Reflecting on the political-economic order of Egypt during the first decade of the millennium, it is now more conventional to describe this period as one of &lsquo;crony capitalism&rsquo;. Businesspeople who were connected to government officials, through family ties and close friendships, or through common party membership, dominated the private sector with the help of various state privileges. A plethora of works discuss and provide empirical evidence regarding the intensity of informal state-business relations (SBR), the various crony privileges that President Hosni Mubarak&rsquo;s state offered, and the hotly debated effects these crony networks had on the Egyptian economy.<a href="#_edn1" name="_ednref1">[i]</a> Less debated, however, is how the institutional settings allowed for corruption to flourish and the devastating effects it had on social justice issues in Egypt. Alongside discussions on bequeathing the presidency to Gamal Mubarak, the latter&rsquo;s crony networks were among the greatest agitators of public frustration that paved the way for the 25th of January 2011 Revolution.
From a social justice perspective, cronyism has been responsible for an upsurge in inequality due to the special privileges afforded to certain businesspeople which helped them dominate markets and expand their wealth at the expense of others. It was also responsible for weakening the labor movement that sought to challenge the power of business cronies, ultimately resulting in more exploitative and harsher conditions for workers.
<h3 style="text-align: justify;">How institutional settings fostered cronyism in Mubarak&rsquo;s Egypt?</h3>
There were many reasons why social and political connections with state officials were crucial to businesspeople. Mubarak&rsquo;s regime inherited the Nasserist state, which at its heyday controlled all banks, utilities, foreign trade, large and strategic industries, among other sectors (Waterbury, 1993). Despite numerous waves of economic liberalization, first under Anwar Sadat in the 1970s and then under Hosni Mubarak following the implementation of the Structural Adjustment Program (ERSAP), the state remained largely in control of access to credit. The government dominated the banking sector, holding more than half of the country&rsquo;s total banking assets, and also exercised control over important sectors such as oil, gas, land, and infrastructure.
Uncontested state powers were abetted by the poor performance in good governance institution. Society organizations were largely under government control and parliament played a marginal legislative role<a href="#_edn2" name="_ednref2">[ii]</a>.&nbsp; Parliamentary elections were manipulated to ensure an overwhelming majority for the ruling National Democratic Party and their associated societal groups. This arrangement proved to be a form of &ldquo;elite management&rdquo; whereby the most popular business cronies would be selected to the parliament (Blaydes, 2008). There were some improvements in the freedom of the press, but red lines existed nonetheless (Sternfeld, 2014). The rule of law was negatively affected because of an inefficient judicial system that was inadequately equipped to handle private commercial disputes and lacked effective mechanisms for contract enforcement and property rights protection (Belev, 2000). Even after some regulatory reforms that sought to ease the process of starting a business, laws and regulations remained complex and unclear, and in practice, they were not applicable to all (Yousfi, 2008).
<h3 style="text-align: justify;">Benefitting at the expense of others</h3>
These various material and institutional resources provided the means for rewarding socially and politically connected businesspeople. In these webs of crony networks, the governments&rsquo; favorable treatment was exchanged for loyalty to the state. Energy subsidies were crucial for the profitability of energy intensive sectors largely dominated by business cronies, such as iron, steel and cement, where energy costs represented more than a third of total costs. Regardless of efficiency, subsidizing these industries accounted for 20%-25% and more than 50% of total energy and oil subsidies, respectively (Adly, 2013). During much of the 2000s when global oil prices spiked dramatically, the energy subsidy burden on the state soared (Adly, 2013), representing an additional drain of resources that society could have otherwise benefited from.
Moreover, well-connected businesspeople received preferential treatment from public banks at the expense of smaller businesses who witnessed restrictions to bank credit (see Nabli, 2007; Belev, 2000; IBRD, 2011; Roll, 2010). Smaller businesses were crowded-out from credit markets, thereby placing them at a disadvantage in the markets in which they were competing. For instance, Small and Medium Enterprises (SMEs) received less than 4% of total lending and around half of a sample of Micro and Small Enterprises (MSE) reported that their low use of advanced technology was attributed to their inability to find adequate financing (Saif, 2011; Ghanem, 2013).<a href="#_edn3" name="_ednref3">[iii]</a>
