Homely Thoughts on the Egyptian Economy : I

 

            While teaching at the American University in Cairo, three mornings a week I took a bus from Zamalek, an island in the middle of the Nile, to the campus in the desert far on the eastern edge of the urban area.  The newly-built or expanded freeways and roads are crowded with cars and private buses.  I had time to reflect on some of the problems of the Egyptian economy of which this is the initial installment. 

The first time I lived in Cairo for an extensive period of time was 1980.  Then foreigners were often surprised by how crowded the public transport system, almost exclusively made up of buses, was.  Buses were more than full.  Passengers felt packed in and would sometimes have to hang to each other on the steps at the doors.  Entry and exit sometimes resembled an athletic competition as the driver slowed but did not stop to allow people to jump off and on. 

            The Mubarak government solved the problem of an overcrowded public transit system: it largely dismantled it.  The two lines of the subway system that run north and south are cheap, efficient and well-run but they don’t get most Cairenes where they need to go.  And therein hangs a tale not only of urban inconvenience but also of a transit system which is, in one way that economists think about these things, highly efficient.  Unfortunately it is therefore a system that imposes profound costs on both the public and the private sectors and makes firms within them less and less profitable over time.

            Much has been written about Cairo traffic:  how much time it can take to travel even short distances, how much pollution it produces, how annoying it is.  These accounts tell us quite a bit about how traffic affects the consumer (or user, if you prefer).  People waste quite a bit of time; poor health whether due to the prompt effects of pollution or high blood pressure extract resources from society.    

            Looking at transportation, especially public transit, this way isn’t obviously wrong.  It accords with a prominent critique of economics (usually phrased as a criticism of “neoliberalism” or “globalization”) that is very popular in area studies generally and Middle East studies in particular.  Public policy, it seems, is privileging firms by making ordinary people bear the costs of transportation in private.  This looks very similar to the kinds of policies that have also led, in Egypt, to investments that have created gated communities (Dream Land) or upper class suburban environments (Qatamiyyah or Sixth of October City). 

            The provision of transportation by firms or agencies for their workers seems like a plausible work-around.  And, in a sense it is.  It’s one of those conveniences that seem to increase the income of workers.  So, too, the provision of housing or medical care, or any of the other non-cash sources of income that firms and public agencies often provide their workers.  And taking them away would clearly decrease income available for other purposes.

            But in fact the provision of transportation (or housing or any other good) isn’t best thought of as an increase in income to workers.  Historically the provision of in-kind income has served two purposes.  One is to overcome the weakness in existing markets for particular goods.  The other purpose is to tie workers to the workplace.  The second goal is usually predicated on existing imperfections or shortcomings in labor markets or product markets.  In 19^th century England and early 20^th century Egypt, it was common for factory owners to provide housing, groceries and other goods directly to workers.  This was frequently necessary because the available stock of housing, other commodities or services was initially so small as either to be physically unavailable or available only at exorbitant market prices.  Thus the provision of goods and services in-kind substituted for the inability of prevailing money wages to command what workers needed to live.  In such conditions, however, owners rapidly found (if they did not already know it) that the provision of such in-kind income made workers dependent on the owners and far more amenable to factory discipline.  To lose one’s job was immediately to lose one’s home or access to a store.

            In the absence of effective markets, workers accepted the provision of in-kind income but resented it.  They especially resented the control over their lives it provided owners but they were aware that they were also being provided with inferior goods at monopoly prices.  Generally trade unions attempted to end the provision of in-kind wages and substitute higher (and presumably more nearly adequate) money wages.

            Owners were also frequently more than willing to move away from the provision of in-kind income.  What owners realized was that what looked like income to workers frequently involved capital investments that were less profitable than their core business.  What looked like in-kind income to workers was often, it turned out, an unprofitable charge on capital.  Mill owners discovered they were participants in a very illiquid housing market with sunk and essentially irrecoverable capital charges.  Or they were in the grocery business with perishable goods and a workforce they found difficult to monitor. 

            Or, in the case of many industrial firms and government agencies in Egypt today, they find they are in the transportation business.  They must buy and maintain vehicles, employ drivers, insure them, and monitor them to ensure that only people who are employed are using them.  If they don't do it themselves they have to rent all these services from companies that specialize in them. Thinking of this as a charge on the firm’s capital indicates the problem:  it makes the firm less profitable by directly reducing the return on equity.  Providing transportation is a cost of doing business as much as the shipping of raw materials in or finished products out.

            In exchange for higher taxes, firms could get out of the business of running their own transportation systems.  They would leave that, generally unprofitable, business to the state.  Americans should, by the way, pay attention to this because without significant investments in public transit and rising gasoline prices it is easy to imagine that firms here will find themselves in the transportation business in the future.

            In the 1990s Egyptian policy makers made a decision to rely on private cars (including a vastly expanded taxi fleet), mini-buses and micro-buses many of which were privately owned, and a light-rail system that linked previously existing northern and southern routes.  The explosive growth of these forms of transportation has occurred thanks to subsidized prices for gasoline and diesel that are only small fractions of world price as well as the constant construction of new highways in ever more vain attempts to ease congestion.  

