ATES: ECONOMY AND FUNDAMENTALISM IN EGYPT ECONOMIC LIBERALIZATION AND CHANGES IN FUNDAMENTALISM: THE CASE OF EGYPT Davut Ates Dr. Ates is an official in the Department of Foreign Trade in Ankara, Turkey. he relationship between groups as a result of compromise between economic liberalization and the regimes and former members of these radical politics has been a key groups who have benefited from economic Tissue in Muslim countries since development. Middle-class members of the 1970s. Economic liberalization policies the fundamentalist groups would lose their have two important aspects: the retreat of organizing role within society, while lower- the state from the economy and the encour- class members would be transformed into agement of the inflow of foreign capital. As marginal groups that are seen as terrorists a result of such policies, there have in most cases.1 emerged serious changes in so-called Within this framework, I will examine fundamentalist movements in Muslim the Egyptian case, in which the most countries. Because new job opportunities significant socially-based fundamentalist reduce the degree of resentment toward the group, the Muslim Brotherhood (MB), regime and restrict the membership base of established in 1928, has been transformed fundamentalist groups, regimes in Muslim in accordance with the expected results of countries began to have new opportunities economic-liberalization policies, beginning to manipulate radical politics. Moreover, the with the infitah policies at the beginning of leadership cadres of such fundamentalist 1970s. From the colonial era to the end of groups have tried to benefit from the fruits World War II, the organization was against of economic development. Thus, radical any foreign presence in Egypt. From the politics in Muslim countries should tend socialist era to the beginning of the 1970s, towards moderation as a result of the the organization seemed to be a clandestine mitigating role of economic liberalization. establishment aiming to overthrow the It cannot be argued that the fundamen- regime. In the liberal era, from the begin- talist groups will disappear, but they might ning of Sadat’s rule, the organization has be marginalized, as they are in most of the been split between moderates and radicals. developed countries (though racists and Until the 1970s, because the Egyptian religious extremists exist in developed economy was under the control of the state countries as well). Economic development (corporatism), the leadership and members is expected to marginalize fundamentalist of the Brotherhood had no opportunity to © 2005, The Author Journal Compilation © 2005, Middle East Policy Council 133 MIDDLE EAST POLICY, VOL. XII, NO. 4, WINTER 2005 operate in the economy. But economic Suez War of 1956 drove Nasser to impose liberalization after the 1970s created more state corporatism. During Nasser’s time, economic possibilities for the middle-class self-sufficiency with respect to consumer members of the organization. State control goods was emphasized and heavy industry of the economy and foreign trade were ignored; import substitution came to loosened. dominate both agriculture and industry; and This study attempts to find a link export promotion was limited to petroleum, among the factors that might lead radicals the Suez Canal and tourism.3 The corporat- toward compromise and separate segments ist formula that was expanded under of the Muslim Brotherhood away from its Nasser benefited and increasingly con- societal base. Although there are other trolled the labor force, while at the same factors that lead to rapprochement2 time promoting a military-technocratic elite. between the mainstream Muslim Brother- This statist policy created some contradic- hood and the regime, this study argues that tions in furthering development and produc- an analysis of foreign capital and economic tion. Public employment increased through liberalization can help explain radical the 1980s, but the orientation of employ- politics in Egypt. ment shifted from agriculture to other The nature of social change cannot be sectors. explained by a single cause. Changes in the From the 1970s onwards, Egypt policies and nature of an organization have experienced a transformation from political, ideological, cultural, regional, corporatism to a liberal market economy. religious and economic causes in addition International factors, priorities of the to the policy preferences of its leadership. leadership and the demands of the global Obviously, the economic aspect of the economy determined this transformation. problem is only one of many determinants The Egyptian economy became integrated in the transformation of the Muslim Broth- into the world economy. This increased erhood in Egypt. Economic development liberal foreign trade and cooperation with and liberalization have, however, been international economic institutions, at- factors worth examining both in terms of tracted private and foreign capital and the internal transformation of the organiza- foreign military and economic aid, as well tion and in its relationship with the Egyptian as rising tourism revenues and an inflow of regime. workers’ remittances. The period of state corporatism under THE ECONOMY AFTER INFITAH Nasser and to a lesser extent under Sadat The Egyptian elite did not predomi- was characterized as a “social compact” nantly originate from the rural bourgeoisie based on coercion by the regime in which and did not represent its interests in the the people and the elite relinquished pre-Nasser period, but this group was political and civil rights in return for state allowed to control much of the political subsidies of basic necessities. The emer- infrastructure that Nasser introduced in gence of Islamic fundamentalism may have rural areas. International concerns such as threatened the compact, but even the the financing of the Aswan Dam, the Muslim Brotherhood mainstream appeared nationalization of the Suez Canal and the to consent to this de facto situation. 134 ATES: ECONOMY AND FUNDAMENTALISM IN EGYPT Under Sadat’s rule, the system was foreign investments reached 2.5 percent of demilitarized and somewhat liberalized. total investment in 1982-83. Oil companies The private sector made a comeback, but, dominated foreign investment. The private despite reforms to bring about decentraliza- sector dealt mainly with trade, construction, tion, the public sector remained dominant.4 manufacturing, industry and mining — Under Sadat the bureaucratic empire was except for petroleum — and services.9 dismantled, officers largely were The share of private equity in total invest- depoliticized, and decentralization of public- ment increased gradually, rising 25 percent sector enterprises and encouragement of between 1983 and 1987 and 40 percent the private sector under infitah policies between 1988 and 1992. created new opportunities for profits and With respect to the direction of foreign capital gains. With some political liberaliza- trade, Egypt’s main trading partners under tion, such as the emergence of professional Nasser were the Eastern Bloc countries. syndicates, the state system evolved into Transactions were conducted through quasi-politics under Sadat. bilateral agreements with public-sector Sadat’s October 1971 Paper recog- enterprises. But after the initiation of nized that a higher growth rate was infitah, trade shifted dramatically towards required. This necessitated both financial the West, particularly the United States, and technological assistance from abroad. managed by private firms and individuals. The public sector was seen as suffering Part of the explanation for this shift is that from the excesses of bureaucracy and after the mid-1970s, Egypt began to export heavy expansion into areas better left to oil to the Western market, and petroleum the private sector. Basic projects that could determined the trade pattern. The rising not be taken up by the private sector export capacity of Egypt, apart from would, however, be adopted by the public natural gas and crude oil, and an inflow of sector. Priority was given to modernizing foreign direct investments encouraged industry and high-value agriculture, as well integration with the world economy.10 as to developing the energy sector and In the late 1970s, Western donors and tourism. Moreover, subsidies were to be financiers and the U.S. government after limited to the basic needs of the poor.5 The Camp David shifted the attention of initiation of the infitah policy aimed not only Egyptian planners towards efficiency or to transform the economy according to the export-promotion policies. After 1974, free-market model, but also to correct the there was an influx of foreign capital from deficiencies of state control and achieve Arab aid institutions (investments, grants integration with the world economy.6 and loans), remittances from workers After the liberalization period, private migrating to oil-rich Arab countries, the re- investment began to increase, reaching 24 opening of the Suez Canal, the return of percent of GDP in 1986-87, in contrast to 8 the Sinai oilfields and increased tourism. percent of GDP in the mid-1970s.7 Infitah Following the Camp David accord, West- created a national bourgeoisie that lacked ern institutions and the United States sympathy for state corporatism.8 Invest- extended credit to Egypt. In this new ments, which had been strictly controlled situation, the private sector began to play a by the public sector, were encouraged; role in foreign