Beyond the Orthodox Paradox: The Breakup of State-Business Coalitions in 1980s Turkey: Overly-Insulated Policies Generates Uncertainties about the Reforms as Well as the Government's Commitment to Them, Further Exacerbating Macroeconomic Instabilities and Making a Long-Term Secure Economic Environment a Distant Prospect
Ozel, Isik, Journal of International Affairs
For many developing countries, the 1980s and 1990s were turning points in which major political and social alliances were transformed by major shifts in economic policy, from protectionist import-substitution industrialization strategies (ISI) to systematic market liberalization. As these transformations were taking place, the role of the state vis-a-vis the economy and societal actors changed, providing fertile ground for a burgeoning of new institutions with different preferences. Market reforms provided a strong base for a "critical juncture," (1) fostering political and economic reorientation in the domestic arena and giving rise to new alignments at both domestic and international levels. Coalitions between state and some societal actors affected the course of market reforms-and, in turn, were affected by them.
Understanding the multifaceted process of market reforms requires an analysis of state-business relations within this juncture, as these actors in many cases initiated intriguing alliances to carry out reforms. These coalitions transformed the interactions between state and business along with the actors themselves, as the actors are "re-structured" during the process of interaction. (2) Both formal and informal coalitions between state and societal actors were vulnerable due to the severe social and economic effects of the reforms, resulting in backlashes that eroded the very alliances on which the reforms flourished.
This is what happened in Turkey between state and business in the 1980s: the eager market reform coalition that formed between these actors in the early 1980s began to break down in the late 1980s, although the incumbent has been known to have formed the most pro-business government of the country's republican history. But why did it happen as it did? What caused the rupture between the reforming governments and business? Why do some alliances weather policy shifts while others do not?
In this article, I examine market reform coalitions (3) between business and the state in developing countries by focusing on coalition sustainability. I argue that the sustainability of state-business coalitions can be explained by institutional rather than purely economic factors: If business is incorporated into the policy-making process through institutionalized channels, coalitions will be sustainable in the longer term. Conversely, if decision-making is centralized through overly-privileged, autonomous agencies or individuals, coalitions may break down and hinder the reform process. Though market reforms call for decentralization, I argue that what many reforming countries end up with is even further centralization of the decision-making process, generating a major dilemma regarding the basic premises of the reforms. Another paradox is the further growth of the public sector during reforms, although the opposite is intended--resulting in re-alignments and de-alignments in the state's interaction with different societal actors.
Scholarship on the intertwined relationship between business and the state in developing countries has gone through numerous phases since the early 1970s. The first, focusing on the "late development" found in East Asia, (4) emphasized the capacity of the state to intervene and control societal interests, including those of business. It was assumed that business was either too weak to cooperate with the state or that its cooperation would result in corruption. Inspired by this literature, the first wave of studies on economic adjustment to market liberalization associated successful reforms with a central and autonomous authority insulated from societal interests and political pressures. Using the Chilean example of the "Chicago boys," who implemented drastic market reforms with little input from business or society, (5) this vein of analysis overestimated the role of autonomous technocrats and international financial institutions (IFIs) while largely disregarding societal actors. …