Pathological Exuberance Hidden Questions Neoliberal Myths Crony Capitalism Economy as Illusion The Myth of the Market Neoliberalism as Violence Unruly Dreams

Chapter 2 - Arg-e Jadid: A California Oasis in the Iranian Desert

A Garden of Security Islamic Neoliberalism From Kish to Kitsch

Chapter 3 - Sand, Fear, and Money in Dubai

Fantasy Levitated Gigantism Miami of the Persian Gulf War Zone Milton Friedman’s Beach Club An Indentured, Invisible Majority

Chapter 4 - Capital of Chaos: The New Kabul of Warlords and Infidels

Land as Power Architecture as Alchemy Military Strategy as Urban Planning Reconstruction as Myth Impunity as Democracy

Chapter 5 - Delirious Beijing: Euphoria and Despair in the Olympic Metropolis

The Great Transformation The Price of Olympic Fame The Great Divide A Social Time Bomb Containing Chaos Conclusion: Evil Beijing

Chapter 6 - “Palm Springs”: Imagineering California in Hong Kong

The Return of the Walled City Saturday Night and Sunday Morning Selling California One Happy Family

Conclusion Chapter 7 - Johannesburg: Of Gold and Gangsters

What’s in a Name? Johannesburg Top-Down The Neoliberal Drought Resistance

Chapter 8 - “Nueva Managua”: The Disembedded City

The “Palimpsest” City Nueva Managua The Privatization of Security Roads, Roundabouts, and Road Deaths “Disembedding” the City: The Revolt of the Elites?

Chapter 9 - Becoming Bourgeois: (Postsocialist) Utopias of Isolation and Civilization

Neo-Hapsburg Kitsch New Enclosures Slaves of the New Bourgeoisie

Chapter 10 - “Extreme Makeover”: Medellín in the New Millennium

Before and After Disputing Territory, 1985–2002 Tragedy and Farce, 2002–2006

Chapter 11 - The Most Unjust Country in the World

A Paradise of Latifundias The Legacy of “Late” Slavery Radical Injustice The Agrarian Problem in Neoliberalism

Chapter 12 - Bunkering in Paradise (or, Do Oldsters Dream of Electric Golf Carts?)

Minnesota: The Mall That Swallowed America Arizona: Senile Utopias

Chapter 13 - Careless People: It’s the Real Housewives of Orange County’s ...

Hollywood Discovers the OC Epiphany The Real Housewives and Dick Cheney Are Very Bad People Here You May Watch Me Watch TV Barbarian (Me) at the Gates A Literary Interlude, Citing Fitzgerald On Subjectivity

Chapter 14 - “Hell Is Other People”: Ted Turner’s Two Million Acres Chapter 15 - People Like Hicks: The Supreme Court Announces the Antiurban City

A Legitimate Business or Social Purpose People Like Hicks Strollers, Loiterers, Drug Dealers, Roller Skaters, Bird Watchers, Soccer ...

A Right the Rich Have Long Had Chapter 16 - Hubrispace: Personal Museums and the Architectures of Self-Deification

Club Medici: Origins Everyman, His Castle The Plutocrat as Artist LA Apotheosis: Self-Sanctification, In-Name-Only Bailouts, and the Anti-Edifice The Concrete Stomach vs. the Kremlin of Modernism

Chapter 17 - Monastery Chic: The Ascetic Retreat in a Neoliberal Age Chapter 18 - Floating Utopias: Freedom and Unfreedom of the Seas

Ayn Rand Ahoy The Degradation of Utopia The Freedom of the Seas? “The Captain’s Word Will Be Final” Seasteading as Empire Class Warfare as Bad Comedy

Chapter 19 - Hives and Swarms: On the “Nature” of Neoliberalism and the Rise of ...

Life and Death Primal Swarming The Ecological Insurgent

Notes Contributors Index Copyright Page

Also by Mike Davis from The New Press

The Monster at Our Door

Under the Perfect Sun

(with Jim Miller and Kelly Mayhew)

Dead Cities

Evil Paradises revisits, now on a global canvas, many of the concerns of Variations on a Theme Park, the prophetic 1991 symposium on the future of American urbanism edited and inspired by Michael Sorkin. As practicing architect, critic, and theorist, Sorkin has become the most seminal, consistently creative presence in the contemporary urban studies scene. His twenty or so books (published or in press) include some of the toughest-minded architectural criticism ever written (Exquisite Corpses) as well as radical exposés of the politics of walls, borders, globalization, 9/11 monuments, and architectural counterterrorism (Giving Ground, Against the Wall, After the World Trade Center, and Indefensible Space). But Sorkin also sustains the utopian spirit in contemporary urban design, exploring the ecologies of communal self-organization (Local Code) and proposing breathtaking schemes for sustainable cities (Eutopia and the forthcoming New York City [Steady] State). He refreshes his extraordinary vision of global urbanism with constant fieldwork: Kumasi, Hanoi, Vienna, Johannesburg, Bangalore, Abu Dhabi, Taiwan, Jerusalem, and, most recently, New Orleans. Yet—as director of the Urban Design Program at City College of New York Graduate Center—he remains a militant New Yorker, deeply involved in local struggles for social justice and affordable housing.

The editors’ accumulated debts to Sorkin’s intellectual generosity exceed any simple accounting. All the greater, then, the pleasure we take in dedicating Evil Paradises to our gadfly, comrade, and chief instigator.

April 2007

Introduction

A Brechtian maxim: take your cue not from the good old things, but from the bad new ones. —Walter Benjamin, diary entries, 19381

Evil Paradises addresses a simple but epochal question: “Toward what kind of future are we being led by savage, fanatical capitalism?” Or, to frame the same question in a different way, “What do contemporary ‘dreamworlds’ of consumption, property, and power tell us about the fate of human solidarity?” These case studies explore the new geographies of exclusion and landscapes of wealth that have arisen during the long “globalization” boom since 1991. We focus, especially, on those instances—ranging from Arizona to Afghanistan —where the Atlas Shrugged, winner-take-all ethos is unfettered by any remnant of social contract and undisturbed by any ghost of the labor movement, where the rich can walk like gods in the nightmare gardens of their deepest and most secret desires.

Such places are now surprisingly common (if you can pay the membership fee), and utopian greed—shades of Paris Hilton, Bernie Ebbers, and Donald Trump—saturates popular culture and the electronic media. No one is surprised to read about millionaires spending $50,000 to clone their pet cats or a billionaire who pays $20 million for a brief vacation in space. And if a London hairdresser has clients happy to spend $1,500 for haircuts, then why shouldn’t a beach house in the Hamptons sell for $90 million or Lawrence Ellison, CEO of Oracle, earn $340,000 an hour in 2001? Indeed, so much hyperbole is depleted in the coverage of the lifestyles of billionaires and celebrities that little awe remains to greet the truly extraordinary statistics, like the recent disclosure that the richest 1 percent of Americans spend as much as the poorest 60 million; or that 22 million factory jobs in the twenty major economies were sacrificed to the gods of globalization between 1995 and 2002; or that rich individuals currently shelter a staggering $11.5 trillion (ten times the annual GDP of the UK) in offshore tax havens.2

It is now customary, except perhaps in the pages of the Wall Street Journal, to refer to this new and greatest gilded age—the outgrowth of the global counterrevolution against social citizenship unleashed by Margaret Thatcher, Ronald Reagan, and Deng Xiaoping in the early 1980s, and continued by Tony Blair, Bill Clinton, Boris Yeltsin, and Li Peng during the 1990s—as the reign of “neoliberalism.” Resurgent late capitalism, we are told, has succeeded, where all the great world religions have failed in finally unifying all of humanity in a single imaginary body: the global marketplace. History ends and the realm of (personal, not collective) freedom begins—or does it? Neoliberalism, as Pierre Bourdieu eloquently warned us, is actually an authoritarian utopia that is nothing less than “a program of the methodical destruction of collectives,” from trade unions and mill towns to families and small nations.3

