Amr Adly, Cleft Capitalism: The Social Origins of Failed Market Making in Egypt (New Texts Out Now)

Amr Adly, Cleft Capitalism: The Social Origins of Failed Market Making in Egypt (New Texts Out Now)

Amr Adly, Cleft Capitalism: The Social Origins of Failed Market Making in Egypt (New Texts Out Now)

By : Amr Adly عمرو عادلي

Amr Adly, Cleft Capitalism: The Social Origins of Failed Market Making in Egypt (Stanford University Press, 2020).

Jadaliyya (J): What made you write this book?

Amr Adly (AA): It started with a policy report I wrote for Stanford’s Center on Democracy, Development, and the Rule of Law (CDDRL) in 2013-2014 about reforming entrepreneurship ecosystems in Egypt and Tunisia after the 2011 revolutions. Extensive fieldwork in both countries raised questions about the overall validity of many of the neoclassical institutionalist frameworks that stressed crony capitalism and corruption as the primary reasons for the dismal development record in MENA, to which I personally subscribed. Problems seemed to have deeper social and not just political roots. Naturally, the policy report did not allow delving deep into theoretical and conceptual issues and that is why I decided to depend on the fieldwork and findings to develop a book, which assumed a life of its own through the following six years. The book became an assault on neoclassical orthodoxy and an attempt at developing an empirically-based conceptualization of the capitalist transformation in Egypt as part of the Global South.

.... why forty years of liberalization, privatization, and deregulation in Egypt have not led to the emergence of a developmental capitalist order.

J: What particular topics, issues, and literatures does the book address?

AA: The book focuses on Egypt’s capitalist transformation since infitah in the mid-1970s through the 2011 revolution. It combines political economy with economic sociology in providing a detailed picture of how social market actors evolved in Egypt, how they conducted business, and how they were related to the state. The main question the book poses is why forty years of liberalization, privatization, and deregulation in Egypt have not led to the emergence of a developmental capitalist order. It is a kind of “what went wrong” question. Egypt serves as a case study. The whole logic of the book is comparative and aims at pushing beyond the region studies paradigm that has dominated the examination of MENA. The book draws comparisons with other cases in the Global South as well as historical ones in the Global North. Its central argument is that Egypt ended up with a polymorphic and variegated system of rules that weakened the chances for the broader base of private sector actors to access capital and hence to upgrade and grow in size and productivity. This institutional condition is what the book labeled “cleft” capitalism and is one that led to the structural trifurcation of the emerging order into baladi, dandy, and crony capitalisms where different groups of enterprises were subject to different rules governing their access to inputs and market outlets. 

The book engages with multiple bodies of literature. It discusses thoroughly and critically the contributions of neoclassical institutionalism as the predominant development paradigm of the day. It is also critical of the leftist literature that dismisses any chances of development through the integration into the capitalist global division of labor. The book explores the combinations of external and domestic factors that define the terms of integration and hence the chances for development. The “cleft capitalism” model is developed through a detailed engagement with the varieties of capitalism approach and the literature that was modeled after studying different national and regional cases in the Global South. It builds on the analytical structure of the varieties of capitalism model but departs from many of its neoclassical underpinnings. The book also explores much of the economic sociology literature on East Asia and Southeast Asia, as well as some other regions in the Global South.

J: How does this book connect to and/or depart from your previous work?

AA: I think this book is a sharp departure from my earlier work. I used to subscribe to many of the tenets of neoclassical and Weberian institutionalisms in the way I approached political economy in Egypt and the region. My earlier articles and book appear within the literature that I critique in this book. Overall, I think the book marks an evolution of how I examine the question of capitalist transformation into a better informed and more nuanced approach. 

J: Who do you hope will read this book, and what sort of impact would you like it to have?

AA: I hope this book will reach out to academics and policy experts working on Egypt and MENA, but also to those concerned with development in the Global South more generally. Even though the book focuses on Egypt, it is a comparative work par excellence. It explicitly draws comparisons with East and Southeast Asian experiences with capitalist transformations. The proposed conceptual model of cleft capitalism is also applicable beyond Egypt into non-oil exporting MENA economies, but also cases in Latin America and South Asia. As for the impact that the book may have, I hope it contributes to redefining and refocusing the debate about development in the Global South, and especially in the region. I believe it is time to bring a stronger historic-sociological dimension into institutionalism that will transcend the rather formalistic stress over property rights and the rule of law as prerequisites for capitalist development.

