Brecht De Smet obtained his Masters in History and Arabic at Ghent

University, Belgium. As a researcher of the Middle East and North

African Research Group of Ghent University, he is working on a PhD in

Political Science with regard to working class subjectivities in

contemporary Egypt. Brechttie.DeSmet@ugent.be

Jelle Versieren obtained his Master in History at Ghent University and is

doing a PhD in Philosophy on labour concepts, theory of value and the

ideology of the common good in medieval economic thought. He also

published on the history of economic theory, value theory, Marxist

philosophy and the history of the Belgian labour movement.

Jelle.Versieren@Ugent.be

Contradictions of Accumulation and Development in Egypt

Brecht De Smet Ghent University Brechttie.DeSmet@ugent.be

Jelle Versieren Ghent University Jelle.Versieren@ugent.be

Abstract

1

In this essay Egypt’s ‘continued halted transition’ to a Western-style free-

market economy is explained from a broad historical perspective of

frustrated capitalist development. Avoiding the reductionism of stage and

dependency theories, the impact of imperialism, internationalisation of

capital, and pre-capitalist structures in retarding economic development

are taken equally into consideration. It is argued that the concept of

‘uneven and combined development’ offers the best framework to

understand the particular nature of capitalism in Egypt. In the first phase

of integration of Egypt in the capitalist world market, which lasted until

the first half of the nineteenth century, Western advanced production

methods and relations were absorbed by the absolutist state, without

affecting the social formation. Only through the era of imperialism,

colonialism and neo-colonialism, which lasted from the second half of the

nineteenth century to the first half of the twentieth century, did capitalist

structures alter Egypt’s social formation. Capitalism existed in

combination with pre-capitalist structures, and this articulation effectively

blocked economic development. During the fifties and sixties of the

twentieth century Nasserite state capitalism was able to break the

deadlock and stimulate development. Attention is paid in detail to both

the transformative character of Nasserism and its contradictions which

led to its stagnation and dissolution. During the 1970s and 1980s the life-

form of state capitalism was superficially extended through a rentier state

2

in collaboration with international and domestic capital groups hostile to

industrialism. From the 1990s onwards, the dismantling of the rentier

economy and its state capitalist shell under the guise of neoliberal reform

revealed its crony-monopolistic substance.

Keywords

Egypt, Nasser, underdevelopment, Trotsky, imperialism, pre-capitalism,

unequal exchange, mode of production, colonialism, uneven and

combined development, state capitalism, capital accumulation

Object and frame of analysis

Capitalism and underdevelopment

In this essay we explain Egypt’s ‘continued halted transition’ to a

Western-style free-market economy from a broad historical perspective

of frustrated capitalist development.1 The history of modern Egypt 1 ‘Economic development’ is defined as the development of the productive forces, encompassing the means of production and human labor power. The systemic relation between the productive forces and the social relations of production, especially ownership, constitutes a mode of production. Capitalism is the historical expansion and dominance of a mode of production which is based on capital accumulation through generalized commodity-production for the market, the commoditization of

3

presents itself as an interesting case study of the obstruction of

development through historical interaction between pre-capitalist and

capitalist structures and agents. Avoiding the reductionism of stage and

dependency theories, the impact of imperialism, internationalisation of

capital, and pre-capitalist structures in retarding economic development

are taken equally into consideration. The asynchronous historical-

geographical emergence of the capitalist mode of production and the

world market posed the problem of how pre-capitalist societies and

modes of production related to their capitalist counterparts and to the

world economy as a whole. In the Marxist and radical economic tradition,

roughly three approaches to this question emerged. Marxists of the

Second and Third International considered the nation state as the

primary unit of analysis. In order to reach socialism, countries should

develop their forces of production. Non-capitalist countries should

experience a transition identical to the West, consisting of a bourgeois

revolution, which would destroy feudalism, establish a parliamentary

democracy, promote free trade and markets, defend private property and

civil rights, and protect the nation’s sovereignty.2 A superficial reading of

Marx seemed to confirm this concept of development and transition: ‘The

country that is more developed industrially only shows, to the less

labor, ‘the concentration of ownership of the means of production in the hands of a class, consisting of only a minor section of society, and the consequential emergence of a propertyless class for whom the sale of their labor-power was their only source of livelihood’ (Dobb 1976, p. 7). Capitalist accumulation brought about a revolution in the development of productive forces.2 Attewel 1984, pp. 215–16, and Townshend 1996, p. 143.

4

developed, the image of its own future … One nation can and should

learn from others … society … can neither leap over the natural phases

of its development nor remove them by decree.’3 Later, with regard to the

Third World, imperialism was recognized as a factor which impeded the

transition to Western-style capitalism.4 Others pointed to the inhibiting

role of domestic merchant capitalists who were unwilling and/or unable to

industrialize their economies.5 In both accounts the problem of

underdevelopment was too little capitalism, either through the

intervention of imperialist or pre-capitalist forces. After the Second World

War adherents of the dependency-school initiated a paradigm-shift by

conceiving of the world capitalist system as the primary unit of analysis.

Peripheral nations suffer underdevelopment through unequal exchange

and their structural location within the world system. Underdevelopment

was perceived as a result of the worldwide development of capitalism.6

While dependency theory and world-system analysis paid attention to the

dynamics of capitalism as a totality, this tradition suffered from

functionalism and reductionism, neglecting the role of class struggle,

modes of production, labour exploitation, and pre-capitalist structures in

defining capitalist reality.7 In their paradigm, the self-motion of capitalism

3 Marx 1990, pp. 91–2.4 Warren 1973.5 Kay 1975.6 Amin 1976; Frank 1969; Wallerstein 1974.7 Chilcote 1981, pp. 4–5.

5

structures the totality according to its own needs.8 One of the main

theoretical obstacles remained ‘... to internally relate the modern state

system and geopolitical competition to capitalism without reducing the

former to an effect of the later.’9 Trotsky’s concept of uneven and

combined development,10 elaborated upon by Mandel11 and more

recently by Rosenberg,12 might be the key to an understanding of

(under)development based on the dialectic between totality and locality,

capitalist and pre-capitalist forms.

Uneven and combined development

Trotsky sees history as a progressive sequence of modes of production,

but with the arrival of capitalism the development of productive forces

acquires a systemic uneven and combined character. The qualitative

difference between the productive forces which capitalism unleashes and

their pre-capitalist counterparts creates a deep dichotomy between

‘advanced’ and ‘backward’ forms. The introduction of the capitalist mode

of production leads to unevenness with prior, non-capitalist modes.

However, nations, institutions and people, do not exist in isolation from

each other; on the contrary, through the world market capitalism 8 Chevalier 1982.9 Allison and Anievas 2010, pp. 47–8.10 Trotsky 2001.11 Mandel 1976.12 Rosenberg 2009 and Rosenberg 2010.

6

universalizes itself, connecting different countries, social spaces and

human life worlds with each other. Advanced and backward social forms

and modes of production are found ‘in combination’; they become part of

the same totality without losing their separate identity. Development is

perceived as an organic process of both the whole (the world market and

the logic of capital) and its parts (states, regions, and modes of

production). Through their relation with the world market, backward

nations can directly appropriate advanced economic forms without

emulating the whole historical trajectory of the Western industrial

countries. This ‘privilege of backwardness’ is only a potentiality;

sometimes more advanced forms are debased when they are embedded

in a backward context, which paradoxically leads to a strengthening of

these backwards conditions rather than revolutionizing them.13

Trotsky would have been in agreement with dependency theory and

world-system analysis that, while the integration of non-capitalist spaces

into the capitalist totality furthered the development of the whole – the

accumulation of capital on a world level – it did not automatically develop

the parts evenly. However, he would have pointed out that the

trajectories of the periphery are not merely ‘blocked’ by its structural

relations with the core capitalist countries. Instead, the concept of

capitalist transition and development encompasses the interpenetration

13 Trotsky 2001, pp. 25–37 and van der Linden 2007.

7

of global production relations and class struggle with particular social

formations, resulting in specific combinations – or articulations, as

Laclau14 argued – of modes of production which impede (or enhance, in

specific cases) a rapid process of capital accumulation. The framework

of uneven and combined development takes as its object of analysis the

concrete and real social formation, while concepts such as mode and

relations of production, capital, and the world system are useful

abstractions which reveal both the universal-systemic logic and the

historical particularities embodied in the social form. Unevenness

determines the combined nature of the social formation, and this

combination in turn often frustrates ‘indigenous’ attempts at capital

accumulation and development. Marx was probably too optimistic when

he stated that the antiquated modes of production are merely passive,

even though they can affect a train of social and political anachronisms.15

Both the capitalist mode of production and pre-capitalist structures shape

the trajectory of social formations.16

Egypt as a historical case study

14 Laclau 1971.15 Marx 1990, p. 91.16 Rey 1973.

8

With regard to Egypt, it is argued that capitalist (under)development went

through different phases, determined by the interplay of domestic and

international forces. In the first phase of integration of Egypt in the

capitalist world market, which lasted from the second half of the

eighteenth century until the first half of the nineteenth century, Western

advanced production methods and relations were absorbed by the

absolutist state, without affecting the social formation and only containing

a very limited productive capacity. Only through the era of imperialism,

colonialism and neo-colonialism, which lasted from the second half of the

nineteenth century to the first half of the twentieth century, did capitalist

forms transform Egypt in a substantial way. Capitalism existed in

combination with pre-capitalist structures, and this articulation effectively

blocked economic development. In the 1950s and 1960s Nasserite state

capitalism was able to break the deadlock and stimulate development.

