The Agenda

Stengler and Litan on Egyptian Entrepreneurship

One of my best friends has spent a good deal of time in Egypt, as a student living in Cairo and more recently as an observer of the extraordinary events in Tahrir Square that culminated in the overthrow of Hosni Mubarak. Over the years he often described the torpor that defined Egyptian life — workers seemed to always move at a sluggish pace, as though all the wind had been taken out of their sails. Yet doing the uprising, ordinary Egyptians acted with tremendous courage, discipline, and organizational sophistication to hold their ground, and to confront violent opponents. It was as though the whole country, or rather a slice of it acting on behalf of the whole country, had suddenly sprung to life after years spent in a zombie-like trace.

This led me to think about Egypt’s economic future. As Yasheng Huang argued in Capitalism with Chinese Characteristics, the first phase of China’s economic opening, from 1979 to the defeat of the 1989 Tiananmen Square uprising, saw an explosion in grassroots entrepreneurship that produced balanced, consumption-increasing growth. Growth since has been far less entrepreneurial, and far more centered on FDI and firms controlled, directly or indirectly, by the state. In a similar vein, Egypt has experienced fairly robust growth in the last few years, yet it hasn’t been driven by indigenous entrepreneurship. And that could help explain why growth failed to reach the Egyptian masses.

That’s why I was so pleased to see this short piece by Dane Stengler and Robert Litan in Inc. on how to spur Egyptian entrepreneurship. It’s a wonderful introduction to the idea that the quality of growth matters as much as the quantity:

By the usual standard, Egypt’s economy has expanded nicely in recent years: After growing at 7 percent a few years ago, it expanded by roughly 5 percent in 2009 and 2010.

As others have noted, however, all is not well in the land of the pharaohs. Poverty has crept up in the last few years and, as in Tunisia, unemployment is skewed: the United Nations says that 90 percent of unemployed Egyptians are under the age 30. In a consumer survey released last month, Credit Suisse found that citizens across every strata of wealth expect shrinkage in household income in 2011. Double-digit food inflation has hit Egypt hard, especially since food comprises an astonishing 40 percent of household spending.

Most important, Egypt’s economic structure does not appear particularly conducive to individual economic initiative: The country ranks No. 96 in the Index of Economic Freedom (out of 179 states), and No. 94 in the Doing Business rankings (out of 183 countries). As measured by the World Bank, Egypt’s “entry density” (new ventures registered per 1,000 people of working age) is 0.13, meaning it has among the lowest start-up rates in the world.

Stengler and Litan go on to identify the various barriers to entrepreneurship in Egypt, and how a new government might lower then. I strongly recommend the piece.

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