The poor institutional conditions encouraged well-connected businesspeople to rely on these crony networks, leaving those lacking such connections in an unprivileged position with no other alternative. Business lobbying was hindered by limited information, lower freedom of association and nominal press freedom (Nabli, 2007). SMEs hardly enjoyed a considerable share of influence when discussing strategies of economic reform and MSEs experienced limited access to infrastructure (Ghanem, 2013). The ultimate effect was that many of these small businesses remained informal (see Belev, 2000; IBRD, 2011; OECD, 2013).
<h3 style="text-align: justify;">How cronyism hurt workers too</h3>
The discrimination against SMEs and MSEs did not only affect the business community. It had lasting effects across the wider population working in these firms, especially young people. MSEs accounted for 80% of total private sector employment and about three quarters of new entrants to the Egyptian labor market - about 50% of total labor in MSEs was under the age of 30 (Ghanem, 2013). Labor conditions in these businesses, especially in the informal sector, presented a serious challenge to social justice issues. The informal sector was responsible for higher wage disparities (El-Haddad and Gadallah, 2018), poor working conditions, and lack of government assistance to workers (Saif, 2011).
Moreover, crony privileges came not only at the expense of those less well-connected, but also to the detriment of other societal groups. The fundamental conflict of interests between capital and labor and the proliferation of crony networks has resulted in workers being one of the most disadvantaged societal groups in Egypt. Prior to the neoliberal period, when the public sector prevailed, workers were covered by state protection, even when salaries were low. It was less relevant that workers&rsquo; unions, like other societal organizations, were controlled by the state.
The privatization waves of the 2000s, however, altered the entire situation. Well-connected businesspersons were among the primary beneficiaries of this privatization, obtaining underpriced public assets or without &ldquo;real competitive bidding&rdquo; (see Adly, 2009). Privatization was accompanied with mass workers&rsquo; layoffs and compelled early retirements (Aziz, 2014). The law of 2003 made it easier to hire and fire workers, to offer temporary contracts, to renew such contracts, to cut the workforce during unfavorable economic conditions, to decrease wages, and to cut the benefits of newly hired workers (Pfeifer, 2012). Furthermore, in the private sector, workers suffered from harsher working conditions and less social benefits (see Beinin and El-Hamalawy, 2007). Their only achievement from the 2003 law was the right to strike. In practice, however, this proved to be merely window dressing. In order to strike, workers had to receive approval from the General Federation of Egyptian Trade Unions, which remained largely under state control (Beinin and El-Hamalawy, 2007). Between 2006 and 2011, widespread dissatisfaction and indignation among workers resulted in some of the biggest waves of labor strikes the country had witnessed since the 1940s (Kamel, 2011; Aziz, 2014). In fact, the wide participation of workers in a general strike during the 2011 Revolution played a crucial role in ousting Mubarak from power (Kamel, 2011).
Figure 1
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://lh7-us.googleusercontent.com/gbI04qJB6oP6fKdx8xxxfVCau8plTyfiHKSd2JxROk5u_4o9SPT1C39SgQD1nE6-DVix_SxmSEcGwJhUMjgI53y1YvZXWs0RJfpcHY9WmZ_rOYORzuWqRRytPwA84uNDV0fnHkY5uJNX1pLdBpjUgQ" width="440" height="264">
Source: Self calculation using data from the Global Competitiveness Indicators (GCI). 0 is for the lowest possible level of Favoritism, 100 for the highest.
<h3 style="text-align: justify;">Did cronyism end with Mubarak?</h3>
Cronyism in the decade preceding the 2011 Revolution had significant negative effects on issues of social justice in Egypt, whether in terms of failing to foster fair business competition or in worsening labor conditions. This was made possible by the presence of a powerful state relative to various societal groups; a state which controlled and subdued socially representative bodies, such as business associations and labor unions. Neither committed to the egalitarian and socialist principles of the 1960s, nor constrained by good governance institutions, the state&rsquo;s interest in nurturing a crony network for both personal enrichment and as a regime survival strategy was left greatly unchecked.
In the aftermath of the 2011 Revolution, Mubarak&rsquo;s crony networks were undoubtedly disrupted. Statistics from the Global Competitiveness Indicators (GCI) of &ldquo;favoritism in decisions of government&rdquo; confirm this perception (see figure 1). But these networks are expected to resurface as long as independent and broad-based representative societal organizations are absent, collaborative governance mechanisms that allow these organizations to participate in decision-making processes remain non-existent, and the poor performance of governance institutions continues. Put simply, the persistence of the current institutional settings makes cronyism the best strategy for a well-connected businessperson. At a time when businesses are incapable of lobbying the state for more business-friendly regulations and policies, cronyism provides them with financial privileges, a competitive edge over existing or potential rivals, protection from the consequences of their own legal violations, and a protective buffer from labor demands. In the current political climate, it is not surprising that government favoritism is returning to its former levels.
