Many Westerners, watching the revolution in Egypt, are wondering whether the outcome will be true democracy. Less often asked but equally important is whether Egypt can reform its economy in ways that are necessary for democracy to thrive. As history has demonstrated in such places as Russia under Putin, Chile under Allende, and Iran under the mullahs, nations can be democracies at least in a technical sense—that is, they have elected leaders—but a democracy without a free economy has no future.

Begin with the political question: what kind of government will emerge in Egypt? A system of legitimate political representation could be reached if the military, which is currently in charge, understands the requirements of democracy and the rule of law. It is too early to guess if these officers are ready to talk with the opposition representatives and to understand the meaning of pluralist democracy. The odds are uncertain: the military seems to be seeking another strongman, more or less elected by the people, rather than a truly open society; the revolution’s leaders demand a pluralistic constitution similar to what Egypt had before the 1952 revolution.

It’s important to remember that before nationalism and socialism took over the Arab world, most of its nations had constitutions, political parties, a free press, and independent universities. Until the 1950s, the Arab world was a fairly free society, with a decent rule of law and a promising economy. This was disrupted by conflicts with Israel and various wars of decolonization, as Arab militaries took over in the name of socialism and nationalism in all former British and French colonies in the Arab world. New Arab leaders emerged—Egypt’s Gamal Abdel Nasser was the most charismatic—who denounced the local (and often non-Arab) bourgeoisie as traitors, rejected Western values, and turned to the Soviet Union for support. So Egypt’s impoverishment, authoritarian regime, nationalized economy, and expulsion of non-Arab minorities were rooted, not in the ancient past or in Islamic tradition, but in the contemporary ideologies of nationalism and socialism, which Nasser helped import in the 1950s. This history being quite recent, many Egyptians remember a time when their society was freer. If a pluralistic constitution were revived in Egypt, the old political organizations—like the center-right Wafd—would probably reemerge, just as old political parties were reborn in Central Europe after the 1989 post-Soviet revolution.

Among these traditional parties, the Muslim Brotherhood would revive as well. It has always been a minority party and most probably would remain one, as Egypt is a rather secular nation. The Brotherhood played no significant role in the current revolution, which was led by educated and Westernized young leaders (many of them students at the American University in Cairo). The influence of the Muslim Brotherhood will depend on the moderate secular parties’ capacity to get organized and build a coalition.

The political revolution, then, is still incomplete, but the second necessary revolution—an economic one—has not even begun. This second revolution would open up the Arab economies in order to deliver growth and jobs to the now disgruntled youth. Such a revolution, from a statist economy to a free-market society, would not be easily achieved; for one thing, it would interfere with the self-interests of the military, the government bureaucracy, and ruling families all over the Arab world.

In Egypt today, one-third of the economy is under state control, a legacy of the Nasser regime; another third is under control of the military, which owns factories, holiday resorts, construction companies, and banks. These two controlling sectors are well protected from competition by complicated administrative rules and de facto monopolies. The owners and controllers of these companies are more often rent-seekers than true entrepreneurs: they make for a wealthy elite but a poor nation.

The remaining third of the Egyptian economy—mostly farming, peddling, small repair shops, and local services, along with some professionals like lawyers and medical doctors—is in private hands. But much of this private economy is informal, since its participants want to escape regulations and taxes; the private economy has no access to credit, no development capacity, and it creates few professional opportunities. Further, 92 percent of Egyptians have no legal title for their dwellings, and Egyptian law makes it all but impossible for such people to obtain credit. To open, say, a bakery, a would-be entrepreneur must endure 500 days of administrative procedures, with bureaucratic corruption involved at each step. In a nutshell, the Egyptian economy can only stagnate unless it undergoes massive deregulation and privatization. And as far as exports go, Egypt’s are limited: Suez Canal transit rights and a volatile tourist industry. American aid to the government and the military constitutes what is in effect a hard-currency import.

Such a frozen, statist economy is a no-go for the hundreds of thousands of students educated in Cairo’s and Alexandria’s large universities. Those universities generate what you might call a lumpen intelligentsia, a proletarianized population of young graduates, male and female. It’s easy to understand why these people went into the streets in Cairo (and in Tunis and Algiers): they were desperate but also literate. Revolutions are never led by workers and farmers. The universal recipe for revolutions—think of France in 1789 or China’s Tiananmen revolt in 1989—is a stagnant economy, a repressive political regime, and educated youth. In the case of Egypt, the lumpen intelligentsia is usually out of work or employed in minor bureaucratic jobs. Thousands of them unwillingly emigrate to Arab oil-producing countries, where Egyptians often become local cadres and professionals.

Egypt’s stifled economy is an unhappy model for the Arab world. No Arab economy is integrated in the world market: at best, the Arab countries export gas, oil, and other mineral resources, with few benefits for their local economies. All Arab countries ignore the rule of law and repress private entrepreneurship if not sponsored by the ruling aristocrats, who take their cut first. All Arab societies are young, and though the youth are not always well educated, they are well-informed about the outside world, thanks to foreign television and the Internet.

The Egyptian tension between lack of economic opportunities and the aspirations of the young applies all over the Arab world. The only differences involve the level of political repression and the government’s willingness to redistribute wealth. In Algeria and Saudi Arabia, the regimes are repressive, but they also redistribute some of their oil money, which may serve to postpone revolution. Morocco is less repressive, but its ruling elite confiscates nearly all of its huge mineral profits, so the nation may turn out to be more vulnerable to revolution. Whatever the results of these diverse survival strategies, the Egyptian revolution has demonstrated that all Arab autocracies are more fragile than they initially appeared.

A free-market revolution in the Arab world is certainly necessary, but is it feasible? Would the Arabs, in a free economy, become entrepreneurs and join the global market? Until the last few months, we heard often from Arab leaders and their Western supporters that despotism was well suited to the Arab masses. Since the Tunis and Cairo revolutions, however, such cultural relativists have fallen silent, at least for the time being. What we’ll probably hear next is the same kind of relativism applied to the economy—that free enterprise and Arab culture don’t mix, or some such formulation. But let’s remember that for 30 years, free markets have proved efficient in any civilization. Economic development is always and everywhere an outcome of the rule of law, not an expression of the local culture. Property rights, the right to entrepreneurship, competition, and monetary stability can rapidly lead any nation out of mass poverty. To establish a free market takes some time, but making reforms in this direction would immediately attract investors and entrepreneurs to Egypt; neighbors like Morocco, Tunisia, and Algeria, with their huge diasporas, would also stand to gain from a reform wave. When economic freedom takes root in a poor nation, the effect is almost mechanical—an 8 to 10 percent growth rate, as we’ve seen in Brazil, India, China, and Turkey.

Egypt could achieve the same 8 to 10 percent growth rate. Its current rate already hovers around 5 percent, thanks to tourism, the Suez Canal, and foreign aid. Jumping to 10 percent would be possible, indeed a necessity, in order to accommodate the rising tide of youngsters reaching working age. Under 10 percent, the lack of opportunities would, sooner or later, bring a second revolution. Such a revolution, grounded not in hope but in frustration, could be more violent and more radical than the current one. And unlike today’s revolutionaries, who see democracy as a solution, tomorrow’s could put their faith in Islam. This is true of Egypt today—and what has been true in Egypt has always proved true for the whole Arab world.


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