The Political Economies of Turkey and Greece

Crisis and Change

Mustafa Kutlay

• Publisher: Palgrave Macmillan
• Year: 2018
• Print ISBN: 9783319927886
• eBook ISBN: 9783319927893
• Topic: Politics & International Relations
• Subtopic: Economic Policy
• Index: Politics & International Relations

The economic policies of reactive states such as Turkey and Greece, both of which have shown limited ability to implement institutional reforms in recent years, have paved the way for deep crises. The crises are devastating for both societies' social fabric, but they also open up the opportunity to introduce new economic regimes.They do, however, not always invite changes in dominant paradigms. Despite weak state capacity and deep economic crisis in both cases, substantial reforms were initiated in Turkey whilst an opposite trend prevailed in Greece. Drawing on field research, this book develops a political economy framework that explains reform cycles and post-crisis outcomes in reactive states.

© The Author(s) 2019

Mustafa KutlayThe Political Economies of Turkey and GreeceInternational Political Economy Serieshttps://doi.org/10.1007/978-3-319-92789-3_1

Begin Abstract

1. Introduction

Mustafa Kutlay¹

(1)

City University of London, London, UK

Mustafa Kutlay

End Abstract

This book probes into the political dynamics of economic transformations in reactive states. The politics of major reforms is one of the controversial issues in international/comparative political economy literature. There is no clear-cut and agreed-upon template for how successful reforms are initiated and consolidated. State’s role in the governance of economic transformations is an even more contested theme.¹ The institutionalist political economy literature, which has made a strong comeback after the global financial crisis vis-à-vis orthodox neoclassical accounts, suggests that “state capacity” is a precondition, not an obstacle for reforming the domestic economic structures.² However, states are not standardized commodities whereby their capacity diverges substantially across cases. Two main types of states are postulated in the literature with respect to state capacity discussions: “Proactive” and “reactive” states.³

Proactive states tend to have the capacity to initiate economic reforms as part and parcel of a comprehensive strategy. Thanks to the institutional complementarities in state-market relations, economic transformations in these states are commenced as a result of prudently crafted and patiently implemented long-term policies.⁴ Reactive states, on the other hand, tend to suffer from reform-biased institutional structures that underlie collective action problems toward instigating paradigmatic changes.⁵ In these political economies, state remains at the center of the perennial who-gets-what struggle among different interest groups, and its relative strength vis-à-vis other domestic/international centers of power tends to be weak. The reactive state is defined with reference to (a) political systems imbued by intense political polarization and uncontrolled populism, (b) state bureaucracies characterized by very limited “embedded autonomy,” and (c) domestic policy coalitions—that is, state’s relations with business elite and labor class—permeated by rent seeking and clientelism. The state in these political economies depicts a Janus-faced nature. On the one hand, it frequently intervenes into the functioning of the markets. On the other hand, these interventions tend to be ad hoc, fragmented, and lopsided that arbitrarily favors a narrow circle of privileged coalitions against overall welfare of the society.

In reactive states, institutional structures are set in a way that informs rent-seeking behavior at the agency level. Accordingly, state tends to be captured by special interests and, as a result, turns into an impediment to initiate reforms rather than assuming a steering role. In this setting, institutional arrangements create various mechanisms for state agents to bandwagon the deeply entrenched rent-seeking coalitions. Moreover, these policies are likely to be more exposed to the vagaries of global finance so that international dynamics play a much more pronounced role. The postponement of reform decisions, in turn, paves the way for the accumulation of deep-seated economic problems. More often than not, paradigmatic changes are set in motion in the wake of exogenous shocks:

Reactive states tend to be more fragmented and enjoy a much lower degree of relative autonomy from key domestic constituencies… Hence, [their] ability to overcome sectional conflicts and concentrate their attention on longer-term strategic goals tends to be more limited… [In reactive states] in the absence of crises, the existing coalitions supporting a particular policy regime tend to display considerable resistance to change in spite of the fact that there might be clear signs indicating that the existing policy regime might no longer be viable or sustainable.⁶

Economic crisis, in this context, is a forceful game-changer that may disturb domestic power relations and predominant ideational paradigms underlying intricate relationships between incumbent agents and institutional structures. However, as the literature suggests, not all crises invite major changes.⁷ In fact, crises per se fall short of explaining post-crisis variations across cases since crises with a similar magnitude lead to diverging reform outcomes, as the empirical chapters of this book demonstrate. This leads to the main research questions: What are the dynamics of reform cycles in reactive states? When and how economic crises lead to paradigmatic reforms in these political economies?