Further, as Timothy Mitchell shows in the stunning essay on Egypt’s supposed “free- market miracle” that opens this volume, the hegemony of neoliberal policies has little to do with self-regulating markets, supply and demand, or even the “economic” as an autonomous category. Neoliberalism is not the Wealth of Nations 2.0; nor is it latter-day Cobdenism, healing the world’s wounds through peaceful free trade; and, most certainly, it isn’t the advent of the stateless market utopia romanticized by Friedrich von Hayek and Robert Nozick. On the contrary, what has characterized the long boom since 1991 (or 1981, if you prefer) has been the massive, naked application of state power to raise the rate of profit for crony groups, billionaire gangsters, and the rich in general. As one of us wrote

about Reagan’s economic program more than a generation ago: Although the rhetoric of the various campaigns and tax rebellions that paved Reagan’s road to power was vigorously anti-statist, the real programmatic intention was towards a restructuring, rather than diminution, of state spending and intervention in order to expand the frontiers of entrepreneurial and rentier opportunity. Typical explicit or underlying demands included: accelerated depreciation allowances, unfettered speculative real estate markets and rampant condominiumization, subcontracting of public services, transfer of tax resources from public to private education, lowering of minimum wages, abolition of health and safety standards for small businesses, and so on.4

The central role of state power, rather than free markets, in the neoliberal program ironically finds its most dramatic expression in the massive privatization of public assets, the subcontracting of public employment (which now includes even the waging of war), and the deregulation of financial markets. Economic textbooks can drone on forever about profit-driven technological innovation and the invisible hand of trade, but, as David Harvey has rightly insisted, the “main achievements of neoliberalism have been redistributive rather than generative.”5 It has been corrupt insider political power, nothing less, that has given away the global commons to a plunderbund that includes Dick Cheney’s Halliburton, Boeing, Blackwater, Carlos Slim’s Telmex, Yukos, the Abramovich empire, Larry Rong Zhijian’s China International Tourist and Investment Corporation, Silvio Berlusconi’s Fininvest, and Rupert Murdoch’s News Corporation. This cold fusion of crime, dirty politics, and capital is fittingly celebrated in the rise of such former mob hideouts as Dubai, Las Vegas, Miami, and even Medellín (see Forrest Hylton’s essay) as global icons of the new capitalism.

Dynamic, ever-growing social inequality, moreover, is the very engine of the contemporary economy, not just its inadvertent consequence. The classic “Fordist” mass- consumption economies of the 1950s and 1960s, regulated by collective bargaining and a stable division of productivity gains between capital and labor, have been replaced (at least in the Anglo-Saxon countries) by what a team of Citigroup researchers call plutonomies: where the rich are the “dominant drivers of demand,” skimming the cream off productivity surges and technology monopolies, then spending their increasing share of national wealth as fast as possible on luxury goods and services. The champaign days of the Great Gatsby have returned with a vengeance. As the national income share of the top 1 percent of Americans, for instance, soared from 8 percent in 1964 to 17 percent in 1999, their savings rate plunged (from 8 percent in 1992 to negative 2 percent in 2000)—meaning that they were consuming “a larger fraction of their bloated, very large share of the economy.”6

Internationally, this spending spree by high-net-worth individuals has replaced market deepening (the expansion of mass-consumption entitlements) as the principal piston of economic expansion. Those elite firms who have traditionally scratched the itch of the very rich—Porsche, Bulgari, Polo Ralph Lauren, Tiffany, Hermes, Sotheby’s, and so on—cannot open new branches fast enough in Shanghai, Dubai, and Bangalore. At the same time, staggering amounts of Third World rapine are converted into Manhattan townhouses, London squares, Key Biscayne yacht slips, and Irish country estates. As the Citigroup analysts emphasize: “The emerging market entrepreneurs/plutocrats (Russian oligarchs, Chinese real-estate /manufacturing tycoons, Indian software moguls, Latin American oil/agriculture barons) benefiting disproportionately from globalization are logically diversifying into the asset markets of the developed plutonomies.” They have helped inflate the $30 trillion real-estate bubble, centered in the more neoliberal countries, that represents the most massive and dangerous accumulation of nonproductive, “fictional” capital in world history. “The earth,” thus conclude the Citigroup researchers, “is being held by the muscular arms of its entrepreneur-plutocrats, like it, or not.” Moreover, the rich will keep getting richer “because the globalized pool of [low-priced] labor keeps wage inflation in check.”7

Who are these “muscular” plutonomic heroes? The Citigroup team reproduces a devastating table (compounded out of their own research and Survey of Consumer Finance data) that depicts the return to a robber baron–era topography of economic inequality.8

U. S. Mean Annual Income (families) 2004

top 10% $302,100

next 10% 106,000

next 20% 69,100

next 20% 43,400

bottom 40% 18,500

Globally, the World Wealth Report (2005) from Merrill Lynch & Company reveals that

nearly one thousand billionaires and almost 10 million millionaires (net worth, exclusive of real estate) dominate the social pyramid and by 2009 will dispose of an estimated $42.2 trillion in assets. They generate the market for ubertoys like $1.25 million Buggati Veyrons (ironically made by Volkswagen) and two-hundred-foot-long super yachts. Although the largest group of high-net-worth households still resides in North America (some 3 million millionaires), the Chinese followers of Deng Xiaoping’s “To Get Rich Is Glorious” are now the third-largest segment of the luxury market (about 11 percent) and are predicted to surpass the conspicuous consumption of wealthy Americans and Japanese by 2014.9 (Air China’s in-flight magazine is famously chockablock with glamorous ads for “Vienna Forest Villas,” “Pure Beautiful Golf Villas,” “Mediterraneancharm Villas,” and even an “intellectual villa” designed by a Canadian architect.) Russia’s new wannabe Romanoffs, meanwhile, queue up outside St. Petersburg to bid on “fifty miniature palaces, each modeled on a famous residence of British, French, and Russian monarchs.” (A similar nostalgia for the Hapsburgs, according to Judit Bodnar, drives the Hungarian neoliberal rich back into the gloom of Edwardian haute bourgeois décor.)

But most of the world watches the great binge only on television: modern wealth and luxury consumption are more enwalled and socially enclaved than at any time since the 1890s. As our case studies repeatedly underline, the spatial logic of neoliberalism (cum plutonomy) revives the most extreme colonial patterns of residential segregation and zoned consumption. Everywhere, the rich and near rich are retreating into sumptuary compounds, leisure cities, and gated replicas of imaginary California suburbs (see chapters by Marina Forti, Laura Ruggeri, Rebecca Schoenkopf, Marco d’Eramo, and Anne-Marie Broudehoux). The “Off Worlds” advertised in the apocalyptic skies of Blade Runner’s Los Angeles are now open and ready for occupancy from Montana to China. Meanwhile, a demonized criminal underclass—as Patrick Bond explains in his essay on Johannesburg— everywhere stands outside the gate (although sometimes as little more than symbolic lawn jockeys), providing a self-serving justification for the withdrawal and fortification of luxury lifestyles.

This unprecedented spatial and moral secession of the wealthy from the rest of humanity also expresses itself in current fads for high-end monasticism (Sara Lipton), floating city- states (China Miéville), space tourism, private islands, restored monarchies, and techo- murder at a distance (Dan Monk). The super-rich can also retreat, self-deified but not yet dead, into their marble mausoleums (see Joe Day on personal museums), or buy up to 2

million acres of ranchland and singlehandedly “save Nature” (see Jon Wiener on Ted Turner’s bison). Where the rich lack requisite power and numbers to create new luxury cities (as at Arg-e Jadid in Iran) or gentrify wholesale old capitals (like London or Paris), they can nonetheless “disembed” themselves from the matrix of popular urban life through the creation of separate transportation and security systems (as in Managua, discussed by Dennis Rodgers) or by the radical disfranchisement of poor people’s right to unconditional use of public streets (as in the U.S. Supreme Court ruling in the case of Hicks, described by Don Mitchell). In post-Taliban Kabul (described by Anthony Fontenot and Ajmal Maiwandi), they simply evict the poor to build their palaces: an exhibitionist narco-warlord architecture that quotes both Walt Disney and Genghis Khan.

