Why did Egyptians revolt?

Over the past two years, much ink has been spilled in commentary on the unfolding of the “Arab Spring”, on who might come out “on top”, on who should come out “on top” and why a “victory” for one or another party, group or movement would spell either redemption -or utter disaster for the nations and peoples caught in the whirlwind of political upheaval. Some lament the coming of an Islamist Winter. Others, if somewhat more persuasively, present the ongoing political chaos in Egypt and Tunisia as a natural stage in the democracy-building process.

If history has taught us anything, it could be that “the outcome of revolution rarely corresponds with the intentions of those who carry it out. . .”* Bearing this in mind -and rather than submit to the urge to engage in tantalising-though-mostly-fruitless predictionizing – a good place to start might be with the simplest of questions: HOW did we get here? A move in this direction is helpful for several reasons. Chief among them would be that if we can at least attempt to understand the mix of structural factors, path-dependency, human agency and historical contingency that led to the explosions of public anger across the Arab world in early 2011, a range of possible (and sensibly informed) future outcomes might begin to appear. The fog is thick, and the complexity of the task humbling.

Thankfully, Cambridge political sociologist Hazem Kandil is prepared to give it a stab, and a rather good one at that. Mixing deep historical knowledge with an uncommonly (for a sociologist) user-friendly writing style, Kandil offers a persuasive account of the roots of the Egyptian uprising; the short version is introduced below and continues HERE. The long version can be found in his recently published and highly readable Soldiers, Spies and Statesmen: Egypt’s Road to Revolt (Verso, 2012).

Over the last few years, a rebellion had been brewing under the surface. There was a general sense that the status quo could not be sustained. Movies, novels, songs were permeated by the theme of revolt: it was everywhere in people’s imagination. Two developments were responsible for making ordinary, apolitical Egyptians feel they could no longer carry on with their normal lives. The first was the dissolution of the social contract governing state–society relations since Nasser’s coup in the fifties. The contract involved a divit exchange: the regime offered free education, employment in an expanding public sector, affordable healthcare, cheap housing and other forms of social protection, in return for obedience. You could have—or at any rate hope for—these benefits, so long as domestic or foreign policies were not questioned and political power was not contested. In other words, people understood that they were trading their political rights for social welfare. From the eighties onwards, this contract was eroded, but it was not until the new millennium that it was fully abrogated. By this time the regime felt that it had eliminated organized resistance so thoroughly that it no longer needed to pay the traditional social bribes to guarantee political acquiescence. Viewing a population that appeared utterly passive, fragmented and demoralized, the regime believed it was time for plunder, on a grand scale. In the ruling National Democratic Party (NDP), a faction clustered around the President’s son Gamal Mubarak increasingly took charge through a new body called the Policy Committee. It had two components. One consisted of corrupt, state-nurtured capitalists with monopoly control over profitable sectors of the economy. The other was composed of neo-liberal intellectuals, typically economists with links to international financial institutions.”

CONTINUE READING Revolt in Egypt…

*(opener to the prelude of Hazem Kandil’s Soldiers, Spies and Statesmen: Egypt’s Road to Revolt) 

Sunday Reads…

“Surrealism has entered the language as a synonym for almost anything that seems odd, uncanny, or freaky. For some, the very word connotes a profane, or carnivalesque, lifting of the lid on hidden, even repressed, thoughts and feelings. But initially this art was romantic and revolutionary in its goals.”

3-D printing gone wild: smart technology in really dumb hands

Reality-check on booze, the great “non-drug” of our times…

 

Political Economy

Germany’s Euro-land conundrum: maintaining a trade-surplus while liquidating one’s main customers proves rather difficult…

Debating China’s rise: a review of the recent literature 

As the Chinese economy proves to be resting on increasingly shaky ground, renowned China-watcher Michael Pettis lays out some of the challenges facing the Communist Party leadership over the next few years… A strong case against what seems to be the consensus view that China will overtake the US as the world’s largest economy by 2020.

 

Middle East

A welcome takedown of the carefully crafted, rather shiny international image of King Abdullah of Jordan. The “brand Abdullah has been marketing on the world stage since he came to the throne in 1999” doesn’t even begin to stand up to scrutiny.

A trip to the front lines of Syria’s civil war

Iraq, $60 billion later. An epic waste trail.

