A possible agenda for transition in Egypt

Cambridge, MA – This is the second in a two-part series about revolution and reform in Egypt. To read the first part in its entirety, click here. Below is a segue into part two of the series:

The Egyptian leadership is undoubtedly being buffeted from all sides by demands and recommendations about where to begin. After a year, the clamour, the disenchantment, and the resignation – along with the hope that nothing enduring will change – have all grown. At the same time, the “transition” process offers complex opportunities for existing and aspiring elites to jockey for position and struggle to improve their position for the next round.  

Signals are more significant than substance, and everyone is trying to send signals. The method, speed and extent of the proposed constitutional revision are signal, but not a plan for political reforms. The abolition – or reinforcement – of Article 2 of the old Constitution establishing principles of sharia as the main source of legislation is a signal, but will not establish the foundation for a cultural accommodation of religious life. Seizing assets, calling for prosecutions, and denouncing corruption are all signals, but not a plan for the transformation of Egypt’s dysfunctional and kleptocratic economy. In each case, everything will depend upon what happens later. 

How will Article 2 – or its absence – be interpreted by judges? What will become of the judiciary itself? Will fighting corruption mean cleaning up procurement and reducing opportunities for private rent-seeking at the top, or will it mean a more equitable sharing of the nation’s wealth?  

Part II

The next government – and the next after that – will be, we hope, transitional. Whether they are composed of technocrats or broadly represent the range of movements and parties, they will have three large sets of issues on their desk: political reform, economic reform, and the reform of information and cultural policy. A meaningful transition – completing the revolution – will require sustained effort in each area for some time.

Political reform

There seems to be no Egyptian Mandela and no obvious new Mubarak, although there will certainly be contenders for that role. That creates opportunities but makes them difficult to realise. Breaking with the old regime, freeing political prisoners, lifting the emergency law, changing the law restricting the formation of political parties, establishing the constitutional and institutional prerequisites for selecting a new government , laying the basis for a new relationship between policy and citizenry, military and civilian leadership – these have all been and constitute an enormous agenda on its own. It is tempting to imagine that it can be achieved by constitutional amendment, legislative decree or by the dismissal or appointment of an official. But we know from experience elsewhere that a more open, inclusive, and responsible political culture of institutions cannot be legislated or decreed.

We will certainly learn something from the constitution to be proposed. It will signal where the elites believe they are headed. But constitutional reforms are not the main story here and neither are elections, although it will be important to do what one can to get them right.

Unfortunately, the stagnant politics of crony-capitalism is compatible with an extremely wide range of constitutional arrangements that survive across the developing world in the shadow of myriad legislative pronouncements and electoral practices. Even putting social and economic justice prominently into a constitutional text, as we have learned from South Africa, is no substitute for rebuilding the economic, political, and legal arrangements that reproduce inequality or stifle growth.

In the long run, internal reform of the institutions of the state – the security apparatus, the police, the judiciary, and the administrative bureaucracy – will be far more important than a new legislature, a new president, or a new constitution. At the end of the day, the rule of law is micro, not macro. It is a discipline wrought by the citizenry in the quotidian activities of the state, a regularisation of the expectation that officials respond to rules. This will be achieved neighbourhood by neighbourhood, city by city, institution by institution.

The Egyptian revolution was the confluence of an extremely wide array of social, economic and political forces, sharing bitter experience at the hands of the regime, but otherwise quite distinct. The institutions for an open political culture among these groups will only be built and sustained if cultural and economic reforms succeed. In this sense, political reform may best be approached indirectly, through economic reform and cultural change.

Economic reform

Serious economic reform would mean dismantling the crony capitalism of the rentier state and replacing it with vigorous and equitable national economic development. This is very difficult to do. What is often hard to remember is that this is not the same thing as adopting neo-liberal policies of privatisation, deregulation, or free trade. Unfortunately, more than two decades after the exuberant one-size-fits-all development models of the Washington Consensus were everywhere chastened and discredited, many remain primed to judge economic reform in Egypt by the obsolete metric of “openness”, measured policies of “privatisation”, “free trade”, and “anti-corruption”.  

