Brecht De Smet obtained his Masters in History and Arabic at Ghent University, Belgium.

As a researcher of the Middle East and North African Research Group of Ghent University, he is working on a PhD in Political Science with regard to working class subjectivities in contemporary Egypt. Brechttie.DeSmet@ugent.be Jelle Versieren obtained his Master in History at Ghent University and is doing a PhD in Philosophy on labour concepts, theory of value and the ideology of the common good in medieval economic thought. He also published on the history of economic theory, value theory, Marxist philosophy and the history of the Belgian labour movement. Jelle.Versieren@Ugent.be

Contradictions of Accumulation and Development in Egypt

Brecht De Smet Ghent University Brechttie.DeSmet@ugent.be Jelle Versieren Ghent University Jelle.Versieren@ugent.be

Abstract

In this essay Egypts continued halted transition to a Western-style freemarket economy is explained from a broad historical perspective of frustrated capitalist development. Avoiding the reductionism of stage and dependency theories, the impact of imperialism, internationalisation of capital, and pre-capitalist structures in retarding economic development are taken equally into consideration. It is argued that the concept of uneven and combined development offers the best framework to understand the particular nature of capitalism in Egypt. In the first phase of integration of Egypt in the capitalist world market, which lasted until the first half of the nineteenth century, Western advanced production methods and relations were absorbed by the absolutist state, without affecting the social formation. Only through the era of imperialism, colonialism and neo-colonialism, which lasted from the second half of the nineteenth century to the first half of the twentieth century, did capitalist structures alter Egypts social formation. Capitalism existed in

combination with pre-capitalist structures, and this articulation effectively blocked economic development. During the fifties and sixties of the twentieth century Nasserite state capitalism was able to break the deadlock and stimulate development. Attention is paid in detail to both the transformative character of Nasserism and its contradictions which led to its stagnation and dissolution. During the 1970s and 1980s the lifeform of state capitalism was superficially extended through a rentier state
2

in collaboration with international and domestic capital groups hostile to industrialism. From the 1990s onwards, the dismantling of the rentier economy and its state capitalist shell under the guise of neoliberal reform revealed its crony-monopolistic substance.

Keywords

Egypt, Nasser, underdevelopment, Trotsky, imperialism, pre-capitalism, unequal exchange, mode of production, colonialism, uneven and combined development, state capitalism, capital accumulation

Object and frame of analysis

Capitalism and underdevelopment

In this essay we explain Egypts continued halted transition to a Western-style free-market economy from a broad historical perspective of frustrated capitalist development.1 The history of modern Egypt

Economic development is defined as the development of the productive forces, encompassing the means of production and human labor power. The systemic relation between the productive forces and the social relations of production, especially ownership, constitutes a mode of production.

presents itself as an interesting case study of the obstruction of development through historical interaction between pre-capitalist and capitalist structures and agents. Avoiding the reductionism of stage and dependency theories, the impact of imperialism, internationalisation of capital, and pre-capitalist structures in retarding economic development are taken equally into consideration. The asynchronous historicalgeographical emergence of the capitalist mode of production and the world market posed the problem of how pre-capitalist societies and modes of production related to their capitalist counterparts and to the world economy as a whole. In the Marxist and radical economic tradition, roughly three approaches to this question emerged. Marxists of the Second and Third International considered the nation state as the primary unit of analysis. In order to reach socialism, countries should develop their forces of production. Non-capitalist countries should experience a transition identical to the West, consisting of a bourgeois revolution, which would destroy feudalism, establish a parliamentary democracy, promote free trade and markets, defend private property and civil rights, and protect the nations sovereignty. 2 A superficial reading of Marx seemed to confirm this concept of development and transition: The
Capitalism is the historical expansion and dominance of a mode of production which is based on capital accumulation through generalized commodity-production for the market, the commoditization of labor, the concentration of ownership of the means of production in the hands of a class, consisting of only a minor section of society, and the consequential emergence of a propertyless class for whom the sale of their labor-power was their only source of livelihood (Dobb 1976, p. 7). Capitalist accumulation brought about a revolution in the development of productive forces. 2 Attewel 1984, pp. 21516, and Townshend 1996, p. 143.

country that is more developed industrially only shows, to the less developed, the image of its own future One nation can and should learn from others society can neither leap over the natural phases of its development nor remove them by decree.3 Later, with regard to the Third World, imperialism was recognized as a factor which impeded the transition to Western-style capitalism.4 Others pointed to the inhibiting role of domestic merchant capitalists who were unwilling and/or unable to industrialize their economies.5 In both accounts the problem of underdevelopment was too little capitalism, either through the

intervention of imperialist or pre-capitalist forces. After the Second World War adherents of the dependency-school initiated a paradigm-shift by conceiving of the world capitalist system as the primary unit of analysis. Peripheral nations suffer underdevelopment through unequal exchange and their structural location within the world system. Underdevelopment was perceived as a result of the worldwide development of capitalism.6 While dependency theory and world-system analysis paid attention to the dynamics of capitalism as a totality, this tradition suffered from functionalism and reductionism, neglecting the role of class struggle, modes of production, labour exploitation, and pre-capitalist structures in

3 4

Marx 1990, pp. 912. Warren 1973. 5 Kay 1975. 6 Amin 1976; Frank 1969; Wallerstein 1974.

defining capitalist reality.7 In their paradigm, the self-motion of capitalism structures the totality according to its own needs.8 One of the main theoretical obstacles remained ... to internally relate the modern state system and geopolitical competition to capitalism without reducing the former to an effect of the later.9 Trotskys concept of uneven and combined development,10 elaborated upon by Mandel11 and more recently by Rosenberg,12 might be the key to an understanding of (under)development based on the dialectic between totality and locality, capitalist and pre-capitalist forms.

Uneven and combined development

Trotsky sees history as a progressive sequence of modes of production, but with the arrival of capitalism the development of productive forces acquires a systemic uneven and combined character. The qualitative difference between the productive forces which capitalism unleashes and their pre-capitalist counterparts creates a deep dichotomy between advanced and backward forms. The introduction of the capitalist mode of production leads to unevenness with prior, non-capitalist modes.

7 8

Chilcote 1981, pp. 45. Chevalier 1982. 9 Allison and Anievas 2010, pp. 478. 10 Trotsky 2001. 11 Mandel 1976. 12 Rosenberg 2009 and Rosenberg 2010.

However, nations, institutions and people, do not exist in isolation from each other; on the contrary, through the world market capitalism universalizes itself, connecting different countries, social spaces and human life worlds with each other. Advanced and backward social forms and modes of production are found in combination; they become part of the same totality without losing their separate identity. Development is perceived as an organic process of both the whole (the world market and the logic of capital) and its parts (states, regions, and modes of production). Through their relation with the world market, backward nations can directly appropriate advanced economic forms without emulating the whole historical trajectory of the Western industrial countries. This privilege of backwardness is only a potentiality; sometimes more advanced forms are debased when they are embedded in a backward context, which paradoxically leads to a strengthening of these backwards conditions rather than revolutionizing them.13 Trotsky would have been in agreement with dependency theory and world-system analysis that, while the integration of non-capitalist spaces into the capitalist totality furthered the development of the whole the accumulation of capital on a world level it did not automatically develop the parts evenly. However, he would have pointed out that the trajectories of the periphery are not merely blocked by its structural
13

Trotsky 2001, pp. 2537 and van der Linden 2007.

relations with the core capitalist countries. Instead, the concept of capitalist transition and development encompasses the interpenetration of global production relations and class struggle with particular social formations, resulting in specific combinations or articulations, as Laclau14 argued of modes of production which impede (or enhance, in specific cases) a rapid process of capital accumulation. The framework of uneven and combined development takes as its object of analysis the concrete and real social formation, while concepts such as mode and relations of production, capital, and the world system are useful abstractions which reveal both the universal-systemic logic and the historical particularities embodied in the social form. Unevenness determines the combined nature of the social formation, and this combination in turn often frustrates indigenous attempts at capital accumulation and development. Marx was probably too optimistic when he stated that the antiquated modes of production are merely passive, even though they can affect a train of social and political anachronisms.15 Both the capitalist mode of production and pre-capitalist structures shape the trajectory of social formations.16

Egypt as a historical case study

14 15

Laclau 1971. Marx 1990, p. 91. 16 Rey 1973.

