The Neoliberal Lesson not Learned

Flickr - M. Soli - 28th of January - "The Day of Rage" (5)

It was not long before Mohamed Bouazizi set himself alight in protest of his inability to make a living that the IMF was hailing Tunisia as a poster child for neoliberal restructuring and economic growth. The protests Bouazizi’s actions inspired quickly spread to Egypt, a country similarly lauded for its economic reforms and privatization. The overarching narrative of these revolts in western media fixated on the roles played by youth and social media in these events, depicting them as spontaneous outpourings of discontent calling for democracy.

What this narrative overshadows, however, are the troublesome economic conditions in these countries that resulted from programs of reform and restructuring promoted by International Financial Institutions (IFIs) like the World Bank and IMF and the authoritarian governments of the Arab republics. Dangerously, the failure to recognize the shortcomings of these policies and the continued economic stagnation of these countries is leading commenters and policymakers to push for the same “fixes” that caused so many problems in the first place.

Tunisia and Egypt were founded in their modern iteration by revolutionary regimes looking to free their countries from the economic and political systems of the colonial era which were dominated by large landholders and political elites. Policies of land redistribution, subsidies, large public sector employment, limited private investment, nationalization of large industry and social welfare programs became typical. The system, termed “Arab Socialism,” was accompanied by largely autocratic and authoritarian political rule.

A social contract was therefore established whereby the people were guaranteed a level of social and economic rights but lacked political freedoms and liberties. Alongside the assurances of welfare and employment were secret police forces and intelligence services that coerced and repressed potential dissidents and suspected opponents.

The ability of the regimes to accommodate these social and economic guarantees began to falter as their economies stagnated in the seventies. The promises of foreign investment and support from IFIs therefore became appealing to the resource-poor countries. Beginning relationships with these IFIs in the seventies, Tunisia and Egypt accepted loans that were conditioned on demands of reform, liberalization and restructuring. In practice, these reforms meant privatizing state-owned businesses and industries, slimming the public sector, removing barriers to trade and foreign capital, lifting subsidies, and eliminating welfare provisions.

These neolliberal policies were intended to increase the flow of capital and promote efficiency, competition and production. There was also an underlying assumption that economic liberalization would necessarily lead to political liberalization in these largely autocratic states.

What came to pass from these reforms hardly matched the forecast. Far from liberalizing the countries either economically or politically, the reforms fed into a system of cronyism and neopatrimonialism. The ruling elites and their closest associates were able to reap massive profits from the privatization of formerly state-owned industries and international investment. This rush of wealth for the very few did not make its way down the social ladder, however, and while macroeconomic indicators of growth like GDP boomed, the situations of poor and working class Egyptians and Tunisians crumbled. Cuts in subsidies led to bread riots that were brutally repressed.

Crowd Africa square Tunis
Bread Riots in Egypt, 1977 [Public domain], via Wikimedia Commons

Poverty and inequality exploded alongside GDP; By 2009, 40% of Egyptians lived on less than $2 a day and absolute poverty rose from 16.7% to 20% in the first decade of the new millennium. Real wages dropped while a tiny fraction of the upper classes accounted for disproportionate levels of spending and consumption. Programs of austerity were enacted under Ben Ali and Mubarak. Industrial actions abounded, with over 1,000 occurring in Egypt between 1998 and 2004. A politics of security grew to suppress this unrest and was substantially augmented after 9/11 and the launch of the “War on Terror.”

In other words, the social contract that had underpinned the Arab Socialist regimes had been violated. The Egyptian and Tunisian poor and working class witnessed their social and economic situations stagnate and deteriorate while the government elite and their business associates grew richer. Rather than leading to any sort of liberalization, either economic or political, these programs of economic reform and restructuring entrenched the authoritarian nature of the Arab republics while wreaking profound human costs.

It was off the back of these occasions of industrial action and in response to these regressive structural conditions that the Arab revolts began in 2011. The strength of the reaction to these policies forced some to reconsider their failures. In 2014, the World Bank published a paper entitled “All in the Family: State Capture in Tunisia” which investigated the ways in which neoliberal restructuring in an authoritarian context allowed rulers and their families to use privatization and regulation for their own benefit. More recently, the IMF published a paper suggesting that income inequality caused by openness and austerity hampers economic growth. It concluded, in quite an understatement, that the “benefits of some policies that are an important part of the neoliberal agenda appear to have been somewhat overplayed.”

Despite this newfound critical take on neoliberal restructuring from within the IFI’s research divisions, the policymakers remain enchanted by the same old agenda that failed so miserably in the first place. The 2011 G8 meeting in France promised up to $20 billion in aid to Tunisia and Egypt to aid “the transition to democracy and freedom.” However, this aid package aimed to accelerate the neoliberal restructuring that had been part and parcel of the Mubarak regime’s economic policy.

Even after General Abdel Fatah al-Sisi’s 2013 coup put to rest any possible transition to democracy and freedom in Egypt, the potential answers to economic stagnation remain hackneyed and played-out. A recent Economist article advocated the “cutting of red tape,” slimming of the civil service and phasing out of subsidies to stimulate Egypt’s economy. And in April the IMF approved $2.8 billion in loans to Tunisia that would be conditional on the country “accelerating economic reforms, including of its tax system, civil service and passage of legislation strengthening the central bank’s independence.”

It seems, therefore, that the IFIs and western governments remain wedded to an ideology of neoliberalism that has demonstrably failed to bring about the economic gains it promises. In fact, it has entrenched a ruling elite, increased poverty and exacerbated inequality. The Arab Spring was a loud rejection of these policies. It’s time to learn that lesson.

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