We pay detailed attention to both the transformative character of

Nasserism and its contradictions which led to its stagnation and

dissolution. During the 1970s and 1980s the life-form of state capitalism

was superficially extended through a rentier state in collaboration with

international and domestic capital groups hostile to industrialism. From

the 1990s onwards, the dismantling of the rentier economy and its state

capitalist shell under the guise of neoliberal reform revealed a crony-

monopolistic substance.

9

Integration into the world market

The pre-capitalist social form

Before we begin discussing Egypt’s historical encounter with capitalism,

its pre-capitalist social form has to be sketched in broad outlines, setting

the stage for the transformations in the nineteenth and twentieth

centuries. The pre-capitalist mode of production in Egypt can be roughly

defined as a tributary system with feudalistic trends.17 The peasant

household controlled and organized its own subsistence production and

consumption. The agricultural surplus was much higher than subsistence

levels thanks to favourable natural and geographical condition. The

surplus product was extracted through taxation and extra labour was

expropriated through sharecropping, corvée and wage labour.18 In

17 Beinin is hesitant to categorize the dominant mode of production of the Ottoman Empire as either tributary or feudal. He discusses the views of Chris Wickham and Hilal Berktay. Beinin (2001) and Wickham (1985) focuses on the method of surplus extraction by the Ottoman state – land tax – which differs fundamentally from European feudalism: rent collection by private landowners. Conversely, Berktay (1987) argues that Ottoman farmers are legal tenants of the state and that tax and rent are for all purposes the same, calling the Ottoman case a form of ‘state feudalism’. In order to resolve the ‘mode of production’ problem, we refer to Neil Davidson’s elegant synthesis of the viewpoint of John Haldon on feudalism and of Samir Amin on absolutism. Haldon posits feudalism as a particular Western form of the more universal tributary mode of production, while Amin sees in absolutism a nascent European form of the tributary mode of production which never matured due to the development of capitalism. (Davidson 2004)18 Beinin 2001 p. 25; Tucker 2005, p. 230. Khafaji however downplays the role of wage labor, because ‘temporary or informal labor force only complimented the enserfed labor power during the seasons of high demand for workforce, like harvest. The migrant or informal labor force was not composed of the landless, but of peasant families whose possessions of land were no longer sufficient for their survival.’ Khafaji 2004, p. 32.

10

general, surpluses were not reinvested in agricultural production, but

flowed directly to the cities which became rich centres of trade, guild

handicrafts, and state administration.19 By the 18th century Egyptian tax

farmers had already gained ownership of their lands due to the

weakness of the Ottoman state.20 The expansion of European markets

between the 1740s and 1815 intensified trade relations between the

Ottoman Empire and the West, incorporating Egypt into the developing

world market.21 The blossoming world trade realized large profits for the

rural elites, stimulating a new urban financial sphere of credit, loans and

banking around landed property, often exploited by religious minorities

who could ignore Islamic sensitivities towards usury and interest. This

new commercial domain gave rise to a merchant-capitalist class in the

cities.22

Independent capitalist development?

Aside from the expansion of the world market, modern geopolitics

stimulated the penetration of capitalist forms in non-capitalist countries.

Military confrontations with the rising European powers forced the

Ottoman Empire and its provincial rulers to raise revenues in order to

19 Richards and Waterbury 2008, p. 39.20 Cuno 2005, p. 197.21 Beinin 2001, pp. 21–3.22 Richards and Waterbury 2008, pp. 38–40.

11

modernize and expand their armies. At the end of the eighteenth century

the Mamluk chief Murad Bey imposed a state monopoly on customs

collection, and the government purchased and resold a large part of the

wheat crop to pay for its military expenditure. This move anticipated the

policies of Muhammad Ali who defeated the French – who had occupied

Egypt between 1798-180, the Ottomans and the old Mamluk elite. As the

new Pasha was beleaguered by both the West and his former suzerain,

he continued Murad Bey’s attempt to build a modern army, pursuing a

mercantilist policy. In order to gain fiscal autonomy from the landed elite

and destroy local centres of power, he partly adopted the reform program

of the French who had seized tax farms, nationalized agricultural lands,

and supervised guilds. In 1814 private tax farming was abolished. The

reassertion of central state power temporarily blocked the development

of tax farmers into private landholders.23 Peasants kept the usufruct of

their lands, but were obliged to sell their crops directly to the state at low,

set prices. This monopsony allowed the government to trade agricultural

produce with a large profit margin on both local and international

markets. Protectionist measures safeguarded the weak Egyptian

industries (primarily textile and weapon manufacturing) against

competition with Western capitalist countries. Attempts were made at

substituting Western commodities with Egyptian products, anticipating

23 Cuno 2005, p. 198.

12

the import-substitution-industrialization (ISI) policies of the later neo-

colonial and post-colonial state. Through forced conscription labourers

were recruited among the peasants and guild artisans.24 Although there

was development of manufacturing, no significant industrialization

emerged. Manufactures lacked mechanization, social division of labour

and new energy resources.25 Muhammad Ali’s centralized fiscal,

mercantilist, and industrial policies were primarily oriented towards the

needs of the military and the bureaucracy, curtailing the power of urban

guilds and merchant capital. They closely resembled the political

economy of European absolutism and created internal obstructions

towards the development of an indigenous industrial capitalism.26 In

Britain, the historical formation of the capitalist mode of production had

contained the differentiation of industrial, commercial and money/loan

capital. These circuits of capital are intertwined but not necessarily

operating on a national level. In Egypt the new production methods,

technology, and expertise were deliberately introduced and put to work

by an absolutist state with a geopolitical rationale. They did not alter pre-

capitalist exploitation relations, nor did they introduce capitalist relations

of production. The formal subsumption of labour under capital27 was not

24 Owen 2005, pp. 114–15; Tucker 2005, pp. 234–35.25 Beinin 2001, pp. 42–3.26 Khafaji 2004, p. 42.27 The direct supervision of the labour process by capitalists. See Marx 1994, pp. 93–121. Marx designates the transformation of the material and social conditions of production as the ‘real’ subsumption of labour under capital.

13

realized and the proto-capitalist forms did not have the capacity to

transform the Egyptian social form in the direction of industrial capitalism.

28

Imperialism and feudalisation

Meanwhile, the window for an ‘independent road to capitalism’ was

closing. Through the Anglo-Ottoman Commercial Convention (1838) and

the Treaties of London (1840, 1841) the Ottoman Empire and the

European powers successfully blocked Muhammad Ali’s military

expansion and dismissed his protectionist policies. These foreign

interventions can be conceived of as an early imperialist catalyst of

frustrated development in Egypt. The reduction of Egypt’s domestic and

regional markets and the imposed free trade regime created, until the

1930s, external obstacles for an indigenous road to industrial and

capitalist development.29 Muhammad Ali’s successors tried to curtail

European influence by building a strong and independent modern state,

but in so doing they had to rely on foreign capital, which increased their

dependence on the Western financial system. Moreover, their search for

revenues led to the expansion of the profitable export of cotton, which

28 Some researchers maintain that this superficial penetration nonetheless created an embryonic form of transition between feudalism and capitalism – even though empirical evidence to support this case is very limited. Abdel-Malek 1983, p. 122.29 Beinin 2001, pp. 26–27, 45.