With regard to Egypt, it is argued that capitalist (under)development went through different phases, determined by the interplay of domestic and international forces. In the first phase of integration of Egypt in the capitalist world market, which lasted from the second half of the eighteenth century until the first half of the nineteenth century, Western advanced production methods and relations were absorbed by the absolutist state, without affecting the social formation and only containing a very limited productive capacity. Only through the era of imperialism, colonialism and neo-colonialism, which lasted from the second half of the nineteenth century to the first half of the twentieth century, did capitalist forms transform Egypt in a substantial way. Capitalism existed in combination with pre-capitalist structures, and this articulation effectively blocked economic development. In the 1950s and 1960s Nasserite state capitalism was able to break the deadlock and stimulate development. We pay detailed attention to both the transformative character of Nasserism and its contradictions which led to its stagnation and dissolution. During the 1970s and 1980s the life-form of state capitalism was superficially extended through a rentier state in collaboration with international and domestic capital groups hostile to industrialism. From the 1990s onwards, the dismantling of the rentier economy and its state

capitalist shell under the guise of neoliberal reform revealed a cronymonopolistic substance.

Integration into the world market

The pre-capitalist social form

Before we begin discussing Egypts historical encounter with capitalism, its pre-capitalist social form has to be sketched in broad outlines, setting the stage for the transformations in the nineteenth and twentieth centuries. The pre-capitalist mode of production in Egypt can be roughly defined as a tributary system with feudalistic trends.17 The peasant household controlled and organized its own subsistence production and consumption. The agricultural surplus was much higher than subsistence levels thanks to favourable natural and geographical condition. The surplus product was extracted through taxation and extra labour was

17

Beinin is hesitant to categorize the dominant mode of production of the Ottoman Empire as either tributary or feudal. He discusses the views of Chris Wickham and Hilal Berktay. Beinin (2001) and Wickham (1985) focuses on the method of surplus extraction by the Ottoman state land tax which differs fundamentally from European feudalism: rent collection by private landowners. Conversely, Berktay (1987) argues that Ottoman farmers are legal tenants of the state and that tax and rent are for all purposes the same, calling the Ottoman case a form of state feudalism. In order to resolve the mode of production problem, we refer to Neil Davidsons elegant synthesis of the viewpoint of John Haldon on feudalism and of Samir Amin on absolutism. Haldon posits feudalism as a particular Western form of the more universal tributary mode of production, while Amin sees in absolutism a nascent European form of the tributary mode of production which never matured due to the development of capitalism. (Davidson 2004)

10

expropriated through sharecropping, corve and wage labour.18 In general, surpluses were not reinvested in agricultural production, but flowed directly to the cities which became rich centres of trade, guild handicrafts, and state administration.19 By the 18th century Egyptian tax farmers had already gained ownership of their lands due to the weakness of the Ottoman state.20 The expansion of European markets between the 1740s and 1815 intensified trade relations between the Ottoman Empire and the West, incorporating Egypt into the developing world market.21 The blossoming world trade realized large profits for the rural elites, stimulating a new urban financial sphere of credit, loans and banking around landed property, often exploited by religious minorities who could ignore Islamic sensitivities towards usury and interest. This new commercial domain gave rise to a merchant-capitalist class in the cities.22

Independent capitalist development?

18

Beinin 2001 p. 25; Tucker 2005, p. 230. Khafaji however downplays the role of wage labor, because temporary or informal labor force only complimented the enserfed labor power during the seasons of high demand for workforce, like harvest. The migrant or informal labor force was not composed of the landless, but of peasant families whose possessions of land were no longer sufficient for their survival. Khafaji 2004, p. 32. 19 Richards and Waterbury 2008, p. 39. 20 Cuno 2005, p. 197. 21 Beinin 2001, pp. 213. 22 Richards and Waterbury 2008, pp. 3840.

11

Aside from the expansion of the world market, modern geopolitics stimulated the penetration of capitalist forms in non-capitalist countries. Military confrontations with the rising European powers forced the Ottoman Empire and its provincial rulers to raise revenues in order to modernize and expand their armies. At the end of the eighteenth century the Mamluk chief Murad Bey imposed a state monopoly on customs collection, and the government purchased and resold a large part of the wheat crop to pay for its military expenditure. This move anticipated the policies of Muhammad Ali who defeated the French who had occupied Egypt between 1798-180, the Ottomans and the old Mamluk elite. As the new Pasha was beleaguered by both the West and his former suzerain, he continued Murad Beys attempt to build a modern army, pursuing a mercantilist policy. In order to gain fiscal autonomy from the landed elite and destroy local centres of power, he partly adopted the reform program of the French who had seized tax farms, nationalized agricultural lands, and supervised guilds. In 1814 private tax farming was abolished. The reassertion of central state power temporarily blocked the development of tax farmers into private landholders.23 Peasants kept the usufruct of their lands, but were obliged to sell their crops directly to the state at low, set prices. This monopsony allowed the government to trade agricultural produce with a large profit margin on both local and international
23

Cuno 2005, p. 198.

12

markets. Protectionist measures safeguarded the weak Egyptian industries (primarily textile and weapon manufacturing) against

competition with Western capitalist countries. Attempts were made at substituting Western commodities with Egyptian products, anticipating the import-substitution-industrialization (ISI) policies of the later neocolonial and post-colonial state. Through forced conscription labourers were recruited among the peasants and guild artisans.24 Although there was development of manufacturing, no significant industrialization emerged. Manufactures lacked mechanization, social division of labour and new energy resources.25 Muhammad Alis centralized fiscal, mercantilist, and industrial policies were primarily oriented towards the needs of the military and the bureaucracy, curtailing the power of urban guilds and merchant capital. They closely resembled the political economy of European absolutism and created internal obstructions towards the development of an indigenous industrial capitalism.26 In Britain, the historical formation of the capitalist mode of production had contained the differentiation of industrial, commercial and money/loan capital. These circuits of capital are intertwined but not necessarily operating on a national level. In Egypt the new production methods, technology, and expertise were deliberately introduced and put to work

24 25

Owen 2005, pp. 11415; Tucker 2005, pp. 23435. Beinin 2001, pp. 423. 26 Khafaji 2004, p. 42.

13

by an absolutist state with a geopolitical rationale. They did not alter precapitalist exploitation relations, nor did they introduce capitalist relations of production. The formal subsumption of labour under capital27 was not realized and the proto-capitalist forms did not have the capacity to transform the Egyptian social form in the direction of industrial capitalism.
28

Imperialism and feudalisation

Meanwhile, the window for an independent road to capitalism was closing. Through the Anglo-Ottoman Commercial Convention (1838) and the Treaties of London (1840, 1841) the Ottoman Empire and the European powers successfully blocked Muhammad Alis military expansion and dismissed his protectionist policies. These foreign interventions can be conceived of as an early imperialist catalyst of frustrated development in Egypt. The reduction of Egypts domestic and regional markets and the imposed free trade regime created, until the 1930s, external obstacles for an indigenous road to industrial and

27

The direct supervision of the labour process by capitalists. See Marx 1994, pp. 93121. Marx designates the transformation of the material and social conditions of production as the real subsumption of labour under capital. 28 Some researchers maintain that this superficial penetration nonetheless created an embryonic form of transition between feudalism and capitalism even though empirical evidence to support this case is very limited. Abdel-Malek 1983, p. 122.

