Sample Political Science Paper: Government and Politics of the Middle East

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Title: Government and Politics of the Middle East

Question 4

Discuss some the key causes and consequences of the adoption of infitah/‘economic liberalization’ policies by Middle Eastern states.

By the early 1970s, the Middle Eastern countries were facing problems relating to failure of state capitalist measures, which were no longer propelling the economies forward, particularly that of Egypt. The open-door policy of infitah emerged as a sweeping program of imposing a neoliberal agenda across the economy (Kamrava 71). The activities of ‘opening up’ the economy involved loosening of all currency controls, creating investment zones that were tax-free, and returning of public sector industries back to private control. At the minimum, these public sector industries had to be subjected to market pressures.

Causes of infitah

One of the main causes of economic liberalization policies of Middle Eastern states was the economic logic of the 1970s and 1980s (Gray 95). During this time, the new discourse was on ‘opening up’, liberalizing, and privatizing the economy. This discourse was motivated by the hegemonic argument that pervaded economic literature at the time, whereby public enterprises were viewed as being less efficient compared to private ones. They were also seen as being overstaffed and overly expensive to maintain. Moreover, a widespread trend was one whereby profitability and efficiency remained at all-time lows.

This state of affairs in the public sector was blamed in delays in decision making, excessive bureaucratic regulation, and lack of expertise. There were also problems with firms being overburdened with a lot of economic tasks, thereby constraining profitability. Additionally, investment choices were skewed by political patronage at the expense of economic considerations.

The notion of Infitah started being regarded as the best alternative to nationalization following widespread claims on the ability by privatization to improve the economic situation in Egypt and other countries of the Middle East. The governments of these countries also acknowledged that efficiency improves when there is competition. The reduced role of states was being viewed as the best approach in managing the economy, particularly considering that during the early 1970s, there were coups and counter-coups as authoritarian rulers tottered in and out of power.

With liberalization, ownership could be shared among a larger number of people. Moreover, this could lead to a reduction in government expenditure. The outcome of intifah, whose meaning is ‘economy opening’ was increased emphasis on the private sector, opening up of the economy to international markets, reform of decision-making in the public sector, and greater level of reliance on market forces. The consequences were evident both in the conservative, oil-producing states of the Arabian Peninsula as well as the ‘socialist’ states such as Iraq and Algeria.

In Egypt, where the idea of infitah was hatched, people have tried to evaluate its effectiveness after several decades of experimentation with liberalization. However some scholars, such as Waterbury, argue that it is too late to carry out an evaluation (65). Nevertheless, Egypt appears to have made very decisive steps ahead economically, and it is among the most economically-stable economies in the Middle East. One of the most outstanding consequences of infitah in Egypt today is increase and continuity in savings and wealth accumulation among the citizens. With liberalizations, the economies of the Middle East have been unable to extract surplus from its citizens through the use of the previously popular public ideologies and policies. These policies tended to promote forced savings as well as deferring consumption gains so as to save for future generations. In such an environment, the policies would create a scenario where the entire society was in a state of militant austerity (Waterbury 65).

Liberalization also reoriented the economies of the Middle East, placing them on the path of increased partnerships with the West. Private initiatives started being more appreciated than public initiatives, and this led to an increase in the number of export-oriented industries operating in the Middle East. This move hastened the countries’ move towards reintegration with the most developed market economies in the world. In the case of Egypt, the country was able to redress the problem of staggering food deficits, which had made the country economically dependent on other countries of the world.

However, as observed by Ates, some critics argue that the gradualist approach to economic opening that was taken by both the governments of both Sadat and Mubarak has made the level of liberalization in the Egypt to be limited (15). This criticism has inspired the coinage of the term ‘reluctant liberalization’. For Sadat, most of the enthusiasm was on ensuring that Egypt became the commercial and financial center of the Middle East. This influenced his government into introducing policies that encouraged commercial activities, especially importation of advanced technology as well as stimulation of exportation. The government even introduced the Foreign Investment Law, whose aim was to stimulate foreign capital inflows, especially from the neighboring oil-rich countries in the Arab world. The Arabs were encouraged to come to Egypt and spend their money on housing, social amenities, and luxury establishments. The core argument was based on the underlying assumption that the most prudent thing was to let the market forces, which were already operational, to be allowed to function in a proper manner.

During the 1980s, the US started becoming frustrated by the fact that its financial assistance to Egypt was going into waste in Egypt because of the country’s inefficient economy. The country started putting pressure on Egypt to venture into liberalization efforts. Moreover, the US administration noted that its policy of providing Egypt with foreign aid was turning out to be ineffective. This was the main motivation behind the country’s decision to start focusing on trade as opposed to aid after the Persian Gulf War of 1990-1991. This shift was facilitated through a strategic change in economic relationship whose aim was to lessen the dependence on aid by Egypt. In this policy, Egypt was required to completely liberalize her economy. The new rationale for the relationship between the US and Egypt was focus on trade instead of aid. The two governments created the President’s Council in 1994. This council became the cornerstone of US pursuit of liberalization policies in Egypt.