Just what is the Egyptian Muslim brotherhood? It seems even they dont know. If anything, the Egyptian revolution has thrust the movement’s shocking incompetence into the limelight.

 

Chinese growth and the question of economic rebalancing

As slowing growth grips deleveraging developed-world economies, ‘China as the engine of global growth’ has become a compelling story. Indeed, there is much vested interest in this high-powered Chinese-growth status-quo: investment banks peddling freshly minted “china opportunity” funds, Western manufacturers with exposure to China, European politicians praying for liquidity injections into an austerity-choked Eurozone – not to mention the Chinese leadership – would all love to see recent growth trends extend into the distant future.  Some fund managers, such as Hugh Hendry and Jim Chanos, are highly skeptical of this optimistic narrative however; as Hendry puts it, “From the pulpit of a ten-year bull market, those businesses serving the tigerish growth of China have, by way of consistent share price out-performance, become the stalwarts of institutional equity portfolios. Former skeptics have become confirmed zealots …. But have their portfolios become dangerously out of sync with realities on the ground?”

Such realities range from an epic real estate bubble to the rapid expansion of the shadow banking sector; at the core of the debate, however, lies the question of economic rebalancing. Broadly speaking, demand in an economy can come three sources: consumption, investment and the external sector (trade surplus). China’s economy is widely recognised to be overly dependent on investment (at a staggeringly high 48% of GDP – Indonesia, for instance, stands at 39%) and exports to generate growth.  Although the Chinese government has recognised the risks this poses, fixed-asset investment and growing export capacity have been systematically favoured over domestic consumption, in particular in the wake of China’s huge 2008 economic stimulus package. What does all this mean for the sustainability of Chinese growth? Jan Kregel of the Levy Economics Institute of Bard College provides an overview of the debate, shedding light on some of the key structural characteristics of the Chinese economy: (Kregel starts at minute 28)

James Grant shares some views on the prospects for inflation

What might the consequences of post-2008 monetary policy entail? As the Fed steams ahead in its attempt to revive the American economy through a zero-interest rate policy coupled with Quantitative Easing, the question of the inflationary impact of these highly unorthodox policies looms large over financial markets and the real economy. James Grant puts things in historical perspective, shedding light on the distortions the have come to plague the US economy in recent decades. Those who foresee higher rates of inflation in the years to come will find some plausible arguments.

http://blip.tv/wealthtrack-AppleTV/james-grant-5043819

How are the Egyptians doing?

Hazem Kandil‘s latest piece in the London Review blog provides a lucid, highly readable overview of the state of political and economic chaos that Egypt currently finds itself in, noting that this sorry state of affairs is likely to persist for a while longer.

“The Egyptian revolt is trapped in a balance of weakness. None of the key actors has the power to consolidate a new regime, or even to resurrect the old one. Alliances are necessary, but nobody knows which will last. Every combination seems equally plausible, but each would lead the country in a very different direction. Egypt’s old regime depended on a ‘power triangle’: an uneasy partnership between the military (primarily the army), the security services (the police and secret police under the control of the Interior Ministry), and the political establishment. The uprising in January 2011 disrupted this delicate balance. It inadvertently enhanced the leverage of the military, left the security services largely untouched and created a political vacancy which Islamists, secular revolutionaries and old regime loyalists all scrambled to fill. The three political rivals would find themselves playing a game of musical chairs under the fretful gaze of the military and the security services, and it isn’t yet clear who is the winner.”

Continue reading Deadlock in Cairo…

Kandil also spoke at LSE on topic a couple of weeks ago; see HERE for a link to the talk…

Chinese growth in historical perspective

Is the Chinese growth model somehow unique? Contrary to what many have argued, Michael Pettis presents a compelling case as to why not – demonstrating that despite bucking the mainstream (IMF / World Bank) policy recommendations for development, the growth model that has served China well in recent decades is a variant that has proved successful for various countries over the last three centuries…. The debate centers around the role of economic doctrines of free trade vs the benefits of protectionism, and finishes off debating some of the structural impediments to continued rapid development in China:

What works in development? Comparing development models

A summary of “some of the important points about the American System and other similar growth models, like the Chinese version.

1.      Infant industry protection has worked to promote long-term development under certain conditions and has not worked under other conditions. I would argue that the key difference is that in the former case there were powerful forces that drove managerial and technological innovation and rapid growth in efficiency.

