what can be observed in governmental and legal records.
The contribution of this book is to explore the coevolution of business enterprises with the better researched institutional, economic, and social context.
"Turkey’s future prospects are likely to be greatly influenced by what happens to its regional neighborhood."
Silverthorne: A significant portion of the essays focus on individuals, entrepreneurs, and enterprises that led economic growth of the country. Is there any one person, institution, or family that was especially critical?
Jones: We wanted to talk more about individual business actors than existing studies because we believed that this was add greater nuance to the overall story. Although many important business leaders are discussed, we were able to devote a whole chapter to the Koç family and their business group which was founded in the 1920s. Today it is the country’s largest diversified business group, comprising over one hundred individual companies, employing over 90,000 people, and the only Turkish business to enter the Fortune 500 venture.
I and my co-author Asli Colpan, who now teaches at the University of Kyoto and was previously an Alfred D. Chandler Visiting Fellow at HBS, were fortunate to have access to the family leadership and archives of the Koç group through the intervention of the late former Dean of the School, John H. McArthur, who sat on the Board of the holding company.
The career of the founder of the group, Vebhi Koç, is informative in showing the huge challenges faced in building modern businesses in the new Republic of Turkey, founded in 1923 out of the ashes of the Ottoman Empire. These challenges included a dearth of capital and skilled talent. The chapter explores how he navigated these challenges, creating pioneer manufacturing businesses after World War II, and how his children and grandchildren have taken the business forward, professionalizing the management and engaging in extensive social investments. The Group became a symbol of ethical capitalism, and through its family foundation have supported multiple initiatives in health and education, including founding Koç University in 1992, now one of the most prestigious universities in the country.
Silverthorne: In what ways is Turkish business history distinctive and in what ways does it share commonalities with other developing countries in the period? Is Turkish capitalism itself distinctive?
Jones: There are many elements of Ottoman and Turkish business history which find parallels across Africa, Asia, and Latin America. During the 19th century the Ottoman Empire escaped formal colonization, but like similar countries including China and Iran, its autonomy was highly constrained by the Great Powers of Europe. This resulted in considerable distortions on the economy and society. For example, special legal privileges were given to Europeans and non-Muslim minorities, which was one reason why the Muslim majority was relatively absent from private business. As the Republic of Turkey sought to catch up with the advanced West in the 20th century, the pioneers of modern businesses faced the same challenges caused by weak capital, labor, and other markets as encountered in many other emerging countries. They shared the same responses in the form of heavy government intervention in the economy. Businesses in Turkey like many emerging markets also had to navigate great turbulence. Between the 1960s and 1980s, there were repeated military coups, and hyper-inflation between the 1970s and 1990s.
That said, I would emphasize two features of Turkish business history which are quite distinctive. During the Ottoman Empire, for reasons discussed above, Armenians, Greeks, and Jews dominated the modest modern business sector. During the traumatic events of World War I and the creation of the Republic of Turkey, their businesses were expropriated, and most of these minorities fled or were killed. In other words, the country’s entrepreneurial elite were decimated. It proved a lengthy and challenging process over subsequent decades to build a new Muslim national business class employing financial and other incentives provided by the state, as well as overt discrimination against the residual non-Muslim population.
A second distinctive feature of the business history of the Republic of Turkey has been the very small role of foreign-owned business, which stands in contrast to the experience of countries such as Brazil and Indonesia, and China from the 1980s. Nationalistic policies and instability made Turkey an unattractive place for most foreign firms, and despite more stability and liberalization over recent decades, the role of foreign business remains quite limited. This probably reduced opportunities for technological transfer, and limited the competitive structure of the economy.
Silverthorne: In a chapter on business ethics and corruption, you and colleague Janet Hunter note that the country has struggled with corruption (as have other developing and Western nations, of course). What has the country lost in terms of economic development due to corrupt business practices? Will it be able to enact more effective reforms?
Jones: The latest Corruptions Perceptions Index ranks Turkey as 78 out of 180 countries in their level of corruption, more corrupt than China and South Africa, equally corrupt as India, and less corrupt than Brazil and Russia. My London School of Economics colleague Janet Hunter and I start our chapter with skepticism about such rankings, suggesting for example that the good standing of the United States in such metrics probably fails to take into account significant levels of corruption at state and municipal levels.
