(An analysis of economic motivations in a dictatorship regime, taking Egypt as an example study.)
[/b]
Government Banditry- In the Sands of Time[/b]
[/b]
The political agitation in Egypt which has been persisting for the past many days has borne fruit with the step down of President Mubarak. It has revealed that, one cannot quell the human spirit for long and keep it away from its tryst with freedom. These demonstrations that were being displayed resolutely since January 25th are only the tip of the ice berg which has surfaced after thirty years of oppressive rule under President Mubarak, in Egypt.
Reminiscing about my voyages across the world’s seas, it was in the year 2003 mid October, on my maiden voyage on board of the car career, MV. Procyon Leader, when we landed on the shores of Egypt, Port Said, along with my shipmates consisting of deck officers, engineers and other crew members. At the port, we were introduced to an onshore agent named Ahmed, a friendly chap, who volunteered to accompany us to the city of Cairo. The three hours of drive through the Port Said desert road was sultry and uneventful except for the occasional chatter of Ahmed, acquainting us about the customs and traditions of Egyptian people. Around 5 p.m., we arrived at Cairo city. Our attention was instantly drawn by a distant, but magnificent view of the pyramids of Giza, which loomed in the sky like some kind of giant alien spaceships over the city. Walking the streets of old Cairo city was my childhood dream come true. It felt like being transported back in time, to a different era altogether, with centuries old pyramids, the enigmatic sphinx, old mosques, madrasas, hammams, fountains, innumerable antique shops and colossal number of mud colored buildings like in some ancient city. Unlike the old Cairo city and the poorer regions of Cairo, the urban side was awash with sprawling corporate houses, condominiums, restaurants together with other government induced infrastructure developments. However, amidst all these glory, what left me wondering at that time were seeing the relative living conditions of the average Egyptian, which seemed abysmal in contrast to the background picture. The economic gap between the country’s rich and poor had widened considerably over the past decades, considering the relative high economic growth Egypt has achieved. Though Egypt has jumped to GDP growth levels in the range of hundred billion US dollars since 2006, about 40% of the population has been categorized in the spectrum of being “near poor” to “extreme poor”, living on an income of 2$ per day. What an average American would consume on a cup of coffee would power an Egyptian for 3 days.
Unraveling the Mysteries under the Tip of the Ice Berg[/b]
Time and again, it has been observed that state-controlled economic systems don’t provide the right incentives to promote the desired and healthy economic growth and development. An economist called Mancur Olson suggested a working assumption that government motivations are dark and produced a remarkable and simple theory of why stable dictatorships should be worse for economic growth than democracies, but better than anarchies. Olson supposed that governments are simply bandits, people with the biggest guns who will turn up and take everything. That’s the starting point of his analysis- a starting point that you will have no trouble accepting if you spend five minutes looking around you in some of the world’s most corrupt countries.
Now if we were to consider a bandit who is synonymous with “Gabbar Singh” of Sholay fame, such a person would sweep into a village, and loot whatever his hands can get hold off and dash away. Considering that such a person is neither kindhearted nor malicious in nature, but that he is purely self-interested, what incentive such a person would have to leave anything behind? The answer is- nothing… unless he plans to loot again next year.
Now imagine, a bandit like “Mogambo” of Mr. India likes the beauty of a certain place and decides to settle down, building a palace and encouraging his army to avail themselves of the locals. Desperately unfair though it is, the locals are probably better off now that the dictator has decided to stay. A purely self-interested dictator will realize that he cannot exhaust the resources of the economy completely and starve the people if he plans on continuing his reign, because then he would have nothing to steal the following year. And so a dictator who lays claim to a land is a preferable leader than one who moves around constantly in search of new victims to plunder.
Although it may seem totally unrelated, economist Tim Harford offered a comparison from Biology as a model here: viruses and bacteria tend to become much less virulent over time, because the most extreme strains die out rapidly. When syphilis was first recorded in Europe in the late fifteenth century, it was described as being an extremely aggressive disease, which brought forth swift death upon its victims. However, for long term survival, it is better to be a virus that allows its victims to live, at least for a little while, to spread the disease. So mutated strains of syphilis virus, that were slow in killing their victims, turned out to be much more successful and long-lasting than the most virulent strains.