14

intertwined Egypt ‘as a producer of cotton and a market for manufactured

goods, with the European economic system’.30 Yet imperialism cannot be

conceived of as the primary factor of a stunted capitalist transition in

Egypt. Foreign intervention against the absolutist state strengthened pre-

capitalist structures and social forces which were already actively

resisting industrial capitalist development.31 Peasant struggles against

conscription and heavy taxation led to a shortage of labour and a decline

of state revenue. In order to increase state income the Pasha granted his

family, military officers, and other clients, state lands in exchange for

advance payment of taxes. In addition, the state wished to reassert its

control over the villages through the authority of an official who placed

villagers in debt bondage until they paid their taxes.32 Between 1865 and

1868 taxes were raised with 70 per cent, which indebted many peasants

and led to a further concentration of agricultural lands.33 In 1871 new tax

reforms made small landholders lose their lands and become an ‘unpaid,

bonded workforce’.34 Peasants were converted into labourers who

received a small plot of land for themselves or who were paid in kind. 35

Tax farming, the delegation of state power to local landlords and the debt

bondage system reinforced feudal relations on the countryside and the

30 Owen 2005, p. 117.31 Cuno 2005, p. 221; Issawi 2005, p. 189; Tucker 2005, p. 232.32 Mitchell 2002, p. 66.33 Beinin 2001, p. 52.34 Mitchell 2002, p. 73.35 Owen 2005, p. 119.

15

concentration of lands into large landholdings.36 Western rural class

relations in the historical transition towards capitalism – husbandry,

freeholders, copyholders, leaseholders, yeomanry – were almost absent

in Egypt.37 Feudal landlords had no drive for capital accumulation and did

not intend to transform the concept of peasant tenure. Only after World

War II did the concept of monetary rent become dominant in the

countryside replacing labour rent and corvée, but even then the level of

rent was not determined by a capitalist logic.38. There was a

transformation of feudal relations, but the landlords did not evolve into a

capitalist gentry class. As the landlord preferred a fixed amount of rent,

the legal framework prohibited the development of capitalist famers;

peasants were not allowed to leave the estate and they had to cover all

costs.39 This encouraged hierarchical relations between landlord and

peasant and secured political power based on clientelist values. The sole

reason why landlords allowed land leasing was a shift in monetary

36 Cuno 2005,p. 198; Khafaji 2004, p. 19–20. Beinin, however, is cautious to link the establishment of private large landholds with a rise of feudalism: ‘But extraction of surplus was based on private ownership of the means of production, production of commodities for a market, commodification of labor, rational calculation of profits, a tendency toward capital accumulation, and bureaucratically supervised large-scale enterprises.’ Beinin 2001, p. 53. He describes the dominant social form as ‘backward colonial capitalism’ and uses the term of ‘agrarian bourgeoisie’ to denote the large landholders. Beinin and Lockman 1987. However, on other occasions he states that there was no development towards capitalism in Egypt, despite the existence of cash-crop farming, markets, and money. Beinin 2001, pp. 11–2. Furthermore, there was ‘little investment, even by wealthy landowners, in either mechanization or in other means of raising productivity.’ Beinin and Lockman 1987, p. 9.37 Katz 1989, pp. 128–141; Dobb 1976, pp. 50–62; Takahashi 1982, pp. 82–7.38 The landlord received monetary rent, but the peasant calculated his share and necessary costs in kind. The landlord was very reluctant to invest, because he perceived this as a loss of his fixed share. Khafaji 2004, p. 39. The landlord combined his monetary preferences with the dissolution of the demesnes into small tenure parcels. The outcome was low productivity and the absence of labor-saving techniques.39 Khafaji 2004, p. 37.

16

interests. Landlords became more involved in commercial activities and it

was easier to manage small parcels than one big demesne. The principle

of non-capitalist rent remained firmly in place, inhibiting productivity.

Before the advent of colonialism the transition towards capitalism in

Egypt was blocked, not only by foreign intervention, or its structural

location within the world system, but also by the active resistance of pre-

capitalist structures and forces. The Great Depression of 1873-96 led to

a global decline of prices for agricultural produce which caused the

bankruptcy of several Ottoman provinces. Their inability to pay debts

instigated European intervention in their internal financial affairs. In 1876

the Caisse de la Dette Publique was established to oversee Egypt’s

treasury. In order to secure its financial grip, Great Britain had to

intervene directly in Egypt’s politics. In 1882 British troops occupied

Egypt to quell the Urabi revolt against foreign domination.40 This marked

the beginning of the colonial era.

Colonial and neo-colonial accumulation

Colonial rule

40 Owen 2005, pp. 119–120.

17

Under British colonialism, a decentralized feudalist mode of production

was strengthened by the dissolution of absolutist rule and the

reorientation of the agrarian economy towards monoculture production of

cotton for international markets. Local landlords usurped a large share of

central government power to deepen their control over the estates.41

Cultivating cotton required large estates and stimulated bimodalism in

the countryside: ‘a land-tenure system that combines a small number of

owners holding very large estates with a large number of owners holding

very small farms.’42 Colonialism did not abolish feudalism in the

countryside because it was more profitable for foreign capital. 43Rural

landlords, urban merchants, and the colonial state had identical interests:

the provision of agricultural goods to international markets. Hence, the

dominant mode of production remained feudal, as merchant capital and

landlords kept their positions as local and national elites in the Egyptian

social formation. On the other hand, through the instrument of the

colonial state, foreign industrial and finance capital forcefully introduced

the capitalist mode of production in Egypt. In the early 1870s Khedive

(viceroy) Ismail had implemented a modest industrialization program,

establishing some 40 state owned enterprises. The state bankruptcy of 41 Wickham 1985, p. 18042 Richards and Waterbury 2008, p. 177.43 This stands in contrast to the dominant opinion among Egyptian Marxist historians in the 1950s and 60s, who claimed that Egypt had a typical colonial, capitalist economy with a prominent export-orientated agricultural sector. Abdel-Malek 1970, p. 279

18

1876 led to their destruction or sale to foreign firms. From then on the

initiative of industrialization shifted to foreign corporations and the

mutamassirun, foreign capitalists living in Egypt.44 Foreign capital

introduced the capitalist mode of production, but de-industrialized most

of the indigenous manufactures, preparing the Egyptian markets for an

influx of European commodities.45 The industrializing role of the colonial

state was restricted to the creation of large-scale transport,

communication, service and (some) manufacturing enterprises, which

generated a modern urban working class existing side by side with the

traditional guild craftsmen. The capitalist mode of production and the

colonial state administration produced their own layer of Gramscian

organic intellectuals: the effendiyya, a group of modern middle class

professionals, engineers, journalists, lawyers, teachers, and bureaucrats

with a nationalist and Western outlook.46

The failure of national industrialism

During the economic crisis of 1906-08, global prices of cotton dropped.

Some large landowners realized that monoculture production posed risks

and that the base of their wealth should be diversified with other

44 Beinin 2001, p. 68.45 Khafaji 2004, p. 41.46 Beinin 2001, p. 71; Richards and Waterbury 2008, pp. 40–1, 123.

19

economic activities. Merchant capital had regained its former socio-

economic position, and partly became commercial capital engaged in

loan activities, real estate speculation, and intermediary trade.

Landowners, attracted by the large profit margin, invested in these

activities. Both classes became aware that foreign capital appropriated a

piece of the surplus value, which became a conflict of interests.

Landlords and merchants organized the nationalist opposition against

the colonial regime, supported by the effendiyya and the modern working

class.47 In 1922 the British unilaterally declared Egypt independent, but

they kept control over the Suez Canal and Egypt’s defence, foreign

affairs and minority policy. The political system was transformed into a

constitutional monarchy. The feudal lords gained more power, but the

king, supported by the British, asserted himself as the most powerful

political actor without the characteristics of the old absolutism.

Imperialism was not defeated, but considerably weakened, creating

opportunities for domestic capital to embark on a project of capitalist

industrialization. In 1920 nationalist landowners provided the capital for

the founding of an independent, Egyptian bank with the explicit goal of

establishing an indigenous industrial sector. Industry would diversify their

sources of income and break the domination of foreign finance capital.48

Bank Misr concentrated its funds on low value-added cotton production, 47 Beinin 2001, pp. 46–7, 72; Farah 2009, p. 28.48 Beinin and Lockman 1987, p. 10–1.

