Liberal capitalism, crony capitalism and lumpen development

A. ‘LIBERAL’ CAPITALISM OR CRONY CAPITALISM?

Liberal (or neoliberal) capitalism, proposed and imposed without alternative solutions, is based on seven principles, which are considered to be valuable for all societies of the globalised world.
1. The economy must be managed by private companies as they alone conduct themselves naturally as agents operating under the demands of open competition. This is in fact beneficial to society and ensures economic growth based upon the rational allocation of resources and the fair remuneration of all elements of production - capital, labour and natural resources. Consequently, if as an unfortunate legacy of ‘socialism’ any assets such as productive enterprises, financial institutions, urban or agricultural land are owned by the state, they must be privatised.

2. The labour market must be liberalised, ‘authoritarian’ minimum wage setting (and sliding pay scales a fortiori) must be abolished. Employment law must be reduced to minimal regulations ensuring the morality of human relations between employer and employee, with trade union rights limited and controlled to this effect. Wage hierarchies resulting from private and free negotiations between employers and employees must be accepted, such as the sharing of net national income between earned and capital income resulting from it.

3. So-called public services - education, health, or even the supply of water and electricity, housing, transport and communications - where they have been provided by public agencies (state and local authorities) in the past - must also be privatised as much as possible. Their cost must be borne by individuals who are the beneficiaries and not covered through tax.

4. Fiscal function should be reduced to the minimum necessary to cover only state functions (public order and national defence in particular); tax rates must remain relatively moderate, so as not to discourage private initiatives and to ensure that reward is guaranteed.

5. Credit management must be assumed by private interests, allowing the unrestricted interaction of credit supply and demand to develop on a rational monetary and financial market.

6. Public budgets must be designed to be balanced and without deficit, bar those of a circumstantial and short-term nature. If a country suffers from a structural deficit due to past legacy and denial of that legacy is desired, its government must commit to reforms that reduce the extent of it as quickly as possible. Meanwhile, the deficit must be covered through borrowing on the domestic or foreign private capital market.

7. The six principles in question must be implemented not only at the level of all nations of the globalised world, but also in international relations, at a regional (for example the EU) or global level. Private foreign capital must move freely and be treated on an equal footing with local private capital

Together these principles constitute ‘liberal fundamentalism’. I will remind us at this point of the inconsistency of premature hypotheses and such a framework's lack of accordance with reality. Very briefly, it has never been proven through logical reasoning that the free play of general markets, even on the (unrealistic) extravagant assumption of the existence of so-called transparent competition, would produce a balance between supply and demand (which moreover, would be socially optimal). On the contrary, logical reasoning leads to the conclusion that the system shifts from one imbalance to another without ever seeking to obtain equilibrium. The successive imbalances in question are produced because this theory (which defines conventional pseudo-economics) excludes the conflict of national and social interests from its scope of investigation. Moreover, these assumptions describe an imaginary world which has no relation to the contemporary system that actually exists, which is a capitalist system of finance-driven, globalised monopolies. This system is not viable and its current collapse proves it. I refer here to my developments on this radical critique of the system in question and of economic theory.

When implemented worldwide, the principles of liberalism create nothing, in the peripheries of the ‘Global South’ that agree to submit, but a crony capitalism based on a Comprador State, in opposition to the National State committed to sustainable economic and social development. Crony capitalism (and no other form is possible) thus does not produce development, but rather a lumpen-development. The example of Egypt, to be examined in the following section, provides a fine example of this.

B. CRONY CAPITALISM, THE COMPRADOR STATE AND LUMPEN DEVELOPMENT: THE CASE OF EGYPT (1970-2012)

Successive Egyptian governments, from the inauguration of the Sadat presidency (1970) until the present day, have diligently implemented all principles proposed by liberal fundamentalism. What resulted from this has been the subject of reliable and accurate analyses, which have drawn the following indisputable conclusions:

1. The Nasserite plan to build a nationalist developmental state produced a model of state capitalism that Sadat pledged to dismantle, as he told his US representatives (‘To hell with Nasserism, socialism and all that nonsense. I need your support in overcoming it’ - support which needless to say was freely obtained). State-owned assets - industrial, financial and commercial enterprises, agricultural, urban and even desert land - have thus been ‘sold’.

Who to? To crony businessmen and those close to the government, that is, senior officers, high-ranking officials and rich merchants who returned from exile in the Gulf countries equipped with cool fortunes (in addition to political and financial support from the Muslim Brotherhood). But also to Gulf ‘Arabs’ and to foreign companies in the USA and Europe. At what price? At ridiculous prices, incomparable to the real value of the assets in question.