Most importantly, a focus on “opening” the economy in these ways ignores the far more important social demand for equitable participation in the economy. The import-substitution industrialisation project of the Nasser regime made a powerful social promise: The gains from industrial development would be distributed to a new working class as wages and subsidies for the purchase of essentials.

These promises were only imperfectly realised, of course, and at great cost to many others, particularly in the rural and agricultural sectors, who were promised only a stable, if shrinking, share of the pie. In any event, that program is no longer available. Egypt’s economy has been repositioned to be far more dependent upon its role in the global economy, its natural resources and strategic position, than upon its own industrial production. A new social deal will need to be struck.

Beginning in the 1970s, the Nasser era social promise was dismantled as the economy shifted to depend far more on what might be termed public “rents” from extractive industry, foreign aid, Suez canal fees, and the various fees and taxes extracted from state-controlled, if not state-owned, sectors of the economy – most crucially, tourism. These public rents have been distributed to Egyptian and foreign entities close to the regime to ensure its political survival, while the conditions for a social wage have been dismantled.

The result has been the progressive pauperisation of the vast majority of the Egyptian people. Subsidies have been replaced by micro-credit, enforced in ways which have extended the experience of vulnerability to arbitrary police power across the nation’s poor. Periodic half-hearted campaigns to “open” or “reform” the economy have been part of the problem, as subsidies have been withdrawn, wages have fallen, and social welfare has devolved from a national responsibility to families and local or religious communities. Women have often borne the brunt of these changing social conditions.

Completing the revolution will require that the conditions for robust economic development are linked to new modes of social welfare. Import substitution industries now compete with foreign production and are, in any event, no longer a large enough component of the economy for industrial wages to be a sufficient social welfare cushion. Wages will need to rise throughout the economy, and subsidies for basic commodities will need to be replaced by support for human capital development in education and health as well as credit and other support for small and medium-sized enterprises. Ultimately, the rents in this rentier economy will need to be distributed in accordance with a new political settlement, on budget, negotiated and legislated in a parliament

But that remains far in the future. The nation’s political economy cannot be turned on a dime. In Egypt, as elsewhere, “privatisation” has been an integral part of crony-capitalism. Friends and family of the leadership have embedded themselves in the “private sector.” Further privatisation could well offer more of the same, entrenching interests who will have the motive and capability – even the legal entitlement – to frustrate future development policy.

De-concentrating economic life today will require the careful management of industrial, anti-trust, and credit policy, oriented to the successful establishment of new competitive national firms in various sectors, far more than further privatisation of public enterprises. Indeed, public ownership and management may continue to be crucial. Replacing public with private rent-seeking is less important than ensuring that the economic life sustained in the wake of these rents is vigorous and competitive

Much of Egypt’s economy flows through the regime, including fees from the Suez Canal, receipts from natural gas, foreign aid, as well as returns from multiple taxes, tariffs, and fees. Much state income is not reported in the state budget, but has been managed directly by the President without parliamentary oversight. Transparent budgeting in the hands of an accountable development agency or bank would be an excellent first step.

The Central Agency for Accountancy, reporting to a newly independent Parliament, could play a crucial role here. A truly independent and professionally competent development agency or bank should aim to ensure that economic activity generating public rents – including tourism, energy, and telecommunications – and supported by the disbursement of those rents in areas such as construction or housing, all have strong forward and backward linkages to the rest of the Egyptian economy, support a decent minimum wage, and be characterised by transparent and accountable contracting procedures. Moreover, Egypt will need to retain the national economic freedom of action to carry out such reforms.

As much as we can all applaud efforts to reduce “corruption,” most of what we will hear on this score will be sound and fury – of political rather than economic significance as people settle scores and jockey for position in a new political and economic landscape. Comparative study of “anti-corruption commissions” demonstrates how routinely procedures of investigation have been instrumentalised by private or political interests to become a form of corruption by other means. Indeed, the longer-term effort to build an open and productive economic culture can be set back by misguided anti-corruption prosecution. Open procurement procedures, realistic civil service wage structures, a culturally embedded sensitivity to conflict of interest, must all be achieved institutionally and culturally. A complex, if dysfunctional, economic system cannot be prosecuted into submission. It must be rebuilt from within.

