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 higher than in other developing countries in the region.13
Policies for dealing with the tragedy of the commons are well known. If the situation is one in which property rights can be assigned, they should be clarified and enforced. The owner of those rights will take steps to limit the usage of the resource at a sustainable level by imposing a suitable charge. In cases in which private ownership is not feasible, such as the Nile waters or the streets in which garbage is dumped or the air that is polluted by the emission of lead particles, an agent (such as the state) with the power to coerce users of the resource to pay an appropriate tax or fee would prevent the overutilization of the resource. The proceeds of the tax or fee would also provide finance for investing in maintaining or expanding the resource, which the private user of a public resource has no incentive to do. No such policy has been enforced. It is a measure of the political strength of groups engaged in the degradation of the Egyptian environment that they are permitted to inflict major health and economic damage with impunity.
The Costs and Benefits of Policy Reforms
Attempts have been made to estimate the costs and benefits of policy reform. In view of the difficulty of controlling for all factors that are involved, conclusions cannot be definitive. Moreover, the estimates relate only to economic, and not to political, costs. Even where economic costs are concerned, estimates of the costs and benefits of reform policies undertaken simultaneously in several parts of the economy are more difficult to compute and will be less secure than measures for particular sectors. It might, therefore, be useful to examine some results for more restricted areas of the economy.
The sector that has received the greatest amount of attention regarding the costs and benefits of reform policies is that of external trade—in particular, the benefits and the adjustment costs likely to result from trade liberalization.14 These investigations looked at this problem from a number of angles—the trade sector as a whole, economy-wide levels of employment, the percentage of the labor force that might have to change occupations as a result of the reforms, the impact on particular industries,15 the costs of capital equipment becoming idle during the adjustment period, and so on.
Since the methodologies used differ from study to study, the estimates span a very wide range. Depending upon the assumptions—concerning, inter alia, the number of jobs lost compared with the normal amount of job turnover in the economy, the length of unemployment, the cost of capital idled by the reforms during the period of adjustment, the discount rate used to compute present values of costs and benefits—the benefit–cost ratios range from 1.3 for iron and steel (Mutti 1978) to 153 for footwear (Takacs and Winters 1991). Matusz and Tarr sum up their review of the studies as follows:
In studies where such comparisons are possible, it seems to be the case that each dollar of adjustment cost is associated with several dollars’ worth of efficiency gains. . . . [A]djustment costs are the largest in the period immediately after the implementation of reforms, disappearing after a period of one to five years. By contrast, the efficiency gains of liberalization grow over time and continue indefinitely. (Matusz and Tarr 2000, 381–82)
However, given that with only a minor tweaking of the assumptions, Matusz and Tarr (2000, 381n21) can raise the Takacs and Winters benefit–cost ratio to 2193 (!) suggests that some estimates can be
