Khalid Ikram, The Political Economy of Reforms in Egypt: Issues and Policymaking since 1952 (New Texts Out Now)

Khalid Ikram, The Political Economy of Reforms in Egypt: Issues and Policymaking since 1952 (New Texts Out Now)

Khalid Ikram, The Political Economy of Reforms in Egypt: Issues and Policymaking since 1952 (New Texts Out Now)

By : Khalid Ikram

Khalid Ikram, The Political Economy of Reforms in Egypt: Issues and Policymaking Since 1952 (American University in Cairo Press, 2018; paperback with a detailed new preface 2021).  

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

Khalid Ikram (KI): My previous books dealt with some of the principal issues the Egyptian economy faced, the policies that were implemented to deal with them, and the outcomes that resulted. Several experts on Egypt told me that a crucial factor missing in virtually all discussions on Egypt’s economic performance was an in-depth interrogation of the political economy behind the policies. They felt they were looking into a “black box” and trying to guess how politics and economics intertwined to produce some policies that were adopted and others that were rejected. An examination of the salient factors that motivated Egypt’s and donors’ policymakers was urgently needed.

These experts insisted that I occupied a unique position. In my long experience of working on Egypt for the World Bank and for international consultancies, I had had plentiful access to policymakers, analysts, and policy papers from the Egyptian side, as well as to officials and studies from the principal donors to Egypt. I was also able to draw on numerous discussions, reports, back-to-office accounts, comprehensive sets of data, and assessments of Egypt’s economic policies from former colleagues in the World Bank and the International Monetary Fund. These experts felt that a book informed by this material would be invaluable; in a very real sense, I would be writing from inside the “black box.” 

The present book is a response to this urging. It draws on my experience, on the published literature, and documents from and discussions with both sides—Egypt and donors. I have been as unreserved as I could be while maintaining the confidentiality of information that was exceptionally sensitive.

Particular emphasis is directed to the “software” of growth, i.e., the system of incentives and the functioning of major institutions...

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

KI: The book provides a survey of the literature on the political economy of reforms, with an emphasis on ideas that are especially relevant to Egypt. The discussion includes the roles of interest groups, crises (military and economic), political institutions and policy reform, the costs and benefits of policy reforms, the role of the foreign patron, the political economy of external assistance, and others. It examines some of the principal challenges the economy faced since 1952 and how it performed.

Major political economy issues confronted by the regimes of presidents Nasser, Sadat, and Mubarak are surveyed, as are some of those to be encountered by policymakers in subsequent periods. Particular emphasis is directed to the “software” of growth, i.e., the system of incentives and the functioning of major institutions, such as the commercial judicial system, the bureaucracy, and the enforcement of property rights, and so on. The effects of the Covid-19 pandemic on the Egyptian economy are also taken up.

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

KI: My previous work (such as Egypt: Economic Management in a Period of Transition in 1981 and The Egyptian Economy, 1952-2000: Performance, Policies and Issues in 2006) was a more historical and technical examination of major policies that shaped the Egyptian economy during the period 1952 to 2000. Much of the discussion in those books focused on what might be called the “hardware” of growth, such as the physical infrastructure, the performance of major sectors, the role played by fiscal and monetary policies, factors affecting Egypt’s external accounts (such as the anti-export bias in the policy framework) and problems of external indebtedness. The present book looks in more depth at factors behind the policies, particularly those that impinged on the “software” of growth.

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

KI: I would like the book to be read by policymakers, academics, economic consultants, journalists, teachers, students, and indeed by anyone who is interested not only in the “whats” of economic policymaking in a major country, but also the “whys.” The book has proved accessible to different types of readers; indeed, one reviewer described it as “easy, useful, and pleasant to read.” I would feel rewarded if the data, analyses, and recommendations in the book not only supported an informed discussion on the economic development and prospects of the Arab world’s largest country, but also provided grist to the wider dialogue on economic policymaking in developing countries.

J: What other projects are you working on now?

KI: I am editing a book on the Egyptian economy in the twenty-first century, and working on policy papers for Pakistani authorities.

J: What, in your view, is the essential reason for Egypt’s not performing to its economic potential?

KI: My view is that Egypt should concentrate much more than it has on “second generation” reforms, even though these may be more time-consuming and difficult. These are policies that impinge on institutions, such as the commercial judicial system, the bureaucracy, the incentive structure (shaped largely by fiscal and monetary policies), and on Egypt’s human resource assets (shaped by the education and health systems). Second generation reforms not only improve the quality of life for Egyptians, but also reduce the cost of doing business and make using the hardware of growth (such as farms, factories, dams, canals, power stations, and so on) more efficient. This, in turn, creates more incentives for businesses and government to invest in increasing the hardware. A virtuous circle is thus created.

The book highlights that the basic reason for Egypt’s economy not performing to its potential is not economic; it lies more in the realm of political economy. It is not that Egypt’s policymakers are unaware of which policies create economic inefficiencies and with what they should be replaced. It is that they have been unwilling to press for reforms that would eliminate inefficiencies in the economy.

Why are they unwilling? Much of the answer is that the politically powerful class benefits from existing inefficiencies. Inefficient policies create economic rents, i.e., unearned incomes, and these are captured largely by the politically connected. Correcting these policies could reduce their incomes. Understanding the urgency of economic reform for Egypt does not require rocket science. But as the American writer and political activist Upton Sinclair said: “It is difficult to get a man to understand something when his income depends upon his not understanding it.”

 

Excerpt from the book (from the Introduction, pp. 5-7) 

Some Conclusions  

The book covers too much ground to allow a simple summary, but some points are worth emphasizing. 

