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A comparative examination of the impact of business -government relations on labor market reform in Egypt and Mexico, 1975--1995

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A comparative examination of the impact of business -government relations on labor market reform in Egypt and Mexico, 1975--1995

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Content INFORMATION TO USERS This manuscript has been reproduced from the microfilm master. U M I films the text directly from the original or copy submitted. Thus, some thesis and dissertation copies are in typewriter face, while others may be from any type of computer printer. The quality of this reproduction is dependent upon the quality of the copy submitted. Broken or indistinct print, colored or poor quality illustrations and photographs, print bleedthrough, substandard margins, and improper alignment can adversely affect reproduction. In the unlikely event that the author did not send UM I a complete manuscript and there are missing pages, these w ill be noted. Also, if unauthorized copyright material had to be removed, a note w ill indicate the deletion. Oversize materials (e.g., maps, drawings, charts) are reproduced by sectioning the original, beginning at the upper left-hand comer and continuing from left to right in equal sections with small overlaps. ProQuest Information and Learning 300 North Zeeb Road, Ann Arbor, M l 48106-1346 USA 800-521-0600 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. A COMPARATIVE EXAMINATION OF THE IMPACT OF BUSINESS- GOVERNMENT RELATIONS ON LABOR MARKET REFORM IN EGYPT AND MEXICO, 1975-1995 by Samira Hamdy Salem A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (Political Economy and Public Policy) December 2001 Copyright 2001 Samira Hamdy Salem Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. U M I Number 3065844 Copyright 2001 by Salem, Samira Hamdy All rights reserved. UM I* U M I M icroform 3065844 Copyright 2002 by ProQuest Information and Learning Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code. ProQuest Information and Learning Company 300 N orth Zeeb Road P.O. Box 1346 Ann Arbor, M l 48106-1346 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. UNIVERSITY OF SOUTHERN CALIFORNIA The G raduate School U niversity Park LOS ANGELES, CALIFORNIA 900891695 Thi s dissertation, w ritten b y \jftfiv r ft SdlffY\ Under th e direction o f h A A D issertation Com mittee, and approved b y a ll its members, has been presen ted to and accepted b y The Graduate School, in p a rtia l fulfillm ent o f requirem ents fa r th e degree o f DOCTOR OF PHILOSOPHY De an o f Gr aduat e St u di es Date DISSERT A TJOjfCOMMi Chai r per s on Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Samira Salem Professor Laurie Brand ABSTRACT A COMPARATIVE EXAMINATION OF THE IMPACT OF BUSINESS-GOVERNMENT RELATIONS ON LABOR-MARKET REFORM IN EGYPT AND MEXICO, 1975-1995 Why have benefits to labor in Egypt remained constant after neoliberal economic reform began, whereas benefits to labor in Mexico have clearly decreased? Interestingly, the political economy o f Egypt and Mexico displayed striking similarities pre-reform. Yet, despite the similarities in the state-labor relations and the labor markets of both countries pre-reform, Egypt and Mexico have pursued distinct paths o f labor market reform. The purpose o f this study was to examine how and why the labor market policy choices o f two countries possessing similar political economies pre-reform, have radically diverged after the initiation of economic liberalization. The central argument is that in the context o f economic liberalization, the business-goverament relationship is an important determinant o f labor market reform. Using both quantitative and qualitative methods, this dissertation examines the role that business-govemment relations play in influencing labor market reform. An original quantitative measure o f business strength is developed and applied in the regression analysis that is conducted. The results o f Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. this analysis show strong evidence that business strength is, in fact, a fundamental force shaping the labor market policy choices o f Egypt and Mexico. More specifically, the quantitative analysis demonstrates business strength is positively related to neoliberal labor market reform. These findings are confirmed in the detailed case studies o f Egypt and Mexico. The case studies further specify the conditions needed for business to influence labor market reform in its favor. More specifically, they revealed that in order for business to influence labor market reform in its favor, business must possess both structural and institutional power. Finally, the case studies demonstrate that when labor market reform involves a shift away from a traditional coalition partner, governments will be reluctant to promote it until an alternative coalition is established to provide the political support necessary to make the policy change. This dissertation provides comparative lessons for the many liberalizing governments in developing countries that face similar choices and have, to varying degrees similar domestic political constraints that they must negotiate. / Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. DEDICATION To the memory o f my father Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ACKNOWLEDGMENTS Throughout this dissertation, I received the support o f many people and institutions. I would like to take this opportunity to begin to thank them. I offer my sincerest gratitude to the Chair of my dissertation committee. Professor Laurie Brand. It was an honor to work with her. This dissertation has benefited greatly from her skillful guidance, unwavering support, and insight. I would also like to thank Professor Nora Hamilton, who as a member of my dissertation comminee. offered thoughtful reviews of this dissertation. In addition, I would like to extend my gratitude to Professor Quong Vuong and Professor Robert Kalaba, for their support of my dissertation research. I would like to gratefully acknowledge the financial support given to me by the National Security Education Program, the Center for International Studies at the University o f Southern California and the Main Fellowship for dissertation completion. Many of the interviews that I conducted in Egypt would not have been possible without the help of Mr. Mohamed Salem and Mr. Abdel Monem Said Aly. Special thanks go to them. I would also like to thank those who so generously took the time to meet with me. I am also deeply indebted to Dr. Stuart Collison and Dr. Suzanne Messiha for taking the time out of their busy schedules to talk to me and for sharing their data with me. iii Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. I would like to express my deepest appreciation to my family and dear friends without whose love and support the completion of this dissertation would not have been possible. I want to thank Nita Rudra for her constant support and treasured friendship. I believe myself to be incredibly fortunate to have had a colleague with whom I could banter ideas about who is also a very dear friend. Her insightful and constructive suggestions are reflected in this dissertation. I would also like to thank Kelly Bradley for her cherished friendship and her steadfast support. Further, I am grateful to Simone Schmai and Tiffany Craft for their dear friendship, patience, and understanding throughout my graduate career. Finally, I wish to express my love and my deepest gratitude to my mother Sally Salem and my brother Tarek Salem for their love and unyielding faith in me. They gave me everything and asked nothing in return. The completion of my dissertation would have never been possible without them. I dedicate this dissertation to the memory of my father, Sam Salem. Throughout this project I consistently reflected on our conversations about the political economy of Egypt. His example gave me the determination to complete this dissertation. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE OF CONTENTS DEDICATION.................................................................................................. ii ACKNOWLEDGMENTS............................................................................... iii LIST OF TABLES........................................................................................... ix LIST OF FIGURES.......................................................................................... x LIST OF ACRONYMS................................................................................... xi ABSTRACT.................................................................................................. xiv CHAPTER 1. INTRODUCTION.................................................................................. 1 The Puzzle: The Egyptian and Mexican Cases.....................................3 Theoretical Context.............................................................................. 8 Bringing Back In the State and Society.....................................8 Economic Policymaking and Business- Government Relations.............................................................15 Defining the Business-Govemment Relationship................... 17 Methodology....................................................................................... 22 Significance of the Study.................................................................... 24 Plan o f the Dissertation....................................................................... 25 2. BUSINESS CONCENTRATION AND ITS IMPACT ON LABOR MARKET POLICIES IN EGYPT AND MEXICO, 1975-1995......................................................................... 28 Background: The Egyptian and Mexican Cases.................................29 Pre-Reform............................................................................. 29 Reform.................................................................................... 32 v Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Theoretical Rationale and Hypotheses..............................................38 The Model: The Variables................................................................42 Dependent Variable............................................................... 43 Independent Variable............................................................. 43 Control Variables................................................................... 44 Data and Method................................................................................51 The Results and Interpretation........................................................... 51 Conclusion......................................................................................... 57 3. THE IMPACT OF BUSINESS-GOVERNMENT RELATIONS ON LABOR MARKET REFORM IN EGYPT................................. 63 Labor Market Policies in Egypt and the Business Community’s Position....................................................................... 66 The Corporatist State-Labor Relationship and the Social Contract....................................................................... 66 Perceived Rigidities in the Current Labor Law......................68 Modem Business-Govemment Relations in Egypt: Pre-Reform 71 The Liberal Era (1920-1952)..................................................71 Business-Govemment Relations under Nasser (1952- 1970): llie Destruction o f the Private Sector and the Transformation of Business-Govemment Relations...............74 The Business-Govemment Relationship under Sadat (1970- 1981): The Policy oflnfitah and the Changing Role ofBusiness.............................................................................. 80 Modem Business-Govemment Relations in Egypt: Reform............. 88 Business-Govemment Relations under Mubarak (1981-1995): Productive Infitah and the Role of the Private Sector in the Egyptian Economy................................ 88 Business Associations’ Collective Action and Inaction Surrounding the Issue of Labor Market Policy 109 Conclusion.........................................................................................118 4. EXAMINING THE IMPACT OF BUSINESS-GOVERNMENT RELATIONS IN MEXICO ON LABOR MARKET POLICY, 1975-1995..........................................................................................127 Labor Market Policy in Mexico and the Business Community’s Position...................................................................... 129 State-Labor Relations............................................................ 129 Labor Legislation...................................................................131 The Business Community’s Position.....................................132 vi Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. A Brief History of Modern Business-Govemment Relations in Mexico: Pre-Reform........................................................................134 The Early Post-Revolutionary Period (1917-1934)............... 134 Cardenas and the Progressive Alliance (1934-1940)............. 138 Alliance for Profits (1940-1946)...........................................140 Stabilizing Development (1955-1970).................................. 142 Shared Development and the Alliance for Production (1970-1976)...................................................144 A Brief History o f Modem Business-Govemment Relations in Mexico: Reform........................................................... 153 Business-Govemment Relations and Labor Market Reform Under Miguel de la Madrid (1982-1988): Hostility, Business Pressure, Alliance and Reform...........................................154 Government Response to Business Pressure.........................159 Labor Market Reform under de la M adrid............................ 162 Business-Govemment Relations and Labor Market Reform under Salinas (1988-1994): Economic Strategy, Big Business Concentration, Consolidation of the Business-Govemment Alliance and Reform.........................................................................170 Big Business Concentration.................................................. 172 Consolidation o f the Business-Government Alliance............ 174 Reform o f Labor Market Policies..........................................177 Conclusion........................................................................................184 5. CONCLUSIONS..............................................................................190 Summary and Analytical Conclusions...............................................191 Findings............................................................................................ 194 Quantitative Section..............................................................194 Qualitative Section................................................................195 Implications......................................................................................199 Contribution to the Literature...........................................................201 BIBLIOGRAPHY........................................................................................ 205 APPENDIX A: GOVERNMENTS OF EGYPT AND MEXICO................225 APPENDIX B: VARIABLES, MEASUREMENTS AND DEFINITIONS......................................................... 226 APPENDIX C: DATA SOURCES............................................................. 227 vii Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. APPENDIX D: SCATTRPLOTS OF SOCIAL SECURITY AND WELFARE AND ALL SIGNIFICANT VARIABLES 228 viii Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF TABLES 1. The Similarities in the Political Economy of Egypt and Mexico Pre-Reform.............................................................................32 2. The Distinct Paths o f Labor Market Policy in the Context of Economic Reform in Egypt and Mexico.............................................38 3. The Independent and Control Variables and their Expected Correlation with the Dependent Variable............................................48 4. Summary Statistics for Egypt.............................................................. 50 5. Summary Statistics for M exico........................................................... 50 6. Time-Series Regression Results for Egypt.......................................... 52 7. Time-Series Regression Results for Mexico....................................... 54 8. Ideological Factions and Principle Members of the C C E..................147 9. The CCE and Its Affiliated Business Organizations..........................148 10. Private Sector Structural Power......................................................... 156 11. Average Manufacturing Wage........................................................... 164 ix Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF FIGURES 1. Mexico: Social security and welfare expenditures............................... 6 2. Egypt: Social security and welfare expenditures................................... 7 3. Big business concentration in Egypt and Mexico.................................49 4. Egypt: Scatterplot of social security and welfare and big business concentration......................................................................228 5. Egypt: Scatterplot of social security and welfare and labor power...................................................................................... 229 6. Egypt: Scatterplot of social security and welfare and debt................ 230 7. Egypt: Scatterplot of social security and welfare and IMF credit ....231 8. Egypt: Scatterplot of social security and welfare and urbanization level............................................................................. 232 9. Mexico: Scatterplot of social security and welfare and big business concentration......................................................................223 10. Mexico: Scatterplot of social security and welfare and labor power...................................................................................... 234 11. Mexico: Scatterplot of social security and welfare and debt.............235 12. Mexico: Scatterplot of social security and welfare and trade............236 13. Mexico: Scatterplot of social security and welfare and IMF credit........................................................................................ 237 14. Mexico: Scatterplot of social security and welfare and growth....... 238 x Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF ACRONYMS AMCHAM CANACINTRA CAPMAS CCE CMHN CONCAMIN CONCANACO COPARMEX COECE CTM DEPRA EBA ERSAP ETUF FDN American Chamber of Commerce in Egypt Camara Nacional de la Industria de Transformacion (National Chamber of Manufacturing Industries) Central Agency for Public Mobilization and Statistics Consejo Coordinador Empresarial (Business Coordinating Council) Consejo Mexicano de Hombres de Negocio (Mexican Council o f Businessmen) Confederacion de Camaras Industriales (Confederation of Chambers o f Industry) Confederacion de Camaras Nacionales de Comercio (Confederation of Chambers of Commerce) Confederacion Patronal de la Republica Mexicana (Employers' Confederation of the Mexican Republic) Coordinadora de Organizaciones Empresariales de Comercio Exterior (the Business Coordinating Council on Foreign Trade) Confederacion de Trabajadores de Mexico (Confederation of Mexican Workers) Development Economic Policy Reform Analysis Project Egyptian Businessmen's Association Economic Reform and Structural Adjustment Program Egyptian Trade Union Federation National Democratic Front xi Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. FEI Federation of Egyptian Industries FESEBES Federation of Unions of Goods and Services IMF International Monetary Fund INEGI Instituto Nacional de Estadistica, Geografia E Infonnatica (National Institute of Statistics, Geography and Informatics) ILO International Labor Organization ISI Import-substitution industrialization JFCA Junta Federal de Conciliacion y Arbitraje (Federal Conciliation and Arbitration Board) NAFTA North American Free Trade Agreement PAN Partido de Accion Nacional (National Action Party) PECE Pacto de Estabilidad y Crecimiento Economico (Pact for Stability and Economic Growth) PEMEX Petroleos Mexicanos (Mexican Petroleum Company) PRI Partido Revolucionario Institucional (Institutional Revolutionary Party) PRM Partido de la Revolution Mexicans (Party o f the Mexican Revolution) PRONASOL Programa Nacional de Solidaridad (National Solidarity Program) PSE Pacto de Solidaridad Economica (Economic Solidarity Pact) SECOFI Secretaria de Comercio y Fomento Industrial (Mexican Ministry of Commerce and Industrial Development) SOEs State-owned enterprises STRM Sindicalo de Telefonistas de la Republics Mexicans (Mexican Telephone Workers' Union) xii Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. UNIDO USAID United Nations Industrial Development Organization US Agency for International Development Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ABSTRACT A COMPARATIVE EXAMINATION OF THE IMPACT OF BUSINESS- GOVERNMENT RELATIONS ON LABOR MARKET REFORM IN EGYPT AND MEXICO, 1975-1995 Why have benefits to labor in Egypt remained constant after neoliberal economic reform began, whereas benefits to labor in Mexico have clearly decreased? Interestingly, the political economy o f Egypt and Mexico displayed striking similarities pre-reform. Yet, despite the similarities in the state-labor relations and the labor markets o f both countries pre-reform, Egypt and Mexico have pursued distinct paths of labor market reform. The purpose o f this study is to examine how and why the labor market policy choices of two countries possessing similar political economies pre-reform, have radically diverged after the initiation of economic liberalization. The central argument is that in the context o f economic liberalization, the business-government relationship is an important determinant o f labor market reform. Using both quantitative and qualitative methods, this dissertation examines the role that business-government relations play in influencing labor market reform. An original quantitative measure o f business strength is developed and applied in the regression analysis. The results o f this analysis xiv Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. show strong evidence that business strength is, in fact, a fundamental force shaping the labor market policy choices o f Egypt and Mexico. More specifically, the quantitative analysis demonstrates that business strength is positively related to neoliberal labor market reform. These findings are confirmed in the detailed case studies of Egypt and Mexico. The case studies further specify the conditions needed for business to influence labor market reform in its favor. More specifically, they reveal that in order for business to influence labor market reform in its favor, business must possess both structural and institutional power. Finally, the case studies demonstrate that when labor market reform involves a shift away from a traditional coalition partner, governments will be reluctant to promote it until an alternative coalition is established to provide the political support necessary to make the policy change. This dissertation provides comparative lessons for the many liberalizing governments in developing countries that face similar choices and have, to varying degrees similar domestic political constraints that they must negotiate. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 1 INTRODUCTION Why have benefits to labor in Egypt remained constant after neoliberal economic reform began, whereas benefits to labor in Mexico have clearly decreased?1 Interestingly, the political economy of these two middle-income countries displays striking similarities pre-reform, yet Egypt and Mexico have pursued divergent paths of labor market reform.2 Benefits to labor consist of entitlements such as social security, pensions, job security, and legal provisions for collective bargaining, inter alia. Advocates of neoliberal economic reform argue that these benefits are inefficient and should therefore be eliminated or at the very least minimized.3 However, empirical evidence demonstrates that despite the fact that the majority of developing countries have adopted neoliberal-inspired economic restructuring programs, not all developing countries have followed such neoliberal prescriptions. For example, social security and welfare benefits to labor in Mexico fell drastically between 1975 and 1995, yet they remained constant in Egypt during the same period (IMF 1998, World Bank 1998).4 In addition, many of the other protections that labor has traditionally enjoyed have been eliminated in Mexico, while they have been maintained in Egypt. Clearly, economic efficiency is not the only criterion used to guide policy choices of developing countries’ governments. Indeed, an increasing number of studies have shown that domestic politics matters in both Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. policy formation and the successful implementation of economic reform (Biddle and Mi lor 1997. Cook, Middlebrook, and Horacasitas 1994, Doner 1992, Kim 1997, Pripstein Posusney 1997. Schamis 1999). While economic liberalization in general and macroeconomic, financial and trade policy reform, in particular, have been extensively studied, labor market reform and its domestic political determinants have been given far less attention. Those studies that have examined labor market reform have tended to focus solely on the impact o f labor on these reforms (de la Garza Toledo 1994, Pripstein Posusney 1997, Rudra 2001, Turn an 1999). The existing literature on labor market reform has virtually ignored the influence of business—the other domestic actor directly affected (World Bank 1999). By contrast this study investigates the effect o f business on labor market reform for three reasons. First because recent research on the broader process of economic liberalization in East Asia and Latin America has concluded that the business-government relationship is key in explaining economic policy choice, and economic performance (Doner and Hawes 199S, Durand 1994, Evans 1995, Johnson Ceva 1998a, Kim 1997, MacIntyre 1994, Maxfield 1990, Puga 1993, Silva 1993,1997, Schneider 1997). Second, since the process of economic liberalization cedes significant control over critical economic activities such as investment and production to business, state elites may be more attentive to business demands (Silva 1993,556). Consequently, it is 2 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. important to consider whether and how business affects labor market reform. Third, given the similarities of the state-labor relationship, the nature and structure o f society, and economy in both Egypt and Mexico, an explanation o f labor market reform that relies solely on labor is deficient in the cases of Egypt and Mexico. This analysis, therefore, examines the role that the business- government relationship plays in determining the direction o f labor market reform in historically populist and labor-oriented states. The purpose of this study is to explain why the labor market reform choices o f the governments of Egypt and Mexico have varied so drastically since neoliberal economic reform was initiated. Toward this aim, this study aspires to specify how social forces, business in particular, are able to influence labor market policy choice. The Puzzle: The Egyptian and Mexican Cases The political economies of Egypt and Mexico exhibited remarkable similarities pre-reform.5 Both were long-standing, stable, authoritarian regimes, which followed an import-substitution industrialization (ISI) economic model characterized by an inward-oriented focus, highly protected domestic markets, extensive state intervention in the economy, and an emphasis on social welfare objectives. Their political systems were both characterized by corporatism, in which different social groups, labor prominent among them, were incorporated Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. into the political system.6 Indeed, labor became a member of the strategic coalition in both countries. Labor was, therefore, a key political constituency for both authoritarian states. The corporatist relationship was cemented via a social contract According to this social contract labor contributed its political support and full participation in the ISI development project in return for social welfare guarantees such as employment job security, social insurance, consumer subsidies, indexed wages, profit sharing for public sector employees and health services inter alia. A key element that sustained the institutionalized state-labor relationship in Egypt and Mexico was, therefore, the state’s ability to redistribute economic resources and provide protections to labor. Similar to the majority of developing countries, both Egypt and Mexico began to implement neoliberal economic reform in the 1980s. Neoliberal economic reform entails a restructuring of a country’s economy with the aim o f transforming it into a more open, market-oriented, capitalist economy. It therefore goes beyond minor adjustments in economic policy periodically made by governments (Johnson Ceva 1998). Specifically, this variant of economic restructuring focuses on market-oriented policy reforms such as trade, financial and labor market liberalization, privatization, and the creation of an appropriate regulatory environment. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Economic reform, and more specifically labor market reform, as it called for reductions in social spending and labor protections, threatened the social contract and thus the state-labor relationship in Egypt and Mexico. Maintaining stability and regime legitimacy was of paramount importance to both governments. Due to labor's critical political position and its history of militancy in both countries, the governments of Egypt and Mexico had to carefully consider how to approach neoliberal labor market reform. Despite the fact that organized labor’s strength and the state-labor relationship in Egypt and Mexico were undeniably sim ilar in the pre-reform era, Egyptian and Mexican policies of labor market reform have differed substantially. For example, massive layoffs and firings have been a regular part of the process in Mexico since the mid-1980s (Brachet-Marquez 1994, Kaufman 1990, Teichman 1996). This has not been the case in Egypt Indeed, Egyptian President Hosni Mubarak publicly stated that not a single Egyptian would lose his/her job because o f privatization (Economist Intelligence Unit 19%). This promise was backed up by the government’s insistence that the sales contracts for privatized enterprises contain a clause prohibiting the layoff of any employee for a period of three years after the date o f purchase (Pripstein Posusney 1997). The Mexican government, on the other hand, has not provided such protections to Mexican labor. Additionally, the Egyptian government encourages employee share ownership by reserving ten percent of the shares o f privatized companies 5 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 0 for purchase by the employees o f those companies. No such program exists in Mexico. Empirical evidence from the International Monetary Fund’s (IMF) Government Finance Statistics (1998) highlights the fact that benefits to labor in Mexico in the form o f social security and welfare have decreased from 25 percent o f government spending in 1974 to a low o f 7 percent o f government spending in 1987 and they have since not returned to their 1970s level (Figure 1). By comparison, in Egypt these same benefits have remained relatively constant at approximately 10 percent of government spending (Figure 2). Mexico: Social security and welfare expenditures (as % of total government spending) 40 30 e * 10 s 20 — -Linear — • —Mexico 0 Year Source: IMF. Government Finance Statistics. Figure 1. Mexico: Social security and welfare expenditures. 6 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Egypt: Social security & welfare expenditures (as % o f total government spending) i 40 35 25 Egypt Year Source: IMF. Government Finance Statistics. Figure 2. Egypt: Social security and welfare expenditures. Mexico has moved aggressively forward on labor market reform, achieving a more flexible labor market, while Egypt has been reluctant to reform its labor market and has thus largely maintained labor’s traditional protections and benefits. In addition, the Egyptian government has developed new mechanisms in its effort to cushion the potentially negative effects o f the restructuring process on labor. Clearly, Egyptian and Mexican government policies regarding labor market reform have taken distinct paths. This study asks why. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Theoretical Context Bringing Back In the State and Society In positing that domestic politics is a significant factor that must be included in explanations of economic policymaking in general, and labor market reform in particular, this analysis moves beyond the neoclassical paradigm which asserts that economic policy is primarily determined by economic conditions. For example, according to neoclassical logic, phenomena such as economic crises drive policy reform (Bresser Peri era 1993, 7). While an economic crisis may in part trigger changes in economic policy, the mere fact that a crisis occurs cannot explain the specific policy choices made by policy makers. Moreover, there are scholars such as Schneider (1997) who, while accepting that economic crises may provide an impetus to policy change, point out that economic crises affect economic policy precisely because they make the state more dependent on the private sector. Thus, while it cannot be denied that economic conditions affect policy, privileging economic factors obscure the fact that governments are intrinsically political entities and, as a result, the process of economic policymaking is highly political (Hall 1986). By ignoring the political and related social factors in explanations of economic policymaking, neoclassical theory presents an incomplete explanation o f the dynamics that drive the economic policy choices of governments. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Neo-institutional economics has emerged as a corrective to the rigid neoclassical assumptions, which maintain that economic activity is best characterized as taking place among rational individual maximizers operating in perfect markets and constrained only by the availability o f resources. While there are different variants within the neo-institutional economics paradigm, the common point of departure is a belief that the choices o f individuals in the market are constrained by imperfect information, bounded rationality, and the existence of opportunism.9 In contrast to neoclassical economics, which declares non-standard or unfamiliar market practices to be market failures, neo- institutional economics maintains that non-standard market practices can be explained by the need to minimize the transaction costs associated with imperfect markets. In so doing, neo-institutional economics moves beyond traditional neoclassical analysis, which focuses on questions of resource allocation and distribution, and instead on privileges institutional analysis. Like the neoclassical perspective, neo-institutional economics perceives the state’s presence in the market as corrupting, resulting in inefficient outcomes and rent-seeking (Bhagwati 1982, Krueger 1974). The rent-seeking literature in particular holds that profit-maximizing individuals will attempt to capture rents created by market-distorting state intervention in the economy. It is argued that both the creation and the pursuit of these rents have a deleterious effect on an economy. The prescription that is, therefore, forwarded by this literature is that 9 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. state intervention in the economy should be minimized. The primary contributions o f this literature are a means by which to analyze corruption, self- interested behavior, and to explain why states create rent-seeking opportunities (Evans 1995). The rent-seeking vein o f the neo-institutional literature thus draws attention to the relationship between the state and the interest groups, or what Olson (1982) refers to as “distributional coalitions,” who attempt to capture rents. Theories of rent-seeking and distributional coalitions, understand business to be a monolithic group that profits from the status quo and therefore anempts to block economic reform. Ultimately, the nexus of socio-political forces is inevitably seen by this approach as having a corrupting effect on economic behavior. What has emerged from this body of literature is a monocausal ahistorical theory, whose assumptions about actors (both social actors and the state) are flawed. Consequently, it is unable to explain why states will engage in policy reforms that eliminate rent-seeking opportunities or why governments facing similar economic pressures and possessing similar institutions will choose different economic policies. Unlike the neo-institutional economics literature which views domestic economic policy as being affected, albeit negatively, by the collusive relationship between state and society, a prominent strand o f political science analysis privileges the state in explanations of economic policymaking. This 10 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. statist approach eschews Marxist and pluralist models, which posit that policy is primarily influenced by the demands of societal actors. In place of the neutral- arbiter type state o f pluralist theories and the captured (or relatively autonomous) state of Marxist (and Marxist-inspired) theories, this approach claims that the state is an entity that possesses and pursues its own interests. Consequently, the statist approach offers an alternative understanding o f the role of the state. Moreover, this approach maintains that the interests of the state are the primary determinants of economic policy. The statist approach posits that variables such as state autonomy, the state's capacity to implement policy, and the degree o f insulation of technocrats from societal pressures explain governments’ economic policy choices and policy implementation (Callaghy 1989, Haggard 1990, Haggard and Kaufman 1992, Nelson 1990, Waterbury 1993). State strength, defined by a high level of state autonomy and state capacity (Doner 1992), is deemed critical for effective policy formulation and implementation. In essence, the structural variables used in this approach eliminate the influence of social actors from the realm of policymaking. However, excluding the influence o f societal actors on economic policymaking is problematic because as Silva (1993, 529) points out “state structure cannot explain the content of policy.” Silva (1993) further argues that governments get their cues from the social forces to which they must appeal for 11 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. support. The cooperation of key social groups is. therefore, critical to effective policy formulation. Schneider (1997) concurs with Silva about the limitations surrounding the use of state structure as an explanatory variable. More specifically, Schneider argues that state-centric analyses are misguided in attributing causal characteristics to the state autonomy variable. Instead, he argues that state autonomy may at most act as “a permissive variable." A significant shortcoming of the statist approach, therefore, is that it ignores the impact of social actors on economic policy choice. The result is incomplete and unrealistic theories that gloss over variations in outcomes that arise as a result o f societal agency. Like neo-institutional economics, the institutional approach in political science asks some o f the same questions regarding the efficiency o f the state- society relationship, and more specifically the state-business relationship. However, the institutional approach distinguishes itself from that o f neo- institutional economics in that it tends to focus on political institutions as opposed to market-based institutions. According to Hall (1986), the institutional approach “emphasizes the institutional relationships, both formal and conventional, that bind the components of the state together and structure its relations with society (19)." Institutions in this analysis are seen as mechanisms that structure and reflect the strategic interactions o f different actors. They may take the form of norms, formalized rules and/or laws, and standard operating 12 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. procedures (Hall 1986). Institutions are significant because “they are the means by which the diverse preferences o f individuals are aggregated into choices or outcomes for the collective” (Milner 1998,761). Policy-making is, therefore, understood by the institutional approach as more than a result of pluralist politics. A significant strand of this literature challenges the neo-institutional economics conclusion that state-business relations are necessarily inefficient and corrupting (Biddle and Milor 1997, Fields 1997, Maxfield and Schneider 1997). Indeed, contributors to the institutionalist literature such as Maxfield and Schneider (1997), Evans (1995), and Shafer (1997) are interested in specifying the conditions under which business-goverament relations lead to developmental or growth-enhancing outcomes. More specifically, they argue that the nature of domestic political institutions mediates the outcome o f this relationship. Their findings suggest that the existence of an embedded Weberian bureaucracy (i.e., an insulated, meritocratic bureaucracy that is immersed in the surrounding social structure) is the first defense against corruption (Evans 1995). In its absence, hard budget constraints and/or encompassing peak business associations are the key conditions needed for business-goverament relations to result in developmental outcomes. Unlike both the neo-institutional economics literature and the institutionalist literature, the international political economy literature does not 13 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. focus on the question of the efficiency of state-society relations. Instead, it asks the more general question of what forces determine economic policy. Specifically, this body o f literature has generated models that investigate the effects of global forces in the form of capital flows, trade, and foreign direct investment on domestic economic policy in industrialized nations (Garrett 1998, Rodrik 1997). A strand of this literature rejects recent arguments that claim that global forces trump domestic forces in the determination of economic policy (Ganett 1998). Instead, it seems to concur with the institutionalist literature’s argument that domestic politics is the primary determinant of economic policy. Like the international political economy literature, the current analysis focuses on the question of the determinants of economic policymaking and more specifically, labor market policy. Consequently, this work does not explicitly enter the neo-institutional economics-institutionalist debate regarding the efficiency of business-govemment relations. While this study was not directly interested in the primary question posed by the institutionalist body o f literature, a historical-institutionalist lens that considers the domestic political constraints imposed by historical legacies on economic policy choice is employed. This study is directly influenced by recent comparative work of scholars like Maxfield (1990), Silva (1993) and Pripstein Posusney (1997). These scholars attempt to correct for the overly statist approach of earlier work by emphasizing the importance of social forces in shaping economic reform, related 14 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. policy choice, and both economic and political development This study follows this line of theorizing and aspires to move away from either exclusive reliance on the state or exclusion of the state, to an examination of the state-society nexus within the context of historical institutional constraints. More specifically, it investigates the role that business-govemment relations play in determining labor market policy. Economic Policymaking and Business-Government Relations As previously discussed, much of the work that considers the politics of economic policymaking has emerged from the state-centered approach. Schamis (1999) argues that this approach conceives of societal actors as threatening forces whose influence must be avoided. It therefore leads one to theorize about how to neutralize those societal forces that pose the largest threat to economic reform: the losers (Waterbury 1989). Specifically, this approach argues that because the losers are directly threatened by reforms, they have an immediate incentive to engage in collective action opposing reform. On the other hand, the gains from economic reform are not as immediate, nor as certain, so the incentive to engage in collective action in support o f reform is not as strong for the winners (Bienen and Waterbury 1989). Consequently, the focus of this literature is on how labor and other members o f those groups that are 15 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. threatened by economic reform have affected the reform process. The conclusion that emerges from this literature is that the losers (generally, organized labor) are weak and have therefore not had a significant impact on policy formulation, implementation, or outcome (Nelson 1990, Waterbury 1993). While this conclusion is challenged by scholars such as Pripstein Posusney (1997), the focus o f the current study is not on how the losers affect the reform process, but instead on the impact of the potential winners (in this case business) on labor market policy reform.1 0 Schamis (1999) points out that this is an under-theorized area. Furthermore, he argues that it is significant to focus on the potential winners because “the lack o f a conception o f positive power and the neglect o f proactive collective action overlooks a most crucial aspect of the reform process: how coalitions organize in support of liberalization” (Schamis 1999,237). While a vast body o f literature examining economic reform in less- developed countries has emerged over the last two decades, the role o f business and its relationship to the state has received scant attention. As a response to the mainstream statist approach, and in an attempt to fill the gap in the literature, recent research on economic restructuring in East Asia and Latin America have examined the role of the business-goverament relationship and have found that it emerges as a key variable in explaining policy choices and economic performance (Doner and Hawes 1995, Durand 1994, Evans 1995, Johnson Ceva 16 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 1998, Kim 1997, MacIntyre 1994, Maxfield 1990, Puga 1993, Schneider 1997, Silva 1993,1997). This is understandable given that the process of liberalization simultaneously reduces and reshapes the role o f the state in the economy and expands that of the private sector. Decisions on the part o f the private sector to invest and produce are significantly influenced by the domestic economic environment, which in turn is, in part a product o f the business- government relationship. According to Biddle and Milor (1997), the nature of this relationship influences “the effectiveness o f policy formulation, implementation and adjustment” (280). It is, therefore, clearly a critical factor with the potential to influence economic policy choices and contribute to the success of economic reform and subsequent economic development Defining the Bnsiness-Government Relationship Despite the fact that recent studies investigating economic policy choice, policy implementation, and economic reform in general have suggested that the business-govemment relationship is an indispensable explanatory variable (Evans 1995, Kim 1997, Silva 1993) there is no consensus in the literature on the definition o f business-govemment relations. Some scholars privilege structural aspects of this relationship (Lindblom 1977) while others focus on its institutional features (Biddle and Milor 1997, Hillman and Keim 1995, Wilson 1990). 17 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The structural approach maintains that the critical factor that defines the relationship between business and the government in a capitalist economic system is the structural dependence of the state on capital. According to this approach, the state is dependent on capital for investment, production, and overall economic performance. Consequently, the structural thesis maintains that because the private sector controls capital and the level o f investment in the economy, it is able to influence policy without resorting to the use o f collective action. Instead, the private sector can use its ability to engage in (or threaten) capital flight and/or the withholding o f investment to influence policy. The key to the private sector’s ability to affect policy in this way lies in the fact that voters hold the state accountable for economic performance. The state, therefore, has an interest in guaranteeing that the private sector cooperates by contributing to economic growth. In order to ensure the cooperation of the private sector, the state’s economic policies must be fundamentally aligned with those desired by the private sector. Thus, according to the structural thesis, the business-goverament relationship is characterized by the state’s vulnerability vis-a-vis capital. This thesis may help to explain capital’s influence in the context o f crises when it is more likely to demand systemic policy changes (i.e., radical and wide-ranging policy changes such as those that involve m aking the transition from an illiberal, highly regulated economy, to a more liberal economy). Indeed, Schneider (1997) demonstrates that capital flight in Mexico 18 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. during the 1982 crisis was one factor that influenced the Mexican government's decision to liberalize its economy. The structural thesis is problematic because it does not recognize that in different contexts structural power may not be singularly effective. It is reasonable to assume that absent a crisis, the types o f policy changes that business desires are more incremental and specific in nature (e.g., reducing corporate tax rates or reforming labor laws) than those that they would want in the context of a crisis. Consequently, a more precise mechanism o f interest articulation, such as collective action, may be a more effective means of expressing business interests than capital flight or the withholding o f investment when the policy changes that it desires are incremental as opposed to systemic. In the end, the structural thesis is useful because it points to one defining element of the business-goverament relationship and a source o f business power, namely, the dependence of the state on capital. However, it is not the defining aspect of this relationship. The institutionalist approach maintains that the relationship between business and government is defined by the nature o f the organizations that represent the two parties. Consequently, whether, for example, a peak or encompassing business association represents business is significant. This approach also considers the level of institutionalization o f the business- goverament relationship to be a defining factor. Additionally, scholars like 19 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Hillman and Keim (1995) argue that this relationship is defined by the locus of the most regular business-goverament interaction. As such, they consider it important to determine whether, for example, most business-goverament interface takes place between government officials and business associations in form al forums like councils, commissions and regular meetings, or between government officials and business representatives (or individuals) in informal meetings. A significant shortcoming o f this perspective is that it downplays the role played by economic power in this relationship. The existence o f well-organized institutions that represent business interests as well as an institutionalized relationship between business and the government has the potential to serve as an effective mechanism of interest articulation and communication for both parties. In the absence o f such factors, structural power alone may be too blunt a mechanism of interest articulation to allow business to make specific policy demands. Consequently, it is highly probable that business will only be able to affect broad systemic changes and not the more specific policy changes (e.g., decreasing taxes) that it, more often than not, desires. If, however, the private sector possesses minimal economic power, the likelihood that its demands will be taken seriously in economic policy negotiations with the government is low. In this case, unless the government’s interests coincides with those o f the private sector, the existence o f well-organized business associations and stable 20 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. institutions that structure the business-goverament relationship will not be sufficient to allow business to have a significant impact on policy decisions. By contrast, if the government is dependent on business and the institutions that structure the business-goverament relationship are effective, then it is more likely that business demands will be m et In order to understand the business-goverament relationship one must examine the institutions that the government and business use to negotiate and transfer information and the amount o f economic and institutional leverage that business possesses vis-a-vis the government. Indeed, defining the business- goverament relationship as a relationship that is determined by either structural or institutional factors renders an incomplete understanding o f this relationship. Both o f these factors therefore constitute the basic defining elements of this relationship. This analysis, therefore, proposes that the nature o f the business- govemment relationship be understood as determined by the following: 1) Structural factors. This refers to the extent to which the government relies on business for investment, production, exports and the overall health of economy. 2) Institutional factors. This includes the degree of organization of business associations (i.e., how centralized are the business associations and how dependent are they on the government for their existence and operation) and the level o f institutionalization of the business-goverament relationship." 21 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Business will thus influence policy when the business-govemment relationship is such that the government is economically dependent on business (i.e., the share of private sector investment in the economy is high, a large percentage of growth is produced by the private sector, and capital is mobile), private-sector institutions are well organized (i.e., an autonomous peak association exists), and the level of institutionalization o f the business- govemment-reiationship is high (i.e., institutionalized channels for effective business-govemment interaction on policy issues exist). Methodology This study applies both quantitative and qualitative methods to explain the variance in labor market policy reform in Egypt and Mexico. Because empirical data suggest that the nature o f the business-govemment relationship plays a significant role in explaining why labor market reform in Egypt and Mexico has differed, the primary explanatory variable that this study examines is the nature of the relationship between government and business. Business, like labor, is directly affected by labor market reform. Consequently, it has an incentive to attempt to influence policy in its favor. My central hypothesis proposes that in the context o f liberalizing governments that possess governing coalitions that have traditionally included labor, i f the government is 22 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. economically dependent on business and business is organizationally strong, then the likelihood that labor market reform w ill harm labor is high. This study employs both quantitative and qualitative methods. Quantitative methods are used to establish the significance of business strength as a determinant of labor market policy choice.1 2 The relationship between business strength and labor market policy is tested using time-series regression analysis.1 3 Case studies o f Egypt and Mexico are used to confirm (or disconfirm) the findings of the quantitative analysis, and explore in depth whether and how the business-goverament relationship affects labor market policy. In so doing, the historical-institutional variables so critical to a more complete understanding of the dynamics o f policy-making are exposed. Information for the case studies was drawn from a variety o f sources such as government documents, business associations’ reports and position papers, local newspapers, and so on. Interviews of businesspeople, government officials, representatives o f donor agencies and researchers in local think tanks were conducted in Egypt. Finally, the case studies draw extensively from secondary literature on economic policy reform, business-goverament relations, and labor studies. 