This is nothing less than a utopian frenzy, and the early twenty-first century, with its global vogue for evil paradises (of which Dubai may be both the most remarkable and sinister) recapitulates many of the same mythic, impossible longings that Walter Benjamin discovered in his famous excavation of Baudelaire’s Paris. With Marx’s theory of commodity fetishism as his Rosetta stone, Benjamin unraveled the mystery of the bewitched capitalist city where human collectivity, overwhelmed by its own colossal productive powers, hallucinates its social being as a swirling “dream-life of objects.” But the inverted realities and false consciousness of the Victorian era have now grown to Himalayan, life-threatening proportions. If the iron-and-glass arcades of the 1850s were the enchanted forests of early consumer capitalism, today’s luxury-themed environments—including city-sized supermalls, artificial island suburbs, and faux downtown “lifestyle centers”—function as alternative universes for privileged forms of human life. On a planet where more than 2 billion people subsist on two dollars or less a day, these dreamworlds enflame desires—for infinite consumption, total social exclusion and physical security, and architectural monumentality —that are clearly incompatible with the ecological and moral survival of humanity.

Monstrous paradises, indeed, presume sulfurous antipodes. In his dense, almost brutal critique of the 1935 second draft of Benjamin’s Arcades Project (the exposé known as “Paris, the Capital of the Nineteenth Century”), Theodor Adorno chastised Benjamin for “discarding the category of hell found in the first sketch.” “Hell,” emphasized Adorno, was key both to the “luster” and “dialectical coherence” of Benjamin’s analysis. “To revert to the language of the splendid first sketch of the Arcades,” Adorno scolded, “if the dialectical image is nothing but the mode of apprehension of the fetish character in the collective consciousness, then the Saint-Simonian conception of the commodified world as utopia might well be disclosed, but not its obverse—the dialectical image of the nineteenth century as hell. But only the latter could put the image of the Golden Age in its proper place. . . .”10

The same dialectical injunction applies to the paradises of our new Golden Age. Brecht, “contemplating Hell” (in the tradition of Shelley confronted with the staggering wealth and squalor of London) decided that Hell “must be even more like Los Angeles.” Many of the “dreamlands” described in the pages that follow are, in fact, iterations of Los Angeles, or at least “California lifestyle,” as a global phantasmagoric ideal, which the nouveaux riches pursue with the same desperate zeal in the desert of Iran and the hills of Kabul as they do in the gated suburbs of Cairo, Johannesburg, and Beijing. But, as in autochthonic Los Angeles, Hell and the Mall are never more than a freeway drive apart. Thus The Real Housewives of Orange County, like their counterparts in Hong Kong’s tony-phony “Palm Springs” or Budapest’s neo-Hapsburg gated communities, exploit the labor of maids who themselves live in slums or even chicken coops on the roofs of mansions. The Metropolis- like phantasmagoria of Dubai’s super-skyscrapers or the Olympic megastructures in Beijing arise from the toil of migrant workers whose own homes are fetid barracks and desolate encampments. In the larger perspective, the bright archipelagos of utopian luxury and “supreme lifestyles” are mere parasites on a “planet of slums.”

And precisely because the price of “paradise” is human catastrophe, we can share little of Benjamin’s optimism about historical redemption through the “genuine” utopian aspects of

such fantasies. Let’s not kid ourselves: these studies map terminal, not anticipatory, stages in the history of late modernity. They expand our understanding of what Luxemburg and Trotsky had in mind when they warned of “Socialism or Barbarism.” Indeed, viewed as an ensemble, these idle redoubts stand as testaments to the resignation with which humanity squanders the borrowed time on which it now lives. If Benjamin evoked a society that “dreamed itself waking,” these gilded dreamworlds have no alarm clocks; they are willful, narcissistic withdrawals from the tragedies overtaking the planet. The rich will simply hide out in their castles and television sets, desperately trying to consume all the good things of the earth in their lifetimes. Indeed, by their very existence, the indoor ski slopes of Dubai and private bison herds of Ted Turner represent that ruse of reason by which the neoliberal order both acknowledges and dismisses the fact that the current trajectory of human existence is unsustainable.

Mike Davis Daniel Bertrand Monk April 2007

Dreamland

Timothy Mitchell During the second half of the twentieth century, economics established its claim to be the true political science. The idea of “the economy” provided a mode of seeing and a way of organizing the world that could diagnose a country’s fundamental condition, frame the terms of its public debate, picture its collective growth or decline, and propose remedies for its improvement, all in terms of what seemed a legible series of measurements, goals, and comparisons. In the closing decade of the century, after the collapse of state socialism in the Soviet Union and Eastern Europe, the authority of economic science seemed stronger than ever.1 Employing the language and charisma of neoclassical economics, the programs of economic reform and structural adjustment advocated in Washington by the International Monetary Fund, the World Bank, and the United States government could judge the condition of a nation and its collective well-being by simply measuring its monetary and fiscal balance-sheets.

In Egypt, according to these ways of thinking, the 1990s was a decade of remarkable success that vindicated the principles of neoliberalism. After the government agreed to an IMF reform program, fiscal and monetary discipline brought the inflation rate below 5 percent and reduced the budget deficit from 15 percent of the country’s gross domestic product (GDP) to less than 3 percent and for some years less than 1 percent, among the lowest levels in the world. The economy was said to be growing at more than 5 percent a year, and a revitalized private capitalism now accounted for two-thirds of domestic investment. The value of the Egyptian pound was pegged to the U.S. dollar, supported by hard currency reserves of more than $18 billion. These iconic statistics, repeated countless times in government newspapers and television bulletins and in publications of the IMF, constituted proof of the “remarkable turnaround in Egypt’s macroeconomic fortunes” in the final years of the century.2

Pathological Exuberance

Yet if one looked beyond the official figures, even elsewhere in the same newspapers and television programs, other developments seemed to contradict this rosy view. Accompanying the picture of monetary control and fiscal discipline was a contrasting image of uncontrolled expansion and limitless dreams. The most dramatic example was the country’s rapidly expanding capital city. While government budgets were contracting, Cairo was exploding.

“Dreamland,” the TV commercials for the most ambitious of the new developments promised, “is the world’s first electronic city.” Buyers were invited to sign up now for luxury fiber-optic-wired villas, as shopping malls and theme park, golf course and polo grounds, sprouted out of the desert west of the Giza pyramids—but only minutes from central Cairo on the newly built ring road. Or one could take the ring road the other way, east of the Muqattam Hills, to the desert of “New Cairo,” where speculators were marketing apartment blocks to expatriate workers in the Gulf saving for their futures at home. “Sign now for a future value beyond any dreams,” prospective buyers were told, “Before it is too late.” Purchasers could start payments immediately (no deposit was required) at agencies in Jeddah and Dubai. “No factories, no pollution, no problems” was the advertisement’s promise, accompanied by the developer’s slogan, “The Egypt of My Desires.”3 The development tracts stretched out across the fields and deserts around Greater Cairo represented the largest real-estate explosion Egypt had ever seen. Within the second half of the 1990s the area of its capital city was purported to have doubled.

The exuberance of the private developers was matched by the state’s. While speculative builders were doubling the size of Cairo, the government was proposing to duplicate the Nile River. In October 1996, President Hosni Mubarak announced the revival of plans from the 1950s to construct a parallel river by pumping water up out of the lake behind the Aswan High Dam in the south into a canal running northwards that would eventually irrigate two million acres of the Western Desert.4 Unable to persuade the World Bank or commercial investors that the Toshka scheme, as it was known, was feasible, the government proceeded with building the pumping station and an initial seventy kilometers of the canal, broadcasting daily television pictures of Caterpillar earthmovers toiling in the desert.5 It allocated the first 100,000 acres of future farmland to a man described as the world’s second-richest person, the Saudi financier Prince al-Walid bin Talal, whose Kingdom Agricultural Development Company appointed a California agribusiness, Sun World, to develop and manage what would become the world’s single largest farm, consuming by itself 1 percent of the waters of the Nile.6

Sun World specialized in growing grapes and other table fruits on irrigated lands, and owned the global patents on more than fifty commercial varieties of fruit cultivar. In the excitement of the government’s announcement that the project had found an American partner, the reason for this went unnoticed: Sun World had no money. The corporation was another failure of the U.S. farm industry, and had recently gone bankrupt. A second struggling California agribusiness, Cadiz Inc., had taken over Sun World, planning to pay off its debts by transforming it from a company producing crops into a marketing business that would sell its patents and trademarks, including the flagship brand, Superior Seedless grapes, around the world. Unable to make money growing and selling grapes, the company would sell the names of grapes instead. The company’s global patents would guarantee it a future payment on every grape, peach, plum, and nectarine that Egyptian farmers toiling in the Western Desert might one day grow.7 The government agreed to provide 20 percent of the farm’s capital and granted it the twenty-year tax holiday enjoyed by large investments, but the government and Prince al-Walid were still looking for other private-sector partners willing to put up money for the project.

