Bent Hansen, Egypt and Turkey: The Political Economy of Poverty, Equity and Growth (World Bank, 1991).
Heba Handoussa and Gilliam Potter, eds. Employment and Structural Adjustment: Egypt in the 1990s (AUC, 1991).
Mustafa Kamil al-Sayyid, “Privatization: The Egyptian Debate,” Cairo Papers in Social Science 13/4 (Winter 1990).
In the late 1980s, writes Bent Hansen, there was widespread agreement that Egypt’s economy was “a definite failure that only profound political and institutional reform” could repair. The Mubarak regime aligned itself philosophically with the economic liberalization advocated by the International Monetary Fund and the World Bank, but negotiations between the two sides were always prolonged — the standby agreement signed in May 1987 was three years in the making — and relations alternated between tepid and hostile. “Shock therapy” proponents attacked the 1987 agreement as soft because it failed to require Egypt to cut bread subsidies. Nevertheless, it collapsed within six months because Egypt failed to meet targets for other cuts.
When the Gulf war broke out, the US and Saudi Arabia rewarded Mubarak for supporting the allied effort by forgiving some $16 billion of Egypt’s debt, but the Paris Club required an agreement with the IMF before it would negotiate additional relief. The IMF now insisted that most reforms take place in advance. The enticement was an additional $600 million “social fund” to be used, largely under external supervision, to ameliorate the effects of reform on Egypt’s lower classes. Mubarak declared that the urgency of these reforms precluded any further moves toward political liberalization. [1]
The IMF gave Egypt a favorable review last March. The debt cancellation dramatically improved Egypt’s foreign exchange situation. Egyptian officials claim that inflation, after an initial increase following subsidy reform, is now well below the levels of the late 1980s. Despite impressionistic reports of a widening gap between rich and poor, there has been little in the way of protest aimed at the reforms.
This situation raises three questions. First, can these reforms free Egypt from its chronic debt and other macro-economic ailments and ultimately improve the living standards of its citizens? Second, does the absence of further political liberalization jeopardize or facilitate these reforms? Finally, will those adversely affected continue to accept them quietly?
Hansen’s book, part of a series commissioned by the World Bank, selected Egypt and Turkey for comparison because of their proximate levels of development in the interwar period and their common implementation of import substitution industrialization (ISI). It contains a wealth of data on more than five decades worth of changes in GDP and sectoral growth, income and wage levels, access to social services and nutrition in both countries.
Turkey abandoned ISI in 1980, while Egypt continued to pursue it through the 1980s. Egypt’s state ownership of most large enterprises, and guaranteed government employment for all secondary school and college graduates, made its public sector proportionally much larger than Turkey’s. Hansen blames this combination of ISI and a bloated public sector not only for Egypt’s fiscal and balance of payments deficits, but also for unimpressive rates of growth of its productive sectors, particularly industry. He does not criticize public ownership of industry per se, but rather the regulatory environment in which Egyptian state-owned enterprises have operated. He also points out that Turkey’s accomplishments in growth and macro-economic equilibrium came at the expense of equity.
Handoussa and Potter propose that Egypt’s central economic problem is the need to generate jobs for an estimated 6 million entrants to the labor force by the year 2000. The authors support a shift in development strategy to export promotion, and from the public to the private sector, but emphasize that such structural adjustment must be combined with specific strategies for job creation. About half of the book is devoted to analyzing the current wage and employment situation, and reforms needed to stimulate growth.
A major strength of these chapters is the rigorous scrutiny of wage and employment data generated by various Egyptian surveys. Misleading conclusions can emerge, however, when even carefully handled statistics form the only basis for analysis. Soad Kamel Rizk, for example, argues for encouragement of the informal sector on the grounds of stable employment there, solely on evidence of higher wages which “clearly indicate that the informal sector is not a temporary repository for those seeking a better opportunity elsewhere.” Even a limited number of interviews might have introduced Rizk to those workers who would prefer public-sector employment, despite its lower wages, because of associated job security and benefits. This is precisely why privatization is controversial for broad segments of society. [2] By contrast, Ragui Assaad’s recommendation for maintaining construction employment opportunities through low-cost housing generation reveals a deep understanding of the intricacies of the construction labor market.
