Al-Ahram: A Diwan of contemporary life (483)
Recession
The worldwide depression (1929-1933), with its attendant skyrocketing prices and massive unemployment, assumed dimensions in each country it visited which reflected the distinct nature of that society. This was certainly the case in Egypt where specialists and lay persons voiced their opinions and grievances on the crisis. The natural forum for these views, writes Professor Yunan Labib Rizk* , was the Egyptian press and Al-Ahram in particular
Abdel-Halim Elias Nosseir
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During the depression Al-Ahram was fortunate to have among its staff an expert capable of conveying to the public the various dimensions of the crisis. This was "the eminent scholar, Abdel-Halim Elias Nosseir", who contributed two lengthy articles on the "Causes and consequences of the crisis". The first, appearing on 4 September 1931, dealt with what he described as the external causes.
Nosseir dates the origins of economic difficulties to the accumulation of national debts and debt charges during World War I. Most of the consequent increase in public taxes went to debt payments and as such constituted "moneys that were taken from the people but were not invested in national production". A related cause was the collapse of national currencies, especially those issued by debtor nations. "The money governments spent to support their currency destabilised the balance of trade and rocked financial confidence among nations of the world," Nosseir argues.
Currencies were naturally effected by the instability of the prices of silver and gold. "Silver prices have plummeted in the East and in South America while gold is monopolised in the US, France and Britain, the world's greatest creditor nations."
Another cause was what Nosseir termed "economic fanaticism", which took the form of numerous protectionist measures such as heavy increases in taxes on imported goods and reductions in the production of raw materials. In addition to impeding international trade, such measures complicated even more a situation in which "colonised and Eastern nations remain a source for the production of raw materials while Western nations remain a centre for industry".
Simultaneously, governments had pursued policies of overproduction at a time of declining net per capita income and reduced purchasing power. As a result, manufactured goods were being stockpiled, accumulated agricultural produce was rotting and "the world finds itself in a state where peoples are starving because it is producing more wheat than it needs."
The economic slump also had its origins in political problems, notably "the spread of global revolutions". The phenomenon had affected many parts of the world -- India, China, Afghanistan, South America and parts of Europe -- and because of the anxieties it raised, "production is disrupted and the sources of wealth have stagnated."
One of the root causes of global political and economic upheaval, in Nosseir's opinion, was "the spread of Bolshevik propaganda". Bolshevism, in his opinion, "disseminated the rebellion and arrogance in the ranks of the working classes. Its satanic teachings have dazzled them, poisoned their minds, extinguished the light in their hearts and nourished the spirit of selfishness."
However, the most immediate cause of the current economic depression was "American speculation". The US, he explains, was plagued by the reckless gambling and adventurism of investors whose speculations with their vast fortunes wreaked financial havoc, precipitating the bankruptcy of many banks and making many others reluctant to give out loans, both domestically and abroad. As a result, "trade is paralysed, business activities have ground to a halt, unemployment has soared and confidence in all commercial transactions has eroded."
Another contributor, a lawyer, Hanafi Abul-'Ela -- "PhD in law, University in Paris", as he signed himself -- proposed a rather original theory. In his view, economic activity was in constant flux, "rising and falling like the waves of the sea". Economic nadirs, therefore, occurred with almost regular periodicity -- he counted 14 between 1810 and 1920; those in the 20th century occurring in 1900, 1907, 1913 and 1920.
Abul-'Ela contends that the cycle to and from prosperity begins with some visible activity in the manufacture of a new invention or a product that satisfies a new popular demand. Once "speculators and experienced entrepreneurs" think that the product has a chance to succeed, they begin to purchase shares in that product and share prices rise with the growing popularity of the new fad. As business booms, entrepreneurs require more money for investment, and the rising demands for loans lead to the rise in the prime lending rate. "At this point, the era of prosperity reaches its zenith. However, it is at this point, too, that many inexperienced investors enter the realm of speculation in the hope of large and rapid profits, with the result that trade on the stock market heats up. Aware of the danger this poses to their investments, astute financiers rush to cool down the market and share prices drop. Here, the tolls of crisis begin to sound, as trade loses its impetus, incidence of bankruptcy mount and people lose confidence and rush to liquidate their assets and cut their losses. Then, the volcano erupts."