J: What other projects are you working on now?

AA: I am currently working on a couple of peer-reviewed articles on Egypt. I am focusing on the reconfiguration of state-business relations in Egypt under the current regime. I hope I will get the chance to rewrite Cleft Capitalism in Arabic, rather than just translate it. I want to make it accessible to a broad non-specialized audience so that it may engage with the public debate on Egypt’s political economy.


Excerpt from the book

“[T]he divergence of Egypt’s developmental path from more successful cases had less to do with rent seeking, corruption, and cronyism and more to do with the system of cleft capitalism that deprived the business elite of a robust and competitive base of small and medium enterprises (SMEs)--the missing middle. This access would have enabled the dominant classes to exploit the one abundant factor of production in Egypt: cheap labor directly, as well as indirectly, through employment in small-scale enterprises (SSEs). Instead, cleft capitalism denied the Egyptian economy as a whole the chance for a more integrated capitalist order with an accessible and exploitable base of SSEs and labor. While some degree of exploitation has been rampant, especially with the progressive proletarianization of Egyptians throughout the second half of the twentieth century, this largely remained in the domain of subsistence-driven micro-units with virtually no potential for scaling up or growing beyond their immediate localized markets. 

The problem was not how Egyptian politics and economics were articulated in any exceptional ways compared to more successful cases in the Global South, nor were political factors such as rent seeking, cronyism, or state patronage primarily responsible for delivering Egypt’s suboptimal development. Indeed, politics remains central to capital accumulation in the Global South as well as North. It would be hard to imagine how capitalism could function without governance and regulation on the national and global levels through state and interstate authoritative arrangements. In market democracies, the economy has become progressively differentiated from politics through the firm establishment of the rule of law and the even protection of property rights, a fairly recent process that signifies only one phase of capitalist development.

In contrast, capitalist development in much of the Global South did not necessitate the reproduction of the same kind of institutional differentiation between politics and the economy. Indeed, China, South Korea, Taiwan, and others in Southeast Asia demonstrate high levels of interpenetration and collusion between economic and political elites while formal market institutions have remained underdeveloped. In their place, alternative politically and socially embedded institutions have delivered high growth, competitiveness, and an overall favorable integration into world trade and capital markets. 

When Small Is Big

The historical record of economic modernization in the late nineteenth and early twentieth centuries demonstrates that such development was less about “industrial gigantism,” usually associated with modern economic elites in control of concentrated capital. Rather, Deborah Cohen cites evidence that historically “small and medium-sized plants formed the bedrock of the economy” in Great Britain, France, Germany, the United States, and Japan back then. These firms were then able to form multiple linkages with large capital. The same story unfolded later with the newly industrializing nations of East and Southeast Asia. As Chapter 1 showed, SMEs have played a central role in the development journeys of Taiwan, South Korea, China, and Malaysia. Hence, the key lies not in engendering a few large “modern enterprises,” but in the existence of a robust and competitive base of SMEs through a myriad of institutional arrangements.

The lack of these institutional arrangements points to an institutional explanation for the less successful cases of capitalist transformation in the MENA and other parts of the Global South. These intermediate institutions generate complementarities between public capital-regulating organizations governing access to credit and land and the broader base of private enterprises. Rather than the neoclassical institutions--formal private property protection and the rule of law--it was the absence of these intermediate institutions that led to largely unintegrated capitalist orders. 

Similarly, the Weberian bureaucracies idealized as prerequisites for development in the literature on developmental states have either been very exceptional to a handful of cases or totally nonexistent in the Global South. The ability of states to influence their economies has been consistently overstated given the rampant informality and general lack of state autonomy from powerful societal groups. The Egyptian case shows that the broad base of the private sector emerged in the absence of intentional state action, as the marketization and proletarianization processes that engulfed millions of Egyptians by the 1970s have resulted from long-term demographic and social changes little regulated by the state. 