This is the manner in which the new Egyptian and foreign ‘owning’ class has been established and it fully deserves to be described as crony capitalist (rasmalia al mahassib, an Egyptian term to denote this which is understood by all). A few remarks:

a). Property granted to the ‘army’ has transformed the character of the responsibilities which it exercised in certain areas of the productive system (that is, ‘the army factories’) which it managed as a state institution. These powers of governance became the powers of private owners. Furthermore, in the course of privatisation, the most powerful officers also ‘acquired’ numerous other state assets such as property; commercial chains, urban and peri-urban land and housing estates in particular.

b). Egyptian opinion describes all these practices as ‘corruption’ (fasad) on the grounds of morality, thus assuming that a justice system worthy of the name could combat them successfully. Much of the left itself makes a distinction between this ‘corrupt’ condemnable capitalism and an acceptable and desirable productive capitalism. Only a small minority understand that when the principles of ‘liberalism’ are accepted as the basis for any so-called ‘realistic’ policy, there cannot be anything other than capitalism in the peripheries of the system. There is no such thing as a bourgeoisie establishing itself alone, on its own initiative as the World Bank would have us believe. There is a Comprador State which is active behind the creation of these colossal fortunes.

c). These Egyptian and foreign fortunes were amassed through the acquisition of existing assets, with no or only negligible additions to productive capacity. The ‘foreign capital investments’ (of Arab and other origins), which, as a matter of fact, are modest, are part of this framework. The deal was sealed with the establishment of private monopoly groups which would henceforth dominate the Egyptian economy. Inversely, we are far from the healthy and transparent competition of the praiseworthy liberal discourse. Moreover, the majority of these colossal fortunes consist of real estate assets; holiday villages (‘marinas’) on the coasts of the Mediterranean and the Red Sea, new neighbourhoods, Latin American-style gated and guarded compounds (previously unknown in Egypt), desert land usually destined for agricultural development. These plots are retained by their owners who speculate on their resale (value) after the State has covered the staggering costs of infrastructure that makes them attractive (and these costs were obviously not factored into the selling price of the land)…

2. The monopolistic positions of this new crony capitalism have been systematically reinforced by allowing these new billionaires to have almost exclusive access to bank credit (including for the ‘purchase’ of the assets in question) at the expense of granting loans to small and medium-sized producers.

3. Such monopolistic positions have also been reinforced by colossal state subsidies. For example, those granted for oil, natural gas and electricity consumption by the factories purchased from the State (cement works, iron and aluminium metallurgy, textiles and other industries). And yet the ‘free market’ has allowed these enterprises to raise their prices so as to adjust them to those of any competing imports. The logic of public subsidies which would compensate for inferior state sector prices is broken for the benefit of private monopoly superprofits.

4. Real wages for the vast majority of unskilled and semi-qualified workers have deteriorated as a result of the laws of the free labour market and the fierce repression of collective action and trade unions. They are now set at rates much lower than those of other countries of the Global South with a similar per capita GDP. Private monopoly superprofits and impoverishment go hand in hand and result in the continued aggravation of inequality in the distribution of wealth.

5. Inequality has been consistently reinforced by a tax system which denied the principle of progressive taxation. This low taxation for the rich and for corporations, praised by the World Bank for its so-called virtues of investment support, has simply resulted in the growth of superprofits.

6. These policies overall, implemented by the Comprador State at service of crony capitalism, produce only feeble economic growth (of less than 3 percent) and consequently, increasing levels of unemployment. When unemployment figures were somewhat better, it was wholly due to the expansion of the extractive industries (oil and gas), a better situation regarding their prices, and to growth from the Suez Canal charges, tourism and remittance from migrant workers abroad.

7. These policies have also made it impossible to reduce the public deficit and that of the external trade balance. They have led to continuous deterioration of the value of the Egyptian pound, and have imposed a soaring domestic debt. This gave the IMF the opportunity to impose ever-increasing respect for the principles of liberalism.

C. IMMEDIATE SOLUTIONS

These solutions are not the work of the author of this article, who was happy to simply collect them from the leaders of the movement's components - parties of the left and national democratic centres, trade unions, various youth and women's organisations, etc. A considerable, high-quality study was conducted for more than a year by these activists, who are responsible for formulating a common program responding to immediate requirements. Their formulation (repeated here) has already been the subject of various publications, including that of our colleague Ahmad El Naggar. The salient points that I have retained are as follows:

1. Transactions relating to the sale of public assets should be subjected to systematic questioning. Detailed studies - the equivalent of a good audit - are in fact available for many of these transactions and for prices corresponding to the value of the specified assets. Given that the ‘buyers’ of these assets have not paid these prices, ownership of the acquired assets must be legally transferred, following an audit ordered by the courts, to public limited companies, with the State as a shareholder equal to the difference between the actual value of the assets and that paid by buyers. The principle is applicable to all, whether these buyers are Egyptians, Arabs or foreigners.

2. The law must fix the minimum wage, at the level of 1200 LE per month (or 155 Euros at the current exchange rate, the equivalent purchasing power of 400 Euros). This rate is lower than in many countries with a GDP per capita similar to that of Egypt. The minimum wage must be associated with a sliding scale and the trade unions responsible for monitoring its implementation. It will be applied to all activities of public and private sectors.