23 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Significance of the Study The Egyptian and Mexican cases are important cases on which to test the hypothesis for three reasons. First, there is much interest in the promotion of the private sector as the engine o f economic growth in emerging economies. Private sector development is one of the main goals o f the Bretton Woods Institution's programs for both these countries. However, the policy prescriptions that emerge do not appear to have considered the political economy o f business- govemment relations. Thus, these relations remain opaque, making it difficult for policymakers to offer relevant policy prescriptions. This study sheds light on the business-govemment relationship, economic policymaking, and the important role played by historical institutions. It can therefore aid policymakers in formulating more effective policies in Egypt, Mexico, and other developing countries. Second, the literature on the comparative political economy of business-govemment relations is limited to the Latin American and East Asian regions. This cross-regional study therefore pushes the boundaries of the existing literature by including the Middle East and as such aspires to further illuminate the business-goverament relationship and the process o f economic policymaking. Third, both Egypt and Mexico have embarked upon reform programs that aim to transform their economies into market-oriented capitalist economies. The results of this study will therefore be o f interest to the many 24 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. African and Arab countries that are pursuing a similar program and have historically similar state-society relations. Plan o f the Dissertation Chapter 2 employs time-series regressions to test whether business strength has an impact on labor market reform. Chapters 3 and 4 present detailed case studies of labor market reform in Egypt and Mexico, respectively. In particular, these chapters map the full extent o f the relationship between business and government, analyze the organization of business interests, and examine how business interests translate (or do not translate) into policy outcomes. The fifth and final chapter summarizes the main findings o f the study and discusses their contributions to the literature and implications. 25 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ENDNOTES 1 Mexico began to implement neoliberal economic reform in 1982, while Egypt’s economic reform began in the late 1980s and picked up by the early 1990s. 2 Throughout this study, references to labor market reform refer to the neoliberal variant that considers benefits to and protections for labor to be economically inefficient and therefore unnecessary. 3 While the current author questions the argument forwarded by the neoliberal approach regarding the inherent inefficiency o f labor protections and the need to eliminate them to improve economic performance, it is beyond the scope of this study to directly address this issue. As the majority o f developing countries have undertaken neoliberal-inspired economic reform programs, this study takes as given the pressures placed on liberalizing governments to eliminate (or at the very least minimize) labor protections and benefits. This dissertation thus attempts to understand the process of liberalization as it is unfolding. It is, however, hoped that a by-product o f this study is that the understanding of the process of economic policy reform and the role of domestic social actors in this process will aid in the formulation of more sensitive and effective policy. 4 The social security and welfare figures are reported as a percentage of government spending. 5 The choice of the Egyptian and Mexican cases was made using Mill’s method of difference (Mill 1888 [1970]). This method specifies that if two cases are characterized by similar circumstances, yet produce different outcomes, “the cause, or an indispensable part of the cause” is that circumstance that does not occur in both. 6 Following Schmitter’s (1974) classic work on corporatism, corporatism is understood here as a system o f interest representation where the state organizes the main sectoral interests in society, grants them quasi-monopofistic power and also provides them with various legal, material and political privileges aimed at maintaining their monopolistic position. Rather than remaining apart from the state as in pluralism, these societal interests are integrated into the state. The state ultimately controls the leadership of these societal groups, the formulation and expression o f their interests, and their participation in the political process. 26 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 7 In addition to organized labor, public sector managers, the military and civil servants were also included in the strategic coalition. Kaufman (1990) reports that peasants were also included in the dominant coalition in Mexico. 8 These shares are offered to the employees o f state-owned enterprises at reduced prices. 9 In contrast to the neoclassical paradigm that assumes that individuals are selfish, neo-institutional economics assumes that individuals are opportunistic. The difference being that opportunism is selfish behavior that is concealed or “self-interest seeking with guile” (Williamson 1985). Manipulation of information in the market is a form o f opportunism. The neoclassical paradigm ignores opportunism because it assumes that opportunistic individuals will be driven out o f the market As neo-institutional economics assumes bounded rationality, it follows that opportunistic behavior may not be detectable. Consequently, individuals who engage in this type o f behavior are not automatically driven out o f the market. Indeed, proponents o f neo-institutional economics argue institutions such as comprehensive contracts have developed to mitigate the costs associated with opportunism. 1 0 See Pripstein Posusney (1997) who argues that labor’s actions have, in fact, slowed the process of privatization in Egypt 1 1 Note that these factors gauge business strength vis-a-vis the government. For example, when a government is structurally dependent on business and autonomous private sector organizations possess institutionalized channels of interaction with the government business is necessarily strong and thus so is the business-govemment relationship. 1 2 Given that the state (especially in authoritarian regimes) is generally the dominant political actor, in order for the business-govemment relationship to be strong, business must be strong. Consequently, this study understands the existence of strong private sector to imply a strong business-govemment relationship. 1 3 Business concentration is understood here as a structural factor that results in institutional strength (i.e., it enables business to engage in collective action). 27 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 2 ASSESSING THE IMPACT OF BUSINESS CONCENTRATION ON LABOR MARKET POLICIES IN EGYPT AND MEXICO, 1975-1995 Why do the labor market reform policies of countries with similar political economies diverge? Despite the remarkable similarities in the political economies o f Egypt and Mexico pre-reform, they have pursued distinct paths of labor market reform: benefits to labor in Egypt have remained relatively constant over the last two decades, whereas benefits to labor in Mexico have clearly decreased.1 The primary objective of this study is to determine why the labor market reform choices o f the governments o f Egypt and Mexico have varied so drastically. This study hypothesizes that the differential influence of Mexican and Egyptian business on labor market policies is a factor that should be considered in the explanation of their divergent policies. This analysis employs time-series regressions to investigate the impact of business on labor market reform in Egypt and Mexico. In examining the influence of business on labor market policy, this analysis seeks to accomplish three things. First, it seeks to address the following question: under what conditions can business overcome its collective action problems and influence the labor market policies of liberalizing governments? Second, it highlights the need to examine the impact o f social actors, other than 28 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. labor, on labor market policy. Finally, this analysis develops a proxy for business strength that captures the ability o f business to influence state policies in the context of labor market reform. The first section of this chapter presents a broad comparison o f the Egyptian and Mexican cases (Appendix A provides a list of governments). This section is intended to demonstrate the historical similarities in the political economy (particularly, state labor relations) of Egypt and Mexico pre-reform, and to show that Egypt and Mexico have since taken distinct paths with regard to labor market reform. The theoretical rationale for the model that is developed in this chapter and the proposed hypothesis are presented in the second section. In the third section, the empirical model is presented. The fourth section presents the regression results and their interpretation. The final section summarizes the findings and draws some conclusions. Background: The Egyptian and Mexican Cases Pre-Reform The Egyptian and Mexican cases display undeniable similarities in both their economies and polities pre-reform.2 Prior to undertaking economic reform, both authoritarian regimes had followed an ISI economic model characterized by an inward-oriented focus, reliance on extensive state intervention in the economy, and an emphasis on social welfare objectives. Both the emphasis on social welfare objectives as well as the populist policies that emerged from 29 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Egypt and Mexico in the pre-reform period are understandable given that the legitimacy of both states was based on their ties to labor and the popular sector (Collier 1991, Pripstein Posusney 1997). The links to organized labor, in particular, were cemented via the social contract that emerged between labor and the state in both Egypt and Mexico (Collier 1991, Goldberg 1992, Waterbury 1993). The social contract provided labor's political support and its full participation in the ISI development project in return for social welfare guarantees such as employment, job security, social insurance, consumer subsidies, indexed wages, profit-sharing for public sector employees, and health services, inter alia. The ISI strategy thus produced a similar strategic coalition in Egypt and Mexico composed of organized labor and peasants (Bienen and Waterbury 1989).3 Indeed, the legitimacy of these states was tied to labor’s inclusion in the strategic coalition as well as continuing protections for labor (Collier 1991, Pripstein Posusney 1997). Organized labor was formally incorporated into the political system o f both these states via corporatism. State corporatism is often perceived as a mechanism for state control over labor because the state effectively chooses union leadership and often cultivates a union culture that relies on patronage flowing from the state level down to the rank-and-file. In addition, union leaders are expected to ensure labor’s loyalty to the state by delivering labor’s vote to the ruling party and maintaining industrial peace. However, some 30 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. scholars reject the claim that state corporatism uniformly weakens labor and instead maintain that, despite corporatist controls, labor has been effective in influencing economic policy and obtaining concessions from the state (Pripstein Posusney 1997, Brachet-Marquez 1994). Pripstein Posusney specifically argues that corporatism requires highly developed institutions to maintain it and thus provides labor with access to resources that it has used to make demands and to veto unacceptable policies. Thus, state corporatism can serve to reinforce labor’s independence.4 One o f the principal ways that the corporatist relationship manifested itself in the Mexican case was in the strong ties of the main union confederations, especially the dominant Confederation o f Mexican Workers, to the ruling Institutional Revolutionary Party (PRI) (De la Garza Toledo 1994). Under Nasser, a similar relationship developed between the labor confederation, the Egyptian Trade Union Federation, and the ruling party, the Arab Socialist Union (Pripstein Posusney 1997, 73-77).5 Table 1 provides the similarities in the political economy of Egypt and Mexico pre-reform. 31 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 1 The Similarities in the Political Economy of Egypt and Mexico Pre-Reform Political Economv Egypt Mexico Single-party authoritarian regime \ \ Power highly concentrated in the executive V V ISI development strategy V V Development strategy stressed social welfare objectives y y Heavy state intervention in economy V y Legitimacy of the state based on ties to labor and popular sector V y Labor prominent member of strategic coalition V i V Labor incorporated into the political sphere via corporatism V y Social contract between the state and labor y i \ Social protection model of labor legislation V y Labor legislation among most pro-worker in the world V \ Reform Significantly, economic reform, which was undertaken by Mexico in the early 1980s and in Egypt in the mid-late 1980s, threatened the institutionalized system of state-labor relations that had taken root in Egypt and Mexico. The Washington consensus brand of economic reform that was being implemented sought to transform these economies into market-based capitalist economies. In particular, it aimed at reforming the structure of the targeted economies and thereby increasing their efficiency. Labor market restructuring and privatization were central elements of these reforms (Karshenas 1999, 3). Economic reform directly threatened the system o f state-labor relations in Egypt and Mexico because it called for increasing flexibility in the labor market and promoted privatization. This entailed making wage levels more flexible through, for example, greater contractual freedom and decentralized 32 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. collective bargaining (Karshenas 1999, World Bank 1999). In addition, simplifying hiring, firing, and eliminating job security in general was a goal of economic reform. Increasing flexibility in the labor market also involved eliminating non-wage costs such as government expenditures on benefits to labor in the form of social security and welfare and “other legal remuneration” (i.e., paid vacations, year-end bonuses). Thus, labor’s wages, job security, as well as its non-wage benefits were in danger. Privatization o f SOEs further threatened labor because o f the high number of redundant workers in the SOEs (SOEs) that could potentially lose their jobs as a direct consequence of privatization. Clearly, labor market reform posed a threat to the social contract, the state-labor relationship in Egypt and Mexico, and thus the legitimacy of the state. Maintaining stability and legitimacy was o f paramount importance to both liberalizing governments. Due to labor’s critical political position and its history of militancy in both countries, the governments o f Egypt and Mexico had to carefully consider how to approach neoliberal labor market reform. Yet, despite the fact that the character o f state labor relations and labor market policies in Egypt and Mexico were undeniably similar pre-reform, Egyptian and Mexican labor market reform policies have differed substantially. For example, the pace o f privatization has been substantially slower in Egypt than in Mexico. By 1986, less than four years after economic reform was 33 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. initiated in Mexico. 36 percent o f the 1.155 Mexican SOEs that had been scheduled to be privatized were, in fact, privatized (Valdes Ugalde 1994.226). In contrast, by 1995 the Egyptian government had privatized a paltry seven percent of the 314 Egyptian SOEs slated for privatization. It was not until 1999 that Egypt could claim to have privatized a third o f the SOEs scheduled for privatization (International Business and Technical Consultants, Inc. 1999). The pace o f privatization is clearly influenced by a variety of factors, such as the capacity of the private sector to absorb the SOEs and the amount of time that it takes to appraise the SOEs, and prepare them for sale. In addition, political factors also influence the pace o f privatization (Pripstein Posusney 1997). In particular, the Egyptian government’s “fear o f losing their presumed and proclaimed mass legitimacy” by antagonizing labor on a national scale resulted in the slow pace of privatization (Pripstein Posusney 1997,165). Indeed, it appears that political concerns were in the forefront of the formulation of the policy of privatization (Assaad 1996).6 By contrast, despite the fact that the Mexican government had traditionally claimed legitimacy based in large part on its ties to labor, the relatively swift pace o f privatization in Mexico suggests that the labor problem was not as great a concern to them as it was in Egypt.7 Also, unlike Egypt, massive layoffs and firings have been a regular part of the reform process in Mexico since the mid-1980s (Brachet-Marquez 1994, Kaufman 1990, Teichman 1996). Law 203 of 1991, which set the stage for 34 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Egyptian SOEs to be privatized, stated "existing national labor legislation with its protections against arbitrary firings and mass layoffs and for health and accident insurance pensions would continue to apply unless and until overwritten by a new law” (Pripstein Posusney 1997,214).8 In addition, Egyptian President Hosni Mubarak publicly stated that not a single Egyptian would lose his/her job because of privatization (Economist Intelligence Unit 1996, Pripstein Posusney 1997). This promise was backed by the government's insistence that sales contracts for privatized enterprises contain a clause prohibiting the layoff of any employee for a period of three years after the date of purchase (Pripstein Posusney 1995,1997). While mass layoffs and firings have not been a part of the reform process in Egypt, the process of streamlining the SOEs in order to prepare them for privatization has had an impact on labor. In some SOEs, a number o f full-time employees lost their supplementary wages because they were classified as redundant. In addition, in some loss-making plants there were efforts to cut wages, benefits and “reduce the workforce through attrition and dism issal of temporary employees "(Pripstein Posusney 1997,233) (italics added). These measures are mild in comparison to what has occurred in Mexico, where massive layoffs and dismissals are common. Indeed, between 1983 and 1993 more than 400,000 jobs were eliminated (Goodman 1997,160, Middlebrook 1995,297). Furthermore, in contrast to Mexico, these actions do not appear to 35 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. have been part of a systematic policy sanctioned by the Egyptian government. Rather, they were the initiatives of individual SOEs managers.9 Instead of dismissing the redundant SOEs workforce indiscriminately, the Egyptian government in conjunction with the Social Fund for Development developed an early retirement scheme to encourage workers to voluntarily retire.1 0 According to the minister of public enterprise, by 1997 close to 80,000 SOEs workers had applied for early retirement (Pratt 1998). The Egyptian government has also been collaborating with the Social Fund for Development to provide re-training to former SOEs employees. Additionally, the Egyptian government encourages employee-share ownership by reserving ten percent o f the shares of privatized companies for purchase by the employees of those companies.1 1 No such programs exist in Mexico. There are those who argue that these protections have not gone far enough. Nonetheless, by insisting on these protections, the Egyptian government has shown a level of sensitivity to the labor problem unparalleled in Mexico. Empirical evidence from the IMF’s Government Finance Statistics (1998) highlights the fact that there is a decreasing trend in social security and welfare expenditures as a percentage of government spending in Mexico. In particular, in the 1970s, social security and welfare expenditures decreased from 25 percent of Mexican government spending in 1975, to a low o f seven percent of government spending in 1987 and they have not returned to their 1970s level 36 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. (Figure 1).i: As mentioned previously, government expenditure on social security and welfare benefits is an indicator of “non-wage labor costs” (World Bank 1999, Agenor 1996). These benefits constitute a fundamental element in the package o f labor benefits granted to labor by the Egyptian and Mexican states. By contrast, in Egypt the trend in social security and welfare spending from 1975 to 1995 was relatively constant, remaining around 10 percent o f government spending (Figure 2). Analysts of Mexican labor argue that increasing labor market flexibility has been an explicit goal of the Mexican government’s economic reform plan (Teichman 1996). Consequently, many scholars argue that the Mexican labor market has indeed become substantially more flexible (Collier 1991, Cook 1998, de la Garza Toledo 1994, Patroni 1998). Specifically, de la Garza Toledo (1994), in his convincing study on changing state-labor relations in Mexico, states “labor organizations have seen their participation in the political system, their control over the labor force, and their role in shaping economic policy and arbitrating disputes significantly reduced” (198). Moreover, he claims: Over the last ten years, the negotiation or re-negotiation of collective bargaining agreements in Mexico has been governed by the concept o f increased flexibility. Moreover, policies adopted both by management and state labor authorities have encouraged a more flexible use of the labor force, (de la Garza. Toledo 1994,209) By contrast, by 1995 the Egyptian government had not specified increased labor market flexibility as a policy goal. Consequently, policymakers and investors 37 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. still complained about the rigidities present in the Egyptian labor market (Economist Intelligence Unit 1994, Pripstein Posusney 1997). Despite the fact that the nature of state-labor relations, the level o f labor power vis-a-vis the state and the constraints that emerged from the long-standing populist policies were similar in Egypt and Mexico pre-reform, these countries have reacted differently to the challenge of labor market reform. Indeed, labor market reform in Mexico has been swift and radical, while in Egypt there has been little labor market reform o f which to speak. Clearly, as highlighted by Table 2, Egyptian and Mexican government policies regarding labor market reform have taken distinct paths. This study examines why. Table 2 The Distinct Paths of Labor Market Policy in the Context of Economic Reform in Egypt and Mexico Exypt Mexico Decreased social security and welfare benefits No Yes Increased flexibility in the labor market No Yes Theoretical Rationale and Hypotheses The nature o f the private sector appears to play a role in explaining why labor market reform in Egypt and Mexico has differed. Business, like labor, is directly affected by labor market reform. Consequently, business has an 38 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. incentive to attempt to influence policy in its favor. This analysis assumes that business will tend to favor neoliberal labor market reform. Given this assumption, we can expect that the more business stands to gain from labor market reform, the more it will act in favor of it The question that logically emerges is how do we know which businesses will tend to benefit the most from labor market reform? The existing literature cannot answer this question. In fact a significant shortcoming of the traditional literature on business-govemment relations is the tendency to treat business as a monolithic group. Clearly, however, the private sector is not monolithic.1 3 While a growing body o f literature has begun to disaggregate private sector interests in the context of neoliberal economic reform, it still cannot answer the question of which businesses stand to gain the m ost Those scholars that espouse the sectoral approach conceptualize the private sector as being divided into pro-reform and anti-reform sectors. Frieden (1991a) uses asset-specificity to differentiate between competing sectors. He argues that holders o f liquid assets favor economic reform while holders of fixed assets (or highly specific assets) prefer policies that favor their particular sector. Gourevitch’s analysis (1986) distinguishes between sectors according to whether production is for the domestic or international markets. He specifically argues that the domestic-oriented sector favors continued protections, whereas the sector that has to compete in international markets favors economic reform. 39 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Finally, Shafer's (1994) sectoral argument divides sectors based on their ability to respond to economic signals. The argument he makes is that sectors that are rigid, capital-intensive, and large-scale resist reforms because they are not able to adjust to the changing market environment On the other hand, he contends that sectors that are able to easily adapt to the changes brought by economic reform accept it. The most significant problem with applying the traditional sectoral approaches to the analysis o f labor market reform is that they conceptualize business as being composed o f two competing sectors (i.e., pro-reform and anti reform sectors). While this may be the case in other aspects o f neoliberal economic reform, business interests are not divided into antagonistic pro-reform and anti-reform sectors in the context of labor market reform. As indicated earlier, when it comes to labor market reform, business tends to favor reform. Consequently, the politics of labor market reform cannot be analyzed with the same tools that are used to analyze other aspects of economic reform. This analysis contends that the magnitude of the incentive to engage in collective action can be determined by an examination o f firm size.1 4 Indeed, this paper proposes that in the context o f labor market reform, business interests are most meaningfully disaggregated based on firm size.1 5 In other words, instead of defining sectors by economic activity (e.g., export-oriented or manufacturing), as do the traditional sectoral approaches, this analysis argues 40 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. that sectors should be defined by firm size (i.e., small business sector vs. large business sector). Specifically, this analysis posits that firm size is positively correlated with the incentive to engage in collective action. The larger the firm, the more it has at stake and therefore the larger the incentive to engage in collective action to influence policy. In particular, large businesses stand to benefit substantially in such areas as labor cost and international competitiveness. It is also reasonable to argue that the incentive o f large firms to engage in collective action in favor of labor market reform is higher than that of small- and medium-size firms because larger firms tend to comply with labor regulations more frequently than do small- and medium-size firms. This is because non-compliance by large firms is more easily detected (Assad 1995, Galal 1996, Pripstein Posusney 1997). Small- and medium-size businesses, on the other hand, because they have a smaller workforce and tend not to comply with labor regulations as frequently as large businesses (Pripstein Posusney 1997), have less to gain from lobbying in favor o f labor market reform. Not only do large firms have more o f an incentive to engage in collective action; the large business sector tends to be highly concentrated relative to small-and medium-size business sectors. The literature generally defines business concentration as the share of large enterprises in total production (Soliman 1999,28). However, this data was not available for the case o f Egypt Thus, this analysis uses a different definition o f concentration. By high 41 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. concentration o f the big business sector, it is meant that relative to the total number of businesses in the economy, the number o f large businesses is small. Two benefits of using such a measure of concentration are that it allows for cross-country comparisons to be made and it takes into account the fact that the larger the economy, the higher the cost of providing the collective good. Olson's theory of collective action (1965) provides some insight into whether the higher incentive to engage in collective action actually translates into collective action. Indeed, following the logic of Olson's theory, one would expect that the large business sector, as it tends to be more concentrated relative to small and medium size business sectors, is more likely to engage in collective action in support o f labor market reform. This study thus proposed to examine the following hypothesis: the more concentrated the big business sector, the fewer benefits labor will receive from the government. The Model: The Variables16 Time-series regressions are used to test whether the level of big business concentration has a significant effect on the labor market reform policies o f the Egyptian and Mexican governments.1 7 In addition, alternative hypotheses suggested by the literature were tested. The model includes economic, political, institutional, and demographic control variables. The variables are as follows: 42 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Dependent Variable Social Security and Welfare. The dependent variable is government social security and welfare expenditures as a percentage of total government spending. As previously mentioned, social security and welfare expenditures are commonly considered “non-wage labor costs" (Agenor 1996, Kenworthy 1999, World Bank 1999). As social security and welfare are taken as a percentage o f government spending they serves as an indicator o f government’s commitment to labor (Kenworthy 1999, Rudra 2001). [benef] Independent Variable Concentration o f Big Business. This is the explanatory variable of interest in this study. Concentration is calculated as follows: 1 - (# Big/Total) where conc=the concentration o f big business sector. #big=the number o f large manufacturing firm s in the economy. 