Egypt has undergone significant economic liberalization under the auspices of the International Monetary Fund, the World Bank, USAID, and the European Commission. Yet after more than four decades of economic reform, the Egyptian economy still fails to meet popular expectations for inclusive growth, better standards of living, and high-quality employment. While many analysts point to cronyism and corruption, Amr Adly finds the root causes of this stagnation in the underlying social and political conditions of economic development.
Cleft Capitalism offers a new explanation for why market-based development can fail to meet expectations: small businesses in Egypt are not growing into medium and larger businesses. The practical outcome of this missing middle syndrome is the continuous erosion of the economic and social privileges once enjoyed by the middle classes and unionized labor, without creating enough winners from market making. This in turn set the stage for alienation, discontent, and, finally, revolt. With this book, Adly uncovers both an institutional explanation for Egypt's failed market making, and sheds light on the key factors of arrested economic development across the Global South.
Autorentext
Amr Adly is Assistant Professor of Political Science at the American University in Cairo and the author of State Reform and Development in the Middle East: The Cases of Turkey and Egypt (2012).
Inhalt
Over the course of four decades, the Egyptian economy underwent consistent and comprehensive economic liberalization, privatization of state-owned enterprises, and deregulation. Yet the Egyptian economy today still experiences low growth, declining total investment rates, and high unemployment and underemployment. The private sector has never become globally competitive. The chapter traces this failure to establish an integrated market order. The problem of market integration in Egypt was not the absence of the Weberian spirit for exchange and the profit-making mentality among a majority of economically active people. Rather, it was the hard constraint of accessing capital. The 2011 uprising highlighted that these efforts at transformation failed not only economically but politically as well.
Studies of Egypt's lackluster development performance have largely focused on the issue of crony capitalism, particularly the routes through which big business emerged after infitä. It is undeniable that politics has played a significant, if not a central, role in the rise of big business in Egypt since the mid-1970s. This is hardly surprising, let alone unique. This literature on cronyism and rent seeking suffers from a blind spot in assessing the problematic nature of Egypt's capitalist transformation. Where large enterprises came from does not explain the lack of vibrancy and dynamism in the rest of the private sector. The issue with Egypt's private sector, as well as other cases of failed market transformation, seems to lie more with its inability to engender a robust stratum of small and medium-sized enterprises rather than the existence of large enterprises that are politically connected.
Contrary to the expectations of neoclassical institutionalism, the weakness of formal property rights neither impeded the expansion of market exchange nor t deterred thousands of Egyptians from engaging with this expanding market since the mid-1970s. Alternative private economic orders have retained the capacity for sustained market creation and expansion, albeit imperfectly. This market expansion was not conducive to market integration, though. The resultant capitalist order was cleft. In order to grow, private enterprises must have access to inputs and market outlets that go beyond what is immediately available from their direct, private social capital. Throughout Egypt's capitalist transformation, access to capital, in particular, finance and land, remained quite restrained for the vast majority of private market actors. This was due to politico-historical factors that were continually perpetuated, eventually leading to the rise of institutional arrangements that were exclusionary for the broad base of private sector enterprises and entrepreneurs.
For a vibrant and integrated capitalist order to emerge, capital should be made accessible to a majority of market actors. However, Egyptian SSEs have faced high administrative and economic barriers to financial and physical capital, a central mechanism through which cleft capitalism has been produced and reproduced over time. The problem of restricted access to capital has institutional and political origins. The rules, norms, and structures--be they formal, informal, or a mix-that have governed the distribution of opportunities for accessing capital has produced three separate business subsystems-baladi, dandy, and crony-since infitä in 1974. It was the predominance of a coalition of bureaucratic actors that maintained certain institutional arrangements for directly accessing land and bank credit.
This chapter discusses the historical and political factors that led to the production and reproduction of cleft capitalism since infitä. It addresses the question of where the institutional condition of cleft capitalism came from. It examines the multiple political and economic factors since the mid-1970s that shaped the role of the state amid the process of market making and why they led to the development and perpetuation of cleft capitalism. It was the predominance of a coalition of bureaucratic actors that maintained certain institutional arrangements for directly accessing land and bank credit. However, this was neither uniform nor always strategically pursued, as it did not always result from top-down decisions by leadership of the executive where most formal power resided. Rather, there were many instances when bottom-up forces from within an incoherent and fragmented bureaucracy solidified the same institutional arrangements of a centralized and hierarchical system.
Despite waves of market-oriented reforms in Egypt, the overconcentration of credit, mainly extended to the state and a few large private sector firms, has persisted and failed to produce intermediate institutions that could open up channels of credit access for the broad base of SSEs. The chapter shows that the essential investment tool of debt financing has been made systematically unavailable to the broad base of these establishments because of an institutional and organizational framework that has been overly centralized and hierarchical. These institutional traits have ultimately raised the transaction costs for SSEs to an extent that has effectively excluded them from accessing credit, precluding any credible chance of scaling up and thus calcifying the institutional condition of cleft capitalism.
Despite the virtual abundance of desert land, access to this land for productive uses has been quite restricted for most private sector enterprises. Indeed, entrepreneurs have traditionally underlined access to land, like finance, as a major barrier to growth-a consistent and constant theme since the launch of infit