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Dreamland: The Neoliberalism of Your Desires (fwd)
by Mine Aysen Doyran
02 April 2000 19:46 UTC
http://www.igc.org/merip/mitch.htm
Middle East Report, Spring 1999
Dreamland: The Neoliberalism of Your Desires
Timothy Mitchell
Timothy Mitchell, a contributing editor to
Middle East Report,
teaches politics and Middle Eastern
studies at New York University.
Neoliberalism is a triumph of the
political imagination. Its
achievement is double: while narrowing the
window of political
debate, it promises from this window a
prospect without limits. On
the one hand, it frames public discussion
in the elliptic language of
neoclassical economics. The collective
well-being of the nation is
depicted only in terms of how it is
adjusted in gross to the
discipline of monetary and fiscal balance
sheets. On the other,
neglecting the actual concerns of any
concrete local or collective
community, neoliberalism encourages the
most exuberant dreams
of private accumulation-and a chaotic
reallocation of collective
resources.
In Egypt, as Pfeifer explains in this
issue, such modes of thinking
have defined the 1990s as a decade of
remarkable success and a
vindication of neoliberal principles. Yet
accompanying this picture
of financial discipline is a contrasting
image of uncontrolled
expansion and unlimited dreams. The most
dramatic example is
Egypt's rapidly expanding capital city.
While government deficits
shrink, Cairo explodes. "Dreamland," the
TV commercials for the
most ambitious of the new developments
promise, "is the world's
first electronic city." Buyers can sign up
now for luxury
fiberoptic-wired villas, as shopping
malls, theme parks, golf
courses and polo grounds rise out of the
desert west of the Giza
pyramids-but only minutes from central
Cairo via newly built
bridges and ring roads.
Or one can take the ring road in the
opposite direction, east of the
Muqattam Hills, to the desert of "New
Cairo," where speculators
are marketing apartment blocks to
expatriate workers saving for
their future in the Gulf. They can start
payments now (no deposit is
required) at agencies in Jeddah and Dubai.
"No factories, no
pollution, no problems" is the
advertisement's promise, underlined
with the developer's logo, "The Egypt of
My Desires."1
The development tracts spreading out
across the fields and deserts
around Greater Cairo represent the most
phenomenal real estate
explosion Egypt has ever witnessed. No one
has mapped what is
happening, but a conservative estimate is
that within less than five
years the area of its capital city has
doubled.
Building Trade
The exuberance of these private developers
is matched by the
state. While speculative builders are
doubling the size of Cairo, the
government is proposing to duplicate the
Nile Valley. In October
1996, President Mubarak announced the
revival of plans from the
1950s to construct a parallel valley by
pumping water from Lake
Nasser in the south into a giant canal
running northwards that is
intended to irrigate two million acres of
the Western Desert.2
In the meantime, the state also subsidizes
urban property
developers, selling public land cheaply
and putting up the required
expressways and bridges in rapid time. The
state is even involved
as a developer, since the largest single
builder of Cairo's new
neighborhoods, far larger than the
builders of Dreamland, is the
Egyptian army. Military contractors are
throwing up thousands of
acres of apartments on the city's eastern
perimeter to create new
suburban enclaves for the officer elite.
If one's first reaction is amazement at
the scale and speed of these
developments, one soon begins to wonder
about the
contradictions. The IMF and Ministry of
the Economy make no
mention of the frenzied explosion of the
capital city, and the state's
role in subsidizing this speculative
neoliberalism goes unexamined.
A bigger problem is that structural
adjustment was intended to
generate an export boom, not a building
boom. Egypt was to
prosper by selling fruits and vegetables
to Europe and the Gulf,
not by paving over its fields to build
ring roads. But real estate has
now replaced agriculture as Egypt's
third-largest non-oil
investment sector, after manufacturing and
tourism.3 Indeed, it
may be the largest non-oil sector, since
most tourism investment
goes into building tourist villages and
vacation homes, another
form of real estate.
