1. Political and Economic Reform in Egypt Suggestions and Recommendations Professor E.A. BRETT Department of International Development London School of Economics

2. Outline & Structure The Nature of the Egyptian Crisis The Political and Economic Challenge The Roots of the Crisis Economic Inefficiency and Inequality Political Authoritarianism and Social Exclusion Proposals and Prospects Political Reforms Economic, Social and Environmental Reforms Key Implementation Issues

3. The Nature of the Egyptian Crisis Egypt has experienced major economic fluctuations since the creation of a state-led economy in the 1950s, and growing inequality, environmental decline and political upheavals since the start of the millennium. This crisis confront the society with both threats and opportunities. A failure to address the ongoing crisis could reduce growth, weaken the state and increase inequalities and social tensions. But it could also persuade society to adopt an inclusive and effective economic programme like those in developmental states like South Korea and Turkey.

4. The Economic and Political Challenge The 2011 rebellion was driven by a demand for regime change and universal democratic rights. This ended the autocracy, but must now be followed by a disciplined reform programme. Sustainable progress now demands a viable economic and social project based on strong leadership, rational policies and improved performance by the private and public sector. This program needs to combine redistribution with growth by making major changes in resource allocation that will impose heavy demands on leaders and followers. Leaders need adequate authority and rewards, but subjected to accountability mechanisms that allow their beneficiaries to punish them if they fail.

5. The Roots of the Crisis 1 Economic Inefficiency and Inequality Egypt has a dual economy. A few capital intensive, monopolistic, politically connected firms coexist with thousands of small unproductive, low wage informal urban and rural enterprises. The corporate sector receives most state services, subsidies and monopoly privileges, offers immense rewards to managers and much better but declining conditions to its small working class. Unproductive small and micro enterprises employ most of the labour force, but get little support and generate low and insecure incomes. Rapid population growth will increase the significance of, and the stresses experienced by this sector for the foreseeable future.

6. 2 Political Authoritarianism and Social Exclusion This dysfunctional economic system has produced the authoritarianism, exclusion and antagonistic conflicts that produced the current crisis. The authoritarian regime allowed state and corporate elites to extract large rents and run inefficient firms, but the emergent middle class was marginalised and informal rural and urban producers were impoverished. The 2008 recession intensified these pressures, producing the crisis that overthrew the Mubarak regime. It also intensified sectarian antagonisms and failed to generate a unified secular political movement capable of implementing a viable redistributive programme. These weaknesses must be overcome or economic decline, exclusion and social conflict will increase, with devastating consequences.

7. Proposals and Prospects The government has introduced a reform programme comparable to that adopted by earlier developmental states like South Korea and Turkey to address these problems. Politically it has introduced a partial democracy that depends on military power, represses radical opposition, but has increased security, and appears to be committed to a serious programme of economic and social reform. It now needs to negotiate sustainable compromises between the demands of the old dominant elites, new emergent elites and marginalised urban and rural classes.

8. Economic, Social and Environmental Reform It has announced an impressive reform programme with strong donor support, designed to: Strengthen the state’s capacity to sustain inclusive growth by better macro-economic management and investments in infrastructure, and essential public services; Reduce the monopoly powers allocated to the corporate sector by extending the market based reforms begun in the late 1980s, Use savings from inefficient subsidies and bureaucratic waste to finance pro-poor education, health, population and environmental reforms. Support small urban and rural businesses

9. Key Implementation Issues 1 Maintain political stability, Reduce the influence of entrenched elites, Reform and decentralise state institutions, Strengthen representative civic institutions, Reform the state bureaucracy, Create a redistributive and transparent tax system. 2 Develop a state and market based investment strategy Support large-scale enterprises but increase their efficiency Reform regulation and support of small rural and urban producers; 3 Strengthen civil Society Improve human capital through better education, Strengthen women’s rights Reduce population growth Address the environmental crisis.