1 8 total=the total number o f manufacturing firms in the economy. The larger cone, the more concentrated the big business sector. This variable is expected to be negatively correlated with the dependent variable. In other words, if cone is large, the concentration o f the big business sector is H igh, and labor benefits will be low. Cone is conceived o f as a structural variable that results in institutional strength (i.e., it enables business to engage in collective 43 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. action, which is carried out through institutions and their relationship with government). As such, this variable captures the ability o f business to influence government policies through collective action and is thus an indicator of business strength [cone]. Control Variables Pressure by International Financial Institutions. Nelson’s (1990) influential study on policy choice in the context of crisis and structural adjustment suggests that the role of external actors such as the IMF and World Bank in influencing policy choice should be considered. This model thus includes a control variable that tests whether using external pressure placed on the governments of Egypt and Mexico by the IMF aids in explaining the variance in the labor market policies of Egypt and Mexico. IMF credits are used as an indicator of the level of pressure placed upon Egypt and Mexico by international institutions. This variable is expected to be negatively correlated with the dependent variable, [imj] Crisis. As debt service increases, it is reasonable to assume that government expenditures on labor benefits will decrease. Bresser Peri era (1993) argues that debt is one of the main elements o f the fiscal crisis o f the state in Latin America in the 1980s. Debt is therefore used as a proxy for crisis. Total debt service is the stun of principal repayments and interest paid in foreign currency, goods or services on long-term debt and interest payments only on 44 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. short-term debt. The relationship between debt, and the dependent variable is expected to be negative, [debt] Labor power. The model tests whether labor in Egypt and Mexico has had an impact on labor market policy. The variable that is used was developed by Rudra (2001) as an indicator o f labor power and is calculated as the ratio of skilled labor to unskilled labor multiplied by the level o f surplus labor.1 9 Simply put, Rudra argues that the more unskilled labor there is in the economy, the more difficult it is for labor to engage in collective action, as unskilled labor is notoriously more difficult to organize. Additionally, she argues that if the percentage o f surplus labor is high, that further exacerbates the collective action problems faced by labor. This variable is expected to be positively correlated with the labor benefits, [labpow] Globalization. Trade flows is a variable that is traditionally used as an indicator of globalization. As such, this study used trade flows as a proxy for globalization.2 0 Conventional wisdom argues that economic globalization results in decreased government expenditures on social policies because of the pressures to increase efficiency and thus be more competitive in the global market (Kothari 1997, Gill 1995, Ruggie 1994). This perspective thus holds that trade is negatively correlated with government expenditure on labor benefits. Trade flows are calculated as the sum of exports and imports divided by GDP. 45 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. It is expected that trade flows will be negatively correlated with government expenditures labor benefits, [trade] Democracy. This model tests whether democracy has an impact on policy choice. The impact of democracy on economic policy seems to be more problematic as there are two schools o f thought on this issue. First, conventional wisdom maintains that the more authoritarian a regime, the less accountable it is to its citizens and therefore the mote likely it is to undertake economic policy reform. More recent work by scholars like Karen Remmer (1990) have challenged this conclusion, arguing that authoritarian governments are, in fact, not more inclined to undertake economic reforms than democratic governments. These studies conclude that regime type is of no consequence when it comes to policy choice. Thus, whether democracy affects economic policy choice is an empirical question. Conventional wisdom will be validated if the democracy variable is positively correlated with the dependent variable. [democ] Economic Growth. Economic growth is calculated as the growth rate of gross domestic product (GDP). As economic growth increases the size o f the economic pie, governments will have more resources to spend on such things as labor benefits. Thus, the relationship between growth and the dependent variable is expected to be positive, [growth] 46 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Age Dependency Ratio. The literature on determinants of social security expenditure emphasizes the role of demographic factors (World Bank 1994, Esping-Anderson 1996). The age dependency ratio is the ratio o f the number of dependents to the working-age population—those aged 15 to 64. As this ratio increases, the demands for social security and welfare benefits should increase. The age dependency ratio is expected to be positively correlated with the dependent variable, [depend] Urbanization Level. This variable represents the percentage o f the total population that lives in areas defined as urban. Increasing urbanization levels should result in a larger labor force and thus demands for labor benefits should subsequently increase. The relationship between the urbanization level and the dependent variable is expected to be positive, [urban] Table 3 summarizes the expected relationships between the independent variable and the dependent variable as well as the control variables and the dependent variable. 47 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 3: The Independent and Control Variables and their Expected Correlation with the Dependent Variable Variables Expected Correlation with Dependent Variable Independent Variable Big business concentration [conc\ Negative Control Variables Pressure by international financial institutions [imf\ Negative Crisis \debt] Negative Labor Power [labpow] Positive Globalization [trade] Negative Democracy [democ] Positive Economic growth \growth] Positive Age dependency ratio f depend] Positive Urbanization level [urban] Positive The following time-series equation is estimated for Egypt and Mexico separately: Y ,*a + pilnCCWC, + fa InLABPO W. + fahxDebt, + ^^InTRADE, + fa]nGROWTH,+ folgZMF,./+ fa\aDEMOC, + fa\nURBANt + PfllnDEPEND, + e, (1) In this equation, the P’s are parameter estimates. Y is the level o f social security and welfare benefits (as a percentage o f government spending) to labor for Egypt and Mexico respectively from 1975-1995. Cone assesses the level of big business concentration. This analysis proposes that the concentration level o f large business ultimately determines the amount of collective action in support of labor market reform in which big business engages. The rem aining variables are the control variables mentioned in the previous section and 8 is the 48 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. error term.2 1 Finally, had the level big business concentration exhibited rapid changes over the 1975 to 1995 period, it would have warranted using a different model for the pre- and post-reform periods. However, because the level of business concentration in Egypt and Mexico over this period was relatively slow, the same model is applied over the entire period. Figure 3 is a graph of the level of big business concentration (cone) in Egypt and Mexico, which shows that over the 1975 to 1995 period the change in cone is slow. Big bu sin ess concentration in Egypt and Mexico, 1975-1995 • 1.02 = e 1 11 0 - 9 8 » f 0.96 2 • 0.94 2 e 0.92 ; 8 0.9 « 0.88 Mexico Egypt Year Source: Institute Nacional de Estadistica, Geografia E Informatica (INEGI). Anuario Estadistico de las Estados Unidos Mexicanos; INEGI. Estadisticas Demograficas y Socioeconomicas de Mexico-, Central Agency for Public Mobilization and Statistics(CAPMAS). Annual o f Industrial Statistics, Private Sector, CAPMAS. The General Census o f Population, Housing and Establishments. Figure 3. Big business concentration in Egypt and Mexico 49 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Tables 4 and 5 present summary statistics for both the dependent and independent variables. Table 4 Summary Statistics for Egypt Variable Mean Std. Deviation Benef 10.8559 1.80333 Cone .924551 .0155835 Laborpow .1081531 .0152033 Debt 5.84182 2.12087 Imf 2.35e+08 1.17e+08 Urban 43.91905 2757151 Growth 6.19709 3.428968 Depend .7682634 .0147199 Trade 62.29296 10.53993 Democ 3.02381 .6015852 Table 5 Summary Statistics for Mexico Variable Mean Std. Deviation Benef 16.37397 621191 Cone .9995436 .000731 Laborpow 2171012 .0309336 Debt 7.123575 2.413723 Imf 3.38e+09 3.75e+09 Urban 69.07619 3.513475 Growth 2.956272 4.812465 Depend .8433388 1203813 Trade 27.17862 7272516 Democ 4261905 .3007926 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Data and Method This study covers the 1975-1995 period. Because o f data limitations, it was not possible to extend the analysis any further. The 1970s to early 1980s represent the period in which the social contract between labor and the state was upheld and consequently the benefits to labor were higher during this period than in subsequent years. By the mid- to late-1980s. however, the social contract in Egypt and Mexico was threatened by the increasingly pervasive neoliberal prescriptions for economic reform. The governments of Egypt and Mexico responded differently to the threat as is apparent by the trend in benefits to labor spanning the period from 1975 to 1995. The estimation procedure that is used is generalized least square regression. Autocorrelation in the data is corrected for by the use of the Yule- Walker estimation procedure. In addition to adjusting for autocorrelation, this procedure is beneficial because it considers secular trends and is efficient when the number of observations is small. The Results and Interpretation The generalized least square results for Egypt are reported in Table 6.2 2 As expected, the concentration o f the big business sector was highly significant and negatively correlated with labor benefits. With the exception of debt and urban, all parameters carried the predicted signs. 51 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 6 Time-Series Regression Results for Egypt* Independent Variable Parameter Estimate Laconc -77.64*** (13.46) Lnlabpow .34* (16) Lndebt .78*** (-1 1 ) Lntrade .27 (.15) Lngrowth -.004 [ (04) Lgim f -.37*** (.07) Lnurban -2 1 .2 2 ** (6.97) Rz .87 N 2 0 Time-series regression estimates. Figures in parentheses represent standard errors. * The variable hydepend was dropped from the equation because it was highly correlated with and consistently less significant than \uurban. The most insignificant variable (in this case hademoc) was excluded from the regression equation because the goodness-of-fit o f the model (as measured by the adjusted R~) tended to improve when it was dropped. ***p<0.01; **.01<p<0.05; *0.05<p<0.10. 52 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. A possible explanation for debt's being significant and positively correlated with labor benefits is that as the total debt service increased, the Egyptian government elected to maintain expenditures on labor benefits in an effort to preserve its legitimacy vis-a-vis labor. The negative correlation between urban and labor benefits may be explained by the fact that as the rate of urbanization increases, pressure on the urban infrastructure also increases (Richards and Waterbury 1998). Consequently, governments may shift their expenditures away from labor benefits and towards maintenance o f basic infrastructure. Finally, it should be noted that labor power was significant and positively correlated with government expenditures on labor benefits. Thus, labor continues to play a role in determining labor market policies in Egypt. Table 6 presents the times series regression results for Egypt. The generalized least square results for Mexico are reported in Table 7. The variable that captures the big business sector’s concentration is highly significant and negatively correlated with labor benefits, thereby lending support to the proposed hypothesis. In the case o f Mexico, labor benefits displayed a decreasing trend. These results thus suggest that an increasing concentration of Mexican big business is associated with decreasing labor benefits. All of the variables carried their expected signs. As in the case o f Egypt, labor power was significant and positive. 53 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 7 Time-Series Regression Results for Mexico* Independent Variable Parameter Estimate Lncone -126.37*** (9.64) Lnlabpow 1.25*** (•25) Ladebt _ 4 4 *** (.09) Latrade - 1 . 1 1 ** (.25) Lgim f -.17*** (.03) Lndemoc .69 (.36) Lngrowth .13* (-05) R * .99 N 2 0 Time-series regression estimates. Figures in parentheses represent standard errors. * The variable \aurban was dropped from the model because it was found to be highly correlated with \ndepend and it was also consistently insignificant In addition, the most insignificant variable (in this case h-depend) was excluded from the regression equation because the goodness-of-fit of the model (as measured by the adjusted R2 ) tended to improve when it was dropped. ***p<0.01: **.01<p<0.05; *0.05<p<0.10. 54 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Furthermore, while trade in Mexico was significant and negatively correlated with labor benefits, in Egypt it was insignificant and positively related to labor benefits. This may simply be explained by the fact that the economy is not as globalized as the Mexican economy and thus the pressures that are associated with economic opening are still not large enough to have a negative impact on the government’s expenditure on labor benefits. Finally, it is interesting to observe that in both cases, democ was found to be insignificant. Thereby, lending support to Remmer’s (1990) contention that regime type is o f no consequence when it comes to policy choice. In both cases, the regression results lend strong support to the proposed hypothesis. Big business concentration was found to have a profound effect on labor benefits. In the case o f Egypt, the trend of government expenditures on labor benefits over 1975-1995 was relatively constant The highly significant negative relationship that was found to exist between cone and labor benefits suggest that big business in Egypt was not sufficiently concentrated to engage in collective action in support of labor market reforms. By contrast the trend of government expenditures on labor benefits over the same period is declining. The highly significant and negative relationship between cone and labor benefits in the Mexican case suggests that unlike the Egyptian case, the big business sector in Mexico was sufficiently concentrated to lobby for labor market reforms.2 3 55 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Interestingly, unlike Mexico, where debt was highly significant and negatively correlated with labor benefits as expected, debt in the Egyptian case was highly significant and positively correlated with the dependent variable. The fact that the government did not cut its expenditures on labor benefits, despite increasing debt service obligations suggests that maintaining legitimacy vis-a-vis labor is a central concern to the government.2 4 While this may be inefficient according to neoliberal standards, the Egyptian government may be constrained by the fact that its legitimacy is derived in large part from its ability to provide continuing protections to labor (Ayubi 1992, Brumberg 1992, Pripstein Posusney 1997). It appears that the Egyptian government continued to rely largely on labor and the popular sectors for support. This is because, unlike Mexico, where business was strong and thus able to replace labor as a strategic political ally, the private sector in Egypt (as subsequent chapters will show) was not sufficiently strong to play such a role. Until 1995, the Egyptian government was still concerned about its legitimacy and aware o f the fact that it could not count on business as an alternative base o f support to bring into governing coalition. On the other hand, specialists on labor in Mexico argue that after economic reform was initiated, a shift occurred in the governing coalition away from labor and toward business (Collier 1991, Gibson 1997, Kaufman 1990, Middlebrook 1995, Valdes 56 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Ugaldel994). As the legitimacy of the Mexican government was no longer exclusively tied to labor and the popular sectors, it was no longer obliged to maintain social welfare expenditures that it could not afford. Consequently, it responded to increases in debt service obligations, by decreasing its spending on labor benefits. Conclusion This chapter sought to explain the variance in labor market policy reform in Egypt and Mexico. The results strongly suggest that if the big business sector is highly concentrated, it is able to affect labor market policy. In particular, the decreasing trend in labor benefits over 1975-1995 in Mexico was associated with a high concentration of the big business sector, and the relatively constant trend of labor benefits in Egypt during the same period was associated with a more diffuse big business sector. These findings help explain the divergent paths of labor market reform taken by Egypt and Mexico. The next chapter explores these findings in depth in an effort to confirm (or disconfirm) them and to gain a fuller understanding o f how the divergent policy outcomes emerged. This analysis has demonstrated that in order to fully understand labor market reform, the role of domestic social actors and domestic politics in 57 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. general must be considered. More specifically, this study has shown that in the era of economic liberalization, business interests may play a considerable role in influencing policy decisions regarding the labor market This is understandable given the increasingly prominent role that the private sector is called upon to play in the economy because of economic liberalization. In some countries, the private sector is prepared to play a more dominant role in the political economy; however, in others it is not. In the latter case, governments, like that o f Egypt, are in a quandary, attempting to liberalize without a sufficiently strong constituency to back them. Consequently, the pace of economic liberalization is much more gradual and may be plagued with reversals and policy choices that seem irrational from a neoliberal perspective. It must finally be noted that the cases of Egypt and Mexico are by no means exceptional. Many governments in Africa, the Middle East, and Latin America are facing similar choices and have, to varying degrees, similar domestic political constraints that they must negotiate. The results of this analysis also highlight the need for scholars to disaggregate labor market reform from other elements o f neoliberal economic reform. This analysis developed a proxy for business strength, namely, the concentration of the big business sector that measures the ability of business to 58 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. influence government policies through collective action. This variable will be useful in future studies as a measure o f business strength. 59 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ENDNOTES 1 For the purpose of this chapter, labor benefits refer mainly to social security and welfare expenditures by government The objectives introduced in the International Labor Organization's (ILO) Convention No. 102 (1952) of the international labor standards, state that social security and welfare expenditures in developing countries “should be extended to the large majority of workers and their families”(Gillion 1994,24). Organized labor is thus the main recipient of these transfers (Guhan 1994). Further, social security and welfare expenditures are commonly considered a “non-wage labor cost” or “social wage” (World Bank 1999, Agenor 1996, Kenworthy 1999). 2 The choice of the Egyptian and Mexican cases was made using M ill's method o f difference (Mill 1888 [1970]). This method specifies that if two cases are characterized by similar circumstances, yet produce different outcomes, “the cause, or an indispensable part of the cause” is that circumstance that does not occur in both. 3 The civil servants, petty bourgeoisie, and the military were also originally included in the populist coalition in Egypt 4 See also Brachet-Marquez (1994). She comes to a similar conclusion regarding state corporatism in her study o f Mexico. 5 The Egyptian Trade Union Federation is the sole legally recognized labor federation in Egypt. 6 This point was also communicated to me in an interview of a project manager who had worked with USAID’s Partnership for Development Project on privatization in Egypt (August 10,2000). 7 It should be noted that labor in Mexico was not passive with respect to labor market reforms. Organized labor did not support privatization and was quite vocal about its disapproval o f the policy. Indeed, Mexican labor reacted to these tough measures by publicly criticizing government policies, holding strikes, and defecting from the Institutional Revolutionary Party. While the official union confederation, the Confederation of Mexican Workers, was unable to break with the Institutional Revolutionary Party, by 1985, it did begin to express sharp and public criticism of the reforms (Kaufman 1990). According to de la Garza Toledo, the number of labor strikes in the 1980s peaked in 1982 and 1986 and violence on the part of labor peaked between 1986 and 1988. Teichman (1996) reports that government frequently declared these strikes illegal or nonexistent in an attempt to cripple the movement 60 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 8 Law 203 prepared the SOEs for privatization by organizing them into holding companies that would operate according to market principles (Pripstein Posusney 1997.213). 9 After Law 203 was passed, the government named many prominent private businessmen as directors of the newly created holding companies (Pripstein Posusney 1997,214). 1 0 The Social Fund for Development was conceived of in 1991 as a program whose goals are to both cushion the social dislocation that is produced by privatization and economic reform in general, and provide a social safety net for the poor. It is funded by 18 donors, which include the World Bank, The World Bank, the United Nations Development Program, the European Union, and the Arab Fund for Economic and Social Development. 1 1 These shares are offered to the employees o f SOEs at reduced prices. 1 2 It must be noted that NAFTA cannot explain the trend in government spending over the 1975-1995 period. Mexican President Salinas began negotiating NAFTA in 1990, well after the steepest decline in government spending on labor benefits in Mexico (Figure #1). That is not to say that NAFTA did not play a role in later declines in labor expenditures, but it certainly does not explain the trend over the period considered in this study. 1 3 For the purposes of this analysis, the terms private sector and business are used interchangeably. 1 4 The number of workers employed in a firm defines firm size. This is a commonly used definition in both the academic literature and policy circles see, for example. World Bank 1994 and Peres and Stumpo 2000. 1 5 While the term sector will be used to differentiate firms based on size and thus propensity to engage in collective action, the use of this term by no means implies that there is a competitive relationship between the sectors. 1 6 For more details on how the variables are defined and measured, see Appendix B. Also, see Appendix C for data sources. 1 7 This study focused exclusively on private sector business in the manufacturing sector. 1 8 According to the Secretaria de Comercio y Fomento Industrial (SECOFI) as well as the Instituto Nacional de Estadistica Geografia E Informatica (INEGI), firms employing over 250 employees are considered 61 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. “large.” The World Bank (1994) considers Egyptian firms employing over 100 employees to be “large.” Due to the limitations o f the data, it was impossible to construct business size classifications that were consistent across both Egypt and Mexico. Indeed, the definition of what constitutes a “large” business varies from Egypt to Mexico. Had the data been available, however, it is not entirely certain that constructing a uniform classification scheme would have been an improvement Indeed, it appears that any relevant classification scheme should take into account the economic context in which the firms operate. 1 9 Union density is traditionally used as a measure o f the strength of organized labor. It is problematic to use this measure in countries like Egypt and Mexico where the pattern of state-labor relations is characterized by corporatism. This is because in such countries union membership is generally compulsory. Union concentration rates are also used as indicators of labor power in studies that consider developed country cases. See for example, Geoffrey Garrett (1995). According to Garrett, two measures o f union concentration exist: “the percentage of all unionized workers who are members of the largest confederation in the country and the number o f unions affiliated with that confederation” (667). Again, these measures may not capture labor strength in countries like Egypt and Mexico, where the government largely determines the structure of trade unions. Consequently, the union concentration rates reveal little about the level of labor power that exists in these countries. 2 0 One of the benefits o f using trade flows as a proxy for globalization is that the effects of trade agreements, such as NAFTA, are taken into account. 2 1 Note that the im f variable is lagged. This is because fiscal reform o f the type analyzed here (i.e., social security and welfare expenditures) and labor market reform, in general, are medium-term policies. In other words, there is a definite time lag between the disbursement of credits and the actual policy change. 2 2 See Appendix D for scatterplots of benef against each of the significant variables for both the case of Egypt and Mexico. It is left to the qualitative analysis in the subsequent section to explore further and explain why the negative relationship between business strength and benefits should be interpreted differently in the cases of Egypt and Mexico. 2 4 Note that unlike the Egyptian case, where contrary to expectations, debt was positively correlated with dependent variable; debt was negatively* correlated with the dependent variable in the case o f Mexico. 