This book develops a three-stage framework that addresses these questions. The conceptual framework explains why implementing economic reforms are so difficult in reactive states and explores when and how crises alter this recalcitrant path dependence. It offers crisis narrative approach as an organizing concept of the conceptual framework. This book concentrates on the political economy of contemporary Turkey and Greece to reveal the causal mechanisms of persistence, crisis, and change in peripheral countries. The rest of this introductory chapter is organized as follows: The second part lays out the logic of case selection. The third part explains methodology and data sources. The final part outlines the organization of chapters.

1.1 Why Turkey and Greece?

This book examines Greece and Turkey , which are similar cases concerning state capacity and state-market relations. These two states can be considered as part of the “southern varieties of capitalism.” It is astonishingly striking, however, that comparative political economy research on Greece and Turkey is an under-studied area in the literature. This book argues that Greece and Turkey are reactive states due to three main reasons. First, for idiosyncratic historical-sociological reasons, political context is imbued by intense and intentional polarization that hampers consensus-based reform activism while uncontrolled populism tends to lie in wait in both cases. In Greece, for instance, deep-seated patronage politics pursued in a polarized pluralist system penetrated into the state apparatus.⁸ A similar historical pattern is also much pronounced in the Turkish case. Turkish political system is frequently defined with reference to polarized pluralism and an under-developed culture of consensus-based policy-making.⁹ Second, the economic bureaucracy in both countries remains under heavy influence of patronage politics, which paves the way for weak institutional insulation and coherence. For instance, “embedded autonomy” remained a distant objective in Greek economic bureaucracy.¹⁰ Similarly, weak institutionalization of intra-bureaucratic cooperation and nascent institutional autonomy of economic bureaucracy have dominated Turkish political economy. Third, state’s relations with non-state economic stakeholders tend to be inward looking and rent seeking in both cases. Pappas notes that patron-client relations and political patronage are deeply entrenched in Greece to the extent that exclusive distribution of political rents to targeted interest groups have created de facto immunity from the law.¹¹ In terms of interest intermediation structures, Greece approximates to the model of “disjointed corporatism” delineated by state-led, fragmented, and non-institutionalized state-business and state-labor relations.¹² The institutional context of interest intermediation in Turkey also fits into the reactive state category. Institutional economic players in the Turkish context suffer from ubiquitous organizational failures; thereby, their mode of interaction with state tends to remain state dependent, ad hoc, and myopic.¹³ Greece and Turkey have a state tradition of frequent intervention in the functioning of the markets; however, the mode of state intervention tends to remain short-term oriented, which informs collective action problems that fortify many different forms of reform inertia.

This brief comparison demonstrates that defining characteristics of state-market relations are similar in both countries. It therefore provides a fertile ground for comparison. The drivers of economic crises and post-crisis reform outcomes in these two cases are also striking. In 2001, Turkey experienced the deepest economic crisis of its modern history due to the culmination of structural problems in the form of a bloated public finance and a bankrupted financial system. The crisis, however, opened up a window of opportunity in the sense that substantial economic reforms were initiated in the immediate aftermath of the crisis. Greece also faced with a profound economic shock i...

Table of contents

• Cover
• Front Matter
• 1. Introduction
• 2. Reforming the Reactive States: A Framework for Analysis
• 3. Political Economy of Turkey (1980–2001)
• 4. Turkish Crisis and Aftermath (2001–2016)
• 5. Political Economy of Greece (1974–2009)
• 6. Greek Crisis and Aftermath (2009–2016)
• 7. Toward a Comparative Political Economy of Reactive States
• 8. Conclusion
• Back Matter