20

establishing industries such as the Misr Spinning and Weaving Company

which became at the end of World War II the largest industrial complex of

the Middle East. Peasants were recruited and transformed into industrial

wage workers.

At this juncture, the ‘privilege of backwardness’ could have catapulted

Egypt into the era of advanced industrial capitalism. Political

developments such as the 1936 Anglo-Egyptian Treaty and the abolition

of Capitulations in 1937 allowed the Egyptian state to implement

protectionist measures to protect its budding national industry. The

decline of European exports to the Middle East because of the crisis of

the 1930s generated a larger market for domestic firms.49 However, Misr

Industries was unable to transform the Egyptian economy. First, the

privilege of backwardness only applies when a society is able to use the

most advanced forms available in order to skip the intermediate stages of

development. In Egypt the imported machines were out-dated, which

rendered its industry less productive and more labour intensive than its

international competitors. Low labour costs did not raise incentives to

increase efficiency.50 Secondly, Bank Misr was not strong enough to

compete with foreign capital. Even though Egyptian capitalists played an

important role in the industrialization process of the 1930s and 1940s, 49 Beinin and Lockman 1987, p. 257.50 Beinin and Lockman 1987, p. 259; Beinin 2001, p. 111.

21

foreign and mutamassir capital remained the chief protagonists of

capitalist development. Their industries were better established and they

often controlled monopolies and semi-monopolies. Misr Industries was

not profitable enough and declined sharply. In the late 1930s Bank Misr

entered into joint ventures with British enterprises, as they possessed the

keys to the world market, subordinating its national character to foreign

capital. The layer of feudal landlords engaged with Egyptian industries

had become a particular kind of bourgeoisie, but there was no

fundamental differentiation between landed, financial, commercial, and

industrial interests, nor was there a clear break with foreign and

mutamassir capital. The largest share of Egyptian capital was still

controlled by feudal landlords and directed towards the foreign and

mutamassir-dominated cotton market.51 Thirdly, World War II stimulated

industrial production but re-oriented industries towards the needs and

demands of foreign markets. The end of the war lowered foreign demand

and plunged Egyptian industries into crisis causing high rates of

unemployment and raising the cost of living. The crisis increased the

centralisation of land ownership.52 Landlords were even more inclined to

invest in their landholdings than industrial production.

51 Beinin and Lockman 1987, pp. 11–4, p. 264, 449.52 Ansari 1986, p. 26.

22

The failure of indigenous industrial capital and the rise of landed, money-

lending, and merchant capital illustrates that Egypt in the first half of the

twentieth century was not a nation in transition to capitalism, but a pre-

capitalist society in crisis.53 Colonialism and imperialism had buttressed

feudalism instead of stimulating the full development of a capitalist mode

of production. This reinforced the uneven and combined nature of the

Egyptian social formation and gave birth to a fragmented and dependent

bourgeoisie which lacked the political will to resist both feudalism and

imperialism, even when it was in its own objective interests. Instead of

dissolving feudal relations, capitalism added a new layer of social

contradictions to Egyptian society. No social force was able to become

hegemonic and exert leadership over the other classes. The effendiyya

wanted national independence, civil democracy, and modernization, but

the industrial bourgeoisie was too dependent on the feudal lords, and

merchant and foreign capital to lead a national-democratic revolution.

The working class was small, relatively inexperienced and unorganized,

isolated from the peasantry and it lacked a unified leadership with a clear

class point of view.54 Up to 1952 various strikes, protests, riots and

insurrections destabilized the regime. Both the old feudal order and new

capitalist contenders were too weak to support a stable political platform,

which induced a military coup led by Nasser. 53 Khafaji 2004, p. 56.54 Beinin and Lockman 1987, p. 455.

23

State capitalist accumulation

Popular bonapartism

After the coup, the Free Officers of the Revolutionary Command Council

(RCC) formulated a classic program of national-democratic demands:

democracy; social justice; the abolishment of feudalism; establishment of

a strong national army; and full national independence. They mobilized

the state apparatus against both the feudal landlords and the working

class, displaying a clear tendency towards Bonapartism.55 Already in

September 1952 the new regime initiated a land reform capping land

size to (a generous) 200 feddans per owner (300 for a family). Some 15

per cent of cultivable lands was redistributed. Other measures included

an agricultural minimum wage, tenancy reforms, and limiting rents to

seven times the land tax. The most important reform for small peasants

was the implementation of perpetual tenancy at controlled rents.56 The

land reforms were a political weapon, aimed at mobilizing peasant

55 In the Eighteenth Brumaire of Louis Napoleon (1852) Marx analyzed the class stalemate which characterized the Second French Empire. In order to ‘solve’ the class struggle state power acquired a relative independence from both the bourgeoisie and the proletariat. The concept of ‘Bonapartism’ came to denote state autonomisation and agency. However, the acknowledgment of state autonomisation does not an sich reveal the class nature of a regime, nor its dominant mode of production.56 Beinin 2001, p. 132, 162.

24

support for the regime and weakening the royal family – the biggest

landowner – through expropriation.57 The regime pacified the workers’

movement through social reform, violence, and corporatist integration.

The liquidation of the political leadership of the working class was

combined with unilateral social and economic concessions regarding

wages, benefits, job security, and healthcare. State controlled institutions

of collective bargaining were strengthened, but independent class

mobilization was repressed.58 While the members of the RCC came from

a petty-bourgeois background59, the class base of the Nasserite regime

became from its inception “popular”, consisting of small peasants, urban

petty producers and the industrial working class. In March 1954 a

general strike in favour of Nasser defeated his political opponents and

made him the strongman of the regime.60

The rise of state capitalism

Between 1954 and 1960 the Nasserite state acted in all regards as the

diligent guardian of its national industrial bourgeoisie.61 The regime

cultivated a legal climate which lowered corporate taxes and encouraged

foreign investment. Protectionist measures were relaxed and public-57 Mitchell 2002, p. 43.58 Bayat 1993, p. 68; Clément 2009, p. 103.59 Richards and Waterbury 2008, p. 127.60 Beinin and Lockman 1987, pp. 437–43.61 Johnson 1973, p. 4.

25

private committees were established to guide the economic development

of the nation. However, neither the West nor the indigenous capitalists

were interested in industrial investments. Between 1950 and 1956

private investments dropped by 300 per cent.62 Step by step the regime

was forced to take the economic initiative in order to overcome the

decrease in investments. Economic development was perceived as a

condition for political sovereignty. Instead of accumulation-driven

development by private actors – where the quantitative and qualitative

growth of the productive forces is an unintended result of capital

accumulation, the Egyptian economy was characterized by an intentional

process of development-driven accumulation by the state. The state

tapped into three sources for the original accumulation which had to

ignite state-led industrialization: agriculture, foreign aid, and, ultimately,

the sequestration of private capital.

The Nasserite intervention in the rural sector aimed to increase

productivity and free capital through land reform. A rise of agricultural

productivity could only be realized if the feudal rent-system was

abolished, paving the way for small capitalist farmers who would raise

productivity in order to generate profit. Through taxes the state could

seize the surplus and reinvest it in the industrial sector. In addition, real

62 Farah 2009, p. 33.

26

wages in other sectors would rise if agricultural goods became cheaper.

Distributional policies could only be successful if wages were no longer

determined by these agricultural goods, otherwise inflation and lower real

wages were inevitable.63 However, there was no emergence of a

significant rural capitalist class and the land reforms and the heavy

taxation of agriculture had undesirable side-effects, limiting the amount

of surplus extracted from rural areas.64 Furthermore, state industries and

the public sector at large could only expand by a consistent unequal

exchange with the agricultural sector. The regime replaced the control

and surplus extraction of the feudal landlords with centralized

cooperatives which ‘became the principal instrument for channelling

resources out of agriculture toward industrial projects.’65 Even though, in

general, land productivity did not rise significantly, a part of former feudal

rents were invested in industrial activities.66 The local political influence of

rich landowners did not diminish, although elements from the former

middle peasantry obtained a higher social and political status. These

groups in fact controlled the cooperatives and relegated state credits to

help expand their own property.67

63 Sawyer 1985, p. 215.64 Large landholders were allowed to sell the lands which exceeded the 200 faddan limit, benefiting wealthy peasants who became a new class of rural rich, controlling the cooperatives. Heavier taxation of some crops led to a reallocation of peasant resources to other crops. These distortions amounted to 30 per cent of agricultural GDP. Richards and Waterbury 2008, pp. 159–61.65 Richards and Waterbury 2008, p. 159.66 Mitchell 2002, p. 226.67 Dyer 1997, pp. 87–9.