14

capitalist development.29 Muhammad Alis successors tried to curtail European influence by building a strong and independent modern state, but in so doing they had to rely on foreign capital, which increased their dependence on the Western financial system. Moreover, their search for revenues led to the expansion of the profitable export of cotton, which intertwined Egypt as a producer of cotton and a market for manufactured goods, with the European economic system.30 Yet imperialism cannot be conceived of as the primary factor of a stunted capitalist transition in Egypt. Foreign intervention against the absolutist state strengthened precapitalist structures and social forces which were already actively resisting industrial capitalist development.31 Peasant struggles against conscription and heavy taxation led to a shortage of labour and a decline of state revenue. In order to increase state income the Pasha granted his family, military officers, and other clients, state lands in exchange for advance payment of taxes. In addition, the state wished to reassert its control over the villages through the authority of an official who placed villagers in debt bondage until they paid their taxes.32 Between 1865 and 1868 taxes were raised with 70 per cent, which indebted many peasants and led to a further concentration of agricultural lands.33 In 1871 new tax reforms made small landholders lose their lands and become an unpaid,
29 30

Beinin 2001, pp. 2627, 45. Owen 2005, p. 117. 31 Cuno 2005, p. 221; Issawi 2005, p. 189; Tucker 2005, p. 232. 32 Mitchell 2002, p. 66. 33 Beinin 2001, p. 52.

15

bonded workforce.34 Peasants were converted into labourers who received a small plot of land for themselves or who were paid in kind.35 Tax farming, the delegation of state power to local landlords and the debt bondage system reinforced feudal relations on the countryside and the concentration of lands into large landholdings.36 Western rural class relations in the historical transition towards capitalism husbandry, freeholders, copyholders, leaseholders, yeomanry were almost absent in Egypt.37 Feudal landlords had no drive for capital accumulation and did not intend to transform the concept of peasant tenure. Only after World War II did the concept of monetary rent become dominant in the countryside replacing labour rent and corve, but even then the level of rent was not determined by a capitalist logic.38. There was a transformation of feudal relations, but the landlords did not evolve into a capitalist gentry class. As the landlord preferred a fixed amount of rent, the legal framework prohibited the development of capitalist famers;
34 35

Mitchell 2002, p. 73. Owen 2005, p. 119. 36 Cuno 2005,p. 198; Khafaji 2004, p. 1920. Beinin, however, is cautious to link the establishment of private large landholds with a rise of feudalism: But extraction of surplus was based on private ownership of the means of production, production of commodities for a market, commodification of labor, rational calculation of profits, a tendency toward capital accumulation, and bureaucratically supervised large-scale enterprises. Beinin 2001, p. 53. He describes the dominant social form as backward colonial capitalism and uses the term of agrarian bourgeoisie to denote the large landholders. Beinin and Lockman 1987. However, on other occasions he states that there was no development towards capitalism in Egypt, despite the existence of cash-crop farming, markets, and money. Beinin 2001, pp. 112. Furthermore, there was little investment, even by wealthy landowners, in either mechanization or in other means of raising productivity. Beinin and Lockman 1987, p. 9. 37 Katz 1989, pp. 128141; Dobb 1976, pp. 5062; Takahashi 1982, pp. 827. 38 The landlord received monetary rent, but the peasant calculated his share and necessary costs in kind. The landlord was very reluctant to invest, because he perceived this as a loss of his fixed share. Khafaji 2004, p. 39. The landlord combined his monetary preferences with the dissolution of the demesnes into small tenure parcels. The outcome was low productivity and the absence of laborsaving techniques.

16

peasants were not allowed to leave the estate and they had to cover all costs.39 This encouraged hierarchical relations between landlord and peasant and secured political power based on clientelist values. The sole reason why landlords allowed land leasing was a shift in monetary interests. Landlords became more involved in commercial activities and it was easier to manage small parcels than one big demesne. The principle of non-capitalist rent remained firmly in place, inhibiting productivity.

Before the advent of colonialism the transition towards capitalism in Egypt was blocked, not only by foreign intervention, or its structural location within the world system, but also by the active resistance of precapitalist structures and forces. The Great Depression of 1873-96 led to a global decline of prices for agricultural produce which caused the bankruptcy of several Ottoman provinces. Their inability to pay debts instigated European intervention in their internal financial affairs. In 1876 the Caisse de la Dette Publique was established to oversee Egypts treasury. In order to secure its financial grip, Great Britain had to intervene directly in Egypts politics. In 1882 British troops occupied Egypt to quell the Urabi revolt against foreign domination.40 This marked the beginning of the colonial era.

39 40

Khafaji 2004, p. 37. Owen 2005, pp. 119120.

17

Colonial and neo-colonial accumulation

Colonial rule

Under British colonialism, a decentralized feudalist mode of production was strengthened by the dissolution of absolutist rule and the reorientation of the agrarian economy towards monoculture production of cotton for international markets. Local landlords usurped a large share of central government power to deepen their control over the estates.41 Cultivating cotton required large estates and stimulated bimodalism in the countryside: a land-tenure system that combines a small number of owners holding very large estates with a large number of owners holding very small farms.42 Colonialism did not abolish feudalism in the countryside because it was more profitable for foreign capital.
43

Rural

landlords, urban merchants, and the colonial state had identical interests: the provision of agricultural goods to international markets. Hence, the dominant mode of production remained feudal, as merchant capital and landlords kept their positions as local and national elites in the Egyptian social formation. On the other hand, through the instrument of the
41 42

Wickham 1985, p. 180 Richards and Waterbury 2008, p. 177. 43 This stands in contrast to the dominant opinion among Egyptian Marxist historians in the 1950s and 60s, who claimed that Egypt had a typical colonial, capitalist economy with a prominent exportorientated agricultural sector. Abdel-Malek 1970, p. 279

18

colonial state, foreign industrial and finance capital forcefully introduced the capitalist mode of production in Egypt. In the early 1870s Khedive (viceroy) Ismail had implemented a modest industrialization program, establishing some 40 state owned enterprises. The state bankruptcy of 1876 led to their destruction or sale to foreign firms. From then on the initiative of industrialization shifted to foreign corporations and the mutamassirun, foreign capitalists living in Egypt.44 Foreign capital introduced the capitalist mode of production, but de-industrialized most of the indigenous manufactures, preparing the Egyptian markets for an influx of European commodities.45 The industrializing role of the colonial state was restricted to the creation of large-scale transport,

communication, service and (some) manufacturing enterprises, which generated a modern urban working class existing side by side with the traditional guild craftsmen. The capitalist mode of production and the colonial state administration produced their own layer of Gramscian organic intellectuals: the effendiyya, a group of modern middle class professionals, engineers, journalists, lawyers, teachers, and bureaucrats with a nationalist and Western outlook.46

The failure of national industrialism

44 45

Beinin 2001, p. 68. Khafaji 2004, p. 41. 46 Beinin 2001, p. 71; Richards and Waterbury 2008, pp. 401, 123.

19

During the economic crisis of 1906-08, global prices of cotton dropped. Some large landowners realized that monoculture production posed risks and that the base of their wealth should be diversified with other economic activities. Merchant capital had regained its former socioeconomic position, and partly became commercial capital engaged in loan activities, real estate speculation, and intermediary trade. Landowners, attracted by the large profit margin, invested in these activities. Both classes became aware that foreign capital appropriated a piece of the surplus value, which became a conflict of interests. Landlords and merchants organized the nationalist opposition against the colonial regime, supported by the effendiyya and the modern working class.47 In 1922 the British unilaterally declared Egypt independent, but they kept control over the Suez Canal and Egypts defence, foreign affairs and minority policy. The political system was transformed into a constitutional monarchy. The feudal lords gained more power, but the king, supported by the British, asserted himself as the most powerful political actor without the characteristics of the old absolutism. Imperialism was not defeated, but considerably weakened, creating opportunities for domestic capital to embark on a project of capitalist industrialization. In 1920 nationalist landowners provided the capital for
47

Beinin 2001, pp. 467, 72; Farah 2009, p. 28.

20

the founding of an independent, Egyptian bank with the explicit goal of establishing an indigenous industrial sector. Industry would diversify their sources of income and break the domination of foreign finance capital.48 Bank Misr concentrated its funds on low value-added cotton production, establishing industries such as the Misr Spinning and Weaving Company which became at the end of World War II the largest industrial complex of the Middle East. Peasants were recruited and transformed into industrial wage workers.