We need to remember that crony capitalism works. People throughout the economy are complicit and embedded in its embrace. Moreover, not everything should be dismantled. Quite the opposite. The economic transitions in East/Central Europe, Russia, and China teach us, in different ways, the importance of existing economic habits, pathways, and social relationships to fuel new economic activities. We must recognise that the social relations forged under crony capitalism will remain crucial as new forms of investment and new economic opportunities emerge. Over time, of course, eggs will need to be broken, resources will need to be re-arranged, and economic entitlements will need to be conditioned on economic performance etc. Indeed, it is important not to fortify cronyism with entitlement.

At the same time, however, one can only un-build current conditions of economic survival by offering people alternatives. The military, for example, will need to return to their barracks, but they will need barracks to return to. The police will need to return to the streets, but with sufficient tools, salaries, and technologies to guarantee a new public order. Unpredictable and unaccountable abuse at the hands of public authority was not only a tool of political power; it was an economic order, enabling individuals within the police establishment to collect fees from those it could abuse. Disestablishing that abuse requires a new economic basis for the maintenance of public order – namely, a sufficient distribution of public rents to the police to ensure professionalism.

One cannot abolish crony capitalism in a day because to do so would also abolish economic life. After all, closing an inefficient enterprise is only helpful if one also is able to transition the people and assets to more productive uses. Opening the domestic market to free trade, as was done in the early days of the Iraq occupation, may quickly put inefficient local firms long protected by the sinews of the rentier state out of business by allowing imports to flood the market. But that is not at all the same thing as transitioning those inefficient firms to more robust economic performance. Rather, it is the opposite Swift deregulation of financial services may increase the competitive penetration of the local banking sector by foreign firms, but that is not the same thing as ensuring the availability of credit for small or medium-sized enterprises in the economic transition, or bringing the unbanked poor into the nation’s financial system. The point is to strategize about how one engages the global economy where there are opportunities for local firms and industries to capture and reinvest rents from trade

Accomplishing such a sustainable economic revitalisation requires trust and collaboration, for it will create losers as often as it opens new opportunities. To get there, state regulation and participation in the economy will continue to be important. As much as one needs to rely on existing relationships and pathways, one also needs to be able to transform them. Economic arrangements will need to remain flexible, harnessed to a national capacity for making and remaking the opportunities for productive economic activity. To that end, economic reform and equitable development require an open horizon of policy space, a national capacity to debate and alter the conditions for economic life

Again, the keys will be institutional and cultural. We should look for cultural changes in attitudes towards petty bribery, institutional regularisation of army and government procurement, establishment of realistic civil service and military salary structures, and increased transparency in the distribution of rents, licenses, and contracts. Years of cosmetic reform have left a residue of ineffective economic regulatory agencies and “High Councils” on everything from population and motherhood to human rights. These will need to be rendered credible and effective – or abolished.

More important than anti-corruption or transitional justice machinery will be things like the establishment of a transparent state budget, the independence of a professional national development agency or bank, the emergence of competitive national firms, the establishment of a realistic and sustainable minimum wage, and the establishment of an independent institution to manage and fine-tune industrial and development policy. These things are not mysterious: All have been achieved elsewhere, reinforced by cultural habits and attitudes. Accountability, for administrative and economic actors, requires habits of monitoring and adjustment that must be embedded in institutions and supported by cultural confidence in the direction of economic transformation.

Culture and information reform

Here is a key demand of the opposition: the development of an independent and open information space as well as changing habits of secrecy at the top. The workings of the old economy were always transparent to someone – just not to outsiders. It was by seizing the initiative to forge a new social narrative and manage the image and information about what was happening that the revolution gained momentum, broke through, and has now gone viral across the Middle East. We are accustomed to thinking about modern cultural revolution as a matter of constitutional protection for freedoms of speech and assembly on the one hand, and of deregulation in the telecommunications and internet space on the other.