Superimposing the theory given by Mancur Olson, if President Mubarak is supposedly a self-interested dictator, it wouldn’t be in his interests to take too much from the Egyptian people, because otherwise there would be nothing to take next year. As long as he feels secure in his tenure, he will not wish to kill the goose that lays golden eggs. Like a parasite, whose very existence relies on the nourishment it derives from the body of its victim, Mubarak would have to keep the Egyptian economy functioning in order to keep stealing from it. Mubarak’s personal wealth is estimated to be no less than US $40 billion. Considering a successful company in India like HCL, with net worth around US $4 billion, you can get an idea of what scale of wealth we are talking about (10 times). This suggests that a leader who confidently expects to be in power for twenty years or so will do more to cultivate his economy than one who expects to flee the country after twenty weeks. So we read his various contributions to infrastructure development and economic growth in Egypt. Twenty years of an “elected dictator” is probably better than twenty years of one coup after another. So do we stretch our arms and say, “Hail Mogambo!!??”
Not quiet, all these theories of Olson are not to suggest that stable dictatorships are good for a country’s economy, but only that it would damage the economy less than unstable ones. But leaders like Mubarak, who are confident of winning elections always, are still very detrimental to the people and economies of their countries. Staying with the simple assumption that Mubarak has an absolute power over the distribution of Egypt’s income, he might decide to steal, say, half of it every year in the form of “tax,” which goes into his personal bank account. That would have an adverse impact on Egypt’s long term growth.
One of the critical elements which acts as a blockade against a healthy economic growth and development of a country is government banditry, in the form of oppressive regulations, widespread waste, which provides a milieu for bribery and corruption.
The Future of Egypt[/b]
With all the mayhem happening in Egypt, many questions remain unanswered. Though President Mubarak has step down, will the new government, which is likely to be formed by leading protestors, (with a strong Islamic influence from the banned organization called “Muslim Brotherhood”) exercise Sharia Muslim laws in Egypt? Will democracy- right to freedom of expression and a capitalist system, which brings economic freedom and thereby jobs and prosperity be really[/i] implemented in Egypt? What will be their foreign policy? Will a new government provide stability along with promises of development? To summarize, where the future of Egypt is heading to, and how will their future political stance affect other countries? Countries such as Israel are worried about Islamic fundamentalists using the fake ladder of democracy to bring up an Islamist rule.
When thinking about the chaos Egypt is into, three words comes to my mind -“Rebirth, Re-design and Reorganize”. ‘Rebirth’ of a nation would signify abandoning old beliefs, systems, ideas, perceptions, which are a blockade to the country’s development and replace them with entirely new political ideologies. I can’t say it would be a trouble-free process, as there would be conflicting interests and forces, which make change painful, but in the end, inevitable. The direction and intensity of this rebirth would greatly depend on the leadership and policies of those who would come to power.
‘Redesign’ would entail restoring routine economic activities and simultaneously bringing in economic reforms. Here, lessons should be learnt from the success story of China’s economic development and transition. The Herculean task of directing China’s transition from a communist economy to more or less a capitalist economy, (human rights issues aside) was embarked upon, under Deng Xiaoping’s leadership, after he assumed the position of Paramount Leader around 1978. Deng directed the transition in a phased manner understanding that a sudden, extreme reform, would offend the vested interests of many including huge numbers of ordinary people, which could lead to the collapse of the financial system and result in a political disaster. Likewise, the Egyptian people should not resort to an immediate fix to all their problems, but must lay out market reforms in a phased manner.
The re-design of economic systems would also involve and lead to reorganizing resources, capital and labour on part of the government, into strategic sectors such as education, health, transportation etc. leaving commercial activities to private players. A political, economic and legal environment, which favors and encourages more entrepreneurship and competition, should be fostered, if Egypt truly wants to see rise in employment opportunities and more efficient distribution of income.
- By Sangeet P Pillai
Financial Editor- IRIS Business Services Ltd.