            Relying on privately owned small vehicles is “efficient” as economists sometimes use the term.  You can get anywhere you want to go and you can get there as comfortably as you desire.  As long as you pay the price.  Indeed you can even choose between a white cab with a meter or a black cab in which you and the driver bargain over the fare before you depart.  Efficient as the system is individually it has enormous costs socially, not the least of which is that during rush hour average speeds can drop to five kilometers an hour.  The conundrum, as in many parts of the world, is that despite the vast technical advances of the past century you must frequently travel at less than the speed a donkey or a horse would have taken you a century ago.

            There are other ways to organize transportation and many other “Third World” countries have employed them as Egypt could have.  The differences may appear to be purely technical or based on engineering, but in fact they represent very different ways of thinking about the relationship of public goods, economic development, and society.  Brazil, for example, uses dedicated bus lanes to mimic, at significantly lower cost, the rapidity and ease of light rail.  Egypt, which once had its own bus manufacturing capacity, could have done something similar.  The use of cars and privately owned buses has been a boon to cab drivers, auto importers, and investors in mini-buses.  To more than 85 million other Egyptians, not so much.

           

You Say You Want A Comparative Revolution?

            I spent a couple of days at a conference which dealt, at least in part, with the Egyptian revolution in comparative perspective.  One thing that I’ve noticed is how little interest there is in comparing 2011 to other episodes of Egyptian history in the past hundred years.  There are clearly some important differences.  The most obvious one is the role that British military and administrative power played until 1954.  Nevertheless some of the similarities and differences are instructive.  I will deal very briefly with one:  the 1919 revolution.

            The history of the 1919 revolution and the incompletely liberal parliamentary regime that was created in its wake seems largely lost to contemporary Egyptians and non-Egyptians alike.  Partly this is because the military regime that decisively came to power in 1954 made a point of tarnishing and diminishing that history.  Partly because the post-revolutionary regime was incompletely liberal and historians and social scientists have dealt with its failures harshly and rarely considered its successes.   This is unfortunate because it provides at least one plausible framework from which to view the failures of the regime that has just suffered such a major defeat.

            I draw some very brief parallels based on fairly widespread agreement among those who have studied these events and asking a bit of indulgence from some of my very expert readers.  The 1919 revolution also had roots in mass revulsion against the mis-use of legal power by a regime that was both distant from popular concerns and intent on maintaining control of the unruly population by any means.  In 1906 in the wake of an altercation, several peasants were executed by the Egyptian government for attacking British soldiers who were essentially trespassing on private land.  This became the first media cause in 20^th century Egypt as a wave of pamphlets, speeches, songs, and other popular forms of communication were deployed to transform some quite ordinary peasants into symbols of government misrule.  It was, I suggest, the equivalent of the wave of revulsion against the brutal beating of Khalid Said.

            The campaign around Dinshaway was carried forward by what were then relatively new media:  the newspapers, printed pamphlets, and plays as well as songs.  This media campaign did not cause the revolution but it certainly helped to spread a sense of revulsion and politically conscious antagonism to the state.  In addition other new media were just being deployed such as the telephone and telegraph which, for the first time, made it possible to communicate from Alexandria in the north to Aswan in the south instantaneously.  This was itself a part of what was an earlier wave of globalization which, for example, also connected Egypt to cotton markets in Liverpool, Manchester and New Orleans by the same means and made international prices local prices more or less literally overnight.

            Hundreds of thousands of Egyptians had earlier signed petitions making Saad Zaghlul and his Wafd party their agent to negotiate independence with the British.  Unlike the button clicking that brought hundreds of thousands of Egyptians in 2010 to sign up electronically for the “We Are All Khaled Said” Facebook page, in 1918 people literally signed a power of attorney.  Those who couldn’t read or write (and may therefore have missed the Facebook page) used their seals to stamp their acceptance.

            The colonial regime was in the process of consolidating its control over the country.  In international law, Egypt was an occupied country when World War I broke out.  Although subject to British control it was understood to have the capacity for independence.  In 1918 the British announced plans to transform the country into an imperial dependency and to create a legislative body to enhance their control over the country.  This was, in some ways, even more threatening to Egyptian self-governance than Husni Mubarak’s plans to pass presidential power to his son.

            The revolution that began in March when Zaghlul was exiled from Egypt as he was about to set sail with a delegation for the Versailles conference (whence the name of his party—the “Wafd” or delegation) was spontaneous, spreading from north to south within a day or two.  The economy came to a halt and the state effectively ceased to function.  Despite the absence of any coercive power on the part of the state there appears to have been relatively little violence against either British soldiers or officials or foreigners more generally. 

