The Political Economy of Reforms in Egypt. Khalid Ikram
a set of policies, and if they “stuck,” then the government could add another policy or two. If the public resisted, it was much easier with the step-by-step approach to identify which policies the public had found the most unpalatable, and to modify only them. With a “Big Bang” strategy, that is, when a host of reforms were introduced simultaneously, the set of reforms tended to be viewed as a unit, and so if it were resisted, the entire parcel would have to be scrapped. This is what had happened with President Sadat in 1977.
Mubarak’s cautious attitude conditioned his officials’ approach to policy reform. More than one Egyptian minister confided that Egyptian policymakers follow a precautionary principle: if you cannot be confident of the results, do not experiment. And since it is in the nature of economics that one cannot offer precise and infallible assurances of the outcomes of reform policies, the evidential burden on the advocates of change becomes too great and thus the bias of Egyptian policymakers tends to favor the status quo. Egyptian policymakers gamble on economic transformations only if there is little alternative. This might help to explain why policymakers generally accepted reforms only in response to a crisis.
Moreover, knowing that the United States would be reluctant to risk threats to Egypt’s stability enabled ministers to ward off pressures for policy change by cloaking their defense of the status quo in the mantle of national security. The resistance became particularly strong after the 1977 riots (described later). Ali Lotfi (a former prime minister) said that whenever a discussion on rationalizing the subsidy system came up in cabinet, “Up would go the Minister of Interior’s hand and he would insist that he could not be responsible for the security situation in such circumstances.” This sufficed to snuff out any debate.11
While one might feel that Egyptian policymakers could have acted with greater urgency, one must remember an important asymmetry between their fate and the results for the counselors from abroad. If the program imposed excessive austerity on the country, Egypt’s policymakers would have to face the music; this could take the form of sacking by the president or perhaps stoning by an incensed populace. The counselors, on the other hand, would simply go off to ply their trade in Tunisia, Turkey, or Timbuktu.
That Egyptian officials had had the same thoughts is not mere speculation. During the 1977 bread riots, Wagih Shindy, at the time a deputy minister in the Ministry of Economy, and I drove through the parts of Cairo that had been the worst affected. While viewing the burnt buses, the demolished government buildings, the shattered glass that was everywhere, and inhaling the stench of teargas that still hung in the air, Shindy kept repeating, “See what those boys have done!” It is almost impossible to convey the anger and loathing that was expressed in the word “boys.” He described a meeting of undersecretaries of the economic ministries that had taken place a day earlier at which everyone present had lamented that Egypt’s fate had come to rest in the hands of a group of inexperienced youths from the IMF who could unwittingly destabilize the country, but who would neither individually nor collectively pay any price for their mistakes.
Shindy and his colleagues complained that the Fund’s policy prescriptions were merely lifted from elementary textbooks that assumed an ideal economic world, and that its staff members on the mission to Egypt were entirely innocent of any real-world political-economy experience. “Have these 30-something year-olds ever functioned in roles that acquaint a policymaker with the full range of governmental work and the political constraints within which economic policies must be devised?” was in effect the rhetorical question they asked. Heikal (1983, 90) and Sadowski (1991, 155, 353n45) describe the “Dickie memorandum” outlining the IMF’s conditions, the acceptance of which led to the riots.12 (See also Tignor 2016, 138.)
In fairness to Egyptian ministers, I must point out that it was not unknown for the president to possess a hotchpotch of irreconcilable instincts on economic issues, and in the country’s extremely centralized regimes since 1952, inconsistent aims or policies could be decreed or suggested (and the “suggestion” would have the force of a command) by the president, who would in effect be asking for a square circle. The ministers and the bureaucracy were then left with no choice but to construct the squarest circles that their ingenuity was able to devise in the circumstances.
President Mubarak was not alone in emphasizing the importance of convincing the public that the government would carry out its announced policies. President Chung-Hee Park, the initiator of South Korea’s economic miracle, also made sure that announced policies were carried out. Policies were implemented through a rigorous structure of rewards and punishments that included compulsion and administrative discretion. The result was a sharp increase in the public’s perception that the government meant what it said. A major study of how South Korean businessmen perceived the firmness of the government’s resolution found that only 20.4 percent of the respondents considered that under Syngman Rhee (the previous president) decisions were “always implemented” or “almost always implemented.” In the Park period the comparable figure was 94.8 percent (Jones and SaKong 1980, 136–37 and table 22). This shift in perception made it much easier for the Park government to execute its policies without having to apply extreme measures.
The foregoing comments underline the importance of a government’s rigorously carrying through its announced policies. They do not, however, demonstrate that these policies must necessarily be carried out slowly or in a piecemeal fashion. President Park’s regime was distinguished not only for the firmness with which it adhered to its declared policies, but also for the speed with which they were implemented.
The overriding lesson from the foregoing discussion is that there is no unique approach to implementing a successful program of structural economic reform. The literature, however, emphasizes that indispensable constituents of a program’s success are a strong and visible government commitment and a general perception that the pains and gains under the program are shared in a fair manner. It is also very helpful to provide a cushion to protect the basic needs of the most vulnerable elements of society, and to ensure that the public believes that the compensation package is adequate and will indeed be delivered quickly.
“Tragedy of the Commons” and the Impact on the Environment
The political economy of Egypt highlights other outcomes that reflect the power politics of self-interest versus the collective (social) interest. Public resources are vulnerable to the familiar “tragedy of the commons” problem. Where there are no property rights over a resource, individual users have an inducement to independently maximize their use of that resource. There is therefore an incentive for individuals to use the resource beyond limits that are justified by the sustainability of the system. This overuse can lead to a deterioration or destruction of the resource, making its benefits unavailable to all users—the unregulated pursuit of private profit can and often does lead to a substantial social loss.
A classic case is the discharge of chemical waste into the Nile by the numerous factories situated along the river. This behavior on the part of powerful industrial groups renders Nile water impotable without being treated (so consumers have to bear the costs associated with the treatment), reduces the catch and increases the cost of production of downstream fisheries (so fishermen have to spend much more time on the water to catch a given amount of fish), and increases the possibility of spreading gastrointestinal and other illnesses.
Such outcomes are not limited to the Nile. A study for USAID (PRIDE 1994, 1:III–7) estimated that industry and hospitals in Cairo alone produced up to 65,000 tons annually of hazardous and infection wastes that received no special management but were simply dumped. The study (1994, 2:D–28) also estimated that because of exposure to lead from smelters in Cairo, an average of 4.25 IQ points was lost per child, and that more than eleven thousand heart attacks and premature deaths could be prevented annually in older adults if the blood lead levels in Cairo were reduced to those in the United States.
A report by the World Bank (2002) estimated the damage cost of environmental degradation in 1999 at up to 6.4 percent of GDP. Sarraf (2004) found that as a share of GDP this was about two times higher than in high-income countries and, indeed, substantially