March 24, 2021 | Foreign Policy

Erdogan’s Power Plays Turn to Profit Margins

Erdogan’s Power Plays Turn to Profit Margins
March 24, 2021 | Foreign Policy

Erdogan’s Power Plays Turn to Profit Margins

Erdogan’s Power Plays Turn to Profit Margins

While conventional wisdom has it that for-profit corporations pursue profit at the expense of all else, they are not obliged to: In fact, modern corporate law neither dictates profit maximization nor second-guesses board decisions about what is best for a company. But Turkey’s trade ministry begs to differ. The ministry is currently embroiled in a lawsuit against a joint-stock company for exactly that—allegedly failing to prioritize profits.

If the charge seems speculative and ill-founded, that’s because it is. Nevertheless, a ruling in favor of the prosecution would enable the Turkish government to take over the firm in its crosshairs. And that has consequences: Not only would such a verdict strike down economic freedoms—serving as the final nail in the coffin of Turkish private property rights—but it would also create a bogus precedent whereby President Recep Tayyip Erdogan can effectively nullify his political foes. That bears a financial cost nobody—not even Erdogan—can afford.

The company in question is Anadolu Kultur, one of Turkey’s leading arts and culture institutions and the brainchild of Osman Kavala, a prominent Turkish entrepreneur and philanthropist. Since establishing Anadolu Kultur—which remains privately held—in 2002, Kavala has been a generous benefactor of numerous initiatives that seek to document and restore minority heritage sites and intercommunal reconciliation projects across Turkey. Though these efforts have won Kavala a whole slate of awards, including the European Archaeological Heritage Prize, they have also landed him on Erdogan’s hit list.

Anadolu Kultur is the epitome of everything Erdogan despises: a business that refuses to become his client and toe his ideological line. Kavala’s tireless efforts to protect and highlight Turkey’s diversity—whether ethnic, religious, or sexual—and nurture pluralism through grassroots projects are a direct threat to Erdogan’s imagined monolith of a nation of heterosexual Turkish Sunni Muslim men and their obedient wives and daughters. For the Turkish president, the battle over Anadolu Kultur is an existential culture war that threatens the very foundations of his ethno-religious engineering project.

The Turkish president has found ways to target his ideological foe under practical pretenses. Erdogan insists—without substantiation—that Kavala “financed terrorists” during the Gezi Park protests, a series of nationwide demonstrations that shook the Justice and Development Party-led government in 2013. Authorities first arrested Kavala for the charge in 2017. After an acquittal in a Turkish court—and a European Court of Human Rights ruling in his favor—Kavala has remained in solitary confinement in a maximum-security prison outside Istanbul for over three years. So far, in court, Erdogan’s opinion of Kavala appears to have greater weight than (the lack of) any evidence against him. New chargesof “attempting to overthrow the constitutional order,” brought only hours after of Kavala’s acquittal in February 2020, could lend him a life sentence without parole.

The Turkish government, however, is not satisfied with simply locking Kavala up. Ankara also wants to take over Anadolu Kultur and shutter it for good. Turkey’s Financial Crimes Investigation Board combed through 10 years of company documents and bank records to no avail; government inspectors were not able to find even a single irregularity. This should come as no surprise given that Anadolu Kultur’s board of directors is a who’s who of reputable figures with distinguished records of upholding their fiduciary duties across various sectors.

For Erdogan, the battle over Anadolu Kultur is an existential culture war that threatens the very foundations of his ethno-religious engineering project.

Anadolu Kultur’s sound corporate governance forced Ankara to improvise by way of legal “innovation,” and that is how Turkey’s trade ministry in February invented the crime of failing to prioritize profits. It’s an especially odd accusation given that Anadolu Kultur is not publicly traded and thus has no shareholders to which it reports. But the Turkish government claims Kavala’s company operates “in a similar way to associations and foundations,” which poses a threat to “public order.” For Erdogan, the work Anadolu Kultur and other like-minded for-profit and nonprofit entities undertake to advocate for gender equality, Kurdish and LGBTI rights, and reconciliation with Armenia—among other pluralist causes—is an existential threat to the ideological straitjacket he would like to force upon the Turkish citizenry.

The lawsuit against Anadolu Kultur isn’t happening in a vacuum. Turkish businesses have been on edge for a while. After the failed coup attempt in 2016, the Erdogan government seized assets worth at least $11 billion from nearly 1,000 businesses allegedly linked to Erdogan-ally-turned-archnemesis Fethullah Gulen—a religious cleric Ankara accuses of masterminding the putsch—which led to a steady erosion of private property rights in the country. This economic crackdown and subsequent financial mismanagement prompted the biggest outflows from Turkey’s debt and equity markets in more than a decade and also dried up foreign direct investment from Ankara’s traditional economic partners in the West. In short, it has benefited no one—not even Erdogan. Now, as Ankara is poised to effectively criminalize corporate social responsibility—that is, prioritizing factors other than revenue—the economic ramifications promise to be even more momentous.

