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Egyptians Say Military Discourages an Open Economy

The Egyptian military defends the country, but it also runs day care centers and beach resorts. Its divisions make television sets, jeeps, washing machines, wooden furniture and olive oil, as well as bottled water under a brand reportedly named after a general’s daughter, Safi.

Marchers shake hands with Egyptian Army soldiers on tanks during a demonstration against President Hosni Mubarek in Tahrir Square January 29, 2010 in Cairo, Egypt. Egytian soldiers were for the most part interacting peacefully with the marchers in Tahrir Square during the afternoon hours.
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Marchers shake hands with Egyptian Army soldiers on tanks during a demonstration against President Hosni Mubarek in Tahrir Square January 29, 2010 in Cairo, Egypt. Egytian soldiers were for the most part interacting peacefully with the marchers in Tahrir Square during the afternoon hours.

From this vast web of businesses, the military pays no taxes, employs conscripted labor, buys public land on favorable terms and discloses nothing to Parliament or the public.

Since the ouster last week of President Hosni Mubarak, of course, the military also runs the government.

And some scholars, economists and business groups say it has already begun taking steps to protect the privileges of its gated economy, discouraging changes that some argue are crucial if Egypt is to emerge as a more stable, prosperous country.

“Protecting its businesses from scrutiny and accountability is a red line the military will draw,” said Robert Springborg, an expert on Egypt’s military at the Naval Postgraduate School.

“And that means there can be no meaningful civilian oversight.”

Field Marshal Mohamed Hussein Tantawi, the minister of defense and military production who now leads the council of officers ruling Egypt, has been a strong advocate of government control of prices and production.

He has consistently opposed steps to open up the economy, according to diplomatic cables made public by WikiLeaks. And already there are signs that the military is purging from the cabinet and ruling party advocates of market-oriented economic changes, like selling off state-owned companies and reducing barriers to trade.

As the military began to take over, the government pushed out figures reviled for reaping excessive personal profits from the sell-off of public properties, most notably Mr. Mubarak’s younger son, Gamal, and his friend the steel magnate Ahmed Ezz.

On Thursday, an Egyptian prosecutor ordered that Mr. Ezz be detained pending trial for corruption, along with two businessmen in the old cabinet — former Tourism Minister Zuhair Garana and former Housing Minister Ahmed el-Maghrabi — as well as former Interior Minister Habib el-Adli.

But the military-led government also struck at advocates of economic openness, including the former finance minister Youssef Boutros-Ghali, who was forced from his job, and the former trade minister Rachid Mohamed Rachid, whose assets were frozen under allegations of corruption.

Both are highly regarded internationally and had not been previously accused of corruption.

“That mystified everybody,” said Hisham A. Fahmy, chief executive of the American Chamber of Commerce in Egypt.

In an interview, Mr. Rachid said he felt like a scapegoat. “People who have been supporting liberal reforms or an open economy are being caught up in the anticorruption campaign,” he said.

“My case is one of them. Now there are a lot of voices from the past talking about nationalization — ‘Why do we need a private sector?’ ” he added.

He declined to talk specifically about the military but said that in general within the government, “some people have tried to say that the cause of the revolution was simply economic reform.”

Though some Western analysts have guessed that the military’s empire makes up as much as a third of Egypt’s economy, Mr. Rachid said it was in fact less than 10 percent.

But economists say that because of its vested interests they still worry that the military will impede the continuation of the transition from the state-dominated economy established under President Gamal Abdel Nasser to a more open and efficient free market that advanced under Mr. Mubarak.

Moreover, the military’s power to guide policy is, at the moment, unchecked. The military has invited no civilian input into the transitional government, and it has enjoyed such a surge in prestige since it helped usher out Mr. Mubarak that almost no one in the opposition is criticizing it.

“We trust them,” said Walid Rachid, a member of the April 6 Youth Movement that helped set off the revolt. “Because of the army our revolution has become safe.”

Some of the young revolutionaries at the vanguard of the revolt identify themselves as leftists or socialists. And the idea of liberalizing the economy was thrown into disrepute because of the corrupt way that the Mubarak government carried out privatization, bestowing fortunes on a small circle around the ruling party while leaving most Egyptians struggling against grinding poverty and rampant inflation.

“People think that liberalization creates corruption,” said Abdel Fattah el-Gibaly, director of economic research at Al-Ahram Center for Political and Strategic Studies.

“I think we will go back, not exactly to socialism, but maybe halfway.”

And the Egyptian military, said Mr. Springborg of the Naval Postgraduate School, is happy to go along.

“The military is like the matador with the red cape attracting the bull of resentment against the corruption of the old regime,” he said, “and they are playing it very successfully.”

Gen. Fathy el-Sady, a spokesman for the Ministry of Defense Production, declined to comment, saying the minister in charge was tied up dealing with strikes at military-run companies.

The military has used its leverage in times of crises to thwart free market reforms before, most notably during the 1977 bread riots set off after President Anwar el-Sadat cut subsidies for food prices to move toward a free market.

The military agreed to quell the unrest only after extracting a promise from Mr. Sadat that he would reinstate the subsidies, said Michael Wahid Hanna, who studies Egypt’s military at the Century Foundation in Washington.

Field Marshal Tantawi, the defense minister, and other senior officers were all commissioned before Mr. Sadat switched Egypt’s allegiance to the West in 1979. They trained in the former Soviet Union, where sprawling business empires under military control were not uncommon.

“In the cabinet, where he still wields significant influence, Tantawi has opposed both economic and political reforms that he perceives as eroding central government power,” the American ambassador at the time, Francis J. Ricciardone Jr., wrote in one 2008 cable released by WikiLeaks.

“On economic reform, Tantawi believes that Egypt’s economic reform plan fosters social instability by lessening G.O.E. controls over prices and production,” the ambassador added, referring to the government of Egypt and calling Field Marshal Tantawi “aging and change-resistant.”

In a cable later that year describing the tensions pitting the military against the businessmen around Gamal Mubarak, the new ambassador, Margaret Scobey, wrote: “The military views the G.O.E.’s privatization efforts as a threat to its economic position, and therefore generally opposes economic reforms. We see the military’s role in the economy as a force that generally stifles free market reform by increasing direct government involvement in the markets.”

Mr. Mubarak, scholars and Western diplomats say, allowed the military to expand its empire, ensuring the allegiance of its officers and quieting discontent by dismantling other state-owned businesses.

And with so many businesses under their control, the military’s top officials have doled out chief executive jobs and weekends at military-owned resorts to cultivate loyalty.

Though deprivation and inequality were major complaints leading to the uprising, economists credit the Mubarak government with expanding the economy and increasing its growth rate by loosening state controls and attracting foreign investment.

But the Mubarak government carried out reforms from the top, without changing burdensome regulations that made it hard for small businesses to compete, and the benefits flowed mainly to a few.

Most Egyptians felt, if anything, more impoverished, watching new Mercedeses and BMWs zip by donkey carts hauling garbage through the streets.

“The Mubarak government privatized basically by offering state properties to their cronies,” said Ragui Assaad, an economist who studies Egypt at the University of Minnesota.

Paul Sullivan, an expert on Egypt and its military at Georgetown University, said the military leaders were farsighted enough to see that stability would now require continued economic as well as political liberalization.

But he also acknowledged the possibility of a return to the past.

“There is a witch hunt for corruption, and there is a risk that the economy might go back to the days of Nasser,” the apex of centralized state control, he said.

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