In the US case this seems to have been brutal domestic competition. If China wants to benefit from its own protection of infant industry, it is important that there be similar domestic drivers of innovation and efficiency. Note that access to cheap capital cannot be such a driver, even though it is one of the main sources of Chinese competitiveness. Access to cheap capital is just another way to protect infant industries from foreign competition.

2.      Every country that has become sustainably rich has had significant government investment in infrastructure, but not every country that has had significant government investment in infrastructure has become sustainably rich.On the contrary there are many cases of countries with extraordinarily high levels of infrastructure investment that have grown for a period and then faltered.

I would argue that the difference is almost certainly the extent of capital misallocation. In some countries it has been much easier for policymakers to drive capital expenditures, and in those countries it seems to have been relatively easy to waste investment. If this is the case in China, as I believe it is, the key issue for China is to rein in its spending and develop an alternative and better way to allocate capital.

The point is that there is a natural limit to infrastructure spending, and this limit is often imposed by institutional distortions in the market economy. When this natural limit is reached, more investment in infrastructure can be wealth destroying, not wealth enhancing, in which case it is far better to cut back on investment and to focus on reducing the institutional constraints to more productive use of capital, such as weak corporate governance and a weak legal framework. The pace of infrastructure investment cannot exceed the pace of institutional reform for very long without itself becoming a problem.

3.      Any economy looking to achieve sustainable long-term growth must have a “good” financial system that allocates capital efficiently and rewards the correct level of risk-taking. It is hard to determine what the characteristics of a “good” financial system are, but we shouldn’t be too quick to assume that this has to do with stability.

What’s more, while obviously the capital allocation process is vitally important, I would also suggest that the liquidation of bad loans is just as important. Bad loans, as Japan showed us in the past two decades, can become a serious impediment to growth in part because financial distress distorts management incentives in the way widely understood and described in corporate finance theory and in part because they retard the process by which bad investment is absorbed by the economy.

CONTINUE READING Michael Pettis’ “A Brief History of the Chinese Growth Model”

James Fallows, in an article published over 20 years ago, makes a number of points echoed by Pettis:

“BRITONS and Americans tend to see the past two centuries of economics us one long progression toward rationality and good sense. In 1776 Adam Smith’s The Wealth of Nations made the case against old-style mercantilism, just as the Declaration of Independence made the case against old-style feudal and royal domination. Since then more and more of the world has come to the correct view—or so it seems in the Anglo-American countries. Along the way the world has met such impediments as neo-mercantilism, radical unionism, sweeping protectionism, socialism, and, of course, communism. One by one the worst threats have given way. Except for a few lamentable areas of backsliding, the world has seen the wisdom of Adam Smith’s ways.

Yet during this whole time there has been an alternative school of thought. The Enlightenment philosophers were not the only ones to think about how the world should be organized. During the eighteenth and nineteenth centuries the Germans were also active—to say nothing of the theorists at work in Tokugawa Japan, late imperial China, czarist Russia, and elsewhere.

The Germans deserve emphasis—more than the Japanese, the Chinese, the Russians, and so on because many of their philosophies endure. These did not take root in England or America, but they were carefully studied, adapted, and applied in parts of Europe and Asia, notably Japan. In place of Rousseau and Locke the Germans offered Hegel. In place of Adam Smith they had Friedrich List.

CONTINUE READING James Fallows’ How the World Works…

For a more critical look at how these themes play out in modern-day mainstream development doctrines, a piece by cambridge economist Ha-Joon Chang: “Kicking Away the Ladder”, post-autistic economics review, issue no. 15

There is currently great pressure on developing countries to adopt a set of “good policies” and “good institutions” – such as liberalisation of trade and investment and strong patent law – to foster their economic development. When some developing countries show reluctance in adopting them, the proponents of this recipe often find it difficult to understand these countries’ stupidity in not accepting such a tried and tested recipe for development. After all, they argue, these are the policies and the institutions that the developed countries had used in the past in order to become rich. Their belief in their own recommendation is so absolute that in their view it has to be imposed on the developing countries through strong bilateral and multilateral external pressures, even when these countries don’t want them.

Naturally, there have been heated debates on whether these recommended policies and institutions are appropriate for developing countries. However, curiously, even many of those who are sceptical of the applicability of these policies and institutions to the developing countries take it for granted that these were the policies and the institutions that were used by the developed countries when they themselves were developing countries.

