NEW PERSPECTIVES ON TURKEY

NEW PERSPECTIVES ON TURKEY No. 47 Fall 2012 Special Issue on Turkey s Experience with Neoliberal Policies and Globalization

NEW PERSPECTIVES ON TURKEY

New Perspectives on Turkey is published in cooperation with the Chair in Contemporary Turkish Studies at the London School of Economics and Political Science. Editors Ayfer Bartu Candan, Boğaziçi University Biray Kolluoğlu, Boğaziçi University Book Review Editor Reşat Kasaba, University of Washington Editorial Board Ümit Cizre, İstanbul Şehir University Selim Deringil, Boğaziçi University Çağlar Keyder, Binghamton University Cengiz Kırlı, Boğaziçi University Erol Köroğlu, Boğaziçi University Yael Navaro-Yashin, Cambridge University Ayşe Öncü, Sabancı University Şevket Pamuk, London School of Economics Asuman Suner, İstanbul Technical University Fikret Şenses, Middle East Technical University Cihan Z. Tuğal, University of California, Berkeley Zafer Yenal, Boğaziçi University Deniz Yükseker, Koç University Editorial Assistant Cem Bico Manuscript Editor Yan Overfield Shaw New Perspectives on Turkey Homer Kitabevi ve Yayıncılık Ltd. Şti. Sayı: 47/Sonbahar Sorumlu Yazı İşleri Müdürü Ayşen Boylu Adres Homer Kitabevi ve Yayıncılık Ltd. Şti. Yeni Çarşı Caddesi, No: 12/A Galatasaray, Beyoğlu, 34433, İstanbul Tel: 0212 249 59 02 www.homerbooks.com e-mail: homer@homerbooks.com Katkıda Bulunanlar Ayfer Bartu Candan, Boğaziçi University Ümit Cizre, İstanbul Şehir University Selim Deringil, Boğaziçi University Reşat Kasaba, University of Washington Çağlar Keyder, Binghamton University Cengiz Kırlı, Boğaziçi University Biray Kolluoğlu, Boğaziçi University Erol Köroğlu, Boğaziçi University Yael Navaro-Yashin, Cambridge University Ayşe Öncü, Sabancı University Şevket Pamuk, London School of Economics Asuman Suner, İstanbul Technical University Fikret Şenses, Middle East Technical University Cihan Z. Tuğal, University of California, Berkeley Zafer Yenal, Boğaziçi University Deniz Yükseker, Koç University New Perspectives on Turkey is a series of research papers published biannually by Homer Academic Publishing House, Yeniçarşı Caddesi, No: 12/A, Galatasaray, Beyoğlu, 34433, İstanbul / Turkey Correspondence relating to subscriptions and back issues should be sent to npt@homerbooks.com Homer Kitabevi ve Yayıncılık Ltd. Şti. Yeniçarşı Caddesi, No: 12/A, Galatasaray, Beyoğlu, 34433, İstanbul / Turkey www.newperspectivesonturkey.net New Perspectives on Turkey is indexed and abstracted by the Social Science Citation Index, Sociological Abstracts, Worldwide Political Science Abstracts, Historical Abstracts and America: History and Life Book Design: Emre Çıkınoğlu, BEK Printed in İstanbul ISSN: 1305-3299 Baskı Yaylacık Matbaacılık San. ve Tic. Ltd. Şti. Litros Yolu, Fatih Sanayi Sitesi, No:12, 197-203, Topkapı - İstanbul Tel: 0212 612 58 60 Dağıtım Homer Kitabevi ve Yayıncılık Ltd. Şti. Yeni Çarşı Caddesi, No: 12/A Galatasaray, Beyoğlu, 34433, İstanbul Tel: 0212 249 59 02 New Perspectives on Turkey and the Chair in Contemporary Turkish Studies at the London School of Economics and Political Science gratefully acknowledge a generous grant from Türk Ekonomi Bankası for the publication of this journal.

No. 47 Fall 2012 Special Issue on Turkey's Experience with Neoliberal Policies and Globalization 5 Editor s Introduction: Turkey s Experience with Neoliberal Policies and Globalization since 1980 Şevket Pamuk Articles 11 Turkey s Experience with Neoliberal Policies since 1980 in Retrospect and Prospect Fikret Şenses 33 Rushing toward Currency Convertibility Kurtuluş Gemici 57 Economic Institutions and Institutional Change in Turkey during the Neoliberal Era İzak Atiyas 83 Marching to the Beat of a Late Drummer: Turkey s Experience of Neoliberal Industrialization since 1980 Erol Taymaz and Ebru Voyvoda 115 Internationalization of Finance Capital in Spain and Turkey: Neoliberal Globalization and the Political Economy of State Policies Mustafa Kutlay 139 Privatization Processes as Ideological Moments: The Block Sales of Large-Scale State Enterprises in Turkey in the 2000s Merih Angın and Pınar Bedirhanoğlu Review Articles 169 Reflections from the Conference Turkey Debates its Social Policies : A Rights-Based Turn in Social Policy Making in Turkey? Ayşe Alnıaçık and Ayşen Üstübici Book Reviews 229 Tuncay Zorlu. Innovation and Empire in Turkey: Sultan Selim III and the Modernization of the Ottoman Navy. London: IB Tauris, 2008. Gelina Harlaftis 232 Hannes Grandits, Nathalie Clayer, and Robert Pichler, eds. Conflicting Loyalties in the Balkans: The Great Powers, the Ottoman Empire and Nation-Building. London: I.B. Tauris, 2011. Bülent Bilmez 240 Amit Bein. Ottoman Ulema, Turkish Republic: Agents of Change and Guardians of Tradition. Stanford, CA: Stanford University Press, 2011. Brian Silverstein 247 Ayşe Kadıoğlu and E. Fuat Keyman, eds. Symbiotic Antagonisms: Competing Nationalisms in Turkey. Salt Lake City: The University of Utah Press, 2011. Didem Türkoğlu 252 Nicole Watts. Activists in Office: Kurdish Politics and Protest in Turkey. Seattle: University of Washington Press, 2010. Ceren Belge 256 Cenk Saraçoğlu. Kurds of Modern Turkey: Migration, Neoliberalism and Exclusion in Turkish Society. London: I.B. Tauris, 2011. Çetin Çelik 185 Rewriting the History of Port Cities in the Light of Contemporary Global Capitalism Nurçin İleri 211 Unearthing the Ottoman Present Ali Sipahi 221 Anti-, Non-, or Post-Saidian?: The Challenge of Discussing German Orientalism Malte Fuhrmann

115 Internationalization of finance capital in Spain and Turkey: Neoliberal globalization and the political economy of state policies Mustafa Kutlay Abstract This study applies the proactive/reactive state framework to the transformation of Spanish and Turkish finance capital in a comparative perspective. It concludes that the proactive policies pursued by the Spanish state and the strategic coalition established between political elites and the integrationist segments of finance capital resulted in the heterodox internationalization of Spanish firms, whereas the reactive state policies in Turkey, designed in line with orthodox neoliberal dictums, paved the way for an incomplete internationalization. The 2007/2008 crisis, however, demonstrates that the same state may be both proactive and reactive across various policy fields over time. The recent Spanish financial crisis and Turkey s regulatory success after 2001 illustrate this point. Keywords: neoliberal globalization, proactive/reactive state, state capacity, transformation of finance capital, comparative political economy. Introduction Neoliberal globalization, which took off in the early 1980s, shifted the world political economy from state-centered and regulatory Keynesianism to market-oriented neoliberalism. The transformation of finance capital was an indispensable part of this change. 1 Most of the countries Mustafa Kutlay, Koç University, Department of International Relations and Political Science, Rumeli Feneri Yolu, 34450, Sarıyer, İstanbul, mkutlay@ku.edu.tr. Author s Note: I am heavily indebted to M. Fatih Tayfur and Ziya Öniş for their invaluable contributions on earlier drafts of this paper. I would also like to thank the two anonymous referees of New Perspectives on Turkey for their illuminating comments. 1 In this study, finance capital refers to the firms that unify different strands of the financial, trade and industrial sectors under an organizational umbrella. The term financial, on the other hand, mainly refers to the banking system, due to the dominance of the banking sector in the overall financial system in Spain and Turkey. New Perspectives on Turkey, no. 47 (2012): 115-137.

