military

The military government that replaced Egyptian ruler Hosni Mubarak is now moving to reverse recent reforms that gave Egypt solid economic growth in the last several years. It wants to curb free-market competition with military-run enterprises that dominate parts of Egypt’s economy.

As The New York Times reported on Friday, economists say the military “has already begun taking steps to protect the privileges of its gated economy, discouraging changes that some argue are crucial if Egypt is to emerge as a more stable, prosperous country.”

Field Marshal Mohamed Hussein Tantawi, the minister of defense and military production who now leads the council of officers ruling Egypt, has been a strong advocate of government control of prices and production. He has consistently opposed steps to open up the economy. . . already there are signs that the military is purging from the cabinet and ruling party advocates of market-oriented economic changes, like selling off state-owned companies and reducing barriers to trade. . . the military-led government also struck at advocates of economic openness, including the former finance minister Youssef Boutros-Ghali, who was forced from his job, and the former trade minister Rachid Mohamed Rachid.

The young protesters who helped bring down the Mubarak government are short-sightedly not criticizing these measures. Indeed, the Times reports that “some of the young revolutionaries at the vanguard of the revolt identify themselves as leftists or socialists.”

Egypt’s economy had long been a moribund socialist backwater after much of the economy was nationalized by the founder of Egypt’s ruling party, Gamal Abdel Nasser. His successors Sadat and Mubarak had largely continued those policies. But in the last five years, Mubarak finally embarked on serious economic reform, resulting in sustained economic growth. The reforms made property rights more secure, and made it easier to start a business — although much of Egyptian industry remained government-owned.

Ironically enough, this economic liberalization made possible the recent demands for political liberalization that contributed to Mubarak’s ouster, by giving Egyptians access to cell phones, the Internet, and other means of mass communication, and increasing their political consciousness. As Marshall Stocker noted:

Egypt today evidences Milton Friedman’s ‘Capitalism and Freedom’ thesis that a large measure of political freedom only comes when economic freedom exists. The World Bank’s 2006 “Ease of Doing Business index” scored Egypt 165 of 175, among the worst countries for business. After several years of economic liberalization, Egypt is 94 of 183 this year, more economically free than Brazil, India and Russia. The number of days it takes to start a business legally has dropped 85%. It now takes me 10, not the 500 days it took Mr. de Soto in 2004. The World Bank says that property registration now takes 72 days, down from 193, and now costs 90% less.  Economic liberalization permitted Egyptians to afford the tools of freedom: cell phones, satellite TV, Facebook and Twitter. Economic liberalization facilitated this revolution.

The economic regression occurring in Egypt is mirrored in more backward Yemen, where the longtime ruler of Yemen, one of the world’s poorest countries, has sought to shore up his popular support in the face of mass unrest by promising rigid “price controls” and an expansion of welfare to cover 500,000 more people. President Ali Abdullah Saleh has promised to expand his bureaucracy to hire more “college graduates,” and is increasing the pay of government employees. These measures will wreak havoc with his country’s finances, resulting in massive deficit spending. They will further stifle his country’s slow-growing economy, which has failed to keep pace with rapid population increases. Yemen’s lousy economy has helped make it a fertile ground for Al Qaeda recruiters.

In Libya, the viciously bloody and oppressive longtime dictator Muammar Qaddafi is shoring up his support base in the face of public protests by promising to double public-employee pay, even though public employees are much richer than the average Libyan. Egypt recently increased government employee pay by 15 percent to buttress their loyalty, a decision sure to increase its budget deficit and aggravate its economic problems.

We wrote earlier about how ethanol subsidies and mandates were fueling Islamic extremism and contributing to unrest in Egypt’s slums by driving up wheat prices, and thus shifting the locus of opposition to the Mubarak government away from Egypt’s small pro-democracy movements towards the anti-American Muslim Brotherhood, which is popular in the slums because of its relief efforts there.

Image credit: Muhammad Ghafari via Wikimedia Commons.