Economic Growth is the increase of per capita Gross
Domestic Product (GDP) or other measures of aggregate income, typically
reported as the annual rate of change in real GDP. Economic growth is primarily
driven by improvements in productivity, which involves producing more goods and
services with the same inputs of labor, capital, energy and materials.
Uneconomic growth is economic growth
that reflects or creates a decline in the quality of life. It is meant as a reduction
of the size of the economy that would bring well-being and sustainability.
The cost, or decline in well-being,
associated with extended economic growth is argued to arise as a result of
"the social and environmental sacrifices made necessary by that growing encroachment
on the eco-system. In other words,
uneconomic growth occurs when increases in production come at an expense in
resources and well-being that is worth more than the items made.
The term quality of life is used to evaluate the general well-being of
individuals and societies. The term is used in a wide range of contexts,
including the fields of international development, healthcare, and politics.
Quality of life should not be confused with the concept of standard of living,
which is based primarily on income. Instead, standard indicators of the quality
of life include not only wealth and employment, but also the built environment,
physical and mental health, education, recreation and leisure time, and social
belonging.
Uneconomic
Growth
Continuing to grow the economy when
the costs are higher than the benefits is actually uneconomic
growth. The United Nations has classified
five types of uneconomic growth:
- Jobless growth, where the economy grows, but does not expand opportunities for employment;
- Ruthless growth, where the proceeds of economic growth mostly benefit the rich;
- Voiceless growth, where economic growth is not accompanied by extension of democracy or empowerment;
- Rootless growth, where economic growth squashes people’s cultural identity; and
- Futureless growth, where the present generation squanders resources needed by future generations
Marginal cost refers to the cost of
producing one more unit of a good or service. Marginal benefit is the benefit
gained from one more unit. This graph shows the marginal costs and benefits of
GDP growth. Costs tend to rise and benefits tend to decrease for each
additional unit of growth. We should stop growing GDP, therefore, when marginal
costs are exactly equal to marginal benefits. If costs are less than benefits,
then GDP growth is economic (the green part of the graph). When costs rise
above benefits, GDP growth is uneconomic (the brown part).
How a Lack of Political Reform Undermined Economic reform in Egypt
Among the supreme ironies of the
legacy of U.S. policy in Egypt is that the economic reforms Washington invested
in for decades are at risk of unraveling due to the lack of serious political
reforms. The United States aggressively pursued economic reform in Egypt from
the 1970s onward, offering tens of billions of dollars in military and economic
aid alongside other incentives (including the Gore-Mubarak Partnership, for
example, and preparation for free-trade talks) to cajole Egyptian officials
into taking steps to encourage private industry and gradually move away from a
statist system. U.S. officials showed much less commitment to promoting
political liberalization, believing incorrectly those economic reforms would eventually
pave the way for political reforms.
Now the transitional government of
the military junta which took power after the June 30th Egyptian
uprising has not only turned the logic of prioritizing economic over political
reforms on its head, it has also discredited the economic reform program that
former President Hosni Mubarak undertook with the plaudits of the United States
and international financial institutions. In an effort to help the Egyptian
economy get on its feet again, the Obama administration finds itself in the
uncomfortable position of funding economic programs at odds with free-market
principles.
US Secretary of State John Kerry said during his short visit in November 2013 that his country is committed to working with Egypt's interim rulers, on his first visit to Cairo since the army ousted President Mohamed Morsi.
US Secretary of State John Kerry said during his short visit in November 2013 that his country is committed to working with Egypt's interim rulers, on his first visit to Cairo since the army ousted President Mohamed Morsi.
On the eve of the opening of Dr
Morsi's trial, Mr. Kerry was in Cairo to shore up ties with a key ally and
ensure it moves ahead on plans to restore democracy, just weeks after
Washington partly suspended aid to Egypt.
"We are committed to work with
and we will continue our cooperation with the interim government," Mr.
Kerry told a joint news conference with Egyptian foreign minister Nabil Fahmy,
urging "inclusive, free and fair elections".
"The United States is a friend
of the people of Egypt, of the country of Egypt, and we are a partner," he
stressed.
Mr. Kerry also played down
Washington's suspension of part of its $1.5 billion in annual aid to Cairo,
denying the decision had been taken to punish Egypt's military leaders and
saying it "is a very small issue between us". "US-Egyptian relations
should not be defined by assistance," he said, adding direct aid would
continue to help Egyptians in areas such as health and education and to aid
"counter terrorism" efforts.
In a move that angered Cairo,
Washington last month said it was "recalibrating" its aid to Egypt -
including about $1.3 billion for military assistance - and suspending delivery
of big-ticket items like Apache helicopters and F-16 aircraft.
Mr. Kerry - the most senior figure
of the US administration to visit since Morsi's July 3 ouster - said he had
candid discussions with Fahmy, and he had other meetings later with interim
president Adly Mansour and powerful military chief Abdel Fattah al-Sisi.
During his six-hour visit, he was
also hosting an encounter with a broad cross section of civil society groups,
including religious groups, human rights advocates, and youth and labor
organizations.