116 Mustafa Kutlay which underwent this process adapted themselves to pro-market principles and opened up their financial systems. Structural explanations attributed this change to both inevitable and irreversible market forces and the international state system. According to this thesis, the increasing mobility of capital shifts the balance of power from states to markets and from holders of fixed assets (labor) to holders of liquid assets, such as financial capital itself. The logic of this globalist orthodoxy relies on a new understanding of global capitalism which assumes that states are now virtually powerless to make real policy choices; transnational markets and footloose corporations have so narrowly constrained policy options that more and more states are being forced to adopt similar fiscal, economic and social policy regimes. 2 Since states are regarded as passive victims of the global order, neoliberal globalization is perceived as the realm of necessity to which states must adapt. 3 If we review the comparative literature on the issue, however, it becomes apparent that various states specific practices diverge, and some states play their strategic targeting roles in the economy very actively. 4 Within the framework of state capacity discussions, two main types of state reactions to neoliberal globalization are postulated in the literature; proactive and reactive states. 5 Proactive states transform their finance capital as part and parcel of a comprehensive re-framing of their national political economy structures. Thanks to the strategic involvement of the state in the economy and the mutual interaction between interest groups in the industrial and financial spheres of such countries, the transformation of financial systems has materialized within the context of carefully designed and patiently implemented protection of infant industries against harsh international competition. 6 Weiss uses the term proactive state in order to refer to a state 2 Linda Weiss, Globalization and the Myth of the Powerless State, New Left Review I, no. 225 (1997): 3. For two illustrative texts staunchly supporting the globalist orthodoxy, see Kenichi Ohmae, The Next Global Stage: Challenges and Opportunities in Our Borderless World (New Jersey: Wharton School Publishing, 2005); Thomas Friedman, The World Is Flat: A Brief History of the Twenty-first Century (New York: Farrar-Straus & Giroux Publishers, 2005). 3 John M. Hobson and M. Ramesh, Globalisation Makes of States What States Make of It: Between Agency and Structure in the State/Globalisation Debate, New Political Economy 7, no. 1 (2002): 7. 4 Ibid. 5 In this study, proactive and reactive states should not be confused with the liberal state. In fact, proactive and reactive states have a common element, which is action. Liberalism, in this context, refers to a third dimension. The point is that proactive and reactive states act in a very different manner against market developments and state-market relations. The proactive/reactive distinction in this study is essentially used as positive descriptive tool and it does not have any normative bases. 6 Ha-Joon Chang, Breaking the Mould: an Institutionalist Political Economy Alternative to the Neoliberal Theory of the Market and the State, Cambridge Journal of Economics 26, no. 5 (2002).

117 with the organizational capacity for governing industrial transformation [instead of ] neoliberal dictums. 7 The proactive state, argues Weiss, is a precondition, not an obstacle, for the successful internationalization of domestic finance capital in the global economy. 8 Moreover, proactive states tend to have, in addition to transformative capabilities, capacity in the regulatory realm of the economy. 9 A robust regulatory element also constitutes an important aspect of proactive states, though they are mainly distinguished by their strong transformative component. In other words, strong regulatory capacities are not sufficient to distinguish proactive states from reactive ones. 10 In this regard, the various strategies followed by proactive states are; supporting local firms in raising money in foreign capital markets, supplementing private overseas investments with official/diplomatic assistance, encouraging and financially supporting the mergers and acquisitions of domestic private firms to increase their competitiveness (especially in banking, telecommunications and infrastructure), and assisting domestic firms in relocating operations overseas. 11 As these key strategies reveal, it is the degree of partnership between government and business that remains at the heart of proactive/reactive state discussions. The determining factor and the starting point in active state involvement are the political will and entrepreneurial ambition of the state elite. The state is expected to invest in the formation of a strategic coalition so as to formulate a broader political-economic framework which can comprehensively overhaul the existing structures. It is of vital importance to both overhaul the traditional mechanisms of production and transform the political system that underpins the aforementioned traditional interest coalitions. This means that the state backs a particular type of finance capital that aims for further integration with global economic networks. On the other side of the coin, these integrationist segments of finance capital also respond positively to proactive state policies. Reactive states, on the other hand, are not able to establish a strategic coalition between finance capital and state elites during the transformation process. As a result, economic transformation exacerbates the fragmentation of political-economic structures in the country in question. Öniş and Şenses argue that reactive states ability to overcome sectional conflicts and concentrate their attention on longer-term strategic goals 7 Weiss, Globalization and the Myth of the Powerless State, 15. 8 Ibid. 9 Linda Weiss, The Myth of the Powerless State (Ithaca: Cornell University Press, 1998), 7. 10 The author thanks Ziya Öniş for clarifying this point in earlier drafts of the paper. 11 Weiss, Globalization and the Myth of the Powerless State, 22-23.

118 Mustafa Kutlay such as developing internationally competitive export industries tend to be more limited. 12 Reactive states tend to follow the orthodox recipes of international financial institutions and regional power blocks, and open up their markets hurriedly without first putting into place an effective regulatory framework. 13 Putting it another way, the liberalization and integration process is not part of a comprehensive political-economic process with the guidance and active participation of the state, nor is cooperation between state and business firms established. Moreover, policy changes in reactive states are mainly crisis-triggered and driven by external stimuli, such as the IMF and World Bank. 14 Spain and Turkey represent instructive cases and illuminating examples of a proactive and a reactive state, respectively. If one scrutinizes the post-war period, these two countries demonstrate considerable similarities. Due to their unique geographical qualities, similar positioning in the stratification of the world political economy, and socio-cultural and political characteristics, Spain and Turkey can be studied as part of the same subsystem, namely Southern Europe. In retrospect, between 1945 and 1975, both countries displayed semi-peripheral characteristics in terms of low value-added traditional production, low GDP per capita incomes, and highly authoritarian political regimes. The finance capital in both countries was quite traditional, fragmented, uncompetitive and overwhelmingly dependent on state protection. Although the developments in the political economy of these two states showed striking similarities in the post-war period up until the beginning of the 1970s, they diverged and followed very different paths from the second half of that decade. 15 In addition to its substantive democracy, Spain currently stands out as the fifth largest economy in Europe (even despite the devastating eurozone crisis) and controls world-leading industrial and financial giants in telecommunications (Telefónica), oil and natural gas (Repsol-YPF), public utilities (Iberdrola, Unión Fenosa) and banking (BBVA and Grupo Santander). On the other hand, Turkey has periodically plunged into severe financial and political crises, including a military administration, 12 Ziya Öniş and Fikret Şenses, Global Dynamics, Domestic Coalitions, and a Reactive State: Major Policy Shifts in Post-War Turkish Economic Development, METU Studies in Development 34, no. 2 (2007): 255. 13 Joseph Stiglitz, Capital Market Liberalization, Economic Growth, and Instability, World Development 28, no. 6 (2000): 1075. 14 Öniş and Şenses, Global Dynamics, Domestic Coalitions, and a Reactive State: Major Policy Shifts in Post-War Turkish Economic Development, 255. 15 M. Fatih Tayfur, Yunanistan ve İspanya nın Batılılaşma Serüveni ve Türkiye: İki Nikah, Bir Cenaze, in Türkiye ve Avrupa, ed. Atila Eralp (İstanbul: İmge, 1997).

