The Military Kleptocracy of Egypt – Gatekeeper and Saboteur: an Assessment of Egypt’S Deteriorating Economic Terms of Trade and Strategies for Coping and Reform
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The Military Kleptocracy of Egypt – Gatekeeper and Saboteur: An Assessment of Egypt’s Deteriorating Economic Terms of Trade and Strategies for Coping and Reform The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters Citation McDonough, Michael J. 2018. The Military Kleptocracy of Egypt – Gatekeeper and Saboteur: An Assessment of Egypt’s Deteriorating Economic Terms of Trade and Strategies for Coping and Reform. Master's thesis, Harvard Extension School. Citable link http://nrs.harvard.edu/urn-3:HUL.InstRepos:42004015 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of- use#LAA The Military Kleptocracy of Egypt – Gatekeeper and Saboteur: An Assessment of Egypt’s Deteriorating Economic Terms of Trade and Strategies for Coping and Reform Michael J. McDonough A Thesis in the Field of Middle Eastern Studies for the Master of Liberal Arts Degree in Extension Studies Harvard University March 2018 Copyright 2018 Michael J. McDonough ii Abstract Egypt has had a long history of statism, whereby the government has ensured its regime preservation and longevity with transfer payments and/or subsidies to secure peace and “keep the machine running”. Some analysts estimate that recently as much as 70.4% of all household income derives from Egyptian government transfer payments or state employment and 74.7% of all households use subsidies to pay for food, with the average Egyptian family spending nearly half its income on food alone. The quid-pro-quo situation initially derived from rivalry among the political elites and tactical decisions to barter with lower classes, including them in economic bounty in exchange for political support. Because this placation occurred before Egypt could fully develop its economy after years of colonial rule and due to the nature of the compromise from the breadth of Egypt’s elite infighting, Egypt never achieved a state of industrialization and advancement that similar countries experienced. Over time, this strong state presence became destructively symbiotic- the Egyptian citizenry succumbed to a dependency on these subsidies (below market rents, subsidized food staples and living necessities) and the government relied on this broad social support to maintain its leadership and secure its ability to exploit public assets for its own benefit (a kleptocracy). Within the last three decades, as resource depletion sharply has accelerated, the sustainability of this contract has become untenable: the government is functionally bankrupt and incapable of providing basic services while the population growth simultaneously has exploded. The chief orchestrators and beneficiaries of this relationship have been Egypt’s political elite, which for nearly all of the past seventy years, has been the military. A national security crisis has been inspired from this and, more importantly, iii mismanagement of its feeble economy by the self-interested, long-entrenched military. The magnitude of this interference is not perfectly known, but it is substantial and demonstrable. This economic fragility, and its concomitant political and security disarray, has implications beyond Egypt’s borders. There may be a way out if Egypt adopts a greater sense of urgency and musters the political will for reform. Increased economic prosperity and stability will cultivate political stability. Such success in economic transformation- and subsequent political stabilization- will enhance security prospects for the region and is, thus, in the interests of all major regional and global political actors. The purpose of this study is to diagnose and to examine the causes of Egyptian’s unsatisfactory economic development and to argue that these failings are the direct results from Egypt’s overreaching military, which has exploited the country’s assets for its own purposes. It will argue that Egypt’s deteriorating economic situation from military expropriation has catalyzed an economic crisis, with repercussions that extend beyond Egypt’s borders. It will consider realistic solutions within a framework or “playbook” of economic transformation that worked for other countries. Its scope of analysis will include political actors (including Egypt’s military) and macroeconomic variables in Egypt’s failings and parallels in states where the military has a pronounced and entrenched presence. iv Acknowledgements I wish to thank my Thesis Director, Dr Asher Orkaby, for his enthusiasm, his engagement, his exactitude and his enlightenment. I also wish to thank my Research Advisor, Dr Douglas Bond, for his guidance, support, perspective and patience. اريد ايضا ان اعبر عن تقديري ﻻلعزيز طارق ابو حسين، سيد عربي في هارفارد و صديقي العزيز .وقد علمتني جهوده الدؤوبة وتعليماته في دراستنا العربية أكثر من مجرد لغة .طارق، أنت روح حكيمة وأنا متحمس لنرى ما يحمل المستقبل بالنسبة لك v Dedication To Alasdair, Oliver and Xenophon and to my parents and Kathryn أعزائي اﻷسدير، أوليفر و زينوفون، أرجو أن تؤمنوا بأنفسكم وقيمة العمل الشاق. كونوا أسخياء و محبين و .صامدين في المثالية.أرجو أن تتذكروا كم نحبكم و أن تبقوا على مقربة من بعضكم بعضا .أبي لقد ضحيت كثيرا ﻷجلي .آمل أن أكون أبا لهؤﻻء اﻷوﻻد مثلما كنت لي Colin Hall and Dan Zambrano, I am grateful for your enduring friendship. vi Table of Contents Acknowledgements ........................................................................................................ v List of Figures ............................................................................................................... xi Literature Review- Primary Works .............................................................................. xv I. Introduction: A Framework for The Analysis of Egypt’s Military Kleptocracy .... 1 II. The Research Problem ............................................................................................ 3 III. Definition of Terms.............................................................................................. 13 General ..................................................................................................................... 13 Economic Metrics and Rationale for Inclusion ........................................................ 18 IV. Background of the Problem .............................................................................. 22 Commercial International Bank Case Study- “This Trade is Pretty Crazy” ............ 28 Egyptian National Security- The Economy as “Paramount, Essential, Urgent” ...... 32 V. Situation Overview – Egypt’s Macroeconomy .................................................... 37 VI. Origins of Egypt’s Military State- Comparative Political and Historical Frameworks.................................................................................................................. 45 Korea and the Asian Economic Experience ............................................................. 50 “The Vanguard of Progress”: Nasser and his Free Officers..................................... 63 Chapter Conclusion .................................................................................................. 68 VII. The Transformation of Egypt’s Relationship with its Military and The Aggrandizement of Military Power ............................................................................. 71 VIII. The Ascendency of Egypt’s Military Under Mubarak........................................ 76 The Crony Capitalists: Egypt’s Political Supernova ................................................ 81 vii Size Today ................................................................................................................ 84 Manpower................................................................................................................. 85 IX. Egypt’s Military Industrial Complex- Present Day ............................................... 88 Legal Framework and Implications.......................................................................... 92 X. Kleptocracy, Expropriation and Self-Dealing- Case Studies ................................ 102 Military Resistance and Retrenchment .................................................................. 102 Case Studies ........................................................................................................... 103 Case Study #1: The Suez Canal Corridor Development Project ........................ 103 Case Study #2: Toshka (New Valley Project) .................................................... 105 Case Study #3: Arabtec and Saudi- No Bid Infrastructure ................................. 107 Case Study #4: Tharwa Petroleum ..................................................................... 108 Case Study #5: Vodafone Egypt Share Transfer to the Mukhabarat .................. 109 Foreign Government Enablement of the Military Kleptocracy ............................. 110 XI. Why Egypt’s Military Authoritarianism Matters ................................................ 116 XII. The Enduring and Structural Implications of the Military Kleptocracy on Egypt’s Modern Economic Problems...................................................................................... 123 Seeds of Discontent ................................................................................................ 138 XIII. Solutions: Catalysts and Strategies for Coping and Reform ............................