In the meantime the state was subsidizing urban property developers as well, selling public land cheaply and building the required expressways and Nile bridges in rapid time. The state was also involved directly, as a property developer. Down the road from Dreamland, adjacent to a U.S.-managed speculative development named Beverly Hills, the Radio and Televison Union, a commercial arm of the Ministry of Information, was building a 35-million-square-meter themepark and filmmaking facility called Media Production City, billed as the world’s biggest media complex outside Hollywood.8 And the largest builder of Cairo’s new neighborhoods, far bigger than the builders of Dreamland or Beverly Hills, was the Ministry of Defense. Military contractors were throwing up thousands of acres of apartments on the city’s eastern perimeter to create new suburbs for the officer class.

If one’s first reaction was amazement at the scale and speed of these developments, one soon began to wonder about the contradictions. The IMF and Ministry of the Economy spoke calmly of financial discipline and sustainable economic growth, but made no mention of the frenzied explosion of the capital city or the ecologically disastrous irrigation schemes in the desert.9 The role of the state in subsidizing this speculative investment, and the networks linking speculators, bankers, and state officials, went unexamined. Officially, financial stabilization and structural adjustment were intended to generate an export boom, not a building boom. Egypt was to prosper by selling fruits and vegetables to Europe and the Gulf, not by paving over its fields to build ring roads. But real estate had now replaced agriculture as the country’s third-largest non-oil investment sector, after manufacturing and tourism.10

The reforms that were supposed to open Egypt to trade with the global market had, in fact, the opposite effect. The country’s openness index, which measures the value of exports and imports of goods and nonfactory services as a proportion of GDP, collapsed from 88 percent in 1985 to 47 percent in 1996/97. In the same period, Egypt’s share of world exports also dropped by more than half.11 The value of non-oil exports actually shrank in 1995/96, then shrank again in 1996/97, leaving the country dependent on petroleum products for 52 percent of export income. By the end of 1998 the situation was still worse, as the collapse of world petroleum prices briefly forced Egypt to halt its oil exports.12 In 1998/99 Washington quietly set about rebuilding the OPEC oil cartel through secret negotiations with Iran, Saudi Arabia, and Venezuela in which it traded political concessions for their promises to cut production. The negotiations were a success, doubling the price of oil again within six months.13 But this unpublicized state management of world trade was too slow to solve Egypt’s new balance of payments crisis and the repeated shortages of foreign currency.

The most publicized element in Egypt’s idyll of success, the stabilization of the value of its money, owed nothing to the power of the market but rather because the government was now better able to insulate the local currency against speculative exchanges of international finance. In other words the reforms depended not on freer trade and greater global integration, as in neoliberal dogma, but on reorganization of exchange markets. The protection of the currency relied upon the often-announced $18 billion of foreign reserves, a figure that alone came to symbolize the strength of the economy. The symbolism was so important that the government was unwilling actually to spend its reserves in defense of the currency. When exports fell even further and the trade balance worsened again in 1998/99, it resorted to a series of ingenious measures to impede the flow of imports and thus the exodus of hard currency, insulating the country further against the global market.14

Hidden Questions

How does one account for developments that seem so at odds with official representations? The conventional story was that by 1990 the Egyptian economy was in crisis, no longer able to support loss-making public industries, an overvalued currency, profligate government spending, an inflationary printing of money to cover the budget gap, and astronomical levels of foreign debt.15 After fifteen years of foot-dragging and partial reforms, including agricultural price reforms, in 1990/91 the government was forced to adopt an IMF stabilization plan that allowed the currency to collapse against the dollar, decreased the government budget, tightened the supply of money, and cut back subsidies to public-sector enterprises, which the government reorganized into holding companies that were to privatize them or shut them down. These “prudent” fiscal policies were implemented more drastically than even the IMF had demanded, achieving a drop in the government deficit that the IMF called “virtually unparalleled in recent years.”16

Some accounts admitted that the story was more complex than this simple tale of a prodigal state starting a new life of prudence. They may have added, for example, that among the most profligate of the government’s expenditures was the purchase of military equipment, much of it supplied and subsidized by the United States—as part of Washington’s own system of subsidies to U.S. military industries. An impending default on these military debts, causing an automatic suspension of U.S. aid, helped trigger the collapse in 1990. (Egypt had begun to default as early as 1983, but for several years the U.S. government illegally diverted its own funds to pay off Egypt’s military loans.)17 Some accounts may also have acknowledged that the crisis was brought on not just by a spendthrift state but by wider disruptions beyond its control, in particular the decline after 1985 in the price of oil (the largest source of government revenue); the halting of secret U.S. purchases of Egyptian weapons for Washington’s covert war against Afghanistan (1979–89); and the decrease in workers’ remittances, arms exports to Iraq, and other foreign income caused by the 1990/91 Gulf conflict.18 The Iraq crisis enabled the United States and other creditors in Europe and the Gulf to write off almost half Egypt’s external debt, cutting it from US$53 billion in 1988 to $28 billion. The saving on interest payments, amounting to $15.5 billion by 1996/97, accounted for all of the increase in currency reserves.19 So the major contribution to Egypt’s fiscal turnaround resulted from a political decision of Washington and its allies. It had nothing to do with the magic of neoliberalism.

Furthermore, an important part of government revenue in Egypt in the 1990s came not from taxing productive activities but from the rent derived from public resources. About one-third came from two state-owned enterprises, the Egyptian General Petroleum Corporation and the Suez Canal Authority. The revenues of these enterprises were earned in U.S. dollars, so the one-third devaluation of the Egyptian pound against the dollar increased their value by 50 percent. This increase contributed the bulk of the growth in government revenues in the stabilization period. Again, the fiscal magic was little connected with free-market principles, but owed more to the extensive ownership of resources by the state.

Beyond all this there was another, still more complex, story, one that contradicted the official accounts and was pushed aside into footnotes. The crisis of 1990/91 was not just a problem of public enterprises losing money or a profligate government overspending. It was also a problem of the so-called private sector and the chaos created by deregulated international flows of speculative finance. The financial reforms that followed were not so much an elimination of state support, as the official version of events portrayed things, but more a change in who received it. The “free market” program in Egypt was better seen as a multilayered political readjustment of rents, subsidies, and the control of resources. In the following pages I retrieve this story from the footnotes. The second half of the chapter then

considers what its burial there can tell us about the larger questions these events pose: how should we understand the relationship between the expertise of economics and the object we call the economy? What combination of understandings and silences, forces and desires, makes possible the economy? Why do these forces at the same time render the making of the economy incomplete?

First, it was not in fact the case that public-sector enterprises were losing money. In 1989/90, on the eve of the reforms, 260 out of 314 nonfinancial state-owned enterprises were profitable and only 54 were suffering losses. While the latter lost E£300 million ($110 million), the profitable companies made after-tax profits of E£1.5 billion (about $550 million).20 At the center of concern in 1990/ 91 was a crisis not of state-owned industry but of the financial sector, which brought the country’s banking system close to collapse. Since 1974 the number of banks had increased from 7 to 98, as commercial banks sprang up to finance the imports and investments of the oil-boom years. The four large state-owned banks made loans mostly to public-sector enterprises. It was estimated that at least 30 percent of these loans were nonperforming.21 But the state banks were also part-owners of the private-sector banks, enabling them to channel public funds toward a small group of wealthy and well-connected entrepreneurs.22 These large private-sector borrowers were also in trouble.

