Egyptian opposition supporters shout slogans as they gather outside the Presidential Palace in Cairo on 11 December 2012. Photograph: Getty Images
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The myth of the Islamist winter

Egypt and Tunisia aren’t sliding into chaos – they are simply learning how to be democracies.

In Tunisia, as in Egypt, the Islamists who came to power through the ballot box are seeing their popularity erode and are tempted to hold on to power by recourse to authoritarian measures. But they have to deal with the legacy of the Arab spring. They face a new political culture: now, one where people who disagree with the government take to the streets; where there is no reverence for established power and the army and the police no longer inspire fear.

The Islamists are obliged to search for allies, as they control neither the army nor the religious sphere. And if they are able to find allies among the Salafists – the religious conservatives – and the military, these two groups are nevertheless not prepared to allow them to become dominant. The Islamists have to negotiate. There is a classical logic of power at work here: the dominant political group finds it hard to accept that power could change hands and so seeks to preserve its position by any means necessary. Moreover, there is no revolutionary dynamic among the populace that would allow it to prevail by appealing to sentiment in the street.

It is interesting to consider the precise nature of this authoritarian turn because it bears little resemblance to the “Islamic revolution” often associated with the Muslim Brotherhood in Egypt and al-Nahda, the Renaissance Party, in Tunisia. It is, on the contrary, a conservative and paradoxically pro-western “counter-revolution”. Consider Egypt. If the president, Mohamed Morsi, is denounced in Tahrir Square as the new Mubarak (and not the new Khomeini), it is because his opponents have grasped that his aim is to establish an authoritarian regime using classical means (appealing to the army and controlling the apparatus of the state).

The electoral and social base of the Egyptian regime is not revolutionary. Instead of trying to reach a compromise with the principal actors of the Arab spring, Morsi is attempting to get all the supporters of the new order on his side. The coalition he is building is based on business, the army, the Salafists and those elements of the “people” that are supposedly tired of anarchy.

Morsi’s economic model is neoliberal: he is surrounded by “Chicago boys” who swear by the free market. He is in favour of deregulation, the end of subsidies and an opening to the global market. His government has just signed a deal with the International Monetary Fund that includes a loan with interest and which it has justified on grounds of necessity. Morsi has accepted the outlook of the IMF, not because he has been forced to do so, but because it is an approach he shares. This will bring further privatisation and competition. And because the price paid by swaths of the population will be severe, the government will need a functioning apparatus of repression and to break the trade unions. It will also have to gain the acquiescence of the army, in exchange for immunity and the right to regulate its own affairs, particularly in the economic sphere.

Meanwhile, to get the Salafists on its side, a cosmetic Islamicisation of society, on the Saudi model rather than the Iranian, ought to suffice: enforced wearing of the veil, continued discrimination against Coptic Christians, a requirement to respect religious norms in public and restrictions on non-orthodox religious practices (specifically, Sufi ceremonies, carried out by followers of Islamic mysticism).

Wider stage

In order to have their hands free domestically, the Islamists must make themselves indispensable to the west – which explains the mediating role that Egypt played in the recent crisis in Gaza. Morsi has performed brilliantly on the international stage, gaining the approval of the Americans in the process. He has fought the radical Islamists in the Sinai and has distanced himself from Iran and Bashar al-Assad’s regime in Syria. He has been able to restore the prestige and influence of Egyptian foreign policy without lapsing into an aggressive Nasserstyle pan-Arabism or pan-Islamism.

Morsi’s success on the international stage has encouraged him to flex his muscles at home. Although there were irregularities in the elections that brought him to power last year, and which led to a legal challenge from the judiciary, no one seriously doubts that they were won handily by the Muslim Brotherhood and the Salafists. But Morsi has gone too far too fast in his attempt to reinforce the power of the presidency at the expense of a judicial apparatus that was able to retain a degree of autonomy under Hosni Mubarak. And his failure to anticipate and understand the strength of public opinion has made things worse. Demonstrations by a cross-section of society that were much larger than expected have undermined confidence in the Muslim Brotherhood. And voices have been raised inside the Brotherhood against this sudden burst of authoritarianism.

Time is against Morsi, because the economic measures that he wants to introduce will make the government increasingly unpopular. And, on the other hand, continued popular protest will require him to call on the army, which will support him, but at a price – the political and economic autonomy that the military is asking for runs counter to the Brotherhood’s programme of economic liberalisation. In short, the new regime is politically isolated.

Besides the street and the political stage, the other battleground for the Muslim Brotherhood is control of the religious sphere. Like al- Nahda in Tunisia, it has discovered that this is considerably more diverse than it had thought. Moreover, figures who had previously been relatively docile where the state was concerned, such as Ahmed el-Tayeb, the Grand Imam of al-Azhar, have reasserted the autonomy that they were granted by the Arab spring. This means that the only way for the government to wrest back control of the religious sphere is to place it under the authority of the state (specifically, to submit the mosques to the diktat of the ministry of religious affairs).

State control of religion would in fact go beyond institutions and extend to religious orthodoxy, leading to limitations being placed on Sufi practices and theological discussions. Even if the Muslim Brothers succeed in the first part of the operation – nationalising faith institutions – the price they will have to pay for it will be high, because the imams won’t appreciate being turned into civil servants. They also run the risk of destroying the religious dynamic of their movement: if the state controls religion, what use is a religious “brotherhood”? And if religion is identified with the state, there is a grave risk that the unpopularity of the government will affect faith institutions in turn, as has happened in Iran.

