Amr Adly, Cleft Capitalism: The Social Origins of Failed Market Making in Egypt (Stanford University Press, 2020).
Jadaliyya (J): What made you write this book?
Amr Adly (AA): It started with a policy report I wrote for Stanford’s Center on Democracy, Development, and the Rule of Law (CDDRL) in 2013-2014 about reforming entrepreneurship ecosystems in Egypt and Tunisia after the 2011 revolutions. Extensive fieldwork in both countries raised questions about the overall validity of many of the neoclassical institutionalist frameworks that stressed crony capitalism and corruption as the primary reasons for the dismal development record in MENA, to which I personally subscribed. Problems seemed to have deeper social and not just political roots. Naturally, the policy report did not allow delving deep into theoretical and conceptual issues and that is why I decided to depend on the fieldwork and findings to develop a book, which assumed a life of its own through the following six years. The book became an assault on neoclassical orthodoxy and an attempt at developing an empirically-based conceptualization of the capitalist transformation in Egypt as part of the Global South.
J: What particular topics, issues, and literatures does the book address?
AA: The book focuses on Egypt’s capitalist transformation since infitah in the mid-1970s through the 2011 revolution. It combines political economy with economic sociology in providing a detailed picture of how social market actors evolved in Egypt, how they conducted business, and how they were related to the state. The main question the book poses is why forty years of liberalization, privatization, and deregulation in Egypt have not led to the emergence of a developmental capitalist order. It is a kind of “what went wrong” question. Egypt serves as a case study. The whole logic of the book is comparative and aims at pushing beyond the region studies paradigm that has dominated the examination of MENA. The book draws comparisons with other cases in the Global South as well as historical ones in the Global North. Its central argument is that Egypt ended up with a polymorphic and variegated system of rules that weakened the chances for the broader base of private sector actors to access capital and hence to upgrade and grow in size and productivity. This institutional condition is what the book labeled “cleft” capitalism and is one that led to the structural trifurcation of the emerging order into baladi, dandy, and crony capitalisms where different groups of enterprises were subject to different rules governing their access to inputs and market outlets.
The book engages with multiple bodies of literature. It discusses thoroughly and critically the contributions of neoclassical institutionalism as the predominant development paradigm of the day. It is also critical of the leftist literature that dismisses any chances of development through the integration into the capitalist global division of labor. The book explores the combinations of external and domestic factors that define the terms of integration and hence the chances for development. The “cleft capitalism” model is developed through a detailed engagement with the varieties of capitalism approach and the literature that was modeled after studying different national and regional cases in the Global South. It builds on the analytical structure of the varieties of capitalism model but departs from many of its neoclassical underpinnings. The book also explores much of the economic sociology literature on East Asia and Southeast Asia, as well as some other regions in the Global South.
J: How does this book connect to and/or depart from your previous work?
AA: I think this book is a sharp departure from my earlier work. I used to subscribe to many of the tenets of neoclassical and Weberian institutionalisms in the way I approached political economy in Egypt and the region. My earlier articles and book appear within the literature that I critique in this book. Overall, I think the book marks an evolution of how I examine the question of capitalist transformation into a better informed and more nuanced approach.
J: Who do you hope will read this book, and what sort of impact would you like it to have?
AA: I hope this book will reach out to academics and policy experts working on Egypt and MENA, but also to those concerned with development in the Global South more generally. Even though the book focuses on Egypt, it is a comparative work par excellence. It explicitly draws comparisons with East and Southeast Asian experiences with capitalist transformations. The proposed conceptual model of cleft capitalism is also applicable beyond Egypt into non-oil exporting MENA economies, but also cases in Latin America and South Asia. As for the impact that the book may have, I hope it contributes to redefining and refocusing the debate about development in the Global South, and especially in the region. I believe it is time to bring a stronger historic-sociological dimension into institutionalism that will transcend the rather formalistic stress over property rights and the rule of law as prerequisites for capitalist development.
J: What other projects are you working on now?
AA: I am currently working on a couple of peer-reviewed articles on Egypt. I am focusing on the reconfiguration of state-business relations in Egypt under the current regime. I hope I will get the chance to rewrite Cleft Capitalism in Arabic, rather than just translate it. I want to make it accessible to a broad non-specialized audience so that it may engage with the public debate on Egypt’s political economy.
Excerpt from the book
“[T]he divergence of Egypt’s developmental path from more successful cases had less to do with rent seeking, corruption, and cronyism and more to do with the system of cleft capitalism that deprived the business elite of a robust and competitive base of small and medium enterprises (SMEs)–the missing middle. This access would have enabled the dominant classes to exploit the one abundant factor of production in Egypt: cheap labor directly, as well as indirectly, through employment in small-scale enterprises (SSEs). Instead, cleft capitalism denied the Egyptian economy as a whole the chance for a more integrated capitalist order with an accessible and exploitable base of SSEs and labor. While some degree of exploitation has been rampant, especially with the progressive proletarianization of Egyptians throughout the second half of the twentieth century, this largely remained in the domain of subsistence-driven micro-units with virtually no potential for scaling up or growing beyond their immediate localized markets.