62 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 3 THE IMPACT OF BUSINESS-GOVERNMENT RELATIONS ON LABOR MARKET REFORM IN EGYPT In 1991, alter a failed attempt to restructure its economy in the late 1980s, economic crisis led Egypt, once again, to sign an agreement with the International Monetary Fund (IMF) that put it on the path o f economic reform. The success o f Egypt's stabilization program is widely acknowledged. In addition, most observers concur that financial market reform has been successful and that there has been progress on trade reform (Refaat 1996,26; Roe 1998, 10). Labor market reform, however, has not kept pace. The World Bank, international donors, and foreign and local investors have decried the rigidities present in the Egyptian labor market as major obstacles to both domestic and foreign investment and called for labor market reform (World Bank 1994, DEPRA 1998, AMCHAM 1994, AMCHAM 1996, EBA 1996a, FEI 1996). Indeed, a recent survey of Egyptian businesspeople specifically cites the labor market as a major obstacle to investment (Fawzy 1999,15). The lack of progress on labor market policy reform is surprising considering that government officials, international financial institutions and scholars alike agree that high unemployment is one o f the most pressing issues looming in Egypt and that mobilizing the resources o f the private sector is key to solving this problem. Given that the private sector, which has an interest in increasing labor market 63 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. flexibility, is playing an increasingly critical economic role because of economic liberalization, why has it not been able to influence labor market reform in its favor? This analysis focuses on the business-govemment relationship because, in the current era of economic liberalization, the private sector's more prominent economic role is creating a situation in which economic policy choice is no longer the exclusive prerogative of the state. Instead, it is increasingly becoming a product o f the business-govemment relationship. The process of economic liberalization has rendered the state increasingly dependent on the private sector for investment, production, and the overall performance of the economy. Thus, in order to elicit maximum cooperation from the private sector in its reform and development efforts, the government must create an enabling environment for business and doing so requires, at the very least, that business interests be considered when formulating economic policy. Given these reasons, one would expect business to have an impact on labor market reform in a liberalizing economy. However, the private sector in Egypt has not been able to influence labor market policy in its favor. This chapter examined why it has not been able to do so. The nature of business-govemment relations emerges as an indispensable element in the explanation of why the private sector has not been able to affect labor market policy in Egypt. 64 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The previous chapter argued that business concentration is an indicator of the level of business strength. Specifically, the hypothesis was that high business concentration leads to low benefits for labor. The regression results suggested that this condition was not met in the case o f Egypt The objective of the present chapter is to specify more fully the conditions that prevented the private sector in Egypt from influencing labor market policy reform in its favor.1 Toward this aim, it examines the organization of business interests, maps the relationship between business and the government, and traces how business interests translate (or do not translate) into policy outcomes. In so doing, the historical-institutional variables so critical to a more complete understanding of the dynamics of policymaking are highlighted. The analytical framework introduced in Chapter 1 is applied to analyze business-govemment relations. Recall that this framework conceives o f business-govemment relations as determined by a combination of structural and institutional factors.2 The first section o f this chapter briefly describes current Egyptian labor market policies, the institutions that sustain them, and the business community’s position toward them. In the next section, modem business-govemment relations prior to structural adjustment are discussed. The analysis o f the historical development of the business-govemment relationship allows for a better understanding of the institutions that have emerged that define the pattern of business-govemment interaction and at times act to constrain one or both 65 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. parties’ ability to act This section also analyzes the business-govemment relationship during the reform era (mid-1980s to 1995) and its effect on labor market reform. Egyptian Labor Market Policies and the Business Community’s Position The origins of existing Egyptian labor market policies and institutions can be traced back over three decades to the socialist-oriented regime o f Nasser. Indeed, the goals of social justice and redistribution that inspired the Socialist Decrees issued by Nasser’s regime form the backbone of Egypt’s current labor laws and the institutions that constitute the Egyptian labor market. These institutions provide labor with job security, job guarantees, as well as generous social welfare guarantees such as social security, minimum wage protections, bonuses, annual raises, consumer subsidies, and shares in company profits.3 The Corporatist State-Labor Relations and the Social Contract The Nasser government (1952-1970) expended much effort in building a populist coalition in which organized labor figured prominently. Bianchi asserts, “Nasser had good reason to regard labor as a key factor in either consolidation or loss of power” (Bianchi 1989, 78). Nasser’s government realized that labor was a potentially powerful social force and thus sought to 66 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. increase its control over labor, while simultaneously turning it into a reliable base of support (Bianchi 1989). It did so by incorporating labor into the political sphere via corporatism. The corporatist system of state-labor relations in Egypt was secured through the establishment o f a social contract. The social contract essentially provided protection and benefits to labor in return for its political support of the government (Goldberg 1992. Waterbury 1993). The foundations o f the social contract were laid in the landmark 1959 labor code, which granted generous social welfare benefits and provided for greatly improved working conditions. Specifically, labor was granted the following: reduction o f the workday; social insurance that covered all workers; a doubling of the minimum wage; guaranteed annual raises for satisfactory performance; improvement in injury compensation and health insurance; a prohibition against firing workers; subsidies on many essential food items, basic goods and utilities; and guaranteed bonuses (Ibrahim 1994, Pripstein Posusney 1993)/ In addition, public sector workers were granted a share in company profits and representation for workers on the management boards o f all public sector companies (Pripstein Posusney 1993). The result was that workers were granted job security and liberal entitlements that, according to Ibrahim (1994), “had the effect of empowering Egypt’s working class as never before” (31). Corporatism, in that it linked labor to the state via a social contract, facilitated the state’s ability to control labor by providing it with various 67 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. mechanisms to control labor. Indeed, corporatism cultivated a union culture that relied on patronage flowing from the state level down to the rank-and-file. In addition, union leaders were expected to ensure labor’s loyalty to the state by delivering labor’s vote to the ruling party and maintaining industrial peace. Unions were thus dependent on the state for the patronage needed to ensure labor support. Additionally, the state was able to exert some control over labor through its selection o f union leadership, its power to recognize unions, and its dispensation of political appointments to union leaders. The populist policies established during the Nasserist period gave rise to social groups, labor prominently among them, which developed vested interests in the maintenance o f such policies. The legitimacy o f Nasser’s regime was in part based on its inclusion of labor in the governing coalition. Indeed, labor came to constitute a strategic base o f support, and the legitimacy o f subsequent regimes has been in part tied to their maintenance o f the alliance with labor. Sadat and Mubarak consequently found it difficult to extract themselves from the legacy o f the populist policies instituted in the Nasserist era. Perceived Rigidities in the Current Labor Law Egypt’s labor laws have been described as “among the most restrictive in the world" (Fawzy 1998, 34). A recent article by a prominent business association in Egypt complained about this legislation stating that, “International 68 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. investors are usually scared away by the labor code's complexity and rigidity, perhaps the foremost constraint to entering the Egyptian market” (AMCHAM 1996a, 35). Indeed, over the past two decades, all o f the major business associations in Egypt have voiced their opposition to the rigidity and complexity of the labor regulations and the high levels o f protection that they afford labor. The current labor law (Law 137 of 1981) prohibits employers from dismissing or laying off employees after they have completed a three-month probationary period without consulting a tripartite committee in which management, unions, and the Ministry o f Labor are represented. The employee has the right to appeal the decision of the committee before bringing the matter before the courts, which have the power to require the employer to continue paying the worker until the case is settled (Pripstein Posusney 1995). This process renders dismissals an extremely costly and lengthy affair, as court cases can literally drag on for years. Even in cases o f company closure, dismissal of employees is subject to the approval o f an inter-ministerial Stoppage Committee, which again involves a lengthy appeals process (Assaad 1996). A recent report on the process states, “there is no memory among labor experts and lawyers o f any such approvals being granted on grounds of efficiency, financial difficulty, or even bankruptcy” (Integrated Development Consultants 1993,12). In effect, these provisions provide the labor force with lifetime job security 69 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. (Fawzy 1998). In addition, labor legislation mandates that companies use government labor offices when hiring new workers. According to Egypt's multilateral advisors, donors and businesspeople, the current labor legislation acts as a strong disincentive to hire and train employees and hinders the efficient allocation of labor and other resources (AMCHAM 1994,1996a, 1996b, Development Economic Policy Reform Analysis Project 1998, EBA 1996a, World Bank 1995b). Businesspeople specifically complain that the provision for job security denies them the flexibility to adjust to market conditions, thereby negatively affecting their competitiveness (EBA 1996a, AMCHAM 1996a). Another complaint voiced by the business community is that the limited ability o f firms to impose sanctions on labor for nonperformance results in low labor productivity (AMCHAM 1994, 1996a. 1996b). Moreover, they maintain that these regulations are an obstacle to relieving the unemployment problem because they give investors incentives to obtain labor-saving machinery and equipment (AMCHAM 1994).5 In addition, social security and other non-wage costs like bonuses and consumer subsidies have been criticized as highly inefficient (World Bank 1997, Guasch 1999, AMCHAM 1994). Finally, the Mubarak regime has elicited much criticism for extending many o f the same protections to workers in privatized firms. 70 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Modern Bosiness-Government Relations in Egypt: Pre-Reform The Liberal Era (1920-1952) Egypt’s first liberal era, which spanned the period from the 1920s to the Free Officers Revolution o f 1952, was characterized by a constitutional monarchy in the political sphere and a laissez-faire market economic system.6 The principles o f a free market private enterprise system were enshrined in the first Egyptian Constitution (1923) (Zaki 1999). The business class, which had strong ties to (indeed, was financed by) the landed bourgeoisie and included foreign residents, played a leading role in economic development Government intervention in the economy was limited and consequently the private sector was responsible for most economic activities in industry, agriculture, finance, and the service sectors (Harik 1997). By 1950,92 percent o f the labor force was employed by the private sector, which produced approximately 84 percent of the GDP and contributed 75 percent of gross fixed capital formation (Zaki 1999). In addition to the critical role played by the private sector in the economy, it was also highly influential in the political sphere (Springborg 1993). One o f the most effective means used by big business to influence policy was the Association of Industries (renamed the Federation o f Egyptian Industries (FEI) in 1930), established in 1922.7 During the inter-war period, the FEI was “the most influential and effective occupational group in the nation” and by World War II, the FEI had become the most important organization for 71 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. representing the interests of industrial capital (Bianchi 1989,68). Through the FEI, the private sector was able to achieve such policy victories as blocking the passage o f pro-labor and welfare legislation (Bianchi 1989,68, Vitalis 1995). During the postwar period, the FEI moved to transform itself from a voluntary association that operated along pluralist lines into a semi-public body that was more corporatist in nature (Bianchi 1989, 70). This move toward corporatism was motivated by the desire on the part of members o f the FEI to gain both greater government support in the form of investment subsidies and support for its campaign to Egyptianize corporate management (Bianchi 1989, 70). The FEI stressed the importance of collaboration between business and the state for economic development. Curiously, the primary impetus for corporatist reorganization emerged from the industrialists rather than from the government (Bianchi 1989, 70). Towards the end o f this period, elements of a pluralist relationship remained, however the first steps toward a state-business relationship that was based on a corporatist model had been taken (Bianchi 1989, 75). In addition to the use of formal institutions such as the FEI for articulating interests, business groups were also an important means by which the private sector was able to have an impact on policy (Vitalis 1995,19). Business groups are defined as a form of capitalist coalition that encompasses multiple economic sectors in which the ownership-managerial functions in the 72 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. conglomerate are not divided and “the group's core leadership is bound by personal, family, ethnic or other communal ties that provide the basis for coordinating its operations" (Vitalis 1995,19). Consequently, business interests effectively used both formal and informal mechanisms o f interest articulation during the liberal period. For the next four decades, Egypt continued to promote both agricultural exports and pursue economic diversification by way of investment in industry. The Egyptian private sector did not achieve its potential due to internal cleavages and institutional impediments that were created by the British (Zaki 1999). However, by the 1950s the private sector had succeeded in establishing a relatively modem industrial base (Zaki 1999). The economic system in Egypt during the liberal era was by no means the ideal of a perfectly competitive free market: there was a tendency toward oligopoly, and limited import substitution was pursued. Nonetheless, the development model pursued privileged markets and private enterprise (Vitalis 1995). The liberal economic system that existed created an environment in which business-govemment relations were able to flourish. In addition to the private sector’s possessing structural power by virtue of its dominant position in the economy, the institution that represented its interests in the industrial sector was relatively strong (i.e., it was not dependent on the state and thus able to faithfully articulate the interests o f industrialists). This situation drastically 73 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. changed mid-century, with the coining to power o f the Free Officers led by Gamal Abdel Nasser. Business-Government Relations under Nasser (1952-1970): The Destruction of the Private Sector and the Transformation of Business-Government Relations The revolution that brought the Free Officers to power in 1952 also brought the liberal era in Egypt to an abrupt end. Once in office, the military regime immediately terminated the Egyptian experiment with political democracy. The military regime abolished political parties, suppressed civil society, and eliminated all possibilities for pluralist expression of societal interest (Bianchi 1989). What emerged was a highly centralized authoritarian regime that demonstrated hostility toward the anciert regime and, in particular, to the landed bourgeoisie. It blamed the old elite for failing to modernize as well as for creating social and economic problems in Egypt (Tignor 1984,243). In addition, it saw this group as a potential threat to its power. Thus, within three months o f assuming power, the revolutionary regime initiated land reform that eventually resulted in the demise of the landed bourgeoisie. As industrial capitalists were rooted in and inextricably linked to the landed bourgeoisie, the land reforms had a negative impact on them as well. Moreover, the land reforms 74 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. increased the private sector’s feelings of insecurity and uncertainty regarding property rights. The private sector, however, was not originally a target o f the regime’s hostility. In fact, “The first few years following the coup, the ruling junta seemed to favor continuation along the path o f private capitalist development which the Egyptian economy had followed until then”(Zaki 1999, 56). Industrialization and modernization were the primary economic goals of the regime. The regime realized that it needed the cooperation o f the private sector to achieve its economic goals. Thus, in an effort to attract investment in industry the regime promulgated laws that offered incentives such as tax holidays (Law 156/1953) and the lifting of the 49 percent ceiling on the equity held by foreigners in joint ventures (Law 120/1952) (Zaki 1999,56). Despite the incentives offered by the regime, investments in industry were not forthcoming. Zaki argues that the private sector was reluctant to invest in industry and agriculture for two reasons: [First,] by destroying the landed bourgeoisie and sequestering their land holdings, the regime dealt a fatal blow to the potential o f capitalist development, since it is this class which also under-girded all big business enterprises. The second reason is that the whole milieu created by the military coup—its ambiguous rhetoric on capitalism, social equity and internal enemies o f the revolution in league with foreign imperialist (Western) powers—drove Egyptian capitalists inexorably toward retrenchment rather than investment, notwithstanding the reassurances o f the military that they intended to follow the path o f capitalist development. (Zaki 1999,56-7) 75 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. As the desired levels o f investment did not materialize, the regime came to believe that it could not rely on the private sector to achieve its economic goals (Waterbury 1983,66). It therefore became increasingly involved in the economy and began to dismantle the central institutions o f the laissez-faire market-based economy, such that by the mid-1950s it was evident that the government intended to assume a dominant role in the economy. The nationalization of the Suez Canal Company and subsequent sequestration of French and British assets in 1956 marked a turning point in the regime’s economic strategy (Waterbury 1993,61-2). Before the nationalization and sequestration of foreign assets, the public sector had been confined to limited areas of the Egyptian economy (Waterbury 1993,61). However, with the addition of these newly acquired assets the importance o f the public sector in the Egyptian economy was significantly bolstered. The nationalization and sequestration signaled both the government’s disregard for the sanctity of private property and its nationalist inclinations. Furthermore, these actions worried domestic capital because by running the nationalized enterprises itself, the government further signaled its intention to increase its role in the economy at the expense of the private sector (Zaki 1999,57). More cause for private sector concern emerged that same year with the establishment o f the new Constitution. The Constitution o f 1956 “committed the state to a planned economy and cautioned that capital should be at the 76 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. service of the national economy” (Zaki 1999,58). The regime reserved for itself the right to determine whether the activities of the private sector were, indeed, in the “interests of the nation.” This, coupled with the fact that the regime began to pass laws that were specifically intended to weaken the private sector, severely curtailed the private sector’s autonomy. The result o f these initiatives was that the private sector’s role in the economy was significantly diminished. By 1959, the private sector contributed only 26 percent o f gross capital formation as compared to 72 percent in 1953 (Zaki 1999,61). While the government had grown increasingly hostile toward the private sector, it was not until 1961 that it was dealt the fatal blow. It was then that the government carried out a sweeping nationalization of enterprises owned by Egypt’s elite capitalist class, resulting in its political and economic destruction. The nationalization policy was not restricted to large enterprises; small and medium enterprises were also affected, albeit to a lesser extent. Indeed, “[the] massive nationalizations produced an economy in which the state controlled a ll significant means o f production” (Waterbury 1993,61). “Clearly the state intended not only to control the ‘heights’ of the economy, but also wished to prevent the creation of strong private enterprises o f any sort” (Ibrahim 1994, 29). The extent of government involvement in the economy is evident by the fact that by the early 1960s the public sector had more than tripled its contribution to gross capital formation, it accounted for 75 percent of industrial 77 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. output, and 90 percent o f all new investments (Harik 1997, Zalri 1999). What remained of the private sector was mainly restricted to small-scale production.8 Thus by the early 1960s, the Egyptian state had consolidated its control over the economy and had replaced the private sector as the primary agent of economic development (Harik 1997, Zaki 1999). The infamous Socialist Decrees were also issued in 1961. The Socialist Decrees established a centralized, state-led economy, in which the marginalization o f the private sector was completed. The Socialist Decrees resulted in a fundamental transformation in business-govemment relations (Zaki 1999). The government’s “socialist” ideology and populist rhetoric left little room for the private sector in either the economic or political sphere. Indeed, the government labeled the private sector exploitative and its economic as well as political power were considered a threat. Consequently, Nasser’s government established a strategic base o f support that explicitly excluded the bourgeoisie and instead included organized labor, the peasantry, the military and the petty bourgeoisie (Bianchi 1989). The Federation o f Egyptian Industries Under Nasser. The FEI, which had been the most influential societal organization during the liberal era, was no longer an effective representative of industrial capital’s interests under Nasser, but instead was transformed into an agency under the Ministry o f Industry (Bianchi 1989). After the nationalization of indigenous enterprises, the FEI 78 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. served as a council for the managers and the chairmen of the state-owned enterprises (Bianchi 1989). Presidential Decree No. 452 o f 1958 conferred upon the Ministry o f Industry the right to appoint the federation's president, its two vice-presidents, one third o f the board members, and dissolve the board of directors. The decree also made membership in the organization mandatory for all manufacturing firms “that had at least LE 5,000 o f fixed investment that employed at least 25 workers” (Bianchi 1989, 168). In addition, the FEI president was required to submit the decisions of the board of directors to the Ministry of Industry for approval (Soliman 1999,73). Consequently, the autonomy of the organization was significantly compromised. Under Nasser, the FEI was therefore transformed from one o f the most prominent organizations representing business interests during the liberal era to a state-controlled semi official organization that promoted state policy. Under Nasser, the business-govemment relationship came to be dominated by the government Indeed, the government’s drive to consolidate its power in both the economic and political spheres and its policy o f replacing the free market economy of the liberal era with a quasi-socialist development strategy characterized by a high degree of state intervention, resulted in the devastation of the private sector and the dramatic transformation o f its relationship with the government In particular, the private sector was stripped of its structural power (indeed, those elements of the private sector that 79 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. remained became dependent on the government). Murphy (1995,19) asserts, “Nasser emasculated Egypt’s private sector and set back its development by decades.” Moreover, organizations that had traditionally represented business interests were transformed into mere government appendages, thereby muting and distorting their voice. In the end, the combination o f a loss of structural power, weakened private-sector institutions and, the anti-private sector ideology of the state resulted in an overall loss o f business power vis-a-vis the government and the transformation o f the business-govemment relationship into one that was dominated by the government The Busin ess-Government Relationship Under Sadat (1970-1981): The Policy of Infitah and the Changing Role of Business During the early years of Sadat’s presidency, his government initiated limited political and economic liberalization. The policy of political liberalization resulted in the resumption, at least for a short while, of a restricted multiparty system and a more pluralist organization o f associational life (Bianchi 1989, Kandil 1994). Shortly alter his 1971 inauguration, Sadat’s government began to take steps that simultaneously suggested an interest in reconciliation with the private sector and foreshadowed a shift in economic policy toward liberalization (Zaki 1999). In particular, the government returned 80 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. property that had been sequestered, removed barriers to the political activity of the private sector, and forbade arbitrary nationalization and sequestration of properties (Hinnebusch 1985, Zaki 1999 In 1974, the regime initiated the famous policy o f infitah (open door policy). Sadat's desire to decrease Egypt's dependence on the Soviet Union and increase Arab and foreign investment, coupled with his desire for US intervention in the Arab-Israeli conflict, motivated the policy of infitah (Waterbury 1983). Waterbury asserts that, “He [Sadat] rightly concluded that progress toward both goals would require creating a more hospitable environment for private activity, and a move away from the socialist practices that alienated conservative Arabs and the US Congress alike" (Waterbury 1983, 159). The infitah signaled a qualitative shift toward a more liberal economy with an increased role for the private sector (Hinnebusch 1985, Ibrahim 1994). The primary economic goals of the infitah were to attract badly needed foreign investment, promote Egyptian exports, stimulate the private sector, and strengthen the public enterprise sector (Waterbury 1985, Zalri 1999). Infitah also included limited trade reform that allowed the private sector to import certain categories o f consumer items and other goods (Hinnebusch 1985, Zaki 1999). Law 43 of 1974, which represented the cornerstone of this policy, provided a broad range of generous privileges and incentives to foreign investors (Ibrahim 1994).9 These same privileges were denied to local investors, 81 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. thereby leaving in question what role the regim e envisioned for them. However, due in part to the disappointing response of foreign investors to infitah, by the latter half of the 1970s the bias against Egyptian investors was removed (Gillespie 1984, Zaki 1999). It is important to note that the incentives were designed for big enterprises (Soliman 1999,30). Indeed, only large projects were granted Law 43 status (Soliman 1999,30). The private sector (big business) responded to these incentives by increasing its share of gross fixed investment from ten percent in the late 1960s and early 1970s to 19 percent in the late 1970-early 1980s and by increasing its share of industrial production from 23 percent in 1974 to 32 percent in 1982 (Handoussa 1991, Waterbury 1985). Furthermore, the number o f large local firms significantly expanded under Sadat Serious foreign investment however, did not materialize. In fact between 1974 and 1978 the total foreign capital invested in Egypt amounted to less than U.S. $300 million (Zaki 1999,83). Consequently, the bulk of this growth in private sector activity came from local investors. The policy of infitah provided incentives to the private sector to actively participate in the economy. However, this policy was by no means commensurate with a re-introduction of a free market economy and a reliance on the private sector (Harik 1997, Zaki 1999, Lofgren 1993, Waterbury 1993). Property rights were still severely limited and the private sector, while 82 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. encouraged, was still barred from many economic activities (Harik 1997. Zaki 1999). In addition, the infitah, while providing for limited economic liberalization, was in no way an attempt to dismantle the public sector or decrease the state’s intervention in the economy (Waterbury 1993).1 0 While the private sector’s presence in the Egyptian economy grew at a moderate pace because of the economic opening, the public sector remained the dominant force in the Egyptian economy. The public sector remained responsible for 70 percent of investment. 