27

The consolidation of the bipolar world order weakened imperialism as an

inhibiting factor on Egyptian development. Geopolitically motivated

foreign aid and economic assistance from the superpowers stimulated

the influx of capital and advanced forms of technology and expertise into

the Egyptian social formation. The construction of the Aswan High Dam,

which would supply the young Egyptian industry with energy, illustrates

the combined role of foreign capital and the Egyptian state in overcoming

the passivity of its indigenous industrial class. At first, the regime tried to

convince domestic private partners to invest in the project through public-

private council committees. Their reluctance forced the state to look for

foreign capital injections. A World Bank loan was blocked by the US

because of the Egyptian-Czechoslovakian arms deal in 1954. Eventually,

in 1957 and 1958 Egypt received loans and know-how from the Soviet

Union to build the High Dam.68 Ironically, the state lost its proclaimed

new sovereignty with the import of more foreign industrial and finance

capital which was necessary to overcome the obstacles for economic

development. However, in the second half of the fifties and during the

sixties this dependence was counterbalanced with new sources of

accumulation through nationalisation. The sequestration of foreign

capital after the Suez Crisis of 1956 enabled the state to embark on an

68 Farah 2009, pp. 33–5.

28

industrial plan which aimed to build a basic industry. In 1959 the First

Five-Year Plan for the whole economy was formulated. An anti-Nasserite

bourgeois revolt in Syria and the disinclination of the private sector to

support the Five-Year Plan led to the Socialist Decrees of 1961, through

which, at once, large-scale industry, banking, insurance, foreign trade,

utilities, marine transport, airlines, many hotels and department stores

were nationalized. The Plan established the public sector as the

dominant industrial producer and investor and it pursued an ISI strategy.

The Egyptian textile sector spearheaded the ISI, creating a domestic

demand for spinning and weaving machinery, which in turn needed

locally produced iron and steel.

The Nasserite phase temporarily created space for state-led

accumulation and the development of the productive forces in Egypt.

State capitalism proved to be the most efficient way to appropriate and

reorient pre-capitalist social relations of production. A rapid

industrialization aimed at reorganizing the social formation in order to

attain a high rate of accumulation. In this regard the Nasserite program

showed some similarities with Soviet industrialization: an extensive

growth path, the creation of an industrial labour force, and the integration

of the circuits of capital. According to Chattopadhyay,69 an extensive

69 Chattopadhyay 1994.

29

growth path is the logical road for backward countries which lack

advanced technology and try to catch up with the rate of accumulation in

the Western world. It is based on the absolute accumulation of capital, by

significantly raising the quantity of labour under conditions of unchanged

methods of production. Nasser still had to realize the formal subsumption

of labour under capital through the imposition of wage-labour, capitalist

relations of production and the monetization of all factors of production,70

which are fundamental prerequisites for the capitalist mode of production

to develop.71 State intervention encouraged the proletarianisation of the

migrant surplus population caused by the rural exodus commencing at

the end of the nineteenth century. While the process of the formal

subsumption of labour was still in progress, the Nasserite government

started with the real subsumption of labour under capital – the

transformation of the labour process and the methods of production –

through massive industrialization efforts. The process of real

subsumption could not be realized without the import of foreign

technology and the training of personnel. Once the new production

methods were set in motion, the extensive growth path based upon a

quantitative expansion of production guided the accumulation of capital.

Under Nasserite state capitalism the technical composition of capital did

not undergo significant changes, even though the state implemented 70 Chevalier 1982.71 Ashman 2009, 35.

30

new techniques of production by a new ‘social combination of labour’.72

This change in the organization of labour encompassed the

concentration and reorientation of the amount of labour power and

implied the steady integration of the circuits of capital. Under the banner

of modernization the integration of capital, circuits became interwoven

with the reproduction of social relations and the methods of production.

The transformative character of Nasserite state capitalism soon reached

its limits, however. While the First Five-Year Plan was a success, growth

rates almost halved during the Second Five-Year Plan (1965-70).73 At the

end of the ‘sixties Egypt plunged into recession, which, exacerbated by

the war in Yemen (1963-67) and the Six Day War with Israel (1967)

turned into a Gramscian organic crisis of the Nasserite system.

Crisis of state-led development

The primary cause of the crisis was the particular nature of the process

of real subsumption of labour under capital in Egypt. Real subsumption

was introduced from without, as a series of measures by state power,

instead of being the spontaneous outcome of a historic process. The

state-led industrial program was aimed at socio-economic justice by a

‘populist consumption policy’, and modernization by the ‘investment 72 Chattopadhyay 1994, p. 37.73 Farah 1986, p. 98.

31

demands of developmentalism’.74 The introduction of industrial

technology and expertise was conceived of as a one-shot injection of

advanced forms into the Egyptian economy, and not as a continuing

process. Capitalism, however, is not a motor which can be kicked into

motion and then left alone: ‘… once capital makes the transition from the

stage of formal to that of real subsumption of labor on the basis of a

change in the earlier method of production, the latter can remain

stationary over a period.’75 In order to enhance the rate of accumulation,

Egypt’s new industries were capital-intensive, requiring capital imports,

but they lacked the capacity to export competitive commodities. The

negative trade balance had to be compensated for with foreign loans. If

we accept the Kaleckian analysis of a developmental economy, a high

rate of profit was not feasible because the ‘populist consumption policy’

was based upon widening the wage share of national income, which

would burden the expansion of effective demand. This in turn would slow

down the rate of accumulation (the ratio between new investments to

advanced constant and variable capital) and lower the rate of profit,

undermining the ‘investment demands of developmentalism’.76 From

1965 onwards it became obvious that the economic system could not

sustain both capital-intensive industrialization and high levels of

74 Cooper 1979, pp. 482–83.75 Chattopadhyay 1994, p. 35.76 Sawyer 1985, pp. 216–17.

32

consumption.77 Rural capitalism, for its part, never took off. A low

productivity in the agricultural sector interfered with the extended

reproduction of the departments of the means of production and the

means of consumption. Heavy taxation of the rural surplus and the

lowering rate of investment weakened the purchasing power of the

peasant households which were not able to buy back domestically

produced consumer goods. It also made agricultural exports less

profitable.

The hampering of capital-intensive industrialization effectively

undermined the strategy of extraction of relative surplus-value which

entails continuous technological innovation and increased productivity.

The two other extraction options, reducing wages and increasing the

work day, revealed a contradiction between the class nature of the

Bonapartist regime and its state capitalist logic of accumulation. The

industrial-capitalist ambitions of the regime implied a rationale of labour

discipline, high productivity, and low wages in order to extract value and

accumulate capital which could be used for development goals.

However, this went against the direct interests of its social base –

peasants, workers, and modern urban professionals – which required

workers control (or at least real participation), reduction in working-hours,

77 Beinin and Lockman 1987, p. 459.

33

and high wages. The introduction of workers’ participation and co-

management had the objective of integrating the working class into the

national project, softening class contradictions, and raising productivity.

The trade union leadership and the workers’ representatives were

absorbed into the state bureaucracy.78 As the corporatist consensus put

job security and full employment high on the agenda, industrial

productivity was fettered by a high ratio of variable capital, rising fixed

costs and under-capacity.

The curtailing of the private sector and the establishment of a dominant

public sector encouraged in the long run the formation of private capital

groups. Disposable income of elite bureaucrats was redirected to private

income.79 Without democratic control, the powerful state bureaucracy

increasingly gained the subjectivity of an independent ruling class,

treating the ‘public’ sector as its own property.80 However, as a

bureaucracy cannot reproduce itself legally as a private class, it has to

find footholds outside the ‘public’ sphere to safeguard its private

interests.81 This was the material basis of an objective alliance between

state bureaucracy and private capital. While Nasserite Bonapartism had

weakened the old ruling classes, it had not destroyed the economic base

78 Bayat 1993, p. 70–4.79 Khafaji 2004, p. 251.80 Farah 2009, p. 36, 76.81 Richards and Waterbury 2008, 207–9.

34

of landlords, commercial and industrial capital. The landed elite had lost

land, but was able to continue its domination of the countryside through

its traditional networks and the new government cooperatives. As

domestic trade was left relatively free and prices of consumer goods

were only influenced through subsidies, commercial capital flourished.82

The industrial bourgeoisie found new sectors to accumulate capital,

especially as subcontractors for the government. Without the liquidation

of the private sector, the growth of the state sector stimulated a

proportional expansion of the subcontracting companies.83 Nasserite

state capitalism was transitional because in the long run it had ‘an

inherent tendency to divert resources to private hands ... and therefore it

paved the road for economic liberalisation irrespective of the intentions of

its political leaders.’84 This explains the dual trend of state bureaucracy

developing into a private bourgeoisie and of existing private capital

(re)capturing state power over the next two decades.