119 and experienced volatile and unsustainable economic growth, resulting in its finance capital remaining relatively uncompetitive. This study undertakes a comparative analysis of the political economy of the transformations of finance capital in Spain and Turkey over the last three decades, in order to assess the determining impact of particular state policies. The first part investigates the transformation of finance capital in Spain with special reference to proactive state strategies. The second part focuses on Turkey and analyses the role of reactive state policies in the relatively deficient transformation of Turkish finance capital. The conclusion draws lessons for further research on the proactive/reactive state framework. The Spanish case: The emergence of business conquistadors Spain was ruled by Francisco Franco for about 35 years under an absolutist political regime. After the death of Franco in 1975, the Spanish transition to democracy was extremely rapid and peaceful because a democratic constitution was accepted with the support of 83.87 percent of the population in 1978, and was swiftly followed by nation-wide pluralist elections. Additionally, the Spanish Communist Party was legalized and, after a center-right reformist Unión de Centro Democrático (UCD) administration, the socialist Partido Socialista Obrero Español (PSOE) came to power in 1982 in a landslide victory, taking 48.5 percent of the vote. In the immediate post-franco era, transforming the regime into a democratic one from the bottom became the main political ideal of almost all major interest groups. Spain s transformation towards democracy and integration with Europe emerged in a very short time thanks to the willing consensus of major groups in Spanish society, including finance capital. In addition to the consolidation of democracy, there was a rapid consolidation of Spanish finance capital during socialist rule. 16 Consolidation of Spanish financial capital During the transition period (1977-1982), the policies of the governing party, UCD, and its leader, Adolfo Suarez, were quite important for state-finance capital relations. Suarez was aware that economic transformation was sine qua non. In a fragile political economy conjuncture, he spent all his energy on democratization to prepare the institutional, legal, and political backdrop for eventual European Community (EC) membership. Spanish finance capital, which had experience of working 16 For a comprehensive history, see ibid.

120 Mustafa Kutlay with the state during Franco s reign, found a progressive political voice in the Suarez era. In fact, Suarez became the major actor in leveling the political field, enabling the incoming PSOE government to concentrate on economic modernization and financial transformation. 17 The socialist PSOE government started this task in 1982 by overhauling and restructuring the semi-peripheral Spanish economy. One of the aims was to improve the economy s structural basis by creating a transnational business armada of Spanish origin. The investment build-up was related in several cases to the cabinet s attempt to launch certain companies into leading positions in the world market. In order to build something akin to a set of national champions, the government continued, in the first place, to pursue a strategy of rationalization and concentration of business lines around strong companies. 18 To this end, the White Paper on Reconversion and Re-industrialization was put into force in 1983 to stimulate the transformation of the economy from low-value added, traditional sectors into high-value added, modern ones. 19 Initially, the government merged public enterprises around strong entities and rationalized/reorganized their administration. For example, all state-owned electricity companies were brought together under the umbrella of one power supplier, Endesa; the iron, steel, aluminum and electronics companies were organized around CSI- Aceralia, Inespal and Inisel; and the oil and gas companies were transferred to the ownership of one company, Repsol. 20 These companies, once the dustbin of public sector, had, by the end of 1980s, been transformed into profitable public utilities. 21 Also, Spain s entry to the EC in 1986 did not leave the government much time to transform its industrial base in a protectionist way. As a result, up to 1993, the year in which 17 The UCD government can be credited not only with Spain s smooth transition to democracy, but also the enactment of 1978 constitution, the signing of historic Moncloa Pacts (1977) between different interest groups, the bold steps towards liberalization and finally the first democratic power transition from a center-right party to the socialists in 1982. 18 Carles Boix, Building a Social Democratic Strategy in Southern Europe: Economic Policy under the Gonzalez Government (1982-93), Juan March Working Paper Series (Madrid: Centro de Estudios Sociales Avanzados Fundación, 1995), 27. 19 Sima Lieberman, Growth and Crisis in the Spanish Economy: 1940-1993 (London: Routledge, 1995), 311. 20 Pablo Arocena, Privatization Policy in Spain: Stuck Between Liberalization and the Protection of Nationals Interests, CESifo Working Paper Series, CESifo Working Paper No. 1187 (2004), 3-4. 21 Rosio V. Real, Reform of State Enterprises in Spain, The Asian Journal of Public Administration 23, no. 1 (2001): 170; M. Fatih Tayfur, Semiperipheral Development and Foreign Policy: The Cases of Greece and Spain (Aldershot: Ashgate, 2003), 173-174.

121 the European Single Market was established, the government increased investment in the prospective national champions of Spain. The public giants, Repsol, Endesa, and Telefónica, were subsidized through tax reliefs, cost reduction schemes and other means, and despite pressure from Brussels. 22 As Arocena underlines, the main intent of the government was to protect [them] from foreign and domestic competitors. 23 Therefore, capital formation by public firms increased by about 15 percent every year in the mid to late-1980s; a rate higher than that in the private sector. 24 Subsequent PSOE administrations implemented the plans quite successfully, and 80 percent of investment targets were realized. 25 The crucial aspect in this period was the intensification of state-business relations. Under the PSOE regime, the political-economic center was occupied by the financial elite and the interlocking directorates with industry. When the PSOE government came to power, the seven biggest Spanish private banks controlled almost 70 percent of total banking activities, either directly or indirectly. 26 Apart from their enormous power in the commercial banking sector, they were also active on the boards of directors of all major industrial firms. They directly controlled 54 percent of the biggest 100 companies in the manufacturing industry, and participated in more than 83 percent of them. 27 This banking oligopoly was in a position to influence the economy via equity participation, crossboard membership between banks and firms, family links, and credit policies. Moreover, through a consultative committee that advised the government on economic and monetary policies, the Consejo Superior Bancario, the Spanish banking elite directly contributed to shaping the government s economic policies. The Spanish government, on the other hand, protected the biggest banks from foreign acquisition by directly intervening in the deals. The government s concentration strategy was backed by the financial elite as well. In the words of José Ángel Sánchez Asiaín, the President of Banco de Bilbao: banking mergers [were] the only way to prevent Spain from becoming completely dependent on 22 Carles Boix, Managing the Spanish Economy within Europe, South European Society and Politics 5, no. 2 (2000): 182. 23 Arocena, Privatization Policy in Spain, 4. 24 Boix, Managing the Spanish Economy within Europe, 181; Real, Reform of State Enterprises in Spain, 171. 25 Tayfur, Semiperipheral Development, 173. 26 Ege Tekinbaş, The Political Economy of Spanish Financial Sector and Foreign Policy (Unpublished MSc Thesis, The Graduate School of Social Sciences of the Middle East Technical University, 2009). 27 Otto Holman, Integrating Southern Europe: EC Expansion and the Transnationalization of Spain (London: Routledge, 1996), 163.

