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International Socialism, December 1975


Notes of the Month

Egypt: The deepening crisis


From International Socialism, No. 84, December 1975, pp. 6–8.
Transcribed by Christian Høgsbjerg, with thanks to Sally Kincaid.
Marked up by Einde O’Callaghan for ETOL.


Phil Marfleet writes:

Shortly before the Watergate collapse Nixon and Kissinger negotiated a deal which was aimed to pull Egypt fully into the Western camp. It would root Egypt in the Western economic system, and open up new options for the American strategy in the Middle East, especially for their approach to the Palestine problem.

Six months ago we wrote in this journal that the deal would ensure that Egypt ‘will be opened up to capitalist exploitation on a new and vast scale. Cheap labour will be freely available. The Egyptian bourgeoisie especially will cash in and strengthen its position. The US will get the guarantee of a friendly Arab government in the heart of the Middle East and close to the strategically invaluable Gulf and Libyan oilfields.’ (ISJ 76, p. 26)

Egypt’s rulers have done their best to carry these developments toward their conclusion. The Economist (28.7.75) makes no bones about it – ‘Mr. Sadat has in effect placed his country in American hands.’ ‘(his) policy is to somersault back from the socialism (sic) introduced by his predecessor, Gamal Abdel Nasser: economic liberalisation at home and looking to the West, rather than Russia for aid.’

Last summer the Nixon deal promised Egypt $2,500 million of investment, and a nuclear capacity. The leading Arab oil states promised up to $7,500m. Now, even though Sadat has pushed Egypt far along the political path his American patrons demand he follow, the promised economic goodies have not followed. Egyptian compliance has put the US in its strongest ever position in relation to the Arab states. Yet Egypt is sinking economically at an increasingly desperate rate.

The new investment laws gave a carte blanche for the rape of the Egyptian labour force. Cheap labour was to be massively available to the big Western companies, there was to be a tax-free provision for five years. This was to be the new ‘open door’ policy – infitah. Many of the multinationals did show interest – British Leyland, Pilkington and Massey-Ferguson for example, promised to build plants. But none have yet been started. Less than a tenth of the promised investment has arrived from either Western of Arab sources.

The failure of the Western promise to take up the infitah policy can largely be attributed to the threat of further war with Israel. But there are other factors. Low wages have not been enough to attract the labour-intensive consumer industries into a market in which consumer spending is so limited. (Income per capita last year was only $249.) The multinationals feel more confident placing their Middle East investment in the more stable and substantial Iranian or Gulf markets. And Ford’s ability to induce big business into Egypt simply does not match up to their promises.

But the irony for Sadat is that the really huge potential Arab investment has been held back on the basis that it is conditional upon the arrival of business from the West. The reason is simple, and another example of that iron grip that the imperialist ruling classes still maintain upon the non-Western countries who are desperate to develop. The command of the financial apparatus, the complex technology, skilled labour, and the ability to implement the whole ‘infrastructure’ of modern industry lies almost exclusively in the West.

‘Every (Arab) cent must go into bankable investments, and with few exceptions (mainly building), these can be implemented only by Western business men.’ (Economist, 28.7.75) Saudi Arabia has recently come forward with a $600m credit for Egypt, and a further unspecified grant. The credit may well help ease the present crisis, but once again it is not the hard investment Sadat wants. And the offer of a further grant has been made not for industrial development but for a public housing building project.

Egypt’s desperate and unsuccessful attempts to increase the size of the industrial sector illustrate the hard fact of the current situation – Egypt is firmly caught in the dilemma of a developing state capitalism. It has two conflicting priorities – military defence spending, which before 1967 took 9% of the domestic product, now accounts for more than 30%. And total production still cannot keep pace with the massive annual population increases. (Running at 1m per year, up to 37m last year).

To support just the huge defence budget Egypt needs capital now. It cannot obtain this, as can Saudi Arabia, the gulf States or Iran, by the sale of a valued raw material on the world market. Its only saleable asset is cheap labour. But to employ this Egypt must have capital investment and foreign expertise. If the promises of the West come to nothing, Egypt falls further into a reliance on the credit of the imperialist arms suppliers.

The classic history of state capitalism has shown a ruling class operating a large state sector in an attempt to ensure rapid capital accumulation, and at the expense of a closely controlled and exploited labour force. Whilst Sadat has been trying to develop the private sector through infitah, it is the state sector which still wholly dominates the economy.