At this juncture, the privilege of backwardness could have catapulted Egypt into the era of advanced industrial capitalism. Political

developments such as the 1936 Anglo-Egyptian Treaty and the abolition of Capitulations in 1937 allowed the Egyptian state to implement protectionist measures to protect its budding national industry. The decline of European exports to the Middle East because of the crisis of the 1930s generated a larger market for domestic firms.49 However, Misr Industries was unable to transform the Egyptian economy. First, the privilege of backwardness only applies when a society is able to use the most advanced forms available in order to skip the intermediate stages of development. In Egypt the imported machines were out-dated, which rendered its industry less productive and more labour intensive than its
48 49

Beinin and Lockman 1987, p. 101. Beinin and Lockman 1987, p. 257.

21

international competitors. Low labour costs did not raise incentives to increase efficiency.50 Secondly, Bank Misr was not strong enough to compete with foreign capital. Even though Egyptian capitalists played an important role in the industrialization process of the 1930s and 1940s, foreign and mutamassir capital remained the chief protagonists of capitalist development. Their industries were better established and they often controlled monopolies and semi-monopolies. Misr Industries was not profitable enough and declined sharply. In the late 1930s Bank Misr entered into joint ventures with British enterprises, as they possessed the keys to the world market, subordinating its national character to foreign capital. The layer of feudal landlords engaged with Egyptian industries had become a particular kind of bourgeoisie, but there was no fundamental differentiation between landed, financial, commercial, and industrial interests, nor was there a clear break with foreign and mutamassir capital. The largest share of Egyptian capital was still controlled by feudal landlords and directed towards the foreign and mutamassir-dominated cotton market.51 Thirdly, World War II stimulated industrial production but re-oriented industries towards the needs and demands of foreign markets. The end of the war lowered foreign demand and plunged Egyptian industries into crisis causing high rates of unemployment and raising the cost of living. The crisis increased the
50 51

Beinin and Lockman 1987, p. 259; Beinin 2001, p. 111. Beinin and Lockman 1987, pp. 114, p. 264, 449.

22

centralisation of land ownership.52 Landlords were even more inclined to invest in their landholdings than industrial production. The failure of indigenous industrial capital and the rise of landed, moneylending, and merchant capital illustrates that Egypt in the first half of the twentieth century was not a nation in transition to capitalism, but a precapitalist society in crisis.53 Colonialism and imperialism had buttressed feudalism instead of stimulating the full development of a capitalist mode of production. This reinforced the uneven and combined nature of the Egyptian social formation and gave birth to a fragmented and dependent bourgeoisie which lacked the political will to resist both feudalism and imperialism, even when it was in its own objective interests. Instead of dissolving feudal relations, capitalism added a new layer of social contradictions to Egyptian society. No social force was able to become hegemonic and exert leadership over the other classes. The effendiyya wanted national independence, civil democracy, and modernization, but the industrial bourgeoisie was too dependent on the feudal lords, and merchant and foreign capital to lead a national-democratic revolution. The working class was small, relatively inexperienced and unorganized, isolated from the peasantry and it lacked a unified leadership with a clear

52 53

Ansari 1986, p. 26. Khafaji 2004, p. 56.

23

class point of view.54 Up to 1952 various strikes, protests, riots and insurrections destabilized the regime. Both the old feudal order and new capitalist contenders were too weak to support a stable political platform, which induced a military coup led by Nasser.

State capitalist accumulation

Popular bonapartism

After the coup, the Free Officers of the Revolutionary Command Council (RCC) formulated a classic program of national-democratic demands: democracy; social justice; the abolishment of feudalism; establishment of a strong national army; and full national independence. They mobilized the state apparatus against both the feudal landlords and the working class, displaying a clear tendency towards Bonapartism.55 Already in September 1952 the new regime initiated a land reform capping land size to (a generous) 200 feddans per owner (300 for a family). Some 15 per cent of cultivable lands was redistributed. Other measures included
54 55

Beinin and Lockman 1987, p. 455. In the Eighteenth Brumaire of Louis Napoleon (1852) Marx analyzed the class stalemate which characterized the Second French Empire. In order to solve the class struggle state power acquired a relative independence from both the bourgeoisie and the proletariat. The concept of Bonapartism came to denote state autonomisation and agency. However, the acknowledgment of state autonomisation does not an sich reveal the class nature of a regime, nor its dominant mode of production.

24

an agricultural minimum wage, tenancy reforms, and limiting rents to seven times the land tax. The most important reform for small peasants was the implementation of perpetual tenancy at controlled rents.56 The land reforms were a political weapon, aimed at mobilizing peasant support for the regime and weakening the royal family the biggest landowner through expropriation.57 The regime pacified the workers movement through social reform, violence, and corporatist integration. The liquidation of the political leadership of the working class was combined with unilateral social and economic concessions regarding wages, benefits, job security, and healthcare. State controlled institutions of collective bargaining were strengthened, but independent class mobilization was repressed.58 While the members of the RCC came from a petty-bourgeois background59, the class base of the Nasserite regime became from its inception popular, consisting of small peasants, urban petty producers and the industrial working class. In March 1954 a general strike in favour of Nasser defeated his political opponents and made him the strongman of the regime.60

The rise of state capitalism

56 57

Beinin 2001, p. 132, 162. Mitchell 2002, p. 43. 58 Bayat 1993, p. 68; Clment 2009, p. 103. 59 Richards and Waterbury 2008, p. 127. 60 Beinin and Lockman 1987, pp. 43743.

25

Between 1954 and 1960 the Nasserite state acted in all regards as the diligent guardian of its national industrial bourgeoisie.61 The regime cultivated a legal climate which lowered corporate taxes and encouraged foreign investment. Protectionist measures were relaxed and publicprivate committees were established to guide the economic development of the nation. However, neither the West nor the indigenous capitalists were interested in industrial investments. Between 1950 and 1956 private investments dropped by 300 per cent.62 Step by step the regime was forced to take the economic initiative in order to overcome the decrease in investments. Economic development was perceived as a condition for political sovereignty. Instead of accumulation-driven development by private actors where the quantitative and qualitative growth of the productive forces is an unintended result of capital accumulation, the Egyptian economy was characterized by an intentional process of development-driven accumulation by the state. The state tapped into three sources for the original accumulation which had to ignite state-led industrialization: agriculture, foreign aid, and, ultimately, the sequestration of private capital.

The Nasserite intervention in the rural sector aimed to increase productivity and free capital through land reform. A rise of agricultural
61 62

Johnson 1973, p. 4. Farah 2009, p. 33.

26

productivity could only be realized if the feudal rent-system was abolished, paving the way for small capitalist farmers who would raise productivity in order to generate profit. Through taxes the state could seize the surplus and reinvest it in the industrial sector. In addition, real wages in other sectors would rise if agricultural goods became cheaper. Distributional policies could only be successful if wages were no longer determined by these agricultural goods, otherwise inflation and lower real wages were inevitable.63 However, there was no emergence of a significant rural capitalist class and the land reforms and the heavy taxation of agriculture had undesirable side-effects, limiting the amount of surplus extracted from rural areas.64 Furthermore, state industries and the public sector at large could only expand by a consistent unequal exchange with the agricultural sector. The regime replaced the control and surplus extraction of the feudal landlords with centralized cooperatives which became the principal instrument for channelling resources out of agriculture toward industrial projects.65 Even though, in general, land productivity did not rise significantly, a part of former feudal rents were invested in industrial activities.66 The local political influence of rich landowners did not diminish, although elements from the former
63 64

Sawyer 1985, p. 215. Large landholders were allowed to sell the lands which exceeded the 200 faddan limit, benefiting wealthy peasants who became a new class of rural rich, controlling the cooperatives. Heavier taxation of some crops led to a reallocation of peasant resources to other crops. These distortions amounted to 30 per cent of agricultural GDP. Richards and Waterbury 2008, pp. 15961. 65 Richards and Waterbury 2008, p. 159. 66 Mitchell 2002, p. 226.