Contrary to the conventional wisdom, the historical fact is that the rich countries did not develop on the basis of the policies and the institutions that they now recommend to, and often force upon, the developing countries. Unfortunately, this fact is little known these days because the “official historians” of capitalism have been very successful in re-writing its history.

CONTINUE READING… “Kicking Away the Ladder”

And finally, Jim Chanos and Steve Roach discuss the sustainability of the Chinese growth model HERE…

Going against the grain – documenting the occupation…

Iran and the Bomb

Gary Sick provides a historically-grounded perspective on Iran’s nuclear programme…

Hamid Dabashi discusses sanctions and the effects of “war talk” on domestic politics in Iran…

Addressing the failure of negotiations so far, former Iranian nuclear negotiator Seyed Hossein Mousavian argues that…

“In order to develop a more realistic approach, we need to assess the status quo in nuclear negotiations between Iran, the P5+1 group (US, UK, France, Russia, China and Germany) and the IAEA, the UN watchdog. The latest round of talks in January between the watchdog and Iran have not resulted in a deal. The IAEA and the P5+1 have a number of major demands, including the implementation of theadditional protocol to the non-proliferation treaty, which mandates greater access for inspectors; co-operation on issues related to the“possible military dimension” of Iran’s nuclear activities; capping uranium enrichment at 5%; and exporting enriched uranium not consumed domestically.

“The demands on capping and exporting go beyond the treaty, and even the additional protocol. More than 70 countries have not yet signed up to the protocol; and certain member states of the IAEA enrich uranium to 96%, with tonnes of uranium stockpiled beyond domestic needs. Moreover, the IAEA requires Iran to give access beyond that required by the additional protocol in order to address the “possible military dimension”. Iran cannot accept such demands for free, and the IAEA is not in position to negotiate reciprocations. That is why it was a mistake to have the IAEA’s visit to Tehran take place prior to the meeting between P5+1 and Iran.

continue reading “Iran wants a nuclear deal, not war“

Mousavian interviewed on his latest book:

Is China’s growth model reaching its limits? On the growing divergence between appearance and reality in China’s banking system

From NakedCapitalism:

“Skeptics of China’s economic model have looked like hopeless gloomsters for years. Even though they are correct when they point out negatives, such as the fact that no large economy has ever had 50% of GDP coming from investments and exports for a sustained basis or has managed the transition from being export driven to consumption driven gracefully (the US’s and Japan’s deflations are prime examples) seemed irrelevant as China was able to maintain attractive growth rates in the wake of the financial crisis by providing massive stimulus (aka more investment). Even worrying signs, like the fact that it takes more and more debt to produce incremental growth (the ratio was worse for China in 2009 at 6:1 than the US on the eve of the crisis, at 4 or 5 to 1, and it’s deteriorated since then) and oft reported on spectacle of cities full of high end housing that sit vacant, haven’t dented the widespread faith in the ability of Chinese leaders to navigate, at worst, a soft landing if the world economy ratchets down into a lower level of growth thanks to austerity in Europe and the US.”

It would seem the gloomsters have history on their side, as per a recent paper from GMO…

Fragility in China’s banking system…

“There is a famous CIA paper, dating from the 1970s, entitled “The Art of China-Watching.” The anonymous author expresses frustration at the way in which important events in China are hidden from the eyes of Western observers and ends up by questioning whether logic even helps when analyzing Chinese affairs. An observer of China’s modern financial system is similarly handicapped and is in danger of reaching the same conclusion. Over the last year and a half, we have seen the sudden collapse in credit and, just as abruptly, a miraculous recovery.

There appears to be a large and growing gap between appearance and reality in China’s banking system. On the surface, China’s credit conditions are healthy. Yet the China-watcher gets an occasional glimpse of a rather different reality; of Ponzi finance practices across the financial spectrum; of loan sharks disappearing with the locals’ savings; of miscellanous entities exaggerating the value of their loan collateral and at times faking it; and of bank employees purloining funds from their banks or engaged in the mis-selling of financial products. China’s financial system simmers with incipient scandals.”

CONTINUE reading Feeding the Dragon: Why China’s Credit System Looks Vulnerable

 For a selection of articles debating the sustainability of Chinese economic growth, click the image below….

Environmental degradation in China – counting the cost of rapid growth