The Economics Of Arab Spring: A View From Egypt
Hamid Ali

It’s very difficult to know what the economic causes of the regime change in Egypt were because it happened so suddenly. A review of the literature on the motivations of change leads to different arguments. One argument, pushed by Olson (1971), says revolution will never take place in poorer countries because of coordination failure, and “free-riding” will deter rational individuals from participation in collective action. However, if you look at what happened in Egypt and Tunisia there is another story – that revolution it is about sacrifice. I have some students that are very affluent, who participated in Tahrir Square. They expected to pay a price for participation, not to get a reward; so that argument is not going to fly.

DeGroot (2011) argues that, in the case of Africa, the probability of pro-democratic change in one country increases the probability of change in a neighbouring country if that neighbouring country is ethnolinguistically similar. If we look at the Arab world, the people have a similar history, culture, and system of government. This explains why the revolution in Tunisia triggered a wave of democratic movements across its borders to Egypt, Libya and Yemen, etc. It is similar to the changes that happened in the East European block. I think there is a good probability this wave will continue.

A different argument states the need to examine within-country socioeconomic differences, intra-group grievances (see e.g. Bahry, 2000, on Bahrain), and other individual-specific socioeconomic factors as more likely explanations of why a rebellion occurs. A comparison at the macro level may obscure the analysis of the “roots” of protests, as it would lack the micro perspective that acknowledges the heterogeneity of individuals and groups (cf. Kalyvas, 2006; Verwimp et al., 2009). People have different motives; but what has happened in the Arab world is that these disparate motives have created collective alliances, and leaderless revolutions. However, that lack of leadership is a major flaw of these revolutions. There are collective alliances that are built on grievances, and each group comes acting independently to change the regimes. Aggregate country characteristics, like per capita income, economic inequality, and unemployment rates, generally perform well in predicting the occurrence or the absence of revolutionary protest. These are very important indicators, because the changes that have happened in the Arab world have come from within the system. They were not triggered from outside.

A Marxian structural approach touches on dependency, by which social, political, and/or cultural structures are perceived as dependent on the economic superstructure. I think this is the very core characterization of what happened. The whole system is driven by economic arguments, such as issues of inequality and unemployment.

Arab countries have a legacy of farcical elections and persistent rule of one party, one of single monarchs or sole dictators. However, there is also a history of joint political struggle under banners of nationalism, Arabism and Islamism. Since World War II, there have been protests and revolutionary movements in the Arab world. In the Arab Spring, we are witnessing the rise of sentiment for liberty, justice and equality in new forms. Through the internet and social media, people see how the rest of the world is behaving, how the rest of the world is changing the way their systems of government are run; that’s why people have now risen up.
Tunisia was no different from Egypt or Yemen. It’s all one party, one dictator for life. Bourguiba and Ben Ali’s efforts to control the powers of the state resulted in a public monopolization of economic activity. Favoritism and cronyism also helped undermine efforts towards political liberalization.

This was the case in the whole region. Egypt witnessed, in 1991, the move to the Washington consensus – that is, a free-market, growth-driven economy, including freedom for capital mobility. Income distribution remained sharply skewed, with millions of landless peasants, widespread illiteracy, and poverty, which might have contributed to bringing down the government.

Another important aspect is embedded in social contracts. During the Nasser era there was a bargain or social contract, in which the state was supposed to give you better life; in return, you needed to give up your freedom. That changed after 1981, when the state now said, “I am going to give you a margin of freedom, in return for which I’m going to free the markets.” At that point the social contract almost disappeared. I would say the economic reasons behind the January 25th Revolution are poverty and inequality, which were manifested in labor strikes, the rise of the youth unemployment, population growth, and job market mismatch.

Egyptian society was paralyzed between two different spectrums. Mubarak created a large, ultra-rich and ultra-influential business class. To please supporters, special deals were carved out for land allocation, the awarding of large contracts (for example, natural gas, and construction projects), and the design of some policies (Galal 2011). They pursued a model of development that served their interests and those of their associates. The model reached its limits when several business leaders also became political leaders; the government was basically being run by the business class. This economic model was based on rapid economic growth that was supposed to have a trickle-down effect, create jobs, and so forth. It took too long, so the government instituted the 1,000 villages plan, which was supposed to have 1,000 villages out of poverty within five years. That never happened either (Galal, 2011).

The first ten years of the Mubarak period was the golden age. From 1981 to 1989 real GDP per capita (adjusted for inflation) rose by over 30 percent; but after the economic reforms and the 1990-91 Gulf War, income dissipated, falling from around $6500 to just over $1000 in three years (Grammy, 2011). According to United Nations figures, 20 to 30 percent of the population lives below the poverty line.

Looking at the quintiles of wealth distribution (referring to slide), the Gini coefficients, it’s clear that the poorest quintile is getting about nine percent, while the super-rich get almost 40 percent of the income. It’s a distinctly polarized society. Working from data from the University of Texas Inequality project (UTIP), I extended and updated the calculations, and it’s obvious that Egyptian society is moving toward becoming a perfectly unequal one. The more economic reforms were instituted, the worse things became. There is an exact inverse relationship between Washington consensus reform and income distribution.

Labor strikes were another major factor in the January 25th Revolution. Labor strikes are against the law; under Egypt’s marshal law and emergency laws, you could be taken to military court for engaging in normal labor strikes. In 2005, there were no labor strikes. In 2006, there were six labor strikes; these were all about pay increases, wages, and compensation. In 2010, there were 72 strikes, with increasing numbers of labor forces, syndicates, and professional organizations joining in. By 2011, we reached the explosion point where the revolution was triggered.

The last critical issue is population growth and the job market. According to UN estimates, the population grew by 90 percent – from 45 million to 85 million – in the last 30 years. This has led to a youth bulge; one in every five Egyptians is between the ages of 15 and 24. There are about 700,000 new graduates chasing about 200,000 new jobs every year, and the percentage of new entrants to the market is about four percent each year. The chart on Youth Unemployment and Poverty [referring to slide, Egypt Human Development Report 2010] shows unemployment among university graduates. No matter how long they go to college, or how hard they study, still they remain unemployed. This creates a sense of helplessness and resentment, stemming from over-education and limited job opportunities. College graduates are driving taxis, working as waitresses, or in hotels, etc. It is even more discouraging to the poor. Even if they could go to college, still they would not be able to get ahead. There’s no question that youth unemployment was a big part of what was happening in Tahrir Square.

In conclusion, the revolution is progressing. What has happened in Egypt stems from the same causes that triggered the Tunisian revolution. The region is yearning for democracy and rule of law rather than rule of men. Egypt has taken its first step toward a promising future, and hopefully this wave of progress will extend to its neighboring countries, particularly Sudan.

Hamid Ali is assistant professor of public policy in the Department of Public Policy and Administration, School of Global Affairs and Public Policy at The American University in Cairo. His area of teaching is public policy theories, research methods, public financial management, economics for public policy analysis and applied quantitative analysis and globalization and development. He was a researcher at the US Government Accountability Office, where he contributed to various reports.