Given that the beneficiaries of the free price-setting, that is the private sector, that dominate the Egyptian economy have already chosen to situate their prices closer to those of competing imports, the measure can be implemented and will only have the effect of reducing the margins of monopoly revenues. This readjustment does not threaten the balance of public accounts, bearing in mind the savings and the new tax legislation proposed further on. The proposals made by the movements concerned will be reinforced by adopting the maximum wage of 15 times the minimum wage.

3. Workers’ rights - the conditions of employment and loss of employment, working conditions, insurance plans for health/unemployment/pensions - should be subject to a major tripartite consultation between unions, employers and government. Independent trade unions built through the struggles of the past ten years must be legally recognised, including the right to strike (which is always ‘illegal’ in the current legislation). A ‘survival benefit’ must be established for the unemployed, in which the amount, the conditions of access and the funding should be subject to negotiations between the unions and the State.

4. The enormous subsidies granted to private monopolies by the budget must be abolished. Yet again, the detailed studies conducted in these areas show that abolishing these benefits does not undermine the profitability of the activities involved; however it reduces their monopoly profits.

5. New tax legislation should be brought in, based on the progressive taxation of individuals and a 25 per cent increase in the rate of taxation of profits for businesses which employ more than 20 workers. Tax exemptions granted with extreme generosity to Arab and foreign monopolies must be abolished. The taxing of small and medium-sized businesses, which are currently often heavier (!), must be revised downward. The proposed rate for the upper brackets of personal income – 35 percent - also remains small by international comparison.

6. A precise calculation was carried out which demonstrates that all the measures proposed in paragraphs 4 and 5 can not only eliminate the current deficit (2009-2010) but can also as generate a surplus. The surplus will be used to increase public spending on education, health and social housing subsidies. The reconstruction of a public social sector in these areas does not impose discriminatory measures against private activities of a similar nature.

7. Credit must be placed under the control of the Central Bank. Extravagant facilities granted to the monopolies should be withdrawn for the benefit of extending credit to small businesses in operation, or those that could be created in this perspective. Detailed studies have been conducted on the domains involved and all craft, industrial, transport and service activities. It has been shown that candidates willing to take the initiative in creating businesses and jobs exist (particularly among unemployed graduates).

8. The proposals made by the components of the movement remain less clear regarding the peasant question. The reason being that the small-scale farmers’ resistance movement against accelerated expropriations remains fragmented since the current ‘modernisation’ policies of the World Bank were adopted, and never goes beyond the village concerned - especially because of the fierce repression it is subjected to and its lack of legal recognition.

The demand of the current movement – which admittedly, is mainly urban - is simply for laws to be adopted making it more difficult to evict farmers who are unable to pay the rents demanded from them, and more difficult to confiscate from small-scale property owners in debt. In particular, it advocates a return to legislation fixing the maximum farm rents (this was deregulated by successive laws focusing on land reform).

But it should go further. Progressive agriculturalist organisations have produced concrete, well-argued plans ensuring the development of the small-scale farmers. These include improved irrigation methods (drip system etc), choices of rich and intensive cultivation (vegetables and fruits), upward liberation of input and credit suppliers from state control and downward creation of marketing cooperatives for products associated with consumer cooperatives. Yet strengthened communication between these agricultural organisations and the small-scale farmers involved remains to be established. The legalisation of actual farmers’ organisations and their federation at provincial and national levels should facilitate progress in this sense.

9. The plan of immediate actions recapped in the preceding paragraphs would certainly begin to stimulate healthy and sustainable economic growth. The argument put forward by liberal critics – that it would ruin any hope of new capital investment from external sources - does not hold. The experiences of Egypt and of other countries, particularly in Africa, who have agreed to fully comply with the stipulations of liberalism and have abandoned their own autonomous development plans are not ‘attracting’ foreign capital, in spite of their uncontrolled opening up (and precisely because of it). Foreign capitalists simply content themselves with raiding the resources of the countries concerned, supported by the Comprador State and crony capitalism. As a counterpoint, emerging countries that actively implement national development projects offer real opportunities for foreign investors that then agree to take part in these national projects, as they accept the constraints imposed on them by the National State and the adjustment of profits to reasonable rates.

10. The government in Cairo, composed exclusively of members of the Muslim Brotherhood chosen by President Morsi, immediately declared its unconditional adherence to all principles of liberalism, it has taken measures to accelerate implementation and has deployed all means of repression inherited from the former regime to this end. The Comprador State and crony capitalism continue! Public awareness of the absence of change is growing, as attested by the success of popular demonstrations on the 12th and 19th of October. The movement continues!

11. The proposal of immediate demands which I have largely retraced here concerns only economic and social elements of the challenge. Of course, the movement also discusses the political side: the draft constitution, democratic and social rights and the necessary assertion of the ‘citizens’ state’ (dawla al muwatana), in contrast with the proposed theocratic state (dawla al gamaa al islamiya) of the Muslim Brotherhood. These issues have not been addressed here.

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* Samir Amin is director of the Third World Forum.

* This article was translated from French for Pambazuka News by Natasha da Silva.