Ironically, a profitable Anadolu Kultur is the opposite of what the Turkish government actually wants. Ankara would much rather see the company go bankrupt, but Anadolu Kultur’s talented executives and their sound management practices make that highly unlikely. As a result, the Turkish president has pretended to be invested in its success—all so he can take over Anadolu Kultur and liquidate it. This would, in Erdogan’s view, not only eliminate the nuisance posed by Kavala and his company but also have a chilling effect on others who might dare to follow in his footsteps and promote pluralism, diversity, and social inclusion through for-profit entities.

If an Istanbul court rules as Erdogan wishes, it will open up a new era of judicial second-guessing on how best to serve for-profit corporations. The late Cornell Law School professor Lynn Stout noted that forcing companies to pursue profit at the expense of all else could carry unintended consequences—including an easy out for mistreating employees, customers, communities, and the environment. Stout also warned that a focus on short-term earnings could curtail investment and innovation. Indeed, as numerous U.S. states begin to allow corporate boards to consider social or environmental objectives ahead of profits through benefit-corporation laws, Ankara seems to be going in the opposite direction.

Erdogan’s pursuit of Turkey’s dissident businesspeople and their companies by way of tortured legal cases will inevitably have a distorting effect on economic behavior at home while also scaring off international investors. Anadolu Kultur has a long historyof working with numerous Western for-profit and nonprofit entities, such as the World Monuments Fund, European Cultural Foundation, British Council, and Goethe-Institut. What guarantee do these organizations have that such a precedent won’t target or pressure their Turkey-based representatives or partners in the future?

Ankara should look to the Asia-Pacific for a warning that economic pressure campaigns carry real consequences for all involved. China’s “mainlandization” of Hong Kong’s judicial system and undermining of its Basic Law have had grave effects on international business. Since Beijing’s definition of national security includes finance and economic activities, analysts warn that its heavy-handed meddling could trigger a capital flight, putting Hong Kong’s status as a financial hub in jeopardy. In a global indexof the competitiveness of financial centers, Hong Kong’s rating has declined 42 points within the last two years—from its all-time high of 783 in March 2019 to 741 in March 2021.

Tampering with the market may prove to be a very costly way to muzzle dissidents and close loyalist ranks.

Istanbul, also once considered a global financial center, has already suffered a much more dramatic decline: 65 points since its all-time high in September 2014. The city now ranks as the 74th most competitive financial hub in the world, a 10-place slide since September 2020 alone. Last year, Turkey experienced the biggest outflowsfrom its debt and equity markets in more than a decade. In 2019, Turkey’s FDI net inflows, excluding real estate, nosedived to their lowest point within the last 15 years—hitting a negative in 2020, the first since October 2000. And this week, Erdogan’s erratic meddling in financial markets—reshuffling the central bank chief for the fourth time in five years—led to a meltdownin Turkey’s currency and stock market. In short: Erdogan’s efforts to remedy Western capital flight with investments from his ideological ally Qatar—which injected $22 billion within the last five years alone and now accounts for 15 percent of Turkey’s FDI stock—are not sustainable. Attacks on domestic corporations with which he is ideologically at odds will come back to hurt the entire Turkish populace.

If the Turkish economy really can’t take any more hits, why is Erdogan going to such lengths just to target Anadolu Kultur? Support for his party is currently at an all-time low, according to one survey, and the Turkish president knows there is not much he can do to salvage the economy before Turkey’s next elections in 2023. But Erdogan believes—perhaps correctly—that he can still win the culture war. To do this, he must polarize the public through controversy, whether over ethnic, religious, gender, or sexual identity. The Turkish president’s bombshell announcement on March 20 that he was withdrawing Turkey from the Istanbul Convention on preventing and combating violence against women resulted from a similar calculation. Left with empty coffers, Erdogan is doubling down with ideological warfare.

For Turkey—already suffering from a chronic current account deficit and rampant unemployment—further tampering with the market may prove to be a very costly way to muzzle dissidents and close loyalist ranks. That makes it all the more unwise. Indeed, the all-out assault on Osman Kavala and his businesses could boomerang in a way that Turkey’s iron-fisted president may soon regret.

Aykan Erdemir is the senior director of the Turkey program at the Foundation for Defense of Democracies and a former member of the Turkish parliament for the Republican People’s Party (CHP). Twitter: @aykan_erdemir

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