27

middle peasantry obtained a higher social and political status. These groups in fact controlled the cooperatives and relegated state credits to help expand their own property.67

The consolidation of the bipolar world order weakened imperialism as an inhibiting factor on Egyptian development. Geopolitically motivated foreign aid and economic assistance from the superpowers stimulated the influx of capital and advanced forms of technology and expertise into the Egyptian social formation. The construction of the Aswan High Dam, which would supply the young Egyptian industry with energy, illustrates the combined role of foreign capital and the Egyptian state in overcoming the passivity of its indigenous industrial class. At first, the regime tried to convince domestic private partners to invest in the project through publicprivate council committees. Their reluctance forced the state to look for foreign capital injections. A World Bank loan was blocked by the US because of the Egyptian-Czechoslovakian arms deal in 1954. Eventually, in 1957 and 1958 Egypt received loans and know-how from the Soviet Union to build the High Dam.68 Ironically, the state lost its proclaimed new sovereignty with the import of more foreign industrial and finance capital which was necessary to overcome the obstacles for economic development. However, in the second half of the fifties and during the
67 68

Dyer 1997, pp. 879. Farah 2009, pp. 335.

28

sixties this dependence was counterbalanced with new sources of accumulation through nationalisation. The sequestration of foreign capital after the Suez Crisis of 1956 enabled the state to embark on an industrial plan which aimed to build a basic industry. In 1959 the First Five-Year Plan for the whole economy was formulated. An anti-Nasserite bourgeois revolt in Syria and the disinclination of the private sector to support the Five-Year Plan led to the Socialist Decrees of 1961, through which, at once, large-scale industry, banking, insurance, foreign trade, utilities, marine transport, airlines, many hotels and department stores were nationalized. The Plan established the public sector as the dominant industrial producer and investor and it pursued an ISI strategy. The Egyptian textile sector spearheaded the ISI, creating a domestic demand for spinning and weaving machinery, which in turn needed locally produced iron and steel.

The

Nasserite

phase

temporarily

created

space

for

state-led

accumulation and the development of the productive forces in Egypt. State capitalism proved to be the most efficient way to appropriate and reorient pre-capitalist social relations of production. A rapid

industrialization aimed at reorganizing the social formation in order to attain a high rate of accumulation. In this regard the Nasserite program showed some similarities with Soviet industrialization: an extensive
29

growth path, the creation of an industrial labour force, and the integration of the circuits of capital. According to Chattopadhyay,69 an extensive growth path is the logical road for backward countries which lack advanced technology and try to catch up with the rate of accumulation in the Western world. It is based on the absolute accumulation of capital, by significantly raising the quantity of labour under conditions of unchanged methods of production. Nasser still had to realize the formal subsumption of labour under capital through the imposition of wage-labour, capitalist relations of production and the monetization of all factors of production,70 which are fundamental prerequisites for the capitalist mode of production to develop.71 State intervention encouraged the proletarianisation of the migrant surplus population caused by the rural exodus commencing at the end of the nineteenth century. While the process of the formal

subsumption of labour was still in progress, the Nasserite government started with the real subsumption of labour under capital the transformation of the labour process and the methods of production through massive industrialization efforts. The process of real

subsumption could not be realized without the import of foreign technology and the training of personnel. Once the new production methods were set in motion, the extensive growth path based upon a

69 70

Chattopadhyay 1994. Chevalier 1982. 71 Ashman 2009, 35.

30

quantitative expansion of production guided the accumulation of capital. Under Nasserite state capitalism the technical composition of capital did not undergo significant changes, even though the state implemented new techniques of production by a new social combination of labour.72 This change in the organization of labour encompassed the

concentration and reorientation of the amount of labour power and implied the steady integration of the circuits of capital. Under the banner of modernization the integration of capital, circuits became interwoven with the reproduction of social relations and the methods of production. The transformative character of Nasserite state capitalism soon reached its limits, however. While the First Five-Year Plan was a success, growth rates almost halved during the Second Five-Year Plan (1965-70).73 At the end of the sixties Egypt plunged into recession, which, exacerbated by the war in Yemen (1963-67) and the Six Day War with Israel (1967) turned into a Gramscian organic crisis of the Nasserite system.

Crisis of state-led development

The primary cause of the crisis was the particular nature of the process of real subsumption of labour under capital in Egypt. Real subsumption was introduced from without, as a series of measures by state power,
72 73

Chattopadhyay 1994, p. 37. Farah 1986, p. 98.

31

instead of being the spontaneous outcome of a historic process. The state-led industrial program was aimed at socio-economic justice by a populist consumption policy, and modernization by the investment demands of developmentalism.74 The introduction of industrial

technology and expertise was conceived of as a one-shot injection of advanced forms into the Egyptian economy, and not as a continuing process. Capitalism, however, is not a motor which can be kicked into motion and then left alone: once capital makes the transition from the stage of formal to that of real subsumption of labor on the basis of a change in the earlier method of production, the latter can remain stationary over a period.75 In order to enhance the rate of accumulation, Egypts new industries were capital-intensive, requiring capital imports, but they lacked the capacity to export competitive commodities. The negative trade balance had to be compensated for with foreign loans. If we accept the Kaleckian analysis of a developmental economy, a high rate of profit was not feasible because the populist consumption policy was based upon widening the wage share of national income, which would burden the expansion of effective demand. This in turn would slow down the rate of accumulation (the ratio between new investments to advanced constant and variable capital) and lower the rate of profit,

74 75

Cooper 1979, pp. 48283. Chattopadhyay 1994, p. 35.

32

undermining the investment demands of developmentalism.76 From 1965 onwards it became obvious that the economic system could not sustain both capital-intensive industrialization and high levels of consumption.77 Rural capitalism, for its part, never took off. A low productivity in the agricultural sector interfered with the extended reproduction of the departments of the means of production and the means of consumption. Heavy taxation of the rural surplus and the lowering rate of investment weakened the purchasing power of the peasant households which were not able to buy back domestically produced consumer goods. It also made agricultural exports less profitable.

The

hampering

of

capital-intensive

industrialization

effectively

undermined the strategy of extraction of relative surplus-value which entails continuous technological innovation and increased productivity. The two other extraction options, reducing wages and increasing the work day, revealed a contradiction between the class nature of the Bonapartist regime and its state capitalist logic of accumulation. The industrial-capitalist ambitions of the regime implied a rationale of labour discipline, high productivity, and low wages in order to extract value and accumulate capital which could be used for development goals.
76 77

Sawyer 1985, pp. 21617. Beinin and Lockman 1987, p. 459.

33

However, this went against the direct interests of its social base peasants, workers, and modern urban professionals which required workers control (or at least real participation), reduction in working-hours, and high wages. The introduction of workers participation and comanagement had the objective of integrating the working class into the national project, softening class contradictions, and raising productivity. The trade union leadership and the workers representatives were absorbed into the state bureaucracy.78 As the corporatist consensus put job security and full employment high on the agenda, industrial productivity was fettered by a high ratio of variable capital, rising fixed costs and under-capacity.

The curtailing of the private sector and the establishment of a dominant public sector encouraged in the long run the formation of private capital groups. Disposable income of elite bureaucrats was redirected to private income.79 Without democratic control, the powerful state bureaucracy increasingly gained the subjectivity of an independent ruling class, treating the public sector as its own property.80 However, as a bureaucracy cannot reproduce itself legally as a private class, it has to find footholds outside the public sphere to safeguard its private

78 79

Bayat 1993, p. 704. Khafaji 2004, p. 251. 80 Farah 2009, p. 36, 76.

