Michael Semple | Power & Policy

Tag Archives: Michael Semple

Scholars reflect on Afghan Koran burnings, rioting

Several Harvard Kennedy School scholars who have worked in Afghanistan were asked to comment on how the United States should respond to the accidental burning of Korans by the U.S. military, and the subsequent deadly rioting in the country. Here … Continue reading >

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Qadhafi | Power & Policy

Tag Archives: Qadhafi

Libya: A victory for NATO, too

By Nicholas Burns The death of Muammar Qadhafi is the decisive event in the nine-month civil war in Libya.   In the minds of most Libyans, the war could not end without his departure from the country or death on the … Continue reading >

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Obama’s Vindication in Libya

By Nicholas Burns President Obama’s careful, persistent policy on Libya has worked. The rebels are on the verge of a major victory. Libya’s cynical and brutal dictator, Muammar Qadhafi, has lost effective power and is on the run. As I … Continue reading >

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The Power Problem: Nicholas Burns on what the U.S. should do about Libya

The Power Problem is an occasional series of mini-forums on Power & Policy, asking specialists from the Belfer Center for Science and International Affairs at Harvard Kennedy School to suggest policy responses by the United States to pressing world issues. We … Continue reading >

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Why Egypt’s Economy Matters | Power & Policy

Why Egypt’s Economy Matters

Ben W. Heineman, Jr.

Ben W. Heineman, Jr.

By Ben W. Heineman Jr.

Senior Fellow, Belfer Center for Science and International Affairs

Note: This commentary first appeared on TheAtlantic.com.

The economy was an important cause of Egyptian President Hosni Mubarak’s overthrow. The Mubarak regime failed to deal with poverty (20 percent of the population), unemployment (more than 10 percent), lack of opportunity for a bulging youth cohort (90 percent of the unemployed were between 15-24), inflation (about 12 percent in total consumer prices, with food higher), and widespread corruption.

Since Mubarak’s departure, in February, the Egyptian economy has significantly worsened, with the military leaders failing to address the burgeoning issues.

GDP growth, which had averaged about 5 percent per year at end of the last decade, is likely to be little more than 1 percent, if that, in the current fiscal year. There is a looming currency crisis, as Egypt’s reserves have declined from $36 billion at the beginning of the year to $22 billion in October, with a projection of $15 billion in January. Tourism, which traditionally accounts for one in seven jobs, is down by 35 percent. Rich Egyptians have taken their money elsewhere, and foreign direct investment has dried up as lawlessness and uncertainty have spooked business. The stock market index is down more than 40 percent.

Rates of poverty, inflation, and unemployment are higher today than they were at the time of Mubarak’s downfall. Fully 44 percent of all Egyptians are categorized as extremely poor to near poor, according to some estimates. At a recent conference of leading Arab financial institutions, Joseph Torbey, chairman of World Union of Arab Banks, summarized the situation in Egypt by warning, “The Arab Spring will become a rough economic winter.”

Historians will have to render a more considered view on the relative importance of political and economic issues in the Egyptian uprising. There is little question that, for many, the revolt stemmed from an autocratic executive, a weak legislature, a powerful security apparatus that trampled individual rights, the arrest and torture of regime opponents, and the dominance of one party rule and rigged elections. But, as I have noted, the quest for new constitutional and political legitimacy is closely connected to a search for a new economic legitimacy.

The harsh realities of the post-revolt period have revealed the diversity of Egypt’s polity, the conflicts between different groups, and the current lack of consensus on critical constitutional and policy questions: the distribution of power between governmental institutions, the balance between majority and minority rights, the impact of Sharia law, and the role of the military in government. In this period of transition, after the strong early showing at the polls of the Muslim Brotherhood and the more conservative Islamic Salafist party, it is simply not knowable how the conflicting forces in society will resolve these constitutional and political issues: secular vs. religious, military vs. civilian, Christians vs. Muslims, Muslim Brotherhood vs. Salafists, poor and unemployed vs. elites, old vs. young (45 million of Egypt’s 85 million population are under 35).

These multiple fissures also create deep uncertainty about Egypt’s economic future. Put most starkly, what is the mixture of policies to balance equity and efficiency? As to equity, how can Egypt moderate poverty, improve education, provide health care, create jobs, and have affordable food and energy — all while reducing high governmental subsidies? As to efficiency, how can Egypt cut red tape and bureaucracy that stifles business so as to encourage investment and create a strong rate of economic growth?