The top US diplomat said Washington
believed "the US-Egypt partnership will be strongest when Egypt is
represented by a democratically elected government".
Egyptian Prime Minister El-Beblawy reassured
USA that the transitional government would not retreat from economic reform or
change the basic economic philosophy pursued by Mubarak since 2004.
It will not be easy, however, to
change the political system in Egypt while preserving the old regime’s economic
orientation, even if that orientation was a bright spot in Mubarak’s otherwise
disappointing legacy. While the ruling National Democratic Party (NDP) had an
abysmal record on political reform, it did manage to get one thing right:
moving Egypt’s economy away from the statist model built by Gamal Abdul Nasser
and toward a free-market system that was hospitable to foreign investment and
integrated with the global economy. Neoliberal reforms implemented by the NDP
helped Egypt achieve a steady 7 percent GDP growth rate between 2005 and 2008.
As a result of the party’s efforts to streamline bureaucratic obstacles to
entrepreneurship, it now takes only seven days to start a business in Egypt, as
compared to nearly six weeks in 1995, according to World Bank estimates.
Unfortunately the NDP’s brand of economic reform also included a generous dose of cronyism and corruption, including allocation of state lands for private development, concessionary loans for the ruling elite, and sweetheart deals on privatized state industries for regime figures. The unseemly scramble for NDP parliamentary nominations in the November 2010 elections showed that the ruling party had come to be seen as a sure road to wealth. Meanwhile, ordinary Egyptian citizens were facing high unemployment and rising prices on basic commodities, and were becoming increasingly aware of a painful disparity in the distribution of the material benefits of economic reform.
Since the January 25 uprising and Mubarak’s resignation three weeks later, Egyptians have demonstrated their fierce determination to dismantle the old regime and everything associated with it, including neoliberal economic reforms. In his first effort to quell unrest, Mubarak fired the ministers best known for developing the free-market agenda, including Prime Minister Ahmed Nazif and Trade Minister Rashid Mohammed Rashid, as well as senior NDP member and billionaire Ahmad Ezz. The Egyptian government has subsequently frozen their assets and they are facing prosecution for corruption.
Now that the proponents of free-market capitalism have been purged from Egypt’s government, economic populism has emerged as a compelling alternative to the neoliberal policies associated with the old order. Deteriorating economic conditions will make it difficult for Egypt’s new leadership to resist populist tendencies. The protesters may have left Tahrir Square, but Egypt’s economy is still reeling under the strain of paralyzing pro-Morsy strikes, a frozen financial market, capital flight, and rising food prices. Although the devastating economic ramifications of the political unrest are just beginning to unfold, Egypt has already lost over $25 billion in output since the start of demonstrations on January 25, according to foreign ministry officials.
In the coming months, Egypt’s ruling transitional government and its National Security Council will face mounting public pressure to provide immediate relief with subsidies and other welfare measures. Indeed, the interim government has already indicated a clear propensity for economic populism, promising to pump up government salaries by raising the minimum wage to LE1200 per month which will have a huge impact on the country’s budget deficit. In addition, It is expected that sooner or later the next government will have to deal with the cost associated with the allocation of a monthly pension to the families of all protesters killed over the course of the uprising since January 25th, 2011 including the victims of the military coup such as those of Rabaa and El-Nahda.
Moreover, public demand for relief is not the only factor pushing Egypt’s leadership toward economic populism. The military junta charged with overseeing the current transitional process has a vested financial interest in promoting a regression back to the state-controlled economic model that prevailed under Nasser’s rule. As the proprietor of a vast business empire spanning the public and private sectors, Egypt’s military controls as much as a third of the national economy by some estimates. With its staggering array of manufacturing and service operations, the military provides everything from pest control services to washing machines, without ever paying taxes on or disclosing revenues that are believed to be stratospheric. A longtime critic of the NDP’s free-market reforms, Field Marshall Hussein Tantawi, chairman of the ruling military council, has always favored government intervention in pricing and production. Now that the armed forces control Egypt’s government as well as its economy, General Abdel Fatah El-Sisi will be even more motivated to promote regulatory policies that would benefit the military’s business empire.
The Golf States Emergency assistance to underwrite subsidies is probably unavoidable at present, but U.S. and European policy makers will surely engage Egyptian officials on more sustainable plans to get economic development and reform back on track. Protesters and opposition groups have yet to articulate clear economic platforms; the few policy recommendations put forward so far are concerned primarily with exacting revenge on corrupt NDP officials and ousted Muslim Brotherhood regime.
While prosecuting the perpetrators of corruption is an important step toward achieving a more transparent and accountable political process, it is unrealistic to believe that seizing and redistributing lost billions will solve Egypt’s serious structural and security problems. Furthermore, the United States should discourage Egypt’s new leaders from undertaking commitments—such as Nasser’s pledge to guarantee government jobs for all university graduates—that will impose unbearable burdens on future governments. What Egypt needs now is a new blueprint for sustainable development, including policies to address structural inequality and sweeping reforms to resuscitate a floundering educational system that has failed to prepare Egypt’s youth for an increasingly competitive labor market.