In conclusion, the dual and interconnected forces of popular Bonapartism

and state capitalism were able to break open the neo-colonial social and

economic deadlock and, to a degree, develop the productive forces. The

nature of this configuration, however, was instable and self-contradictory.

82 Cooper 1979, p. 499.83 Khafaji 2004, p. 247.84 Khafaji 2004, p. 241.

35

Without full abolishment of the private sector, the liquidation of the old

ruling classes, and popular democracy the regime was caught between

the logic of accumulation and the interests of its class base. The choice

was between, on the one hand, a democratization of the state and the

complete nationalisation of the economy, and, on the other, economic

privatizations and the integration of the state elite with old and new

private capital groups into a new ruling coalition.

Towards a rentier economy

Open Door Policy

The regime was reluctant to cut consumption after a brief and much

contested experiment in 1965.85 Nasserite Bonapartism then turned to

the left to outbalance rightist layers of the state bureaucracy and their

bourgeois allies who called for economic liberalisation. However, the

defeat of Egypt in the Six Day War weakened Nasser’s position and

halted the leftist turn. The state fell back on its core actors: the state, the

bureaucratic and technocratic middle classes, and the army.86 After

Nasser’s death in 1970 the Nasserite political superstructure had 85 Farah 1986, p. 98–9.86 Cooper 1979, p. 515.

36

become an obstacle for President Anwar Sadat’s rightist policies and

during the ‘Corrective Revolution’ of 1971-72 the state apparatus was

cleansed of the influence of Marxists and Nasserists. Soviet advisors

were ousted. Sadat leaned on the bourgeoisie and the landed elite to

crush his political opponents. In exchange for their support, Sadat

reverted some of the Nasserite reforms. Large landowners were able to

reclaim their sequestered lands and agricultural rents were raised for the

first time since 1952. Private companies were legally protected against

nationalisation, public-private enterprises were regulated as private

instead of public companies, and a number of ‘free economic zones’

were created which offered beneficial labour and tax conditions for

foreign investors. The October War of 1973 improved Sadat’s nationalist

credentials in the short term, and allowed him in the long term to

negotiate a separate peace with Israel, switch sides in the bipolar world

order, and become a loyal client state of the USA. In 1974 Sadat

announced the ‘Infitah’ (Open Door Policy), a program of economic and

political liberalisation and reintegration in the capitalist world market,

aimed at attracting foreign investment. Sadat’s Corrective Revolution and

Infitah were weapons of a bourgeois-Bonapartist counter-coup, directed

against the Nasserite bureaucracy and a rising popular left which

37

mobilized, for the first time since 1952, students and workers in mass

street politics.87

Already in the second half of the 1970s it became clear that the Open

Door Policy faced huge economic and political obstacles. In general, the

Infitah failed to attract direct foreign investment, and international capital

was mainly interested in the service sectors and not in industry.88 This

should come as no surprise, as foreign capital was invited on the

demands of the old commercial capital, loan capital and landed property,

halting industrial development. Industrial capital had to compete with an

alliance between commercial and foreign capital. Commercial capital was

not interested in revolutionizing production, but followed the principle of

‘buying cheap, selling dear’ through investment in trade, speculation, and

by controlling local markets, real estate and petty production units.

Commercial capital could maintain its important position because it

mediated between foreign capital and local selling places. Monopoly

prices of high technological commodities typically lower the rate of profit

for industrial capital, but commercial capital received a share of the

prices through its distribution of international commodities. The fractions

of the new bourgeoisie class which did not control trade networks

suffered under monopoly prices of foreign multinationals and the 87 Bayat 1993, pp. 77–8; Farah 1986, 22–4; Lachine 1977, 4–5.88 Farah 1986, p. 114.

38

domestic public sector and had to align their production with the interests

of the dominant classes. The entwinement of unequal exchange and

failed industrialization had far-reaching consequences: there was a

continued absolute advantage for foreign capital with monopoly power as

multinationals have a higher amount of constant capital, making the

production process more efficient and lowering the value of commodities.

In a free-trade neoliberal regime the amount of investment required to

compete with foreign capital is considerable; thus technological

development is precarious. Without the backing of the state, the lack of

labour-saving techniques and technological investments, and the political

undesirability of a higher rate of exploitation Egypt’s industries became

even more dependent on foreign capital. There was no coherent chain of

production as every capital-intensive industrial activity implied a further

reliance on the system of multinational monopoly prices. In 1976 the

government entered a deal with the IMF to reduce subsidies of consumer

goods in order to decrease state deficit. This led to a spontaneous

uprising in January 1977 of workers and urban lower-middle classes

which temporarily halted the liberalisation process.89 Despite the failure

of the ISI-model, the fiscal crisis and the end of the Nasserite consensus,

until the mid-1980s the public sector continued to expand and the regime

sustained its redistributive polices.90 State capitalism had given up its 89 Beinin 2001, p. 157.90 Richards and Waterbury 2008, p. 190.

39

industrializing ambitions, but it was able to prolong its life-form through

an accumulation of non-productive revenues or ‘rents’.91

Dynamics of a rentier economy

Throughout the Nasserite ‘economic cycle’ total profits had continuously

increased, although the rate of profit declined during its final years. The

Nasserite initiation of real subsumption triggered an expansion of

absolute surplus-value extraction: longer working hours, intensification of

the labour process and lower wages. Between 1975 and 1985 Egypt’s

economy grew with an impressive average of 8 per cent. However, this

growth was not an expression of the development of productive forces,

but a reflection of an increasing share of rents in the national income:

remittances of Egyptian migrants working in the Gulf countries, tariffs of

the Suez Canal, tourism, oil, foreign loans and aid. Sadat’s Infitah did not

revolutionise the extraction of relative surplus-value. The productive

sectors were neglected, which actually led to a deindustrialization of the

country, to increasing unemployment (from 2.2 per cent in 1960 to 11 per

cent in 1986), and to a decrease of average real wages (from 70 dollars

in 1980 to 11 dollars in 1991). High inflation rates (an average of 25-30

91 Richards and Waterbury define economic rent as ‘… the difference between the market price of a good or a factor of production and its opportunity cost (the price needed to produce the good or to keep the factor of production in its current use).’ Richards and Waterbury 2008, p. 15

40

per cent per annum) undermined real economic growth.92 Rents were not

invested in industry or agriculture but were spent on imports and

subsidies of consumer goods.93 The very high long-term rate of interest

blocked any change in the pace of the industrial-technical process.94 The

technical composition of capital did not change as the new bureaucratic

owners of the factories were still able to generate profits. There was a

stabilisation of the rate of profit and a temporary upsurge of the rate of

exploitation, even though the rate of accumulation was stationary. The

rate of investment declined because profits were not used to secure

capital productivity. In fact, factory owners now had their own source of

rent. The rentier economy was based upon a fuse between a profit and a

rental logic. Formally the new owners acted as industrial capitalists, but

in practice their primary goal was to obtain rent. In the short run, this

resulted in a rise of GDP, but it also had an impact on the law of value,

preparing the way for Mubarak’s regime of accumulation. A major

problem of the mingling of the logic of profit and rent was the growing

lack of effective demand which indicated a shift towards a stationary

state economy. Kalecki points out that this trend accelerates when

rentier savings in industrial activities are growing exponentially.95 The

incentive to invest, conditioned by the rate of profit and the accumulation

92 Farah 2009, pp. 39–41.93 Richards and Waterbury 2008, p. 223.94 Sawyer 1989, p. 27895 Kalecki 1991, p. 335.

41

process (social and technological), was absent in this steady state

economy. Although the availability of money capital to finance the

relative surplus value extraction was abundant, the blending of a profit

and rental logic limited Egypt’s options to overcome this economic

stagnation. In the end the choice was between eliminating the rental

logic or unearthing new sources of rent.