34

interests.81 This was the material basis of an objective alliance between state bureaucracy and private capital. While Nasserite Bonapartism had weakened the old ruling classes, it had not destroyed the economic base of landlords, commercial and industrial capital. The landed elite had lost land, but was able to continue its domination of the countryside through its traditional networks and the new government cooperatives. As domestic trade was left relatively free and prices of consumer goods were only influenced through subsidies, commercial capital flourished.82 The industrial bourgeoisie found new sectors to accumulate capital, especially as subcontractors for the government. Without the liquidation of the private sector, the growth of the state sector stimulated a proportional expansion of the subcontracting companies.83 Nasserite state capitalism was transitional because in the long run it had an inherent tendency to divert resources to private hands ... and therefore it paved the road for economic liberalisation irrespective of the intentions of its political leaders.84 This explains the dual trend of state bureaucracy developing into a private bourgeoisie and of existing private capital (re)capturing state power over the next two decades.

81 82

Richards and Waterbury 2008, 2079. Cooper 1979, p. 499. 83 Khafaji 2004, p. 247. 84 Khafaji 2004, p. 241.

35

In conclusion, the dual and interconnected forces of popular Bonapartism and state capitalism were able to break open the neo-colonial social and economic deadlock and, to a degree, develop the productive forces. The nature of this configuration, however, was instable and self-contradictory. Without full abolishment of the private sector, the liquidation of the old ruling classes, and popular democracy the regime was caught between the logic of accumulation and the interests of its class base. The choice was between, on the one hand, a democratization of the state and the complete nationalisation of the economy, and, on the other, economic privatizations and the integration of the state elite with old and new private capital groups into a new ruling coalition.

Towards a rentier economy

Open Door Policy

The regime was reluctant to cut consumption after a brief and much contested experiment in 1965.85 Nasserite Bonapartism then turned to the left to outbalance rightist layers of the state bureaucracy and their bourgeois allies who called for economic liberalisation. However, the
85

Farah 1986, p. 989.

36

defeat of Egypt in the Six Day War weakened Nassers position and halted the leftist turn. The state fell back on its core actors: the state, the bureaucratic and technocratic middle classes, and the army.86 After Nassers death in 1970 the Nasserite political superstructure had become an obstacle for President Anwar Sadats rightist policies and during the Corrective Revolution of 1971-72 the state apparatus was cleansed of the influence of Marxists and Nasserists. Soviet advisors were ousted. Sadat leaned on the bourgeoisie and the landed elite to crush his political opponents. In exchange for their support, Sadat reverted some of the Nasserite reforms. Large landowners were able to reclaim their sequestered lands and agricultural rents were raised for the first time since 1952. Private companies were legally protected against nationalisation, public-private enterprises were regulated as private instead of public companies, and a number of free economic zones were created which offered beneficial labour and tax conditions for foreign investors. The October War of 1973 improved Sadats nationalist credentials in the short term, and allowed him in the long term to negotiate a separate peace with Israel, switch sides in the bipolar world order, and become a loyal client state of the USA. In 1974 Sadat announced the Infitah (Open Door Policy), a program of economic and political liberalisation and reintegration in the capitalist world market,
86

Cooper 1979, p. 515.

37

aimed at attracting foreign investment. Sadats Corrective Revolution and Infitah were weapons of a bourgeois-Bonapartist counter-coup, directed against the Nasserite bureaucracy and a rising popular left which mobilized, for the first time since 1952, students and workers in mass street politics.87

Already in the second half of the 1970s it became clear that the Open Door Policy faced huge economic and political obstacles. In general, the Infitah failed to attract direct foreign investment, and international capital was mainly interested in the service sectors and not in industry. 88 This should come as no surprise, as foreign capital was invited on the demands of the old commercial capital, loan capital and landed property, halting industrial development. Industrial capital had to compete with an alliance between commercial and foreign capital. Commercial capital was not interested in revolutionizing production, but followed the principle of buying cheap, selling dear through investment in trade, speculation, and by controlling local markets, real estate and petty production units. Commercial capital could maintain its important position because it mediated between foreign capital and local selling places. Monopoly prices of high technological commodities typically lower the rate of profit for industrial capital, but commercial capital received a share of the
87 88

Bayat 1993, pp. 778; Farah 1986, 224; Lachine 1977, 45. Farah 1986, p. 114.

38

prices through its distribution of international commodities. The fractions of the new bourgeoisie class which did not control trade networks suffered under monopoly prices of foreign multinationals and the domestic public sector and had to align their production with the interests of the dominant classes. The entwinement of unequal exchange and failed industrialization had far-reaching consequences: there was a continued absolute advantage for foreign capital with monopoly power as multinationals have a higher amount of constant capital, making the production process more efficient and lowering the value of commodities. In a free-trade neoliberal regime the amount of investment required to compete with foreign capital is considerable; thus technological development is precarious. Without the backing of the state, the lack of labour-saving techniques and technological investments, and the political undesirability of a higher rate of exploitation Egypts industries became even more dependent on foreign capital. There was no coherent chain of production as every capital-intensive industrial activity implied a further reliance on the system of multinational monopoly prices. In 1976 the government entered a deal with the IMF to reduce subsidies of consumer goods in order to decrease state deficit. This led to a spontaneous uprising in January 1977 of workers and urban lower-middle classes which temporarily halted the liberalisation process.89 Despite the failure
89

Beinin 2001, p. 157.

39

of the ISI-model, the fiscal crisis and the end of the Nasserite consensus, until the mid-1980s the public sector continued to expand and the regime sustained its redistributive polices.90 State capitalism had given up its industrializing ambitions, but it was able to prolong its life-form through an accumulation of non-productive revenues or rents.91

Dynamics of a rentier economy

Throughout the Nasserite economic cycle total profits had continuously increased, although the rate of profit declined during its final years. The Nasserite initiation of real subsumption triggered an expansion of absolute surplus-value extraction: longer working hours, intensification of the labour process and lower wages. Between 1975 and 1985 Egypts economy grew with an impressive average of 8 per cent. However, this growth was not an expression of the development of productive forces, but a reflection of an increasing share of rents in the national income: remittances of Egyptian migrants working in the Gulf countries, tariffs of the Suez Canal, tourism, oil, foreign loans and aid. Sadats Infitah did not revolutionise the extraction of relative surplus-value. The productive sectors were neglected, which actually led to a deindustrialization of the
90 91

Richards and Waterbury 2008, p. 190. Richards and Waterbury define economic rent as the difference between the market price of a good or a factor of production and its opportunity cost (the price needed to produce the good or to keep the factor of production in its current use). Richards and Waterbury 2008, p. 15

40

country, to increasing unemployment (from 2.2 per cent in 1960 to 11 per cent in 1986), and to a decrease of average real wages (from 70 dollars in 1980 to 11 dollars in 1991). High inflation rates (an average of 25-30 per cent per annum) undermined real economic growth.92 Rents were not invested in industry or agriculture but were spent on imports and subsidies of consumer goods.93 The very high long-term rate of interest blocked any change in the pace of the industrial-technical process.94 The technical composition of capital did not change as the new bureaucratic owners of the factories were still able to generate profits. There was a stabilisation of the rate of profit and a temporary upsurge of the rate of exploitation, even though the rate of accumulation was stationary. The rate of investment declined because profits were not used to secure capital productivity. In fact, factory owners now had their own source of rent. The rentier economy was based upon a fuse between a profit and a rental logic. Formally the new owners acted as industrial capitalists, but in practice their primary goal was to obtain rent. In the short run, this resulted in a rise of GDP, but it also had an impact on the law of value, preparing the way for Mubaraks regime of accumulation. A major problem of the mingling of the logic of profit and rent was the growing lack of effective demand which indicated a shift towards a stationary

92 93

Farah 2009, pp. 3941. Richards and Waterbury 2008, p. 223. 94 Sawyer 1989, p. 278

41

state economy. Kalecki points out that this trend accelerates when rentier savings in industrial activities are growing exponentially.95 The incentive to invest, conditioned by the rate of profit and the accumulation process (social and technological), was absent in this steady state economy. Although the availability of money capital to finance the relative surplus value extraction was abundant, the blending of a profit and rental logic limited Egypts options to overcome this economic stagnation. In the end the choice was between eliminating the rental logic or unearthing new sources of rent.