In his second article, Nosseir discusses the domestic "causes and consequences of the crisis". The most striking manifestation of the economic crisis was the fall in demand on and the plummeting prices of Egyptian cotton since 1930. If the government's vacillation in intervening in the market hastened the onset of disaster, Nosseir believed that many chronic flaws plagued the Egyptian economy well before that. Above all, the economy was too heavily dependent on a single cash crop.
The lack of investment in other productive activities was in large measure due to the absence of a proper system for obtaining loans. In this regard, Nosseir gives pause to the phenomenon he terms "usurers' loans", charging interests of up to 30 per cent. Even at these rates, "the financially afflicted turn to usurers for financial relief, due to the lack of financial institutions that offer equitable conditions for loans." Loan sharks were the "scourge of our times", he continues. "While some liken them to highway robbers, those aware of their true nature hold that they are a far greater evil, with their flagrant swindling and blatant thievery. In short, within a matter of a few years, the debtor finds himself incapable of keeping up his payments on the usurer's loan and its accumulating interest. Eventually, he gives up, forfeits his collateral and resigns himself to censure and grief."
A related financial problem was interest rates. Under the law, these could fluctuate between five and nine per cent. The reality, however, had little to do with what was on paper which, in turn, wrought "the devastation of our real estate wealth". Nosseir adds, "Without a doubt, the despotism of the banks in Egypt has been fundamentally instrumental in aggravating the crisis." Foreign banks, in particular, were guilty of such despotism. Motivated by political or financial reasons, they habitually channelled as much of their assets as possible abroad for investment in their home countries or elsewhere. "These banks have generated severe money droughts as a result of their miserliness towards their clients and their rush to exploit their holdings before Egyptians." Such policies were also largely responsible for the shortage in currency in circulation, "with the resultant paralysis in all commercial transactions".
Perhaps because Nosseir targeted the Egyptian banking system for such heavy criticism, an Al-Ahram staff writer felt the need to intervene and furnish readers with a brief history of that institution. This history dates back to 1856, with the founding of the Egyptian Bank, which eventually folded during the economic slump of 1907. Other banks to open in the second half of the 19th century were all branches of foreign banks: the Anglo Bank, founded in 1864, the Ottoman Bank in 1867, Credit Lyonais in 1875 and five years later the Land Bank which specialised in loans for the purchase of real estate.
The landmark in this period occurred in 1898, when a group of British entrepreneurs established the Egyptian National Bank, which was something between a commercial savings bank and a central bank, for it also held the national reserves and issued bank notes. In 1902, this same group founded the Agricultural Bank, "thus completing the chain in the banking system, if we exclude industrial banks, which could find no foothold in Egypt due to the paucity of the industrial sector". The writer adds, "Unfortunately, however, this chain was forged of foreign metal. That is until 1920 when the Bank of Egypt was created and obliterated all those years, for which its founders merited the greatest praise from the citizens of this country."
Returning to Nosseir's analysis of the domestic causes of the financial crisis, we note many more chronic problems. If the government's vacillation between intervention and non- intervention in cotton production -- "without calculating the consequences of its actions in either case" -- contributed to sweeping the bottom from under cotton prices, it also wreaked havoc in the area of land to be put under cotton cultivation and, consequently, in land rental contracts. Compounding economic disarray in the agrarian sector was the increasing rates of rent with respect to returns on the land. Nosseir expressed his surprise that farmers would be willing to pay such enormous rents with only the prospect of loss before them.
A second problem effecting all aspects of the economy was the rising prices of imports, particularly machines, their spare parts and the cost of repairing them in shops owned primarily by foreigners. "Therefore, mills, water pumps, automobiles and engines in general have become a major source of financial loss."
Nosseir also observed problems endemic to society at large. In general, the country suffered from endemic poverty and unemployment had risen and, more recently, there had been a visible increase in the number of professional beggars. Such conditions were exacerbated by a soaring population growth since the "Great War". Within less than a decade and half, Nosseir tells us, the population rose by 3.5 million. "The government's failure to provide resources and carry out public works to accommodate these constant population increases reflects the laxness in national construction policies and allocations of resources."
