2
The Deep State Presides: Military, Presidency, and Intelligence Services

The monarchial legacy inherited by the new Republic in 1952 was more favorable than it was portrayed as being by Nasser and his colleagues. Although King Faruq was an ineffective dissolute, the state over which he presided was among the most impressive in what was about to be dubbed the "Third World." Its executive, legislative, and judicial institutions were the most developed in the Arab world. The economy was buoyant, as reflected by the fact that the Egyptian pound appreciated after World War II to the point where it was worth more than the British pound upon which it had been based. A growing industrial sector was being financed by profits from agriculture, which was benefitting from the application of advanced technology learned by Egyptians who studied abroad and returned to take up positons in the Ministry of Agriculture. The financial sector included not only profitable branches of leading western banks, but locally owned ones as well, to say nothing of a dynamic stock market. Physical infrastructure-which included an extensive, well-run railway system; one of, if not the most sophisticated irrigation networks in the world; the Suez Canal, then the world's most strategically vital waterway; and urban amenities that included well run tramways, sewer and water systems, to say nothing of vibrant, attractive commercial centers-was comparable to that in much of southern Europe. Human capital was similarly well developed, as reflected by the high standards of Cairo University, then one of the leading institutions of higher learning in the Third World, on a par with many in the West. Egypt's performing artists led the Arab world, with its cinema industry more or less equivalent to what Bollywood later became. Egyptian archeology set standards for the newly emerging field elsewhere in the world. Monarchial Egypt, in sum, had constructed a reasonably impressive state that had in turn built up the country's stock of physical and human capital.

The military rulers who inherited that legacy squandered it. This only became widely apparent, however, as global competition intensified, first as a result of the definitive end of colonialism in the 1960s, then further accelerated by the globalization that began to gather pace in the 1980s. As other states in the region and the one-time Third World began to pass Egypt by, its underperformance became ever more visible, both at home and abroad. One measure of that decline is the exchange rate of the Egyptian pound, which slid from $3 in 1960 to less than $0.30 thirty years later, and to some $0.06 by 2016.1 Until the mid-1960s, however, and at various times after that, it seemed that Egypt was on the verge of a widely hoped for economic take-off, much promised by its leaders. Indeed, within the broad, continuous decline of the state and economy, a recurrent, cyclical pattern of optimism and hope, giving way to pessimism and despair, characterizes the Nasser, Sadat, Mubarak, and now the Sisi regime.

These recurrent cycles included interwoven political and economic dimensions. Nasser commenced his regime with promises of rapid economic growth combined not with political liberalization, but with the liberation of Egyptians from colonialism, imperialism, and local lackeys thereof. By the mid-1960s much of the monarchial capital accumulation had been dissipated, as reflected by the steady depreciation of the currency and the erosion of foreign currency reserves. The final years of the Nasser era were characterized by increasing economic hardship for the nation and its peoples, combined with growing political discontent as manifested in widespread grumbling and demonstrations of students and workers. In the absence of rapid economic growth and political freedom, the anti-colonial rhetoric had worn thin.

The trajectories of the polity and economy under Sadat were similar. On coming to power with his May 1971 "Corrective Revolution," Sadat promised to rein in the "midnight visitors" from the security services who had terrorized the population under his predecessor, and to build a "state of institutions." He orchestrated the emergence of a multi-party or, more accurately, one-party-dominant system, to replace Nasser's single party, the Arab Socialist Union, and endowed the newly created Supreme Constitutional Court with the power of judicial review, including of the freshly drafted, relatively liberal constitution. In the wake of the semi-successful 1973 October War, he declared an economic infitah, or opening, in which Egypt was to be reintegrated into the global economy and its private sector reinvigorated. By the time of his assassination eight years later, however, the political and economic openings had fizzled out, despite the temporary enrichment resulting from the decade-long oil boom that commenced in late 1973. Two months prior to his killing he had ordered mass arrests of his critics, while both foreign and domestic private sector interests, other than those closely associated with Sadat himself, had run up against what they increasingly deemed to be insurmountable barriers of state control of their activities.

The cycle was repeated yet again under Mubarak. His first moves as president were to liberalize the polity, reaching out even to those his predecessor had arrested, while allowing reasonably free and fair elections that produced the most sizeable and coherent opposition in the Egyptian parliament since the days of King Faruq. This initial political liberalization ran out of steam once Mubarak's power had been consolidated by the early 1990s, but was succeeded by a second phase that responded to global pressure for democratization orchestrated primarily from Washington. This phase was brought to a close, as noted in Chapter 1, some five years before Mubarak was overthrown. The economic liberalization to which the regime committed as part of an IMF package in the late 1980s-and which received a shot in the arm with the forgiveness of half the country's substantial foreign debt in 1991-2 for its support of western intervention to throw Iraqi troops out of Kuwait-paralleled the decline of political freedom in the final years of the regime. Mubarak's cronies, many of whom were connected with son Gamal and his efforts to succeed his father, had by the early twenty-first century gained control of the most profitable sectors of the economy, closing off access to new entrants.

So far the Sisi regime seems to be aping its predecessors, and in more condensed fashion. At the time of the July 2013 coup, Sisi promised to lift the threatening hand of the Brotherhood over both the polity and the economy, for which he received widespread applause. Yet once the Brothers had been dispatched, the regime moved quickly to close down any and all channels of independent political expression, simultaneously extending the military's control over virtually all sectors of the economy, displacing civilian actors in both the public and private sectors.

As these gyrations back and forth between economic and political openings and closings have occurred, state capacities have steadily declined, albeit with a few ups and downs, while the rate of capital accumulation, as measured by the investment in and performance of the physical and human infrastructure, has slowed almost to a standstill. This begs the questions of why each regime has seemed about ready to break out of the mold imposed by closed political and economic orders, but then backtracked, re-imposing controls on both; and what the relation might be between this repeated cycle of frustrated hopes for openings and the country's decline.

Fortunately these questions have been taken up more broadly and by scholars from different disciplines. By borrowing concepts they have generated, it is possible to explain these dynamics in terms of something more than just the personal preferences of the five military officers and one hapless Muslim Brother who rose to be presidents of Egypt.

A Limited Access Order

In seeking to explain why some economies develop more rapidly than others, institutional economics, led by Douglass North, has emphasized the nature of economic orders established by political elites. What they term limited access orders are those in which political elites grant themselves "privileged control over parts of the economy, each getting some share of the rents .Stability of the rents and thus of the social order requires limiting access and competition." The rents concerned are generated from such arrangements as "government contracts, land rights, monopolies on business activities, and entry to restricted job markets." By contrast, open access orders are those in which political elites reduce the possibilities of state breakdown and the dissolution of political community by providing open access and competition. In these orders, "all citizens have the right to form contractual organizations," with this open access sustaining "both economic and political competition as well as an active civil society." Attempts to accelerate economic development by transplanting institutions from open to limited access orders generally fail, in North's view, because the institutions necessarily operate differently in the two settings.2

Recent empirical investigations in Egypt of "deep insider-outsider divides" bear out the theoretical proposition that they distort and hinder economic growth.3 Those within the limited access...