To understand why society and culture have not followed the economy in converging with Western institutions, one must know a bit of the history of the Turkish conservative movement. The clash between conservatives and republican nationalists resulted from the divergence between rural religious conservatism, and the values of the urbanized elite that flourished under Mustafa Kemal Atatürk, who established the modern Turkish republic as a secular state in 1923.
Yet while republican nationalists dominated Turkish politics from 1923 to 2001, they offered no easy transition to a secular democracy. Indeed, they blocked the formation of left-center social democratic parties, like those of Western Europe that championed the welfare state. Politicized Islam filled the vacuum, offering a way out of the impasse.
While in prison in 2001, Erdogan, the founder of the Islamic Freedom and Development Party (AKP), who had been jailed as a threat to the secular republic, realized that mainstream Turkish society could only be won over if the conservative Islamic movement aligned itself with the West, even at the price of alienating the AKP's core constituents. And to avoid the fate of earlier Islamist parties suppressed by the military, Erdogan broadened his base to include the restless, economically-frustrated middle class.
The AKP's electoral victory in 2002, capturing nearly two-thirds of the seats in Parliament, proved that religion could replace nationalism as a tool to mobilize alienated Turks. Erdogan understood that to deepen Turks' commitment to Islam, his party first had to deliver a chicken in every pot. Thus he sought to bridge a rupture between traditional grassroots religious conservatives and Turkey's other key constituency, big business. And he spread the economic benefits of liberalism to other groups -- notably, the Kurdish minority.
Does democracy represent the "end of history" for AKP's followers, or just a means to an Islamic end? This question weighs heavily on analysts' minds because Erdogan seems ever less inclined to respect human rights or religious freedom. His government has charged opponents -- journalists, generals, and student activists -- with treason. And critics allege that the lists of new candidates for state offices and academic professorships are being vetted for their religious affinities. Indeed many worry he meant what he said when he quipped, "democracy is like a bus -- once we reach our stop, we'll get off."
Nonetheless, the AKP's verbal (if not always practiced) commitment to democracy and its geopolitical alignment with NATO seem to support the liberal internationalist thesis, that open trade will produce open regimes. But the process seems more tactical than organic: Not deviating far from Western institutions allows Erdogan to pursue his larger goal of combining Islam with modern management and wealth creation to make Turkey the center of a revitalized Middle East.
Turkey's puzzling mix of cultural, religious, and political institutions helps explain its near-term economic successes and problematic long-term prospects:
Growth and stability. Turkey rebounded briskly from the global recession, but all is far from well. Turkish business is highly leveraged, thus highly dependent on the availability of capital. The unemployment rate only dipped below double digits in 2012.