However, he also noted what he termed the rising "current debt", which he defined as "the debts individuals owe to the baker, the butcher, the poultry, vegetable and fruit merchants, the grocer, the bar and café proprietors, the milliner and haberdasher, the landlord and others". Such debts "have accumulated sharply in Egypt month after month, and many people have found themselves unable to pay the current debt".
He goes on to suggest that the "current debt" problem was related to a "lifestyle of indulgence and luxury". With the rise in cotton's price to LE50 in 1919, he explains, people began to base their budgets on "high prices and the illusive dreams they fostered". Now, even in the midst of economic straits, "people of all classes want to maintain a standard of living beyond their means." In addition, "since the end of the war, people have become addicted to the theatre and entertainment halls and to patronising drinking establishments and coffeehouses, which charge their customers the most outrageous prices, swallowing up the larger portion of their monthly incomes."
Nosseir devoted two further points to the government's economic and fiscal policies. Firstly, there was no flexibility in its taxation policies. Sources of tax revenue were few and produced relatively meagre earnings. Moreover, "until now the government has lacked a just system of taxation that reflects the true sources of wealth and income levels." The second point pertained to government salaries and wages. He writes, "The largest figures of government expenditure are to be found in the category of civil servant salaries, perquisites and allowances. If we consider that salaries alone account for LE15 million of the national budget and add to this more than LE2 million for travel allowances and another LE3 million to cover transportation costs, accommodation and entertainment expenses, the actual portion of the budget outlay on government employees comes to more than LE20 million out of a total budget of LE38 million and some." Apart from the inflation in the figures, the situation remains the same today.
Because the depression affected all classes of Egyptians, Al-Ahram decided to dedicate a portion of its space to this people, rich or poor, rural or city dwellers, government employees or labourers. Eventually, this space became a permanent column carrying the title, "The economic crisis and its echo throughout the country", first appearing on 7 August 1931. Also, if up to now the newspaper focused on the causes of the crisis, it now sought to explore possible remedies. Given the impact of plummeting cotton prices on agriculture and commerce, it was only natural that this critical issue receive the prior attention of contributors to the new column.
One Al-Ahram reader, Ragheb Wahbi, discussed the need to promote the system of cotton exchange. He explains that after the cotton is collected, the bank "offers a daily supply to the exchange commensurate to the demand. With the proceeds, the bank then settles its accounts with the farmers. If the amount the bank paid to the supplier exceeds the amount earned from the sale, the supplier is given a ranking on the debtor list, otherwise the bank disburses to the supplier the surplus profit. In this sense, the bank performs two functions, the first as a creditor and the second as a regulator of the market, as it obtains most cotton without intermediaries while guaranteeing farmers the opportunity to sell their produce at the average price over a year."
On the other hand, other readers proposed a more radical solution: stopping cotton cultivation for a year or more. This was the opinion of Ibrahim Samaan from Bilbis, who suggested farmers wait a year "until some improvement in the economic circumstances that aggrieve merchants, manufacturers and farmers alike". Another reader, from Giza this time, recommended burning the stockpiled cotton, to which a third reader replied that such an action would have little avail and that it was better to stop cultivation for a year or two until the stockpiled reserve was depleted, after which cultivation could begin again on a limited basis commensurate with demand.
Most readers, however, were apprehensive of the consequences of a total ban on cotton cultivation. One contributor recommended, instead, concentrating on the high quality strains that were indispensable to the major domestic textile firms "so that our textile products are not edged out of the American and other markets". Nevertheless, the reader agreed that the government had to regulate the amount of land given over even to the cultivation of the high quality strains. Yet another recommendation was to abolish the cotton tax and, instead, levy a tax on tobacco and alcoholic beverages. The writer who proposed this explains, "The cotton tax only hits the farmer whereas the tobacco and alcoholic beverages taxes would affect all classes of society. Indeed, we should also consider raising the prices of those products since they are luxury goods indulged in only by those whose incomes are in excess of their basic costs of living." In a similar spirit, Ibrahim Daabas, member of the Sharqiya Directorate Board, recommended abolishing the fixed period for cotton ginning. The accumulation of large quantities for ginning at the last moment caused prices to drop, he maintained.