The Brotherhood will come to be identified with its political wing alone. As in Iran, the nationalisation of religion risks giving rise either to a resurgence of non-orthodox practices or to the secularisation of society. The Brotherhood will lose its soul. And, in the process, it will have lost the Coptic Christians, the liberals and many women, all of whom are apprehensive at the prospect of state-enforced Islamicisation.

The Muslim Brotherhood has taken an enormous risk in trying to prevail by force. The first victim of the way it has exercised power has been its ideology. Islam is not the solution but at best a discourse designed to rally the Salafists, one that disguises a politics more redolent of Pinochet in Chile than of Khomeini in Iran.

If the so-called liberal opposition (which also contains some less-than-democratic elements) sees that it can’t afford a direct confrontation with the government and instead presents itself as a credible political alternative, the Muslim Brothers will pay dearly for a flirtation with authoritarianism that is serving to “secularise” politics in Egypt. Religion is becoming just one instrument of control among others – rather than a social, economic and ideological alternative. This is, in short, the failure of political Islam.

Playing the same game

In Tunisia, the same game is unfolding. Al- Nahda is neither as strong nor as deeply rooted as the Muslim Brotherhood. The movement is more diverse, with a branch that is, if not more liberal, then at least more realistic. And because of their commitment to violence, the Tunisian Salafists are not credible allies. What is more, society has absorbed the culture of protest more deeply than in Egypt. At the local level, demonstrations and riots against the government are common currency, though it is often difficult to discern the motives and strategy of these local actors (criminal and clan activity plays a role that ought not to be underestimated). Tunisia also has the most powerful trade union movement in the Arab world. The UGTT (the Tunisian General Workers’ Union) has a national network of highly organised activists capable of channelling popular protest. Al-Nahda is coming into conflict with the unions, either for the same reasons as in Egypt (a fascination with the free market) or for reasons more specific to Tunisia (it wants allies on its left but cannot bear to compete with a truly popular movement of grass-roots activists).

Additionally, al-Nahda does not control the security forces. The army certainly wants to preserve order, but it will not take the risk of identifying itself with repression against the Tunisian people. Finally, al-Nahda has not succeeded in controlling the religious sphere and has fewer means at its disposal to try to do so than the Muslim Brotherhood in Egypt. In October, a petition was circulated, signed by hundreds of imams who had voted or would vote for al-Nahda but who opposed all attempts to bring the mosques and other faith institutions into the orbit of the state. As in Egypt, al-Nahda proposes to use its own ministry of religious affairs to control the religious sphere, although this statism could rebound against the movement.

Missed popularity

The difficulties encountered by the Islamists have led to a marked decline in popularity in both countries, exposing them to the risk of defeat should elections be called. But the most pressing question is that of the political alternative to the Islamists. The leaders of new political parties have a credibility problem: they are only tenuously connected to the protesters in the streets, they are often associated with the old regimes and they retain an elitist conception of political life. The opposition, in short, is a long way from being able to assemble a credible coalition. The Tunisian opposition in particular suffers from its identification with the secular elite in the capital, Tunis, who are implacably opposed to any re-Islamicisation of society. It also suffers from a democratic deficit, as it has always supported a policy of repression against religious militants. Finally, it finds it easier to campaign in Paris than in the streets of Tunisia. Yet if there were a credible and unified opposition, it could beat al-Nahda in the elections. Consequently, Tunisia’s chances of staying democratic are better than Egypt’s.

In both countries, however, the Arab spring has changed things irrevocably. Beyond the aspects that I emphasised in my first article for the New Statesman nearly two years ago (a new political culture linked to the emergence of a new generation; the diversifying of the religious sphere; a change in geostrategic context that has resulted in the Islamists no longer finding themselves automatically in the anti-western camp; the “embourgeoisement” of the Islamists; the reorientation of a revolutionary movements towards conservative parties), a new factor is contributing to the normalisation of the Islamists – the exercising of power. The Islamists are succeeding neither in delivering the goods in economic and social terms nor in giving the impression that they are architects of an authentic social project that goes beyond the stamping of “Islamic markers” on a society over which they have increasingly little control.

The Islamists can use old techniques (treating their political opponents as “traitors”, introducing censorship, martial law or a state of emergency), but this won’t prevent the people from calling them to account. To get through the period of austerity and the economic difficulties that go with it, they should have done more to secure a “historic compromise” with the liberals. The alternative to such an alliance is not “Islamic revolution”, however. What is taking shape instead is a coalition that is con - servative in politics and morals but neoliberal in economics, and thus open to the west. In this respect, the model is the Justice and Development Party (AKP) in Turkey, which has learned to work with existing institutions and civil society. This has allowed it to reconcile a strong state with a liberal economy, a conservative Islamic party with an open society.

In contrast, if the Muslim Brotherhood wishes to reinforce the state apparatus for its own benefit, it will lose across the board. The Brothers will lose support among the “faithful” to the Salafists (who are less compromised), and in the business community they will lose out to the liberals – or to the army, now that the old guard of marshals and generals has been eliminated. As for the spirit of protest, that is not about to be extinguished.

Translated from the French by Jonathan Derbyshire.

Olivier Roy is head of the Mediterranean Programme at the European University Institute in Florence. He is the author of “Holy Ignorance” (C Hurst & Co, £20)

This article first appeared in the 17 December 2012 issue of the New Statesman, Will Europe ever go to war again?

MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

***

The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

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In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt