Egypt's Dilemma

by Madeleine Kando

In a Wall Street Journal article by Hernando de Soto entitled 'Egypt's Economic Apartheid', the Peruvian economist explains one of the reasons why so many people in Egypt feel marginalized and have taken to the streets to protest their government.

Revolutions are a first step to changing a system that doesn't benefit the majority of a people. That is the message, loud and clear. Not so much the political system, but the economic system.

As I watch this mass of young demonstrators, cell phones and camcorders in one hand and a wooden club in the other, things makes more sense to me after reading De Soto’s article. They want to remove Mubarak, they want democracy, but what is democracy without economic opportunity? An empty concept.

Many of the demonstrators are young, educated and unemployed and have no prospects of improving their lives. Why? Because the legal system does not allow for the majority of the population to legalize their property or their business. Egypt's underground economy is the nation's biggest employer. The legal private sector employs 6.8 million people and the public sector employs 5.9 million, while 9.6 million people work in the extralegal sector. As far as real estate is concerned, 92% of Egyptians hold their property without normal legal title!

If you don't have the rights to your home, your business, your land, anyone can take it away anytime, including the government. There is no way you can get a mortgage, a loan, you cannot increase your capital, it's a dead end situation. De Soto calls it 'dead capital'. You cannot have economic opportunity without property rights. How can you have a healthy economy when the majority of it is outside the law?

In developing nations like Egypt, capitalism only works for the upper class because they have the ability to function within the legal system. But people forget that capitalism is the tool of the poor, not the rich. People have forgotten that capitalism was invented to oppose the aristocracy who had all the wealth.

But if it doesn't do the job for which it was designed, i.e. help the poor create better lives for themselves, it will be thrown in the wastebasket and people will find an alternative system. Hopefully this will not happen in Egypt where there is the danger of it becoming a fundamentalist regime.

The US was lucky in that its 'elite' (the founding fathers) helped create an egalitarian system where everyone has a chance to succeed. The ruling class did the right thing and rebelled against the status quo (England). Unfortunately in many developing countries (including Egypt) the elite is not doing that. It is NOT advancing capitalism, but trying to protect their own interests. Revolts are the result of this.

Egypt's economy is a shadow economy that does not give its participants a chance to grow, to survive. It is bad for everyone. It is bad for the West AND for Egypt. Rather than spending all that money on propping up the military in Egypt, why not invest in changing the system that prevents those demonstrators from making a decent living? If you have a job, you don't have time for revolution.

I have often heard say that the problems in the Middle East can not be solved from the outside. That is now quite obvious. We are witnessing history in the making.

Having a right to your property (which includes yourself) allows one to participate in the political decision making. If there is no protection of property, the only solution for the individual is to rebel outside of the political process: revolution.

* To find out more about the importance of property rights please read ‘The Mystery of Capital’ by Hernando de Soto
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