Amr Adly, Cleft Capitalism: The Social Origins of Failed Market Making in Egypt (California: Stanford University Press, 2020).
Cleft Capitalism responds to one of the most ancient questions in scholarship on international political economy: Why does market-based development often fail to translate into actual improvements in the standards of living of the developing population?
Available answers, Amr Adly notes, are mostly marred with ideological essentialism. Critical scholarship cites reasons like the uneven distribution of developmental rewards, the parasitic accumulation of wealth, the decline of the state role as a risk-encouraging safety-net, and the socially divisive nature of capitalism itself. Classical economists, on the other hand, argue relentlessly that the problem resides in the state’s reluctance to go far enough and endure the short-term perils of its resignation from welfare duties. While each side is capable of verifying its theorisation empirically, the fact that both are often correct begs the question of variance: Why does market-based development work in some societies and fail in others? Reflecting on contemporary Egypt, Cleft Capitalism examines this pressing question.
Egypt was recognized by the World Bank as the “top reformer” of economic development in 2006/2007. Shortly after, strikes and labor riots reached their peak in al-Mahalla al-Kubra, Egypt’s main industrial city. This was the beginning of a series of contentious events that eventually overthrew the aggressively liberalizing government and the head of the state in early 2011. The economically inspired political revolution raised “bread” and “social equity” as its main slogans, underlining the immense failure of the World Bank and its economic indicators to understand the Egyptians’ lived experience of their economy. The palpable tension between the Bretton Woods institutions’ view of the Egyptian economy and that of the Egyptian citizens themselves invited political economists to question “what went wrong?”
Scholarly responses to this question mirrored the traditional left-right divide. On the left, critical political economists like Samer Soliman, Adam Hanieh, and Roberto Rucco emphasized the structural confinement of economic returns to a small group of crony business elite with connections to the West and the gulf, the cross-national diffusion of market resources and transactions, and the systematic crackdown on the public sector. On the other hand, (neo)-classical institutionalists, like the former Director of the World Bank's Egypt Department Khalid Ikram blamed not the neoliberal development policies themselves but their corrupt implementation. Between this and that, cases like Chile, Brazil, Zambia, and Jordan, in which the combination of neoliberal economics and corrupt authoritarian politics did not impede the economic improvement of living standards, stand as immanent challenges. The contradiction between these cases on one hand and cases like Egypt on the other suggests an interrogation that exceeds variable-analysis, to examine the causal mechanism by which corrupt political cultures impede the trickledown of development returns.
Cleft Capitalism pursues this much-needed examination. Following from a theoretical standpoint that rejects the essentialist answers of both contending sides, Adly approaches the issue sociologically. He begins from the premise that economic systems do not operate in vacuum, but are rather constituted through and in reference to their embedded social and cultural relations. Considering this premise makes the question of what market-based development does to living standards a question of the social and cultural dynamics by which the market operates and hence distributes the expanding resources. Methodologically, this approach decenters the state to rather focus on social institutions that constitute the life-worlds within which both the state and the market operate.
The book divides these institutions into three categories: the formal, the informal, and the semiformal. Formal institutions encompass “top-down” legislative, executive, and judicial orders that frame the contours of economic interactions like taxes, tariffs, regulations, and monetary and fiscal policies. Informal institutions encompass the norms, traditions, customs, and standard codes of procedure by which actors constitute the culture of market interaction “bottom-up.” Semiformal institutions encompass the intersection of these two actors. It frames the contours of interactions which appear to be governed by formal regulations but are, in practice, radically structured by pragmatic “bottom-up” dynamics and social relations. These semiformal institutions are highly visible in street vendors, informal services, black currency markets, and other markets that are formally absent, sometimes even illegal, but are practically operating under the eyes of the state and contributing significantly to the economy and its formal and informal codes of interaction.
Addressing formal, informal, and semiformal social institutions, Cleft Capitalism surveys the developments and transformations in the Egyptian economy since Anwar al-Sadat’s Infitah (open-door policy) in the mid-70s through the revolution in 2011. It contends that it is hardly possible to understand the ways in which the market responded to state policies of Infitah without attending to the social interactions it transpired by both actors who sought to utilise it and actors who sought to resist it. The same applies to the more aggressive neoliberal policies implemented in Mubarak’s later years (late 90s and early 2000s). In all these cases, the policies did not operate in vacuum, but rather through and within the spaces and limits set by social players. These include not only elite business, political, and security actors, but also entrepreneurs, petty venture capitalists, petty services providers, junior bureaucrats and state agents, and the formal and informal labor force. Contrary to the common conception of these non-elite players as counter forces to elite forces, Adly transforms this dichotomy to rather envision both forces as mutually constitutive of the limits and spaces in which the other operates. In such conception, markets are outcomes of the complex relationship between “top-down” policy, “bottom-up” culture, and the standard codes of procedure negotiated in the space “in-between.”
Analysing these three dynamics, Cleft Capitalism classifies the Egyptian economy into three distinct market systems, each governed by a specific crystallisation of policy, culture, and standard codes of procedure. Those are the baladi [lower-class local] market of informal service providers, the dandy market of entrepreneurs and middle-class professionals, and the crony market of real estate, raw material, and other capital-intensive industries that rely more on rent and price escalation than actual production. The crony market has the highest value. But due to its non-productive and capitalist-intensive nature, it distributes this value on a very small class of crony capitalists. The baladi market has the least barriers to entry, but is limited to petty profits. In between those two lies a dandy market that is neither sufficiently productive nor sufficiently open, but rather a “feel good” space where a class that is too privileged to join the baladi market and not privileged enough to aim for penetrating the tightly controlled crony market pretentiously “act as” businessmen. This “cleft” view of Egyptian capitalism makes sense of the variance in the lived experience of Egypt’s economic development and explains why it failed to affect significant improvement in the lives of the majority of the Egyptian population.
This classification is indeed culturally and historically specific. The book findings, therefore, are hardly generalizable as explanations of what goes wrong with market-based developments writ large. However, the common histories of postcolonial states in the Global South render it possible to draw conclusions from the study of one context that applies on others, as the book underlines in reference to comparative cases in Latin America, South Asia, and East Asia. More importantly, the book offers a sociological approach to institutionalism that could and no doubt should be utilized in a variety of other contexts. Cleft Capitalism, therefore, is more than an exemplary analysis of the situation of political economy in Egypt. It is also a significant contribution to wider debates on the possibilities and limits of market-based development in the Global South.
For the latter potential to be further exploited, however, Adly could have engaged more explicitly with the particular commonalities that hold postcolonial states of the Global South together as an analytic category. These include the outflow of financial resources to the Global North, the significant economic activity of security and military institutions, the reliance on the state as the main financial provider, the structural dependency on former colonisers, and the association of power and resources to connections with the west. But it also includes dynamics of resistance, initially germinating to push back against the extractive colonial legal order but later normalized in resistance to the rent-seeking activities of the postcolonial state. On top of these is the supremacy of social customs over legal regulations, or more frankly not taking the law seriously on its face-value. The most common form of this is the normalisation of black markets, street vendors, and informal and illegal economies. Bringing these comparative aspects to the fore would have enhanced the book’s appeal to a wider audience.
As it stands, however, the book is an essential read to students, researchers, and policy-makers interested in the political economy of Egypt, the limits and potentials of structural adjustment policies, and the insights of economic sociology to the study of political economy. It is also an important contribution to several theoretical debates on international political economy, including institutionalism, postcolonial dependency, and neoclassical “trickledown.” But its main contribution, I would argue, is its transformation of the intransigent “left-right” ideological deadlock that characterizes the scholarship on international political economy.