Samer Soliman’s “Autumn of Dictatorship”

Aug 07

Over the past ten days, I read the highly informative work of the late Samer Soliman, “Autumn of Dictatorship.”  The book provides a detailed analysis of the political economy of the Mubarak regime and its various crises as it attempted to deal with the systematic decline of rents available to the Egyptian state. During that time, I tweeted various crucial points from the book. I thought it would be useful to put them all together in one blog post.

Just purchased my first e-book — Samer Soliman’s “Autumn of Dictatorship: Fiscal Crisis and Political Change Under Mubarak (http://www.sup.org/book.cgi?id=16317). Reading the introduction makes clear the massive challenges ahead of Egypt if we Egyptians are really serious about having a modern state. By the time of #Jan25, the fiscal infrastructure of the state had completely atrophied. That much seems pretty obvious. What I did not know was that even in the 1960s the Egyptian state had been virtually completely dependent on foreign aid to generate growth, Egypt being the number one recipient of Soviet aid during that period. After we switched sides in the Cold War, of course, we became the number 2 recipient of US foreign aid. We have received $20 billion of foreign assistance since Mubarak’s resignation. Despite this massive amount of foreign aid, or perhaps because of it, Egypt has been unable for the last sixty years to generate sufficient economic surplus to finance its own domestic development. This is the most basic question facing Egyptians, and unless it is solved, I mean, chronic under-development, we will never overcome the police state.

Samer Soliman — “By the end of [the 80s], the Egyptian regime had become an international mendicant, so desperate was its funding from any source. . . . When the Egyptian government stopped paying its debts, it was palpably evident that Egypt was on the verge of bankruptcy again. A July 17, 1990 Reuters report quoted an Egyptian economic expert as saying ‘For twenty years we’ve been saying that Egypt is on the verge of bankruptcy, but some miracle would always intervene to save the economy. This time I see no way out of the crisis.’ But, . . . heaven stepped in again. Within less than two weeks after he issued the prognosis, Iraqi tanks rumbled into Kuwait. Soon, Washington began to assemble an international coalition to free Kuwait. The war effort would depend heavily on the two most important regional powers — Egypt and Syria — and Washington would have to pay generously for their cooperation. The miracle was at hand.” I suggest that the military views liquidating the MB for the benefit of the Gulf countries as analogous to the financial miracle that presented itself to Mubarak in 1990 when Iraq invaded Kuwait.

Another irony Samer Soliman uncovers: it was precisely at those moments when the Egyptian state was implementing fiscal reforms that it received windfall rents — whether in the form of increase oil prices or foreign aid — that allowed it to increase public spending well-above targeted levels, thus undermining the very polices of fiscal reform the regime was supposedly pursuing.

Samer Soliman argues — and this seems very plausible to me — that it is not the poor in Egypt who have resisted subsidy reform, for they are too disorganized to put up much resistance; rather, it is civil servants and prospective civil servants in the form of university students that do. Indeed, the landmark bread riots of 1977 were spearheaded according to him by those two groups, and not the poor who were the most dependent on bread subsidies.

The Mubarak regime managed to decrease overall subsidy spending by ensuring that civil servants were protected from rising prices by increasing their salaries. Thus, the share of the budget that went to paying government salaries increased from 17% in 1982-83 to 23.4% in 2000-2001. Over roughly the same period, spending on the police, particularly, the Central Security Force (al-amn al-markazy) increased from 3.5% of GDP to 4.5% of GDP in nominal terms. This increase does not take into account the fact that the vast majority of the CSF’s personnel are themselves draftees, and effectively provide free labor to the state. So, there was the combination of the carrot and the stick: increased salaries for government bureaucrats, and a more powerful stick for those who would otherwise dissent.

Soliman cites Mubarak’s approach to the Egyptian educational crisis in the early 1990s as symptomatic of the way in which the Mubarak regime tried to solve problems: Egyptians across the entire political spectrum were in agreement that the educational system was in a deep crisis, manifested most clearly in the system of private lessons which had made a mockery of the normative commitment to free public education. There were two possible solutions: increased public funding to education — specifically, raising salaries of public school teachers so that they did not need to give private lessons to survive — or abandon the commitment to free universal education, and limit it to free universal primary education with a commitment to public financing of gifted but needy students. The regime would do neither, however: it thus retained the formal commitment to free universal education but because it could not devote adequate financial resources to fund such a system, the quality of the education provided was so dismal that “whole generations would emerge from the system semiliterate.” One of the reasons the regime was incapable of providing even a modicum of a solution to this problem was institutional: the regime approached this problem from a security perspective rather than a political one, and thus there was “no opportunity for representatives of diverse interests to sit around the table, express their needs and concerns, and hammer out broadly acceptable solutions.” This, by the way, is precisely why an elected parliament is so crucial, and why the failure to have an elected parliament in place almost certainly doomed this transition. I would not bet that #Sisi will do any better in this regard than #Mubarak.

