was about that number. The difference between Egypt’s present (2016) population of some 90 million and that in 1947 is equal to the total present-day population of the United Kingdom or France. These 90 million persons—four and a half times the number in 1947—have, on average, higher real incomes, are better fed, housed, clothed, educated, and connected to the rest of the world, and have longer life expectancies and much greater opportunities to fulfill their capabilities than their counterparts in 1947. Moreover, these improvements have taken place despite Egypt’s being engaged in hostilities with Israel on a number of occasions and suffering an invasion by the United Kingdom and France. These facts attest to the strength of the Egyptian people and the resilience of the economy, and bear witness to the distance it has traversed and the obstacles it has overcome during the last seventy years.
If one has misgivings about Egypt’s economic performance, the regret is for the country not performing to its potential. The reproach is that Egypt could have done better. If, say, South Korea and Taiwan, perched on the edge of Asia, destitute of natural resources, and rent for long periods by war (and in the case of South Korea, with its capital city occupied twice by enemy forces), could achieve so much so quickly, then it should not be impossible for Egypt, with its abundance of resources—to name but its strategic location, oil and gas deposits, fertile agriculture, myriads of tourist attractions, intellectual abilities and long tradition of learning, and large labor force—to achieve something comparable.8
In managing the future, policymakers cannot ignore the role and the weight of the past. Elements of continuity from earlier periods are pervasive. The Egyptian economy of today is in many respects the product of past molds. The capital stock of today in the productive sectors and the infrastructure are the result of past investments (in both good and bad projects); more importantly, the institutions, the administrative structure, the policy framework, the modes of production and organization, the vested interests, and the habits of thought and work are collectively an inheritance that defines many of the features of the economy today and colors much of its prospects. In shaping the future, policymakers will have to manage this legacy from the past.
The change in Egypt’s economic future will not happen by itself. It will require conscious changes in many areas, but most importantly in people’s attitudes and ways of thinking. The Holy Qur’an stresses this message: it says (8:53): “God never changes the favor He has bestowed on any people until they first change what is in themselves.” This is reiterated (13:11): “God changes not the condition of a people until they (first) change what is in themselves.” It is in the spirit of this injunction that this book seeks to identify some crucial economic challenges that confronted Egypt and discusses how politics and economics interacted to address them. Such a discussion might contribute to clarifying the course toward which changes in policymakers’ attitudes and thinking might usefully be directed in the future.
The Political Economy of Reform: A Survey with Special Reference to Egypt
Central to the political economy of reform is the conflict of interests between economic actors in a society.1 Changes in economic policies can drastically alter the distribution of winners and losers. A group that is in the winners’ column has every incentive to resist being relegated to that of the losers. What makes policy reform particularly difficult in developing countries, including Egypt, is that the pre-reform group of economic winners has more often than not become such by virtue of its political strength, generally obtained through wealth or close association with centers of power, such as the monarchy, the military, or the religious establishment. It would be demanding too much of human nature to expect this group to willingly cede its economic privileges—turkeys do not readily vote for Christmas. For policies to be reformed, the built-in resistance of such interest groups has to be overcome. Various political-economy models and case studies of individual countries attempt an explanation. This chapter surveys and develops approaches that are most relevant to the political-economy experience of Egypt.
Following Haggard (2000, 22–39), these approaches can be roughly divided into two groups: one that focuses primarily on the role of interest groups, and the other that emphasizes the importance of institutional arrangements. In practice the distinction is not nearly so clear-cut and the conduct of economic reform, and especially the sustainability of reform policies, often requires a melding of these elements. Indeed, Williamson (1994a, 20–21) notes that “from a political standpoint, the most difficult part of a reform program is not introducing the reforms but sustaining them until they have a chance to bear fruit and thus generate political support from the potential beneficiaries.”
The foregoing classification is not the only way of grouping different approaches. Roháč (2014), for instance, stresses two broad constraints on policymaking that could be used to classify the approaches: (a) the differences in incentives that voters, politicians, and bureaucrats face; and (b) the differences in the beliefs and mental models used by the public and the politicians. The discussion in this book largely follows the grouping proposed by Haggard.
Interest-group models emphasize the role of coalitions—how they can come together and how they can become influential enough to change the status quo. In order to do the latter, a pro-reform coalition has to be formed that can defeat the groups opposed to reform, or at least induce their acquiescence in the reforms. Such models have an impressive lineage, with Mancur Olson (1965, 1982) the best-known progenitor. Institution-focused models, on the other hand, emphasize the institutional and administrative restructuring to ensure that the economic reforms are efficient and have a better chance of surviving in the long run.
As Haggard points out, interest-group models face an important problem. These models can explain how a policy regime has come about after a struggle between different coalitions. If that policy regime has been in place for a substantial time, one might say that an equilibrium has been reached in that the coalitions have managed to optimize their political and economic strategies. Reform, however, is about policy changes. What would it take to upset the existing equilibrium and to change the dynamics between coalitions? If stakeholders are strong to begin with, how will their power be overturned? The best explanations in Egypt’s experience emphasize the part played by crises and by the design of reform packages, especially their comprehensiveness, and the extent and speed of compensation. These issues have been of particular relevance to Egypt.
Interest Groups, Crises, and Economic Reforms
In Egypt’s case, crises—military, political, and economic—have been crucial to empowering coalitions and triggering economic reforms that had a major effect on the economy. A few examples will illustrate the point.
On July 23, 1952 the Free Officers led a revolution and overthrew the monarchy. The principal motives behind the revolution were resentment against the corruption of the monarchy (also perceived as a major reason for the defeat in the 1948 war against Israel) and frustration with the failure of the politicians to rid the country of British occupation. The Free Officers did not have any well-defined economic philosophy or even a common political ideology (Nasser 1954; Vatikiotis 1961). They did, however, have a clear idea of who would be their foremost opponents—these would be the large landowners who formed the backbone of the former regime. The political and economic power of this coalition had to be broken, and new constituencies had to be created to support the revolutionary group. It was crucial to create these constituencies, because as Vatikiotis (1961, 218) notes, the Free Officers were an exclusively military group and “acceded to power without the active support of a single civilian group in Egyptian society.”
The power of the landowning coalition was evident. In the parliament elected