80 percent of foreign trade, 90 percent of banking, 95 percent of insurance, and about 65 percent of value added until 1990 (Harik 1997,20). Among the reasons that the government was able to maintain such a huge public sector was that after 1975 external revenues increased dramatically as a result of the Suez Canal re-opening, oil production was resumed, the level o f foreign aid and tourism increased, and remittances from expatriate workers also increased (Harik 1997, 111). In the end, despite the continuing dominance o f the public sector, the policy o f infitah allowed the private sector more room in the economic sphere. More importantly, it signaled a change in the ideological orientation of the state; the state no longer viewed the private sector as an enemy, but as a potential partner in development (Zaki 1999). Business Associations Under Sadat: Federation o f Egyptian Industries. The policy of infitah granted the private sector greater freedom in the marketplace, but “it did not include reforms to increase the independence and 83 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. flexibility of their traditional associations" (Bianchi 1989, 162). Indeed the government retained control over the selection of the FEI president, its top officials and the organization’s decision-making process. Notwithstanding the enduring quasi-corporatist structures, the membership of the federation changed during the infitah; the private sector began to reemerge as a force within the FEI (Bianchi 1989).1 1 Indeed, private sector members eventually outnumbered public sector managers. Consequently, their large presence acted to temper, albeit to a limited degree, government control o f the FEI. The FEI began to demonstrate initiative by calling for administrative decentralization as well as "the elimination o f socialist reforms such as worker participation in management and profit sharing and job security"(Bianchi 1989,170). "In this period, despite the fact that the formal regulations o f the Federation were intact, it had de facto more freedom and a chance to represent the interests of industrial capitalists" (Soliman 1999, 72). Despite the relative revival o f the FEI during this period, it was not consulted nor did it participate in the formulation o f industrial and economic policies (Soliman 1999, 75). It was also excluded from consultation on and formulation o f policies concerning industrial relations (Soliman 1999, 75). While the semi-official nature o f the federation hindered its ability to influence policy, the growing presence of an increasingly assertive private sector resulted in slightly more autonomy for the organization. 84 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Informal Modes o f Interest Articulation Under Sadat: The M unfatihun and the Muqawalun. The policy of infitah gave rise to a new business class composed of members of the old bourgeoisie that had managed to survive, the state bourgeoisie, and new capitalists (Bianchi 1989, Richards 1984, Zaki 1999). It is important to recognize that the business class was not cohesive. Some elements of it were disappointed in the ineffectiveness and bureaucratic nature of the traditional business associations and therefore established more independent business associations in the early 1980s under Mubarak. Others were not interested in formal mechanisms o f interest articulation and instead sought to bolster informal ties to the government. Thus, informal modes of interest articulation such as personal ties to elite officials were effectively used by a class of businesspeople called the munfatihun (those of the open door) (Zaki 1999). The munfatihun focused on comprador-type activities such as importing and acting as intermediaries between foreign firms and the government (Zaki 1999). With reference to the munfatihun, Waterbury argued: They trade in influence, inside knowledge and fixing deals.... So successful have they been in shaping policy to favor their interests that they have become the major beneficiaries of infitah. Moreover, the latitude they have been given through liberalized import regulations has struck directly at the interests o f the traditional private sector manufacturing groups (Waterbury 1983,175). Another group that wielded influence during the infitah was the muqawalun. They were an elite group o f contractors like Osman Ahmad Osman, who had amassed their wealth by winning government contracts for 85 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. public sector projects. They possessed direct access to the Sadat and were included in the elite policymaking circle. Like the munfatihun, their influence and power derived from their personal ties to top other officials in the government. Through their connections, this privileged group was able to gain enormous concessions from the government Some scholars contend that under Sadat business as a class was strong (Hinnebusch 1985). The evidence that is used to support this contention is the existence of the aforementioned elite group of businesspeople and their success in influencing policy in the construction sector and in gaining rents. While the muqawalun and the munfatihun wielded power disproportionate to their numbers, because their power was not institutionalized, it was unstable and subject to the caprice of officials. More importantly, the power o f this small group of unproductive, rent-seeking businesspeople did not translate into power for business as a class. These businesspeople ultimately represented their own particularistic interests as opposed to the interests o f the business community as a whole. Indeed, business as a class still faced many obstacles to participation in the Egyptian economy. Although its power was slowly increasing, business as a class and the mechanisms that it used to represent its interests rem ained relatively weak under Sadat (Zaki 1999, Bianchi 1989). The Government-Labor Relationship. Despite the fact that the government was moving toward reconciliation with the private sector, the 86 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. government’s official rhetoric continued to uphold the Nasserist-era socialist principles (Zaki 1999). The regime demonstrated reluctance “to antagonize the organized beneficiaries of the welfare system” (Zaki 1999,80). One o f the few times that the regime did move to roll back some benefits, it introduced modest reductions in state subsidies on food, and provoked what came to be known as the bread riots of January 1977. The regime was shocked by the intensity of the response to the cuts in subsidies and responded by immediately reinstating the subsidies and actually increasing their scope (Pripstein Posusney 1993). The regime was hesitant to damage its relationship with organized labor because, due in part to its lack o f broad popular support, it was more dependent on labor for support than Nasser’s regime had been (Bianchi 1989). Consequently, Sadat did not sacrifice the welfare system in favor of business interests (Zaki 1999,84). Instead, the regime sought to increase its legitimacy and actually increased deficit spending. In the end, Sadat realized that the legitimacy and stability of his regime was tied to organized labor and that he had no choice but to maintain the populist aspects o f the economic policy (Zaki 1999,84). Summary o f Business-Govemment Relations Under Sadat. Sadat’s policy of infitah signaled a shift in the ideological orientation o f the state; instead of the Nasser government’s open hostility toward the private sector, the Sadat government encouraged the private sector to play a role, albeit limited, in 87 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the Egyptian economy. Nonetheless, Sadat’s policy o f liberalizing the economy and polity was half-hearted. Indeed, Waterbury (1985,67) points out “there was too much that Sadat liked in the political and economic edifice he inherited to have sought its demolition.'' The Sadat government therefore sought to maintain as much control of the economy (and eventually the polity) as it could. Sadat allowed the private sector to play a role in the economy, but the government determined to what extent and how the private sector could become involved. The government largely controlled associational life and the formal institutions representing business interests. However, the growing presence and assertiveness o f the private sector within the FEI resulted in slightly greater autonomy for the organization. Although the structural and organizational power of the private sector grew during this period, the relationship between business and government could still be characterized as one that was regulated and dominated by the government Modern Business-Government Relations in Egypt: Reform Bnsiness-Government Relations Under Mobarak (1981-1995): Productive Infitah and the Role of the Private Sector in the Egyptian Economy1 2 Alter the assassination o f Sadat by Islamic militants in October 1981, Hosni Mubarak became president The Mubarak government largely m aintain^ 88 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the policy of economic opening initiated by Sadat. Early on, the government expressed its commitment to a prominent role for the private sector in the economy, although it was clear that it still viewed the public sector as the primary vehicle of economic development In fact Mubarak’s Labor Day speech in 1982 called for the consolidation o f the public sector, and the following year he referred to the public sector as the “pillar o f the Egyptian economy” (Zaki 1999). These pronouncements were consistent with the framework laid out in the Egyptian Constitution of 1971, which “advocates respect for private property and private investments but insists on a dominant role for the state in the economy, and on its responsibility to ensure social justice (Zaki 1999, 121). A dominant public sector would ensure the government control of the economy and the resources needed to satisfy long standing commitments to the populist coalition (i.e., organized labor, peasants, civil servants and the petty bourgeoisie).1 3 The principle difference between the economic strategies of Sadat and Mubarak was that Mubarak has made a concerted effort to avoid the excesses of Sadat’s infitah that had produced a private sector geared more toward import trade and speculation than to industrial production (Weiss and Wurzel 1998). Accordingly, Mubarak called upon the public and private sectors alike to pursue a productive as opposed to consumptive infitah. As a corollary o f the government’s emphasis on production, it provided incentives to encourage the 89 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. growth of the industrial sector. This policy succeeded in bringing about a shift in activities away from trade and toward industry (Harik 1997). Scholars attribute the growth in industry mainly to the private sector (Harik 1997, Soliman 1999). The private sector’s share in total value added rose from 43 percent in 1976 to nearly 55 percent in 1985, and its share in gross domestic fixed investment increased from 30 percent in 1982 to 65.9 percent in 1995 (Zaki 93, Development Economic Policy Reform Analysis Project 1998, World Bank 1998). It was responsible for 36.9 percent of industrial production in the early 1980s and by 1989-90 it was contributing 55.6 percent o f industrial production (Soliman 1999). Consequently, despite the intentions of the Mubarak government, the government was increasingly relying on the private sector for economic development. Economic Crisis and Reform. Between 1975 and 1985, the Egyptian economy registered strong growth, averaging over eight percent GDP growth annually (World Bank 1998). However, by the second half of the 1980s, it appeared that Egypt was nearing the limits o f its state-led development strategy. The liberalization o f imports had contributed to a growing trade deficit, such that debt rose eight-fold between 1974 and 1985 (Richards and Waterbury 1998). In addition, windfall incomes from petroleum sales experienced a sharp fall by the mid-1980s, costing Egypt 1 1 percent of its GDP. The Egyptian 90 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. economy was thus left exposed to massive external and domestic account imbalances (Handoussa 1991,4). By the mid-1980s, the government recognized that economic reform was inescapable. However, it was not convinced that the free market was the solution (Harik 1997). Part of its reluctance to embrace free market “solutions” stemmed from the fact that doing so would entail dismantling the structure upon which its power was based (Harik 1997, IS). In particular, for over three decades the state had been responsible to its strategic constituency (which constituted a large part of the population) in the spheres of redistribution and welfare. In exchange for these economic responsibilities, it was given a relatively free hand in the political sphere. The regime was highly aware of the fact that its legitimacy continued to derive from its ties to the populist coalition. Neoliberal-inspired economic reform, as it called for minimizing state intervention, privatizing the state-owned enterprises, minimising transfers to society, and increasing the flexibility in the labor market, was therefore politically risky. Consequently, its approach to reform was “to m ake policy changes that would not cut into the interests of the power coalition” (Harik 1997,15). The economic situation had deteriorated to such a degree that by 1986 the Egyptian government was forced to begin negotiations with the IMF. An agreement was reached a year later in which the government agreed to a 91 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. standard neoliberal stabilization package. Implementation o f the reforms proceeded slowly, and disagreements as to how these reforms should be implemented continued because o f the government’s apprehension regarding the political risks associated with them (Ayubi 1995). The Egyptian government did not fully comply with the terms of the agreement (which were considerably softened after a re-negotiation in 1987), and the agreement with the IMF collapsed (Pripstein Posusney 1997). By late 1990, the Egyptian government was facing a fiscal crisis of even greater proportions. Economic growth was negative, international debt was nearly US S50 billion, making its debt-to-GNP ratios one o f the highest in the world (Richards and Waterbury 1998). In exchange for massive debt relief, the Mubarak government agreed to a conventional stabilization and structural adjustment package with the IMF (Richards and Waterbury 1998).1 4 This agreement came to be known as the Economic Reform and Structural Adjustment Program (ERSAP). Specifically, the ERSAP focused on market- oriented policy reforms such as fiscal reforms, foreign trade liberalization, and financial and labor market liberalization, privatization and the creation o f an appropriate regulatory environment. In response to the government’s concerns regarding the economic and social dislocations associated with the ERSAP, international donors including the World Bank, the UN Development Program and the European Union, created a S613 million Social Fund for Development to 92 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. create jobs, retrain workers and alleviate the burden o f adjustment on low- income groups (Bush 1999, Weiss and Wurzel 1998).1 5 A primary goal o f the ERSAP was to promote the private sector as the engine o f economic development in Egypt In order to allay most of the fears regarding its intentions to endorse a free market private-enterprise economic system, the Mubarak government issued new laws that included significant incentives for private capital, increased government expenditure on infrastructure to facilitate private sector activities, and included more businesspeople and pro-business elements in Mubarak’s cabinet (Zaki 1999, Ibrahim 1994).1 6 In addition, by 1991 it passed Law 203, which provided the legal framework that paved the way for privatization (Pripstein Posusney 1997), In particular, the purpose o f this law was to reorganize the state-owned enterprises into holding companies that had the task o f preparing these enterprises to be privatized. The private sector responded favorably to the apparent shift in government policy. Indeed, the share o f industry in private sector investment increased from 15.9 percent in 1981 to 34.7 percent in 1990 and 45.9 percent in 1995 (Soliman 1999). In addition, private sector investment as a percentage of gross-domestic-fixed investment grew from 30 percent in 1982 to 73.2 percent in 1996 (World Bank 1998, Development Economic Policy Reform Analysis Project 1998). As mentioned previously, the government’s encouragement of the private sector economic role resulted in increasing the 93 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. participation o f the private sector in the economy and thereby increasing its structural power vis-a-vis the government The Government-Labor Relationship. Recognizing the identity of the critical constituencies early on, Mubarak committed his government to maintaining the public sector and to protecting labor, managers, and government employees from the costs o f economic reform (Bianchi 1986, Brumberg 1992). Similar to Sadat Mubarak has not been able to break with the populist legacies of the Nasserist era (Zaki 1999). Indeed, it appears that labor has come to expect certain basic protections from the government While some subsidies have been cut the government has been reluctant to eliminate labor’s traditional protections.1 7 It appears that the Mubarak government’s ability to reform the labor market has been constrained by the legacy of the Nasserist era, which established labor as a strategic base of support. Nonetheless, although labor has been largely successful in maintaining its traditional protections, the corporatist arrangements that characterize the state-labor relationship have rendered it unable to either extract significant new protections from the government or have a positive influence on policy. The Position o f the M ilitary on Economic Reform. As mentioned previously, the Egyptian military was one o f the groups included in the governing coalition established under Nasser. During the 1950s and 1960s, it figured prominently in the political sphere and took advantage of the ISI 94 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. development strategy by forming an alliance with the public sector (Ayubi 1995, 278; Waterbury 1993, 195). However, after the October 1973 war, Sadat attempted to reduce the political role o f the military by decreasing its presence in his cabinet and by excluding it from the populist coalition (Ayubi 1995,271, Zaki 1995,129).1 8 In an attempt to marginalize the military politically and sever its links to the governing coalition, the military was thus prohibited from engaging in political activities and participating in party politics (Ayubi 1995, 271, Zaki 1995,129). The attenuation of the m ilitary's political role was also accompanied by an alteration in its size, mission, the portion o f the government budget allotted it, and weapons inventory, especially after the 1973 war (Springborg 1989,95). By the time Mubarak entered office in 1981, civil-military relations had reached a low point Mubarak immediately "set about reassuring the officer corps that there would be no further cutbacks and the military’s 'peace' role would be enhanced” (Springborg 1989,98). The Mubarak government understood that in addition to its role as the defender of the nation, the military is the government’s ultimate bulwark against any possible political instability. It thus wanted to ensure that it would continue to be a reliable base of support.1 9 Consequently, the government promoted policies to ensure the continued support of the military. For example, the Mubarak government ensured that military expenditures remained at a constant 8.5 percent o f GDP throughout the 95 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 1980s, dropping slightly to 5.7 percent by 1995 (International Institute for Strategic Studies 1989, World Bank 2000).2 0 The military continued to enjoy a “considerable degree of autonomy from the rest o f the state; its budgetary allocation, for example, is not itemized, nor is it subjected to the scrutiny o f the Central Auditing Agency" (Ayubi 1995,272). Additionally, the Mubarak government consistently secured high levels o f military aid from the US. In addition to maintaining the level o f government expenditure on the military relatively constant, the government also sanctioned the army’s drive to expand its manufacturing activities from arms production to production o f goods and services for the civilian economy. Thus, besides its traditional weapons production, the military was also involved in agriculture and land reclamation, construction and service industries, and industrial manufacturing (Ayubi 1995, 274-5, Springborg 1989,104,109-111). The economic wing of the Egyptian military grew tremendously throughout the 1980s, such that it became a financially semi-autonomous entity by the 1990s (Ayubi 1995,271,274). The economic activities o f the military produced “a class of military entrepreneurs” who were professionally linked to other private sector entrepreneurs (Owen 1987,8). The military shed its old alliances with public sector enterprises and instead forged alliances with key elements of the bourgeoisie (Springborg 1989). The system now being established rests on the principle of fanning out patronage to the private sector, which, like its public sector predecessor, 96 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. is to be the military’s junior partner in these activities... The military lets tenders to the private sector, domestic and foreign, worth hundreds o f millions annually for its ventures into non-military areas. It actively seeks out arrangements for military technicians to gain access to advanced technologies found in the private sector, such as food production and processing. (Springborg 1987,10,14, 15 as cited in Ayubi 1995,278). The military’s participation in the civilian economy, its estrangement from the public enterprise sector, and the fact that the government’s economic support remained relatively constant, indicates that its welfare was no longer tied to that of the populist coalition. The military succeeded in positioning itself to benefit from economic reforms and was therefore been supportive of them (Zaki 1999,157). Assessing the Nature o f the Institutional Links Between Business and Government: Associational L ife. Unlike Sadat, who tightened the grips over associational life in Egypt by attempting to significantly decrease the autonomy o f all interest groups, Mubarak rejected this strategy (Bianchi 1989). What emerged under Mubarak was a system in which there existed a heterogeneity o f organized interests. That is, some groups are organized along corporatist lines (e.g., organized labor), while others groups may be mixed sectors where semi official organizations and autonomous organizations coexist (e.g., business sector). Although interest groups have been given more attention by the Mubarak government, their ability to influence policy has largely remained inconsistent (Harik 1997). 