The fallacy of 'freedom': USAid and neoliberal policy in Egypt

The uprising that began in Egypt on January 25 and concluded more than 18 days later with the ouster of President Hosni Mubarak — a dictator who clung tenaciously to power for 30 years — has been rightfully celebrated as an historic turning point in international politics. But the meaning of the “revolution” remains far from decided. The cries for freedom that echoed from Tahrir Square carried more than just a demand for political liberty; Egyptians rose up not only against tyranny, but against the neoliberal economic order that has generated hunger, poverty, and profound inequality in Egypt for so long.

Over the past couple of decades, the Mubarak regime — with the help of the United States — implemented a battery of macroeconomic reforms that shifted wealth and power to the upper socioeconomic strata of the population. The consequences have been devastating. The privatisation of public services has put education and healthcare out of reach for many, and the elimination of subsidies and tariff barriers has undermined local businesses and driven up unemployment rates. At the same time, labour standards have been eviscerated and the tax burden shifted from the rich to the poor, which has strangled wage earners to the point of desperation.

Whose freedom is it?
These issues have been almost entirely obscured by the narrative of political freedom that has framed the revolution thus far. The irony in this is that the rhetoric of freedom is precisely the facade that the Mubarak regime used to justify the neoliberal transformation of Egypt in the first place. Market deregulation has been propped up in place of meaningful human freedom, largely according to a playbook provided by the United States and implemented by USAid.

Since Mubarak assumed power in 1981, the United States has granted more than $60-billion in aid to Egypt. It is common to point out that most of this money has been transferred in the form of military aid — $1,3-billion per year since the Camp David Accords in 1979 — designed to help Egypt purchase American equipment like tanks and teargas canisters. But, perhaps even more importantly, the United States has also dispensed an average of $815-million per year in economic assistance, distributed by USAid’s 300-person office in Cairo in the name of promoting “market freedom”.

Technically, this money is supposed to support initiatives that “reduce poverty,” “create jobs”, and “promote regional stability”. But a closer look shows that the overriding policy objective is to pry open the Egyptian economy for the benefit of US business with little regard for the well-being of the people. In 1991 — a watershed moment in Egypt’s economic history — Mubarak signed structural adjustment agreements with the International Monetary Fund and the World Bank, which were reinforced the following year by USAid’s Sector Policy Reform Programme in a move that brought the total amount of disbursements for economic liberalization to $2.3bn.

In 1994, USAid underwrote the US-Egypt Partnership for Economic Growth and Development — led by then-vice-president Al Gore — which sought to reshuffle the Egyptian Cabinet and appoint a new Prime Minister, Kamal Ganzouri, who would endorse a neoliberal vision of private, export-oriented growth. When the proposed new leaders assumed power in 1996, USAid praised them in a statement to Congress, which read: “The new Cabinet is committed to liberalising the economy by deregulating the trade sector, increasing competition in the financial sector and accelerating the pace of privatisation.”

Give and take
To keep this process moving, USAid gave $200-million each year to the Egyptian government in handouts to encourage “the achievement of policy reform measures” such as “continuing reduction in tariffs” and the privatisation of 314 government-owned companies. An additional 25% of the USAid budget has traditionally been disbursed through the Commodity Import Programme to help Egypt buy American-made goods and reinforce bilateral trade. For the Egyptian people, however, the downside of these initiatives is that they undercut local manufactures, encourage foreign monopolies, and ultimately contribute to unemployment, which has risen to 25% in recent years and reaches as high as 30% among the young.

As a condition for this aid, USAid required Egypt to shift its formidable agricultural capacity away from staple foods and toward export crops such as cotton, grapes, and strawberries in order to generate foreign currency to pay off its burgeoning debt to the US. USAid first began to facilitate this process in the 1980s through its Agricultural Mechanisation Project, which was designed to develop the productive capacity of Egyptian export agriculture by financing the purchase of American machinery. In the end — despite USAid’s projections to the contrary — the programme did very little to help common farmers. Instead, it disproportionately benefitted the few large landholders who could afford to take out the loans, while slashing the demand for agricultural labour and causing rural wages to plummet.