Undisciplined Capital
The conventional story is that by 1990 the
economy was in crisis,
no longer able to support loss-making
public industries, an
overvalued currency, "profligate"
government spending, an
inflationary printing of money to cover
the budget gap and
astronomical levels of foreign debt.4
After 15 years of
foot-dragging and partial reforms, the
government was forced to
adopt an IMF stabilization plan in 1990-91
that allowed the
currency to collapse against the dollar,
slashed the government
budget, tightened the supply of money, and
cut back subsidies to
public sector enterprises, preparing to
privatize or close them.
These "prudent" fiscal policies were
implemented more drastically
than even the IMF had demanded.5 But the
story is more
complex: Among the most profligate of the
government's expenses
was its level of arms purchases, willingly
supplied and subsidized
by the US (part of its own system of state
subsidies). An
impending default on these military loans,
causing an automatic
suspension of US aid, helped trigger the
collapse in 1990. The
crisis was brought on not just by a
spendthrift state but by the
slump after 1985 in the price of oil-the
largest source of
government revenue-and by the lost
remittances and other income
caused by the 1990-91 Gulf conflict. And
as Pfeifer notes
elsewhere in this issue, the largest
single contribution to Egypt's
fiscal turnaround, debt forgiveness,
resulted from a political
decision of the US and its allies.
Behind this lies a more important story.
The crisis of 1990-91 also
stemmed from the chaos brought on by
deregulated international
flows of speculative finance. The
financial reforms that followed
were not so much an elimination of state
support (as the neoliberal
version of events would have it), but
rather, a change in recipients.
Since 1974 the number of banks had
increased from seven to 98,
as commercial banks sprang up to finance
the investments and
consumer imports of the oil-boom years.
The four large
state-owned banks made loans mostly to
public sector
enterprises. It is estimated that at least
30 percent of these loans
were non-performing.6 But the state banks
were also part owners
of the private-sector banks, enabling them
to channel public funds
toward a small group of wealthy and
well-connected
entrepreneurs.7 These large private-sector
borrowers were also in
trouble.
By 1989, 26 percent of private and
investment loans were in
default, more than half of which belonged
to just three percent of
defaulters. Many of the big defaulters
were able to delay legal
action and others fled the country to
avoid the courts.8 The largest
default came in July 1991, when the Bank
of Credit and
Commerce International (BCCI) collapsed.
Depositors in BCCI's
Egyptian subsidiary were protected by an
informal insurance
scheme among Egyptian banks, which had to
contribute 0.5
percent of their deposits and share the
cost of a ŁE1 billion
interest-free loan to make up the missing
funds.9
These difficulties signaled that Egypt was
increasingly beholden to
the interests of a narrow class of
financiers and entrepreneurs
whose actions it was unable to
discipline.10 As with the 1997-99
global financial crisis, however, the
problems of undisciplined
capitalism (a better term than "crony"
capitalism, now in vogue
with the IMF, for it points to the
pervasive struggle to subject
capitalists, within and outside the state,
to law and regulation)
cannot be separated from the problems
caused by speculative
global finance, especially currency
trading. After international
currency controls were abandoned in 1980,
daily global foreign
exchange turnover increased from $82.5
billion (1980) to $270
billion in 1986 and $590 billion in 1989
(by 1995 it was to reach
$1.230 trillion).11 This chaotic explosion
of speculation
overwhelmed the attempts of governments to
manage national
currencies according to the local needs of
industry and exports.
In Egypt, global deregulation coincided
with a surge in private
foreign currency transfers as expatriate
workers sent home
earnings from the Gulf. More than 100
unregulated money
management firms were formed to transfer
andinvest such funds,
five or six of them growing very large.12
These Islamic inves tment
companies (so-called because they appealed
to depositors by
describing the dividends they paid as
profit shares rather than as
interest payments) invested successfully
in global currency
speculation, later diversifying into local
tourism, real estate,
manufacturing and commodity dealing, and
paid returns that kept
ahead of inflation. The public- and
private-sector commercial
banks, subject to high reserve
requirements and low official
interest rates (essential to the
government financing of industry),
could not compete and were increasingly
starved of hard
currency.