By 1989, 26 percent of private and investment loans were in default, more than half of them belonging to just 3 percent of defaulters. Many of the big debtors were able to delay legal action and others fled the country to avoid the courts.23 The largest default came in July 1991, when the London-based Bank of Credit and Commerce International collapsed. (The biggest bank ever to collapse, BCCI had been the leading global finance house for the funding of secret wars, helping the CIA launder payments for U.S. campaigns in the 1980s against Nicaragua and Afghanistan.) Depositors in BCCI’s Egyptian subsidiary were protected by an informal insurance scheme among Egyptian banks, which had to contribute 0.5 percent of their deposits and share the cost of a E£1 billion interest-free loan to make up the missing funds.24

These difficulties reflected the problems of a state in which public interests, as we will see, were increasingly entwined with the projects of a well-connected group of financiers and entrepreneurs, whose actions it was unable to discipline. 25 As with the 1997–99 global financial crisis, however, the problem of public resources overflowing into private networks cannot be separated from the difficulties caused by global speculation, especially currency trading.26 Following the U.S. abandonment of international currency controls in 1980, daily global foreign exchange turnover increased from $82.5 billion in 1980 to $270 billion in 1986 and $590 billion in 1989 (by 1995 it was to reach $1.23 trillion).27 This explosive growth of private and institutional speculation in national currencies overwhelmed the attempts of governments to manage their currencies according to local needs.

In Egypt, global deregulation coincided with a sudden increase in private foreign currency transfers, as expatriate workers sent home earnings from the Gulf. More than one hundred unregulated money management firms were formed to transfer and invest such funds, five or six of them growing very large.28 These Islamic investment companies (so called because they appealed to depositors by describing the dividend they paid as a profit share rather than an interest payment) invested successfully in currency speculation, later diversifying into local tourism, real estate, manufacturing, and commodity dealing, and paid returns that kept ahead of inflation. The public- and private-sector commercial banks, subject to high reserve requirements and low official interest rates (essential to the government financing of industry), could not compete and were increasingly starved of hard currency. The financial system was in crisis.

In 1988/89 the bankers finally persuaded the government to eliminate the investment companies. It passed a law that suspended their operations for up to a year, then closed down those it found insolvent (or in many cases made insolvent) and forced the remainder to reorganize as joint-stock companies and deposit their liquid assets in the banks. The

measure protected the banks and their well-connected clients, but provoked a general financial depression from which neither the banks nor the national currency could recover.29

Neoliberal Myths

In response to the financial crisis, the centerpiece of the 1990/91 reforms was an effort to rescue the country’s banks. After allowing the currency to collapse and cutting public investment projects, the government transferred to the banks funds worth 5.5 percent of GDP in the form of treasury bills.30 To give an idea of the scale of this subsidy, in the United States during the same period the government paid for the rescue of the savings- and-loan industry which had collapsed following financial deregulation, transferring a sum that amounted to about 3 percent of GDP over ten years. The Egyptian payment was almost twice as large in relation to GDP, and occurred in a single year. Moreover, the government declared the banks’ income from these funds to be tax free, a fiscal subsidy amounting to a further 10 percent of GDP by 1996/97. In 1998 the government attempted to end the subsidy by reintroducing the taxing of bank profits, but the bankers thwarted the implementation of the law.31 The banks became highly profitable, enjoying rates of return on equity of 20 percent or more. All of these profits were accounted for by the income from the government rescue.32

A further support to the banking sector came when the government tightened the supply of money to raise interest rates, pushing them initially as high as 14 percent above international market levels. Nonmarket interest rates brought in a flood of speculative capital from abroad. This was quickly taken to indicate the success of neoliberal discipline and market orthodoxy. It was nothing of the sort. The money consisted of highly volatile investment funds chasing interest income, the attractiveness of which was due not to “market fundamentals” but state intervention. After two years interest rates were brought down and the miniboom passed.

In 1996/97 the government manufactured another miniboom, by announcing an aggressive program of privatization. It began to sell shares in state-owned enterprises on the Cairo stock market, which it had reorganized to exclude small brokers and eliminate taxes on profits.33 By June 1997 the government’s income from the privatization sales amounted to E£5.2 billion ($1.5 billion). It used 40 percent of this income to provide further support to the banking sector, by paying off bad debts. In May 1998 the IMF praised Egypt’s “remarkable” privatization program, ranking it fourth in the world (after Hungary, Malaysia, and the Czech Republic) in terms of privatization income as a share of GDP.34

The sell-off fattened the banks and the government budget and fueled a shortlived stock- market boom. But its outcome was not a switch from state-run enterprise to a reborn private sector. The conventional distinction between a private and a public sector, used by the government and the IMF, was too simple to capture the range of political and economic relations involved.35 Many of the largest government-owned enterprises, such as Arab Contractors, the country’s largest construction firm, and Eastern Tobacco, the cigarette manufacturing monopoly, had their own “private-sector” subsidiaries or joint ventures, typically run by members of the same family managing the public-sector parent.36 The state banks were part-owners of private-sector banks, as we saw, and of other nonstate enterprises. A large number of government ministers and other senior officials, together with their spouses, siblings, and offspring, were partners or principal investors in many of the largest so-called private-sector ventures.37

In addition, the reorganization of state enterprises into corporate entities, under the control of public holding companies, further complicated the distinction between public and private sector. By June 30, 1999, the government had sold shares in 124 of its 314 nonfinancial public enterprises. However, it fully divested only a handful. The holding companies remained the largest shareholder in many, and the state managers continued to control others though employee shareholder associations.38 The press was full of stories of phony privatizations, such as the December 1997 sale of al-Nasr Casting, which in fact had

been sold to the public-sector banks.39 (A year later, state officials forced the chairman of the stock exchange to resign after he tried to improve its surveillance of company finances and share trading.)40 The state holding companies also set up new private-sector subsidiaries, such as al-Ahram Cement, and began to bid for shares in other cement companies the government was “privatizing.”41 And many government ministries, with the support of public-sector banks, began to launch new profit-making ventures, typified by the vast Media Production City project of the Ministry of Information.

The IMF’s confident report that Egypt ranked fourth in the world in privatization missed the complexity of these rearrangements and the multiple forms of ownership, interconnection, and power relationship involved. As David Stark argues in a study of Eastern Europe, by focusing on the enterprise as a unit and simply tallying the number and value of those moved from public to private ownership, orthodox accounts are unable to grasp the multiple methods of control, or the importance of the networks that combined them.42 The blurred boundaries between “public” ownership and “private” had always offered ambiguities for state officials, enterprise managers, and other insiders to exploit to their own advantage. Structural adjustment offered opportunities for further combinations and new ambiguities. The economic reform was a complicated readjustment of the networks connecting and combining a variety of property assets, legal powers, information sources, and income flows.

The stock-market boom lasted less than eighteen months, with the EFG index of large capitalization companies reaching a peak in September 1997, then losing one-third of its value over the following twelve months.43 As the stock market slid the government halted the sell-offs, suspending most privatizations after the summer of 1998 and stalling on an IMF demand to begin privatizing the financial sector. Instead, to stem the collapse of the market, the government used its financial institutions to invest public funds. Between December 1997 and October 1998, the large state-owned banks and insurance companies and the state pension fund pumped at least E£2 billion ($600 million) into the market, suffering large losses.44 In the process the state reacquired shares in most of the companies it had recently claimed to be privatizing—further complicating the fairy tale of private capital replacing public ownership. The market recovered briefly in the winter of 1998/ 99, when the financial crises in East Asia, Brazil, and Russia made Egypt appear, thanks to its state-subsidized banking system, one of the few safe havens for international speculative funds, but after February 1999 the decline resumed. By the following summer the market was so flat that a single stock, the country’s newly privatized mobile phone monopoly, MobiNil, was regularly accounting for over 50 percent of daily trading, and often up to 70 percent.45

Most of the remaining stock-market activity and privatization progress was confined to just one economic sector, construction. The Toshka irrigation scheme and other large government projects, together with the state-subsidized real-estate boom and tourism development, provided the only significant source of economic growth. Cement-makers, manufacturers of steel reinforcing bars, and contracting companies all prospered, with the contractors’ profit on government projects said to average 30 to 40 percent of income. The demand for cement increased so rapidly that the world’s three largest cement makers, Holderbank of Switzerland, the French-based Lafarge group, and Cemex of Mexico, scrambled to buy up Egypt’s government-owned cement plants.46 The construction boom had turned the country into an importer of cement, so these foreign investments in local cement production should be classified as a return to the unfashionable policies of import- substitution industrialization. They had nothing to do with the growth of export-oriented industry that the economic reformers had promised.47

Real-estate booms and stock-market swings failed to address the problem of the country’s low levels of domestic investment. Gross domestic investment dropped from 28 percent of GDP in 1980 to 19 percent in 1998, compared to an average of lower- and middle-income countries of 25 percent.48 Between 1990 and 1997, investment grew at only 2.7 percent a

year, compared to 7.2 percent for all middle-income countries and 12.7 percent for those in East Asia.49 In addition, by June 1996 the number of loss-making public enterprises had almost doubled since the start of the reforms, from fifty-four to one hundred, and accumulated losses had risen from E£2 billion to E£12 billion ($3.5 billion).50 The government had redefined its finances to exclude public-sector companies from the fiscal accounts, however, so this worsening situation was hidden from view.51 The reformers could continue to claim that they were replacing government deficits with a balanced budget.

