Monday,16 July, 2018
Current issue | Issue 1280, (28 January - 3 February 2016)
Monday,16 July, 2018
Issue 1280, (28 January - 3 February 2016)

Ahram Weekly

For the sake of the economy

A new book sets out a prescription for curing the ills of the Egyptian economy, writes Sayed Moawad

Al-Ahram Weekly

Sherif Delawar’s new book, The Trilogy of Development, Justice and the Economy: How Not to Lose the Future, comes at a time when Egypt is reordering its priorities and correcting the mistakes of the past.

The title reflects the messages the author intends to deliver, which touch on the current challenges Egypt is facing and were the main causes of two revolutions, that of 25 January 2011 and 30 June 2013. Delawar is a visiting professor of management sciences at the Arab Academy for Science, Technology and Maritime Transport.

In his introduction, the author states that the main change needed is to accelerate the path of economic development such that the goals of the Egyptian revolutions — of freedom, social justice and human dignity — are achieved.

The correction of the economic path starts with a careful examination of the reasons behind the failure of the economic system before the two revolutions to meet the aspirations of young people.

It offers an honest analysis of means to achieve social justice and calls for widening the ownership of productive assets, designing an economic system that works in the interests of all, and government intervention to apply the rules of the markets for an efficient allocation of resources with a view to achieving social justice.

The book focusses on the role of central government, noting that it should be accompanied by a larger role for the local governorates in both financing and spending. Municipal councils and executive bodies should have the right to borrow to finance investment and service projects. These loans would be repaid by future earnings, lessening the burden on the public budget and generating new jobs and achieves local development.

It is necessary for Egypt to learn from global experiences of economic decentralisation to build local economies based on efficiency, equity, sustainability, accountability, solidarity and democracy.

The new economic system should work for all. Securing work opportunities and incomes for every citizen of working age is a human right. Egypt should set out strategies and detailed programmes for full employment, and no one can do this except the government. It should direct additional resources from the public budget to support social solidarity networks, training programmes for young people, and the social insurance system.

Combatting poverty and creating employment opportunities require reforming rural markets and creating real progress in the countryside and Upper Egypt, home to half the population. This should be done by raising productivity through careful guidance and the modernisation of agricultural cooperatives, together with a strategy for the selection of optimum crops, complying with irrigation capabilities and available water resources.

The increased resources will enable the public budget to finance the public investment expenditure required and service the domestic debt. Furthermore, the increased resources will enable the government to subsidise food, as no government will be able to reduce such subsidies unless the standard of living of the majority of the Egyptian people is being raised.

Most importantly, the country’s investment and production strategy will achieve economic development when the government uses a mixture of protective and liberal trade policies and balances between both, based on national needs and capabilities. This strategy should realise the importance of education, knowledge, human capital, diversification, innovation and technology, all of which should not be left to market forces alone.

The author of the book calls for a capitalist state, which does not mean a return to a centralised economy but instead refers to a managed engineering of capitalism according to domestic conditions.

The first decade of the 21st century witnessed an increase in public wealth, public investment, public ownership, and the control of the government over countries’ main economic activities in order to achieve sustainable development. Petroleum companies owned by the state, for example, now control nearly three-quarters of the world’s petroleum reserves.

Furthermore, governments are pushing public and private companies to enter the fields of aviation, maritime transportation, communications, energy generation, mining and petrochemicals. An example of the return of the capitalist state is the BRICS (Brazil, Russian Federation, India, China, and South Africa) states that established 117 companies from 2004 to 2008.

The author poses the question of how Egypt can achieve high and sustained growth. The answer is that economic growth is a means and not a target per se, and it is not a mere economic issue but comes in parallel with good governance and modernising political, legislative and executive institutions.

The author specifies, based on the experience of some developing countries, a number of factors that can achieve sustainable growth, including, inter alia, the application of technology to production, the reliance on human capital in generating wealth, an investment rate of over 25 per cent annually, high national savings, whether private or public, openness to the international economy, an effective role for government in reducing red tape, and managing the national currency in a manner that avoids fluctuations.

For Egypt, two features here are of great importance: first, the rational usage of water and energy, as high rates of growth require more usage of these factors; and second, expanding the scope of growth to include all citizens and setting out a limit on the gap between incomes.

The author attributes the inability of the state to extend welfare further to Egypt’s institutional history. He says that Egyptian institutions have worked in the interests of a small segment of society from the time of Mohamed Ali in the 19th century to the 30 June Revolution.

Under Mohamed Ali’s style of authoritative management, despite some growth, the state was managed as a private ownership system and privileges were granted to loyalists. After the 1919 revolution, the institutions continued to work for a certain segment of society, and after the 1952 revolution privileges were taken from the elites and growth was achieved. Under the rule of former president Anwar Al-Sadat, this was reversed and another segment enjoyed both capital and power as a result of the Infitah (Open Door Policy).

Under then-president Hosni Mubarak, in the 1990s, another segment attained wealth and power through privatisation and the liberalisation of markets. As a result of corruption in governance and the government’s inability to secure public services and the lack of equal opportunities, young people took to the streets against a political and social system that negated their aspirations.

The Muslim Brotherhood tried to monopolise the country’s political and economic institutions during its one-year rule by replacing the political and financial elites with another profiteering group. As a result, the people went out onto the streets again, on 30 June 2013.The author says that nations fail because of the nature of institutions that enable a certain segment to accumulate wealth at the expense of the entire society.

Concerning social justice, this is defined as “empowering all citizens’ capabilities in a manner that enables them to attain opportunities on an equal footing”. Here, the capabilities concept of justice, as put forward by Indian economist Amartya Sen, is considered to be a condition for achieving justice.

The absence of justice is defined as a lack of capabilities in some segments of society and the relative levels of capabilities as the main cause of social differences in society. Policy-makers should raise the capabilities of citizens when designing programmes to combat poverty and unemployment and establish social justice.

The book refers to the connection between the new liberalism and development. The US writer Francis Fukuyama, in his book The End of History, once argued that liberalism was the sole way of progress. But the development expertise of East Asia has shown that development in emerging countries can be led by a “technocratic elite”.

At the same time, former Singaporean prime minister Lee Kuan Yew has argued that “patriarchal power” has been the route that leaders of development in Asia have followed, and this approach is more powerful than Western liberalism in producing a more educated and principled society.

The book also touches on a sensitive point, which is the fate of domestic industry. The structure of this heavily depends on the imports of both inputs and equipment. In this regard, inputs and intermediaries constitute nearly 55 per cent of such imports, while capital equipment constitutes 72 per cent of investment costs.

This means that Egyptian industry’s payments in foreign currency equal approximately 60 per cent of such costs, which increases the balance of trade deficit and puts pressure on the exchange rate with each increase in production.

Domestic firms’ industrial competitiveness will not rise unless the government plays a leading role in raising the skills of human capital and in technological infrastructure. Furthermore, the government has an important role to play in dealing with the rules of the international economic order and their effect on Egyptian industry.

In conclusion, the state’s strength is made up of both hard and soft power. Hard power includes efficient and effective physical and human capital, technology, the quality of infrastructure, and military power. Soft power includes ideas, culture, values and national loyalty.

Egypt’s ability to play a key role in the world today through its capacity as a centralised state depends on factors including a coherent social fabric based on equity in distributing the national income, the prevalence of the rule of law, development of human capital (education, training, healthcare, and child and mother care), physical and monetary policies, business rules that lead to the sustainability of development, and protecting reserves of water, energy and natural resources.

Such a balanced social fabric is the guarantor of Egypt’s strength in the future.

Sherif Delawar, The Trilogy of Development, Justice and the Economy: How Not to Lose the Future.

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