122 Mustafa Kutlay the big European banking consortia in a single market characterized by the free movement of capital. 28 As a result, the first breath-taking wave of mergers/acquisitions in Spanish finance capital took place between 1987 and 1993. In January 1988, Banco de Bilbao and Banco de Vizcaya decided to merge under a new name, BBV (Banco Bilbao Vizcaya). The merger created the biggest bank in Spain, with a share of 20 percent of the market, and the 33 rd largest bank in the European Community. 29 The merger of two private banks, known for their close affinity with the socialist government, paved the way for other big mergers and acquisitions. In May 1991, six public banks functioning in different segments of the economy were brought together by the socialist government to create a stronger and more active financial system. The banks were brought together under the umbrella of the government agency CBE (Corporación Bancaria de España). Immediately after the establishment of the CBE, two other big banks in the Spanish financial system, Banco Central and Banco Hispano Americano, merged and formed BCH (Banco Central Hispano-Americano). The last phase in the wave of mergers was realized in 1993, when the government took another active stance in transforming the state-owned CBE into Argenteria, half of which was privatized and sold to the public. In the same year, largest bank of the pre-merger period, Banesto, was sold to Santander after an auction in which Argenteria and BBV also participated. The auction was arranged by the government in a way which made it almost impossible for foreigners to take part in the bidding. 30 When the Socialist government was dethroned by the conservative Partido Popular (PP) in 1996, the socialists concentration policy had already been achieved to a degree that enabled the consolidation of financial power in the hands of four major banks; Banco Bilbao Vizcaya, Banco Santander, the Argenteria group, and the Banco Central Hispano. Proactive policies of the PP government: The rise of the new Spanish armada The consolidation and national champion policies of the Gonzales governments (1982-1996) prepared very suitable ground for the rise of a modern Spanish armada in international fora during the Aznar governments (1996-2004). The role of proactive government policies and state-finance capital interaction went through two major phases in this 28 Ibid., 174. 29 Tekinbaş, The Political Economy, 73. 30 Sophia Perez, Banking on Privilege: The Politics of Spanish Financial Reform (New York: Cornell University Press, 1997), 162.

123 era. The first phase was a consolidation strategy at home. In this phase, the Aznar government continued the strategy of the PSOE governments, creating large private companies out of small and fragmented state-owned firms. In the biggest step, the four largest banks merged into two giants in the late 1990s. 31 In the public utilities industry, for example, Endesa, Unión Fenosa, and Iberdrola controlled 95 percent of the total market share in Spain by 1996. Repsol was also cradled from foreign competition in its downstream oil operations up until the mid- 1990s. In the same vein, the Spanish telecommunications giant, Telefónica, did not face significant competition in its domestic market until 1998. 32 Apart from consolidating state-owned firms, the Spanish state followed a hands-on strategy during the privatization of these companies. 33 As a precaution, the state also reserved its right to veto core decisions even after the privatization of the firms. This was possible thanks to the golden shares law, used to prevent eventual takeovers of leading privatized firms by foreigners, since the government controlled in practice the boards of the major Spanish groups Telefónica, Endesa, Repsol, and their subsidiaries. 34 In addition, the Aznar government enacted a decree, called prior administrative approval, under which private firms had to consult the government before making certain strategic decisions or for direct or indirect acquisition of a sizable proportion of shares in previously state-owned companies. 35 In order to preserve the Spanishness of national companies, public utilities were not privatized until those companies had acquired a sustainable competitiveness. For example, the Aznar government resisted early EU demands to liberalize its energy and telecommunications industries. Telefónica was sheltered from foreign competition up until 1998 and German power and gas giant E.ON was prevented from acquiring Endesa. Instead, the Spanish government encouraged another bid by a consortium formed by Acciona, a Spanish construction firm and Italy s Enel. 36 By doing so, Endesa s complete acquisition by a foreign firm was avoided. 31 State-owned Argenteria was sold to Banco Bilbao Vizcaya to create BBVA (Banco Bilbao Vizcaya Argenteria) and Banco Santander merged with Banco Central Hispano to create BSCH (Banco Santander Central Hispano) in 1999. 32 Pablo Toral, The Foreign Direct Investments of Spanish Multinational Enterprises in Latin America, 1989-2005, Journal of Latin American Studies, no. 40 (2008): 540. 33 Ibid., 541. 34 Sebastián Etchemendy, Revamping the Weak, Protecting the Strong, and Managing Privatization: Governing Globalization in the Spanish Takeoff, Comparative Political Studies 37, no. 6 (2004): 639. 35 F. Mauro Guillén, The Rise of Spanish Multinationals: European Business in the Global Economy (Cambridge: Cambridge University Press, 2005), 70. 36 Toral, The Foreign Direct Investments of Spanish Multinational Enterprises in Latin America, 1989-2005, 541.

124 Mustafa Kutlay The second phase of internationalization was a promotion strategy abroad, during which the role of integrationist interest coalition became crucial. The state encouraged Spanish firms to invest abroad via different instruments like direct financial transfers, favorable tax incentives, and diplomatic support on bilateral and supranational platforms. As part of the state s promotion strategy, it provided extensive advantages such as selective credit schemes, direct cash injections, and tax relief. For example, Telefónica received $ 1 billion in government support in order to acquire Brazil s Telesp in 1997. Similarly, the state offered special tax laws that enabled domestic firms to be compensated for 30 percent of their goodwill costs in any foreign purchase. 37 The state also created the Instituto de Comercio Exterior (ICEX) to design and implement new policies towards Spanish SMEs investing abroad. ICEX provided new funds to firms, and designed courses, seminars, and workshops in which experts informed Spanish firms about the legal, economic, cultural, and political conditions in countries targeted for investment. Diplomacy is another channel through which the state has contributed to the internationalization of the Spanish national champions. The Spanish foreign mission and its top-politicians have pursued a very active mediation strategy in the diplomatic corridors of countries where Spanish corporations have extensive market opportunities. The most prominent Spanish political figures have taken active part in concluding deals between national champions and foreign firms. For instance, King Juan Carlos lobbied intensively before Spanish oil giant Repsol acquired Argentina s YPF for $ 14.7 billion dollars. Similarly, the Spanish firm Iberia s acquisition of Argentinean airlines was only concluded after Spanish Prime Minister Gonzales agreed terms with Argentinean President Carlos Menem. 38 In the Latin American case, the Spanish government s diplomatic efforts were quite successful in the sense that they prepared the legal and political background for the penetration of Spanish finance capital into the main Latin markets. From 1990-1995, the Spanish government signed many bilateral agreements with various Latin American states that laid the legal and institutional backdrop for Spanish economic penetration. 39 As part of Spain s foreign policy aims, the Spanish political elite also lobbied hard to position Madrid as a bridge between Latin America and Europe in order to create an Ibero-Latin American sphere of influ- 37 Ibid. 38 Tayfur, Semiperipheral Development, 202. 39 Toral, The Foreign Direct Investments of Spanish Multinational Enterprises in Latin America, 1989-2005, 542.