It should be borne in mind that for a long time, Egypt has been a leading political and military power in the Middle East region for a long time. For instance, the country led the Arab front in the war against Israel. Moreover, the incorporation of the country into the American domain was perceived as very essential for peace in the Middle East. With Egypt being on the side of the Americans, the Soviet Union lost a significant source of influence in the Middle East. After these events took place, it was now apparent that it was worthwhile for the US to pursue investments in both Egypt and Israel. This economic engagement of the US contributed greatly to the introduction of liberalization policies. Moreover, the politically motivated economic assistance given to Egypt by the US was meant to pacify the former, so as to remove the likelihood of future Arab-Israeli wars.

One of the core reasons why the US introduced foreign aid into Egypt is to influence the country’s policy towards an era of liberalization (Heydemann 83). Some of the economic policies that the US sought in Egypt included reduction of government expenditures, fiscal discipline, increase of tax revenues, liberalization of interest and exchange rates, and trade, promotion of foreign direct investment, deregulation of the public sector, and establishing safeguards on property rights. However, by the mid-1980s, the US government had realized its aid program was effectively driving forward all of these economic reforms. The problems were caused in part by Egypt’s decision to pressure the United States Agency for International Development (USAID) into implementing economic projects that were not of any significant economic importance. The Egyptian government started implementing projects just because they were visible to the people, thereby expressing some form of skepticism to foreign aid (Beinin 118).

As the infitah approach was being introduced in Egypt, President Sadat was in such a position that he had to consolidate his weak position as his country continued to accumulate international debts. The new policy was a way of responding to a severe economic crisis that he had inherited from the late Nasser. Moreover, many people in the country had started expressing opposition to the repressive economic policies that had characterized Nasser’s regime. However, there were still many similarities between the policies of Nasser and those of Sadat. In both cases, the administrative control over legal systems was made friendlier to business owners. Moreover, private property was being respected more readily. Additionally, public criticism was being tolerated more readily.

The policies were designed in such a way that they were appealing to the supporters of Nasser regime, particularly after the country was defeated in war in 1967 (Kienle 225). The following year, ‘open debates’ became a popular phenomenon. In these open debates, issues of economic liberalization, sovereignty of the law, and personal liberty were being freely discussed.

In order to understand the circumstances under which the policy of infitah was introduced in Egypt, it is important to note the circumstances under which these changes occurred. First, the policymaking process in Egypt at this time was characterized by gradualism, incremental change, and a procedural approach. Although many people argue that the formalization of the policy occurred in 1974, it is inherent upon critical analysis of economic policies of the previous four years that there were many decisions that charted the way for the open-door policy to be finally formalized. The gradual approach was an inherent feature of the ruling elite in Egypt. This approach was characterized by pragmatism and reluctance to follow any clearly-defined doctrines.

Moreover, the economic circumstances were in such a way that there was a need for continuity in line with the principles that had led to the revolution of 1952. In this regard, there was a tendency to change the practical approaches without changing the underlying principles. Moreover, there was a tendency to make changes in different ways depending on the prevailing circumstances. The president emphasized that the open door economic policy was aimed at strengthening the public sector and that the government was not going to allow any foreigners to infiltrate the strategic sectors of the Egyptian economy. However, in less than two years, the restrictions that had been placed on strategic sectors of the economy had been removed completely. This easing of restrictions appears to have been caused largely by disagreements among elite members of the government on the goals of the open-door policy. Moreover, there were frequent quarrels between ministries regarding the implications of the open-door policy.

Consequences of infitah

From the beginning, the Egyptian government was in a dilemma of being indebted while at the same time trying to shun the influence of the US. The infitah strategy was being implemented at a time when many countries of the Arab world were taking a precautionary approach to their traditional socialist approaches. This was because of the revolutions that were taking place frequently. In these revolutions, the powers of respective states were being curtailed in order to give the private sector an opportunity to thrive (Hinnebusch 129).

The infitah approach created a situation where the authoritarian tradition of governance in Egypt continued to lose popular support (Posusney 39). Yet the dilemma aspect continued being a reality. For instance, during the early 1980s, Egypt was one of the most economically dependent countries in the world. The country was relying too much on US aid for sustenance. This created the impression that the open-door policy was failing. Moreover, many people failed to understand how an overhaul of the economy was going to be undertaken in such a drastic manner without first changing the underlying economic principles. The main question that was triggered by the new policy was on whether the Mubarak government was going to manage to sustain a delicate balance between the new private sector and the old public sector, particularly with regard to the banking sector.  

The open-door policy also opened up new realities of Egyptian politics and history, whereby the government was held captive to old norms. The new policy reawakened old memories of revolutions, and for this reason, President Mubarak was not willing to risk too much by being too radical. In this regard, the economic policy played a big role in re-defining the relations between the Egyptian government and US government with regard to matters of economic assistance.

On a positive note, economic liberalization led to an increase between Egypt and foreign private companies. Although many of these business people, especially those from Europe were cautious at first, they soon began entrusting their money to the Egyptian political atmosphere, especially during the late 1980s. The cautious approach was easily identifiable because from the face of it, Egypt appeared like an ideal destination for foreign investment. The country had a large population that translated in the largest potential market across the Middle East. Moreover, the market was continuing to increase at a rate of more than one million people annually. With such a crucial factor being catered for, the other main factors to be considered included availability of skilled labor and political stability. There was no problem with these two factors either. The main problem arose because of the government’s unwillingness to pursue the infitah approach aggressively. This created the impression that the Sadat government was not fully dedicated to the liberalization of the economy.

The issue of the economy was deeply intertwined with the whole political issue of Egypt’s relations with Israel. This was a reality as long as the US continued to attempt to influence the balance of power between these countries. Indeed, the fear of a recurrence of the Egypt-Israel crisis was a major factor that influenced the success of the liberalization program, particularly in areas where European countries were involved. However, when Sadat was reelected for a period of another 6 years in 1976, many people gained confidence in the liberalization policy of the government. This is because of the impression that was created to the effect that the infitah policy had already been institutionalized. Indeed, many people got used to the idea that the socialist ways of the Nasser’s regime had now been replaced with a new approach founded on liberalization of the economy.

On the overall, Infitah appears to have been an impressive strategy for Egypt, particularly if measured by the country’s main gross indices. For instance, as Ayubi notes, after 1977, average annual GDP rose by more than 8% compared to 3% in 1973 (38). Moreover, between 1975 and 1979, there was a reduction in the deficit of goods and services. Also, by 1980, the country was benefiting significantly through oil exports, and Suez Canal fees were increasing at an alarming rate. There were also drastic improvements with regard to incomes arising from remittances, agricultural exports, and tourism. There was also an increase in domestic public and private investment. The same positive indices were recorded with regard to foreign private investment, although it fell below expectations by 1980. By this time, Egypt was also recording significant success in terms of efforts to service its debts, mainly because of increase in foreign exchange earnings and a rise in the level of foreign economic assistance.

Apart from these apparent gains, Egypt also benefited through gaining economic exposure. The country’s economy got integrated into the global market. The negative side of this situation, though, is that changes in prices on the global level started having direct repercussions on the domestic economy. As a result of this turn of events, Egypt’s main sources of foreign exchange started being intimately tied to the economic conditions that prevailed in foreign countries. The main sources of influence came from industrialized countries and countries of the Middle East.

Another negative consequence of infitah policies was that it failed to bring about an overhaul of marketing, management, prices, investment, and employment in the entire Egyptian industry. Public sector enterprises, which still accounted for more than 75% of the country’s output, were not prepared to operate in a liberalizing economy. For instance, these enterprises continued being burdened by high employment levels, price controls, unsatisfactory investment budgets, and unrealistic wage structures.

Conclusion

In conclusion, the infitah policy had many positive as well as negative impacts. The liberalization approach led to the integration of the Egyptian economy at the global level. It also helped the country move away from socialist approaches and embrace private-sector management principles that focused on efficiency. On the negative side, the open-door policy exposed Egypt to risks relating to global economic integration, such that price changes at the global level were causing far-reaching repercussions on the domestic economy.

 

Works Cited

Ates, Hamza. “A Story of Infitah: Egyptian Liberalisation under Stress”, Yapi Kredi Economic Review, 17.1 (2006): 1-29.

Ayubi, Nazih. The State and Public Policies in Egypt since Sadat, Exeter: Penguin Books, 1990.

Beinin, Joel. “Political Islam and the New Global Economy: The Political Economy of an Egyptian Social Movement,” The New Centennial Review, 5.1 (2005): 111-139.

Gray, Matthew. “Economic reform, privatization and tourism in Egypt”, Middle Eastern Studies, 34.2 (1998): 91-112

Heydemann, Steven. Networks of Privilege in the Middle East: the Politics of Economic Reform Revisited, London: Palgrave Macmillan, 2004.

Hinnebusch, Raymond. “The Politics of Economic Liberalization:  comparing Egypt and Syria,” in Hakimian, H. and Moshaver, Z., (Eds.) The State and Global Change, London: Blackwell Publishing, 2000, pp 111-134.

Kamrava, Mehran. “Non-democratic states and political liberalisation in the Middle East: A structural analysis”, Third World Quarterly, 19.1, (1998): 63-85

Kienle, Eberhard. “More than a response to Islamism: the political de-liberalization of Egypt in the 1990s”, Middle East Journal, 52.7 (1998): 219-235. 

Posusney, Marsha. Labor and the State in Egypt: Workers, Unions and Economic Restructuring, New York: Palgrave, 1997.

Waterbury, John. “The “Soft State” and the Open Door: Egypt’s Experience with Economic Liberalization, 1974-1984”, Comparative Politics, 18.1 (1985): 65-83.

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