Sylvia Maxfield and Ben Ross Schneider, eds., Business and the State in
Developing Countries
Ch. 10 "Economic Governance in Turkey: Bureaucratic Capacity, Policy
Networks, and Business Associations" by Jesse Biddle and Vedat Milor
Business and the State in Developing Countries raises questions about the
dominant economic and political theories of business-state relations that
argue that close ties between the state and the business community will
inevitably lead to opportunities for corruption and other rent-seeking
activities that hinder incentives for growth. The editors and contributors
provide examples of-as well as a theoretical framework for
explaining-situations in which collaborative business-state relations can
contribute to enhancing a country's economic performance, largely through
the productive use of various forms of governmental aid to business
enterprises. The theory begins from the premise that the making and
implementing of all governmental economic policies entails numerous costs.
(Such as uncertainty costs that result in the formulation of
less-than-perfect policies based on incomplete information, the monitoring
costs needed to ensure policies are implemented as well as additional costs
when implementation proves ineffective, and the unexpected costs that can
occur as negative side effects from any policy). It then asserts that close
communicative and cooperative relations between governmental and business
elites under the right conditions and with the right incentive structure can
reduce many of these costs.
The various case studies highlight situations in which the right conditions
and incentive structures existed to facilitate positive economic development
as a result of business-state collaboration. In their study, Jesse Biddle
and Vedat Milor compare two very different business associations and their
related policy networks in Turkey and are ultimately able to explain
causally when and how business-state collaboration proved to be
growth-enhancing. The case is especially interesting and relevant because
it deals with a middle-income country that lacks a "Weberian tradition"
(defined as having a meritocratic bureaucracy). In the introductory chapter
of the book and even more forcefully in the chapter by Evans, it had been
noted that the strongest defense against business-state ties degenerating
into unproductive rent-seeking activities was the existence of a Weberian
bureaucracy that could anchor bureaucratic interests to institutional rather
than private ends. Unfortunately, as the editors noted, most middle income
countries do not enjoy such characteristics. How countries that lack such
an institutional structure and are too weak to discipline or even monitor
powerful business interests can still avoid the negative consequences of
business-state collusion in at least some industrial arenas is thus
pertinent to most analysis of developing countries.
The greatest contribution of Biddle and Milor's chapter is the explanation
of how the Turkish Clothing Manufacturers Association (TCMA) has been able
to serve a developmental role within the Turkish economy as a whole by
monitoring and ensuring the compliance of its many members to what are
essentially governmental policies in a situation in which the government
itself could not perform such a function. Collective action in the Turkish
textile industry through the association is especially intriguing to social
scientists because of the large number and small size of Turkish textile
firms as well as the low barriers to entry into the industry and the high
vulnerability of the industry to market fluctuations - all conditions that
Mancur Olson and the public choice theorists asserted would make any
collective action difficult if not impossible because of the free rider
problem. Biddle and Milor explained how an incentive structure for
collective action that served a developmental rather than rent-seeking
function could exist if there was the right kind of collaboration between
government and business. The Turkish government allowed the association to
distribute governmental subsidies on the condition that the firms receiving
such subsidies would perform in ways that served the larger goals of the
Turkish state. The association ultimately proved much more efficient than
the state in limiting the pursuit of particularistic benefits by the
individual firms that were receiving the government subsidies. The free
rider problem was avoided by maintaining high levels of transparency within
the association that made it very likely any cheaters would be detected and
subsequently lose their membership in the association.
Biddle and Milor acknowledge that the TCMA is an exception in Turkey where
most business-state relations are characterized by rent-oriented networks.
But by comparing the TCMA to other less developmental sectoral business
networks they begin specifying some of the institutional conditions under
which business-state policy networks may contribute to overall efficiency.
While the editors had acknowledged in the introductory chapter that the book
will not be able to provide strong policy implications because of the
difficulty in changing many of the institutional parameters required for
positive business-state relations, Biddle and Milor at least outline some
marginal actions that could be pertinent to a number of sectors in other
middle-income states.