Why Egypt fails

I suppose that, apparently, policy designers in Egypt did not come across a recently published book titled “Why Nations Fail,” co-authored by Massachusetts Institute of Technology economist Daron Acemoglu and the Harvard political scientist James A. Robinson.

The book is a rigorous study of the historical evolvement and mechanics that led some nations across history, from the Bronze Age to post World War II, to flourish, while others did not. The central concern of the book is to spurn all the different propositions about what should account for sustained growth.

For example, there are many theories that attribute the failures of sub-Saharan African countries in achieving sustained growth to cultural, geographical or value-systems reasons. However, contrary to the common wisdom, Acemoglu and Robinson argue that these are wrong theories. The right answer, they insist, lies in one word: institutions.

So if we look closely at countries that share some cultural, geographical or social features, such as Mexico and the US, or countries that are almost socially and culturally identical, like North and South Korea, we can see that the only thing that explains income gaps and welfare discrepancies between these countries is that they are operated by different forms of institutions.

This is what the book shows carefully through a provocative historical and empirical analysis spanning various cultural backgrounds and different historical epochs.

Acemoglu and Robinson distinguish between two types of institutes: inclusive and extractive institutes.

Institutes are extractive if they are governed by a small group who use them to exploit the rest of the people. On the other hand, institutes are inclusive if many people are involved in legitimizing the institutional functions (e.g. electing its governing body) so that the possibility of exploitation is either reduced or absent.

Hence, nations thrive when they have inclusive economic and political institutes, and fail when they have extractive ones. But here is the catch: The authors argue that countries should start by building inclusive political institutes, and inclusive economic institutes will follow.

If inclusive political institutes are built on the distribution of political power in a pluralistic manner, this will lead to achieving sustained economic growth in the long run based on the rule of law.

This might seem contradictory with some contemporary experiences: the Chinese experience, for example. But Acemoglu and Robinson do not really buy the Chinese miracle, since its economic growth is not supported by an inclusive political system.

It’s true that starting from the early 1980s, the Chinese Communist Party succeeded in mobilizing resources and achieving economic growth from a low base. But the authors argue that this “is not sustainable because it doesn’t foster the degree of creative destruction that is so vital for innovation and higher incomes.”

The important question in this context is how did nations — Western European countries, for example — move from extractive to inclusive political regimes?

One answer is through revolutions that replace extractive institutes. But the fact is that extractive institutes might be replaced by inclusive institutes or by other extractive ones.

An important example where institutional transition took time is the French revolution of 1789. First, the extractive monarchy was replaced by the extractive Napoleonic regime, and it wasn’t until the Third Republic was founded in 1870 when inclusive institutes started to emerge.

Other examples were not very successful, such as the Bolshevik revolution of 1917, which ended up with an extractive political regime that could not survive for long, although it maintained high growth rates in its early stages.

Acemoglu and Robinson are not infallible. There have been many responses to their central thesis claiming that it is not accurate and has missed many important factors, like historical-cultural specificities, wars and invasions.

Nevertheless, it remains true that they have a very reasonable theory about how nations thrive, and, indeed, their theory works out in its broadest sense.

This might give us an insight into why Egypt, after former President Gamal Abdel Nasser’s coup d’etat in 1952, could not sustain good growth rates. It could also explain why the political regimes of Anwar Sadat and Hosni Mubarak, which were geared toward building extractive institutes, failed to achieve development.

This analysis also runs contrary to what some Egyptian intellectuals, such as Taha Hussein, were saying in the 1950s and 1960s: that Egypt is doomed due to cultural-drawback reasons.

If Egypt is to follow the recipe proposed by Acemoglu and Robinson, it should simply start by building inclusive political institutions without worrying about economic success; this will easily follow.

Sherif Salem is an economist who holds a master of science degree from Queen Mary University, London. His current interests are political economy and moral philosophy.

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