The launch of infitāḥ and the following market-making reforms of the 1980s and 1990s could not (and were not meant to) undo the legacy of socioeconomic marginalization, primarily due to the persistent absence of intermediate institutions that could have cultivated complementarities with the broad base of small-scale private establishments. Hence, cleft capitalism was not a product of infitāḥ; rather it resulted from a long-standing process extending back to Egypt’s modernization process in the nineteenth century, which left a majority of the people behind.

Throughout Egypt’s contemporary history, SSE owners and local entrepreneurial populations were neither politically nor socially empowered in a way that could have elevated them to fill the middle rungs of the private sector economy. Politically, the authoritarian dynamics of the 1952 regime allowed only for the incorporation of state-dependent constituencies, dynamics that persist today because they are denied space to collectively articulate their interests. Socially, Egypt, unlike successful cases of transformation, never experienced that type of social revolution capable of delivering for the marginalized and excluded majority. In contrast, Amartya Sen underlined the positive yet unintended impact of China’s social revolution under Mao in incorporating sizable rural and urban constituencies into market operations following Xiao Ping’s economic opening in the late 1970s. Earlier improvements in health, education, and women’s emancipation broadened the base of a skilled (and cheap) labor force that came to define China’s competitive advantage in the capitalist global economy. Conversely, India’s market-making reforms of the 1990s have not overcome the deep socioeconomic marginalization that marked the country’s post-independence period in which the caste system has endured. Hence, by the time economic liberalization unleashed market forces, a majority of Indians remained marginalized on caste, sectarian, ethnic, and gender basis.

India slightly resonates with the experience of Egypt, where no social or democratic revolutions ever (successfully) took place, not even under Nasserism, which was ultimately more of a conservative middle-class-dominated project of modernization. Nor has it witnessed episodes of mass mobilization or a deep transformation of social or economic relations. Any social mobility that did occur due to expanding education and public sector employment was tied to demobilization and incorporation rather than the transformation. 

By the time market-based capitalism was sought in Egypt in the mid-1970s, deeply entrenched social and economic marginalization precluded full market integration. However, the deadweight of the past was not inescapable; intermediate institutions could have emerged in response to the political empowerment of segments of SSEs, which never took place. Conversely, SSE populations were never brought into political processes because their interests never aligned with the immediate interests of those at the top, nor could they follow the path of larger dandy capitalist firms and break in from the outside given their dearth of capital. Ultimately, state action in the economic area remained captive to a bureaucratic coalition that in spite of being tension ridden and generally uncoordinated nevertheless unleashed mechanisms that raised economic and political barriers to accessing capital for the broad base of private enterprises. Most SSEs could not adapt to these state institutional arrangements, instead scraping out the ability to survive rather than grow. Conversely, larger enterprises with large initial or acquired capital showed higher adaptation, using their financial, social, and cultural capital in order to jump these barriers and scale up.

New Texts Out Now: Mandy Turner and Cherine Hussein, guest eds. "Israel-Palestine after Oslo: Mapping Transformations in a Time of Deepening Crisis." Special Issue of Conflict, Security & Development

Conflict, Security and Development, Volume 15, No. 5 (December 2015) Special issue: "Israel-Palestine after Oslo: Mapping Transformations in a Time of Deepening Crisis," Guest Editors: Mandy Turner and Cherine Hussein.

Jadaliyya (J): What made you compile this volume?

Mandy Turner (MT): Both the peace process and the two-state solution are dead. Despite more than twenty years of negotiations, Israel’s occupation, colonization and repression continue–and the political and geographical fragmentation of the Palestinian people is proceeding apace.

This is not news, nor is it surprising to any keen observer of the situation. But what is surprising–and thus requires explanation – is the resilience of the Oslo framework and paradigm: both objectively and subjectively. It operates objectively as a straitjacket by trapping Palestinians in economic and security arrangements that are designed to ensure stabilization and will not to lead to sovereignty or a just and sustainable solution. And it operates subjectively as a straitjacket by shutting out discussion of alternative ways of understanding the situation and ways out of the impasse. The persistence of this framework that is focused on conflict management and stabilization, is good for Israel but bad for Palestinians.

