Pity the poor dictator whose quest to modernize ends up sowing the seeds of his destruction. There is the exquisitely decadent Ben Ali clan in Tunisia, which struck a bargain with the Third Estate, allowing it more freedom, prosperity, mobility than has any other state in the region, as long as it kept its head down in matters political. But educated people, middle class people, people who travel freely, who have access to modern communication technology, and, most importantly, who have a sense of personal empowerment, can be bought off or shut out for just so long. When the economy went bad due to the aftershocks of the global financial crisis, Ben Ali ran out of inducements, and when the army he kept small to avoid competition refused to fire on the people, and his much larger police force was cowed into inaction, he ran out of threats. Within days the modernizing but greedy Tunisian plutocracy was forced to flee this most European of Maghrebi states. This is a scenario that has been played out all too many times, and not only in this politically benighted corner of the world.
But the situation was much different in Egypt when the Mubarak family initiated its particular brand of modernization. Spearheading the drive for economic liberalization was Hosni Mubarak’s younger son, Gamal, a business minded investment banker who had cut his teeth at the Bank of America offices in London, and who understood at least the principles of a market oriented economy. Starting in the mid 1990’s Gamal and his western oriented associates began a process that was intended to reduce state domination of the Egyptian economy through the easing of restrictions on foreign investment, tax reductions, and privatization of state-owned assets in banking, utilities, and a host of other enterprises. The reform plan was flawed from inception. While it lead to respectable economic growth for several years, it also resulted in an ever widening gap between a relatively small group of families associated with the Mubaraks who became billionaires virtually overnight and the vast majority of Egypt’s 80 million people, 40 per cent of whom live on less than two dollars a day. How this happens in the Middle East in particular is insightfully summarized by James Surowiecki in a short piece that appeared in the March 7, 2011 issue of the New Yorker.
Surowiecki notes that anemic income growth and low productivity have lead to high unemployment, foremost among Egypt’s youth; add to this rising inflation and endemic corruption and you have the makings of a perfect economic storm. Rather than a healthy free market system, where small and medium size enterprises can thrive, where there is fair competition, and where credit can be secured, the system concentrates wealth in the hands of the few with special connections to the ruling elite. Surowiecki writes: “…in most of the Middle East the state and big business are so tightly intertwined as to be indistinguishable, and competition has been discouraged in favor of central planning and private monopolies. It’s hard for entrepreneurs to start and run a business. Minimum capital requirements tend to be high, so you can’t get started without lots of cash, and getting business licenses and registering property are frequently arduous. Political favoritism is rampant, and byzantine regulations are difficult for outsiders to navigate.” Little wonder, then, 85% of small businesses in Egypt are off the books, and, by the way, can’t grow because credit is difficult to get in the so-called informal sector.
Crony capitalism, patron-client relationships, state control of the workforce (roughly 30% of all are workers in Arab counties are employed by the state) are as common in Egypt as in other Middle East autocracies. This is one of the ways regimes buy loyalty. Such structural dysfunctions render reform extremely problematic. In Egypt they led to the enrichment of the few and the further impoverishment of the many. What did the average Egyptian make of Gamal Mubarak’s reforms, which amidst all the talk of improving the lot of the poor saw one Ahmed Ezz, head of the Parliament’s Planning and Budget Committee using favorable loans to build a monopoly in iron and steel? Mohamed Magdi Hussein Rasekh, father-in-law to Gamal’s older brother Ala’a, becoming chairman of the board of “Sixth of October Development and Investment Corporation”, which since its incorporation in 1996 quickly grew to a multi-billion dollar juggernaut with interests in real estate development, residential and commercial, hotel resorts, and various other land development schemes in Egypt, Syria, and Malaysia? Gamal’s father-in-law, Mahmoud el-Gammal, real estate developer, who in partnership with MGM Mirage has been building a huge golf course, residential and hotel complex called “New Giza” that offers views of the pyramids?
Also looking askance at the younger Mubarak’s privatization initiatives was the Egyptian military command, senior members of whom control a substantial share of the country’s wealth and enjoy numerous perks. The officer corps has a major stake in imported staples such as olive oil, bread, milk, and bottled water. It also has interests in the cement, petroleum, vehicle production, clothing, kitchen appliances, construction and hotel industries. The military owns large tracts of land, especially on the Red Sea coast, where the lucrative tourism trade is plied. It is not shy about using conscripts as cheap labor on construction sites. It doesn’t pay taxes, can circumvent bureaucratic red tape, and avails itself of private, subsidized supermarkets, clubs, hospitals and schools. The Ministry of Military Production has 40,00 civilian employees and boasts approximately 345 million in annual sales. According to one expert, Paul Sullivan of the National Defense University, the Egyptian military owns as much as 15% of the country’s $210 billion economy. To some extent this military-industrial empire helps relieve the government of the expense of maintaining a large force.
The Egyptian military is nine times the size of Tunisia’s, although it is generally regarded as top heavy, bloated, and less than battle ready. Unlike Tunisia’s politically marginalized but highly professional uniformed forces, the Egyptian officer corps in particular had a substantial economic stake in the survival of the Mubarak regime. It may be surprising to some, then, that it mostly stood on the sidelines while anti government demonstrations gripped the country and only stepped in to fill the power vacuum created by the departure of the Mubarak clan. In the euphoria of the moment, some Egyptians attributed the military’s actions as harkening back to the country’s roots as a republic, others opined that it was a demonstration of the “civilized” nature of Egyptian culture and society. But the military may not have been unhappy to see the end of a potential Mubarak dynasty, given that heir apparent Gamal was steering business to his civilian cronies and promising economic changes that could have threatened the favored position of the higher brass. Power in Egypt is currently in the hands of the generals. Whether the military will allow a genuinely free and fair electoral process to take place six months hence depends on a great many factors, chief among these may be its economic status in any new government.