Introduction and Contribution:

Tax policy is an important means through which governments reward their (potential) supporters and disadvantage opponents. Adjusting tax rates, subsidies, or audit practices can affect which groups gain economic advantages and, in turn, political power. Yet these dynamics are not always transparent, especially in semi-democratic and authoritarian settings, where selective, ambiguous, and corrupt tax policies are common.

Observers of recent Turkish history have documented sophisticated efforts by Recep Tayyip Erdoğan and the Justice and Development Party (AKP) to deepen its authoritarian rule. These include staging politically motivated trials, spreading fake news, and surveilling its opponents. AKP has also used the tax system to empower or exclude select Turkish foundations (vakıfs). However, the scope of these tax practices, as well as the extent to which the AKP has departed from its predecessors, is unclear. Focusing on one or a few visible cases of regime-friendly vakıfs gaining tax advantages may ignore larger patterns.

In “Mechanisms of privilege,” Elise Massicard and Ayça Alemdaroğlu focus specifically on vakıfs that have received tax exemptions across Turkey’s modern history. Assembling an original dataset on over 300 such vakıfs between 1967 and 2022, the authors show that the AKP is not unique in terms of how it has used exemptions to achieve its political goals. However, and especially since Turkey became a presidential system in 2018, the process has become more centralized, nepotistic, and favorable towards Islamist-aligned vakıfs. 

The reader comes away with a sense of policy continuity across Turkish regime changes, which are sometimes characterized as dramatic “ruptures.” More generally, Massicard and Alemdaroğlu draw our attention to the important role of tax exemptions in fostering regime support. National and subnational partnerships have considerably enriched Turkish vakıfs, empowering them to advance both secular and religious goals and to substitute for state provision in the face of neoliberal policy reforms. “Mechanisms of privilege” extends our understanding of a shadowy policy lever that has been widely criticized by both the European Union and the Turkish opposition. 

Tax Exemption in Modern Turkey:

Vakıfs have provided a range of services across Turkey, including education, healthcare, and infrastructure projects. A 1967 law stipulated that foundations could gain tax exemption so long as they allocated at least 80% of their income to services included in the state budget, underscoring the law’s clear political objectives. During the 1970s, exempted vakıfs followed state-led efforts at social and economic development. Beginning in the 1980s, neoliberal policies led to an increase in Islamist-aligned vakıfs, which aimed to offset growing inequality and a shrinking state. 

The Turkish government has, on multiple occasions, altered the legal landscape of exemptions to further its interests. For example, a 2003 law excluded human rights-focused vakıfs from exemption, as these were likely to challenge the new AKP government. After 2018, Turkey’s adoption of a presidential system placed exemptions under direct presidential control, and a 2021 law removed the Ministry of Finance from the exemption process. These centralizing measures have rendered tax-exempt vakıfs increasingly unaccountable. 

Only a few hundred foundations are approved for tax exemption (out of several thousand that apply), and these are rarely revoked. This situation contrasts with, e.g., the United States, where foundations are automatically exempted upon meeting clear legal requirements.

Data and Findings:

The authors’ database includes 331 exempted vakıfs since 1967, several of which subsequently lost their status. It also contains information on each foundation’s political orientation, which is drawn from news reports, website descriptions, and original interview data. Massicard and Alemdaroğlu use this data to describe the pace and politics of exemption: Is AKP a glaring outlier in modern Turkish history? And does it, in fact, restrict exemption to a narrow set of Islamist foundations? 

The data reveal that tax exemptions have continuously and gradually expanded over time. Governments have differed considerably from one another, but AKP — at least prior to the transition to a presidential system — has not uniformly granted more exemptions. In fact, AKP governments have importantly differed from one another in this respect. (These findings also hold when considering the duration of each government, given that shorter tenures tend to generate fewer exemptions.)
 

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In terms of the politics of tax exemption, Massicard and Alemdaroğlu document a pattern of growing ambiguity and cronyism. For example, although foundations are legally required to be national in scope, strictly local vakıfs occasionally receive exemptions. Secular governments have tended to limit or reverse exemptions granted to Islamist-aligned foundations, and vice versa. One notable pattern under secular rule between 1997 and 2002 was growing exemptions to foundations representing the highly marginalized Alevi community, which Turkish Sunni leaders have tended to view as heretical. 

Interestingly, AKP’s first term in government was characterized by relatively broad exemptions, not solely to religious organizations. Since 2010, however, not only have Islamist vakıfs received an increasing number of exemptions. There is also a growing pattern of nepotism — foundations linked to Erdoğan’s family members receiving exemptions. 

Despite the growing centralization of exemption policy, AKP rivals at the subnational level have also used their power to undercut national priorities. For example, in 2019, the opposition-led Istanbul government canceled its agreements with AKP-aligned foundations. In sum, Massicard and Alemdaroğlu both deepen our understanding of five decades of Turkish politics and illustrate an overlooked item on the authoritarian “menu of manipulation.”

*Brief prepared by Adam Fefer.

Headlines about foreign companies establishing a foothold in China only to fail years later no longer surprise anyone. But why does this keep happening? Kenneth Wilcox, former CEO of Silicon Valley Bank (SVB) from 2001 to 2010 and author of The China Business Conundrum: Ensure that Win-Win Doesn't Mean Western Companies Lose Twice, argues that the answer comes down to mental models and preparation.

In a recent lecture hosted by the Stanford Center on China's Economy and Institutions, Wilcox explained that we all develop mental models — internal frameworks that help us interpret and navigate the world around us. We carry these models with us wherever we go, applying them instinctively to new situations and environments. The trouble, Wilcox argues, is that a mental model only holds up if the new environment resembles the one it was built for. And American mental models, more often than not, simply don't hold up in China.

Wilcox knows this firsthand. After a decade leading SVB, he and his wife moved to China in 2011 to open a Chinese branch of the bank. Things started smoothly enough — he secured a partnership with Shanghai Pudong Development Bank and obtained the necessary license — but it quickly became clear that the rules he'd spent his career following no longer applied. The license, for instance, permitted him to open the bank but barred him from conducting any business in renminbi, China's national currency, for the first three years. For a bank, this created an obvious problem: how do you pay staff, let alone operate, without access to local currency? The government's solution was a subsidy to cover operating costs during that period, along with an invitation to meet regularly with other banks and business leaders to share SVB's model and approach. After many such meetings, Wilcox's Chinese partners told him they had been so impressed with what they'd learned that they planned to open their own bank modeled on SVB's approach.

This, Wilcox explained, is a pattern that plays out with striking regularity in China. Foreign companies are lured in with the promise of a vast new market and eager local partners. They are then entangled in regulations and bureaucracy, kept afloat with subsidies while they wait for permission to operate more freely — all while their technology and intellectual property are quietly absorbed. Eventually, the foreign company is left with little choice but to close up and leave. Some companies see it happening but look the other way. Others don't recognize it until it's too late. Many never fully understand why they failed at all.

Wilcox traced all of this back to the limitations of mental models. American businesses tend to arrive in China assuming the environment will function more or less like home: keep your head down, stay out of politics, focus on the business, and you'll be fine. But that assumption doesn't hold in China, where the government and the Communist Party exert control over virtually every aspect of commercial life. The most powerful players routinely hold simultaneous roles — party member, bank executive, government official — all at once. It is precisely these unexamined assumptions, Wilcox concluded, that set so many Western ventures up to fail before they've even begun.