Soliman also confirms something that, as a matter of intuition, seemed to have to be true: the highest-paid civil servants are those in security (military, police and the judiciary), those that help the state secure necessary rents, whether in terms of foreign assistance (foreign affairs), or operating revenues (Suez Canal authority) and the General Petroleum Authority, and the Central Accounting Agency (all states must be able to track expenditures). Anecdotally, I was just discussing the salaries of judges with a friend of mine who is a youngish Egyptian judge, and it struck me how much more they earned than physicians. It seems my family made the wrong career decision until we migrated to North America :).

I’m resuming my reading of “Autumn of Dictatorship”. Now on Chapter 4, “From the Rentier to the Predator State,” which recounts the Mubarak regime’s attempts to raise revenues from the Egyptian people to make up for its declining ability to generate rents. Its ability to do so, however, was limited by its lack of legitimacy and the absence of representative institutions.

Samer Soliman finally identifies something that Egypt really is great in: the inflation tax. In 1987, the Egyptian government managed to extract 11.7% of GDP in the form of an inflation tax through aggressive money printing, more than any other developed country that year. By way of comparison, in that same year, Nigeria extracted a partly 0.9%. How does it feel to be number 1? More seriously, money printing is an easy way for a regime to raise revenues because it is politically invisible and popular anger is usually directed against merchants who raise prices, but it wreaks massive destruction on the economy by undermining the ability of the productive sector to make rational investments in the future.

Because the ability of the Egyptian state to access foreign loans basically collapsed in the 1990s, it was forced to turn to domestic sources of credit to finance its spending. Initially, it did this primarily by forcing state owned insurance and pension plans to lend large sums of money from their plans to the state at real negative rates of interest. This eventually produced such a large deficit in the plans themselves that the government was forced to backtrack in the first half of the 2000s. Nevertheless, pension plans still suffered because the executive used them as slush funds to try to win popularity by extending benefits to persons who never paid into the funds to begin with, the result being that the money of already poor pensioners was being given to perhaps even poorer Egyptians who had never been part of the formal work sector and thus had no pension.

The state introduced a general sales tax (VAT) in 1992, first on manufacturers and importers, and seven (!) years later on retailers. It took substantial time to implement the tax on retailers because of the state’s lack of capacity and the almost absolute refusal of retailers to cooperate with collecting this tax. Interestingly, the retailers’ principal objection was that by collecting sales taxes, the state would now have the ability to monitor more accurately their actual incomes and as a result potentially reduce the high rate of income tax evasion. Accordingly, the head of the sales tax division had to make commitments that his agency would not share the sales tax data obtained from retailers with the income taxing authorities! In any case by 2008, almost one-quarter of the government’s revenue came from this tax, despite the fact that it is highly regressive.

In 2002, according to Soliman, Egypt collected a whopping 2 million pounds in real estate taxes, or 0.003% of its total tax revenues. One would think that real estate taxes would be a relatively easy (and progressive) means of taxation given that it is one of the few places where Egyptians actually invest their money. Money that is not taxed as income could be taxed when it is converted into buildings and used to purchase real property.

Back to Samer Soliman’s “Autumn of Dictatorship”. One of his most trenchant observations regards the role of Egyptian courts in the last half of the Mubarak era. As he puts it, courts were the only agency in Mubarak-era Egypt capable of resisting the predatory encroachments of the Mubarak regime. But that did not come without a cost: not only did courts become filled with all sorts of political suits with little legal merit, the role of courts served a broader agenda of the Mubarak regime, the depoliticization of society. “Instead of expressing their opposition in political forums and modes of expression, people take their battle to the courts.”

Soliman’s observations on the 2000 and 2005 parliamentary elections also deserve attention because they effectively presaged many of the post-Mubarak problems. After the Supreme Constitutional Court ordered judges to supervise parliamentary elections, the ability of the NDP to commit outright fraud declined substantially. As a result, money became the most important determinant of political success. This was evidenced, negatively, by the collapse in support for the NDP and other Egyptian political parties, and the rise of wealth businessmen and the MB, as basically the only forces with the resources to compete in relatively fair elections. One thing that is not clear, however, is why businessmen would spend large sums of money to win election to an institution — parliament — that had very little power or influence.

Back to Soliman’s “Autumn of Dictatorship”: the Mubarak regime’s relationship with Egyptian capitalists was complex: it needed their support to help plug the fiscal gap, but it also sought to control them. The principal tool for doing so was access to credit, and for that reason, the Mubarak regime was extremely reluctant to privatize the banking sector. The Mubarak regime used access to credit to reward loyal businessmen and punish disloyal ones, the result being a banking crisis as credit was extended not based on financial analysis of the proposed use of the funds, but whether the borrower would be able to perform some politically valuable service for the regime.

