©Copyright 2014 Evrim Gormus The Invisible Hand of Islam: Islamic Business and the State Relations in Turkey and Egypt Evrim Gormus A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy University of Washington 2014 Reading Committee: Joel Migdal, Co-Chair Resat Kasaba, Co-Chair Daniel Chirot Program Authorized to Offer Degree: Near and Middle Eastern Studies University of Washington Abstract The Invisible Hand of Islam: Islamic Business and the State Relations in Turkey and Egypt Evrim Gormus Co-Chairs of the Supervisory Committee: Professor Joel Migdal Henry M. Jackson School of International Studies Professor Resat Kasaba Henry M. Jackson School of International Studies This dissertation concentrates on the roles of Islamic business groups in creating opportunities to influence policy outcomes in countries with restricted political environments where secular regimes limited the space for Islamic groups to organize in both civil and political society. The comparative analysis of the experiences of Turkey and Egypt, with respect to state-Islamic business relations, illuminates more theoretical questions of why some states were able to transform their relations with political Islamic groups, while others failed to do so? By emphasizing the dynamic nature of state-Islam relations, this study suggests that Turkish Islamic entrepreneurs’ commitment in favor of a liberal democracy and free market contributed to ease the tension between the secular state and Islam since the ascension of the AKP in the last decade. Egypt, in contrast, continues to experience severe crisis between political Islamic movements and the state, and the MB, the most influential Islamist organization in the country, keeps being excluded from the political system. This dissertation argues that the state’s accommodation of Islam can be explained by the extent to which Islamic groups were attached to market forces. Islamic groups’ behavior over time and their differences from one another in undertaking a market-oriented direction can be explained through different levels of engagement of Islamic groups with elements of the state during the process of market transformation. This dissertation specifically investigates two variables, which may have an effect on determining the levels of engagement of Islamists with the state: The nature of market coalitions during economic liberalization and localized versions of Islam with a particular emphasis on the strength of religious community structures. I TABLE OF CONTENTS Page List of Tables…………………………………………………………………………………….iii List of Figures………………………………………….……………………………………… iv Introduction………………………………………………………………………………………1 Islamic Parties and the Idea of Moderation…………………………………………....................6 The Social Movement Literature……………………………………............................... 6 State-Centered Accounts………………………………………………………...............12 The Main Arguments…………………………………………………..………………...15 Research Method and Data Collection……………………………….……….................22 Chapter 1: Economic Liberalization Policies and (Islamic) Market Coalition in Turkey…………………………………………………………………………………............... 31 Pre-Liberalization Economic Structure Prior to 1980…………………...........................32 Structural Adjustment Policies and the Emergence of Provincial, Mostly Islamic SMEs………………………………………………………………….............................35 Islamic Banks in Turkey…………………………………………………………………44 Rising Islamic Economic Interests and the Independent Industrialists and Businessmen's Association (MUSIAD)……………………………….. ………………………………. 52 The Ties between Islamic Business Groups and Islamic Political Parties in the 1990s………………………………………………………………..................................63 Chapter 2: Turkish Islamic Exceptionalism: The Integration of Islamic Movements into the Neo- Liberal Economy Through Religious Orders………………………………..………………......70 The Development of Naqshbandiyya Khaliddiya Tradition in Turkish Islam…………..72 The Iskenderpasa Community of the Naqshbandi Order: The Material Development as a Means of Revitalizing Islam for Political and Economic Life in Turkey……………………………………………………………………………………78 Esad Cosan: The Iskenderpasa Community as a Venue for Political Associations and Economic Cooperations………………………………………………………………….84 Fethullah Gulen Movement: The Attachment of Islamic Movements into the Neo-liberal Economy………………………………………………………………………………....90 Chapter 3: Economic Liberalization Policies and (Non-Islamic) Market Coalition in Egypt…………………………………………………………………………………................112 Pre-Liberalization Economic Structure: 1952-1973…………………………………....113 The Policy of Infitah and the Entering of Islam into Economy ………………. .. .. .............118 The Development of Islamic Banking and Islamic Investment Companies in Egypt…………………………………………………………………………………....122 II The Implementation of the Structural Adjustment Program (SAP): Rapid Transition to a Market Economy, 1991-2001…………………………………………………………. 