The Oslo peace paradigm–of a track-one, elite-level, negotiated two-state solution–is therefore in crisis. And yet it is entirely possible that the current situation could continue for a while longer–particularly given the endorsement and support it enjoys from the major Western donors and the “international community,” as well as the fact that there has been no attempt to develop an alternative. The immediate short-term future is therefore bleak.

Guided by these observations, this special issue sought to undertake two tasks. The first task was to analyze the perceptions underpinning the Oslo framework and paradigm as well as some of the transformations instituted by its implementation: why is it so resilient, what has it created? The second task, which follows on from the first, was then to ask: how can we reframe our understanding of what is happening, what are some potential alternatives, and who is arguing and mobilizing for them?

These questions and themes grew out of a number of conversations with early-career scholars – some based at the Kenyon Institute in East Jerusalem, and some based in the occupied Palestinian territory and elsewhere. These conversations led to two interlinked panels at the International Studies Association annual convention in Toronto, Canada, in March 2014. To have two panels accepted on “conflict transformation and resistance in Palestine” at such a conventional international relations conference with (at the time unknown) early-career scholars is no mean feat. The large and engaged audience we received at these panels – with some very established names coming along (one of whom contributed to this special issue) – convinced us that this new stream of scholars and scholarship should have an outlet.  

J: What particular topics, issues, and literatures do the articles address?

MT: The first half of the special issue analyzes how certain problematic assumptions shaped the Oslo framework, and how the Oslo framework in turn shaped the political, economic and territorial landscape.

Virginia Tilley’s article focuses on the paradigm of conflict resolution upon which the Oslo Accords were based, and calls for a re-evaluation of what she argues are the two interlinked central principles underpinning its worldview: internationally accepted notions of Israeli sovereignty; and the internationally accepted idea that the “conflict” is essentially one between two peoples–the “Palestinian people” and the “Jewish people”. Through her critical interrogation of these two “common sense” principles, Tilley proposes that the “conflict” be reinterpreted as an example of settler colonialism, and, as a result of this, recommends an alternative conflict resolution model based on a paradigm shift away from an ethno-nationalist division of the polity towards a civic model of the nation.

Tariq Dana unpacks another central plank of the Oslo paradigm–that of promoting economic relations between Israel and the OPT. He analyses this through the prism of “economic peace” (particularly the recent revival of theories of “capitalist peace”), whose underlying assumptions are predicated on the perceived superiority of economic approaches over political approaches to resolving conflict. Dana argues that there is a symbiosis between Israeli strategies of “economic peace” and recent Palestinian “statebuilding strategies” (referred to as Fayyadism), and that both operate as a form of pacification and control because economic cooperation leaves the colonial relationship unchallenged.

The political landscape in the OPT has been transformed by the Oslo paradigm, particularly by the creation of the Palestinian Authority (PA). Alaa Tartir therefore analyses the basis, agenda and trajectory of the PA, particularly its post-2007 state building strategy. By focusing on the issue of local legitimacy and accountability, and based on fieldwork in two sites in the occupied West Bank (Balata and Jenin refugee camps), Tartir concludes that the main impact of the creation of the PA on ordinary people’s lives has been the strengthening of authoritarian control and the hijacking of any meaningful visions of Palestinian liberation.

The origin of the administrative division between the West Bank and Gaza Strip is the focus of Tareq Baconi’s article. He charts how Hamas’s initial opposition to the Oslo Accords and the PA was transformed over time, leading to its participation (and success) in the 2006 legislative elections. Baconi argues that it was the perceived demise of the peace process following the collapse of the Camp David discussions that facilitated this change. But this set Hamas on a collision course with Israel and the international community, which ultimately led to the conflict between Hamas and Fateh, and the administrative division, which continues to exist.

The special issue thereafter focuses, in the second section, on alternatives and resistance to Oslo’s transformations.

Cherine Hussein’s article charts the re-emergence of the single-state idea in opposition to the processes of separation unleashed ideologically and practically that were codified in the Oslo Accords. Analysing it as both a movement of resistance and as a political alternative to Oslo, while recognizing that it is currently largely a movement of intellectuals (particularly of diaspora Palestinians and Israelis), Hussein takes seriously its claim to be a more just and liberating alternative to the two-state solution.