Not surprisingly, many readers suggested turning to other potentially lucrative cash crops. One recommendation was to expand the cultivation of experimental crops, with one contributor recommending distributing the allocation of experimental fields around the country so that different regions could specialise and excel in the production of particular crops or strains. Another contributor suggested that the government focus on the cultivation of tobacco on government land in order to offset the money lost to the national treasury on tobacco imports. To tobacco, one reader added hashish, recommending that the government license the farms in Upper Egypt to the cultivation of these lucrative substances because that was the area that was the hardest hit by the economic slump.
Abdel-Salam Ali El-Lamie, too, was eager to alleviate the burden of farmers, to which end he recommended banning the import of grains, a 25 per cent reduction in municipal and sentry fees, and a one-year 30 per cent reduction in land rent. "Farmers are barely able to sustain the costs of planting a feddan of crops, let alone the rent on that feddan," he pleaded.
Naturally, city dwellers came up with totally different remedies to solving the economic crisis. One reader from Alexandria urged the government to give serious thought to promoting industry. Towards this end, he said it should establish and promote industrial training colleges, "even if that requires the appointment of foreign technical experts". It then should transfer, "compulsory if necessary", large numbers of secondary school students to those colleges. Simultaneously, the government should launch a campaign to promote locally produced goods, "thereby increasing the demand on these goods and reducing the level of unemployment". Finally, it should subsidise the national Spinning and Weaving Company, administered by the Bank of Egypt, although the reader adds here, "If the government is anxious about taking such a risk with public funds, there are many precautions it can take should it wish."
Some believed, however, that the Alexandrian's recommendations would take too long to bear fruit and, therefore, proposed speedier remedies, if only as a temporary palliative. Undoubtedly civil servants would have been dismayed to find that such remedies would come at the expense of their salaries. In the opinion of one contributor, government salaries and pensions should be temporarily reduced, "since, in all events, civil servants will be compensated for this reduction by the consequent decline in the cost of living". He went on to offer a schedule for grading the salary reductions: 10 per cent would be deducted from salaries between LE6 and LE20, 15 per cent on salaries between LE21 and LE50, 20 per cent salaries between LE51 and LE100 and 25 per cent from salaries above LE100. "It is unwise that the civil servant should enjoy a prosperous life while his brother, the farmer, suffers the pains of economic straits," he concluded.
In the face of mounting demands to reduce the salaries of government employees, Abdel-Azim Ali, an employee in the Ministry of Finance, came up with an interesting recommendation: a "civil servants bank". The bank would be founded with a capital of LE36 million, taken a yearly 15 per cent deduction from the total civil servants salary allocation and repayable over 15 years. Shares in the bank would be issued at the value of LE10 and "distributed among employees in accordance with their grade". One function of this bank would be to take out mortgages on land that foreign banks and creditors are seeking to repossess and conferring title to these mortgages on the current tenants at six per cent interest to be paid over the long term.
Another civil servant suggests a five-point compromise solution which was quite comprehensive. First, salaries less than LE10 should be exempt from deductions. Second, foreign government employees should be replaced by Egyptians, of which there existed plenty of qualified candidates. Third, the government should "dispense of that number of positions that the staffing board deems exceed our needs". His fourth recommendation was interesting: governments should "suggest to wealthy employees who have a notable income from their estates to relinquish their positions". Finally, the government should reintroduce price fixing and subsidies for essential necessities as was the case during the war "to ensure that people are not at the mercy of greedy merchants".
Subsidising public services was another recommended way to alleviate the pressure of the depression. Senate member Ya'qoub Babawi proposed a reduction in train fares, which he felt was only logical in light of the Railway Authority's complaint of losses in revenue. Perhaps with lower fares, the authority could recoup many of those whose grievances against high train fares "has caused them to turn their sights to vehicle transport due to its cheaper fares". Train fare reductions, moreover, should apply to long distances as well as short, the senator maintained. "Buses now travel long distances, even from Cairo to Minia, for a fare less than a seat on a third class train carriage." Babawi also urged a reduction in school fees by no less than 20 per cent and to facilitate payments of the reduced fees through four instalments. It is interesting to note that the senator was a supporter of the unpopular Sidqi government, which must have been eager to seize upon any solutions that might offset growing popular discontent as the result of the consequences of economic straits.
* The author is a professor of history and head of Al-Ahram History Studies Centre.
