Forecasts & Strategies
By Mark Skousen
Governments are generally reluctant to admit mistakes and to change mistaken policies until much harm has been done. -P.T. Bauer and B.S. Yamey
In Whatever Happened to the Egyptians?, a popular book in Egypt, author Galan Amin raises a good question. Thousands of years ago, Egypt was the birthplace of one of the world’s greatest civilizations, with remarkable advances in architecture, astronomy, mathematics and economics, and the pharaohs ruled the world for centuries.
But today Egypt is a fallen nation. My family and I visited Egypt for the first time last month, and we were appalled. Arriving in Cairo to see the ancient pyramids, we also saw filthy canals, undrinkable water, dire poverty, noisy traffic, teeming millions, incessant vendors and dust everywhere (due to cement factories nearby).
I picked up a copy of a guidebook on what it’s like for a Westerner to live in Cairo. The author, Claire Francy, lists so many shortages that she urges foreign residents to bring the following with them: answering machines, major appliances, computers, modems, printers, telephones, fax machines, cosmetics, flashlights, pantyhose, wines, books in English, clothes and shoes. Yes, shoes. “In a city with nearly as many shoe stores as feet, it is almost impossible to find decent shoes.” Oh, the joys of import substitution laws!
And yet, Egypt has tremendous resources: oil, cotton, some of the best fertile land in the world along the Nile Valley, a first-rate irrigation system, the Suez Canal, and a huge labor force (nearly 70 million and the population is growing rapidly, despite the common practice of female circumcision, which leaves women without sexual feeling but not without children). Yet true unemployment is 20% and underemployment is endemic. Egypt suffers from a huge “brain drain,” with 2.5 million Egyptians working abroad. The nation has illiteracy rates of 66% among women and 37% among men. It imports half of its food. After Israel, this Arab-African nation is the highest recipient of U.S. foreign aid in the world.
What’s the cause of this demise? The culprit is socialist interventionism in the economy. As one economist states, “The Egyptian economy bears the legacy of economic policies dating from the 1950s which were motivated by concern for equity and assistance to the poor. These policies were characterized by price regulation, subsidization of consumer goods, a dominant public sector and state control.” When Gamal Nasser gained power in 1954, he established a “democratic socialist state” and nationalized everything under the sun (including the local beer company) and dramatically increased government control of the economy. Moreover, under a Napoleonic code, Egypt suffers from a regulatory nightmare of paperwork and bureaucracy.
Fortunately, Nasser’s replacement, Anwar Sadat, began a program of reducing the role of government. After his tragic assassination in 1981, his successor, Hosni Mubarak, has accelerated market policies of privatization and foreign investment, and eliminated price and exchange controls. Yet, even today, 36% of the labor force is employed by the government, and the economy continues to suffer from overregulation and controls.
Egypt has made substantial progress since 1990, when the Fraser Institute ranked it #88 in its Economic Freedom report. Today it is ranked #52. But clearly the Egyptian leaders have a long way to go to fulfill the Koran’s promise of “wealth and children” as the “adornments of this present life.”