Between ideology and reality
Neo-liberals like to tell one story about the path to economic prosperity. Experience tells another, writes Salah El-Amrousi*
How odd that the old and futile debate should arise again over which is better: capitalism or socialism? I say "futile" because of the degree to which ideological convictions and bias taint the treatment of objective facts, most especially when the public affected by the choice is absent -- or more precisely, excluded -- from the decision-making process. The debate is even more pointless when it revolves around the single criterion of rapid economic growth instead of social justice, despite the fact that the latter was originally the basis for distinguishing between the two systems. Even so, given the circumstances of underdevelopment, it is understandable why rapid growth would take priority among intellectuals in developing countries, especially those who claim to represent general national interests over those of select segments of society.
The controversy has been triggered by a series of articles appearing in the Arab press propounding capitalist development on a neo- liberal model. Reactions were strong and widespread. But why is this renewed wrangling now? Are we in the midst of social and political strife deep enough to render the old question compelling? Perhaps we should not take the debate too seriously. To do otherwise risks falling into the trap of abstract theorising divorced from concrete realities. Perhaps it is valid, however, to examine the intellectual context in which this old chestnut reappears.
On the surface, the debate was stimulated by claims that development and progress can only succeed under liberal economic conditions. Unfortunately, it is apparent to everyone that the economic stagnation and underdevelopment that gives rise to these claims is closely connected to the crisis in the current liberal economic reform programme. It is the same with most other developing nations subject to the structural adjustment programmes proscribed by the World Bank and IMF. After a quarter of a century, this prescription has not only failed to deliver on its promise of prosperity, but has exacerbated stagnation and the general dwindling of hope.
Naturally, such circumstances compelled many to reconsider the reform project, yielding some excellent, if not yet fully comprehensive, proposals. On the other hand, there has also been the opposite tendency: to both cling to the liberal model and expand on it. Neoliberal advocates argue this model is mandatory if Egypt hopes to catch up with industrialised nations. Such is their ardour that they envision a programme that could spur an economic miracle, boosting Egypt to the ranks of the world's most industrialised nations. But this enthusiasm has also required the exoneration of the neo-liberal approach from the current failure of the reform process, and the attribution of fault to some other cause. Neoliberals claim that the Egyptian economy is not yet fully capitalistic; that it has not yet severed its ties with socialism, or any of the "Third World potpourris" that entail central planning and other means of state intervention.
Neoliberalism proceeds from the basis that capitalism is synonymous with a free market economy at home and free trade abroad. To deviate from this recipe is to swerve towards socialism or the "Third World potpourris", and hence, to forgo the conditions for sustained economic success.
To support their position, neo-liberal advocates cite Wall Street reports on the state of the Egyptian economy. One report recently circulated as an authoritative analysis was that of the Heritage Foundation, in collaboration with The Wall Street Journal. In its 2003 Index of Economic Freedom, the Heritage Foundation places Egyptian economic policy in the "mostly unfree" category, ranking it 104th out of 156 nations on the scale of economic freedom. It goes on to posit that the Egyptian government has not yet freed itself of "the inefficient socialist economic system built up by the regime of Gamal Abdel-Nasser in the 1950s and 1960s". As a result, "in recent years, the pace of economic reform has slowed and little progress has been made in privatising or streamlining the swollen public sector." Further highlighted is the cumbersome public sector, which neo- liberal analysts claim now boasts some 6 million on its payroll (7 million if we take into account the public business sector): a full third of Egypt's working force. The connection is theorised between this and sluggish privatisation and economic deregulation processes. It goes without saying that all of this is fully consistent with the interests of US transnational capital.
Egypt, thus, represents an instance of a country wavering in its transition to the prerequisite conditions for economic success. It has neither reached the peak of the mountain, nor remained at the base. Progress has been made. But the country is stuck on the slope, unsure about the wisdom of its present course, and uncertain whether to continue or to slide back down. To be sure, neo-liberals have nowhere refused to acknowledge the problems Egypt faces. But these are attributed to the absence of free market mechanisms. "If we do not go for full deregulation," so the theory goes, "we will never be able to taste the fruits of prosperity." It's an "all or nothing" philosophy. It follows that there is no way to gauge the efficacy of this process by what has or has not been accomplished up to now; no way to gauge gradual, cumulative gains. Dispelling doubts over the soundness of the course as mere failures of courage, neo-liberals demand that the programme is followed in full. They accept responsibility for the outcome of nothing less. In the end, if the market doesn't work it's because people stepped in its way.
Others disagree on all counts. In Alternative Socio-Economic Development Scenarios for Egypt, published October 2003, Professor Mo'tazz Khorshid of the American University in Cairo concludes, on the basis of mathematical calculations, that to continue in the laissez- faire approach applied since the early 1990s will only yield more economic deterioration, greater structural imbalance, further decline in standards of living and higher rates of unemployment. He goes on to propose two alternative scenarios: one based on investment- led economic growth, and the other based on protectionist policies that would restrict imports, encourage export production and redress the imbalance of trade. Both scenarios presume a greater role for the state than the laissez-faire approach, despite the fact that both would aim to stimulate growth in the private sector more than in the public sector.