Rentier capitalism fortified both state and private capitalist actors as the

rents were accumulated and distributed centrally through the state,

encouraging clientelist relations, while private capital often entered the

rent distribution process through subcontracts and the black market.96

This process affected changes within the Egyptian power bloc, as a

position within the bureaucratic machine was no longer the only route to

obtain economic profit. Class fractions outside the state apparatus were

able to buy political positions, becoming a new political force within the

state elite.97 In addition, a sizeable part of rents escaped state control

and were absorbed by the Islamic banks and investment companies,

fuelling the economic activities of a rising ‘Islamic’ bourgeoisie which

consisted mostly of landed, merchant, and financial capital.98

96 Farah 1986, p. 115; Richards and Waterbury 2008, p. 17.97 Brouwer 1995, p. 7798 Beinin 2005, pp. 121–23; Mitchell 2002, 278.

42

Egypt’s industrial bourgeoisie remained weak because it had to compete

on an unequal footing with an objective alliance between foreign capital

and domestic landed and commercial capital. Post-Nasserite Egypt

became integrated in the trade network of multinational industrial and

finance capital and welcomed the influx of commodities as a consumer

market. Export was mainly based on raw materials and cheap

commodities which reinforced the dominant position of landed property.

Together with commercial capital large landowners engaged in

speculative activities. These economic factions had no intention to invest

in industrial sectors, as the combination of high rental income and real

estate property granted higher revenues. Most surplus value still existed

in the form of rent, interest, speculation in politicized land markets or

commercial income. In 1982 only 20 per cent of total new capital was

invested in manufacturing activities.99 Furthermore, non-industrial

activities tend to flourish under a high interest rate, while industrial capital

needs cheap loans. Industrial capital prefers to invest in constant capital

to reduce the cost of wages, but concurrently it has to produce for

commercial capital at a low rate of profit. Commercial capital and foreign

capital only accept industrial activity with low wages, which is

contradictory to the wishes of industrial capital to invest in technology.

Commercial capital requires low scale activity; industrial capital needs

99 Khafaji 2004, p. 278.

43

centralization. Rapid industrialization would have undermined the

economic and political strength of landed and commercial capital.100

The outcome was a very low rate of accumulation, low wages and a low

rate of profit in the industrial sectors. This caused a structural lack of

effective demand and class polarization.101 Even a higher level of

investment in the public sector would not have drastically augmented the

purchasing power of the working class. The wages in the industrial sector

in the post-Nasserite period declined commensurable with the stagnant

growth of value added activities. Under Nasser there was a relative

trade-off between industrial growth and equity because the state

interfered in the redistribution of national income. In the post-populist

period the amount of profit rose without an accelerated rate of

accumulation. This rate of accumulation is driven by stepping up the rate

of exploitation (the ratio of surplus-value to variable capital). Profits can

rise because of a ‘Ricardian steady state’: profits are higher because

wages are lower. A substantial part of the surplus-value went to rent and

speculation without being redistributed by taxation. Rental revenues

were high because the agricultural sector was still based on rising rents

without any additional investment. Land speculation became a common

feature, but contrary to Western agricultural capital the formal 100 Khafaji 2004,p. 73.101 Farah 1986, pp. 29–30.

44

appropriation of land cannot be regarded as solely a financial asset.102 It

also remained a political force.

Through a reliance on rents and an alliance with foreign financial and

domestic merchant and landed capital the regimes of Sadat and

Mubarak blocked the development of productive forces in Egypt. While

state capitalism maintained its form of state-led accumulation, it lost its

real content of accumulation-driven development. The heritage of state

capitalism turned the higher bureaucratic echelons into a gateway of

business opportunities, as they offered valuable networks and reinvested

their funds into diverse productive and non-productive private activities.

The main goal of the ‘Infitah-bourgeoisie’ was the appropriation of

economic and political influence within the matrix of transitional

structures. The rentier phase slowly transformed collapsing state

capitalism into a defragmented unity of dependent crony-monopoly

capitalism.

Disintegration of state capitalism

Towards a new regime of accumulation

102 Harvey 1982, p. 21.

45

By the mid1980s the foundations of the rentier economy were eroded.

The global fall in oil prices decreased Egypt’s oil earnings and migrant

workers’ remittances, as labour demand in the Gulf countries declined.

Terrorist incidents in 1985 and 1986 damaged the lucrative tourist sector.

National debt rose to more than 38 billion USD in foreign obligation and

the budgetary deficit increased to over 20 per cent.103 The end of rentier

capitalism and the unwillingness of the regime and the various capital

groups to invest in the productivity of agriculture and industry

necessitated a new regime of accumulation which drove up the rate of

exploitation. However, a resurgence of workers’ actions and strikes in the

1980s, the resistance of the corporatist labour bureaucracy, and the

prudence of the Mubarak regime postponed harsh measures until the

beginning of the 1990s.104 The fiscal crisis of the early ‘nineties, induced

by Egypt’s inability to pay its military debts forced Mubarak to accept an

IMF imposed Economic Reform and Structural Adjustment Program

(ERSAP) inspired by the neoliberal Washington Consensus.105 The goal

of the ERSAP was to minimize inflation and foreign debt, through cuts in

the public sector, state subsidies, and government expenses,

privatizations of state enterprises, wage freezes, liberalisation of

103 Richards and Waterbury 2008, p. 225.104 Beinin 2001, p. 159.105 Mitchell 2002, p. 276.

46

domestic and foreign trade, commercialization of agricultural lands, and a

flat tax. The ERSAP was used as an excuse to strengthen the position of

private capital at the expense of labour, which resulted in a heightened

class struggle of workers and farmers who saw their basic livelihoods

threatened.106

The Egyptian regime regarded landed capital as a willing ally in the

realization of the free trade policies of the IMF and World Bank which

promote cash crop production. In 1992, as a declaration of war against

rural labour, the Nasserite land reform law 96 was abrogated. In post-

Nasserite Egypt almost all tenants had to pay a certain form of legally

fixed capitalist rent. Law 96 was the first initiative to remove the ceiling

on the amount of rent. Increasing land rents was a necessary step to

maintain the rate of profit for landowners, as the concentration of land

had caused a fall in productivity.107 From 1997 on land rents were

governed by market prices instead of the former fixed rent system. In

addition, landowners gained the right to drive tenants from their land.108 A

majority of lands are now fully owned by the landed elite and embedded

in a modern capitalist system of cash paid tenancies, allowing the

landlords to accumulate capital at an accelerated speed.109 Social

relations in the countryside are, however, only partially transformed.

106 Farah 2009, p. 41.107 Dyer 1997.108 Beinin 2001, p. 164.109 Bush 2009, pp. 88–90.

47

Small capitalist tenants can survive because wages of land labourers

remain low and because they rely on the family household. Landed

property is not inclined to eliminate household production, as further

commodification of the labour market would lower wages and rent

income. The current subsistence economy in the countryside

encompasses a particular mix of capitalist and non-capitalist elements.

Labour has been commodified in the sense that it produces a surplus in

commodity-form for market exchange in order to, on the one hand, meet

rental obligations in a monetary form and, on the other, to exchange

‘subsistence commodities’ with other farmers.110 Farmers’ labour can be

regarded as being exchanged as labour-power vis-à-vis landed property,

but at the same time peasants act as petty producers in the exchange of

‘subsistence commodities’. This is the reason why the state and not

market forces has traditionally regulated the amount of land rent, as

capital does not penetrate agricultural output even though this output is

sold as any other commodity. Furthermore, when forms of mechanization

occur, these are only to the benefit of landed property and commercial

capital, while in advanced capitalist countries mechanization has been

the instrument of the penetration of the countryside by industrial

capital.111 The outcome is a reinforcement of a (landed) rentier logic

under the false flag of ‘liberalisation’ with a partial commodified

110 Chevalier 1982.111 Dennis 1982.

48

agricultural sector and low productivity. The land reform was meant to

achieve lower market-led prices, but, ironically, the opposite effect

occurred.

Crony capitalism

In the industrial sector, regime policies were aimed at reducing the

competitiveness of state enterprises, forcing their bankruptcy and

privatization.112 A new ‘Ministry of Investments’ was established, which

became the primary executor of the privatization process. State factories

such as the Qalyub Spinning Factory were sold far beneath their actual

value.113 Selling shares of state-owned enterprises on the Cairo stock

market created an economic mini-boom in 1996-97. The state made 1.5

billion dollars from these privatizations. Meanwhile, real wages in the

public industrial sector dropped by eight per cent between 1990 and

1996.114 By 2002 half of the public enterprises were privatized or

liquidated.115 After 2004, the aggressive policies resulted in an economic

growth of 7 per cent, reflecting the rapid ‘accumulation through

dispossession’116.117 It had dire consequences for workers, farmers, and

112 Mitchell 2002, p. 279.113 Beinin 2009, p. 30; Farah 2009, pp. 49–50.114 Mitchell 2002, p. 280, 286.115 Richards and Waterbury 2008, p. 251.116 Harvey 2003.117 Beinin 2009, p. 30.

