Revolution and Economics

Jul 19, 2013 Editorial

The army-installed Prime Minister of Egypt has just installed a new Cabinet, even as the ousted legally-elected President is in detention. There is not a single Islamicist in the Cabinet, whether from the Muslim Brotherhood or elsewhere. So much for the lack of “inclusivity” that purportedly brought out the protests, which culminated in the army coup d’etat. We can therefore expect little change in the political atmosphere in the foreseeable future.
But while most analysts have focused on the political aspects of the ouster of Mubarak and now President Morsi, the importance of economic factors cannot be underestimated. Not surprisingly, the western press is most riveted by the political: their governments are most concerned that whatever regime emerges in Egypt, their interests will be secured. From their perspective, the acceptance of the primacy of the army in the “transition” is salutary, since they are confident the latter institution will not rock the boat. The visit by the US Deputy Secretary of State, their refusal to label the coup a “coup”, and the continuation of the US$1.3 billion in aid to the army therefore continues.
Looking at the short and medium term, therefore, it is doubtful that apart from some minor reforms in the political sphere, anything fundamental will be altered in the economic realm. Like Guyana, Egypt’s economy in the last few decades has been guided by the IMF/World Bank’s neo-liberal, one-shoe-fits-all basket of policies dubbed the “Washington Consensus”. This liberalisation or “intifah” was successful by the IMF/World Bank’s standards and they routinely gave the Egyptians kudos for raising GDP and keeping inflation under control.
But all this just served to prove the old complaint that “growth” does not automatically translate into “development”. Apart from a tight circle of friends – especially from within the army – enjoying insider benefits, Egypt’s economy was not nurtured by private economic activities. It depended primarily on its own oil production, transfers from Egyptian workers in the oil-rich Arab countries, Suez Canal fees and external aid, mainly from the US. Too little of these revenues were invested in infrastructure, agriculture or the modernisation of the industry; too much went into services, were spent on armaments, or were dissipated on import-driven consumption.
Egypt became a classic “rentier economy”: where the state undertakes all the resource mobilisation and infrastructure development functions, but captures the surplus of its own activities, a substantial portion of private-sector profits and external rents (such as remittances of Egyptians living abroad) in order to finance its own expansion. The control and distribution of economic resources gave the regime the opportunity to control most of Egypt’s public and private economic activity. The regime could build up a veritable clientelistic network through the allocation of economic means. This tiny elite lived high off the hog.
However, behind the old superficial glitter that quickly wore off under Morsi’s one-year tenure is a story of ever-worsening poverty for even greater numbers of people coupled with huge rises in food costs. Initially, the Egyptian government did not apply the full, draconian IMF adjustment programmes; it chose a softer version; subsidies were covertly cut, and the state gradually retired more and more from public services. This policy avoided sudden deep cuts, but it worsened the quality of public services and affected mainly those social groups which were dependent on the state’s welfare services. One of the comprehensible consequences of the regime’s policies was the decreasing quality of the Egyptian education system.
For most young Egyptians’ attendance at paid, private courses has been indispensable for completing school education. As a consequence of the state’s slow and covert withdrawal from public services, private and mainly Islamic civil associations emerged to fill the vacuum. The youths that came out into the streets to topple Mubarak, and then Morsi, are the products of this dysfunctional educational system, which in the end could not deliver jobs.
The aid that is pouring in from anti-Islamist governments of Kuwait and Saudi Arabia will only go so far. Expect more unrest – and not only from Morsi supporters.

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