The Quest for Economic Legitimacy in Egypt | Power & Policy

The Quest for Economic Legitimacy in Egypt

By Ben Heineman

The Power & Policy Fellows’ Forum

By Ben Heineman

Since Anwar Sadat took over from Gamal  Abdel Nasser more than 40 years ago, Egypt has gone through episodic waves of economic liberalization, from privatization to changes in fiscal/monetary policy to sectoral restructuring.

However, during this period of start-stop economic reform, there was no meaningful reform of the constitutional structure and the political system.

A closed, unaccountable polity led to the cries for freedom, demands for constitutional change and insistence on legitimate governmental institutions in Tahrir Square.

But, so, too, many Egyptians viewed the economic system as illegitimate, imposed upon them by corrupt and profligate elites for their own benefit and not affirmed through transparent processes secured by societal consensus.

Although the media have recently refocused on protests and conflicts arising in other Mid-East nations, the post-Mubarak transition, now not the stuff of front-page stories, is of surpassing importance to the future of the region. This transition will involve both a revision of the constitution to increase legitimacy and formation of a government after new elections, which will seek to adopt social and economic policies with greater transparency and wider acceptance.

Such a transition may struggle –and may fail–to find a balance both in constitutional change and political reform between the political factions — left and right, secular and religious, Christian and Islamic. And those building a new constitution and those then forming a new government may also struggle—and may fail–to chart a course in economic policy between equity and efficiency.

Already, the military has forced economic reformers out of the cabinet and detained members of the liberal capitalist elite while freezing their assets. The politics of legitimating an economic course for Egypt has many pitfalls because of the conflicting economic interests and visions.

Suez Canal: a vital link in Egypt's economy (Photo: Vyacheslav Argenberg)

Suez Canal: a vital link in Egypt's economy (Photo: Vyacheslav Argenberg)

  • Populism could lead to increased state subsidies (fuel, food, housing) for the poor and the stretched middle class, but increase the role of the state, add to the already large deficit and stifle growth.
  • Growth must be 10 percent a year for the next decade to create the 9.4 million jobs necessary to address current unemployment and the new entrants into the labor market, according to the IMF. Yet liberal economic policies — including promotion of Foreign Direct Investment — which have stimulated growth in recent years may lack credibility because, as in the past, not only may the elites take a disproportionate share of wealth creation but because the benefits of the market may not promptly or directly reach the poor or the public sector middle class (indeed, may cause short term harm).
  • Command-and-control state capitalism may perpetuate the large, unresponsive bureaucracies which have bedeviled Egyptians for generations — and may maintain or grow the budget deficit and not foster and sustain modern, innovative private economic institutions.
  • Open, transparent government may expose numerous past conflicts of interest (including those relating to the military and its retired officers). A new government may pursue legally many in the economic elite on grounds that they attained their positions through corrupt means. This appears likely for some members of the liberal capitalist elite. Less clear is whether the military — historically shielded from close scrutiny and currently popular because of its restraint during the protests — will be subject to corruption inquiries for its business dealings and the commercial activities of its retired officers.

In sum, this interplay between legitimating the Egyptian polity and legitimating the Egyptian economy is complex and uncertain. The political economy of Egypt is as important as its constitutional and political system. But, as in other developed and developing nations, sometimes the emphasis is on politics, not economics, and sometimes on economics, not politics.

Finding the right balance of political legitimacy, a social safety net, economic growth, and a right-sized role for government is elusive everywhere. It is likely to be no different in an Egypt struggling for a new way forward, but it will be singularly important as a new Middle East seeks to be born.

Ben Heineman is a senior fellow in the Belfer Center for Science and International Affairs at the Harvard Kennedy School and a senior fellow at Harvard Law School’s Programs on Corporate Governance  and the Legal Profession. He is a former GE’s Senior Vice President for Law and Public Affairs and served as assistant secretary for planning and evaluation at then Department of Health Education and Welfare. He is author books on Briitsh race relations, the American presidency and most recently corporate integrity (See “High Performance with High Integrity” (Harvard Business Press 2008)).   He writes and lectures frequently on globalization, corporate citizenship, the anti-corruption movement, corporate ethics, professional  services and public policy. .

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