State–business relations under conditions of subordinate integration

Transformations in the political economy ot Egypt since the revitalisation of the private sector during infitah are better examined through an approach that weaves together policies, people (and in our case most notably state—business relations) and structures in both its international and transnational components. On these grounds one can advance three main claims. First, the process of economic reforms that stretches over 40 years of modern Egyptian history has had one constant: the hollowing out of the economic and ‘infrastructural’ power ot the state (Mann 1984). Second, the same reforms have also produced dramatic reversals in relations within the Egyptian business community, but these reversals have been accompanied by renewed subordination of private business, although to different ‘masters’: first the state, then the dominant faction ot transnational capital, and currently an amalgam ot Gulf capital and the army. Third, and related, one of the most remarkable shifts of the post-uprisings period is the dramatic increase in the relevance of the regional scale, and more specifically of Gulf actors, in determining which sections of the Egyptian business class are to be favoured and which ones are to be marginalised within Egypt’s politico-economic order, thus shaping Egypt’s continuing integration in the global economy and the distribution of the benefits and costs stemming from it (Hanieh 2018). The three sub-sections that follow focus on each of these claims, exploring connections between them and the implications for state—business relations more specifically.

Hollowing out of state power

Given our focus on state—business relations, it makes sense for us to start from the first term and look at what has happened to the state. This is essential to show that in the Egyptian experience neoliberal reforms and crony capitalism are not in opposition to one another, but are rather mutually reinforcing components of the same process.

It may be inappropriate to define infitah reforms as neoliberal, but there is little doubt that they contained an embryo developed in much greater breadth and depth under the aegis ot the IMF, especially in the wake of the late 1980s fiscal crisis and the 1991 Economic Reform and Structural Adjustment Program. The neoliberal turn is clearly visible between this year, when the privatisation law was enacted (Law 203/1991), and the following year, when two consecutive pieces of legislation, respectively, relaunched the stock exchange (Law 95/1992) and created the conditions for a ‘counter-revolution’ in the countryside in favour of large land- owners through a new tenancy law (Law 96/1992) (Saad 2002). By the end of the decade, the Egyptian government was widely portrayed as a success story of structural adjustment (The Economist 1999). A combination of debt forgiveness from Paris Club creditors, fiscal restraint and extensive privatisations put state finances back on track, whereas a range of liberalisations in capital movements, interest rates and tariff barriers were also implemented. Alter a slowdown in reforms in the wake of the East Asian financial crisis, a change in the balance of power within the regime produced a significant acceleration and deepening of reforms, with a new wave of privatisations now affecting traditionally off-limits sectors, such as oil refineries, cement and banks. A new central bank law and three World Bank-sponsored financial sector reform packages in turn reshaped the financial sector, whereas a set of incremental measures over the 1990s and the 2000s broadened the tax base through a General Sales Tax, reduced corporate taxation and established tax holidays for companies operating in the Special Economic Zones. Deregulation of labour markets, signalled especially by the 2003 introduction of temporary contracts, completed a picture that sees the Egyptian economy advancing considerably on the path expected by the Washington Consensus in the long run-up to the 2011 uprisings. Neoliberal restructuring has not only continued but also intensified after the uprisings, most notably in the phasing out of fuel subsidies, and in the 2017 approval of a new investment law.

Now, it is undoubted that this has been a process that, especially in its earlier phases, encountered very strong opposition from within the ruling coalition, in many respects still shaped by Nassers legacy of state capitalism, which gave to an alliance between the army’s upper echelons and a stratum of state-engineered public sector managers control over the industrialisation strategy, and hence over a substantial share of the Egyptian economy. It was only to be expected that these factions would mobilise towards reversing or at the very least slowing down reforms expected to erode their power and status. One of the important features of the Nasserist state that Sadat inherited was its ability to deploy the relative autonomy it enjoyed from the ruling coalition of the time and rooted in substantial levels of popular support (Salem 2018). It is not coincidental that Sadat’s October paper, which sets out the infitah agenda, comes one year after the perceived triumph in the 1973 October war, which gave Sadat a new lease of legitimacy (‘hero of the crossing’) deployed towards fundamentally re-orienting the Egyptian economy. This in fact led to the manufacturing of a new private sector, which was to benefit from the reforms through the awarding of construction contracts, import licenses for consumer products that were unavailable under Nasser and other investment opportunities (Waterbury 1985; Ayubi 1995).This is an integral part of the rise—and in some cases the return—of major business dynasties, which had taken refuge either abroad or in the retail sector during Nasser’s time (Zaalouk 1989), and that still play an important role in the commanding heights of the Egyptian economy.

On a more general level, four decades of reforms, no matter how piecemeal, fundamentally altered what the Egyptian state could and could not do in the economy. State power had been hollowed out economically in two senses. On one hand, as reforms substantially narrowed down the ‘policy space’ (UNCTAD 2008), the state had fewer instruments available to affect the macroeconomic performance of the economy, although the ebbs and flows in oil prices, remittances and tourism flows provided in some junctures important if unreliable sources of rent (Soliman 2011: 38—52). On the other hand, even when rent flows improved, the reforms implemented meant that the redistributive capabilities of the state were severely hampered, thus limiting its ability to serve as a buffer for popular and middle classes during downturns. A major consequence of this, and one that would deflagrate in the mass protests leading to Mubarak’s overthrow, was that the regime had become unable to generate consent in society, thus abdicating to the hegemonic function that state apparatuses have historically played in late developing contexts, first highlighted by Gramsci (1971: 104—106) in his considerations on ‘the function of Piedmont’, where a regional state acted as a surrogate for a weak bourgeoisie in driving the process of state formation and economic modernisation in Italy (Roccu 2017).

 
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