My article highlights the work of a small but dedicated group of anti-Zionist Jewish-Israeli activists involved in two groups: Zochrot and Boycott from Within. Both groups emerged in the post-Second Intifada period, which was marked by deep disillusionment with the Oslo paradigm. This article unpacks the alternative – albeit marginalized – analysis, solution and route to peace proposed by these groups through the application of three concepts: hegemony, counter-hegemony and praxis. The solution, argue the activists, lies in Israel-Palestine going through a process of de-Zionization and decolonization, and the process of achieving this lies in actions in solidarity with Palestinians.

This type of solidarity action is the focus of the final article by Suzanne Morrison, who analyses the “We Divest” campaign, which is the largest divestment campaign in the US and forms part of the wider Palestinian Boycott, Divestment and Sanctions movement. Through attention to their activities and language, Morrison shows how “We Divest”, with its networked, decentralized, grassroots and horizontal structure, represents a new way of challenging Israel’s occupation and the suppression of Palestinian rights.

The two parts of the special issue are symbiotic: the critique and alternative perspectives analyzed in part two are responses to the issues and problems identified in part one.

J: How does this volume connect to and/or depart from your previous work?

MT: My work focuses on the political economy of donor intervention (which falls under the rubric of “peacebuilding”) in the OPT, particularly a critique of the Oslo peace paradigm and framework. This is a product of my broader conceptual and historical interest in the sociology of intervention as a method of capitalist expansion and imperial control (as explored in “The Politics of International Intervention: the Tyranny of Peace”, co-edited with Florian Kuhn, Routledge, 2016), and how post-conflict peacebuilding and development agendas are part of this (as explored in “Whose Peace: Critical Perspectives on the Political Economy of Peacebuilding”, co-edited with Michael Pugh and Neil Cooper (PalgraveMacmillan, 2008).  

My first book on Palestine (co-edited with Omar Shweiki), Decolonizing Palestinian Political Economy: De-development and Beyond (PalgraveMacmillan, 2014), was a collection of essays by experts in their field, of the political-economic experience of different sections of the Palestinian community. The book, however, aimed to reunite these individual experiences into one historical political-economy narrative of a people experiencing a common theme of dispossession, disenfranchisement and disarticulation. It was guided by the desire to critically assess the utility of the concept of de-development to different sectors and issues–and had a foreword by Sara Roy, the scholar who coined the term, and who was involved in the workshop from which the book emerged.

This co-edited special issue (with Cherine Hussein, who, at the time of the issue construction, was the deputy director of the Kenyon Institute) was therefore the next logical step in my research on Palestine, although my article on Jewish-Israeli anti-Zionists did constitute a slight departure from my usual focus.

J: Who do you hope will read this volume, and what sort of impact would you like it to have?

MT: I would imagine the main audience will be those whose research and political interests lie in Palestine Studies. It is difficult, given the structure of academic publishing – which has become ever more corporate and money grabbing – for research outputs such as this to be accessed by the general public. Only those with access to academic libraries are sure to be able to read it – and this is a travesty, in my opinion. To counteract this commodification of knowledge, we should all provide free access to our outputs through online open source websites such as academia.edu, etc. If academic research is going to have an impact beyond merely providing more material for teaching and background reading for yet more research (which is inaccessible to the general public) then this is essential. Websites such as Jadaliyya are therefore incredibly important.

Having said all that, I am under no illusions about the potential for ANY research on Israel-Palestine to contribute to changing the dynamics of the situation. However, as a collection of excellent analyses conducted by mostly early-career scholars in the field of Palestine studies, I am hopeful that their interesting and new perspectives will be read and digested. 

J: What other projects are you working on now?

MT: I am currently working on an edited volume provisionally entitled From the River to the Sea: Disintegration, Reintegration and Domination in Israel and Palestine. This book is the culmination of a two-year research project funded by the British Academy, which analyzed the impacts of the past twenty years of the Oslo peace framework and paradigm as processes of disintegration, reintegration and domination – and how they have created a new socio-economic and political landscape, which requires new agendas and frameworks. I am also working on a new research project with Tariq Dana at Birzeit University on capital and class in the occupied West Bank.

