A developmental study of two Arab countries, both historically abundant in political and economic turmoil and major upheavals in economic development strategies - Egypt and Turkey.

Endemic Violence organized by the right wing Islamist National Action Party and guerrilla launched by Kurdish separatists scared away investors and allies. Turkey became unable to borrow money except from private institutions in the short term and at inflated interest rates. During the same time period U.S government was reducing aid to its foreign allies, private borrowing became the only answer. The Turkish external dept increased from $ 3.25 until $16.25 billion. 

In the same time period, in Egypt Nasser introducing ISI policies and faced similar problems as Turkey. Socialism in Egypt was strengthened with Soviet economic aid from 1957 and the ‘Socialist Decrees’ of 1961, by which the Egyptian state took over most large scale industry, all banking, insurance, and foreign trade, all utilities, marine transport, and airlines and many hotels and department stores. In the core of this socialist developmentalism was the high dam at Aswan, part of a five year plan launched in 1957. This five-year plan embodied a straightforward ISI strategy, as in Turkey in the 1960s, combining aspects of easy (sugar, textiles, automobile assembly, fertilizers) phases and hard (heavy industry, engineering, steel, chemicals and fertilizers) phases. It generated one million new jobs and growth rates of 6 per cent per annum.

Nasserite program involved land reform that through the building of the damn increased the cultivable area and broke the properties of Egypt’s wealthy agrarian proprietors. The government limited land ownership, cut peasant mortages, extended the time of payment for redistributed land, while at the same time encouraging co-operatives and promising irrigation and access to fertilizers and pesticides. The effects of those reforms were significant: average life expectancy rose as changes in income distribution and public health and education spread. The state sector expanded. With the bureaucracy growing from 350000 employees in 1952 to 1.2 million in 1970. (Exporting bureaucrats to Damascus was a thus a solution to problem of oversupply in Cairo.) Within another decade the bureaucracy would almost double.

Nasser’s influence on Egypt’s social and economic development was significant. In 1952 the Egyptian economy was primarily agricultural, relying mainly on the export of raw cotton. Industry was in infancy.  While agriculture produced 40 per cent of GDP, industry contributed only 15 per cent.  By 1970, after implementation of the ISI policies, the contribution of industry had risen by 23 per cent.  However, others disagree with this optimism, for example John Waterbury points out that at Nasserite Egypt “The economy was stagnant, the bureaucracy expanding, and vested public sector interests had control over resources and the flow of communications.” Moreover, what slowed development as well was the Israeli attack on June 5, 1967 Egyptian air force was destroyed, several thousand Egyptian soldiers sent to Sinai were killed and finally Egypt lost its oil rich Sinai territory. To reconstruct the military Nasser had to devote even larger share of national budget to arms and tighten his connections with the Soviet Union. Moreover, war caused fall of tourism. Egypt entered a period of deep depression. Another problem was that population had grown from 20 million to 35 million during Nasser- and would reach 50 million by 1986.

Following the period ISI policies, to rescue economies with loans from IMF, the Structural Adjustment economic stabilization plan was introduced in both Egypt and Turkey. In return for the loan, as elsewhere, currencies were to be devalued, exchange rates made flexible, state dismantled, and ultimately, the national market neglected in favour of export promotion. The head of the ruling Motherland Party president of Turkey’s State Planning Commission Turgut Ozal, having worked with World Bank, introduced the programme of economic restructuring designed by the World Bank. This resulted in an export success (from 2.3$ billion in 1979 to 13.6 billion in 1991), GDP growth, but was closely tied to lowering of wages by almost 50 per cent and suspension of bargaining rights. These came with destruction of trade unions and the rise of unemployment. Raising public deficits increased inflation. More loans were needed (external debt increased from 25.5$ billion in 1985 to $49 billion in 1990).  If discounting the growing debt, the social cost and lack of democracy and human rights, strictly economic gains were remarkable.   Rich got richer but even part of the middle class got poorer.Now, more of Turkey’s products began to find markets in other Middle Eastern states, while economic ties with EEC decreased.  Greater economic integration with the region was accompanied by increased political involvement, and the ruling party began attempting to reconcile Islamist values with the Western practices.