Rentier capitalism fortified both state and private capitalist actors as the rents were accumulated and distributed centrally through the state, encouraging clientelist relations, while private capital often entered the rent distribution process through subcontracts and the black market.96 This process affected changes within the Egyptian power bloc, as a position within the bureaucratic machine was no longer the only route to obtain economic profit. Class fractions outside the state apparatus were able to buy political positions, becoming a new political force within the state elite.97 In addition, a sizeable part of rents escaped state control and were absorbed by the Islamic banks and investment companies,

95 96

Kalecki 1991, p. 335. Farah 1986, p. 115; Richards and Waterbury 2008, p. 17. 97 Brouwer 1995, p. 77

42

fuelling the economic activities of a rising Islamic bourgeoisie which consisted mostly of landed, merchant, and financial capital.98

Egypts industrial bourgeoisie remained weak because it had to compete on an unequal footing with an objective alliance between foreign capital and domestic landed and commercial capital. Post-Nasserite Egypt became integrated in the trade network of multinational industrial and finance capital and welcomed the influx of commodities as a consumer market. Export was mainly based on raw materials and cheap commodities which reinforced the dominant position of landed property. Together with commercial capital large landowners engaged in speculative activities. These economic factions had no intention to invest in industrial sectors, as the combination of high rental income and real estate property granted higher revenues. Most surplus value still existed in the form of rent, interest, speculation in politicized land markets or commercial income. In 1982 only 20 per cent of total new capital was invested in manufacturing activities.99 Furthermore, non-industrial activities tend to flourish under a high interest rate, while industrial capital needs cheap loans. Industrial capital prefers to invest in constant capital to reduce the cost of wages, but concurrently it has to produce for commercial capital at a low rate of profit. Commercial capital and foreign
98 99

Beinin 2005, pp. 12123; Mitchell 2002, 278. Khafaji 2004, p. 278.

43

capital only accept industrial activity with low wages, which is contradictory to the wishes of industrial capital to invest in technology. Commercial capital requires low scale activity; industrial capital needs centralization. Rapid industrialization would have undermined the economic and political strength of landed and commercial capital.100

The outcome was a very low rate of accumulation, low wages and a low rate of profit in the industrial sectors. This caused a structural lack of effective demand and class polarization.101 Even a higher level of investment in the public sector would not have drastically augmented the purchasing power of the working class. The wages in the industrial sector in the post-Nasserite period declined commensurable with the stagnant growth of value added activities. Under Nasser there was a relative trade-off between industrial growth and equity because the state interfered in the redistribution of national income. In the post-populist period the amount of profit rose without an accelerated rate of accumulation. This rate of accumulation is driven by stepping up the rate of exploitation (the ratio of surplus-value to variable capital). Profits can rise because of a Ricardian steady state: profits are higher because wages are lower. A substantial part of the surplus-value went to rent and speculation without being redistributed by taxation. Rental revenues
100 101

Khafaji 2004,p. 73. Farah 1986, pp. 2930.

44

were high because the agricultural sector was still based on rising rents without any additional investment. Land speculation became a common feature, but contrary to Western agricultural capital the formal appropriation of land cannot be regarded as solely a financial asset.102 It also remained a political force.

Through a reliance on rents and an alliance with foreign financial and domestic merchant and landed capital the regimes of Sadat and Mubarak blocked the development of productive forces in Egypt. While state capitalism maintained its form of state-led accumulation, it lost its real content of accumulation-driven development. The heritage of state capitalism turned the higher bureaucratic echelons into a gateway of business opportunities, as they offered valuable networks and reinvested their funds into diverse productive and non-productive private activities. The main goal of the Infitah-bourgeoisie was the appropriation of economic and political influence within the matrix of transitional structures. The rentier phase slowly transformed collapsing state capitalism into a defragmented unity of dependent crony-monopoly capitalism.

102

Harvey 1982, p. 21.

45

Disintegration of state capitalism

Towards a new regime of accumulation

By the mid1980s the foundations of the rentier economy were eroded. The global fall in oil prices decreased Egypts oil earnings and migrant workers remittances, as labour demand in the Gulf countries declined. Terrorist incidents in 1985 and 1986 damaged the lucrative tourist sector. National debt rose to more than 38 billion USD in foreign obligation and the budgetary deficit increased to over 20 per cent.103 The end of rentier capitalism and the unwillingness of the regime and the various capital groups to invest in the productivity of agriculture and industry necessitated a new regime of accumulation which drove up the rate of exploitation. However, a resurgence of workers actions and strikes in the 1980s, the resistance of the corporatist labour bureaucracy, and the prudence of the Mubarak regime postponed harsh measures until the beginning of the 1990s.104 The fiscal crisis of the early nineties, induced by Egypts inability to pay its military debts forced Mubarak to accept an IMF imposed Economic Reform and Structural Adjustment Program (ERSAP) inspired by the neoliberal Washington Consensus.105 The goal

103 104

Richards and Waterbury 2008, p. 225. Beinin 2001, p. 159. 105 Mitchell 2002, p. 276.

46

of the ERSAP was to minimize inflation and foreign debt, through cuts in the public sector, state subsidies, and government expenses,

privatizations of state enterprises, wage freezes, liberalisation of domestic and foreign trade, commercialization of agricultural lands, and a flat tax. The ERSAP was used as an excuse to strengthen the position of private capital at the expense of labour, which resulted in a heightened class struggle of workers and farmers who saw their basic livelihoods threatened.106 The Egyptian regime regarded landed capital as a willing ally in the realization of the free trade policies of the IMF and World Bank which promote cash crop production. In 1992, as a declaration of war against rural labour, the Nasserite land reform law 96 was abrogated. In postNasserite Egypt almost all tenants had to pay a certain form of legally fixed capitalist rent. Law 96 was the first initiative to remove the ceiling on the amount of rent. Increasing land rents was a necessary step to maintain the rate of profit for landowners, as the concentration of land had caused a fall in productivity.107 From 1997 on land rents were governed by market prices instead of the former fixed rent system. In addition, landowners gained the right to drive tenants from their land.108 A majority of lands are now fully owned by the landed elite and

106 107

Farah 2009, p. 41. Dyer 1997. 108 Beinin 2001, p. 164.

47

embedded in a modern capitalist system of cash paid tenancies, allowing the landlords to accumulate capital at an accelerated speed.109 Social relations in the countryside are, however, only partially transformed. Small capitalist tenants can survive because wages of land labourers remain low and because they rely on the family household. Landed property is not inclined to eliminate household production, as further commodification of the labour market would lower wages and rent income. The current subsistence economy in the countryside

encompasses a particular mix of capitalist and non-capitalist elements. Labour has been commodified in the sense that it produces a surplus in commodity-form for market exchange in order to, on the one hand, meet rental obligations in a monetary form and, on the other, to exchange subsistence commodities with other farmers.110 Farmers labour can be regarded as being exchanged as labour-power vis--vis landed property, but at the same time peasants act as petty producers in the exchange of subsistence commodities. This is the reason why the state and not market forces has traditionally regulated the amount of land rent, as capital does not penetrate agricultural output even though this output is sold as any other commodity. Furthermore, when forms of mechanization occur, these are only to the benefit of landed property and commercial capital, while in advanced capitalist countries mechanization has been
109 110

Bush 2009, pp. 8890. Chevalier 1982.

48

the instrument of the penetration of the countryside by industrial capital.111 The outcome is a reinforcement of a (landed) rentier logic under the false flag of liberalisation with a partial commodified agricultural sector and low productivity. The land reform was meant to achieve lower market-led prices, but, ironically, the opposite effect occurred.

Crony capitalism

In the industrial sector, regime policies were aimed at reducing the competitiveness of state enterprises, forcing their bankruptcy and privatization.112 A new Ministry of Investments was established, which became the primary executor of the privatization process. State factories such as the Qalyub Spinning Factory were sold far beneath their actual value.113 Selling shares of state-owned enterprises on the Cairo stock market created an economic mini-boom in 1996-97. The state made 1.5 billion dollars from these privatizations. Meanwhile, real wages in the public industrial sector dropped by eight per cent between 1990 and 1996.114 By 2002 half of the public enterprises were privatized or

111 112

Dennis 1982. Mitchell 2002, p. 279. 113 Beinin 2009, p. 30; Farah 2009, pp. 4950. 114 Mitchell 2002, p. 280, 286.