First, the overriding issue during the period covered by this study concerns the role of the state in the economy. The state spent the earlier part of the period imposing an extensive set of discretionary controls on the economy, and the latter part in dismantling many of them. Neither experience was entirely satisfactory. The task defined by Ikram still remains: “The government will have to continue trying to strike a balance between the conflicting objectives ofliberalization for the sake of productivity growth and intervention for the sake of an equitable distribution of income.”

Second, accelerating the GDP growth rate is imperative; Egypt’s demographic dynamics do not permit an alternative.  Every two years Egypt adds a New Zealand or Ireland to its population; every three, a Denmark or Finland; every four, an Israel or Switzerland; and every five, a Sweden or Portugal. And while it adds the population, it does not add the capital assets, the technical knowledge, the institutions, and the governance of these countries

Moreover, Egypt is not only experiencing a bulge in the population’s working-age cohort, but it also has an even larger ‘echo’ generation below the age of ten that will enter the labor market in the near future. In 2016 there were about 10 million Egyptians aged 25–29, but also more than 13 million below the age of five years. This age structure offers a potential dividend, but also creates a danger.

The dividend is provided by the rapid increase in Egypt’s labor force and productive capacity, while the experience of countries that have passed through a similar demographic transition suggests that it could also raise the country’s savings rate. But if the economy fails to create a sufficient number of meaningful jobs, the demographic dividend could turn into a demographic nightmare as hundreds of thousands of young men and women crowd Egypt’s streets desperately seeking jobs, income, security, housing, and access to health and education for themselves and their families—a mouth-watering prospect for a recruiter for any extremist ideology. 

Third, Egypt’s experience since 1952 also shows the influence exerted by external forces in the country’s development. These external forces have been foreign governments, international agencies, and commercial financial institutions. The influence can come from the financial resources they provide, from the technical advice they offer, or more generally from a combination of the two. The experience suggests that Egypt should have been more proactive in deciding which elements of the economic advice to act upon and which parts to decline. But “Who pays the piper calls the tune” remains the most compelling maxim of international politics, and Egypt will only be able to reduce external political pressure if it takes more serious measures to mobilize domestic resources and to correct the anti-export bias in its incentive structure.

Fourth, Egypt is ripe for ‘second generation’ reforms. The distinction between first- and second-generation reforms is to some extent a semantic question and the two forms of reform can overlap. However, Naím provides a useful way of classifying the main differences. First-generation reforms can be undertaken relatively quickly, focus on actions that need to be taken (on ‘inputs,’ so to speak), and face political opposition that is largely diffused. Examples of first-generation reforms would be macroeconomic stabilization, reductions in import tariffs, budget cuts, changes in tax rates and coverage, privatization, and similar policies. These are technically easy to identify and, if the authorities are serious about economic policy, the policies need not take very long to implement. 

On the other hand, as Navia and Velasco point out, second-generation reforms are often “merely statements of desired outcomes (for example, civil service reform or improving tax collection), without a clear sense of policy design.” Moreover, second-generation reforms frequently raise a different level of technical difficulty. As Navia and Velasco put it: “Any economist can tell you that curtailing inflation requires lower money growth; fewer are prepared to put forward a proposal for supervising operations in derivatives by banks and other financial institutions, or for solving failures in the market for health insurance.” Thus, for first-generation reforms, identifying the outcome to aim at and the means to attain it are both, in principle at least, fairly straightforward; for second-generation reforms, the desired outcome may be discernible only in a rather general form, and the means of attaining it can be far from clear. 

Moreover, second-stage reforms commonly take much longer to implement because they require fundamental changes in the organizing and/or functioning of institutions—their chief aim is to improve governance. And the widespread experience is that faith-, ideology-, and culture-based attachments to institutional structures, or those rooted in a long history, are fiercely resistant, or even immune, to policy. Thus, for example, second-stage reforms generally require a reform of the bureaucracy. This is seldom easy and could be particularly difficult in Egypt. More than one-fourth of the country’s labor force is employed in various parts of the government—in 2016 there was one government employee for every thirteen citizens (even this figure excludes the Armed Forces)—and is set in its attitudes and methods of working. The reforms might also require creating entirely new institutions or politically empowering existing ones, such as regulatory agencies that would actually restrain monopolistic or oligopolistic behavior by firms. They would also require fundamental changes in the functioning of the commercial judicial system in order to speed up judgments and to reduce the case burden on judges. And measures would also have to be put in place to ensure that judicial decisions were implemented promptly.

The two stages of reforms also raise different issues of political economy. Apart from some exceptions—such as businesses that might be compelled to compete against international firms because reforms had cut import tariffs—the groups affected by first-stage reforms are often too fragmented or too poor to carry much political clout and thus their concerns can be set aside more easily. But, as Navia and Velasco put it, “By contrast, the set of interests potentially affected [by changes in governance] in the next stage reads like a Who’s Who of highly organized and vocal groups: teachers’ and judicial unions, the upper echelons of the public bureaucracy, state and local governments, owners and managers of private monopolies, and the medical establishment.” Their resistance can prove lethal to the reform program. 

Fifth, most of Egypt’s GDP growth of the last fifty years has come from adding more labor and particularly capital; the contribution of total factor productivity (TFP), that is, the efficiency with which factors of production are used, has been very small. Productivity in this sense results not only from technology change, but also from any other changes that influence the efficiency with which inputs are converted into output. Of particular importance are such factors as changes in regulations and the working of institutions that govern the economy. 

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.