To propel the transformation to export-led agriculture, USAid has forced the Egyptian government to heavily tax the production of staples by local farmers and to eliminate subsidies on essential consumer goods like sugar, cooking oil, and dairy products in order to make room for US competition. To ameliorate the resulting food gap, USAid’s so-called “Food for Peace” programme has provided billions of dollars of loans for Egypt to import subsidised grain from the US, which has further undercut local farmers. The result of all of this “agricultural reform” has been an unprecedented spike in food prices followed by widespread hunger and malnutrition, which helped to spark the recent uprising.

On the public services front, USAid has called for the implementation of so-called “cost-recovery” mechanisms, a euphemism for transforming public healthcare and education into private, fee-based institutions. Indeed, USAid has spent nearly half of its health and education budgets — more than $100-million per year — on privatisation measures. This has been fantastic for multinational medical companies, as it translates into greater dependence on imported drugs and equipment. For Egyptians, however, privatisation means having to pay large sums on healthcare and education, to the point where such expenditures — as a percentage of household income — now rank at the second and third highest in the world, respectively.

Making matters worse, as USAid pressures the government to cut spending on public services, the wages of workers in hospitals and schools, for example, have not keep up with inflation, causing deep income deficits among working-class households.

All of this gets obscured by the rhetoric that USAid deploys. According to its website, USAid claims to have helped Egypt become a “success story in economic development”, citing “improvements” in the quality of education, “the administration of justice” and “access to justice for disadvantaged groups”. Egypt’s vigorous market liberalisation programme has attracted foreign investment and boosted GDP growth, but these gains have only benefited the very rich, while the country’s bottom quintiles have seen their portion of the economic pie shrink significantly over the same period.

US-backed social failure
By any measure that takes the well-being of everyday Egyptian’s seriously, US development policy in Egypt has been an utter failure. According to the UN Human Development Index, Egypt’s ranking has plunged to 123rd, which puts it just below Guatemala, and tenth place in the Arab Middle East, just one notch above Yemen. But in terms of its actual objectives, namely, market deregulation designed to benefit US companies, US economic aid to Egypt has been a rousing success, for the Egyptian economy has turned out to be exactly how the State Department intended. Ironically, however, the neoliberal shocks of the past few decades generated immense social instability that has ultimately undermined US interests in the region.

Unfortunately, much of this background has been lost in the media coverage of the uprising. Indeed, the prevailing narrative of “liberty” and “freedom” within which the revolution has been defined is vulnerable to predation by neoliberal ideologues, who are already beginning to leverage it to call for further market deregulation. Ken Ellis, the director of USAid Egypt, has made use of this rhetoric in the past, claiming: “There is a correlation between strong, vibrant, open economies, and a strong, vibrant, open political system.” History has, of course, given lie to this longstanding fantasy. As the US-backed Mubarak regime illustrated, economic liberalisation is not only happily compatible with political repression, it actually encourages it by concentrating wealth and power in the hands of fewer and fewer people, whose interests become ever more narrowly defined. For the vast majority of people, there is nothing “freeing” about “market freedom”.

The revolution has yet to begin. And the protesters who continued to occupy Tahrir Square well after Mubarak’s departure knew this all too well. It was not just tyranny that drove millions of desperate Egyptians into the streets across the country: it was a profoundly unjust economic order manipulated by US interests and opportunistic local elites. This is especially true of the workers who have protested Mubarak’s economic policies since the first wave of labor strikes began in 2006, though their voices — absent from Twitter, Facebook, and YouTube — have been drowned out by their youthful, more tech-savvy counterparts. Theirs has never been merely a struggle for democracy, but for an economic order designed to protect the well-being of every Egyptian — a call for the radical rethinking of neoliberal capitalism. If the latter is harsher on the ears of American policymakers than the former, that is exactly the point.

Originally published in The Africa Report (edited for length)