The Ottoman Empire was for a long time an important economic and political power in Europe. Its living standards were similar to those of Europe for much of the early modern period, and it was relatively urbanized compared with many European polities. Istanbul was the largest city in Europe until the early 1700s. But significant gaps in income between western Europe and the empire emerged during the Industrial Revolution, gaps that persist to this day. Even as other countries—those poorer than the Ottomans in 1870—caught up, Turkey, which succeeded the Ottoman Empire, struggled to close this gap. Although labeling the Ottoman/Turkish experience as one of a centuries-long “decline” is controversial in the historical literature, historical development statistics—wages, GDP per capita, life expectancy—show that Turkey was on the “wrong” side of the Great Divergence.
In the past decade, Turkey's (and the Ottoman Empire's) development challenges received considerable scholarly attention. The economics literature largely converged on a set of institutional explanations. But how businesses were organized and how this organization evolved over time received no serious examination. Business, Ethics and Institutions, edited by Asli M. Colpan and Geoffrey Jones, fills this gap as one of the first systematic studies on the business history of Turkey. This Turkish/Ottoman context is relevant to all scholars of business history. In many respects, Turkey's development experience is representative of other emerging markets. The Turkish state grappled with questions of industrialization and the extent of government intervention and regulation, as well as corruption in the presence of cascading political and economic crises.
The volume is organized in two parts. The first part examines the history of capitalism from the late Ottoman Empire to contemporary Turkey. Seven Ağır, in chapter 2, traces the evolution of business organization since the 1800s. Ayşe Buğra, in chapter 3, studies how the state shaped the business environment since the republic's inception. Kristin Fabbe, Ümit Özlale, and Efe Murat Balıkçıoğlu take up this thread again in chapter 5, focusing on the emergence of a pious, Muslim business class. Chapter 4, by editors Colpan and Jones, makes concrete the ideas these other chapters develop by using the Koç Group—the largest and arguably the most important family business owners in Turkish history—as a grand example.
The second part delves deeper into contemporary issues in the Turkish business landscape. Chapter 7, by B. Burçin Yurtoğlu, shows that corporate governance continues to be concentrated in the hands of family members. As Behlül Üsdiken reveals in chapter 8, this ownership structure has created very little room for professional managers, many of whom feel resentment at being relegated to a position of glorified clerk despite their modern business training. Ali Çarkoğlu, in chapter 9, shows that corruption and bribery, once so prominent in the public mind, have vanished as priorities for most citizens of Turkey today, even though corruption is very much perceived to be there, as the economic outlook has worsened. Each of the volume's two parts ends with a concluding chapter, the first by Patrick Fridenson and the second by Janet Hunter and Geoffrey Jones, placing these important contributions in much-needed comparative context.
The book develops several key ideas that underlie each chapter. The state loomed large over the business environment. The state's attitude toward the business community ranged from detached indifference to suspicion and hostility. The business community became the subject of a state project: a nationalist one at the beginning of the twentieth century, and a devout one since the 2000s. It is not that businesspeople had no agency; rather, the bourgeoisie emerged with dependence on the state, whether to get subsidies early on or to get favorable contracts today. Entrepreneurs had to navigate shifting public-private boundaries and different ideologies. As a result, the business community did not develop a distinctive corporate responsibility of its own. Corporate “ethics” came out of state policy and to steer volatile politics.
This political environment also harmed innovation. The late Ottoman Empire and early republic had a vibrant bourgeoisie; it was made up of non-Muslim minorities. The new business groups of Turkey benefited extensively from non-Muslim entrepreneurs’ expertise, best seen in the rise of the Koç Group. But the project of creating a “national” corporate class called for the removal of this distinctive middle class. This is a theme that comes forth in the book at least once more. With wide state support, minority enterprises were replaced by “Turkish” firms, which in turn are now being pushed out by devout, “Muslim” businesses. In this inversion of Schumpeterian creative destruction, where more innovative and productive firms drive out the old ones, firm entry/exit dynamics seem to have followed the waves of political change. As a result, Turkish firms could not become competitive in international markets, either turning inward and exploiting tariff protections in the 1960s or turning to low-income or middle-income market segments in Muslim countries in the last decade to take advantage of religious trust.
Because of this political volatility and the persistence of weak, noninclusive institutions, there is widespread low trust. This context explains the relentless grip of family members over salaried managers and weak corporate governance. As such, public trust of business endured, further reinforcing the incentives to do philanthropy only as a means of garnering social legitimacy. As Ağır states, the republic's founders justified heavy-handed state oversight over private business because businesspeople lacked economic know-how and economic decency (captured together in the phrase “iktisadi terbiye”) (p. ?). This book shows us that, by the 2000s, the issue was that the business community had to reinvent that “decency” and “know-how” over and over again.
Business, Ethics and Institutions is an impressive book that brings in diverse methodologies from economics and history, using biographies, case studies, surveys, and macroeconomic data to show the serious institutional obstacles Turkish businesspeople have faced. In doing so, it deepens our understanding of late industrializers more broadly. It highlights the issues associated with weak institutions and extensive state intervention that continue to prevent Turkey from getting out of its middle-income trap. Such problems are not unique to the Turkish context. As such, this is an important read for scholars interested in the history of capitalism in emerging markets.