The other important point Soliman makes about Egyptian capitalists in the waning days of the Mubarak regime was that they many of them were offspring of highly-placed state bureaucrats or other well-placed political figures, and not just the Mubarak sons. As he puts it “The Egyptian bureaucracy produced tycoons and bankers. They turned their monopoly over political resources (power, connection, influence) into economic resources (loans, commercial deals, and capital).”

With the decline of the Egyptian rentier state, the middle class became more heterogeneous. Those with skills allowing them to compete in the rising market-oriented economy did well for themselves: “the well-to-do middle class . . . no longer uses or needs to use services provided by the state.” The lower middle class, particularly those employed by the government, get by largely through petty corruption — bribes, bakhshish, kickbacks and the like. Soliman predicts they will resist fiercely any anti-corruption campaign.

When you hear complaints about “akhwanat al-dawla (“Brotherhoodization of the State”),” bear in mind that there are deep-rooted and structural conflicts between the Islamists and government bureaucracies rooted in Egypt’s political economy. Soliman points out that Islamists had the greatest influence in those areas of the economy that were least dependent on the state: lawyers, doctors and engineers and others who were self-employed. They were most resisted by those sectors of the economy that were closely related to the state, such as teachers, journalists and workers. And while he does not mention capitalists, I’m sure the same observation could have been made regarding capitalists that were close to the regime and those that were not. It doesn’t take a genius to imagine that Islamists in power might not be very sympathetic to those entrenched interests, nor that those beneficiaries of state power would be very sympathetic or cooperative with the Islamists, something that has absolutely nothing to do with religious politics.

Back to Samer Soliman and “The Autumn of Dictatorship.” There’s not much to add, since I am now reading the conclusion, but this is a wonderful couple of sentences that I thought I should share: “A large chunk of [Egypt’s] revenues comes from rentier income, that ‘gift from the heavens,’ as Alfred Marshall put it, so the regime in Egypt is strongly inclined to look heavenward in the hope that it will rain gold. Petroleum and Suez Canal revenues are heavily influenced by external factors over which the regime has little control. The revenue that it can most influence comes from foreign aid, which is why soliciting foreign aid is one of the Egyptian regime’s major activities. . . . Aid-related revenues are why Egypt’s image abroad is one of the foremost obsessions in Egyptian foreign policy and why the regime can tolerate opponents apart from those it sees as jeopardizing the influx of foreign aid.” Given Egypt’s dependence on aid from the Gulf, which is much more important than US aid, it is extremely unlikely that the current government is in any position to compromise with the #MB.

Soliman tells us that the Mubarak regime adopted three strategies to cope with declining rents: first, it cut explicit funding of the military, but gave the military the right to go into business for itself; second, it cut subsidies and invested the savings in the state’s security and propaganda apparatus; and, three, it increased the compensation available to senior bureaucrats, both by increasing their official salaries and turning a blind eye to corruption, whether in the form of kickbacks or outright bribes.

Samer Soliman made some important observations about Egyptian society and its relationship to the Egyptian state and regime on the eve of #Jan25: first, that because of the crisis precipitated by declining rents, the ability of the regime to maintain the clientalism that legitimated it and sustained it was collapsing; the declining rents, and the turn toward increasing taxation of the populace was creating a new political dynamic which promised to turn politics away from identity-based politics and toward class-based politics; and, finally, the state had been in the process of disintegrating, or fragmenting, as the Mubarark regime found it politically less-costly to give increasing autonomy to various branches of the state, e.g., the military and local governments, than it was to engage in institutional reform. So, one way the regime navigated the fiscal crisis was to eviscerate the state’s institutions. In light of the coup against the #MB, I think it is especially important to pause regarding his observation about the move away from identitarian politics, particularly Islamism, and toward class-based politics. If this is true (and I believe it is), the coup was particularly tragic because it may have put a stop to this trend, and simply reinforced the Mubarak-era ideological divisions which allowed so much rot to take place in Egyptian public life.

The last point from Samer Soliman’s book which I would like to share is his observation that contrary to popular belief, the Mubarak regime was not a case of a strong state confronting a weak civil society; instead, it was a case of a weak state confronting a weak civil society. That is why democratization is insufficient to cure Egypt’s ills; what is required is democratization combined with building a strong state. (That, b is consistent with what I have said earlier about Egyptian being in a Hobbesian moment and not a Rawlsian one.) He also argues that in Egypt’s case, authoritarianism did not strengthen the state; it debilitated it.

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