134 Chapter 4: The Social Components of Political Islamic Constituencies and the Invisibility of Islamic Business Groups During the Market Transformation in Egypt……………………………………………………………………………………………152 The Curtailment of the Power of Sufi Religious Orders and the Strengthening of the Muslim Brotherhood in Egypt……………………………………………………….....156 The Muslim Brotherhood under the Nasser and Sadat Regimes ………………………………....161 The Muslim Brotherhood As The Main Opposition Group during Mubarak’s Structural Adjustment Program (SAP)……………………………………….................................166 The Invisibility of the Business Community in the Muslim Brotherhood under the Mubarak Regime………………………………………………………………………. 176 The Wasat Party: An Internal Challenge to the Muslim Brotherhood at the Crossroad between Islam and Business Interests…………………………………………………..182 The Changing MB’s Economic Discourse after the 25 January Revolution…………...189 Conclusion……………………………………………………………………………. ……….196 Bibliography……………………………………………………………………………………206 III LIST OF TABLES Table Number Page 1.1. Distribution of public development and investment credits on a region basis in 1975 (TL)………………………………………………………………………………........................34 1.2. Major industrial private establishments by region in 1977………………………………….34 1.3. Major industrial private establishments in Istanbul, Ankara and Izmir in 1977…………….34 1.4. Basic Macroeconomic Indicators, 1977-1987 (Percentage Increases and Ratios)………….38 1.5. Number of Exporting Companies (1996-2001)……………………………………………. 40 1.6 Value of Total Exports ($)…………………………………………………………………………………………………………...... 41 1.7.Share of each special finance house in the consolidated balance sheet……………………...48 1.8.Local branches of Islamic banks, Source: Annual reports of each Islamic bank………….....51 1.9.Distribution of sectors and the number of MUISAD companies…………………………….54 1.10. Islamic businesses in March 1998…………………………………………………………59 1.11. Value of Total Exports ($)……………………………………………. ……………………………………..68 2.1. Turkey’s total foreign trade volume by country………………………………….......…….105 2.2. The increase in export rates with the sub-Saharan African countries……………………...106 3.1. Number of establishments and volume of employment in the small-scale manufacturing activities……………………………………………………………….......................................117 3.2. Current Accounts, FIBE……………………………………………………………………125 3.3. Islamic deposits in Bank Misr’s Islamic branches compared with deposits in FIBE and IBID………………………………………………………………………………………….....127 3.4.Share of financing by Islamic and conventional banks in Egypt in 1996…………………..133 3.5. Distribution of SMEs by economic activities (%)…………………………………………138 3.6.The structure of merchandise exports, 1990–2002 (%)…………………………………….145 3.7. Distribution of SMEs in manufacturing sector by governorate……………………………146 IV LIST OF FIGURES Figure Number Page 1.1. Distribution of value added by firm type, 1983-2001……………………………………....39 1.2. Special Financial House share in banking sector…………………………………………...49 3.1. Distribution of SMEs according to the number of employees and the capital…………….139 3.2.Export performance of Turkey and Egypt between 1960-2000…………………………….144 3.3 Investment Distribution Pattern Between Exports and Production for the Domestic Market in Egypt………………………………………………………………………................................145 V ACKNOWLEDGEMENTS During the long years of my graduate education I have been blessed by the help and support of many people in different countries. I owe my greatest debt to my co-chairs, Joel Migdal and Resat Kasaba for their constant support and encouragement they shared with me throughout my PhD studies at the University of Washington, Seattle. I am grateful to Joel Migdal for his inspirational and timely advice over the last several years. His intellectual acuity and attention to detail was invaluable. He has inspired me in different ways by sharing his unique perspective on academic research and writing. When I felt lost he has always been there for me to comment on numerous drafts of my dissertation chapters and grant applications. I am incredibly thankful for the unique contribution he has made to my professional development. Since my first breakfast meeting with Resat Kasaba I have been admired by his sharp insight, enlightened guidance and generous support that made it possible for me. His critical thinking and intellectual creativity in Middle Eastern Studies have been source of inspiration. My research question has been primarily shaped by our regular discussions. His careful guidance is a vital element in the completion