125 ence vis-a-vis the EU. 40 With this ultimate aim in mind, Spanish multinationals invested in the region under the protection and diplomatic umbrella of the government. Throughout this process, organic links between Spanish financial and other major corporations were consolidated, thanks in part to government policies. With government encouragement, the two largest Spanish banks, BBVA and Banco Santander acquired increased stocks in other large Spanish firms, called the núcleo duro (hard core), so as to become their major stockholders. For instance, BBVA became part of the núcleo duro of Repsol, Telefónica, Gas Natural, Iberdrola and Endesa. 41 As a result, Spanish banks became active supporters of Spanish corporations operations abroad. In other words, the Spanish banks leadership has had a demonstration effect on other domestic firms from the technological, managerial, and financial points of view. As Inciarte, Vice President of the Santander Group emphasizes; The financial system and, specifically, the banking industry have played a decisive role in the internationalization process of Spanish companies. On the one hand, the large Spanish banking groups have been pioneers and main players in this process, through their ambitious international expansion strategies On the other hand, the modernization and sophistication of the Spanish financial system has made the internationalization of many other companies possible. 42 In the first decade of twenty-first century, Spanish finance capital was competing at the commanding heights of global capitalism and Spanish multinationals have become Spain s most important ambassadors. 43 Of the 50 leading financial institutions in the world, Banco Santander and BBVA were ranked 20 th and 34 th, respectively. Spanish non-financials Telefónica (12 th ), Endesa (35 th ) 44 and Repsol (53 rd ) had also secured a place among the top one hundred global firms. 45 In the Transnationality Index, Telefónica (at 69 percent), Repsol (at 55 percent), and Endesa 40 Eric N. Baklanoff, Spain s Economic Strategy toward the Nations of Its Historical Community : The Reconquest of Latin America?, Journal of Interamerican Studies and World Affairs 38, no. 1 (1996). 41 Toral, The Foreign Direct Investments of Spanish Multinational Enterprises in Latin America, 1989-2005, 530, 541. 42 Matias R. Inciarte, The Financial System and the Internationalization of Spanish Companies, in Yearbook 2007: Internationalization of Spanish Companies, eds. Belén Romana García, et al. (Madrid: Círculo de Empresarios, 2007), 75. 43 Guillén, The Rise of Spanish Multinationals: European Business in the Global Economy, 172. 44 Endesa is no longer a Spanish company since the Italian multinational company Enel purchased a 67 percent share of it in October 2007. 45 Mª Jesús Valdemoros Erro et al., Yearbook 2009: Internationalization of Spanish Companies (Madrid: Círculo de Empresarios, 2009), 61-62.

126 Mustafa Kutlay (at 49 percent) had positioned themselves at the top of the most transnationalized companies list. 46 BBVA and Banco Santander had become the biggest players in Ibero-Latin America and Europe, whereas Telefónica and the electricity companies led their sectors in Latin America and Europe. 47 Moreover, there were also other relatively less well-known but nevertheless influential domestic firms operating in Spain s infrastructure sector, where ten of the world s one hundred largest transnational infrastructure companies are based. 48 Despite these apparent successes, the hubris of the Spanish economy also attracted the attentions of nemesis after the late-1990s, especially in the regulatory realm. It is fair to argue that the Spanish elite had complacency problems during the good times of economic growth, and did not adequately concentrate on surveillance and regulatory mechanisms. In fact, two major developments underpinned the regulatory shortages in the Spanish economy. In the 2000s, first the construction sector boomed, and approximately 400,000 new houses were built just around Madrid. House prices rose by 150 percent between 2000 and 2008. In 2006, Spain built a record 760,000 homes; more than the combined total of Germany, Italy, and France for the same period. 49 Second, domestic demand and consumption skyrocketed. 50 Ominously, family indebtedness increased to more than 115 percent of disposable income, and over 70 percent of Spanish families devoted more than 40 percent of their income to the payment of mortgage credits on their homes during the same period. 51 The global financial meltdown triggered by the bursting real estate bubble paved the way for the evaporation of investment in the Spanish housing sector. The recent financial debacle in Spain clearly demonstrates that Spain falls short of being a robust regulatory state. It is probable that both the overemphasis on transformative capacity as part of foreign policy ambitions and an industrial transformation policy has created lop-sidedness in the regulatory realm regarding private finance capital. 52 46 The Transnationality Index is calculated as the average of foreign sales to total sales, foreign employment to total employment and foreign assets to total assets. The index has been developed by United Nations Conference on Trade and Development (UNCTAD). 47 Issidro Lopez and Emmanuel Rodriguez, The Spanish Model, New Left Review, no. 69 (2011): 10. 48 William Chislett, Spain, Going Places: Economic, Political and Social Progress, 1975-2008 (Madrid: Telefónica, 2008), 10. 49 Economist Intelligence Unit, Country Profile 2008: Spain (London: EIU, 2008). 50 Sebastian Royo, After the Siesta: The Spanish Economy Meets the Global Financial Crisis, South European Society and Politics 14, no. 1 (2009). 51 Joan Guitart, Zapatero: Left in Form, Right in Essence, International Viewpoint Online Magazine (2008), http://www.internationalviewpoint.org/spip.php?article1508. 52 The literature is mostly silent on how a proactive state performs under external economic shocks. To

127 The Turkish case: An incomplete internationalization As a case that was closely supervised and approved by the international financial institutions of the time, Turkey became one of the leading countries embracing neoliberal doctrines in the 1980s. Unlike in the Spanish case, Turkey s integration into neoliberal globalization materialized within the context of orthodox recipes. The hurriedly implemented capital account liberalization, in this context, was premature and underinstitutionalized. 53 In the last decade of the 20 th century, when capital inflows and outflows were allowed to float freely under bad macroeconomic fundamentals and in the absence of corresponding regulatory institutional checks and balances, the Turkish economy plunged into a series of deadlocks. 54 Uncontrolled liberalization pushed Turkey into unstable and risky paths in four directions. 55 First, the fragility of the domestic financial sector was unprecedentedly exacerbated. Second, the economy was subject to volatile boom and bust cycles, mainly due to short-term capital in and outflows. Third, public sector imbalances and external borrowing requirements hampered productive investment opportunities in the economy. Finally, the arbitrage-seeking character of short-term capital flows directed both resident and non-resident investors into speculative activities, which in turn paved the way for further fragility. In the neoliberal restructuring period, it is hardly possible to argue that the Turkish state actively internationalized the Turkish economy by restructuring itself into a transformative power guiding coalition formation in industrial and financial structures. 56 On the contrary, successive Turkish governments became actual obstacles to the proper allocation of resources. First, instead of institutionalized decision-making mechanisms stemming from formal/informal coalitions, a personalistic understanding of the knowledge of the author, Weiss and other scholars studying state capacity do not address this vital question. This point needs to be investigated in detail. In this context, the Spanish financial crisis may be an illuminative case in point for further research. 53 Ziya Öniş, Domestic Politics versus Global Dynamics: Towards a Political Economy of the 2000 and 2001 Financial Crises in Turkey, in Turkish Economy in Crisis, eds. Ziya Öniş and Barry Rubin (London: Frank Cass, 2003), 6-9. 54 For a comprehensive analysis of Turkey s integration into neoliberal globalization from an institutionalist point of view, see İzak Atiyas article in this volume. Aziyak points out that the liberalization of the capital account was carried out in such a lax regulatory environment, without the endorsement of the central bank, and despite warnings that liberalizing international finance under conditions of macroeconomic instability was not a good idea. 55 Korkut Boratav and Erinç Yeldan, Turkey, 1980-2000: Financial Liberalization, Macroeconomic (In)- Stability, and Patterns of Distribution, in External Liberalization In Asia, Post-Socialist Europe, and Brazil, ed. Lance Taylor (New York: Oxford University Press, 2006). 56 Öniş and Şenses, Global Dynamics, 279-280.

