On Egypt

It is estimated that around a thousand families maintain control of vast areas of the economy. This business class sought to consolidate itself and protect its wealth through political office. The National Democratic party was their primary vehicle for doing so. This alliance of money and politics became flagrant in recent years when a number of businessmen became government ministers with portfolios that clearly overlapped with their private interests.

That\’s why you don\’t want politics to control business: because the businesses will then enter politics and gain control.

You do want politics to set the ground rules of course. But not to go any further, and start \”protecting infant industries\”, or picking winners, or offering monopolies. Because as sure as eggs is eggs, the mechanism by which such protections and privileges are granted will become captured.

Such capture isn\’t exclusive to big business, nor even crony capitalism, of course. The GM and Chrysler rescues (where the bondholders got screwed and the unions didn\’t) show that other power groups can capture the State.

The current rumpus over solar feed in tariffs in the UK is a more minor example. The insistence that big bad business should not be allowed to benefit, only nice cuddly small scale locals, is simply an illustration of the way that this sector is, at least in part, controlled by those who have an overarching economic agenda quite separate from hte provision of carbon free energy.

5 thoughts on “On Egypt”

  1. Can there be a set of ground rules because in your model the people affected by the ground rules will move in to control the ground rules? Thus all governments are subject in the long run to being controlled by the thing(s) they seek to control.

  2. If politicians decide what can be bought and sold, the first thing to be bought and sold is politicians.

    Despite their cheering for the crowds in Tahir Square, the left want an economic system more like Mubarek’s. The only difference is cuddly people will be in control.

  3. “You do want politics to set the ground rules of course. But not to go any further, and start “protecting infant industries”, or picking winners, or offering monopolies. Because as sure as eggs is eggs, the mechanism by which such protections and privileges are granted will become captured.”

    Tim you have made a falsifiable statement, I’ve already provided you with the evidence. Nuance won’t kill you, you know.

    One finds evidence of the government’s cold-bloodedness towards poorly managed firms in distress in a variety of otherwise prosperous industries. For example, a company named Shinjin had a larger market share in the Korean automobile industry in the 1960s than Hyundai Motors. Shinjin’s owner, however, could not survive competition from Hyundai’s “Pony” and the oil shock in the 1970s. The company went bankrupt and the government, as banker, transferred Shinjin’s holdings to Daewoo Motors. Another early automobile manufacturer, Asia Motors, was also abandoned (Amsden and Kim, 1985). In the cement industry, the largest producer in the 1970s went bankrupt because it tried to optimize an old technology rather than switch to a new one. Its production facilities were transferred by the government to a chaebol, the Ssangyong group, owned by one of the ruling party’s elders. The Taihan group, a pioneer in the electronics industry, had an ailing consumer electronics division which failed. Eventually the government oversaw its transfer to Daewoo Electronics. Construction firms such as Kyungnam (merged into the Daewoo group) and Samho (acquired by Daelim Engineering) are typical cases of firms that although they once enjoyed government support, were abandoned after going bankrupt—when other firms in their industry were prospering—for reasons which observers generally agree were related to incompetence. A badly managed chaebol of considerable size that the government recently punished with dismemberment was the Korea Shipbuilding and Engineering Company. The Kukje-ICC group has also been pilloried.

    Although it is important to point out that developing economies and developed economies are different, S Korea dropped losers where necessary, so it is possible.

    http://www.oxfordscholarship.com.gate2.library.lse.ac.uk/oso/private/content/economicsfinance/9780195076035/p021.html

    You will probably need an academic login to get access to this, full text of Amsden’s “Asia’s Next Giant.”

  4. Lady Astor's Son-in-law

    “When buying and selling are controlled by legislation, the first things bought and sold are legislators.”

    P J O’Rourke

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