November 18, 2005

Bitter Fruits of Economic Reform: Introduction

The argument of President Mubarak and his government against proceeding in political reform measures (or at least slowing down the process) has been that economic reform has to take the first and highest priority. I refuse this on two grounds. First, the economic measures that the government undertook do not have the mandate of the Egyptian people. Without mandate, the government is not accountable to its people. One can argue that is a very theoretical frame of governance. Yet, I always like to use the analogy of the client-contractor relationship. If you hire a construction contractor in your apartment or property, the binding agreement between you and the contractor is the legal contract which clearly states the scope of work required and the remuneration for it. If the contractor fails to fulfill his part of the bargain, you are entitled to withhold remuneration. As simple it is, the analogy is quite comparable to governance in well established democracies. The legal contract is the voting process that brings politician to power and governance given their proposed vision, platform, and plan. If politicians fail to execute their promises, they do not earn the citizens votes in the next round. In the Egyptian case, government has been taking measures that, in most of them, benefit the business men elite and its own officials at all levels. I would even argue that a substantial number of government policies did not benefit Egyptians on the contrary it made them worse off.
Which leads me to my other point; in addition to accountability, a democratic system has an embedded mechanism of uncovering and dealing with corruption. I would argue that corruption, “the abuse of public power in order to make private profit” (Transparency International), is the main blocking factor against Egyptians’ optimal use of their own resources. Its spread and severity have led to the situation where officials in public offices choose to their own benefit over the societal benefit. On the national level, government politicians are choosing their own and their oligarchy’s benefit over the overall benefit of the country. A quick example is high rate of illiteracy that Egypt has been plagued with it for decades. Any freshman in a school of economics knows that private rate of return on primary education is huge. It reached 40% in some developing country. It is higher than any rate of return on physical capital even with a very high risk premium. Yet, a serious and effective plan to deal with illiteracy has never been implemented or even initiated (other than the classical rhetoric). The proof is the nearly constant rate of illiteracy over the past decades. Not to mention that population growth has escalated during the seventies and the eighties (meaning that the number of illiterate people has actually increased). On the contrary, the government chose to invest in internet and cell phones infrastructure. I am not down playing the positive effects these have on the economy and private investment. My point is that the choice of policy is not to the benefit of the people but rather to the benefit of the oligarchy surrounding the governing elite. I would go the extent and claim that government benefits directly from illiteracy. It is much easier to manipulate masses that can not read or write than to gain the allegiance of people who can analyze and critic.

Even in its economic reform, the government has failed. Egyptians became poorer, inequality grew among them, and the whole economy is a deteriorating state. This is my introduction to a series of essays in which I will discuss the effects of the policies of economic reform that government adopted and claimed was a first-priority task over establishing a democracy in Egypt. First I will discuss poverty across the last twenty five years. Then, I will talk about the income distribution within the Egyptian society. And finally, I will present an overview of the state of the economy as a whole.

But first I have to pass my exams this semester! Please stay tuned!


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