The article investigates how major changes in national economic policies, and in associated forms of state-business relations, produce pro-business local governance arrangements. It places the emphasis on the politics of state-business relations that revolve around the distribution of public resources. It aims to explain, in particular, how these dynamics unfold in the developing countries where neoliberal reforms are implemented under conditions of political instability and weak policy capacity of the state. The article focuses on the political mobilization of the local bourgeoisie through local business associations, as the major force behind the rise of pro-business local governance. It indicates that the emergent form a pro-business local governance scheme, especially when led by local business associations, will depend upon a) the degree of political autonomy of the local bourgeoisie from the national political actors (i.e, their distance to party politics); b) the composition of its constituency/supporters (or the class coalition behind it); c) the degree of their dependency on public resources. The arguments are elaborated in the case of the city of Gaziantep, Turkey.

Firms operate in a capital market, a product market, and a market for social pressure directed at them by social activists, NGOs, and governments. An equilibrium in these three markets yields a three-equation structural model that relates corporate financial performance (CFP), corporate social performance (CSP), and social pressure. This paper estimates the simultaneous equation model for a panel of over 1,600 firms and finds that CFP is uncorrelated with CSP and negatively correlated with social pressure. CSP is decreasing in CFP and increasing in social pressure. Social pressure is increasing in CSP and decreasing in CFP, which is consistent with social pressure being directed to soft targets. Disaggregating the panel indicates that CFP is positively correlated with CSP for firms in consumer markets and negatively correlated for industrial markets. For consumer markets, CSP is increasing in CFP, which is consistent with a perquisites hypothesis that managers spend on CSR when they can afford it. For industrial markets CSP is decreasing in CFP, which is consistent with a moral management hypothesis. For both consumer and industrial markets, CSP is responsive to social pressure.