No More Socialism

Egypt officially removed from its constitution all references to Egypt as a socialist country. For this occasion Sandmonkey published a post that’s surprisingly harsh on Egypt’s reformers. The Arab economic reform is one of the most important, if not the most important, developments in the region. It is plainly not these botched experiments in ballot casting, that until now mostly ended in sectarian bloodshed or triumph of Muslims Brothers and their likes, that hold a promise of creating a new Middle East, but rather the gradual normalization of the region brought through development of free market economy by means of reforms initiated from above by the ruling elites.

The fact that the issue of the Arab economic reform is given so little coverage indicates that these days most analysts themselves got so brainwashed by the politically correct and the phraseology accompanying it that they indeed believe that democracy is mostly about having elections and giving extremists free say on the streets and in the media. In the good old days the US political elites clearly had a more sophisticated view of what’s involved in building a nation along the lines of a modern Western society which is evident from the fact that they did not hesitate to support authoritarian regimes such as that of Pinochet in Chile as long as those regimes proved their commitment to modernizing their countries by means of free market reforms. Neither the US occupation regimes in Germany/Japan were in any rash to hold elections or transfer power to the locals before they were sure that the economic foundations were solid enough.

Over time US administrations seem to have fallen into the trap of believing their own propaganda and the current administration looks at times as if possessed by some sort of messianic lunatism perfectly capable of destroying the whole region with its irrational obsession to hold elections everywhere where there is something moving that speaks Arabic. Yet people should get real and comprehend that the current condition of the Arab street is such that even if the dictators are bad, it does not mean that their departure cannot make the situation much worse. Let alone, when the ruling regime is officially kissing good-bye to socialism and trying to carry out economic reforms, it is the reason to support it and to pray for its success.

Sandmonkey spares no criticism when it comes to appraising the effect of the reforms until now:

Now, which brings us to the final problem with this new capitalistic model: It’s not capitalistic at all. It’s exactly what capitalism stands against. But they call it that, and that’s what the people in the street see, so that’s the view they get of capitalism and businessmen: corrupt exploiting croneys. In their heads, Capitalism ends up meaning: factories closing, less jobs, corrupt government and shady sales. And people wonder how socialism still has it’s appeal in Egypt after ruining the economy for so many decades. Well, the so called socialist ruined it, and now the so called government capitalists are selling it for much cheaper than it costs. And slowly but surely you find yourself staring at a very nice and impending economic crisis. Good thing we are not called socialist anymore, huh?


The thing is, of course, that factories closing, less jobs were hallmarks of initial stages of any serious economic reform that aimed at transition from state economy to free market one. The first two years of Tatcherite revolution were also accompanied by this factories closing, less jobs with the British economy contracting in real terms. Whatever good these reforms brought later their beginning was painful to the point of violent clashes between police and coal miners during which one of the strikers got killed. The two structural readjustments I lived through left people reeling for years. By far the readiness of Egypt’s reformers to take such unpopular measures indirectly indicates that they are no populists and that their commitment to reforming the country is genuine.

It is a clear indication of how beleaguered the team of Mubarak’s Chicago boys is, that even such a pro Western blog as Sandmonkey’s gives them no credit for anything good they have achieved over the last years. After all Egypt’s reforms were not such an utter failure. The Economist has been cautiously praising Egypt’s economic team recently despite the fact that the macroeconomic situation appears to be quickly deteriorating.

As it appears even Western oriented Egyptians are not fully aware of the experience of the former communist countries with free market reforms otherwise would have had more appreciation for the work of Mubarak’s team credited by respected observers such as The Economist with being professional and up to the task. They would have been also more careful with this factories closing, less jobs argument. In some former communist countries the state sector totally collapsed at the first attempt to reform the economy and even in such an under-industrialized country as China one of my friends found whole areas in the North devastated by the impact of free market reforms. Heavy industry happened to be a particularly tough case and probably very few of the former communist countries managed to salvage much of the Soviet style developed heavy industry. On the whole it seems that even that tiny part of the Egyptian society that understands and supports in principle free market economy is not fully aware of the downside and complexity of such a monumental task as reforming a country that has spent decades in socialism.

Probably the reformers themselves are only partially responsible for the pain created by the reforms as their hands appear to be tied by all kinds of constraints enacted by the previous administrations in this until yesterday officially socialist country. The macroeconomic stability of the first years has been quickly eroded by mounting losses of state enterprises that have found themselves for the first time facing a real competition. In this situation the reformers started losing control over government expenses and monetary situation as they were lacking the most basic legal tools to close state enterprises and shed an excessive labor force from the state’s payroll. In the end the situation got worse because the reformers apparently tried to open up the economy and to preserve the macroeconomic stability at the same time without having real means to implement structural reforms. Under these conditions the state sector started collapsing dragging with itself down the government finances and the rest of the economy.

In fact there is nothing exotic about the whole situation as the same thing has been repeatedly observed when East European countries were switching their economies into free market mode after the demise of the Soviets. In many ways the expectations of Sandmonkey and others are unrealistic and much of his criticism is off mark. Probably most of Mubarak’s economic team is comprised of Western educated technocrats who were brought by Mubarak from abroad and who have few connections and leverage inside Egypt’s political system. Most probably they are totally dependent on Mubarak for implementing their economic program and without him they would quickly end by being kicked out of the office. These people operate inside an extremely corrupt and degenerated system and have little control over execution of their reforms at the local level.

Mubarak himself did not invent Egypt’s corruption and, even though he might have made good use of it, he is plainly risking to upset too many people, and not only in trade unions, but in his own party too, if he pushes the reforms too hard. Maybe Mubarak has an unassailable authority inside Egypt’s ruling party but his son and soon-be political inheritor has not. In fact what appears to some as a shameless selling of state property at below the market price may be a calculated attempt to sell as much of government’s assets and as quickly as possible before the unholy alliance of trade unions and Muslim brothers puts an end to any further prospect of a large scale privatization campaign.

There should be no doubt that Egypt’s reformers have compromised their moral authority and credibility by cooperating with such a corrupt and oppressive regime. Yet the question should be not if the reforms are perfect but what are the alternatives. The real question should be – if not Mubarak and his team, then who can do it any better? The bulk of Egypt’s opposition is Muslim Brothers who need little introduction for any person even minimally informed about the region. The rest of the opposition, even though secular, is mostly comprised of irredeemable leftist populists – happy students of the western anti globalists. The reforms are anything but perfect but in Egypt’s case the very fact that they exist should make people feel happy and grateful.