Few countries have been less integrated into the global economy than Egypt.

Jan 31, 2011
WSJ

By ZACHARY KARABELL

The mass movement engulfing Egypt exposes a fact that has been hiding in plain sight: In a decade during which China has brought more people out of poverty at a faster rate than ever in human history, in a period of time where economic reform has been sweeping the world from Brazil to Indonesia, Egypt has missed out.

A decade ago, IBM ran a series of commercials featuring its global reach. One included a fisherman sailing on the Nile, tapping into a wireless network. It was an enticing image—and almost completely fictional. Few countries have been less integrated into the global economy.

The country ranks 137 in the world in per-capita income (just behind Tonga and ahead of Kirbati), with a population in the top 20. And while GDP growth for the past few years has been respectable, averaging 4%-5% save for 2009 (when all countries suffered), even that is at best middle of the pack in a period where the more competitive dynamic nations have been surging ahead.

Egypt has long been famous for crony inefficiency. Yet Hosni Mubarak was graced with nearly $2 billion in annual U.S. aid, another $5 billion from dues from the Suez Canal, and $10 billion in tourism, so he could buy off a considerable portion of the 80 million Egyptians.

In modern times, Egypt has been a beacon of hope in the Arab world, with an independence movement led by Gamel Abdel Nasser rising against the remnants of the British empire in 1952. That beacon was kept alive by Nasser’s successor Anwar Sadat, who is remembered in the West primarily for his bold overtures to Israel and a peace treaty in 1981 that led to his assassination.

But Sadat’s most lasting legacy for Egypt may have been his brief attempt to liberalize the economy (the Infitah) and open the country to the world. While President Mubarak gave lip service to that economic opening, for much of the subsequent three decades Egypt’s economy has been locked in a system that stifles economic activity and innovation as surely as it does political expression.

In recent years, Mr. Mubarak seemed to realize that the complete absence of economic reform wasn’t tenable. He watched as China surged ahead without loosening the control of the state over political life. He made overtures to regional trade blocs. In fact, a few days before the protests erupted, Mr. Mubarak hosted the second Arab Economic, Development and Social Summit in the resort of Sharm al-Shaikh, calling for more Arab economic integration, regional transportation infrastructure and trade.

But in the past, the changes promised far exceeded the changes effected, and there was little reason to think this time would be different. Mr. Mubarak has resisted calls for political opening with the warning that Muslim fundamentalism would sweep through the land of the Nile.

The world accepted Mr. Mubarak’s rationale. Washington focused on the threat of Islamic radicalism and chose to nudge Mr. Mubarak gently rather than risk what he warned would happen if elections were open or expression allowed.

Meanwhile, China ignored the dialectic in the West—which placed political opening at the top of societal imperatives—and plunged into an experiment of hypercharged economic development without political change. Its phenomenal success to date is impossible to refute, just as its future course is impossible to predict.

But Egypt managed to forestall both paths, and its lesson is simple: You can have economic reform, or you can have political reform. You cannot have neither.

What allows China to thrive for now (and Brazil and India and Indonesia, among many others) is that its citizens believe they have some control over their material lives and a chance to turn their dreams and ambitions into reality. They have an outlet for their passions that is not determined for them, and an increasing degree of economic freedom.

The young in Egypt—two-thirds of the population is under the age of 30—believe that they have no future, and in many ways they are correct. Under Mr. Mubarak, their food and housing is subsidized and they are placed in jobs or left in unemployed limbo, not starving but without any hope of anything but years of numbing sameness.

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