Crony Capitalism

The reform program did not remove the state from the market or eliminate profligate public subsidies. Its main impact was to concentrate public funds into different and fewer hands. The state turned resources away from agriculture and industry, and ignored the underlying problems of training and employment. It now subsidized financiers instead of factories, cement kilns instead of bakeries, speculators instead of schools. Although the IMF showed no interest in examining the question, it was not hard to figure out who was benefiting from the new financial subsidies. The revitalized public-private commercial banks focused their tax-free lending on big loans to large operators. The minimum loan size was typically over E£1 million and required large collateral and good connections.52 So the subsidized funds were channeled into the hands of a relatively small number of ever more powerful and prosperous financiers and entrepreneurs.

At the top were about two dozen business groups, such as Bahgat, Seoudi, Mohamed Mahmoud, Mansour, Arabian International, Osman, and Orascom. These family-owned enterprise networks typically began as construction companies or import/export agents, which had prospered after 1974 when the government allowed large private entrepreneurs to reemerge following the years of import restrictions and state monopolies. Many depended upon lucrative contracts to supply goods and services to the Egyptian military. Most expanded subsequently into tourism, real estate, food and beverages, and computer and Internet services, and in some cases the manufacturing of construction materials or, where tariff protection made it profitable, the local assembling of consumer goods such as electronics or cars. Several shared in ownership of the private-sector banks, which emerged in the same period. They enjoyed powerful monopolies or oligopolies, in particular as exclusive agents for the goods and services of Western-based transnationals. Nothing one reads in the documents of the IMF or USAID mentions the nature, history, or power of these groups, whose existence was hidden behind the bland formulations of “the private sector” and a revitalized “Egyptian economy.”

The Seoudi Group, for example, had its origins in a local trading company set up in 1958 by Abdul Moniem Seoudi. In the mid-1970s, with the opening of the consumer economy, the company began to import foodstuffs, general merchandise, and Suzuki commercial vehicles, and used the new tax-free zones to manufacture and export acrylic yarns. The family was involved in establishing two of the new private-sector banks, Al-Mohandes and Watany. In the 1980s they expanded into agribusiness, producing factory chickens and eggs with U.S.-subsidized feed grains, and importing American pesticides, feed additives, and agricultural equipment. They also established their own construction company to build facilities for their expanding enterprises. By the 1990s they were assembling Suzuki vehicles and manufacturing car seats and radiators, were the sole importers of Nissan vehicles, and had become the exclusive agents for NCR computers.53

The Metwalli family took control of Arabian International Construction when the company was denationalized in 1987, and built it up as the local partner of transnational firms constructing power stations and other government projects. In the 1990s AIC acquired the local share of two of the largest government contracts, to pipe drinking water under the Suez Canal for the North Sinai Development Project and build the canal and pumping station for the Toshka scheme. The company’s profits on such projects averaged 40 percent of turnover, and enabled AIC to become the largest private construction company in Egypt. The income was channeled into eight other family-owned companies, all of them, it was claimed, becoming larger than AIC itself, the largest of them a real-estate development company.54

The Mohamed Mahmoud Sons group traced its origins to 1895, when Mohamed Mahmoud inherited his father’s shoe-making workshop, becoming a shoe retailer in the

1920s and by the 1950s the largest shoe manufacturer and exporter in the Middle East. Like other groups, they diversified in the mid-1970s into the wholesale import and distribution of consumer goods, and they became the country’s largest manufacturer of corrugated cardboard boxes. In the 1980s they set up their own engineering and construction arm, and imported and later began to assemble aluminum windows and doors, household and office furniture, and Ukranian-made tractors and irrigation pipes. By the 1990s the group’s thirteen companies included the MM chain of luxury fashion stores, carrying lines such as Yves Saint Laurent, Church’s, and Fratelli Rossetti; financial interests in the Egyptian Gulf Bank and the Pharaonic Insurance Co.; the Datum Internet service provider; the sole Egyptian agency for Jaguar Cars; and showrooms selling motor vehicles from Rolls-Royce and Ferrari.55

The Mansour family were large cotton traders whose business was nationalized under President Gamal Abdel Nasser. In 1975, when private trading companies reemerged, Mansour began importing Chevrolet trucks from General Motors, and later Caterpillar earthmoving equipment and John Deere tractors. A decade later, as the local agents of General Motors, they began assembling Chevrolet and Isuzu commercial vehicles, and by 1993 controlled 60 percent of the country’s commercial vehicle market, including contracts with the Egyptian military. In the 1990s they acquired the licenses to distribute Marlboro cigarettes and other consumer products, half the Egyptian McDonald’s franchises, and interests in tourism construction and Internet technology.56

The Sawiris family worked abroad as contractors in Libya before President Anwar Sadat’s reopening of the economy to private entrepreneurs. They returned to prosper as local agents of Hewlett-Packard and AT&T, building U.S.-funded communication networks for the Egyptian military. The profits (30 to 50 percent of turnover was normal, the family claimed) funded an expansion into civilian communications, construction, and tourism. By the 1990s their holding company, Orascom, controlled a dozen subsidiaries that included Egypt’s largest or secondlargest private construction, cement making, and natural gas supply companies, the country’s largest tourism developments (funded in part by the World Bank), a military technology import business with offices close to the Pentagon outside Washington, DC, more than half the local market for Microsoft, Hewlett-Packard, and Lucent Technologies, 60 percent of the country’s Internet service provision, and mobile telephone businesses in collaboration with France Telecom controlling a majority of the Egyptian market and taking over local mobile operators in Jordan, Syria, Pakistan, and a dozen countries of sub-Saharan Africa.57

The Bahgat group, the biggest producer of televisions in the Middle East with a dominant position in the Egyptian market, graduated in the 1990s from assembling Korean sets to making Philips and own-name brands. It was linked to senior military officers and used military-owned factories to build its products. The group’s forty companies (with just three thousand employees) were also involved in assembling electrical appliances and computers, importing medical equipment and irrigation systems, wholesale and retail marketing, tourism development, and computer software and Internet service.58 They were the builders of the Internet-wired Dreamland. Dr. Ahmed Bahgat, the family head, was reputed to be a front man for unpublicized profiteering by the presidential family, which may explain why the express roads out to Dreamland were built in such rapid time.

All these cases share certain features. Most large business groups were nurtured on government contracts, both civilian and military. Many of these contracts involved projects promoted and supported by USAID. Besides receiving state funds, they relied on close ties with private banks, which were often part of the same family networks. Most avoided the more public method of raising funds on the stock market. The exceptions were those groups that expanded faster than the banks or government could support. The Lakah family, for example, importers of timber and other construction materials since they arrived from Syria in the 1890s, claimed by 1999 to be the largest private business group in Egypt, in terms of paid-up capital share. Rami Lakah had diversified into importing medical

equipment and setting up high-tech facilities for the government’s new U.S.supported “cost-recovery” hospitals for the affluent.59 To fund further growth, in August 1999 Lakah had launched the stock market’s largest-ever share offer, and in November became the first Egyptian enterprise to borrow on the international bond market. (Disaster, as we will see, was not far ahead.) A final feature shared by these groups was the relatively small number of jobs which their enterprises generated. With the exception of one or two garment manufacturers, the largest business groups had workforces of only two or three thousand. Most employed considerably fewer.