Negative effects of liberalization were intensified by its autocratic, violent, and military implementation. The military junta that took power on 12 September dissolved the Parliament, exiled or arrested the party leaders and forbade all civilian political activity.  Economic performance later on, in 1991 was influenced by three major events: the Gulf war, the mid-year change in Government and the October parliamentary elections. These events increased uncertainty, depressed economic activity and created instability in the foreign exchange and financial markets.  Up to now Turkey has failed to achieve a stable multiparty system, and chronically suffers from a series of coalition governments whose component interests are so diverse that no coherent economic policy can be implemented in a sustainable way. The capacity of ruling groups to impose their conception of national interest on everyone else has been weak. In Turkey, as in most developing countries, class consciousness has for a long time been amorphous and therefore class alignments have been fluid. Governments have possessed substantial decision-making autonomy, but have lacked the effective power to implement them. This imbalance is one of the key elements of Turkey's political economy. As a result of the instability of political coalitions, the time horizon of policy decisions has become increasingly short. This, in turn, amplifies the instability, deepens the crisis and prepares the field for new attempts of radical solutions, such as military takeovers or fundamentalist reactions. Moreover, the Kurdish question, antagonistic relations with Greece and Syria remain unstable and costly.

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Similarly, in Egypt, Nasser’s immediate successor was Anwar Sadat who turned west and propagated as Turgut Ozal in Turkey opening up policies  (1918-1981). Some, like Mike Mason argue that for gaining support for his policies and credibility and not to stand in the shadow of his great predecessor he proposed an attack on the Israeli forces that had occupied the eastern bank of the Suez Canal –‘Yom Kippur War’, which ended in massive losses to Egypt, Syria and Israel. The Israeli rearmed by US recaptured the Golan Heights. The war had unexpected global economic consequences. The Arab members of the Organization of Petroleum Exporting countries announced they would turn off their oil taps at 5% per month until the Israelis withdrew from occupied Arab territories. By September 1975 the combatants had disengaged and the US government had pledged huge sums of economic and military aid to both Israel and Egypt. Sadat emerged from the war with enhanced credibility; he proceeded to lay before his people a new blueprint for economic development –Al-infitah  (opening up policy)

The key to the new policy was liberalization and privatization, which required the dismantling of the Nasserite system of economic development.  The country had to open to foreign and domestic sources of investment.  However, in Egypt the public sector continued to grow throughout the 1970s and 1980s. In the end of 1986 the figure rose to 10 per cent and 35 per cent of the labour force. In fact the private sector was not able to create jobs, promote exports or increase investment. Namely, investors chose low –risk investments like tourist related ventures such as luxury hotels not uncertain performance of Egypt industry. Moreover due to war following arm purchases from the Soviet Union the foreign debt reached very high level, which was restraining development. A successful aspect of Sadad’s economic policy that he pulled the petrodorals into Egypt, which reached very high levels due to OPEC oil embargo. As a result investment significantly increased and economic growth accelerated rapidly. Per capita GDP rates rose to 8-9 per cent per year.

Sadat reversed the agricultural tenancy laws that gave the peasants secure tenancy at fixed rates; this however caused insecurity and impoverishment. The poorest of the peasants fled into the cities, urban areas expanded and were chocked with homeless and jobless, as wage labour was still scarce. At the same time inflation rose rapidly. Then, in January 1977 when the government agreed on IMF’s pressure to reduce food subsidies, widespread riots swept the city and the army had to use force. This internal socio-economic instability together with external factors such as defeats by Israel in 1967 and 1973 worked to stimulate the rise of Islamic reformism, which had been dormant until the end of 1960s.  Impoverished, people inversely affected by liberated working of the market, both students and unemployed, as in Turkey, joined the Islamist rebellion.  It even worsened when at the end of 1977 Sadat hoping to attract foreign investment and foreign aid, after 30 years of hostility attempted to negotiate peace with Israel and signed a peace treaty in 1979. Although Egypt regained the territory in Sinai, it was expelled from the Arab League and was now isolated. Sadad’s dependence on US aid, 2 billion a year, brought more resistance both on neo-Nasserite and Islamist side. Ultimately, a member of Muslim reformist organization assassinated him on October 6 1981.

Muhammad Hosni Mubarak succeeded Sadad. As in Turkey, under his rule the army has expanded in influence, economic sector was under its control. Moreover, from the mid 1980s per capita income began to decline, discontent and resistance was increasing. The army had to move into dealing with domestic security and fight Islamic reformists, the chief force of opposition to the Mubarak’s regime. Sadat’s and Mubarak’s liberalising policies as did Nasser’s had brought some benefits to many Egyptians. From the outset of the oil boom in 1974 the GDP was raising steadily, namely 3% per annum in 1970 to 5% in 1996 in Egypt.  The wealthy minority was becoming wealthier while the poorer worsened their economic stand. This was especially obvious in Cairo where grandiose luxury contrasted with grinding poverty.  Moreover, investment as a proportion of GDP while at 17 % was lower than average for all developing countries (26 per cent). 

