Why Egypt Could Fail

I’ve finally had a chance to read Why Nations Fail by Daron Acemoglu and James Robinson. It provides a useful tool for looking at the President Morsi’s attempt to centralize power in his own office could damage Egypt’s fragile economy.

In Why Nations Fail Daron Acemoglu and James Robinson reiterate throughout that politically inclusive institutions, strong economic institutions, and sustainable  economic growth go hand-in-hand. Their analysis reinforces how damaging it could be for Egypt’s president Morsi to centralize power in the president’s office.

Under military-dictator Mubarak, over half of all Egyptians lived on less than $2 a day, and economic wealth largely centralized by a tiny elite. However, political power was centralized and largely undisputed for decades. Acemoglu and Robinson argue that some modest economic growth can be created under politically-exclusive and economically-extractive institutions: dictators need a bit of an economy to have any wealth to extract. But, they are doomed to collapse as higher levels of opression and constant in-fighting among the elite lead to revolution. As a result of some modest economic reform, Egypt’s economy did experience moderate growth under Mubarak – GDP grew by about 5% per year – but the oppressive regime inevitably fell apart as the Arab Spring moved from Tunisia east. On January 25th, 2011 Mubarak’s oppressive presidency ended. So far, the revolution has brought no economic benefit to Egypt. The resulting political instability has stunted economic growth, and led to a sustained double-digit unemployment rate.

Now President Morsi’s attempt to centralize power in his own office will do little to stop the current political instability, and even worse would rapidly create a politically-exclusive, even authoritarian, regime mere months after Egypt’s democratic election. Certainly, centralizing power in the president’s office would increase in-fighting between the Muslim Brotherhood and the Egyptian army. Not to mention that regular Egyptians would also surely continue to fight to try and reverse the president’s new powers through increasingly intense demonstrations. It seems almost unimaginable that such a tactic could reduce political instability. However unlikely, even if Morsi’s constitution did create some political stability,  it seems that Egypt’s economy has already attained the maximum amount of economic growth it can under politically exclusive institutions.  Egypt needs to continue to move in the initial direction of the revolution – toward more politically inclusive institutions and more political stability – to attain anymore economic growth.

Given the current stagnant state of Egypt’s economy since the revolution in 2011, centralizing power in Morsi’s office could actually undo the moderate economic gains made under Mubarak by replacing a centralized, stable, politically exclusive regime with an unstable, politically exclusive regime. Without continued political reform, Egypt’s economy and Egyptians will continue to suffer.