These are certainly important. But the cultural reform necessary to sustain a meaningful economic and political transition and complete the revolution will require something more. Enshrining rights in a constitution, even social and political rights, is quite different from rebuilding the conditions of social and economic possibility. A culture of economic accountability and social solidarity cannot be adjudicated into existence any more than it can be legislated. A social and cultural project to deepen the society’s commitment to “rights” may be useful but it can also generate habits of individual grievance and entitlement rather than sustaining the collaborative effort necessary to achieve social justice over time. And, it can restrict the horizon for economic policy and institutional reform.

Political and social life has repeatedly heated and cooled over the last months. Many have become worn out. To complete the revolution will require that the pot continue to boil. Cultural life will need to remain vibrant for collective engagement to be sustained and to encourage a long-term collective discussion about the nation’s direction that remains open to experimentation and innovation. Only in such an atmosphere, for example, can a habit of religious freedom and pluralism be sustained without devolving into a set of rigidifying sectarian trade-offs and accommodations. Only in such an atmosphere can the ongoing transformations of the nation’s political and economic life necessary for robust economic development be sustained without settling into a new arrangement of self-dealing and cronyism.

We will hear a great deal about the preparation for a presidential election in Egypt. There is no question fair elections require a firm institutional foundation. But for elections to lay the foundation for a new politics, they will also require an electorate ready to debate and engage in ways that do more than strengthen existing social identities and established professional or religious communities. As elsewhere, these divisions have been deepened by the cultural habits and institutional practices of crony capitalism. It is not yet clear whether the parliamentary elections solidified or unsettled those arrangements.

As at other revolutionary moments, the terms for future ideological debate and social mobilisation in Egypt are open. Transforming industrial, labour, professional, or religious affiliations into political parties without freezing the national political debate in ideological ritual will be very difficult. Even small things can matter a lot. Completing the revolution will require a tacit alliance among technocrats who either served the old regime or left the country, a rising professional and middle class, alongside the traditional social, religious, labour and industrial groups. Simple things – a regular national television show bringing people from these and other backgrounds into a common discussion about the nation’s future – may matter more than careful election monitoring or sound administrative rules for participation in the electoral process.

It will require serious work. There is a role here for civil society, for the media, for the spontaneous revolutionary groups and neighbourhood committees which have sprung up, as well as for the traditional opposition, the trade unions, and the civil service organisations. Across these groups, women have taken on new authority and their leadership will be crucial. To a large extent, of course, the new Egypt will need to be built from the institutions of the old. The judiciary, for example, could play a key role. Although in large part a professional and independent institution, the judiciary suffers from political pressures, low salaries, and difficult working conditions. It will need serious repair before it can help midwife a revolution of reforms.

The cultural and institutional objective is to model and rehearse new forms of political and social collaboration, new attitudes towards economic and political participation that are not just a matter of new hands on the rents, but of new forms of social and economic cooperation. Much that now happens in the informal sector, within communities defined by religious, class, professional, or neighbourhood identification, will need to be generalised across the society. People will have to learn to do business with anyone and to carry on politics with everyone. Only in this way will the force of the revolutionary transformation in collective consciousness become the driveshaft for meaningful political and economic reform.

Undertaken in the right spirit, political, economic and cultural reforms reinforce one another. But the greatest of these is cultural. We have an unfortunate tendency to treat the political transition as most immediate and significant, as the precondition to a sensible economic development path or an open information culture. In fact, things are just the other way around. This is an inter-subjective revolution, which will be won or lost in the minds of the Egyptian people.

As a consequence, the most important reform priority and the terrain on which a “new Egypt” will or will not be built is cultural. Many of the demonstrators understood this. Managing media and information, from foreign journalists to social media and street graffiti, was their metier. It seems like a long time ago that people felt moved to clean up the square – but that may turn out to be as significant as this or that appointment or reform timetable for what happens longer-term.

Indeed, the most significant issue is how the Egyptian people come to metabolise what has happened – whether they are able to consolidate their revolution in habits of engagement and debate, entitlements to know, and routines of tolerance and freedom. Only then can we expect a development policy to remake economic life, or a rearrangement of constitutional powers to remake the culture of Egyptian politics. Only then will the revolution have been won by reform.

A version of this article was first published in Midan Masr.

David Kennedy is Manley O Hudson Professor of Law and Director of the Institute for Global Law and Policy at Harvard Law School, where he teaches about law, governance and economic development.