Still, there is strong empirical evidence that Turkey has a long-term and growing problem of corruption. Corruption, bribery, and political interference prevail in the award of public contracts. Perhaps controversially, our chapter argues that historical evidence suggests that corruption per se does not prevent rapid economic development, although it does distort it. Modern Turkey has achieved great economic progress whatever the prevalence of corruption. World Bank data shows that Turkey’s per capita income grew (in constant 2010 US $) from $3,000 to over $15,000 between 1960 and the present. (The comparable figures for India are $330 and $2,104). Nonetheless, likely negative outcomes range from poor quality construction and growing work-related accidents to the remarkably low level of personal trust seen in the country. A less corrupt Turkey would be a richer Turkey today.
Historical evidence suggests it is remarkably difficult to reverse corruption when it has become systemic. The few successful cases, such as Singapore, point to the importance of institutional reforms, especially taking anti-corruption policing away from existing police services and assigning it to wholly separate and autonomous agencies, supported by efficient and autonomous court systems. Sadly, the Turkish judiciary and police are bywords for corrupt practices.
Silverthorne: In Chapter 5, the essay’s authors explore “Islamic Capitalism and the Rise of Religious Conservative Big Business.” How have religion, politics and business intertwined during this period to shape development?
Jones: My HBS colleague Kristin Fabbe and her co-authors show that in Turkey Islamic actors have used a pragmatic political and economic approach to introduce the idea of “Islamic capitalism,” and have made concerted efforts to distinguish these “new” business practices from capitalism more generally. The so-called pious business elites have leveraged and transformed a repertoire of religio-cultural frameworks in the service of both political power and capitalist development, a strategy that has strengthened their ability to accumulate influence over the traditional stewards of Turkey’s economy, the secular business groups such as Koç and Sabanci.
Silverthorne: Harvard Business School’s Creating Emerging Markets project contains eight interviews with business leaders in Turkey who operated businesses or other enterprises during the period studied in book. Did this project influence or feed the book? Do you think these “on the ground” perspectives match up with what the scholars observe in the book?
Jones: With the formidable assistance of HBS’s Istanbul global research center, my HBS colleague Felix Oberholzer-Gee and others were able to interview at length some of Turkey’s most prominent business leaders, including Hamdi Akin, Cem Boyner, Rahmi Koç, Hüsnü Őzyeğin and Güler Sabanci. Our website hosts a wonderful set of short video clips in which these iconic figures talk about key issues ranging from family business to innovation. We use these interviews in the book, as they provide rich first-hand testimony about some of the challenges of doing business in Turkey discussed earlier. However they also shed light on things often less explored in the scholarly literature. For example, we learn how challenges have been turned into opportunities, and how you can grow successful businesses in turbulent conditions by paying close attention to execution and recruitment of strong managerial talent.
Silverthorne: Personally, how do you see Turkey and its economy evolving over the next few decades on the world stage? What factors will be critical for its continued growth?
Jones: Turkey is at once an Asian, a European and a Middle Eastern country. This provides unique potential for economic success in the world economy. The country borders the EU nations of Bulgaria and Greece, the central Asian nations of Armenia, Azerbaijan and Georgia, plus Iraq and Syria, and it is on the Black Sea, the Aegean Sea and the Mediterranean. Turkish Airlines has grown so fast precisely because Istanbul is well-positioned as a hub between West and East, North and South. A major issue going forward is whether this location is going to present more opportunities than challenges. The current turbulence in Iraq and Syria points to the latter. Turkey has almost four million Syrian refugees at the moment, and an on-going dispute with the ethnic Kurds who live both in Turkey and Iran, Iraq and Syria. So Turkey’s future prospects are likely to be greatly influenced by what happens to its regional neighborhood.
Further complexities arise from the on-going domestic culture wars between Islamists, currently led by Recep Tayyip Erdoğan who has been prime minister and subsequently President since 2003, and the secular urban elite, whose party this year won the mayoral elections in Ankara, Izmir, and Istanbul. How this tension plays out will also have a formative influence on Turkey’s trajectory.
About the Author
Sean Silverthorne is editor-in-chief of Harvard Business School Working Knowledge.
[Image: ugurhan]
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