A Brief History on Political Economy in Egypt

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Last updated: April 20, 2019

Political economy according to Encyclopedia Britannica is a social science concerned with the raising of revenue by the state and the increase of the state’s general resources.

Political economy has caused both world wars in a sense. Meaning, that Germany’s motive to politically dominate Europe’s heartland – in both world wars – was economic in nature. Germany needed markets were it can sell its manufactured products, during its era of industrialization, and markets to secure its supply of cheap raw materials.Thus, its political decisions and foreign policies were based on economic desires. While in World war two, Germany’s desire to acquire colonies all over the world was also in attempt to boost its economy. Meanwhile, Britain, France and the United States helped Germany prosper until it was able to threaten their security in Europe. These super powers helped Germany because they had political motives which were keeping Eastern Europe guarded by a powerful capitalist country like themselves, against the rising influence of communism in the Soviet Union and their satellites. In Egypt, politics has had many important consequences on the Egyptian economy and vice versa.

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To start off, during the Egyptian revolution of 1953, Egypt’s relationship with the United States and Britain deteriorated, because Nasser saw that his success in reaching the economic goals he set for Egypt would clash with their interests in the Middle East region. Therefore, Nasser chose to take the Soviet Union as his super power ally.Such economic targets, hoped for by Nasser, and which are to be accomplished through a social economic system, would in turn need the nationalization of the Suez Canal (to secure a high source of income for Egypt), moreover, would require building the High Dam to help with the prospering plans for Egypt’s agriculture. FIND A SOURCE.

On a different level, Nasser’s social economic system imposed many restrictions on foreign trade. 2 This was a natural consequence for adopting a social economic system at that time.Going back to the reasons why Egyptian leaders thought of socialism as to solve Egypt’s economic problems, is that the state’s self-sufficiency would improve, increasing the resources needed to catch up with the rest of the developed world in terms of industrialization.

3 As a result, during Nasser’s era, the political environment was very fierce in Egypt, having to put everything under government’s control, for instance economic investments was under governmental direction4- this would latter put Egypt’s economy in a critical situation, as it is not fit for international competition when a free market economy is adopted in 1974. However, under Nasser’s regime, not only economic goals directed political policies, but the opposite was also true.Meaning that by the absolute control of the economy by the state, the new political regime (Nasser’s regime) can make sure that the old “bourgeoisie” would no longer have the economic privileges which they had during the monarchy rule; hence they would not be able to establish a strong political influence, threatening the republican regime. 6 Moreover, if the state controls all resources then they selectively benefit individuals and/or groups who are loyal to the state.

As a result, via economic means, the state was able to form and guarantee the loyalty of several influential groups and individuals in society. In the following decades, during Sadat era, the condition has changed as the Soviet Union seemed less cooperative with Egypt. Meanwhile, after the October war in 1973, Egypt’s relations with the U. S. seemed to improve.

For instance, the U. S. was a leading donor of foreign aid to Egypt. 8 As a consequence, Egypt had to invest its foreign aid in a way not contradicting with the U. S. benefits in the region, and naturally the Open Doors policy was adopted. 9 The Open Doors policy reflects on the decrease on trade embargoes and tariffs in trade especially with Egypt’s Middle Eastern partners. 10 (Tariffs and other forms on trade restrictions were imposed during Nasser’s era).

Once more the importance of foreign aid to Egypt’s economy plays its role when Arab countries start supplying Egypt with aid after the Gulf war. Hence, Egypt’s trade with Arab countries increased significantly. 11However, coming to think about the internal problems Egypt would face when the Open Doors policy is fully adopted, one have to consider that in Egypt, during the socialist Nasserist era, the private sector was underdeveloped.

As a result of such underdevelopment of private sector, it was expected that Egyptian industry would suffer a lot, as imports would overwhelm domestic enterprises. However, during Nasser’s regime, there existed a private sector in the form of an “informal” sector. 12 It is argued that this “informal” sector had the potential to represent an Egyptian formal private sector after Egypt adopts the Open Doors policy in 1974.

3 Based on this argument, the Egyptian government was able to acquire Western “blessings” when introducing the Open Doors policy. 14 On the other hand, a counter argument evaluates the situation from a totally different perspective. It is viewed that Western powers, particularly the United States, were aware that Egypt’ private sector – the former “informal” sector – was extremely undeveloped, lacking all criteria needed for international competition. Moreover, the public opinion were aware of that fact and expressed their worries to the Egyptian government.The question then remains, how could the Egyptian and Western governments allow such policy to be adopted, without any consideration for the domestic consequences for such policy? The answer is that, first, Western powers gave their “blessings” for Egypt adoption of such policy because they benefited from Egypt trading with their allies, for example Israel.

15 Second, the dangers posed on domestic political stability, by Egyptian labor and other opposition groups who knew that the Open Doors would endanger domestic industry, were minimal.This is because the concerned labor were those in the underdeveloped private sector during Nasser’s time; back then they were not allowed to organize themselves in labor unions, and therefore have neither proper representation nor the finance to pose a real threat on the political system. 16 Third, the Egyptian wealthy entrepreneurs were mostly policy makers at the time of Sadat, and they were so much for the Open Doors policy, because this would give them the opportunity to broaden their investments and becoming wealthier in that sense. 7 In conclusion, regarding Egypt’s political economy status, presently and in the future, it seems that the country’s market economy has to undergo a reconstruction phase, through which Egypt could be more competitive in the international market in the era of globalization. The political regime in Egypt has to be aware of the economic benefits returning on society if proper economic legislations are implemented. Hence, the political regime is less likely to be threatened if people are economically satisfied.The Egyptian government has to put into consideration another level of negative consequences if the country does not improve economically.

Such negative consequences are on the level of its regional political status. In other words, Egypt leading political role in the Middle Eastern region has diminished during the last two decades. Meanwhile, other Arab countries, such as Saudi Arabia, had become more influential due to their astonishing economic performance.

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