97 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The semi-official FEI and Chambers of Commerce had traditionally been the sole organizations that represented business interests. However, by the early 1980s, independent, voluntary business associations were established. The business community created these organizations because they were frustrated with what they perceived to be the ineffectiveness o f the existing semi-official organizations. The establishment of independent, privately funded business associations was, therefore, an attempt by the business community to secure better representation of its interests (Al-Bakry 1996, Kandil 1994). Among the most prominent o f these associations were the Egyptian Businessmen’s Association (EBA) (1979) and the American Chamber o f Commerce in Egypt (AMCHAM) (1981 ).2 1 However, it is important to note that unlike business in Mexico, business associations in Egypt have not organized into a hierarchical structure, whereby a single organization coordinates the demands o f all associations. The absence o f such encompassing (or peak) organizations in Egypt is significant because it prevents business from presenting a united front to the government thereby limiting the impact of the private sector’s voice. Since establishing a new business federation or union would have required a presidential decree, these new independent business associations opted to establish themselves under Law 32 o f 1964, which governs the establishment o f associations of private citizens. According to this law, all associations must register with the Ministry o f Social Affairs, which has the 98 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. power to exert extensive control over the associations (AMCHAM 1996). In practical terms this means that the Ministry o f Social Affairs may appoint to half the members o f the board of directors, it has the right to place items on the association's agenda, it may delete names from the list o f those nominated to the board, and it is empowered to nullify elections and dissolve general assemblies for a wide range o f reasons (Al-Bakry 1996, AMCHAM 1996). Further, the ability of associations to raise funds is highly restricted (AMCHAM 1996). Associations like AMCHAM has complained that Law 32, is highly restrictive and leaves the business associations vulnerable to arbitrary decisions by the state to mute their voice. Nevertheless, despite the potential power of the Ministry of Social Affairs over the business associations, these newly formed business associations have tended to be more autonomous vis-a-vis the state than the FEI and the Chambers of Commerce. Business Associations Under M ubarak: The Egyptian Businessmen’s Association. The EBA was established in 1979 as a voluntary privately funded organization. The initiative came from a small group of the largest and most powerful Egyptian entrepreneurs (Bianchi 1989, Ibrahim 1994). Membership grew from 200 members in 1983 to 410 by 1 995.2 2 The EBA’s members represent interests in a broad range of sectors, including manufacturing, construction, banking and consulting. From its inception, the EBA supported Sadat’s infitah and, subsequently, economic liberalization and the shift toward a 99 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. market-oriented economy under Mubarak (Interview with an EBA representative 1 1 August 2000). Among the stated objectives o f EBA are the following: To cooperate with state institutions in the study o f laws, legislation, and economic policies as well as initiate draft laws and regulations that would facilitate the production process in all economic sectors (EBA 1996b, 22). It is clear from this statement that the EBA views its role as that o f a legitimate partner of the state in the realm o f economic policymaking. Under Sadat, the newly established EBA was still finding its footing in the Egyptian political landscape. Consequently, its activities and impact on policy were limited. However, in the early 1980s, the EBA emerged as one of the most high profile organizations representing (elite) business interests (Ibrahim 1994). While it is far from playing the role o f a partner in the economic policymaking process, EBA members have been “courted as the pre eminent spokesmen for the private sector” (Bianchi 1989, 164). It seems that the Mubarak government sought the support o f the EBA for its economic reform program, so it had ministers speak at the association's monthly dinners and formally (and informally) engage these businesspeople in discussions about the reforms (Bianchi 1989). By 1985, a Joint Economic Council on economic policies was established which provided a formal institutional channel for contact between the government and business. The Joint Council included 100 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. cabinet ministers, members of the EBA’s executive committee as well as members of other business associations. The American Chamber o f Commerce. AMCHAM was established in 1982 with the assistance o f the US embassy and has emerged as one o f Egypt’s most important bi-national business associations. AMCHAM is a voluntary independent business association that aims at fostering Egyptian-American economic ties, facilitating communication between businesspeople, establishing a line o f communication with the Egyptian government, and helping to improve the business environment in Egypt (www.amcham.eg.org). AMCHAM’S membership has grown from just over 250 members in 1983 to over 680 members in 1995 (Al-Bakry 1996). Its membership list includes ministers, elite Egyptian businesspeople and American investors. AMCHAM has been supportive of Egypt’s efforts to liberalize its economy. It is especially active in promoting privatization and trade liberalization (Al-Bakry 19%, Ibrahim 1994). AMCHAM has played major role in establishing cooperation between the US Agency for International Development (USAID) and the Egyptian private sector (Kandil 1994). It has also used its high-level American connections to help persuade the US to increase its aid to Egypt (Ibrahim 1994, Kandil 1994). Among its other activities, it has sponsored the annual ’ ’ Door Knock” mission to the United States. This annual visit began in 1994 and is part o f American Chamber of 101 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Commerce in Egypt's efforts to develop trade relations between Egyptian businesspeople and their American counterparts. The Federation o f Egyptian Industries. Despite the fact that the FEI had gained some autonomy in the 1970s and 1980s and become a relatively more effective mouthpiece for small indigenous manufacturers, it still could not be characterized as an influential organization (Soliman 1999,75). In fact, it was excluded from consultation and formulation of industrial and economic policies and policies on industrial relations (Soliman 1999,75). The increasing attentiveness of the Mubarak regime to independent business associations such as the EBA and AMCHAM further diminished the role played by the traditional business organizations such as the FEI (Bianchi 1989). However, 1991 was a groundbreaking year for the FEI; the government appointed a private sector entrepreneur, Mohamed Farid Khamis, president of the FEI (Soliman 1999, 75). Khamis was a well-respected and highly successful Egyptian industrialist. The government appointed him president because it wanted to revitalize the FEI and give it more autonomy (Soliman 1999). Another reason for choosing Khamis was the government’s new strategy o f promoting the industrial sector (Soliman 1999). It appears that the FEI did gain some de facto autonomy under Khamis. For example, the FEI took the initiative to present draft laws to the government on exports and the re-structuring of the organization itself. The government also began to consult with FEI regarding economic policy. 102 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. As long as the increased autonomy o f the FEI was de facto, the government appeared to be supportive o f i t However, in 1995, when Khamis attempted to introduce legislation to formalize the increased autonomy o f FEI, the government did not respond favorably. The government’s lack o f interest in this legislation suggests that it wanted to retain the option o f restricting die FEI’ autonomy in the future. Business A ssociations' Tactics, Points o f Access and Influence. The 1980s and 1990s witnessed the emergence o f independent business associations and a political atmosphere that was relatively more tolerant o f interest group bargaining. Business associations (both the independent business associations and the traditional semi-official organizations) took advantage of the more liberal environment and played a more active role, pressing the government to make decisions that were in their interests (Kandil 1994). In order to advocate their interests, business associations used a variety of tactics and took advantage o f the channels of access to the government available to them. They commissioned studies, reports, and position papers and presented them to the relevant ministries in an attempt to stimulate debate. More importantly, they were periodically invited to participate in parliamentary committees considering economic legislation and they were occasionally asked to comment on draft laws, and consulted with the government on policy matters concerning the economy. They also sponsored conferences and symposia to 103 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. which they invited high-ranking government officials, and they held meetings with government officials (Interview with EBA Representative 2000, AMCHAM Consultant 2000, Project Manager APRP 2000). Finally, the business associations increasingly used their affiliation with the ruling party, the National Democratic Party, either to gain access to authorities or to put forward pro-business candidates for the parliamentary elections (Pratt 1998). Businesspeople were elected to parliament, but the increasing presence of businesspeople there does not indicate that they were setting the legislative agenda, as this is exclusively determined by the president in consultation with his advisors (Zaki 1999).2 3 Indeed, the parliament possesses limited power; at most, it introduces minor reforms to legislative proposals (Zaki 1999). Communication between business and all levels of government appears to have increased under Mubarak. This is especially true of the period between 1991 and 1995. Nevertheless, major economic policy decisions are still made almost exclusively by the executive branch and while this branch usually consults a variety of sources, businesspeople included, “access does not necessarily imply influence—especially in terms o f strategic policymaking” (Zaki 1999, 140). One prominent businessman agreed that because the government is now pursuing a capitalist model of development, government and business are somewhat mutually dependent Nonetheless, the government still has the upper hand in the relationship. He stated the following: 104 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. They [government officials] need us and we need them too. That is why there are conferences, meetings. We talk about what areas need to be changed. We bring up issues that are good for the whole nation. But, if the government feels that it is not good for die nation, it does not make the changes that we ask for. (Interview with Al-Araby 2000). In a recent study of business associations in Egypt, few of die businesspeople interviewed believed that they were able to affect economic policy in Egypt in any significant way (Al-Bakry 1996). Another recent study o f the Egyptian business elite confirmed these findings. One o f the businesspeople interviewed in the second study stated, We cannot directly influence the state in any positive manner. We are listened to merely as consultants. We can only limit state action that we consider very inimical to businessmen by pointing out its deleterious effects on future investments, and hope that the government will see it our way (Zaki 1999,142). This statement is illustrative of the limited role that businesspeople in Egypt believe that they are playing in influencing policy. A minority of businesspeople interviewed for the current study as well as the studies by A 1 Bakry and Zalri contended that business did influence policy, and they pointed to changes in tax laws, laws governing capital mobility, interest rates, and foreign exchange controls as evidence o f the success o f their lobbying efforts. Nevertheless, the overwhelming consensus was that the influence o f businessmen's associations is minimal and that at best they are playing a consultative or advisory role as opposed to negotiating or fully participating in the formulation of economic policy in Egypt Furthermore, an Egyptian 105 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. businessman stated that while the government actively consults with business, “it is a fake consultation, that does not lead to any amendments or reforms that the government does not intend or wish to undertake” (Al-Bakry 1996,91). Another businessman interviewed expressed the belief that the reason the government consulted business was that it wanted to appear democratic and act as if it were considering the interests o f private business (Al-Bakxy 1996,91). Businesspeople also expressed concern over the fact that the advisory or consultative role is largely informal and subject to the government's whim; at any moment the government could decide to discontinue such consultation because it was no longer needed or because it was deemed threatening (Al- Bakry 1996,91). Thus, the mechanisms o f communication that the business organizations possess are largely not institutionalized and thus unstable. In the end, it must be acknowledged that businesspeople have recently “ joined the chorus of voices to which the state pays heed, though this does not imply that the government is inclined to favor them over all other interests” (Zaki 1999, 152). Summary o f the Business-Govemment Relationship Under Mubarak. Since the early 1990s, the Mubarak government has been committed to a private free market economy. This shift in economic strategy has forced the state to redefine its role in the economy. As a corollary to the economic 106 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. transition, the government is also in the process of renegotiating its relationship with the constellation of social forces that constitute Egyptian society. By virtue o f the fact that the state is committed to a free market economy, it has become increasingly dependent on the private sector for ensuring the health o f the economy. Indeed, since the early 1990s, the private sector has increased the range and depth o f its economic activities and therefore its structural power has grown. For example, the private sector increased its share o f gross domestic fixed investment from 30 percent in 1982 to 65.9 percent in 1995 (World Bank 1998). Thus, despite the fact that during this period, bureaucratic and regulatory barriers to entering the market and staying in business have remained high, the government has become increasing reliant on the private sector’s economic activities. Associational life under the Mubarak government has been more diverse than under Sadat. In fact, business has had both semi-official and independent business associations representing its interests. The increased autonomy of the new voluntary business associations is a factor that has contributed to the growing voice of the private sector. The new voluntary business associations have attracted members of the business community who felt that they were not adequately represented by the existing institutions. As these associations have not been subject to the same level of government intervention as that of the semi-official organizations, they were able to represent business interests more 107 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. faithfully and they have tended to be more assertive. In addition, even the FEI began to gain some autonomy under the presidency in the 1990s. The institutions that represented business interests have been strengthened over the last two decades. That is, their autonomy, vis-a-vis the state, has increased and they have developed a more diversified set of institutions that they use to articulate their interests to the government Although they are neither regular nor institutionalized, both the FEI and the more pluralist business associations have developed multiple channels of access to the government. Y et despite their growing strength, these organizations have not been able to influence policies in areas considered by the government to be strategic (i.e., the labor market) and their influence in non-strategic policy areas has been inconsistent at best A recent USAID-supported study o f business associations in Egypt argued that their lack of influence might be in part attributed to the lack of concentration in the organization of the business associations (Growth Through Globalization 2000,1). That is, there is no single encompassing business organization that represents business interests as a whole. Another reason for their lack of influence may be the fact that even the independent business associations are subject to heavy government regulation and intervention in their affairs. In sum, both the structural and institutional power of the private sector has increased under Mubarak. However, while the private sector was playing a 108 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. relatively important role in the economy by the early 1990s, the increase in the institutional power of business has not kept pace. Private sector institutions, while strengthened, are still relatively weak and their ability to influence policy has been limited to non-strategic policy areas where there is generally a coincidence o f interests with the government While the relationship is slowly changing, the business-govemment relationship can still be characterized as dominated by the government. Consequently, the inability of the private sector to influence labor market policy in its favor is not surprising. Business Associations’ Collective Action and Inaction Surrounding the Issue of Labor Market Policy The Mubarak government considered reform o f labor market policy to be a strategic issue because o f the potential economic and political fallout associated with it. Consequently, it tried to control the process o f privatization and labor law reform so that it might minimize such negative repercussions. These cases illustrate how the government’s dominance of the business- govemment relationship hindered business’s ability to influence policy in its favor. The Case o f Privatization. Egypt agreed to privatize 314 state-owned enterprises as part of the ERSAP that it signed in 1991. By 1995, it had succeeded in privatizing only 23 (International Business and Technical Consultants, Inc. 1999). Between 1991 and 1995, business and international financial institutions grew 109 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. increasingly frustrated with the slow pace of privatization (Economist Intelligence Unit 1993, EBA 1996a, 18). An article by the Egyptian Businessmen’s Association stated, “Although privatization is proceeding in the right direction, it still lacks the commitment and bureaucratic resolve required for change, which has translated into a snail-paced process” (EBA 1996a, 18). The EBA called for cooperation between the private sector and the government in order “to determine and remove the impediments to privatization” (EBA 1996a, 18). Some scholars attribute the slow pace of privatization to the Mubarak government’s fear of provoking labor (Brumberg 1992, Pripstein Posusney 1997, Zaki 1999). “Successive leaders’ fears of losing their presumed and proclaimed mass legitimacy by antagonizing labor on a national scale” resulted in the slow pace of privatization (Pripstein Posusney 1997,247). Businesspeople that were interviewed for this study also believed that the labor issue was a primary reason for the slow pace o f privatization (Al-Araby 2000, Habbashi 2000, Al-Qut 2000, Al-Gamal 2000). A project manager who had worked with USAID’s Partnership for Development Project on privatization in Egypt confirmed this in the following statement, All along, the government was highly cognizant o f the labor issue. It was the number one theme in the privatization project What was to be done with labor? How could they privatize without the threat of labor becoming a destabilizing force? Political issues were definitely at the forefront in the formulation o f the policy of privatization (Interview with DEPRA Project Manager 2000). 110 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Given the Mubarak government's sensitivity to the labor issue, it is not surprising that it continued its protections for labor after economic reform was initiated and against the advice o f the World Bank, donors, and investors who argued that such protections were inefficient and discouraged investment2 4 In the wake o f the ERSAP, the Mubarak regime stated that labor would not be harmed by privatization (Pripstein Posusney 1997,214). In particular, the government issued Law 203 as part of its effort to prepare state-owned enterprises for privatization and one of the stipulations o f this law was that all privatized companies would be subject to current labor laws (Pripstein Posusney 1997,213-4). The government further announced that no worker would lose his or her job due to privatization (Economist Intelligence Unit 1992,16). This last provision was ensured by a “no layoff clause” to which privatized companies were subject that stated that the privatized firms could not layoff employees for a period o f three years. As one o f the major problems o f state-owned enterprises is overstaffing, this provision is a major disincentive to potential buyers. The government also stipulated that ten percent o f the shares o f all privatized companies would be reserved for the workers. According to a project manager who had been involved in the privatization process in Egypt, communication between the government and the private sector was notoriously poor and this was especially true o f the issues of privatization and economic reform in general (Interview with DEPRA Project 111 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Manager 2000).2 5 Thus, jumpstarting the dialogue between the two parties was deemed a critical part of the privatization project as far as USAID was concerned. USAID therefore sponsored a series of workshops on privatization in 1995, to which both the government and representatives from the major business associations were invited. A host of issues was tackled in these workshops, including how to offer companies on the stock market, how to price them and other procedural issues. Some o f the suggestions made by the business community were actually implemented. However, the Public Enterprise Office specifically asked that no workshop be held on the issue of labor, as this was a critical issue that the government would resolve independently.2 6 Thus, at least until 1995, the government sent out a clear signal to the business community that all other aspects of privatization were up for discussion, but the labor issue was off limits. The government’s privatization program was re-energized in 1996. By 1998,92 of the 314 state-owned enterprises slated to be privatized had been either sold or liquidated (International Business and Technical Consultants, Inc. 1999). One o f the factors that allowed the government to move more aggressively on privatization was that it had recently developed a dual strategy to deal with the labor problem (Pratt 1998). The first part o f the government’s strategy had been applied early in the privatization program and involved allowing the workers to participate in the privatization program by allowing 112 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. them to buy the state-owned enterprises through employee stockholder associations. The second part of the strategy consisted o f establishing a scheme that was designed to encourage workers to voluntarily leave the public sector workforce. These included a voluntary early retirement program and severance pay for those too young to retire, and job retraining. Atef Ebeid, the minister in charge of privatization, answering charges that these programs would be extremely costly, described the amount to be paid as “not excessive at all when spent for the benefit of social stability” (Economist Intelligence Unit 1996-7, 2 1 ). Despite the fact that the government was eventually willing to consult with business on the issue of privatization, it did not pick up the pace o f privatization until it had designed a program to deal with the issue o f labor. In addition, the government made it clear to the private sector that the issue o f what to do with labor should be left to the government alone. Finally, the following statement by Yousef Boutros-Ghali, the Egyptian government Minister o f State for Economic Affairs, suggests the government did not believe that the private sector was sufficiently strong to provide it with the support required for it to move more aggressively on privatization: [Privatization] is not the innocuous exercise the international institutions make it out to be. We have to address entrenched interests and I have to make sure that I have the constituency to back me when I do so (Album 1995,29). 113 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Thus, at least until 1995, the government controlled the privatization process, allowing input from the business community on procedural issues, but disallowing their input when it came to the issues o f labor and related issue of the pace o f privatization. The Case o f Labor Law Reform. An integral part of neoliberal-inspired structural adjustment includes ensuring that labor markets are liberalized. Before signing the ERSAP, the regime had tinkered with other aspects of reform like trade and financial market reform. However, despite the periodic calls (dating back to the 1970s) by business organizations for increased flexibility in the labor market, two successive regimes had managed to avoid swallowing the bitter pill. With the signing of the ERSAP, the government was forced to confront the issue of labor law reform. The principle source of the rigidity in the Egyptian labor market, the socialist-oriented labor legislation (Law 137 of 1981), became the target of reform. Work on a new law began in 1991, with a committee consisting of representatives from the Egyptian Trade Union Federation (ETUF), business organizations, the Ministry o f Labor, the local legal committee and the International Labor Organization (Pripstein Posusney 1995,52).2 7 It appears that by allowing these negotiations to go forward, the government was attempting to appease the international financial institutions that complained that Law 203 would make purchase of the state-owned enterprises less attractive and 114 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. thus discourage investment as well as signal that it was committed to the reforms.2 8 The negotiations over the new labor law were kept secret and not officially acknowledged until 1993 (Pripstein Posusney 1997,239). The government’s reluctance to make these negotiations public suggests that it was trying to control the process and minimize any political fallout the negotiations might cause. The negotiations resulted in the draft Unified Labor Law. The draft law grants both private sector employers and public sector managers the ability to hire labor directly and, more importantly, it gives them the right to dismiss labor for grave mistakes, low productivity, or economic necessity (Business M onthly 1997). As a direct quid pro quo, labor was granted the right to strike, albeit under highly restrictive conditions (Pripstein Posusney 1995). By 1994, the draft law (while not fully satisfying either the ETUF or business) was endorsed by all parties involved in the negotiations (Pripstein Posusney 1997,238; El-Din 1998; El-Din 2000; A l Ahram Weekly 1999; Farag 1999). The draft law was first circulated and scheduled for presentation to parliament in 1995. Owing to parliamentary elections that year, it failed to go before parliament (Pripstein Posusney 1997,238). Since then, the government has annually promised to present it, yet ten years after the beginning of negotiations this draft law has still not been introduced in parliament. 