49

urban middle classes, which were confronted with diminishing

purchasing power, and increasing unemployment and poverty.118

Even though regime policies were driven by a logic of accumulation

through dispossession, they could hardly be labelled as in conformity

with the Washington Consensus. The government fought the financial

crisis of 1990-91 with a massive capital injection in the banking sector

(5.5 per cent of GDP and an additional fiscal exemption worth 10 per

cent of GDP).119 Public holding companies remained the largest

shareholders in many of the privatized enterprises. Some privatized firms

were sold to public banks. State holding companies set up private

corporations or joint ventures. In 1998 the state bought back shares in

most of its privatized enterprises.120 In reality, a liberalisation process

was not underway, but rather the consolidation of a development that

had already been underway since the 1980s: the blurring of state, semi-

state and private capitalist sectors. State elites became investors in large

private sector enterprises or used state power to favour their friends and

families in the subcontracting sector, realizing huge profits.121 Egypt’s

military-industrial complex developed a large civilian sector, engaging in

construction, transport, telecom, food production and capital-intensive

118 Farah 2009, pp. 43–5.119 Mitchell 2002, p. 279.120 Mitchell 2002, pp. 281–82.121 Mitchell 2002, pp. 280–81.

50

desert reclamation, and building clientelist networks between private,

joint-venture and military firms.122 The corporatist trade unions evolved

into economic enterprises, managing pension funds, business

investments, housing, and banks.123 In 2005 Egyptian capitalists

favoured by the regime gained a direct grip on the state as ministers of

trade and industry, housing policy, mobility, healthcare, agriculture, and

social security. The introduction of neoliberal measures in countries with

an extensive public sector such as Egypt has not stimulated the free

market as a primary organizer of economic life, but it reinforced crony

capitalism and monopolistic tendencies: ‘… the close ties between the

regime and segments of Egyptian big business were hardly weakened by

privatization. In many respects, the process resembles the nomenklatura

privatizations of the former Soviet Union – insiders strongly connected to

the state apparatus gathered most of the benefits.’124 Although much of

the form of state capitalism continues to exist, its actual substance has

become the opposite of its past content. Appeals for the defence of the

‘public sector’ or the ‘developmental state’ against ‘neoliberal

encroachment’ are meaningless in the contemporary Egyptian context.

The current process is one of “state capitalism in reverse”: the state

loses its role of ‘universal capitalist’ and becomes the particular tool of a

122 Bianchi 1989, p. 5.123 Richards and Waterbury 2008, p. 334.124 Richards and Waterbury 2008, p. 251.

51

select group of oligarchs who are closely connected to foreign financial

and select domestic capital groups. In the process of ‘state capitalism in

reverse’, rents are even more important than during past decades.

Productive activities which have a profit rate comparable with the interest

of rental income are very limited. The main economic interest of statist

elites is the increase and expansion of rental income, therefore the

breakdown of workers’ rights and the imposition of adjustment and

austerity programmes are logical consequences of the stalled

industrialisation.125

Conclusion

This essay aimed at explaining the nature of Egypt’s economic

development through a focus on the trajectory of the real and concrete

social formation, and employing,the notion of ‘uneven and combined

development’ as a key frame of analysis. Through the study of the

Egyptian social formation the systemic logic of capital was completed

with the particular logic and realities of pre-capitalist structures. The

concept of uneven and combined development enabled us to integrate

125 Mitchell 2006.

52

the dynamics and interactions of the nation state and the world economy

into one coherent frame of analysis which refrains from reducing the

whole to its parts and vice versa. The story of Egypt cannot be told as

just a submissive integration into the capitalist world economy, nor as a

mere ‘blocked transition’ because of resisting pre-capitalist elements.

Both the development of capitalism on a world scale and the lack of

capitalist relations inside the Egyptian social formation impeded

economic development.

Egypt’s ‘halted transition’ to Western-style capitalism has been a

protracted process which started from the very beginning of capitalist

penetration in the Egyptian social formation. Egypt’s integration into the

emerging world market between the second half of the eighteenth and

the first half of the nineteenth century was not accompanied by the

appropriation of the capitalist mode of production. The absolutist state of

Muhammad Ali embedded advanced productive forms in a pre-capitalist

structure, neutralizing their transformative capacities. From the second

half of the nineteenth century onwards, imperialism followed by formal

colonialism and informal neo-colonialism, forcefully introduced the

capitalist mode and relations of production in Egypt. Ultimately this did

not lead to a revolutionary expansion of the productive forces because of

the interests of foreign capital which coincided with those of strong and

actively resistive pre-capitalist social forms and agents. Only Nasserite

53

Bonapartism was able to break the double hold of imperialism and the

pre-capitalist ruling classes over Egypt’s industrial development. Through

state capitalism the formal and real subsumption of labour under capital

was initiated and capital-intensive industrialization stimulated economic

development. Nonetheless the Nasserite system was fraught with

internal contradictions which impeded development in the long run. First,

the expansion of the productive forces did not acquire a permanent

character due to the difficulties of capital-intensive industrialization.

Secondly, the class base of the regime came into contradiction with the

accumulation logic of state capitalism, forcing a choice between the

‘populist consumption policy’ and the ‘investment demands of

developmentalism’. Third, without the full liquidation of the private sector

and the pre-capitalist ruling classes, state capitalism had a tendency to

privatize itself. The Nasserite state actors used the private sector to

accumulate capital privately, while private actors used the state’s

subcontracting policy to expand their economic activities. The synthesis

of these three contradictions would have led to a quick disintegration of

state capitalism, but the rise of a rentier economy in the 1970s and

1980s enabled the system to outlive itself. An objective alliance between

domestic merchant, commercial and landed capital groups, the state,

and foreign capital enabled private capital accumulation, but frustrated

economic development. The end of the rentier phase in the 1990s laid

54

bare the contemporary monopolistic and oligarchic nature of capitalism in

Egypt.

The particular road of Egyptian capitalism clearly shows that the world

market did not just export the capitalist mode of production and

underdevelopment as its ‘natural’ effect. Wallerstein and Amin

presuppose the capitalist world economy as a totality in which Western

states use coercive force to shape the internal economic affairs of the

periphery. The Egyptian case refutes this one-sided analysis. Although

capitalism as a global economic system is continuously expanding in a

social-spatial way, this does not imply a straight-forward displacement of

pre-capitalist modes of production by capitalist variants. Rather, the

Egyptian social formation has its own internal transformative logic which

cannot be reduced to the coercive force mentioned above. Also, the

capitalist mode of production does not autonomously rearrange the set of

productive forces and relations of production. Following Rey’s

perspective, the history of the Egyptian social formation demonstrates

that other modes of production can, within limited spatio-temporal

boundaries, adjust themselves to the demands of the world market. The

result is never a historico-logical jump towards a more commodified

economy, but rather an unstable series of ‘hybridisation’.

Underdevelopment cannot be condensed into a single logic. There is ‘not

55

enough capitalism’ in the sense that some social forces frustrate the

creation of commodity relations in order to gain wealth. These forces only

contribute to industrialization if it benefits other economic activities. There

is ‘too much capitalism’ as the Egyptian social formation has to bear the

social costs which flow from the penetration of international capital.

Western-style capitalism lost its meaning as the ideal object, historical

and logical, but it is still the most important reference regarding the

comparative aspect in the research of non-Western social formations.

At the time of writing the Egyptian political regime is experiencing a

transformation, brought about by a revolutionary mass movement. The

unfolding process could signify a new phase in Egypt’s economic

development - perhaps even a return to some form of substantive state

capitalism (or, depending on the outcome of the class struggle:

socialism) and the rationale of the ‘popular consumption policy’. If so, the

Egyptian masses will have to solve many of the problems which caused

the downfall of Nasserite state capitalism: a self-privatizing bureaucracy,

a military ruling caste, a logic of productivism, and the riddle of capital-

intensive industrialization – while at the same time avoiding a position of

dependency in the world market induced by local elites and foreign

capital.

56

57

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