<hr>
<a href="#_ednref1" name="_edn1">[i]</a> Some argued that informal SBR had a positive effect on economic growth of Egypt by overcoming some institutional impediments (e.g.: bureaucratic ineffectiveness) and providing policy insights to the incumbents (see Abdel Latif &amp; Schmitz, 2010). Empirical evidence, however, showed that cronyism in this period negatively affected productivity, competition, innovation and technological upgrading (see for instance, Francis et al. 2018; Diwan et al. 2014; Lowe, 2013). <a href="#_ednref2" name="_edn2">[ii]</a> The World Bank World Governance Indicators (WGI) provide a good metrics in this regard. It has six indicators: rule of law, regulatory quality, government effectiveness, voice and accountability, control of corruption and political stability. <a href="#_ednref3" name="_edn3">[iii]</a> Microfirms are those employing less than 10 workers, Small are employing between 10 and 49 workers, medium are employing 50 and 99 workers, while large are employing more than 100 (see Ghanem, 2013).
<hr>
References
<ul>
<li>
Abdel-Latif, A., &amp; Schmitz, H. (2010). Growth alliances: insights from Egypt.&nbsp;Business and Politics,&nbsp;12(4), 1-27.
</li>
<li style="font-size: 10pt;">
Adly, A. I. (2009). Politically-embedded cronyism: The case of post-liberalization Egypt.&nbsp;Business and Politics,&nbsp;11(4), 1-26.
</li>
<li style="font-size: 10pt;">
Adly, A. (2012).&nbsp;State Reform and Development in the Middle East: Turkey and Egypt in the post-liberalization era. New York and London: Routledge.
</li>
<li style="font-size: 10pt;">
Beinin, J., &amp; El-Hamalawy, H. (2007). Egyptian textile workers confront the new economic order.&nbsp;Middle East Report Online,&nbsp;25.
</li>
<li style="font-size: 10pt;">
Belev, B. (2000).&nbsp;Forcing freedom: Political control of privatization and economic opening in Egypt and Tunisia. Lanham, Maryland: University Press of America.
</li>
<li style="font-size: 10pt;">
Blaydes, L. (2008). Authoritarian elections and elite management: Theory and evidence from Egypt. In&nbsp;Princeton University Conference on Dictatorships.
</li>
<li style="font-size: 10pt;">
Diwan, I., Keefer, P., &amp; Schiffbauer, M. (2014). On top of the Pyramids: Cronyism and private sector growth in Egypt.&nbsp;Washington, D.C.: The World Bank.
</li>
<li style="font-size: 10pt;">
El-Haddad, A., &amp; Gadallah, M. (2018). The Informalization of the Egyptian Economy (1998-2012): A Factor in Growing Wage Inequality?. In&nbsp;Economic Research Forum Working Papers&nbsp;(No. 1210).
</li>
<li style="font-size: 10pt;">
Francis, D., Hussain, S., &amp; Schiffbauer, M. (2018).&nbsp;Do politically connected firms innovate, contributing to long-term economic growth?. Washington, D.C.: The World Bank.
</li>
<li style="font-size: 10pt;">
Ghanem, H. (2013).&nbsp;Role of micro and small enterprises in Egypt's economic transition. Washington, D.C.: Brookings.
</li>
<li style="font-size: 10pt;">
IBRD (2011). Public-Private Dialogue for sector competitiveness and local economic development: Lessons from the Mediterranean Region. Washington, D.C.: The International Bank for Reconstruction and Development.
</li>
<li style="font-size: 10pt;">
Kamel, A. (2011). Activist perspective: The role of independent labor organizations in the Egyptian revolution.&nbsp;Journal of Workplace Rights,&nbsp;15(3-4), 483-484.
</li>
<li style="font-size: 10pt;">
Koehler, K. (2008). Authoritarian elections in Egypt: formal institutions and informal mechanisms of rule.&nbsp;Democratization,&nbsp;15(5), 974-990.
</li>
<li style="font-size: 10pt;">
Nabli, M. K. (2007).&nbsp;Breaking the barriers to higher economic growth: better governance and deeper reforms in the Middle East and North Africa. Washington, D.C.: The World Bank.
</li>
<li style="font-size: 10pt;">
OECD (2013). Regulatory reform in the Middle East and North Africa: Implementing regulatory policy principles to foster inclusive growth. Paris: OECD Reviews of Regulatory Reform.
</li>
<li style="font-size: 10pt;">
Pfeifer, K. (2012). &ldquo;Economic Reform and Privatization in Egypt.&rdquo; In Sowers, J., &amp; Toensing, C. (Eds.). The Journey to Tahrir: Revolution, Protest, and Social Change in Egypt (203-223). London, New York: Verso Books.
</li>
<li style="font-size: 10pt;">
Sabry, M. I. (2018). "Cronyism as an Outcome of Institutional Settings: The Case of pre-2011 Egypt." Topics in Middle Eastern and African Economies 20(1), 85-111.
</li>
<li style="font-size: 10pt;">
Saif, I. (2011). Challenges of Egypt's economic transition. Washington, D.C.: Carnegie Endowment for International Peace.
</li>
<li style="font-size: 10pt;">
Sternfeld, R. A. (2014).&nbsp;Political coalitions and media policy: a study of Egyptian newspapers&nbsp;(Doctoral dissertation).
</li>
<li style="font-size: 10pt;">
Schwab, K., &amp; Sala i Martin, X. (2015). The Global Competitiveness Report 2015-2016. Cologny, Switzerland: World Economic Forum.
</li>
<li style="font-size: 10pt;">
Waterbury, J. (1983). The Egypt of Nasser and Sadat. New Jersey, USA &amp; Guildford, Surrey, United Kingdom: Princeton University Press.Yousfi, H (2008). The investment climate in Egypt: Institutions or relationships as conditions for sustainable reform? Working Paper 66. Paris: Agence Francaise De Developpement.
</li>
</ul>

آراء

Commentaries

null

حماية اجتماعية

Read Also