U.S. and European officials should also apply a lesson from Egypt to their dealings with other governments in the region: economic reform programs may not be sustainable unless they are accompanied by parallel improvements in political conditions and the rule of law. The benefits of Egypt’s structural economic reform program might eventually have trickled down to citizens at the lower end of the socioeconomic spectrum, had the program not run out of time due to mounting public dissatisfaction with repression.
Unfortunately the NDP’s brand of economic reform also included a generous dose of cronyism and corruption, including allocation of state lands for private development, concessionary loans for the ruling elite, and sweetheart deals on privatized state industries for regime figures. The unseemly scramble for NDP parliamentary nominations in the November 2010 elections showed that the ruling party had come to be seen as a sure road to wealth. Meanwhile, ordinary Egyptian citizens were facing high unemployment and rising prices on basic commodities, and were becoming increasingly aware of a painful disparity in the distribution of the material benefits of economic reform.
Since the January 25 uprising and Mubarak’s resignation three weeks later, Egyptians have demonstrated their fierce determination to dismantle the old regime and everything associated with it, including neoliberal economic reforms. In his first effort to quell unrest, Mubarak fired the ministers best known for developing the free-market agenda, including Prime Minister Ahmed Nazif and Trade Minister Rashid Mohammed Rashid, as well as senior NDP member and billionaire Ahmad Ezz. The Egyptian government has subsequently frozen their assets and they are facing prosecution for corruption.
Now that the proponents of free-market capitalism have been purged from Egypt’s government, economic populism has emerged as a compelling alternative to the neoliberal policies associated with the old order. Deteriorating economic conditions will make it difficult for Egypt’s new leadership to resist populist tendencies. The protesters may have left Tahrir Square, but Egypt’s economy is still reeling under the strain of paralyzing pro-Morsy strikes, a frozen financial market, capital flight, and rising food prices. Although the devastating economic ramifications of the political unrest are just beginning to unfold, Egypt has already lost over $25 billion in output since the start of demonstrations on January 25, according to foreign ministry officials.
In the coming months, Egypt’s ruling transitional government and its National Security Council will face mounting public pressure to provide immediate relief with subsidies and other welfare measures. Indeed, the interim government has already indicated a clear propensity for economic populism, promising to pump up government salaries by raising the minimum wage to LE1200 per month which will have a huge impact on the country’s budget deficit. In addition, It is expected that sooner or later the next government will have to deal with the cost associated with the allocation of a monthly pension to the families of all protesters killed over the course of the uprising since January 25th, 2011 including the victims of the military coup such as those of Rabaa and El-Nahda.
Moreover, public demand for relief is not the only factor pushing Egypt’s leadership toward economic populism. The military junta charged with overseeing the current transitional process has a vested financial interest in promoting a regression back to the state-controlled economic model that prevailed under Nasser’s rule. As the proprietor of a vast business empire spanning the public and private sectors, Egypt’s military controls as much as a third of the national economy by some estimates. With its staggering array of manufacturing and service operations, the military provides everything from pest control services to washing machines, without ever paying taxes on or disclosing revenues that are believed to be stratospheric. A longtime critic of the NDP’s free-market reforms, Field Marshall Hussein Tantawi, chairman of the ruling military council, has always favored government intervention in pricing and production. Now that the armed forces control Egypt’s government as well as its economy, General Abdel Fatah El-Sisi will be even more motivated to promote regulatory policies that would benefit the military’s business empire.
The Golf States Emergency assistance to underwrite subsidies is probably unavoidable at present, but U.S. and European policy makers will surely engage Egyptian officials on more sustainable plans to get economic development and reform back on track. Protesters and opposition groups have yet to articulate clear economic platforms; the few policy recommendations put forward so far are concerned primarily with exacting revenge on corrupt NDP officials and ousted Muslim Brotherhood regime.
While prosecuting the perpetrators of corruption is an important step toward achieving a more transparent and accountable political process, it is unrealistic to believe that seizing and redistributing lost billions will solve Egypt’s serious structural and security problems. Furthermore, the United States should discourage Egypt’s new leaders from undertaking commitments—such as Nasser’s pledge to guarantee government jobs for all university graduates—that will impose unbearable burdens on future governments. What Egypt needs now is a new blueprint for sustainable development, including policies to address structural inequality and sweeping reforms to resuscitate a floundering educational system that has failed to prepare Egypt’s youth for an increasingly competitive labor market.
U.S. and European officials should also apply a lesson from Egypt to their dealings with other governments in the region: economic reform programs may not be sustainable unless they are accompanied by parallel improvements in political conditions and the rule of law. The benefits of Egypt’s structural economic reform program might eventually have trickled down to citizens at the lower end of the socioeconomic spectrum, had the program not run out of time due to mounting public dissatisfaction with repression.
Dr. Adly Hassanein,
President
Mediterranean Center for Sustainable Development
Programs 
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