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The Autumn of Dictatorship

Stanford University Press

Contents

List of Figures..................................................................................................................................................ixList of Tables...................................................................................................................................................xiPreface..........................................................................................................................................................xiiiIntroduction.....................................................................................................................................................11 Growth of the State Under Mubarak: Follow the Revenue Trail....................................................................................................352 Changes in the Distribution of State Expenditures: Security Prevails...........................................................................................543 The Impact of the Fiscal Crisis on the Relationship Between Central and Local Government: Decentralization or Fragmentation?...................................764 From the Rentier to the Predatory State: Transformations in the Mechanisms for Generating Public Revenues and Their Political Consequences.....................975 The End of the Rentier/Caretaker State and the Rise of Egyptian Capitalism: A Fiscal Infrastructure for Democracy?.............................................138Conclusion.......................................................................................................................................................163Epilogue: The Political Economy of Egypt's 2011 Uprising.........................................................................................................171Acknowledgments..................................................................................................................................................177Notes............................................................................................................................................................179Bibliography.....................................................................................................................................................191Index............................................................................................................................................................203

Chapter One

THIS CHAPTER AIMS to define the main parameters of the semi-rentier state in Egypt and to trace and analyze the course of revenues and expenditures in Egypt since the outset of the 1980s. The purpose is to answer two questions.

First, what factors account for the fluctuations in revenues and expenditures? The theory we propose here is that the level of state revenues sets the pace of public spending. When revenues increase, so do state expenditures, and vice versa. Official economic policy, be it interventionist or laissez-faire, has little effect on the volume of public spending. Its rise or fall is not the result of a decision.

Second, what factors determine the volume of state revenues? The Egyptian state derives much of its income from petroleum sales, Suez Canal fees, and foreign aid. These are essentially rentier revenues, and they have driven national fiscal policy since the 1970s. Without understanding the fluctuations in these revenues, it is impossible to explain the transformations in economic policy.

MUBARAK ANNOUNCES A NEW ECONOMIC POLICY

"Prosperity is at hand," Egyptians were told during the 1970s. Toward the end of that decade, President Anwar Sadat promised that 1980 would be the "year of prosperity," and in September 1980, the minister of the economy proclaimed that the era of prosperity had begun. The upbeat tones faded quickly following the assassination of Sadat on 6 October 1981.

On 6 November 1981, several weeks after President Hosni Mubarak came to power, the editor-in-chief of Al-Ahram confirmed that the economic crisis was severe. His editorial ushered in a new official rhetoric on the economy that would contrast strikingly with the rhetoric that prevailed throughout the 1970s. The new official discourse was inaugurated in an economic conference that Mubarak convened in February 1982. In his opening address to the conference, cited in Al-Ahram Al-Iqtisadi on 22 February 1982, the president explained that the purpose of the conference was not to make general recommendations, but rather to assess the state of the economy with an eye to formulating an action plan. The conference's general conclusion, as laid out in the closing statement, was that the government would revert to central economic and social planning and steer the Open Door policy toward production. As the secretary-general of the conference said in this statement, the process of liberalization had to continue, but there also had to be a drive to reduce consumption and increase production. He added that the government was keen to propel the private sector toward the productive sectors and would take all necessary measures to achieve this.

The new economic orientation triggered heated debate in the government and in the opposition press over the value of the Open Door policy. A major forum was the state-owned magazine Al-Ahram Al-Iqtisadi, which opened its pages to such left-wing economists as Fouad Mursi and Ramzi Zaki. In their opinion, the policy was a failure. Among the many reasons they cited, the most significant was that the policy generated consumerist tendencies and favored increased importation over strengthening the productive sectors, especially industrial production. Economic growth in the 1970s, they maintained, had been purely a consequence of the influx of rentier revenues, primarily from the Suez Canal, petroleum, and foreign aid. Egyptian capitalists, meanwhile, focused their energies on speculation and investment in quick-profit fields such as consumer imports and real estate construction. This entrepreneurial class made up the "parasitic sector" of Egyptian capitalism. In Mursi's and Zaki's opinion, the solution was to encourage nationalist capitalism by reducing imports (by increasing protective customs taxes) and, of course, by revitalizing the role of the state in production.

The opposing camp of right-wing economists took up the defense. However, even as they continued to advocate the Open Door policy out of principle, they had to acknowledge that it had promoted growth in the trade and financial sectors over industrial growth. They further admitted that it had encouraged a flourishing opportunistic entrepreneurial class that had come to form "actual power centers," as former Prime Minister Abdel Aziz Higazi was cited as saying, according to Al-Ahram Al-Iqtisadi on 26 April 1982. Higazi had been selected by President Sadat to head the government during the transition to a market economy.

The Egyptian intelligentsia concerned with economic affairs was thus unanimous in the opinion that the Open Door policy had to be reassessed and rectified. The difference between the right and left was over how to rectify it and to what degree.

It was not long before left-wing economists came to feel that all the work they had put into...