            Two main differences are apparent.  The British deployed massive armed force to put down the revolt.  Although the revolt itself appeared to be spontaneous and massive, there was an existing political leadership drawn from a political elite that had both a political program (“complete independence”) and relatively high degree of unity across regional and religious differences.  Although the revolt itself was suppressed by the end of April 1919, by 1923 the British had recognized the independence of Egypt.   The 1923 constitution created a bicameral legislature.  Unfortunately, it allowed the monarch to rule with only slight hindrance by a majority party.  Something of a mixed bag.  More exciting but less glamorous than the 2007 television serial, King Farouk which is, I’m afraid, all that most people today know about the period.

            One important difference worth considering is that in 1919, unlike 2011, there was a unified civilian (and non-religious) political leadership consisting of members of the political and economic elite (former government ministers, land owners, businessmen).  Their demands were expressed in fairly pithy terms (complete independence; the country belongs to the people, religion belongs to God).  Whether any of them were truly charismatic is open to question but they certainly inspired significant confidence as manifested both in the signature campaign I described and in the degree of widespread support for their role as interlocutors with the British. 

Actually the experts did predict the revolution...more than once

            It has widely been claimed that the Egyptian revolution of 2011 took all the experts by surprise because none of them predicted it.  It goes to show, say those who make the argument, just how little experts in general know and especially how little Middle East experts know.  In some exceptionally annoying versions it is suggested that Middle East experts, sometimes said only to be “self-proclaimed” as in a recent article on the Democracy website, saw democracy as a system alien to the supposed cultural “DNA” of the system.

            The only problem with this particular discursive meme is not just that it’s wrong but that it’s exactly (180 degrees) wrong.  The problem with the experts wasn’t that they didn’t predict the downfall of the Mubarak regime; the problem was that they’d been predicting it for so long that the idea itself became discredited. 

            In 1986, only six years after Husny Mubarak assumed power, Hamied Ansari published a book whose title was “Egypt: the Stalled Society.”  The government, Ansari argued, could ameliorate but not resolve the stresses that its contradictory economic and social policies were generating.  He did not expect it to survive for very long.  Three years later, in 1989, Robert Springborg subtitled his book on Mubarak “the fragmentation of the political order.”  He saw a regime sinking into chaos which did indeed occur 21 years later but as a result of mass demonstrations not political fragmentation.

            In 1995 the pseudonymous Cassandra published “The Impending Crisis in Egypt” in the Middle East Journal and concluded with the ominous warning that in the absence of significant but not particularly far-reaching reforms (which were never carried out if they were indeed even contemplated), “a political crisis of significant magnitude is likely to occur” and that it would occur too late for Washington to avert it.  Exactly on the money although about 15 years early.  In 2000, Jon Alterman posed the question “Egypt:  Stable But for How Long?”  Alterman noted that the regime had successfully crushed the Islamist insurgency that seemed so threatening to Springborg and Cassandra and that it had established links with a rent-seeking business community through Gamal Mubarak.  While Alterman’s editor at The Washington Monthly might have inquired about an actual answer, it seems unlikely that glossy magazine would have published an essay whose answer would have been “about eleven years.”

            And so it went.  After years during which predictions of imminent collapse came and went, scholars finally resigned themselves to understanding how Mubarak had remained in power for 20, 25, and then nearly 30 years.  Finally when Marsha Posusney and Eva Bellin addressed the mysteries of “Enduring Authoritarianism” in a book of the same name in 2007 they nevertheless predicted a serious crisis for the Mubarak regime although they expected it to come from the Muslim Brothers.  Not surprisingly there were even books published in 2009 and 2010 that suggested a crisis was brewing and that the regime was soon to run into trouble.  These books, of course, look a lot better but it would be hard to argue seriously that they were different from the earlier accounts.  Their authors were just luckier and none of them ventured guesses about how long the regime would last.

            So it is simply not true that experts did not predict a crisis in Egypt.  They predicted crisis continuously and nearly interminably.  It took decades for them to realize that, critical as the situation appeared to be to them, the Mubarak regime as well as others found ways to manage crisis after crisis and to remain in power.  What no one predicted, it is true, was that the collapse of the regime would come from what appears to have been a massive and spontaneous uprising rather than armed confrontation with Islamists or electoral confrontation with the Muslim Brothers.

            Much work will no doubt be done to explain the revolution as well as to understand politics in the new and still unfolding political order.  What what would also be interesting for students of revolution as it is for Egyptians is to consider various ways to place the Mubarak regime.  To what extent is it unique.  If it is unique was it so from the moment Mubarak came to power after the assassination of Sadat?  Was it, on the contrary, a regime that developed in the 1990s during the period of conflict with armed Islamists?  Or was it a period of crony capitalism that flowered in its full authoritarian corruption after 2000?  These possibilities make Mubarak and the socalled “symbols” of the regime the cause of Egypt’s ills and their removal the primary step to recovering a healthy political environment.  More problematic for both Egyptians and the political scientists I mentioned above is to consider whether the Mubarak regime was simply the final product of the Sadat period.  And still more problematic is the degree to which Mubarak was simply the final inheritor of the authoritarian state formed by Gamal Abdel-Nasser in 1954.  So far although Egyptians have begun to consider all of these questions, political scientists have been unwilling to follow their lead.