49

liquidated.115 After 2004, the aggressive policies resulted in an economic growth of 7 per cent, reflecting the rapid accumulation through dispossession116.117 It had dire consequences for workers, farmers, and urban middle classes, which were confronted with diminishing

purchasing power, and increasing unemployment and poverty.118

Even though regime policies were driven by a logic of accumulation through dispossession, they could hardly be labelled as in conformity with the Washington Consensus. The government fought the financial crisis of 1990-91 with a massive capital injection in the banking sector (5.5 per cent of GDP and an additional fiscal exemption worth 10 per cent of GDP).119 Public holding companies remained the largest shareholders in many of the privatized enterprises. Some privatized firms were sold to public banks. State holding companies set up private corporations or joint ventures. In 1998 the state bought back shares in most of its privatized enterprises.120 In reality, a liberalisation process was not underway, but rather the consolidation of a development that had already been underway since the 1980s: the blurring of state, semistate and private capitalist sectors. State elites became investors in large

115 116

Richards and Waterbury 2008, p. 251. Harvey 2003. 117 Beinin 2009, p. 30. 118 Farah 2009, pp. 435. 119 Mitchell 2002, p. 279. 120 Mitchell 2002, pp. 28182.

50

private sector enterprises or used state power to favour their friends and families in the subcontracting sector, realizing huge profits.121 Egypts military-industrial complex developed a large civilian sector, engaging in construction, transport, telecom, food production and capital-intensive desert reclamation, and building clientelist networks between private, joint-venture and military firms.122 The corporatist trade unions evolved into economic enterprises, managing pension funds, business

investments, housing, and banks.123 In 2005 Egyptian capitalists favoured by the regime gained a direct grip on the state as ministers of trade and industry, housing policy, mobility, healthcare, agriculture, and social security. The introduction of neoliberal measures in countries with an extensive public sector such as Egypt has not stimulated the free market as a primary organizer of economic life, but it reinforced crony capitalism and monopolistic tendencies: the close ties between the regime and segments of Egyptian big business were hardly weakened by privatization. In many respects, the process resembles the nomenklatura privatizations of the former Soviet Union insiders strongly connected to the state apparatus gathered most of the benefits.124 Although much of the form of state capitalism continues to exist, its actual substance has become the opposite of its past content. Appeals for the defence of the
121 122

Mitchell 2002, pp. 28081. Bianchi 1989, p. 5. 123 Richards and Waterbury 2008, p. 334. 124 Richards and Waterbury 2008, p. 251.

51

public

sector

or

the

developmental

state

against

neoliberal

encroachment are meaningless in the contemporary Egyptian context. The current process is one of state capitalism in reverse: the state loses its role of universal capitalist and becomes the particular tool of a select group of oligarchs who are closely connected to foreign financial and select domestic capital groups. In the process of state capitalism in reverse, rents are even more important than during past decades. Productive activities which have a profit rate comparable with the interest of rental income are very limited. The main economic interest of statist elites is the increase and expansion of rental income, therefore the breakdown of workers rights and the imposition of adjustment and austerity programmes are logical consequences of the stalled

industrialisation.125

Conclusion

This essay aimed at explaining the nature of Egypts economic development through a focus on the trajectory of the real and concrete social formation, and employing,the notion of uneven and combined
125

Mitchell 2006.

52

development as a key frame of analysis. Through the study of the Egyptian social formation the systemic logic of capital was completed with the particular logic and realities of pre-capitalist structures. The concept of uneven and combined development enabled us to integrate the dynamics and interactions of the nation state and the world economy into one coherent frame of analysis which refrains from reducing the whole to its parts and vice versa. The story of Egypt cannot be told as just a submissive integration into the capitalist world economy, nor as a mere blocked transition because of resisting pre-capitalist elements. Both the development of capitalism on a world scale and the lack of capitalist relations inside the Egyptian social formation impeded economic development. Egypts halted transition to Western-style capitalism has been a protracted process which started from the very beginning of capitalist penetration in the Egyptian social formation. Egypts integration into the emerging world market between the second half of the eighteenth and the first half of the nineteenth century was not accompanied by the appropriation of the capitalist mode of production. The absolutist state of Muhammad Ali embedded advanced productive forms in a pre-capitalist structure, neutralizing their transformative capacities. From the second half of the nineteenth century onwards, imperialism followed by formal colonialism and informal neo-colonialism, forcefully introduced the
53

capitalist mode and relations of production in Egypt. Ultimately this did not lead to a revolutionary expansion of the productive forces because of the interests of foreign capital which coincided with those of strong and actively resistive pre-capitalist social forms and agents. Only Nasserite Bonapartism was able to break the double hold of imperialism and the pre-capitalist ruling classes over Egypts industrial development. Through state capitalism the formal and real subsumption of labour under capital was initiated and capital-intensive industrialization stimulated economic development. Nonetheless the Nasserite system was fraught with internal contradictions which impeded development in the long run. First, the expansion of the productive forces did not acquire a permanent character due to the difficulties of capital-intensive industrialization. Secondly, the class base of the regime came into contradiction with the accumulation logic of state capitalism, forcing a choice between the populist consumption policy and the investment demands of

developmentalism. Third, without the full liquidation of the private sector and the pre-capitalist ruling classes, state capitalism had a tendency to privatize itself. The Nasserite state actors used the private sector to accumulate capital privately, while private actors used the states subcontracting policy to expand their economic activities. The synthesis of these three contradictions would have led to a quick disintegration of state capitalism, but the rise of a rentier economy in the 1970s and
54

1980s enabled the system to outlive itself. An objective alliance between domestic merchant, commercial and landed capital groups, the state, and foreign capital enabled private capital accumulation, but frustrated economic development. The end of the rentier phase in the 1990s laid bare the contemporary monopolistic and oligarchic nature of capitalism in Egypt.

The particular road of Egyptian capitalism clearly shows that the world market did not just export the capitalist mode of production and underdevelopment as its natural effect. Wallerstein and Amin presuppose the capitalist world economy as a totality in which Western states use coercive force to shape the internal economic affairs of the periphery. The Egyptian case refutes this one-sided analysis. Although capitalism as a global economic system is continuously expanding in a social-spatial way, this does not imply a straight-forward displacement of pre-capitalist modes of production by capitalist variants. Rather, the Egyptian social formation has its own internal transformative logic which cannot be reduced to the coercive force mentioned above. Also, the capitalist mode of production does not autonomously rearrange the set of productive forces and relations of production. Following Reys

perspective, the history of the Egyptian social formation demonstrates that other modes of production can, within limited spatio-temporal
55

boundaries, adjust themselves to the demands of the world market. The result is never a historico-logical jump towards a more commodified economy, but rather an unstable series of hybridisation.

Underdevelopment cannot be condensed into a single logic. There is not enough capitalism in the sense that some social forces frustrate the creation of commodity relations in order to gain wealth. These forces only contribute to industrialization if it benefits other economic activities. There is too much capitalism as the Egyptian social formation has to bear the social costs which flow from the penetration of international capital. Western-style capitalism lost its meaning as the ideal object, historical and logical, but it is still the most important reference regarding the comparative aspect in the research of non-Western social formations.

At the time of writing the Egyptian political regime is experiencing a transformation, brought about by a revolutionary mass movement. The unfolding process could signify a new phase in Egypts economic development - perhaps even a return to some form of substantive state capitalism (or, depending on the outcome of the class struggle: socialism) and the rationale of the popular consumption policy. If so, the Egyptian masses will have to solve many of the problems which caused the downfall of Nasserite state capitalism: a self-privatizing bureaucracy,
56

a military ruling caste, a logic of productivism, and the riddle of capitalintensive industrialization while at the same time avoiding a position of dependency in the world market induced by local elites and foreign capital.

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