Excerpt from the Editor’s Note 

[Note: This issue was published in Dec. 2015]

Initially perceived to have inaugurated a new era of hope in the search for peace and justice in Palestine-Israel, the Oslo peace paradigm of a track one, elite-level, negotiated two-state solution is in crisis today, if not completely at an end.

While the major Western donors and the ‘international community’ continue to publicly endorse the Oslo peace paradigm, Israeli and Palestinian political elites have both stepped away from it. The Israeli government has adopted what appears to be an outright rejection of the internationally-accepted end-goal of negotiations, i.e. the emergence of a Palestinian state based on the 1967 borders with East Jerusalem as its capital. In March 2015, in the final days of his re-election campaign, Israeli Prime Minister, Benjamin Netanyahu, visited the Jewish settlement of Har Homa in Palestinian East Jerusalem, which is regarded as illegal under international law. Reminding its inhabitants that it was him and his Likud government that had established the settlement in 1997 as part of the Israeli state’s vision of a unified indivisible Jerusalem, he promised to expand the construction of settlements in East Jerusalem if re-elected. And in an interview with Israeli news site, NRG, Netanyahu vowed that the prospects of a Palestinian state were non-existent as long as he remained in office. Holding on to the occupied Palestinian territory (oPt), he argued, was necessary to ensure Israel’s security in the context of regional instability and Islamic extremism. It is widely acknowledged that Netanyahu’s emphasis on Israel’s security—against both external and internal enemies—gave him a surprise win in an election he was widely expected to lose.

Despite attempts to backtrack under recognition that the US and European states are critical of this turn in official Israeli state policy, Netanyahu’s promise to bury the two-state solution in favour of a policy of further annexation has become the Israeli government’s official intent, and has been enthusiastically endorsed by leading ministers and key advisers.

[…]

The Palestinian Authority (PA) based in the West Bank also appears to have rejected a key principle of the Oslo peace paradigm—that of bilateral negotiations under the supervision of the US. Despite a herculean effort by US Secretary of State, John Kerry, to bring the two parties to the negotiating table, in response to the lack of movement towards final status issues and continued settlement expansion (amongst other issues), the Palestinian political elite have withdrawn from negotiations and resumed attempts to ‘internationalise the struggle’ by seeking membership of international organisations such as the United Nations (UN), and signing international treaties such as the Rome Statute, the founding treaty of the International Criminal Court. This change of direction is part of a rethink in the PA and PLO’s strategy rooted in wider discussions and debates. The publication of a document by the Palestine Strategy Study Group (PSSG) in August 2008, the production of which involved many members of the Palestinian political elite (and whose recommendations were studiously discussed at the highest levels of the PA and PLO), showed widespread discontent with the bilateral negotiations framework and suggested ways in which Palestinians could ‘regain the initiative’.

[…]

And yet despite these changes in official Palestinian and Israeli political strategies that signal a deepening of the crisis, donors and the ‘international community’ are reluctant to accept the failure of the Oslo peace paradigm. This political myopia has meant the persistence of a framework that is increasingly divorced from the possibility of a just and sustainable peace. It is also acting as an ideological straitjacket by shutting out alternative interpretations. This special issue seeks a way out of this political and intellectual dead end. In pursuit of this, our various contributions undertake what we regard to be two key tasks: first, to critically analyse the perceptions underpinning the Oslo paradigm and the transformations instituted by its implementation; and second, to assess some alternative ways of understanding the situation rooted in new strategies of resistance that have emerged in the context of these transformations in the post-Oslo landscape.

[…]

Taken as a whole, the articles in this special issue aim to ignite conversations on the conflict that are not based within abstracted debates that centre upon the peace process itself—but that begin from within the realities and geographies of both the continually transforming land of Palestine-Israel and the voices, struggles, worldviews and imaginings of the future of the people who presently inhabit it. For it is by highlighting these transformations, and from within these points of beginning, that we believe more hopeful pathways for alternative ways forward can be collectively imagined, articulated, debated and built.