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.

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Latest Article on Foreign Policy’s Middle East Channel

Jul 19

In my latest piece on Foreign Policy’s Middle East Channel, I argue that Egyptian progressives’ focus on the “constitution first” is misguided.  Instead, I argue that progressives ought to work for the establishment of an effective and accountable government that can institute the structural changes to the economy that Egypt needs if it truly wants to be a prosperous and independent state.  Comments, of course, are welcome.

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The Low-Hanging Fruit of the Egyptian Economy

Jun 29

It is hardly a secret that the Egyptian economy faces severe structural challenges in the near-term, and that a failure to address these problems could very well doom the prospects for a successful transition to democracy.  The economic legacy of the Mubarak regime is little short of catastrophic, particularly in the collapse of public goods such as education and health.  At the same time, there is a silver lining in the Mubarak regime’s economic incompetence: even a modicum of decent management of the economy has the potential to provide immediate and tangible efficiency gains for the Egyptian economy.  So, the good news is that many of Egypt’s most pressing economic problems do not require complex solutions; rather, they simply need political will to implement the need policy changes.  I call these reforms “low-hanging fruit,” and the extent to which post-revolutionary Egypt shows a willingness to solve these problems will be a definitive signal the likelihood of the revolution’s success.

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Tax Rates in the Developed World and in Egypt

Apr 19

According to the renowned economist Paul Krugman, the US is a “low-tax” jurisdiction, with aggregate tax receipts amounting to slightly more than 30% of US Gross Domestic Product. Unsurprisingly, the Scandanavian social democracies have the highest overall ratio of taxes to GDP, with tax receipts in excess of 50% of GDP.  In Egypt, taxes represent only approximately 15% of GDP.  Any economic reform will require raising the ratio of tax receipts to GDP so that the state has the resources to make the necessary investments in public goods such as health, education and infrastructure.  Hopefully, if Egypt evolves into a democracy with meaningful public participation, its ability to collect taxes efficiently will improve dramatically. Indeed, Greece, which is notorious for its citizens’ non-compliance with tax law, still manages to collect tax revenues approaching 40% of its GDP.  I note that perhaps the Egyptian state’s ratio of taxes to GDP somewhat understates its access to resources given the fact that it still owns substantial productive assets; nevertheless, I suspect that there is a lot of room for rationalization (i.e., expansion) of the tax base in a fashion that would be highly progressive.  I have suggested that a property tax be introduced instead of raising marginal income tax rates because of its relative simplicity.  Presumably, a relatively low property tax rate applied widely enough could raise a substantial amount of revenue, and functionally, act as a clawback for state-owned property that was privatized using less than optimal procedures.  In any case, unless the Egyptian state can improve the efficiency of its tax-collection, raise the overall ratio of taxes to GDP, and invest the additional marginal revenue in public goods, it will be very difficult for Egypt to attract sufficient private capital to generate substantial enough growth to solve the structural unemployment problem.

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Egypt Does Not Need Debt Relief

Apr 04

Some Egyptians are beginning a campaign to urge international creditors to forgive some of Egypt’s indebtedness on the grounds that it was used to benefit the previous ruling elite rather than the Egyptian people.  Debt relief for Egypt in these circumstances, however, would be a bit like giving more crack to an addict.  Certainly, some debts were questionable, but the real problem facing Egypt is structural: an inability to improve long-term domestic efficiency. Steps need to be taken to create a more equitable and efficient taxation system, and to develop and implement a realistic plan for investment in the capacities of the Egyptian people.   If that were achieved, Egypt’s debt position would not be so burdensome. In fact, Egypt is not a particularly over-leveraged country, with its overall debt representing 80.5% of its GDP, but its external debt amounting to only $30.6 billion, which puts it 65th in the world in terms of external indebtedness.  (To put it differently, that means that Egypt’s external debt to GDP ratio is about 15%, so the prospect of Egypt facing an immediate balance of payment crisis is remote.)  Egypt faces a long-term problem arising out of a chronic current account deficit which can only be remedied by increasing the productivity of its population.  This will require substantial long-term investments, however, and I hope that the new government turns its attention to figuring out how this can be accomplished.  Debt-relief at this stage, I fear, would only defer the pressure to make the needed structural reforms.

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Wael Ghonim on Egypt as a High-Tech Center

Feb 15

Wael Ghohim spoke with Bloomberg today and discussed, among other things, Egypt’s potential as another high-tech center that could rival India.  That certainly seems to be a reasonable goal.  But it should not come at the expense of thinking about the structural reforms that would be necessary to bring stability to the substantial portion of Egyptian society that has been exluded from the information economy.  It is obviously important for Egyptians to get back to work, but those Egyptians that are now striking have good reason: their real salaries do not allow them to live a dignified life.  Their demands must be addressed if there is to be a stable social contract going forward.

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