An Egyptian trader naps on another recent down day on the country's stock exchange. (AP photo)

An Egyptian trader naps on another recent down day on the country's stock exchange. (AP photo)

Such a formidable series of tasks faces large obstacles. One is overcoming a backlash against free market ideas, such as privatization of state-owned entities, and against the private sector. Successive waves of “liberalizing” economic reforms are seen as favoring rich over poor, unjustly enriching a corrupt few and worsening unemployment as efficiencies were introduced. A second, structural obstacle is addressing the creaking statist elements of the command economy which provides subsidies, government jobs (many unnecessary), and hidden wealth to the military while driving up government budgets. Yet another barrier is the pervasive corruption under both free market and statist elements of the economy, which distorts and delegitimizes daily commercial activity in Egypt and poses extraordinary difficulties in creating a durable and consistent rule of law.

There is also the potential obstacle of Islamist economic views — depending on which direction the Muslim Brotherhood (a broad coalition) chooses to go. These may favor equity over efficiency, even though Egypt needs economic growth to create at least 700,000 jobs a year just to keep its current high unemployment rate stable. (Turkey, cited as a possible model, was a strong secular state for much of the 20th century before the current, moderate Islamist government took over.)

As the Egyptian economy continues its nose-dive, it is questionable whether the United States and Europe — or the IMF and the World Bank — have either the will or the funds or the effectiveness to help stabilize the Egyptian economy through such measures as free trade agreements, investment guarantees, debt relief, soft loans, or direct grants.

The constitutional and political issues may take months if not years to resolve and clarify, and the deteriorating economic conditions seem likely for now to get worse. That, in turn, will exacerbate the serious societal and political conflicts underlying constitutional reform and new policy directions.

It has often been said that the future of a “new Arab world” will be shaped, perhaps significantly, by what happens in Egypt. Recognizing Egypt’s diversity, we should all watch, with great care and attention, not just the struggle for a more representative, open and legitimate system of government–which has received the bulk of media attention — but the struggle also for a more equitable and efficient economy. That goal may recede far into the future if the current economic conditions continue to get worse and if the conflicting political forces cannot agree on a course of action.

Ben Heineman is a senior fellow in the Belfer Center for Science and International Affairs at Harvard Kennedy School and a senior fellow at Harvard Law School’s Programs on Corporate Governance  and the Legal Profession. He was GE’s Senior Vice President for Law and Public Affairs.  He writes and lectures on globalization, corporate citizenship, the anti-corruption movement, corporate ethics, professional  services and public policy.

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Walt | Power & Policy

Tag Archives: Walt

Responding to Steve Walt’s Response

By Richard N. Rosecrance Adjunct Professor and Senior Fellow, International Security Program; Director, Project on U.S.-China Relations, Belfer Center for Science and International Affairs My colleague Steve Walt and I agree that we may need a balance of power against … Continue reading >

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The Coming Erosion of Europe?

By Richard N. Rosecrance Adjunct Professor and Senior Fellow, International Security Program; Director, Project on U.S.-China Relations, Belfer Center for Science and International Affairs My esteemed colleague Stephen Walt has consigned the European Union to the trash heap of history … Continue reading >

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India’s strategic importance to the US | Power & Policy

India’s strategic importance to the US

Nicholas Burns

By Nicholas Burns

In my February 3 Boston Globe op-ed, “India’s Strategic Importance to the U.S.”, I argue that a close U.S.-India partnership can be of immense value to the United States in the future, particularly in preserving the influence of the democratic countries as China rises to power in Asia.

I also emphasize how difficult a partner India can be, from differences on global trade to Iran sanctions and the NATO intervention in Libya.

President Obama has continued the American efforts started by Presidents Clinton and Bush to design and build political and military ties with the Indian government that will benefit both countries.  It is now up to India to respond and to be more specific about its interest in working with the U.S.

In return, the U.S. should be more clear that our well conceived “Pivot to Asia” includes India in South Asia and not just the countries of East Asia.  Our relationship with India will grow gradually and fitfully but, if we are patient, could evolve into one of our most important in this century.

About Nicholas Burns

Nicholas Burns is Director of the Future of Diplomacy Project and Faculty Chair for programs on the Middle East, and on India and South Asia. He served as Under Secretary of State for Political Affairs from 2005 to 2008, leading the effort to reshape U.S. relations with India. Previously, he was U.S. Ambassador to NATO. Full bio >

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