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Egypt’s Economic Crisis: Thirty Years of Fiscal Mismanagement

August 16, 2012

In 2004 Samer Soliman completed a PhD dissertation which was subsequently published in Arabic as “Al-Nizam al-Qawy wal Dawlah al-Da`ifah: Al-Azma al-Maliyyah wal-Taghyir al-Siyasih fi Misr fi `Ahd Mubarak” (“Strong Regime, Weak State: The Fiscal Crisis and Economic Change Under Mubarak”). The text focused on links between long-term economic failure in Egypt and the increasingly oppressive restructuring of the Mubarak regime.

In the wake of the revolution, Stanford University Press has brought out a revised, updated English version of this book, entiteld The Autumn of Dictatorship, Fiscal Crisis and Political Change in Egypt under Mubarak

The most important contribution is that Soliman reframes the question from “Why did the regime fall?” to “why was the regime as durable as it was (given its many failures)?”

The book description reads:

Over the last thirty years, the Egyptian state has increasingly given its citizens less money and fewer social benefits while simultaneously demanding more taxes and resources. This has lead to a weakened state—deteriorating public services, low levels of law enforcement, poor opportunities for employment and economic development—while simultaneously inflated the security machine that sustains the authoritarian regime. Studying the regime from the point of view of its deeds rather than its discourse, this book tackles the relationship between fiscal crisis and political change in Egypt.

Ultimately, the Egyptian case is not one of the success of a regime, but the failure of a state. The regime lasted for 30 years because it was able to sustain and reproduce itself, but left an increasingly weakened state, unable to facilitate capitalist development in the country. The resulting financial crisis profoundly changed the socio-economic landscape of the country, and now is paving the way for political change and the emergence of new social forces.

The basic argument is as follows:

Soliman uses statistics from Egyptian official budgets (the book contains 26 figures and 13 tables) to argue that as the Mubarak regime appeared to grow in strength, the economy was actually growing ever weaker.During the thirty years of Mubarak’s reign, even with generous foreign aid, the treasury ran deficits. The United States paid Egypt about $64 billion between 1979 and 2011, almost$2 billion per year, in accordance with the Camp David accords. Most of these sums were devoted to military equipment rather than infrastructural development. Egypt invested surprisingly little in developing its roads, schools, health care systems and other social benefits, but it also failed to develop a strong economy that could pay back loans and show a surplus.

This failure stems largely from the fact that the authoritarian Egyptian regime boasted a corrupt system, in which special interests and cronyism dominated both the remaining state-owned enterprises, and the newer “liberalizing” economic sector. Little was invested in social necessities, and even less in social benefits. The exception–investment in the tourism sector–was marked by erratic choices, modest commitments and decisions to raise additional revenues for such investment by raising taxes on those who could least afford it.

Burdened with huge fiscal obligations, and completely unable to generate sufficient employment for a population increasing by more than one million per year, the government began to cut public services. Thus declining amenities became linked to poor job opportunities and economic-development issues that were unsolvable either through top-down or entrepreneurial efforts.

As I describe in Chapter Six of Connected in Cairo, foreign investors found themselves baffled by local conditions, and many entrepreneurs faced enormous hurdles.  In both cases, the easiest way out was to enter into the system of corruption by partnering with officials or their proxies who have the power to get things done.

As it became increasingly impossible for the state to sustain social infrastructure (schools, hospitals, law enforcement, public works) and to pay for subsidies ranging from cooking oil to wheat, the regime increasingly relied on the police and the mukhabarat to quash opposition.

The release in English of this book is timely as Egypt seeks to find its way with a new form of government. Western and Arab powers alike are seeking ways to help Egypt meet its economic needs through bilateral and multilateral aid packages, and offers to cancel a portion of the country’s external debts (estimated at $32 billion in 2010). But Soliman’s narrative reminds us that these will only help if the new government submits to a radical reapportionment of how such wealth is used, including a minimum wage requirement, rebuilding of the failing infrastructure, investment in job-growth initiatives, and above all, greater economic transparency.

Not only Morsi’s government, but the one after his, will be struggling over the next decade at least to fix these problems. Or they won’t–in which case, more and bigger revolutionary protests can be predicted.

Soliman is Assistant Professor of Political Economy and Political Science at the American University in Cairo. He is also founder and editor of El-Bosla (“The Compass”), a scholarly but radical democratic publication (whose web address seems to have been suspended).

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