By the 1990s these enterprises were increasingly concentrating on supplying goods and services affordable to only a small fraction of the population. A “Value Meal” at McDonald’s cost more than the day’s pay of most workers. A family outing to Dreampark, the entertainment complex under construction at Dreamland, would consume a fortnight’s average wages. A pair of children’s shoes at MM’s fashion stores might exceed the monthly pay of a schoolteacher. The Ahram Beverages Company, which produced soft drinks, bottled water, and beer, calculated its potential market (including expatriates and tourists) at just five to six million, in a country of more than sixty million.60 This narrow market was the same part of the population that could afford, or could just imagine affording, the country’s 1.3 million private cars—which is why local manufacturers concentrated on assembling Mercedes, BMWs, Jeep Cherokees, and other luxury models.61 A company selling upmarket flower bouquets under the U.S. franchise Candy Boutique did its own market research and arrived at a narrower and perhaps more accurate assessment of the affluent: “Egypt has a population of 60 million, but only 20,000 can afford what we are selling.”62 Beyond this small group of state-subsidized superrich, modest affluence probably extended to no more than 5 percent of the population.63

What of the other 95 percent? Real wages in the public industrial sector dropped by 8 percent from 1990/91 to 1995/96. Other public-sector wages remained steady, it was claimed, but could be held up only because the salaries remained below a living wage.64 A schoolteacher took home less than $2 a day. A sign of the times was the reappearance of soup kitchens in Cairo, which an article in the national press characteristically interpreted not as a mark of how harsh conditions had become, but as a welcome return to the kind of private benevolence among the wealthy not seen since the days of the monarchy.65

Household expenditure surveys showed a sharp decline in real per capita consumption between 1990/91 and 1995/96. The proportion of people below the poverty line increased from about 40 percent (urban and rural) to 45 percent in urban areas and over 50 percent in rural. There was no reliable guide to the changing share of consumption by the very wealthy, because the surveys failed to record most of their spending. If household expenditure surveys for 1991/92 are extrapolated to the national level, the figures show the population as a whole spent E£51 billion. Yet national accounts gave the total expenditure as E£100 billion. In other words, half the country’s consumer spending was missing from the surveys (although this did not deter the World Bank and other agencies from referring to such figures as reasonable indicators of income distribution).66 As in India, where a similar disparity was discovered following a decade of economic restructuring, the household surveys probably missed the sharply rising consumption by the very rich, who “downplay their extravagance when the survey people come calling” (or simply have the servants deal with them).67 An analysis of the kind of expenditures missing from the Egyptian survey and the relative proportion of incomes that different groups spent on food supported the view that the figures underrepresented the concentration of wealth among the rich. Even when categorized quite broadly as those spending more than E£14,000 (about $4,000) a year, wealthy households in Egypt represented only 1.6 million people. One study estimated that this group, less than 3 percent of the population, accounted for half of all consumer spending.68

Economy as Illusion

The difficulty of knowing how much of the country’s wealth was becoming concentrated in the hands of the rich was a symptom of a larger problem. The politics of economic reform was based upon the illusion that the economy existed as a space that could be surveyed and mapped, much as the Nile valley had been surveyed by Colonel Lyons a century before. It imagined the economy as a territory whose boundaries could be drawn and whose separate elements could be located, transcribed, enumerated, and reorganized. In 1941, when Simon Kuznets of the National Bureau of Economic Research in Cambridge, Massachusetts, first systematized a method for estimating the total size of a nation’s income, he had warned that “a national total facilitates the ascription of independent significance to that vague entity called the national economy.”69 Although many economists since Kuznets might have agreed with his warning, the method of their work enabled this vague entity, the economy, to acquire its independence.70 The numbers representing national income and output, consumption and savings, employment and productivity, deficits and debt, whatever their degree of reliability, were taken to refer to processes that in principle formed a finite and mappable object.

Some of the contradictions of this methodology are well known. The most frequently mentioned is the impossibility of measuring what is called the informal or parallel sector of the economy. In Egypt, the household or neighborhood-based production and distribution of small-scale goods and services, unregistered with the state and operating on the margins of its systems of revenue and regulation, represent a large but unknown proportion of the country’s productive life.71 These activities were traditionally excluded from calculations of GDP and other representations of the economy, although increasing efforts were made to include some estimate. To give one idea of their scale, in 1996 about three-quarters of the population of Greater Cairo was living in informal housing, covering two-thirds of the land area and accounting for 85 percent of its dwelling units.72 Those living in informal housing were not necessarily employed in informal livelihoods, but the figures indicate the extent to which one sector, the construction and possession of urban housing, was conducted outside the regulation of the state. Estimates of the overall size of informal economic activities ranged from 20 to 35 percent of GDP, but these were guesses and implied a straightforward division between formal and informal that was too simplistic to capture the interconnections involved.73 The economic reforms were aimed chiefly at formal economic activities. As Mahmoud ‘Abd al-Fadil points out, however, policies aimed at the formal sector may have had an opposite impact on the parallel sector, while transformations in the latter had a profound effect on the former.

Not all activities of the parallel sector were small-scale and local. Some played a large role in the country’s international trade and finance, as the example of the hemp industry illustrates. In the 1980s, Egypt imported large quantities of processed hemp—cannabis resin—from the Beqa‘a valley in central Lebanon, where civil war had stimulated export- oriented production. The value of Egypt’s clandestine imports was estimated at two to four billion U.S. dollars. Even the lower of these figures exceeded all Egypt’s income from nonpetroleum exports.74 After the end of the civil war in 1990, Syria gradually eliminated Lebanese production. 75 This coincided with currency devaluation in Egypt, which raised import prices, and with declining personal incomes and a tough government campaign against drug importers—conviction for drug dealing now carried the death penalty. As Lebanese hashish became scarce and unaffordable, consumers responded by developing a taste for smoking bango, locally grown, milder, unprocessed cannabis (few regions in the world can produce hemp rich enough in resins to process into hashish).76 Hemp production rapidly became a significant village industry, especially in southern Egypt and Sinai, facilitated by the ending of government crop controls.77 Thus another import-substitution

industry had sprung up, eliminating one of the country’s largest demands for hard currency. None of this was captured in official representations of the Egyptian economy— although the IMF puzzled over an unexplained and unusually rapid decline in the circulation of dollars.78

Discussions of the problem of measuring informal and clandestine activities usually imply a contrast with the formal sector, which in comparison is assumed to be fixed and known. Yet with the formal sector too it is difficult to ascribe an “independent significance” to the economy. There can be legal activities whose extent and value is never made public, such as the extensive production, trade, and consumption organized by the Egyptian armed forces. As the U.S. government put it, military spending in Egypt was “not transparent,” so none of this activity was accurately represented in national accounts or in the government budget. In 1989, government spending on the armed forces was estimated at E£4.7 billion, or about 20 percent of government outlays, a figure that excluded foreign military assistance from the United States ($1.3 billion) and Saudi Arabia, income from Egyptian arms exports, and possibly the army’s civilian agriculture and manufacturing projects.79 So one-fifth of government spending and perhaps 10 percent of GDP was unmeasured and unreported. In fact the entire government budget was misleading, for in the 1990s Toshka and other giant investment projects were financed without being accounted for in the official figures. The government reported a spending deficit of just 1.3 percent of GDP for 1998/99, but a year later quietly revised this figure to reflect “off-budget spending,” which more than tripled the deficit to 4.3 percent of GDP.80

The problems of informal, clandestine, and unreported economic activities are so great that these alone would provide sufficient reason to question the idea that the economy is an object that can be mapped and measured. But these issues are not the most profound problem. The idea of the economy presents a larger difficulty. Even the most visible and regulated acts of economic exchange have effects that escape observation or measurement. In any economic transaction, the parties involved attempt to calculate, as best they can, what they will gain from the exchange and what it will cost them. The transaction will also affect others, however, either positively or negatively. These further costs and gains will not enter into the calculation, because those affected are not parties to the transaction. Since the size of the economy is measured as the aggregate of all individual transactions, the additional effects are excluded from the representation of the national economy. Economists call the excluded elements “externalities,” and often give the example of pollution: the owners of a cement factory contract with a customer to supply so many tons of cement, and do not include in the price the cost of the air pollution the factory creates, because those living nearby who are harmed by the bad air are not parties to the exchange. In the language of neoclassical economics, externalities are an example of “market failure,” situations where the price mechanism that governs exchanges fails to reflect the true costs involved, and therefore is unable to act as an efficient regulator of social action.81

By using examples such as pollution, and by labeling them as externalities or failures, the method and language of economics treats these uncounted costs as something residual. They represent an imperfection in the market, a lapse in its mechanisms, a secondary rather than essential aspect of its operation. The example of pollution inadvertently points to much larger externalities, however, such as the destructive impact of a general level of economic activity on the ecological balance. These represent not individual market failures but an inability of the principle of the market to account for complex effects whose value cannot be monetarized. But disregarding these wider issues, there is a more general problem with treating externalities as something exceptional. Since no transaction takes place in a vacuum, all acts of exchange produce externalities. Every decision to purchase an object or service involves all the costs that went into it that were excluded, or not properly recognized or compensated.