The state sector covers 90 per cent of Egypt’s 9.5m workforce. For the last year Sadat has been keeping up pressure to ensure that wage rates do stay low, and that the workforce is well under control. After the workers’ demonstrations of January this year, food subsidies were increased, and there were some wage rises, of between 11 per cent and 15 per cent, the bulk of these went to bureaucrats, the army and the police. Prices are still rising at a rate of 30 per cent, and the value of real wages is falling rapidly. ‘In fact the gap between rich and poor is much larger than it was a year ago.’ (Economist, 28.7.75)

Most important, Sadat has recently been clearing the ground for a major crackdown on worker activity. Police manpower has been increased. New laws are being drafted allowing employers much greater freedom in sacking and disciplining the workforce. And in a political change at the top level the former Interior Minister Mamduh Salem has replaced Abdul Aziz Hegazi as Prime Minister. Salem has an ugly record – he has risen through the police hierarchy, and was largely responsible for the purge of Left groups which began shortly after Nasser’s death. As Interior Minister he supervised the attack on textile workers at Mahala al Kubra in March. In protests against high food prices, hoarding, and profiteering, troops were brought in and at least one worker was killed.

Repression has been intensified. In early August the Financial Times reported that ‘The continuing clampdown on Egypt’s disaffected groups has led to the arrest of all the members of a group of 20 left-wingers said to be linked with the Arab Communist Party.’ It is clear that Salem’s new regime is taking effect.

These moves are not merely ‘internal’. Upon Sadat’s ability to keep close control depends his chances of enticing the promised investment at a more favourable period, perhaps when an ‘effective’ interim peace settlement has been agreed with Israel. These moves are all offered as ‘sweeteners’ to the West and its rich Arab supporters.

The workers’ demonstrations lasting from October last year through to the March incidents showed a new awareness that the appeal to nationalism in the anti-Zionist struggle was wearing thin. In recent months there has been less open worker activity. But the rumblings which preceded Sadat’s last crisis, before the ’73 war with Israel, are again evident. The Lebanese newspaper, Al-Kifah Al-Arabi has reported the formation of a new political organisation of left wing nationalists dedicated to bring down Sadat’s ‘family rule’. ‘The Movement for the Protection of the 23 July Revolution’ (which brought Nasser to power in 1952) appears not dissimilar from the ‘Councils for the Defence of Democracy and the Homeland’, which were set up in the crisis period before the declaration of war in 1973.

For the moment the Egyptian ruling class, if nervous about unfulfilled expectations, is not entirely discontent. Some at least have been making money very fast from the food subsidy ‘industry’, and from the huge defence sector. ‘Minority groups, including the rich, are notably more relaxed.’ (Economist)

But there is one abiding irony for the Egyptian rulers. The ‘open door’ investment policy is confounded by the threat of war. Yet it is the very agent of imperialism, Israel – the original Western ‘bullyboy’ of the Arab states, whose presence necessitates massive arms spending, and further bogs down the development of the economy. Sadat’s strategy makes Egypt more and more dependent on Israel’s own military and political patrons.

Sadat has begun to move for some sort of reconciliation with the Russians. Having been largely excluded from Egyptian domestic affairs for some years, they are only too willing to reinforce their position as chief arms supplier by re-entering the development field. They may well agree to a cancellation of some Egyptian debts, and rescheduling of the remaining $1 billion deficit. This is not a ‘clever’ move by Sadat to play off the imperialist powers one against another. It is a recognition that the US could not produce the goods which were to offset the dependence on Russia.

This is an important period for Egypt’s rulers. It was to have been one of consolidation. With the exception of the recent reopening of the Suez Canal, little has been achieved which can offer long term prospects. The gap between promised investment and goods delivered is growing very wide indeed. It cannot go on indefinitely being filled by massive borrowings. The Saudi or Kuwaiti bankers are as merciless as any in the City of London. And Sadat cannot keep the population happy on promises about promises, and anti-Israeli nationalism. As the January and March events showed, anger can erupt with astonishing speed amongst Egypt’s workers. Continued price rises, especially of food, the pressure on housing, especially in Cairo, increased police repression and attacks on any organised left wing will tend to make Sadat’s own power more and more brittle. As discontent spreads, the huge standing army is an obvious focus for opposition activities.

Sadat will be forced into more repressive action. The logic of the failure of Egyptian state capitalism compels him. As long as the need to confront Israel remains, the Egyptian ruling class will be caught between the conflicting claims of a massive defence sector, a desperate need for rapid development, huge population increases and growing poverty, and the rising anger of those who are being made to pay for the fact that the equation cannot be made to balance. The recent history of Egypt has been one of deepening crises forced by these conflicting claims. The last was ‘resolved’ for Sadat by a declaration of war. No new alternatives are appearing as means of baling the Egyptian economy. As time goes by Sadat will be drawn nearer to the final option.

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