In 1988-89 the bankers finally persuaded
the government to
eliminate the investment companies. A law
went into effect
suspending their operations for up to a
year. Companies found to
be insolvent (or in many cases made
insolvent) were closed, and
the remaining companies were reorganized
as joint-stock
companies and forced to deposit their
liquid assets in the banks.
This protected the banks and their
well-connected clients, but
provoked a general financial depression
from which neither the
banks nor the national currency could
recover. As a recent UN
report confirms, the best predictor of
economic crises in countries
of the South is not state-led development
but the deregulation of
finances.13
Bailing Out the Bankers
In response to the financial crisis, the
centerpiece of the 1990-91
reforms was a gigantic effort to bail out
Egypt's banks. After
allowing the currency to collapse and
cutting public investment
projects, the government transferred to
the banks funds worth 5.5
percent of GDP in the form of treasury
bills.14 To envision the
scale of this subsidy, in the US during
the same period the
government bailed out the savings and
loans industry, transferring
a sum amounting to three percent of GDP
over ten years. The
Egyptian bailout was almost twice as
large, relative to GDP, and
occurred in a single year. Moreover, the
government declared the
banks' income from these funds to be
tax-free, a fiscal subsidy
amounting to a further ten percent of GDP
by 1996-97. In 1998,
the government attempted to end the
subsidy by reintroducing the
taxing of bank profits, but the banks
thwarted the implementation
of the law.15 The banks became highly
profitable, enjoying rates of
return on equity of 20 percent or more.
The government extended further support to
the banking sector by
tightening credit to raise interest rates,
pushing them initially as high
as 14 percent above international market
levels. Non-market
interest rates brought in a flood of
speculative capital from abroad.
This was quickly interpreted as a sign of
the success of neoliberal
discipline. It was nothing of the sort.
The money consisted of
highly volatile investment funds chasing
interest income whose
attractiveness was due not to "market
fundamentals" but to state
intervention. After two years, interest
rates were reduced, thus
ending the mini-boom.
In 1996, the government engineered another
mini-boom by
announcing an aggressive program of
privatization. It began to sell
shares in state-owned enterprises on the
Cairo stock market,
which it had reorganized to exclude small
brokers while eliminating
taxes on profits.16 By June 1997, the
government's income from
the privatization sales amounted to ŁE5.2
billion ($1.5 billion). It
used 40 percent of this income to pay off
bad debts in the banking
sector.
The sell-off fattened the banks and the
government budget and
fueled a short-lived stock-market boom.
Its outcome was a
complicated adjustment of existing
relations between public-sector
business barons and their partners in the
private sector. The press
was full of stories of phony
privatizations, such as the December
1997 sale of Al-Nasr Casting, which in
fact had been sold to the
public sector banks.17 A year later, state
officials forced the
chairman of the stock exchange to resign
after he tried to improve
surveillance of company finances and share
trading.18
The stock market boom lasted less than 18
months, with the EFG
index of large capitalization companies
reaching a high in
September 1997, then losing one-third of
its value over the
following twelve months.19 As the stock
market slid, the
government halted the sell-offs,
suspending privatizations after the
summer of 1998 and refusing the IMF's
demand to begin
privatizing the financial sector. Instead,
to stem the collapse of the
market, the government used its financial
institutions to invest
public funds. Between December 1997 and
October 1998, the
large state-owned banks, pension fund and
insurance companies
pumped about $600 million into the market,
suffering large
losses.20 In the process, the state
reacquired shares in most of the
companies it had recently claimed to be
privatizing. By June 1996,
the number of loss-making public
enterprises had almost doubled;
accumulated losses had risen from ŁE2
billion to ŁE12 billion.21
The government had redefined its finances
to exclude
public-sector companies from the fiscal
accounts, however, so this
worsening situation was hidden from
view.22 Neoliberalism could
continue to claim that it was replacing
government deficits with a
balanced budget.
Family Business
The neoliberal program has not removed the
state from the market
or eliminated "profligate" public
subsidies. These achievements
belong to the imagination. Its major
impact has been to
concentrate public funds into different,
but fewer hands. The state
has turned resources away from
agriculture, industry and the
underlying problems of training and
employment. It now subsidizes
financiers instead of factories,
speculators instead of schools.