128 Mustafa Kutlay top-down economic management became the basic norm in Turkish political economy. At this conjuncture, the importance of legal norms and institutional mechanisms was downgraded under the influence of efficiency-biased market rhetoric. As a result of this, Cabinet Decrees rather than Acts of Parliament constituted the main decision-making method. 57 In terms of ideology and ideal, there was no doubt that Turgut Özal, Prime Minister between 1983 and 1989, was a firm believer in the free market economy and a supporter of the business community. However, his style of economic management was quite personalistic and far from being oriented to the long term. In Heper and Keyman s words, Özal used others basically as suppliers of data; otherwise, he made all the critical decisions himself. 58 As a result, unlike in Spain, a statebusiness synergy could not emerge and policy-making did not help to develop the institutionalization of collaboration between the state and business. 59 In this fragile economic environment, with its accompanying political instability, short-term capital accumulation strategies dominated over productivity concerns on the agenda of finance capital. Furthermore, the Turkish business elite, in contrast to their Spanish counterparts, did not support the progressive wing of the government in its attempt to integrate the Turkish political economy into European structures in a planned and coordinated way, though this might have promoted democratic consolidation and economic competition. State policies, moreover, were always incoherent, and state-business relations were subject to frequent change. This state-induced uncertainty had a major consequence: it prevented professionalization in specific areas of production and expertise accumulation. The business elite searched for unrelated diversification strategies to reduce risk and to exploit political rents in other fields. 60 Yet long-term perspectives were absent, and the business class lost direction in formulating long-term policy. However, this was mainly because of arbitrary political decisions. The tremendous uncertainty created by politicians was underlined by the chairman of Turk-Trade in 1989: We cannot see what is in the near future. We cannot make any contracts. If we knew that [the government] would provide us with subsidies, we would act accordingly. 61 57 Ziya Öniş, Turgut Özal and His Economic Legacy: Turkish Neo-liberalism in Critical Perspective, Middle Eastern Studies 40, no. 4 (2004). 58 Metin Heper and Fuat Keyman, Double-Faced State: Political Patronage and the Consolidation of Democracy in Turkey, Middle Eastern Studies 34, no. 4 (1998): 267. 59 Ibid. 60 Ayşe Buğra, State and Business in Modern Turkey: A Comparative Study (New York: State University of New York Press, 1994). 61 Quoted in Işık Özel, Beyond the Orthodox Paradox: The Breakup of State-Business Coalitions in

129 Second, the unproductive linkages between the state and the financial system deeply influenced the developmental path of the industrial sector because of the major industrial firms organic links to the financial system. In the mid-1990s, almost two-thirds of the total assets, deposits, and credits in private banks were controlled by the banks of holding companies. 62 In a situation where major banks concentrated on government debt securities, the industrial sector did not benefit from financial expansion and could not access the funds necessary to invest in green-field areas. Instead, industrial firms chose to bandwagon the state-dependent rentier coalition. By some calculations, almost half the profits of the largest 500 industrial corporations were accumulated thanks to interest rate revenues from government securities. This ratio had increased to 88 percent by the end of 1999. 63 Finally, in the mid-1990s, instead of fulfilling their intermediary role between savers and investors, Turkish banks relied heavily on state debt instruments. The extraordinarily high public sector debt requirement encouraged the banks to finance the Turkish treasury. In this era, the domestic financial elite borrowed from international markets with an interest rate margin of 6-7 percent, and then extended these credits to the public sector at an astonishing interest rate margin of 20-40 percent. 64 The share of government debt securities in total banking sector assets increased from 10 percent in 1990 to 23 percent by 1999. 65 This demonstrates that, in the Turkish case, the crowding-out effect of the government hampered the main functions of finance capital. Emergence of a regulatory Turkish state: A volte-face? The populist cycles and politically-motivated fiscal expansionism of the 1990s proved so catastrophic that Turkey entered the twenty-first century in the grip of two disastrous crises. 66 In November 2000, Turkish financial markets were shaken by the liquidity problems and bankruptcy of a medium-sized bank. Yet the economic elite managed to keep the economy on its feet, mainly thanks to the financial support of the IMF. 1980s Turkey, Journal of International Affairs 57, no. 1 (2003): 104. 62 Özgür Öztürk, Türkiye de Büyük Sermaye Grupları: Finans Kapitalin Oluşumu ve Gelişimi (İstanbul: SAV, 2010), 148. 63 Selim Somçağ, Türkiye nin Ekonomik Krizi: Oluşumu ve Çıkış Yolları (İstanbul: 2006 Yayınevi, 2006), 54. 64 The interest rate paid by the Turkish treasury was 30 points above the inflation rate during the 1990s, and more than 85 percent of government debt securities were held by Turkish banks. See Öztürk, Türkiye de Büyük Sermaye Grupları, 148. 65 Yılmaz Akyüz and Korkut Boratav, The Making of the Turkish Financial Crisis, World Development 31, no. 9 (2003). 66 In fact, the Turkish economy had also experienced a crisis in 1994; an early-sign of the structural problems in Turkey s macroeconomic balances.

130 Mustafa Kutlay However, it became apparent, three months later, that enormous risks had accumulated in the country s macroeconomic balance and financial system. In February 2001, the economy plunged into its most severe crisis in the Republican era, resulting in the abandonment of the IMFdesigned exchange-rate-based stabilization program, and the Turkish lira depreciated by 51 percent vis-a-vis other major currencies. GDP shrank by 7.4 percent in real terms, inflation increased to 68.53 percent, and unemployment reached a 10.3 percent plateau at the end of 2001. 67 Moreover, the financial system almost came to a halt after the crisis. The government spent $ 47.2 billion to bail the financial system out, including $ 25.3 billion to rescue private banks. 68 The cost of the crisis constituted 32 percent of Turkey s GDP in 2001, and the incumbent coalition government lost its legitimacy in the eyes of the Turkish electorate. In November 2002, the newly established Adalet ve Kalkınma Partisi (AKP) succeeded in forming a single-party government, taking 34.28 percent of the total vote. In its first term in office (2002-2007), it materialized major changes which had a crucial influence on developing state capacity in Turkey. The structural reforms in the financial system were actualized by increasing the capacity and surveillance power of regulatory agencies (the Competition Board, Banking Regulatory Agency, Central Bank, and Savings Deposit Insurance Fund) over financial institutions. In 2001, in the wake of the crisis, the Banking Sector Restructuring Program and The Program for Transition to a Strong Economy were prepared under the supervision of Kemal Derviş, Minister of State for Economic Affairs in Bülent Ecevit s cabinet. His IMF-supported economic recovery program was then followed staunchly by the incoming AKP government between 2002 and 2007. The ultimate aim was to formulate state-augmenting institutional reforms to improve the state s regulatory capacity in line with the post-washington consensus. The system was comprehensively overhauled by strengthening the private banks, rehabilitating insolvent banks transferred to the SDIF, restructuring the state banks via operational, legal, and administrative measures, and improving the legal and institutional framework of the overall financial system via independent regulatory institutions. The Turkish economy recovered quickly from the crisis, and entered a virtuous cycle of uninterrupted high-growth performance for 27 quarters between 2002 and 2008. This was both a result of the new macroeconomic and supervisory regulations, and also partially thanks to the extra-ordinarily 67 Akyüz and Boratav, The Making of the Turkish Financial Crisis. 68 Ziya Öniş and Caner Bakır, The Regulatory State and Turkish Banking Reforms in the Age of Post- Washington Consensus, Development and Change 41, no. 1 (2010): 92.