Heba Handoussa and Ali Dessouki, like Hansen, believe the main problems confronting the state enterprises lie in the regulatory environment rather than in public ownership per se. Their recommendations include lifting restrictions on the selling price of state enterprise products, granting them private sector privileges in credit access and tax incentives, subjecting managers to regular performance reviews, giving managers more autonomy in hiring and promotions, and linking wages and job security to skill levels and productivity.
Potential impediments to the success of structural adjustment are not seriously considered. Numerous studies have shown that increasing the proportion of women in the work force is the best way to lower population growth, yet Mohaya Zaytoun suggests that these reforms will have the opposite effect, since the government employs a higher proportion of women than the private sector and pays them more equitably. An export promotion strategy, as al-Sayyid notes, is critically dependent on conditions in the world economy, and increased protectionism by importers would doom it.
Both the Hansen and Handoussa-Potter volumes downplay any link between political and economic liberalization. Mubarak and his Western backers clearly fear that people are unlikely to give their electoral support to a government that is taking away their subsidies and job security. [3] But one can also argue that the private sector expansion on which these employment generation measures rely will not materialize in the prevailing climate of political repression. [4] By their silence on this debate, the authors imply support for the regime’s position. Furthermore, while calling for labor market liberalization, they neglect to condemn both Egypt’s long-standing ban on strikes and the institutionalized practice of government interference in trade union elections.
Hansen’s version of political economy allows little role for societal forces in the initiation of state strategies. The Handoussa and Potter book limits discussion of possible opposition to political parties and economic associations. But opposition will not necessarily be limited to the left parties. It is already manifest in the spread of Islamist groups, and may also take the form of spontaneous protest, such as the small-scale riot in Cairo’s Metro station in 1987 shortly after a ticket price increase took effect. An uprising by youths in the northern fishing town of Idku in August 1992 resulted in a revision of liberalization measures that had hurt the villagers. [5]
Al-Sayyid’s monograph documents the history of controversy around privatization. He demonstrates that the government policy announced in 1990 represented an attempt at compromise between the strongest advocates and opponents of privatization. The program called for liquidating only small cooperatives owned by local municipalities and unprofitable enterprises. Larger state-owned enterprises were mandates to sell equity shares of up to 49 percent only, and workers were encouraged to purchase stakes in their own factories. Public-sector price controls would be lifted, and management would be given much greater autonomy in hiring and promotion, but job securities and benefits were not threatened.
Al-Sayyid points out that increasing public-sector prices will hit the poor the hardest, and that the benefactors of the small-scale privatization program will be the local provincial elites who form the backbone of support for the ruling party. Furthermore, the greater autonomy given to public-sector managers will likely hurt workers, since the managers generally support government repression of labor protest.
Apparently job security provisions will remain in effect; if privatized companies shed excess workers, they will remain on the government payroll. [6] But the government has pledged to issue a new labor law, and is under pressure from privatization advocates to repeal job security guarantees for both public- and private-sector workers. Also at stake are provisions for health and accident insurance, pensions, family leave, workplace safety and environmental concerns. Social scientists who profess concern for the equity aspects of the reforms ought to insist that the conflict take place in a political climate in which workers can represent themselves in government, freely choose union leaders and test their strength through strikes.
Endnotes
[1] Information on Egypt’s IMF and World Bank negotiations is from Middle East Economic Digest and Middle East Economic Survey.
[2] See Marsha Pripstein Posusney, “Labor as an Obstacle to Privatization: The Case of Egypt” in Iliya Harik and Denis Sullivan, eds., Liberalization and Privatization in Egypt (Bloomington, IN: University of Indiana Press, 1992), pp. 81-105.
[3] See Al Miskin, “Mediations,” Middle East Report 179 (November-December 1992) and 180 (January-February 1993).
[4] See Kiren Chaudhry, “On the Way to Market: Economic Liberalization and Iraq’s Invasions,” Middle East Report 170 (May-June 1991).
[5] Middle East Economic Digest, September 11, 1992.
[6] Middle East Economic Survey, July 20, 1992 and May 17, 1993. Workers would probably be paid their basic wages, not production bonuses and profit shares, which can amount to half of take-home pay. A similar agreement was worked out in the 1980s when several large hotels were to be privatized. See Pripstein Posusney, pp. 98-99.