Although the IMF has shown no interest in
raising the question, it
is not hard to determine who benefits from
the new financial
subsidies. The revitalized public-private
commercial banks lend
big loans (tax-free) to large operators.
The minimum loan size is
typically over $300,000 and requires large
collateral and good
connections.23
Leading the pack of those who have good
connections are about
two dozen conglomerates, such as the
Osman, Bahgat and
Orascom groups. These family-owned
businesses typically began
as construction companies or import/export
agents, but most have
also moved into tourism, real estate and
food and beverages, and
in some cases the manufacturing of
construction materials or the
local assembling of consumer goods such as
electronics or cars.
They enjoy powerful monopolies or
oligopolies as exclusive agents
for the goods and services of
western-based transnationals.
The Bahgat group, for example, is the
biggest producer of
televisions in the Middle East and
dominates the Egyptian market,
having graduated from assembling Korean
sets to making Grundig,
Phillips and own-name brands. The group's
other major interests
include hotels and internet service
provision; they are the builders
of the internet-wired Dreamland. Dr. Ahmed
Bahgat, the family
head, is reputed to be a front man for
well-placed interests within
the regime, which may explain why the
express roads out to
Dreamland were built in record time.
Orascom, a holding
company wholly owned by the Sawiris
family, controls eleven
subsidiaries, including Egypt's largest
private construction, cement
making and natural gas supply companies,
the country's largest
tourism developments (funded in part by
the World Bank), an
arms trading company and exclusive local
rights in cell phones,
Microsoft, McDonald's and much more.
These conglomerates produce goods and
services affordable to
just a small fraction of Egypt's
population. A meal at McDonald's
costs more than most workers earn in a
day, and a family outing to
Dreampark, the amusement park at
Dreamland, would consume a
month's average wages. The Ahram Beverages
Company, which
makes soft drinks, bottled water and beer,
calculates its potential
market (including expatriates and
tourists) to be just five or six
million, in a country of 62 million.24
This narrow market
corresponds to that segment of the
population that can afford, or
even imagine affording, the country's one
million private
cars-which is why local manufacturers
concentrate on assembling
Mercedes, BMWs, Jeep Cherokees and other
luxury cars.
Beyond the small group of state-subsidized
super-rich, modest
affluence probably extends to no more than
five or ten percent of
Egypt's population.25
The Spending Gap
What of the other 90 or 95 percent of
Egyptians? Real wages in
the public industrial sector dropped by
eight percent from
1990-91 to 1995-96. Other public sector
wages remained
steady, but could be maintained only
because the salaries remain
below a living wage.26 A schoolteacher or
other educated
public-sector employee takes home less
than two dollars a day.
One sign of the times is the reappearance
of soup kitchens in
Cairo, offering free food to the poor,
which the national press
interpreted as a welcome return to the
kind of private benevolence
among the wealthy not seen since the days
of the monarchy.27
Household expenditure surveys show a sharp
decline in real per
capita consumption between 1990-91 and
1995-96. The
proportion of people below the poverty
line increased in this
period from about 40 percent (urban and
rural) to 45 percent in
urban areas and over 50 percent in the
countryside. Reliable
guides to the changing share of
consumption by the very wealthy
do not exist, since surveys fail to record
most of their spending. If
household expenditure surveys for 1991-92
are extrapolated to
the national level, the figures show the
population as a whole spent
$15 billion. Yet national accounts give
the total expenditure as $30
billion. In other words, about half the
country's consumer spending
is missing from the surveys. It is
plausible that the bulk of these
missing expenditures belong to the
wealthiest households.