The infitah liberalizing policies of Mubarak caused a come back of the bourgeoisie, suppressed previously under Nasser’s socialism. They were pressuring for privatization of public sector companies.  Therefore, they were allied with aid donors and International Monetary fund. The total aid and loans from all countries had reached nearly the $50 million mark in 1991. Following the Gulf War in 1991 a massive infusion of US aid entered Egypt.  This aid together with fiscal reform reduced the foreign debt, budget deficit and decreased inflation. However, in the years after Gulf War per capita GDP fell from $680 in 1986 to less than $600 by 1993. Egypt still has difficulty in recovering from the terrorist atrocity in Luxor, in fact a significant risk of Egyptian economy is vulnerability of its major sector- tourism to terrorism.

Although from 1970’s Egypt and Turkey tried to move away from highly centrally planned and controlled economy towards one based on market principles. Since the 70s GDP increased significantly. If looking at some other factors of development -life expectancy at birth between 1980 and 1990 increased significantly in both Egypt and Turkey. Daily newspapers increased. Illiteracy significantly decreased, so did infant mortality (look footnotes data from the UN statistical yearbook )

However, In both Turkey and Egypt after initial significant growth 5.4% in Egypt and 5.3% in Turkey in the 80s, dropped to 4.6 in 90s in Egypt and 3.8% in Turkey. Modernizers would argue, this is because, public sector remained large, currency uncompetitive because still overvalued. The amount of savings is insufficient to the amount of investment needed for sustained growth. State never really became disembodied from the economy. This was particularly evident with the military rule involved in economic sector in both countries. In the entire SAP period, there were still many distortions in prices of food and energy and other limitations on the operating of private sector and the market mechanism. Even presently Egypt faces WTO critique for banning imports of ready-made clothes.

Moreover, according to modernization theory development in Turkey and Egypt didn’t achieve the expected results due to not changed societal values.  For example, Abdel-Fadil claims that transformations in the socio-economic structure achieved during Nasser were not accompanied by shift in superstructures of Egyptian society, like the sphere of values, ideology, ways of life and thought. He argues that Egypt was marked by an increasingly obvious disjunction between the new political and economic realities at the national level and the survival of ‘feudal’ values and ‘traditional’ modes of thought at many levels of cultural, ideological and social life.  

Then, in common to other Third World countries, industrialization and export led growth is rejected for Egypt and Turkey, as the essential infrastructure was not in place.

Finally, the lack of political stability or modern political institutions such as fair elections, multiparty, equal representation. According to the modernization theory Egypt and Turkey’s corrupted government, lack of democratic support and legislation together with Islamic resistance, military rule, Kurdish problem in Turkey, political instability of the region, is to be blamed for poverty

 According to the modernization theory ‘the preconditions for development can be installed more quickly through enhanced economic relations with the North. This is how EEC countries justified admitting undemocratic, abusing human rights Turkey to its economic zone, with little result however.  Moreover, the help of the West in development of Egypt and Turkey would have been more effective if the officials in power didn’t steal the invested capital, or the aid. And one should note how immense was Egyptian bureaucracy. Although not as large as Egyptian with guaranteed jobs in public sector for graduates, Turkey continued having a large public sector. 

However, the external influence certainly did not always help the development. Dependency theorists would blame the lack of reaching the expected results on the first world countries as concerned mainly with promotion and protection of their capitalist interests. The unsuccessful development would be blamed on imperial behaviour of rich countries, which “drained resources that could have been used for investment and killed off local capitalism through competition. The more powerful- EEC, US even USSR were able to thwart development in the Third World by striking alliances with the Bourgeoisie ruling class in Turkey and Egypt. Which is especially apparent in the material growth of the Bourgeoisie during the SAP time.

If shadowing light on development experience of Egypt and Turkey from the structuralism theory, the goods they were producing and trading conditioned the growth patterns of the countries. Declining terms of trade for commodity producers, which Egypt and Turkey certainly are, made development extremely difficult. Trade benefited industrial exporters, like EEC and US in different periods for Turkey and US and USSR for Egypt. Commodities, producers are underprivileged, as demand for commodities is inelastic and does not increase with higher income. The countries didn’t sufficiently foster domestic industrialization, without that they cannot be levelled with global economies and experience equal, fair trade and develop.    

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Bibliography:

Journal of Development Studies, 36, No. 4-6 1999/2000 page 39 Trade Liberalisation Government Expenditure and Economic Growth in Egypt, Bruce Morley and Nicolas Perdikis,  Franc Cass and Co. Ltd. 2000

 Egypt and Turkey: the Political Economy of Poverty, Equity and Growth. Edited by Bent ?Hansan. Oxford University Press, 1991, page 517 jof ds 30n no 2 1993-1994

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