[email protected]
References:
www.egyptdailynews.com[/i]
www.washingtonpost.com[/i]
The undercover economist- Tim Harford Publication: 2007Random House Trade Paperback Edition[/i]
[/i]
[/b]
Government Banditry- In the Sands of Time[/b]
[/b]
The political agitation in Egypt which has been persisting for the past many days has borne fruit with the step down of President Mubarak. It has revealed that, one cannot quell the human spirit for long and keep it away from its tryst with freedom. These demonstrations that were being displayed resolutely since January 25th are only the tip of the ice berg which has surfaced after thirty years of oppressive rule under President Mubarak, in Egypt.
Reminiscing about my voyages across the world’s seas, it was in the year 2003 mid October, on my maiden voyage on board of the car career, MV. Procyon Leader, when we landed on the shores of Egypt, Port Said, along with my shipmates consisting of deck officers, engineers and other crew members. At the port, we were introduced to an onshore agent named Ahmed, a friendly chap, who volunteered to accompany us to the city of Cairo. The three hours of drive through the Port Said desert road was sultry and uneventful except for the occasional chatter of Ahmed, acquainting us about the customs and traditions of Egyptian people. Around 5 p.m., we arrived at Cairo city. Our attention was instantly drawn by a distant, but magnificent view of the pyramids of Giza, which loomed in the sky like some kind of giant alien spaceships over the city. Walking the streets of old Cairo city was my childhood dream come true. It felt like being transported back in time, to a different era altogether, with centuries old pyramids, the enigmatic sphinx, old mosques, madrasas, hammams, fountains, innumerable antique shops and colossal number of mud colored buildings like in some ancient city. Unlike the old Cairo city and the poorer regions of Cairo, the urban side was awash with sprawling corporate houses, condominiums, restaurants together with other government induced infrastructure developments. However, amidst all these glory, what left me wondering at that time were seeing the relative living conditions of the average Egyptian, which seemed abysmal in contrast to the background picture. The economic gap between the country’s rich and poor had widened considerably over the past decades, considering the relative high economic growth Egypt has achieved. Though Egypt has jumped to GDP growth levels in the range of hundred billion US dollars since 2006, about 40% of the population has been categorized in the spectrum of being “near poor” to “extreme poor”, living on an income of 2$ per day. What an average American would consume on a cup of coffee would power an Egyptian for 3 days.
Unraveling the Mysteries under the Tip of the Ice Berg[/b]
Time and again, it has been observed that state-controlled economic systems don’t provide the right incentives to promote the desired and healthy economic growth and development. An economist called Mancur Olson suggested a working assumption that government motivations are dark and produced a remarkable and simple theory of why stable dictatorships should be worse for economic growth than democracies, but better than anarchies. Olson supposed that governments are simply bandits, people with the biggest guns who will turn up and take everything. That’s the starting point of his analysis- a starting point that you will have no trouble accepting if you spend five minutes looking around you in some of the world’s most corrupt countries.
Now if we were to consider a bandit who is synonymous with “Gabbar Singh” of Sholay fame, such a person would sweep into a village, and loot whatever his hands can get hold off and dash away. Considering that such a person is neither kindhearted nor malicious in nature, but that he is purely self-interested, what incentive such a person would have to leave anything behind? The answer is- nothing… unless he plans to loot again next year.
Now imagine, a bandit like “Mogambo” of Mr. India likes the beauty of a certain place and decides to settle down, building a palace and encouraging his army to avail themselves of the locals. Desperately unfair though it is, the locals are probably better off now that the dictator has decided to stay. A purely self-interested dictator will realize that he cannot exhaust the resources of the economy completely and starve the people if he plans on continuing his reign, because then he would have nothing to steal the following year. And so a dictator who lays claim to a land is a preferable leader than one who moves around constantly in search of new victims to plunder.
Although it may seem totally unrelated, economist Tim Harford offered a comparison from Biology as a model here: viruses and bacteria tend to become much less virulent over time, because the most extreme strains die out rapidly. When syphilis was first recorded in Europe in the late fifteenth century, it was described as being an extremely aggressive disease, which brought forth swift death upon its victims. However, for long term survival, it is better to be a virus that allows its victims to live, at least for a little while, to spread the disease. So mutated strains of syphilis virus, that were slow in killing their victims, turned out to be much more successful and long-lasting than the most virulent strains.