The problem was not how Egyptian politics and economics were articulated in any exceptional ways compared to more successful cases in the Global South, nor were political factors such as rent seeking, cronyism, or state patronage primarily responsible for delivering Egypt’s suboptimal development. Indeed, politics remains central to capital accumulation in the Global South as well as North. It would be hard to imagine how capitalism could function without governance and regulation on the national and global levels through state and interstate authoritative arrangements. In market democracies, the economy has become progressively differentiated from politics through the firm establishment of the rule of law and the even protection of property rights, a fairly recent process that signifies only one phase of capitalist development.
In contrast, capitalist development in much of the Global South did not necessitate the reproduction of the same kind of institutional differentiation between politics and the economy. Indeed, China, South Korea, Taiwan, and others in Southeast Asia demonstrate high levels of interpenetration and collusion between economic and political elites while formal market institutions have remained underdeveloped. In their place, alternative politically and socially embedded institutions have delivered high growth, competitiveness, and an overall favorable integration into world trade and capital markets.
When Small Is Big
The historical record of economic modernization in the late nineteenth and early twentieth centuries demonstrates that such development was less about “industrial gigantism,” usually associated with modern economic elites in control of concentrated capital. Rather, Deborah Cohen cites evidence that historically “small and medium-sized plants formed the bedrock of the economy” in Great Britain, France, Germany, the United States, and Japan back then. These firms were then able to form multiple linkages with large capital. The same story unfolded later with the newly industrializing nations of East and Southeast Asia. As Chapter 1 showed, SMEs have played a central role in the development journeys of Taiwan, South Korea, China, and Malaysia. Hence, the key lies not in engendering a few large “modern enterprises,” but in the existence of a robust and competitive base of SMEs through a myriad of institutional arrangements.
The lack of these institutional arrangements points to an institutional explanation for the less successful cases of capitalist transformation in the MENA and other parts of the Global South. These intermediate institutions generate complementarities between public capital-regulating organizations governing access to credit and land and the broader base of private enterprises. Rather than the neoclassical institutions–formal private property protection and the rule of law–it was the absence of these intermediate institutions that led to largely unintegrated capitalist orders.
Similarly, the Weberian bureaucracies idealized as prerequisites for development in the literature on developmental states have either been very exceptional to a handful of cases or totally nonexistent in the Global South. The ability of states to influence their economies has been consistently overstated given the rampant informality and general lack of state autonomy from powerful societal groups. The Egyptian case shows that the broad base of the private sector emerged in the absence of intentional state action, as the marketization and proletarianization processes that engulfed millions of Egyptians by the 1970s have resulted from long-term demographic and social changes little regulated by the state.
The launch of infitāḥ and the following market-making reforms of the 1980s and 1990s could not (and were not meant to) undo the legacy of socioeconomic marginalization, primarily due to the persistent absence of intermediate institutions that could have cultivated complementarities with the broad base of small-scale private establishments. Hence, cleft capitalism was not a product of infitāḥ; rather it resulted from a long-standing process extending back to Egypt’s modernization process in the nineteenth century, which left a majority of the people behind.
Throughout Egypt’s contemporary history, SSE owners and local entrepreneurial populations were neither politically nor socially empowered in a way that could have elevated them to fill the middle rungs of the private sector economy. Politically, the authoritarian dynamics of the 1952 regime allowed only for the incorporation of state-dependent constituencies, dynamics that persist today because they are denied space to collectively articulate their interests. Socially, Egypt, unlike successful cases of transformation, never experienced that type of social revolution capable of delivering for the marginalized and excluded majority. In contrast, Amartya Sen underlined the positive yet unintended impact of China’s social revolution under Mao in incorporating sizable rural and urban constituencies into market operations following Xiao Ping’s economic opening in the late 1970s. Earlier improvements in health, education, and women’s emancipation broadened the base of a skilled (and cheap) labor force that came to define China’s competitive advantage in the capitalist global economy. Conversely, India’s market-making reforms of the 1990s have not overcome the deep socioeconomic marginalization that marked the country’s post-independence period in which the caste system has endured. Hence, by the time economic liberalization unleashed market forces, a majority of Indians remained marginalized on caste, sectarian, ethnic, and gender basis.
India slightly resonates with the experience of Egypt, where no social or democratic revolutions ever (successfully) took place, not even under Nasserism, which was ultimately more of a conservative middle-class-dominated project of modernization. Nor has it witnessed episodes of mass mobilization or a deep transformation of social or economic relations. Any social mobility that did occur due to expanding education and public sector employment was tied to demobilization and incorporation rather than the transformation.
By the time market-based capitalism was sought in Egypt in the mid-1970s, deeply entrenched social and economic marginalization precluded full market integration. However, the deadweight of the past was not inescapable; intermediate institutions could have emerged in response to the political empowerment of segments of SSEs, which never took place. Conversely, SSE populations were never brought into political processes because their interests never aligned with the immediate interests of those at the top, nor could they follow the path of larger dandy capitalist firms and break in from the outside given their dearth of capital. Ultimately, state action in the economic area remained captive to a bureaucratic coalition that in spite of being tension ridden and generally uncoordinated nevertheless unleashed mechanisms that raised economic and political barriers to accessing capital for the broad base of private enterprises. Most SSEs could not adapt to these state institutional arrangements, instead scraping out the ability to survive rather than grow. Conversely, larger enterprises with large initial or acquired capital showed higher adaptation, using their financial, social, and cultural capital in order to jump these barriers and scale up.