131 buoyant global economic conditions, which led to considerable financial inflow to emerging financial markets, including Turkey. 69 Consolidation of Turkish finance capital: Fledgling proactivism Because the destructive consequences of the 2001 crisis affected almost all classes, a window of opportunity opened up for the transformation of the ingrained structure of Turkish political economy, which had hitherto been based on inward-looking state-business coalitions. The intensity of the shock helped to create a broad and resilient pro-reform coalition to fix the very deep-seated structural problems in both the financial and industrial pillars of the economy. This broad understanding, in turn, created a suitable environment for reformist policy entrepreneurs to gain the upper hand, though with the full support of influential business associations like the Turkish Industry and Business Association (TÜSİAD) and The Association of Independent Industrialists and Businessmen (MÜSİAD), as well as from many other regional associations (SİADs). The developments in the financial system constituted the basic pillar of the restructuring process. At the outset, it is important to explain the bifurcation of Turkish finance capital in the late 1990s. In fact, the exhaustion of the state-dependent accumulation strategy in the early 2000s necessitated a restructuring of financial firms and their affiliated holdings. The Banking Sector Restructuring Program and related financial reforms were developed with this shifting strategy in mind. It is crucial to underline at this point that the restructuring in question was by no means solely a state project, nor was it solely dictated by international financial institutions like the IMF. In addition, divergences within finance capital itself were a crucial factor. According to Gültekin-Karakaş, the diverging positions within finance capital can be categorized into two basic groups. 70 In the first faction were the conglomerates that relied on a primitive capital accumulation strategy, in which the overwhelming share of their accumulation came from rentier-type profits extracted from investments in treasury bonds and bills. 71 This faction, in the in- 69 In this period, up to 2008 when the waves of the global financial crisis hit Turkish shores, the economy grew by 6.8 percent annually, and the inflation rate was reduced from about 45 percent to less than 10 percent. In terms of public accounts, the budget deficit (11.4 percent in 2002) was reduced to reasonable levels (less than 2 percent in 2008), and net public sector debt stock met the Maastricht criteria of less than 30 percent in 2008. Export volume also increased from $ 36 to more than $ 132 billion. Yet the export-boom was heavily dependent on imports, which increased from $ 51 to $ 201 billion in the same time-frame. 70 Derya Gültekin-Karakaş, Hem Hasımız Hem Hısımız: Türkiye de Finans Kapitalin Dönüşümü ve Banka Reformu (İstanbul: İletişim Yayınları, 2009). 71 Ibid., 211.

132 Mustafa Kutlay dustrial sector, was characterized by low-value added and traditional production that impeded their competitive advantage in the stratified global economy. These companies demonstrated mainly reactive, state-dependent characteristics, and opted for state protection via different types of subsidies. In fact, high state-indebtedness provided a type of financial protection for these firms, which survived without facing real competition on a global scale over the 1980s and 1990s. However, this strategy collapsed in the late 1990s with the fiscal crisis of the state. Unsurprisingly, the bankrupted financial institutions were those of the holdings that had overwhelmingly relied on this primitive accumulation strategy. The other faction was comprised of conglomerates which relied on dynamic accumulation strategies, and did not rely solely on the treasury to sustain their financial profitability. 72 It is a fact that these holdings had also benefited from state-dependent relations throughout the 1990s, but they nevertheless succeeded in surviving when the state s fiscal crisis hit the economy in the early-2000s. These conglomerates, moreover, had foreseen the unsustainability of the Turkish political economy of the 1990s, and had systematically improved their capital accumulation methods by investing in high-value added sectors. In the industrial realm, they veered towards newly emerging sectors and regions via internationalization strategies. For these conglomerates, including Koç Holding, Sabancı Holding, and Doğuş Holding, the most popular sectors turned out to be automotive, finance, high-technology products, and durable consumer goods. They also developed their financial arms more thoroughly than the first faction, and invested in their banks to improve their competitive position on the world stage. Additionally, as part of a wider political-economic transformation in the financial system, Turkey s Banking Sector Restructuring Program can be interpreted as a blueprint for a proactive state. Its aim was to transform Turkish finance capital from a state-dependent structure into a globally integrated competitive one. In this process, the state (with IMF support) performed an active role, liquidating financial institutions relying on primitive accumulation and assisting with the internationalization of financial conglomerates by promoting a dynamic accumulation strategy. At the same time, the second, progressive faction of finance capital encouraged the state to adopt a new political-economic strategy of state-business relations. A strategic coalition was thereby formed for the effective implementation of post-crisis reforms. 73 In turn, the power 72 Ibid., 249. 73 Ibid., 246.

133 shift in domestic finance capital paved the way for a new type of financial system; one that had the capacity to play its main intermediary role in the economy in line with international standards. Thus both the performance of the Turkish economy and its international relations have benefited from the reshuffle within finance capital. 74 Differences between Spanish and Turkish cases Are all the aforementioned developments sufficient to label the Turkish state during this period a proactive one, as in the Spanish case? There are two shortcomings that stand out as challenging. First, from an ownership perspective, the Turkish political elite did not outline a clear vision of a systematic long-term strategy to merge the state banks or to encourage private finance capital to coalesce in order to create competitive national champions. Unlike in the Spanish case, the domestic financial system was not protected from the intense onrush of foreign investment. In other words, the Turkish political elite did not aim to protect the Turkishness of national finance capital, as the Spanish elite did. Thanks to Turkey s open-door policy and unrestrictive regulations, foreign penetration into the economy intensified after 2004 to the extent that between November 2004 and June 2007, 14 Turkish banks were acquired by foreigners. The total amount paid to these banks was $ 26.4 billion, which composes approximately 50 percent of all the foreign direct investment Turkey attracted in the 2005-2007 period. 75 The foreign equity ownership in the Turkish banking system had reached 25.8 percent in 2011, and, when the secondary market is taken into consideration, this ratio increases to nearly 43 percent. 76 It is apparent that, unlike in Spain, there was no comprehensive strategy from the Turkish state to transform domestic finance capital enterprises into strong national champions. Second, if Turkish state policies are further compared with those of Spain, it becomes clear that the drive for short-term profitability has dominated over long-term strategic goals. Contrary to the Spanish case, neither the privatization of the Turkish banking sector, nor the acquisition of its banks by foreign capital had been accounted for in any longterm strategic perspective. In terms of foreign direct investment, the overwhelming majority of inflows into Turkey targeted the already ex- 74 Mustafa Kutlay, Economy as the Practical Hand of New Turkish Foreign Policy : A Political Economy Explanation, Insight Turkey 13, no. 1 (2011). 75 Saruhan Özel, Küresel Dengesizliklerin Dengesi (İstanbul: Alfa, 2007), 267-268. 76 Central Bank of the Republic of Turkey, Financial Stability Report, vol. 13 (Ankara: 2011), 28.

134 Mustafa Kutlay isting financial and retail firms, instead of green-field investments. 77 For example, the industrial sector attracted just a quarter of the cumulative FDI between 2004 and 2010 whereas the services sector gained about 75 percent of the total inflows. Moreover, about 60 percent of the FDI channeled into the services sector was directed to financial firms. 78 Unlike in Spain, the other vital problem of the Turkish industrial sector was its lack of productive links with financial institutions. The trilateral coalition of the state and the financial and industrial sectors in Turkey still remain ad hoc, fragmented and fragile. The figures cited above support the argument that, state capacity in Turkey falls short of promoting a strategic coalition among industrial and financial firms, despite its increasing regulatory strength. Conclusion In this study, the proactive/reactive state framework has been applied to investigate the transformation of finance capital in Spain and Turkey. Starting from the Suarez administration in 1978, the Spanish political parties, the PSOE and, the PP, supported the transformation of financial and economic structures to enable competition on a global scale. This led to the creation of Spanish multinationals (the famous national champions policy) and fostered a Spanish presence on international platforms. In this context, the Suarez government laid down the institutional, legal, and democratic grounds for a sustainable relationship between the state and finance capital, the Gonzales governments concentrated on economic transformation and domestic consolidation strategies, and the Aznar governments proactively supported the internationalization of a new Spanish Armada. Meanwhile, Spanish finance capital supported these integrationist state policies. Spain is now one of the biggest economies in the EU with a consolidated democratic regime accompanied by big finance capital, and displays a high performance in international fora with 9 multinationals in the Fortune 2011 Global 500 list, despite the devastating impact of eurozone crisis. In contrast to the Spanish case, state interventions in Turkey and the business elites reactions to these interventions have not underpinned any bottom-up restructuring of Turkish political economy. Reactive state policies have been the main creator of ambiguity in the economy, as a result of which business groups have opted for clientelism over rulebased and integrationist economic relations. Unlike in Spain, private fi- 77 Ziya Öniş and İsmail Emre Bayram, Temporary Star or Emerging Tiger? Turkey s Recent Economic Performance in a Global Setting, New Perspectives on Turkey, no. 39 (2008). 78 This ratio has been calculated on the basis of various YASED reports (www.yased.org.tr).