Superimposing the theory given by Mancur Olson, if President Mubarak is supposedly a self-interested dictator, it wouldn’t be in his interests to take too much from the Egyptian people, because otherwise there would be nothing to take next year. As long as he feels secure in his tenure, he will not wish to kill the goose that lays golden eggs. Like a parasite, whose very existence relies on the nourishment it derives from the body of its victim, Mubarak would have to keep the Egyptian economy functioning in order to keep stealing from it. Mubarak’s personal wealth is estimated to be no less than US $40 billion. Considering a successful company in India like HCL, with net worth around US $4 billion, you can get an idea of what scale of wealth we are talking about (10 times). This suggests that a leader who confidently expects to be in power for twenty years or so will do more to cultivate his economy than one who expects to flee the country after twenty weeks. So we read his various contributions to infrastructure development and economic growth in Egypt. Twenty years of an “elected dictator” is probably better than twenty years of one coup after another. So do we stretch our arms and say, “Hail Mogambo!!??”
Not quiet, all these theories of Olson are not to suggest that stable dictatorships are good for a country’s economy, but only that it would damage the economy less than unstable ones. But leaders like Mubarak, who are confident of winning elections always, are still very detrimental to the people and economies of their countries. Staying with the simple assumption that Mubarak has an absolute power over the distribution of Egypt’s income, he might decide to steal, say, half of it every year in the form of “tax,” which goes into his personal bank account. That would have an adverse impact on Egypt’s long term growth.
One of the critical elements which acts as a blockade against a healthy economic growth and development of a country is government banditry, in the form of oppressive regulations, widespread waste, which provides a milieu for bribery and corruption.
The Future of Egypt[/b]
With all the mayhem happening in Egypt, many questions remain unanswered. Though President Mubarak has step down, will the new government, which is likely to be formed by leading protestors, (with a strong Islamic influence from the banned organization called “Muslim Brotherhood”) exercise Sharia Muslim laws in Egypt? Will democracy- right to freedom of expression and a capitalist system, which brings economic freedom and thereby jobs and prosperity be really[/i] implemented in Egypt? What will be their foreign policy? Will a new government provide stability along with promises of development? To summarize, where the future of Egypt is heading to, and how will their future political stance affect other countries? Countries such as Israel are worried about Islamic fundamentalists using the fake ladder of democracy to bring up an Islamist rule.
When thinking about the chaos Egypt is into, three words comes to my mind -“Rebirth, Re-design and Reorganize”. ‘Rebirth’ of a nation would signify abandoning old beliefs, systems, ideas, perceptions, which are a blockade to the country’s development and replace them with entirely new political ideologies. I can’t say it would be a trouble-free process, as there would be conflicting interests and forces, which make change painful, but in the end, inevitable. The direction and intensity of this rebirth would greatly depend on the leadership and policies of those who would come to power.
‘Redesign’ would entail restoring routine economic activities and simultaneously bringing in economic reforms. Here, lessons should be learnt from the success story of China’s economic development and transition. The Herculean task of directing China’s transition from a communist economy to more or less a capitalist economy, (human rights issues aside) was embarked upon, under Deng Xiaoping’s leadership, after he assumed the position of Paramount Leader around 1978. Deng directed the transition in a phased manner understanding that a sudden, extreme reform, would offend the vested interests of many including huge numbers of ordinary people, which could lead to the collapse of the financial system and result in a political disaster. Likewise, the Egyptian people should not resort to an immediate fix to all their problems, but must lay out market reforms in a phased manner.
The re-design of economic systems would also involve and lead to reorganizing resources, capital and labour on part of the government, into strategic sectors such as education, health, transportation etc. leaving commercial activities to private players. A political, economic and legal environment, which favors and encourages more entrepreneurship and competition, should be fostered, if Egypt truly wants to see rise in employment opportunities and more efficient distribution of income.
- By Sangeet P Pillai
Financial Editor- IRIS Business Services Ltd.
[email protected]
References:
www.egyptdailynews.com[/i]
www.washingtonpost.com[/i]
The undercover economist- Tim Harford Publication: 2007Random House Trade Paperback Edition[/i]
[/i]