It is not surprising that an economic actor should want to acquire something without paying all the associated costs—without accounting for all the ways its production and

consumption might affect others. Indeed, exchange would be impossible if people were made to account for every cost. A market economy requires conventions and powers that enable the completion of an exchange without satisfying such a standard. So when the calculation of the economy excludes not only much that is informal or clandestine, but also the “external” aspects that occur within what is considered formal and regulated, the exclusion is hardly secondary in significance. As Callon points out, a lot of work and expense goes into achieving these acts of exclusion.82 Without them, in fact, the market would cease to function. For example, to sell the cement a factory produces, the management of the factory must prove they own the product. They must deny the claims of others who may demand some share, such as the kiln workers who produced the cement but may not have been fully compensated for the value contributed by their labor, or those who supplied the machinery or the raw materials, as well as those who demand compensation for the damage pollution has done to their health and other outsiders. By proving ownership, the managers exercise a form of exclusion, the power to deny the claims of others.

Elsewhere, I have examined the genealogy of one kind of ownership claim in Egypt, the private ownership of land. I traced the process by which a person called the “landowner” came to monopolize the rights to the produce of the land and exclude the entitlements that cultivators, the indigent, the ruling household in Cairo, and other claimants had previously enjoyed. Organizing these exclusions was a complex political project, requiring a variety of forms of violence, supervision, policing, military occupation, legal argument, imprisonment, and economic theory. As that example showed, property is not a simple arrangement nor a static one. In the twentieth century the cultivators managed to reestablish some of their claims, as did the government. Toward the end of the century, reasserting the prerogatives of private ownership required new rounds of violence, policing, and economic argument.

Thus the simple idea of “externality” rests upon the operation of complex and mobile forms of law, international convention, government, corporate power, and economics. These multiple arrangements make possible the economy. Property rights, tax rules, contract and criminal law, administrative regulation, and policing all contribute to fixing the difference between the formal and the informal, between the act of exchange and its externalities, between those with rights and those without, between measurable values and the unmeasurable. In economic theory many of these forms of regulation and enforcement are called institutions. A distinction is sometimes made between formal institutions, such as laws and administrative rules, and informal institutions, such as codes of conduct, implicit understandings, and norms of social action. Institutional economics understands these rules and norms as constraints that organize and set limits to human action.83 Like the concept of externality, the term “constraint” characterizes these arrangements once again as secondary, as something outside the economic process itself. The economic act is by definition the expression of an individual choice, the fulfillment of a desire, just as the economy is the sum total of these economic choices and their fulfillment. The desire is the starting point of the economic, while institutions are understood as arrangements that limit the desire, restrict the ways in which needs can be satisfied, prevent others from disrupting their satisfaction, and reduce delinquency or misunderstanding. Constraint is the opposite of desire, an element of incompatibility, and can combine with it only as something external and subordinate. Yet these secondary, external, residual, arrangements at the same time are something prior. The rules, norms, and unwritten understandings must exist before the act of exchange, otherwise they could not regulate it.84 They are also ubiquitous, dwelling surreptitiously within every economic act. So although economics must portray them as external, secondary, and residual, they are also the condition of possibility of the economic.

The constraints, understandings, and powers that frame the economic act, and the economy as a whole, and thus make the economy possible, simultaneously render it incomplete. They occur as that strange phenomenon, the constitutive outside.85 They are an interior-exterior, something both marginal and central, simultaneously the condition of

possibility of the economy and the condition of its impossibility. Callon describes what he calls the “dual nature” of these constraints or frames.86 Their purpose is to exclude, to keep out of the picture all those claims, costs, interruptions, and misunderstandings that would make the act of exchange, and thus the economy itself, impossible to complete. To achieve this “enframing,” the rules, procedures, institutions, and methods of enforcement are thought to have a special status.87 Just as a frame seems distinct from the picture it enframes, and a rule is supposedly an abstraction in relation to the concrete actions it governs, the institutions that enframe the economy are imagined to have a different, and extraeconomic, nature. They are the arena of economic actions, as distinct from the actions themselves. In practice, however, this distinction is not a stable one. Each piece of the frame, each rule, procedure, and sanction involves potential exchanges of its own. To apply a rule, for example, one must negotiate its limits and exceptions, since no rule contains its own interpretation. These negotiations become part of the act of exchange they are supposed to regulate. To enforce a regulation involves all the expense and interactions of adjudication, resort to force, and monitoring. At every one of these points the “frame” opens up and reveals its dual nature. Instead of acting as a limit, containing the economic, it becomes a series of exchanges and connections that involve the act of exchange in a potentially limitless series of further interactions.88 Thus the problem of fixing the economy is not a residual one of accounting for informal and clandestine activities, or turning externalities into internal costs. The problem is that the frame or border of the economy is not a line on a map, but a horizon that at every point opens up into other territories.

The Myth of the Market

There are several epistemological issues to resolve before we return to the question of the relationship between economics and the economy. First, the rules of the market are by no means the only kind of frame for economic transactions. Despite the importance given to laws of property and the principles of the price mechanism, it would be difficult to establish that the market is even the most significant arena of exchange. Many other forms of social practice structure the way transactions occur, often with the purpose of preventing them from leaking across into the market. One institution that has always offered alternative rules and powers to those of property and contract is the household or family. In Egypt, as in many parts of the world, the new large-scale economic activities that flourished with free-market reforms operated through networks of family-held businesses. Here, the main economic institution was not the market or even the business enterprise, but a web of personal ties drawing together a series of businesses, often establishing connections within and across state institutions, the banking sector, the armed forces, or the local agencies of transnational corporations. These networks operate through relations of kinship or marriage and put to work all the powers of loyalty, affection, discipline, and compulsion on which such relations depend.

These powers, like so many other noncapitalist forces operating at the center of so-called capitalism, need constant attention. They are never entirely controlled by those who use them and can easily take their own course. Trouble can follow, for example, when the forces of affection or ties of matrimony break down. In 1995, the entire Egyptian banking and political system was shaken by the rupturing of one family network. The Ayuti family controlled, among other interests, one of Egypt’s large private-sector financial houses, Nile Bank. ‘Isa al-Ayuti, the eighty-one-year-old chairman of the bank, had become estranged from his daughter ‘Aliya al-Ayuti, the bank’s managing director, following her marriage to Mahmud ‘Azzam, a large contractor and a member of parliament. In December 1995, the father accused his daughter of making unsecured loans to her new husband, providing his construction company with almost E£80 million. A government investigation of the fraud later widened to include thirty-two bankers and entrepreneurs involved in E£1 billion in fraudulent deals, including a former minister of tourism, Tawfiq ‘Abdu Ima‘il, who was chairman of Dakhiliya Bank and also an MP, and two other members of parliament.89 This was one of a number of fraud cases in this period arising from the breakdown of family networks. What such incidents reveal is not that all family networks involve fraud. Rather, the sensational cases publicized in the media indicate the quieter, everyday work that must be done to maintain family networks, and the costs that can follow from their collapse.

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