135 nance capital did not succeed in creating competitive international firms to act as the practical hand of the Turkish state abroad. In the post-war period, Turkey experienced four major financial crises, the last of which (February 2001) was by far the biggest. The 2001 crisis changed the structure of Turkish political economy in that, in the bifurcation of finance capital, outward-oriented integrationist segments gained the upper hand. Yet even this transformation demonstrates a reactive character because it was a crisis-driven change. Therefore, Turkish finance capital is still far from achieving the level attained by Spanish finance capital. For instance, Turkey has just one corporation in the Fortune 2011 Global 500 list, with Koç Holding ranked 248 th. From the surveillance perspective, however, a reverse trend is visible: while Turkey redesigned its financial surveillance mechanisms as a result of the institutional change driven by the 2001 crisis, the Spanish state s overemphasis on transformative capacity has resulted in its overlooking the regulatory loopholes in the system. In this context, the 2007/2008 financial crisis has provided an opportunity to investigate the crucial determinants in sustaining the proactive characteristics of states in both the transformative and regulatory fields. In conclusion, this study draws three lessons from its discussion of the proactive/reactive state debate. First, state strategies matter, even in the period of intense neoliberal globalization; as in Mann s notion, provide infrastructural power 79 by assisting, coordinating, and promoting domestic finance capital in the consolidation and internationalization process. Second, despite the main focus of the literature being on the transformative credentials of proactive states within the context of a governed interdependence framework, the 2007/2008 financial crisis has demonstrated that regulatory capability appears to be as important as proactive states transformative role. Finally, we should not presume states will always remain in either the proactive or reactive category. It is possible for reactive states to be transformed into proactive states over time and vice versa. The mechanisms of such transformations constitute an important area for further research. References Akyüz, Yılmaz, and Korkut Boratav. The Making of the Turkish Financial Crisis. World Development 31, no. 9 (2003): 1549-1566. Arocena, Pablo. Privatization Policy in Spain: Stuck Between Liberalization and the Protection of Nationals Interests, CESifo Working Paper Series, CESifo Working Paper No. 11872004. 79 Michael Mann, The Sources of Social Power, vol. II (Cambridge: Cambridge University Press, 1993).

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261 NOTICE TO CONTRIBUTORS Manuscripts of articles and communications should be sent to: Cem Bico, Editorial Assistant, NPT, Boğaziçi Üniversitesi, Türk Dili ve Edebiyatı Bölümü, Bebek, İstanbul, 34342, Turkey. e-mail: npt@boun.edu.tr NPT publishes articles in English only. Submission of an article implies that it has not been simultaneously submitted or previously published elsewhere. The entire manuscript, including notes, tables and references, must be typed double-spaced. The first page of the manuscript should contain: the title, the name(s) and institutional affiliation(s) of the author(s); an abstract of no more than 200 words. All non-english words found in an unabridged English dictionary should be treated as English words. All other transliterated words and phrases should be underlined. All non-roman alphabets must be transliterated, and authors are responsible for the consistency of their transliterations. NPT uses footnotes. Acknowledgments of any sort should be typed as an Author s Note above the first note. The author should provide a complete list of all the cited references at the end of the manuscript. The style of footnote citations should conform with the 16 th edition of The Chicago Manual of Style the humanities style. Further information on the humanities style is available at the official web site of The Chicago Manual of Style. When a work is referenced more than once, for the second and consecutive citations use the author s last name and a shortened title of the book or article. When references to the same work follow without interruption, use Ibid.. Samples: 1. Book with one author: Wendy Doniger, Splitting the Difference (Chicago: University of Chicago Press, 1999). 2. Book with two authors: Guy Cowlishaw and Robin Dunbar, Primate Conservation Biology (Chicago: University of Chicago Press, 2000). 3. Book with more than two authors: Edward O. Laumann et al., The Social Organization of Sexuality: Sexual Practices in the United States (Chicago: University of Chicago Press, 1994). 4. Editor, translator, or compiler: Judith Walzer Leavitt and Ronald L. Numbers, eds., Sickness and Health in America: Readings in the History of

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NEW PERSPECTIVES ON TURKEY No. 47 Fall 2012 Special Issue on Turkey s Experience with Neoliberal Policies and Globalization 5 Editor s Introduction: Turkey s Experience with Neoliberal Policies and Globalization since 1980 Şevket Pamuk Articles 11 Turkey s Experience with Neoliberal Policies since 1980 in Retrospect and Prospect Fikret Şenses 33 Rushing toward Currency Convertibility Kurtuluş Gemici 57 Economic Institutions and Institutional Change in Turkey during the Neoliberal Era İzak Atiyas 83 Marching to the Beat of a Late Drummer: Turkey s Experience of Neoliberal Industrialization since 1980 Erol Taymaz and Ebru Voyvoda 115 Internationalization of Finance Capital in Spain and Turkey: Neoliberal Globalization and the Political Economy of State Policies Mustafa Kutlay 139 Privatization Processes as Ideological Moments: The Block Sales of Large-Scale State Enterprises in Turkey in the 2000s Merih Angın and Pınar Bedirhanoğlu Review Articles 169 Reflections from the Conference Turkey Debates its Social Policies : A Rights-Based Turn in Social Policy Making in Turkey? Ayşe Alnıaçık and Ayşen Üstübici 185 Rewriting the History of Port Cities in the Light of Contemporary Global Capitalism Nurçin İleri 211 Unearthing the Ottoman Present Ali Sipahi 221 Anti-, Non-, or Post-Saidian?: The Challenge of Discussing German Orientalism Malte Fuhrmann Book Reviews 229 Tuncay Zorlu. Innovation and Empire in Turkey: Sultan Selim III and the Modernization of the Ottoman Navy. London: IB Tauris, 2008. Gelina Harlaftis 232 Hannes Grandits, Nathalie Clayer, and Robert Pichler, eds. Conflicting Loyalties in the Balkans: The Great Powers, the Ottoman Empire and Nation-Building. London: I.B. Tauris, 2011. Bülent Bilmez 240 Amit Bein. Ottoman Ulema, Turkish Republic: Agents of Change and Guardians of Tradition. Stanford, CA: Stanford University Press, 2011. Brian Silverstein 247 Ayşe Kadıoğlu and E. Fuat Keyman, eds. Symbiotic Antagonisms: Competing Nationalisms in Turkey. Salt Lake City: The University of Utah Press, 2011. Didem Türkoğlu 252 Nicole Watts. Activists in Office: Kurdish Politics and Protest in Turkey. Seattle: University of Washington Press, 2010. Ceren Belge 256 Cenk Saraçoğlu. Kurds of Modern Turkey: Migration, Neoliberalism and Exclusion in Turkish Society. London: I.B. Tauris, 2011. Çetin Çelik ISSN 1305-3299 ISSN 1305-3299 9 7 7 1 3 0 5 3 2 9 0 0 4