Back to the state

---

The bankruptcy of Merrill Lynch and Lehman Brothers, Freddie Mac and Fannie Mae, and above all the bailout of the American International Group (AIG) raised the alarm bells across the globe. The world financial system has never been in a more dangerous and vulnerable state of affairs. Policymakers throughout the world are panicking as never before. It is as if capitalism is crumbling all around us.

With the collapse of the Soviet Union and the end of the Cold War, faith in capitalism was at an all-time high. Capitalism could do no wrong, and could only lead to good. But faith in capitalism has been shaken, prompting a revival of trust in state interventionism -- which, incidentally, is no longer a dirty phrase. Lo and behold, the role of the state is propped up. The retreat of the state from the public arena is no longer fashionable, is no longer recommended.

Neo-liberalism is no more the panacea to the world's ills. The dynamics of state-society interactions must be fully understood at this critical historical juncture.

Financial and monetary policies in Egypt and throughout the world have to be critically reviewed. There is no room for complacency. The notion that banks should be the recipients of the state's largesse is somewhat novel. But people, too, should be the recipients of state largesse -- especially the needy and most vulnerable members of society. Welfarist governmental intervention is most welcome now.

Personal initiative and risk-taking entrepreneurship are no longer the means to economic salvation. Blind faith in the workings of the free market economy could lead to disaster. That much has become abundantly clear in the past few weeks.

Egypt has had a long and often controversial experience with the welfare state. In the 1950s and 1960s the country turned towards welfarism. The public expected state intervention in their favour. The public took government intervention and the welfare state as the norm.

In the 1970s, there was a radical shift in attitudes. The open-door policies necessitated the gradual retreat of the state from the public arena. As the state withdrew from public life, people were left to make ends meet. Today, Egyptian policymakers are watching what strategies Western governments are adopting in dealing with the global financial crisis.

Egyptian policymakers, as their counterparts in other parts of the world also, have noted how Western governments rushed to bailout banks and other beleaguered financial and lending institutions.

The world is fast changing and it is difficult to predict which direction it will take. Change is inevitable, but where does Egypt stand? Egypt is at the crossroads. The country aims at becoming a dynamic emerging market. However, due to global circumstances it is uncertain if or when the dream of lifting the standards of living of the majority of its burgeoning population will be realised. This is decision time, big time. Welfarist governmental rationality is an option. No liberalism another.

The welfare state of yesteryear introduced a wide gamut of provisions from guaranteed employment to free education and free medical services. The introduction of a neo-liberal ethos changed all that.