Lama Abu-odeh, on Law and the Transition to Market: the Case of Egypt

• Citation: Vol. 23 No. 2
• Publication year: 2009
• topic: Business of Law,Constitutional Law,Labor Law

ARTICLES

ON LAW AND THE TRANSITION TO MARKET: THE CASE OF EGYPT

Lama Abu-Odeh^*

INTRODUCTION

On the eve of independence from European colonialism, Egypt, like most other developing countries, undertook the project of de-linking itself from colonial economy by initiating domestic industrialization.¹The economic project known as Import Substitution Industrialization ("ISI")²was designed to liberate Egypt from raw commodity production-specifically, agricultural and mineral-servicing its previous colonial master, Great Britain.³The engine of development would be an expanding public sector with nationalization and socialism as leitmotifs.⁴In re-orienting the economy towards industrial production, Egypt hoped that the terms of trade with the international economy would significantly improve, thereby leading to an improvement in the living standards of its population.⁵And, like most other developing countries (with the exception of the East Asian Tigers), Egypt failed.⁶A symptom of its failure was a severe debt crisis that hurled Egypt into the brutal embrace of the International Financial Institutions ("IFIs"): the World Bank and the International Monetary Fund ("IMF").⁷To be rescued from its debt crisis,

Egypt had to concede to the neo-liberal economic program of these institutions, otherwise known as the Washington Consensus.⁸The program aimed to improve Egypt's capacity to repay its debts to international creditors by: re-linking it to the global economy via trade liberalization and through the re-regulation of its domestic economy to be more market oriented with the private sector, henceforth, being the engine.⁹And like most other debtor- countries, Egypt had to go through an austerity program to improve its savings.¹⁰

Transitioning from an economy in which the public sector played a primary role to one in which this role is significantly reduced in favor of a domestic private sector is no easy matter. This was especially true in postcolonial Egypt because the public sector became, perhaps inevitably, the site not just of economic growth,¹¹but also of distribution,¹²and, equally importantly, the place in which those who came to rule Egypt were incubated, i.e., the state elites.¹³

These state elites intermittently used the discourse of nationalist socialism to mobilize the population behind the project of domestic industrialization,¹⁴ but were, for the most part, populists.¹⁵Political representation of the various social forces, especially emergent ones, was corporatized through state-based unions, associations, and cooperatives.¹⁶Soon the political trade-off of (I give you) economic well-being for (you give me) political power took hold.¹⁷

Essentially, the transition from an ISI-based economy driven by a public sector to the market-based economy meant a transition from the relatively blurred class map of the public-sector-driven developing economy to a more differentiated one.¹⁸The transition also meant that those tasks/ideologies/institutions associated with the public sector-growth, distribution, nationalism, socialism, populism, corporatism-had to be unbundled and given up.¹⁹As they were unbundled and became associated with the social forces of the new class map, both rising ones and declining ones, they took on new incarnations making them shadows of their previous selves.²⁰

The Egyptian story of transition is complicated by the fact that Egypt receives "rent" from three strategic sources: the Suez Canal, oil and natural gas, and geo-political location (U.S. aid).²¹Since both the Suez Canal and oil and natural gas are administered by public companies, the revenues reach the coffers of the state directly.²²Revenues from these sources are rent in that while they deploy a minimal amount of local labor, they potentially yield large revenue.²³While the amount of this revenue could be sizable, it could also be fragile.²⁴Forces outside of Egypt's control, such as the international market or Egypt's geopolitical value to the United States, determine the amount of revenue.²⁵

Although Egypt's rent revenue is not comparable in size to that of the oil producing countries of the Gulf region,²⁶its intermittent availability in sizable amounts triggers a dynamic that approximates that of rent societies. Elites are dependent on rent revenue to preserve their hold on power through allocative activities while "rentiered" beneficiaries offer passive political loyalty in return.²⁷Rent surplus makes the state elite relatively autonomous by providing economic benefits to social groups that otherwise might challenge existing structures.²⁸Therefore, rentierism enters the dynamic of transition from ISI to the market in Egypt contributing its own dynamic, itself determined by the rise and fall of rent revenue. This adds to the story of transition another layer of complexity that needs to be captured.