Another important study supports Khorshid's prediction of the consequences of persisting with the laissez-faire approach. Prepared by William Easterly, a researcher for the World Bank, and published in February 2001, its title tells all: The Lost Decades: Developing Countries' Stagnation in 1980-1998 in Spite of Policy Reform. Easterly reveals that the median per capita income growth between 1980 and 1998, when structural adjustment programmes were implemented in developing nations, was zero, as opposed to 2.5 per cent over the two preceding decades. He further notes that this result discouraged convergence towards the "Washington consensus". Perplexed by this result himself, Easterly casts around for possible causes: the global rise in prime lending rates, the slowdown in growth in industrialised nations, and technological changes requiring new skills. However, he confesses that he is unable to offer definitive proof for these contentions. It is apparent that Easterly's confusion stems from his inability to subject neo-liberal policy to radical critique, and his simultaneous inability to deny that stagnation is so intrinsically associated with this policy.
However, even taking the Heritage/Wall Street Journal report we find a number of glaring examples that put pay to the notion that the expansion of liberal reforms in Egypt will trigger an economic miracle. China, the country to have scored the highest economic growth rates in the world over the past two decades, is rated below Egypt on the scale of economic freedom (it is ranked 127th). India, too, rates lower -- at 119th -- despite the fact that it is now considered one of the newly industrialised nations, even if it yet suffers slow economic growth rates. The report categorised China among those countries that place high barriers on capital flows and foreign investment. This might come as a surprise to many, given that China ranks as the most attractive country to foreign investment in the Third World, and second only to the US worldwide. Meanwhile, Egypt is described as imposing "moderate barriers", but its performance in attracting foreign investment is dismal. Clearly, something is terribly wrong with the index of factors our economic authorities believe are needed to create a more attractive investment climate.
Equally telling is that the report rates Chinese trade policy as "very highly" protectionist and Egyptian trade policy as only "highly" protectionist. Yet, nothing could contrast more starkly than China's astounding success at developing its export trade and Egypt's utter failure in this regard. At the very least, this fact puts paid to the contention that deregulation of foreign trade is the key to enhancing exports. In countries in the process of industrialisation, boosting exports stands little chance of success without some form of protectionism to enable their nascent manufacturing bases to take root.
South Korea offers another instructive example. Following the implementation of a wide range of liberal reforms, the South Korean economy -- once regarded as highly protectionist -- is now categorised as "mostly free". Nevertheless, it is still ranked among the economies in which there is a "high level" of state intervention, as opposed to Egypt in which the level of state intervention in the economy is listed as "moderate". In spite of the considerable progress made towards privatisation, the South Korean government not only continues to own, or share in the ownership of, companies in numerous sectors (banking, communications, petroleum, electricity, tobacco and heavy industry), but its role in the national economy goes far deeper. According to the Heritage report, the South Korean government bought up shares and offered other forms of financial assistance to major companies threatened by the stock market crisis several years ago. In addition, government-operated banks saved a number of major companies from going under.
Meanwhile, with regard to Egypt, the report has nothing to say on the role of the state in the nation's economic life apart from its focus on the relatively oversized public sector. While this may in fact be the case, because of its increasing commitment to refraining from economic intervention the state is no longer integrally instrumental in developing the economy, and industry in particular. Indeed, it may even be reluctant to develop the manufacturing capacities it still controls, preferring instead to allow some to go idle. In addition, the public sector is now essentially driven by market forces. It is no longer restricted by so-called "social prices"; it is no longer subsidised, and public banks no longer offer cheap credit to enterprises that are considered worthy of development. The state, thus, has forfeited its affirmative role in economic development, even if it has retained its rearguard function of safeguarding the economy from collapse in times of crisis.
It should also be noted that the relatively large size of the public sector, to which the Heritage report refers, stems in part from the government's desire to retain control over certain vital sectors, such as the Suez Canal, petroleum, transport and communications, which the report regrets are "off limits" to privatisation. At the same time, the failure to privatise approximately half of the public business sector is not the product of any unwillingness on the part of the government, but rather of the poor financial state of the companies in this sector, or of the inability of the private sector to come up with the necessary funds.
In spite of all the reasoning above, the Heritage report insists on linking capitalist progress with economic freedom. Its perspective may have some validity at a metaphysical level, but it is not borne out by historical fact. Taking national economies out of context and plotting them on various scales of per capita income and economic freedom tells one story; an examination of the methods various countries used to achieve actual prosperity and progress tells another.
* The writer is an economist with the Centre for Arab and African Research.
