Prospects for social justice and economic reform in Egypt

When I was living in Egypt in 1997-98, I wrote a regular column about economic reform for the Cairo Times, which was then the leading independent news magazine (not much of a standard in those constrained media days) and published by Hisham Kassem, who went on to start Al Masry Al Youm.  [Two examples of those columns can be read here and here.]    At the time, it was easy to see what was wrong with the existing economic system, which was a patchwork of bastardized socialism inherited from the Nasser years and a rentier private sector left over from Sadat’s corrupt infitah policy; the result was an economy dominated by lethargic state-owned companies producing a limited range of low-quality goods few wanted to buy.  I had moved to Egypt from Hong Kong and would often marvel that Egyptian policymakers seemed unmoved by the incredible surge of prosperity that was taking place as a result of economic liberalization in Asia among countries with a similar history of colonial rule and lagging development.  The most striking example of this was South Korea, which a generation earlier had had a per capita income below Egypt’s and was now many times richer.  Yet in Egypt, there was a residual faith in public ownership of industry that seemed to me to defy all anecdotal evidence from the thirty or so years since Nasser’s nationalizations in the 1960s.  The government was clearly inadequate to the task of running industry.  Why, I wondered, was the Asian model not compelling?

In the late-1990s and early-2000s, Egypt set out to privatize with a vengeance: the growth figures shot up, the quality and range of goods improved dramatically, and Egypt became an improbable darling among development theorists.  But the fatal flaw in all this soon became evident: this was less the Asian model, with its robust and competitive private sector, than the Russian model, where public assets were sold off at fire-sale prices to government cronies.  Egypt had not truly opened its economy; instead, it had shifted the gains to a handful of oligarchs and socialized the losses to the state.  Unsurprisingly, the government that had once proved inadequate to the task of running industry now proved itself inadequate to the task of running an economic reform program — which, my Egyptian friends would say, is why they had been so skeptical about so-called liberalization in the first place.

Economic reform is only as good as the institutions that administer it and in Egypt’s case it unleashed an orgy of rent-seeking opportunists with good connections and few scruples.  Exhibit A in this regard is Ahmed Ezz, who cornered much of the steel market thanks to his ties to Gamal Mubarak, but politically the main mistake Ahmed Ezz made was to resign from the cabinet too early, making him the logical person to demonize for those hoping to divert attention from their own records.  There are many, many more oligarchs to be brought down: they have a monopoly on economic power to rival the Mubarak regime’s monopoly on political power and no just society will be possible without loosening their grip.

So what happens now?  As a piece in today’s New York Times makes clear — and as anyone who has lived in Egypt knows firsthand — the military has been a substantial beneficiary of this corrupt economic program and is poorly positioned to oversee genuine reform.  Since the military will undoubtedly demand protection of its economic interests as the price to be paid for acceding to civilian control of government, there is little chance that a coherent economic policy lies ahead.  Worse, for many in Egypt the ill-conceived and half-baked economic reforms of the last decade have fatally discredited the idea of economic liberalization itself, substantially diminishing public support for a genuinely competitive economy.  That is a gratifying position to take, but it will not help the poor that the Nasserists profess to defend.  Never in human history have so many hundreds of millions of people been lifted out of poverty as has happened in Asia over the last three decades as a result of economic liberalization.  The challenge is to make good economic policy.

And the cost of continuing Egypt’s crony capitalism, on the one hand, and stagnant statism, on the other?  Years ago, I saw a ‘job wanted’ posting at the British Council in the al-Agouza district of Cairo, put up by a graduate of one of the oldest and most prestigious universities on earth (Al-Azhar) who spoke three major languages (English, French, and Arabic) fluently.  He was looking to be a housekeeper for a foreign family.  That is the cost: in a dysfunctional economy, skills have little value.  If this Al-Azhar graduate were wealthier he might have moved to Dubai, London, or New York, as so many other Egyptians did seeking a place where they could build a life on their education and skills; but he was poor, so he stayed in Egypt and hoped for unskilled work with foreigners.

Social justice is not only about good intentions.  It is about creating an economic system in which Egyptians can use their skills and talents to build a better life for themselves.  The Mubarak regime failed to create that kind of economy, just as it failed in some many other aspects of governance.  That is to the regime’s discredit, but if the revolution succeeds in its aim of creating a better, more responsive government it ought to be competent to administer an economic reform program — real, genuine reform this time — that will benefit everyone in Egypt.


Sean Rocha is a former columnist for the Cairo Times, which was Egypt’s leading independent news magazine.  Click here to read about the politics of foreign investment in Egypt or here for the empty promise of the Arab free trade area.


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