Another layer of complexity is what I call the "Islamic Sector." While the condensation of growth/distribution/political power within the public sector of ISI yielded the social forces undergoing "privatization,"²⁹it also constituted the social forces outside it through exclusion. Islamist ideology, in moderate or radical form, found a home within social groups existing "autonomously from the state";³⁰they were either never beneficiaries of the public sector, or they came to the social force through the rent economy occurring outside the public sector, fed by worker remittances, or were children of those who benefited from the public sector but found themselves excluded from it due to the transition to the market.³¹While most other social forces live out the drama of their exclusion from the public sector, the Islamic Sector sees itself as the alternative to the state, not in the form of private sector replacing public sector, but a kind of alternative parallel state.³²But because it was constituted through exclusion by the ISI public sector, it lives in the shadow of the state: mimicking its discourses, tools, and institutions; engaging with it; and conspiring to annex it.³³

In the transition from ISI to market, law played an important role.³⁴Just as the elites of Egypt received globalized ideas about the economy-first in the form of ISI as a response to the colonial economic legacy, globalized among postcolonial elites, and later on the Washington Consensus of International Finance Institutions, globalized in the form of an imposition on state elites as a response to the failure of ISI-so did legal elites receive globalized ideas about law that they too needed to contend with.³⁵Egyptian jurists received the

"social" in law during the ISI era,³⁶and during the later neo-liberal era they were influenced by American-style constitutionalism, where rights were married to the market (reasoned in neo-formalist³⁷and post-realist mode³⁸).³⁹

Legal rules serviced both economic strategies,⁴⁰ISI and subsequently the market, in that a set of rules and legal institutions had to be put in place to implement each economic mode in turn.

Not only is law used by elites to "implement" an economic strategy and interpreted by judges in "the spirit of the times," it is also deployed among the contending social forces of the transition.⁴¹For the purposes of improving the bargaining power of one side at the expense of the other, law is used in the form of a proposed constitutional amendment here or a legislative reform there.⁴²State elites pass constitutional amendments that tighten their grip on the politics of transition; market-oriented reformists propose a clearer separation of powers, married to the market as an improvement of their own bargaining power vis-à-vis the state elites; the working class agitates for the capacity to unionize independently from the state to improve its bargaining position both vis-à-vis the state elites and the new market with the hope of improving its declining living standards resulting from the transition to market.⁴³And the Islamic Sector uses the courts to pass off its Islamicization agenda in the face of a highly secularized, post-ISI state.⁴⁴

This paper is an attempt to describe this drama of transition from within the tradition of political economy that combines the study of the economy with that of the social forces and political systems constituted by and interacting with economic regimes. It starts with a historical review of economic/political phenomena prevailing in Egypt, beginning with the regime of Nasser and ending with that of Mubarak. After inserting the Islamic Sector into the drama, the paper continues with describing how law is used for each orientation and its actor. It finishes by describing four strategies for the state elite to remain in power. It is a description with an underlying normative agenda. It tries to describe the situation in a way that (hopefully) leads the reader to ask the following two questions: First, what is the response, indeed alternative to the Washington Consensus as a response to the failure of ISI; and second, which social force in the context of Egypt is most likely to produce this alternative?

I. HISTORICAL REVIEW

A. The Nasser Era (1952-1970)

Nasser initiated ISI as soon as he came to power in 1952.⁴⁵Rather than promote industrialization through regulatory and macroeconomic measures favoring domestic private industry, as occurred in the East Asian Tigers, Nasser engineered the creation of a big public sector charged with the task of promoting full industrialization.⁴⁶Nasser responded to the massive popular demand for economic reform by passing a series of special legislations that took their base in land reforms.⁴⁷These were meant to remove the resource base of Egypt's previous land elite, to redistribute rural assets, and to be an incentive for previous landowners with economic means to invest in industry.⁴⁸

In addition to being the locus of industrial oriented economic growth (ISI), an oversized public sector⁴⁹came to serve two purposes for the regime of Nasser. First, it was...