Categorized as those spending over
ŁE14,000 (about $4,000) per
year, these households represent 1.6
million people or three
percent of the population. One estimate
suggests that this small
group may account for half of all consumer
spending.28
The inequalities are greatest in the
countryside, where neoliberal
reforms first began in 1986, directly
targeted at those with minimal
resources. Neoliberal reforms ended
agricultural rent controls and
eliminated tenants' security. Reviewing
the first decade of agrarian
neoliberalism, the reformers acknowledged
that its consequences
included "growing unemployment, falling
real wages, higher prices
for basic goods and services, and
widespread loss of economic
security."29 They might have added to this
list: stagnant agricultural
growth (real output in 1992 was lower than
1986), repeated
crises of under- and over-production, the
growth of monopolies
and price-fixing, a shift away from export
crops such as cotton,
and a decision by most small farmers to
move away from market
crops and grow more food for their own
consumption.30 The
latter, a decidedly sensible decision,
reminds us again of the
imaginary nature of neoliberalism's
successes.
Reform for a Change
Alternative strategies to the neoliberal
agenda must begin in the
countryside. The first priority is a
far-reaching land reform
program, redistributing land holdings of
more than five acres. This
would improve living conditions
immediately, increase agricultural
output, and reverse the growing
landlordism and merchant
monopolies that are returning the
countryside to the conditions of
the first half of the twentieth century.
Redistributing agrarian
resources would provide a powerful
stimulus to local investment
and wealth creation. At present, with
consumption of commodities
other than food so heavily concentrated
among the affluent and
super-rich, much of the country's demand
for goods can be
satisfied only by imported luxuries. The
new wealth of ordinary
households would create a vibrant demand
for local services and
local manufactures. Given the relative
importance of workers'
remittances from the Gulf (in 1996-97 they
amounted to $3.26
billion, more than double the amount of
Western portfolio
investment and almost five times the
paltry level of direct
investment by transnational corporations),
this is clearly the level at
which radicalinitiatives are needed and
can make a difference.31
The other priority is political reform.
Neoliberalism in Egypt, as
elsewhere, has been facilitated by a harsh
restriction of political
rights. Its results include a parliament
more than 100 of whose
members the courts declared fraudulently
elected, but which
announced itself above the law in such
matters; and in which the
handful of opposition deputies are
increasingly deprived of
opportunities to question the
government.32 Neoliberalism has
consolidated a regime that denies
Egyptians the right to organize
political opposition or hold political
meetings, while forbidding the
few legal opposition parties to hold
public activities. Neoliberalism
has meant a steady remilitarization of
power, especially as control
shifts away from ministries, many of which
are now run by
technocrats, to provincial governors, most
of whom are still
appointed from the upper echelons of the
military. And it includes
the repeated intimidation of human rights
workers and opposition
journalists by closures, court cases and
imprisonment. Meanwhile,
the US refuses every appeal to speak out
in public on these issues,
declaring no concerns beyond the endurance
of the regime and its
neoliberal reforms.
What Egypt most needs is not the emergence
of so-called civil
society (which often means giving the
educated and the well-to-do
the opportunity to organize and speak on
behalf of those they
consider in need of "development"). The
real need is to stop those
in charge, both inside and outside the
regime, from preventing
neighbors, co-workers and communities from
getting together,
addressing problems, deciding and arguing
for what they want,
and exposing the corruption, inanities and
injustices of those who
hold wealth and power. Like land reform,
this is not a new idea; it
simply isn't visible through the narrow
window of the neoliberal
imagination.
Author's Note: The author wishes to thank
David Sims, Max
Rodenbeck, Boutros Wadie', Kris McNeil,
Ethel Brooks and Lila
Abu-Lughod. None is responsible for the
views presented here.
Endnotes
1 Al-Ahram, January 1, 1999, p.40.
2 Al-Wafd, January 12, 1999, pp.1, 3.
3 Economist Intelligence Unit (EIU),
Country Report: Egypt,
Third Quarter 1998, p.10.
4 IMF, "Egyptian Stabilization," p. 5.
5 Ibid., p.4.
6 Mahmoud Mohieldin, "Causes, Measures and
Impact of State
Intervention in the Financial Sector: The
Egyptian Example."
Working Papers of the Economic Research
Forum for the
Arab Countries, Iran and Turkey, No. 9507,
Cairo, 1995, p.
20.
7 Robert Springborg, Mubarak's Egypt:
Fragmentation of the
Political Order (Boulder, CO: Westview
Press, 1989).
