LOOKING DEEP INTO EGYPT'S ECONOMY YIELDS SURPRISING RESULTS

Georgie Anne Geyer

WASHINGTON -- As anyone watching television or reading the newspapers can attest, Egypt is barely balancing these days on the edge of disaster. The promising "Arab Spring" of two years ago now looks more like a darkening winter with no way out.

Indeed, if you look at the players in the ongoing drama of military attacks on the streets of Cairo, of Muslim Brothers believing the presidency was stolen from them, and of every Heinz variety of unemployed, unhappy and uneducated Egyptian, you find it difficult to think of how these and many other groups can ever work together.

This, of course, leads naturally to the unthinkable -- that Egypt is catapulting toward an all-out war of the Syrian model, and that the hope of reconciliation is diminishing by the day.

It may seem strange, then, at a dangerous moment like this, to look back and think of whether there was a time in recent history when there could have been some sort of realistic answer to the poverty and disempowerment of 84 million Egyptians. It would be worth it, if only because there will come another time in Egypt when, after many more are dead, "answers" will again have to be sought.

Most people think immediately that those answers will turn out to be political, and in terms of implementing programs, they are; but the answers to poverty and upheaval in the world today are economic, legal and social. Indeed, we have to begin to think differently.

I came upon some of those answers in 2001 after talking, for the third time, with a highly intellectual and unusual Peruvian economist, Hernando de Soto, a remarkable man who challenges misery across the world with plausible solutions. In fact, at just that time, his team had been studying Egypt for 4 1/2 years into a five-year program and essentially were coming out with the same answers he had outlined to Vladimir Putin about Russia and to his own country's leadership in Peru.

"The first thing we do when we go into a country," he told me then, "is 'measure it' and tell the government where the problem is. It might be the mafias, because then someone else is making the rules. Or we show them how to go from a black market to a legal system."

In Egypt, he found from his exhaustive work there that "the wealth that the poor have accumulated is worth 55 times as much as the sum of all direct foreign investment ever recorded there, including the Suez Canal and the Aswan Dam." In fact, since 92 percent of Egyptians hold their property without any normal legal title, he estimated that, by 2001, "the value of all these extralegal businesses and property, rural as well a suburban, to be $248 billion -- 30 times greater than the market value of the companies registered on the Cairo Stock Exchange." That would be $400 billion today.

De Soto is a charming man, with a carefully trimmed beard and a strong thinker's face. Although he has total belief in his "way," he also has the advantage of not seeming to be a fanatic. He doesn't harangue you; he educates you -- and about a world you've never thought of. It was his organization, Lima's Institute for Liberty and Democracy, that first took on Cairo's social sins.

The fieldwork involved 120 Egyptian and Peruvian technicians, 300 local leaders and interviews with thousands of ordinary Egyptians to prepare and present a 1,000-page report and a 20-point action plan to the 11-member economic cabinet in 2004. The plan was championed by the cabinet, and the major paper Al-Ahram declared that these reforms "would open the doors of history for Egypt." But then the cabinet was thrown out by, in de Soto's words, "hidden forces of the status quo."

The keys to his thinking:

Egypt's underground economy is the nation's biggest employer, with 9.6 million in the extralegal system, compared to 6.8 million in the legal private sector and 5.9 million in the public sector. There is plenty of entrepreneurship in Egypt, and there is plenty of cash in would-be entrepreneurs' hands, but it all largely exists outside the legal system. It involves what he calls "dead capital," which cannot be leveraged for anything within the legal system.

One example: In Egypt today, to get legal title to a vacant piece of land would take more than 10 years of bureaucratic fiddling.

"All this helps explain why so many ordinary Egyptians have been 'smoldering' for decades. Despite hard work and savings, they can do little to improve their lives," de Soto wrote in 2011 in The Wall Street Journal. "Bringing the majority of Egypt's people into an open legal system is what will break Egypt's economic apartheid. Empowering the poor with the legal system awarding clear property rights to the $400 billion-plus of assets that we found they had created."

But now, with Egypt in its Pharaonic Armageddon mode, could de Soto's practical ideas ever take hold? They would have to be imposed by an authoritarian government, and explained by Egypt's most respected people. The poor themselves might be surprised to learn how much they really own. If this military government promised to hold elections and to carry these reforms through, it's hard to see that it would not work.

And if it won't work, please tell me just exactly what will?


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