8 Mohieldin, "State Intervention," pp.
20-21.
9 Ibid., p. 17.
10 On similar problems faced by the Indian
state in the same
period, and the importance of discipline,
see Prabhat Patnaik and
C.P. Chandrasekhar, "India: Dirigisme,
Structural Adjustment, and
the Radical Alternative," in Globalization
and Progressive
Economic Policy, ed., Dean Baker, Gerald
Epstein, and Robert
Pollin (Cambridge, 1998), pp. 67-91.
11 David Felix, "Asia and the Crisis of
Financial Globalization," in
Baker, et al., Globalization and
Progressive Economic Policy,
Table 1, p.172.
12 The following is based on Yahya
Sadowski, Political
Vegetables: Businessman and Bureaucrat in
the Development
of Egyptian Agriculture (Washington, DC:
Brookings Institution,
1991).
13 United Nations Conference on Trade and
Development,
Trade and Development Report 1988 (New
York and Geneva,
1999), p. 55.
14 IMF, "Egyptian Stabilization, " p.31.
15 Ibid., p 35; Economist Intelligence
Unit, Country Report:
Egypt, 3rd quarter 1998, p.19-20. Other
benefits were
transferred to the banks in 1991,
including a reduction in reserve
requirements (a source of fiscal income)
from 25 percent to 15
percent. Mohieldin, "State Intervention,"
p. 13.
16 Handy, Egypt: Beyond Stabilization,
p.59.
17 Marat Terterov, "Is SOE asset-swapping
privatization?"
Middle East Times: Egypt, August 9, 1998,
from
http://www.metimes.com.
18 Financial Times, January 15, 1999, p.
40.
19 EIU, Country Report: Egypt, 3rd quarter
1998, p.21;
Business Today: Egypt, November 1988, p.
29.
20 Rafy Kourian, "Throwing Good Money
after a Bad Market,"
Middle East Times: Egypt, October 25 1998.
21 Handy, Egypt: Beyond Stabilization,
Table 21, p. 50.
22 IMF, "Egyptian Stabilization," p.12.
23 Cairo Times, December 10, 1998, p. 12.
24 Business Today: Egypt, November 1998,
p. 19.
25 Osman M. Osman, "Development and
Poverty-Reduction
Strategies in Egypt, " Working Papers of
the Economic
Research Forum for the Arab Countries,
Iran and Turkey,
No. 9813. Cairo, 1998, pp. 7-8.
26 IMF, "Egyptian Stabilization," p.50.
27 Al-Ahram, January 1, 1999, supplement,
p.3.
28 The estimate is based on the assumption
that all the missing
expenditure belongs to this group. The
plausibility of the
assumption rests on factors such as the
character of the missing
expenditures and the relative proportion
of incomes that different
groups spend of food. Ulrich Bartsch,
"Interpreting Household
Budget Surveys: Estimates for Poverty and
Income Distribution in
Egypt," Working Papers of the Economic
Research Forum for
the Arab Countries, Iran and Turkey, No.
9714. Cairo, 1997,
pp. 17-19.
29 Lehman B. Fletcher, Egypt's Agriculture
in a Reform Era
(Iowa City: Iowa State University Press,
1996), p.4.
30 For details see Timothy Mitchell, "The
Market's Place," in
Nicholas Hopkins and Kirsten Westergaard,
eds., Directions of
Change in Rural Egypt (American University
in Cairo Press,
1998).
31 EIU, Country Profile, Table 28, p.54.
The World Bank and
USAID have set up programs to provide
loans to the small
businesses and micro-enterprises denied
access to the formal
financial sector. But these programs
ignore the question of
redistributing wealth to create the demand
for such enterprise.
32 Gamal Essam El-Din, "MPs rage over
erosion of parliamentary
power," Al-Ahram Weekly, January 7-13,
1999, p. 3.
--
Mine Aysen Doyran
PhD Student
Department of Political Science
SUNY at Albany
Nelson A. Rockefeller College
135 Western Ave.; Milne 102
Albany, NY 12222
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