115 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. As both the ETUF and prominent business organizations have called for passage o f this draft law, it appears that the government itself is blocking its introduction in parliament Although the ETUF leadership has officially endorsed the draft labor law, leftist trade unionists and worker representatives (who are more in tune with the rank-and-file than the ETUF leadership) have serious reservations about the draft law. In particular, they criticize the significant restrictions imposed on the right to strike and the proposed elimination of some of labor’s protections (El-Din 2000). The government’s reluctance to present the draft labor law to parliament may thus stem from the fact that despite the official endorsement of the draft law from the ETUF, passage o f the law is politically risky because it directly threatens the rank-and- file by signaling the government’s explicit breaking o f the Nasserist era social contract (Pripstein Posusney 1995). The political risk is intensified because the government clearly does not believe that business is sufficiently strong to provide the necessary support to make this policy shift possible. Thus, rather than run the risk of provoking unrest and political instability by passing the law, it has instead failed to present it to parliament. The government has been playing a game of cat and mouse with regard to the draft labor law. In the beginning, it appeared committed to labor market reform as it allowed the business community and labor among others to participate in the formulation o f the draft law. Nonetheless, its actions since 116 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. then have minimized the importance o f the negotiations. Indeed, while it has announced every year that the draft law would be introduced in parliament within the year, every year without fail it has ensured that the bill never made it to the floor. By keeping the law on the table, it has minimally placated the business community, donors, and the ETUF and retained control o f the process. Unlike the roundtables that were held on the issue o f privatization, where business was completely shut out o f the policymaking on labor, business was invited to negotiate the draft labor law, and it appears that the final product reflects many of their demands. Business has not, however, been successful in ensuring that the draft becomes law. In addition to business’s participation in the negotiations and drafting of the proposed labor law, individual business associations have produced position papers, written articles, discussed it in their annual reports, and used the media to advocate on behalf o f the draft law. Despite the fact that they mention that this issue is one o f the most significant obstacles to investment in Egypt, business pressure on the government to pass the law has not been successful. Business has been unsuccessful due in part to its lack of organizational strength. While the strength of private-sector institutions in Egypt has definitely increased over the last two decades, these institutions are still not sufficiently strong to successfully pressure the government; this is especially true in policy areas that the government considers strategic such as reform o f the labor law. In 117 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Mexico (as will be seen in the following chapter), business interests were well organized. For example, the Business Coordinating Council in Mexico was an encompassing organization that was able to wield a tremendous amount of political power because it represented the interests of the business community as a whole. The Business Coordinating Council and the employers’ union (the Confederation of the Mexican Republic) were instrumental in pressuring the government to increase the flexibility in the Mexican labor market. In addition, the law under which independent business associations in Egypt were established (Law 32) grants the state power to intervene in their affairs. Consequently, while these associations are independent relative to the semi-official organizations, they are still vulnerable to state interference. For example. Law 32 grants the state the ability to influence the organization of business associations, define their preferences and the modes by which they articulate them. Given the private sector’s level o f organisation and its vulnerability to the state, its ability to effectively pressure the government to pass labor law reform is seriously compromised. Conclusion This chapter examined why labor market policies in Egypt have remained constant, despite the fact that Egypt has been liberalizing its economy since the late 1980s. While the previous chapter found that business 118 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. concentration was negatively correlated with benefits to labor, this chapter aimed to specify more fully the conditions that prevented the private sector from influencing labor market policy in its favor. The case o f labor market (non-) reform in Egypt revealed that while business began to play a more important economic role, its organizations (while strengthened) remained relatively weak. Business’ ability to successfully affect policy, especially in areas considered strategic by the government, is therefore significantly compromised. Reforming the labor market in countries like Egypt where the legitimacy of the state has historically been based in part on the maintenance o f its alliance with labor is politically risky. While organized labor itself is not a particularly strong social group in Egypt (due in large part to the corporatist nature o f its relationship to the state), the maintenance of the state-labor alliance instituted under Nasser has come to symbolize the government’s commitment to the legitimating ideas of social welfare and equity promoted by the revolution. The identity of the regime has therefore been in part defined by how it relates to organized labor. Labor market reform threatens the social contract that served to cement the state-labor relationship and thus the system o f state-society relations that has prevailed in the post-revolutionary era. The government is highly aware o f this and has made it clear that in order for it to move forward on labor market reform it would need the support of an alternative coalition 119 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. member. The lack of progress on labor market reform strongly suggests that business is not sufficiently strong to play this role. The quasi-socialist policies of the Nasserist era impeded the development of a strong private sector, by stripping away its structural power and severely weakening the institutions that represented its interests. The private sector was therefore left dependent on the government. However, since infitah, the economic power o f business has grown considerably and the government has increasingly relied on it to act as the engine of economic development. Nevertheless, business’ economic strength has been tempered by the regulatory environment and by the continued intervention of the government in the economy. In addition to its growing structural power, the institutional power of the private sector has grown due, in large part, to the establishment of independent voluntary associations in the 1980s and the increasing autonomy o f the traditional semi-official organizations. Both the independent and the semi official organizations have developed a variety of mechanisms to express their interests. However, despite their use of multiple modes o f interest articulation, few have been institutionalized. Consequently, they have not emerged as reliable tools for applying pressure to the government Another significant factor that has weakened the private sector’s voice has been the lack o f a single encompassing association. The existence o f an 120 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. encompassing business organization would strengthen the private sector’s position vis-a-vis the government by presenting a unified front. However, two factors contributed to the absence o f an encompassing business organization in Egypt First, establishing an encompassing business organization requires a high level of organization within the business community. Due to the anti business climate that existed in Egypt for close to two decades, the business community in Egypt did not have a long tradition o f organizing their interests, and thus their inexperience hindered their ability to cooperate and form a united front. In addition, big business, which normally acts as the catalyst in the drive to establish encompassing organizations, did not attempt to establish such an association. This may be because big business was not sufficiently concentrated to overcome the collective action problems associated with establishing an encompassing association. The legacy of the Nasserist era resulted in a business-govemment relationship that was dominated by the government Despite the growth in the private sector’s structural and institutional power and the shift in the government’s development strategy toward a private market-oriented economy, the private sector has not been able to transform its relationship with the government from one that is dominated by the government to a more balanced relationship where business can act as a coalition partner. Unlike business in Mexico (to be discussed in the following chapter), which was able to use its 121 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. strength to forge an alliance with the government and thus use its position within the alliance to influence labor market policy in its favor, business in Egypt has not been able to forge an alliance with the government The Egyptian government made clear that its reluctance to move forward with labor market reform was due to the lack of an alternative base of support This suggests that had the private sector been sufficiently strong to forge an alliance with the government the likelihood that the government would have moved more aggressively on labor market reform is high. The Mexican government faced similar institutionalized constraints with respect to labor. However, despite these constraints the government did not demonstrate a reluctance to reform its labor market. As will be seen in the following chapter, the nature of the business-govemment relationship emerged as a key factor that allowed the government to move forward with labor market reform. 122 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ENDNOTES 1 It should be noted that in the previous chapter labor benefits were defined as government social security and welfare benefits as a percentage of total government spending. This measure was chosen primarily because it lent itself to sound quantitative analysis. As the present chapter is qualitative in nature, the definition of the dependent variable will be expanded to include those institutions that regulate the labor market and provide protections for labor. For example, critical aspects of the labor market such as job security, labor legislation, and other labor protections excluded from the quantitative analysis, will be included in this analysis. 2 See Chapter 1 for a more complete explanation of the analytical framework used in this study. 3 In 1978, job guarantees for graduates were suspended in state-owned enterprises. While they continue in the government sector, the waiting period has reached eight years (Said 1996,39). In addition, the Mubarak government has succeeded in decreasing subsidies on consumer goods from 13 percent of government expenditure in the mid-1980s, to 7 percent in 1988 (Handoussa 1991,11 and 14). 4 Workers in the private sector were granted annual raises based on performance in 1981 (Pripstein Posusney 1997,138). 5 Although some private sector firms have found ways to circumvent the labor regulations, a study by Ahmed Galal (1996) argues that this practice is more common among small firms because enforcement is weaker in them than in large firms. Ultimately though, these labor regulations have a negative effect on firms’ competitiveness and discourage new investment (Fawzy 1998,21). 6 The 1923 Constitution granted the king executive power, and allowed the king to share legislative power with a partially democratically elected parliament. Between 1923 and 1952, Egypt experienced “bitter struggles between autocratic monarchs and popular prime ministers” (Abboushi 1970: 129). 7 The first Egyptian Chamber o f Commerce was established in Cairo in 1913. By 1926, more than 23 chambers existed throughout Egypt (Tignor 1984, 60-61). This study focused on the Federation of Industries because o f it represented the industrial sector’s interests and because for the next six decades it remained among the most prominent business organizations in Egypt. 123 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 8 There was a small group o f private sector contractors that were able to forge a public/private symbiosis in the 1960s (Waterbury 1983. 181). They acted as sub-contractors to the massive public sector. These muqawalun (contractors) fared well under Nasser. 9 Among the privileges granted to Law 43 firms, was the reduction in the percentage of profits that these firms were required to share with their labor force and a reduction in the number o f workers that were represented on the management boards. Finally, the variety o f subjects that the workers on the management boards were allowed to discuss was reduced (Pripstein Posusney 1997,288 fo. 110). I0 In fact, the size o f the public sector actually increased under Sadat (Waterbury 1993). 1 1 The characterization o f the FEI as a quasi-corporatist organization refers to the fact that its autonomy was severely limited vis-a-vis the state. This term does not imply that the FEI was incorporated into the state. 1 2 As of May 2001, Hosni Mubarak still held the presidency o f Egypt 1 3 As will be discussed later, under Mubarak, the military’s interests became detached from those o f the populist coalition. In fact the military has shed its alliance with public sector companies and has instead allied itself and collaborated with the private sector. Consequently, it is argued the military can no longer be considered a member o f the populist coalition. u The debt relief amounted to $24 billion (forgiven debt) and a cut in interest rate on the $10 billion o f the remaining debt (Lofgren 1993,411). 1 5 In the second phase, which began in January 1997, the Social Fund for Development received an additional $746 million (Bush 1999,32). 1 6 Although Mubarak did not have a pro-business cabinet until 1996 (Zaki 1999), there was a business presence in his cabinet well before 1996 (Bianchi 1989, Ibrahim 1994). 1 7 Mubarak’s efforts to cut subsidies were more gradual than Sadat’s attempt had been (Pripstein Posusney 1997,197). This may be largely attributed to the riots of January 1977. Indeed, after the riots, the government began to lift subsidies without prior announcement In addition, the government adopted a program of reform by stealth, where, for example those cuts that took place would involve a decrease in the quantity or quality of subsidized goods. 124 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 1 8 More than one-third of Nasser’s cabinet ministers had military backgrounds, while less than four percent o f the cabinet ministers under Sadat’s cabinet had exclusively military backgrounds (Springborg 1995,95). 1 9 Like Sadat, Mubarak has called on the military to maintain internal security. For example, in 1986, the Central Security Forces rioted in Cairo and it was the military that was called in to end the rampage (Keichchian and Nazimek 1997,128). It should also be noted that Mubarak’s desire to maintain the support o f the military is probably reinforced by the fact that an Islamic militant within the ranks o f the military, Khaled Islambouli, was responsible for the assassination of his predecessor. 2 0 These numbers exclude considerable additional hidden expenditures that are not included in official statistics for political reasons (Zaki 1995, 130). 2 1 This study focuses on the FEI and the more prominent independent business associations such as the EBA and the AMCHAM. 2 2 While the members are overwhelmingly representatives of the private sector, approximately five percent o f its members are public sector managers (Bianchi 1989). 2 3 Out o f455 members of parliament, 37 o f those elected in 1995 were businessmen in 1995 (Zaki 1999). Yet, only a small number o f businessmen are affiliated with any political party (Zaki 1999). 2 4 One notable example of a deal that has been held up, due in large part, to costly protections for labor is that o f the Italian group Pirelli. The negotiations to lease a company’s production line to Pirelli have been deadlocked for over a year due to disagreements over what to do with the excess labor force. Pirelli wants to dispose o f 70 percent o f the workers, however the government has not been willing to comply (El-Din 1998,8). 2 5 Information in this paragraph draws directly from an interview with a Project Manager o f DEPRA (2000). 2 6 The Public Enterprise Office was established by the Egyptian government in 1991 and was in charge o f supervising the privatization project (Pripstein Posusney 1997,215). 2 7 The ETUF is the sole legally recognized labor confederation in Egypt It is an encompassing (or peak) organization, which has the responsibility of representing all o f“official” organized labor. 125 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 2 8 Recall that Law 203 of 1991 included the “no lay o ff’ clause and stipulated that the extant labor legislation with its protections for labor would apply to privatized firms unless overwritten by new labor legislation (Pripstein Posusney 1997,214). Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 4 EXAMINING THE IMPACT OF BUSINESS-GOVERNMENT RELATIONS IN MEXICO ON LABOR MARKET POLICY, 1975-1995 In 1982, after having followed an expansionist macroeconomic policy for more than a decade, the Mexican economy entered a deep economic crisis. The government of Miguel de la Madrid (1982-1988) responded by negotiating a stabilization and structural adjustment program with the International Monetary Fund (IMF). Labor market reform was a fundamental component o f the structural adjustment program. Similar to Egypt, the legitimacy and stability of the Mexican state was based in part on the maintenance o f its institutionalized alliance with organized labor. Labor market reform called for a substantial reduction in labor's traditional protections and thereby fundamentally threatened the terms of the state-labor relationship and thus ultimately the stability of the regime. However, the private sector in Mexico favored labor market reform and lobbied the government to implement it. Unlike the case of Egypt, where the private sector failed to influence labor market reform in its favor, the private sector in Mexico has been largely successful in influencing labor market policy. In an effort to more fully specify the conditions under which the private sector in Mexico was able to influence labor market policy reform in its favor, this chapter examines how business interests with respect to the labor market in 127 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Mexico were translated into policy outcomes.1 This analysis specifically proposes that the Mexican business-govemment relationship is an indispensable element in the explanation o f the labor market policy outcome. Similar to the previous chapter, the objective of this chapter is to expand on the findings of the regression analysis in chapter two, which suggested that high business concentration in Mexico had a negative impact on labor benefits. Thus, in an effort to determine whether and how the business-govemment relationship has influenced labor policy outcomes in Mexico, the present chapter investigates the organization of business interests in Mexico and examines the business-govemment relationship. This chapter employs the analytical framework introduced in the previous chapter to analyze business-govemment relations in Mexico. This framework conceives o f business-govemment relations as being determined by a combination of structural and institutional factors.2 The first section of this chapter briefly describes labor market policies, state-labor relations in Mexico in the pre-reform era and the private sector’s position on them. The second section briefly discusses post-revolutionary business-govemment relations in Mexico before structural adjustment The final section examines the business-govemment relationship during the reform era (early-1980s to 1995) and its effect on labor market reform. 128 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Labor Market Policy in Mexico and the Business Community’s Position Mexican labor market institutions are rooted in the populist-nationalist ideology of the Mexican Revolution (1910-1920). The 1917 Constitution reified the revolutionary ideology by establishing an interventionist and autonomous state which sought to defend the interests o f labor and the peasants, while eliminating the privileges o f foreign monopolies and national political elites (Hamilton 1982, 3).3 Similar to Egypt, the ideals of social justice and redistribution shaped the institutions that came to underpin the Mexican labor market. State-Labor Relations Labor has been a key member of Mexico's ruling coalition throughout the post-revolutionary period (Patroni 1998,110; Samstad and Collier 1995,10). While an alliance between labor and the state had emerged in the early post revolutionary period, it was under president Lazaro Cardenas (1934 to 1940) that the state labor alliance was institutionalized. During the Cardenas administration, the governing party, the Party of the Mexican Revolution (reorganized as the current Institutional Revolutionary Party (PRI) in 1946), was restructured along corporatist lines where representation was based on four sectors: labor, represented by the Confederation of Mexican Workers (CTM); 129 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the peasantry, represented by the National Peasant Confederation (CNC); the popular sector, represented by the National Confederation o f Popular Organizations (CNOP); and the military (Hamilton 1982,242).4 Labor was therefore incorporated as one of the principal pillars o f the governing party (Samstad and Collier 1995,11). The corporatist system of state-labor relations that emerged served two purposes: first, it provided the government with a needed base o f political support; and second, it provided the government with a channel by which to control a potentially powerful social group, labor (Collier 1991,11). As in Egypt, the corporatist system of state-labor relations was cemented through a social contract. The social contract offered labor recognition as a legitimate political force, influence in the dominant party, some consideration o f its interests by the state, a degree of protection from its political enemies, and economic and political benefits in exchange for the unions’ collaboration in the task of controlling the rank and file and for their electoral and organizational support of the government (Camp 1999,10-11; Kaufman 1990,92; Samstad 1998,2). In so far as it tied labor to the state through the social contract, corporatism facilitated the state’s ability to control labor. In particular, the state exerted control over organized labor through its selection of labor leaders, its power to recognize unions and its capacity to dispense the political appointments and material rewards upon which the union leaders depended to 130 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. maintain control o f the rank-and-file.5 Corporatism thus allowed the Mexican state substantial control over labor and resulted in labor’s dependence on the state. Yet, because the state continued to base its legitimacy in the populist revolutionary ideology maintaining its alliance with labor was critical (Collier 1992, 38. 50). Indeed, in her influential book. The Contradictory Alliance (1992,50) Collier argues that since labor’s support was central to the logic of the Mexican regime, it could not afford to be seen as being anti-labor. Labor was, therefore, able to wield a degree of influence and maintain its position as a strategic base of support and member of the governing coalition of the Mexican government for over five decades (Middlebrook 1995). Labor Legislation The social contract that undergirded the corporatist system of state-labor relations was realized in Article 123 of the 1917 Constitution and the Federal Labor Law. Together they established what Cook (1998) refers to as a social protection model of labor regulations. That is, they provided generous protections for labor, while simultaneously setting up the m echanisms that would allow the state to intervene in and control union affairs as well as act as the mediator between capital and labor.6 Among the specific provisions of Article 123 were the regulation o f the length o f the workday, minimum wage, 131 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. workers' rights to form unions and strike7 , working conditions, compensation for work-related injury or sickness, paid maternity leave, and the prohibition of child labor (for children under 12 years of age). The same article of the constitution also included provisions for employee profit sharing, housing and other community services, collective contracts in the workplace, and the terms under which labor could be dismissed.8 Finally, the constitution provided for the creation of tripartite conciliation and arbitration boards where the state plays the role o f arbiter between labor and capital (Brachet-Marquez 1994,56-7, Patroni 1998, 112).9 The Federal Labor Law o f 1931 (which was revised in 1970), served to implement the provisions of Article 123 at the national level (Hamilton 1982,94). The Business Community's Position During the de la Madrid administration the private sector initiated its offensive against what it considered to be the source of the rigidity in the Mexican labor market and the key obstacle to Mexico's economic recovery and modernization: the social protection model of labor legislation (Patroni 1998, 119). The elements of Mexican labor legislation that are the hallmarks o f the social protection model are as follows: job security, collective bargaining, government intervention in industrial relations, provisions for seniority-based promotion, provisions for profit sharing, and mandated employer contributions 132 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. to social security and housing.1 0 Employers and international financial institutions blamed precisely these provisions for creating the rigidities in the Mexican labor m arket In particular, these groups argued that these protections pose a significant obstacle to achieving efficient allocation o f resources and improving competitiveness. The private sector called for a flexible model o f labor legislation to replace the existing one. Increased flexibility would permit increased employer discretion in decisions regarding employment levels, wages, the use o f the labor force, and facilitate the reduction of employer costs (Cook 1998,14; de la Garza Toledo 1994,208-209; Patroni 1998,121-2). Without exception, business organizations demanded more flexibility in negotiating wage and productivity contracts on a firm-by-firm basis rather than with large sectoral blocks (Luna, Tirado, and Valdes 1987,25). In addition to its demands regarding labor legislation, business also called for the elimination of the corporatist system of state-labor relations and the withdrawal of the state from the economy through privatization (Luna, Tirado, and Valdes 1987,32,40; Teichman 1996, 157). Finally, business called for tight fiscal policies, and was therefore in favor of government policy to reduce social welfare expenditures. Given the nature of the institutionalized state-labor relationship in Mexico, in which labor was a core constituency within the governing coalition, the demands of business for greater flexibility in the labor market challenged 133 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. this relationship. However, unlike Egypt, which was also undergoing economic restructuring and faced a similar domestic political challenge, the private sector in Mexico was largely successful in having its demands m et As will be seen, despite the fact that organized labor had been a member o f the governing coalition since the 1930s, three successive Mexican governments confronted the entrenched interests of organized labor. By 1995, most labor unions were significantly weakened, state-labor relations had become even more one-sided, labor had lost many of its traditional protections, and flexibility in the labor market had largely been achieved, especially in sectors like telecommunications.1 1 The result of this policy shift was that the social contract with labor was effectively dismantled and a shift in the configuration of the governing coalition away from labor was accomplished (Middlebrook 1995, 300). A Brief History of Modern Business-Government Relations in Mexico: Pre-Reform The Early Post-Revolutionary Period (1917-1934) The authoritarian regime that emerged in the 1920s and 1930s was characterized by a mixed economic system, and a dominant party authoritarian regime backed by an interventionist state with power centralized in the presidency (Johnson Ceva 1998a, 94). These traits of the post-revolutionary 134 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Mexican regime have their roots in the defining document of the Mexican Revolution, the Constitution of 1917 and have remained largely intact for the past seven decades. With respect to the economy, the constitution established the principle of a state-controlled economic system and, while it also provided for heavy regulation o f private capital, the constitution was not anti-capitalist (Hamilton 1982, 62). The provisions of the constitution specifically provided for the right to private property (contingent on its use for socially beneficial purposes), the right of the private sector to organize associations to represent its interests, and the prohibition of monopolies (Brachet-Marquez 1994,56; Waterbury 1993,45). It also reserved certain strategic sectors o f the economy for the state and delegated to it the important responsibilities o f regulating economic activity and arbitrating disputes between capital and labor (Waterbury 1993,45). The traditional Mexican bourgeoisie already significantly weakened by the revolution, felt threatened by the tone o f the 1917 Constitution because it established the idea of a progressive, interventionist Mexican state and outlined a new political role for workers and peasants. The early post-revolutionary governments faced the enormous task of building a new state and reconstructing the Mexican economy. They eschewed a capitalist development model and instead promoted an economic development strategy based on small proprietors (Hamilton 1982,67-8). They also initially attempted to reign in foreign capital, which continued to control key sectors of 135 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the Mexican economy. However, efforts to control and direct foreign capital were met with resistance from the U.S. government, which went as far as threatening military intervention (Hamilton 1982, 71-72). After a series of negotiations, the Mexican government ultimately established a collaborative relationship with foreign capital. As part o f the state’s effort to structure the relationship between it and the private sector, it established two semi-official peak organizations: the Confederation of Chambers o f Industry (CONCAMIN) and the Confederation of Chambers of Commerce (CONCANACO) in 1917 and 1918 to represent their interests (Hamilton 1982, 195-6).1 2 These organizations were given the mandate to act as advisory organs to the state (Puga 1993,74,124). In addition to these state-created business organizations, Monterrey business groups created the independent Employers’ Confederation of the Mexican Republic (COPARMEX) in 1928 “to insure employer input into the new labor legislation” (Hamilton 1982,94). Finally, the Mexican Bankers’ Association was also established in 1928. The close ties that existed between the private bankers and government officials resulted in the Mexican Bankers’ Association’s enjoying a more direct channel o f communication with the highest levels o f the Mexican government than the other business associations (Maxfield 1990,42-3). In contrast to COPARMEX, which has been a vocal critic o f the government since 136 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. its inception, the Mexican Bankers' Association has tended to be more moderate, supporting government policies and avoiding public confrontations. By the mid-1920s, the Mexican state shifted its development strategy and began to promote (although not necessarily rhetorically) large-scale capitalist development (Hamilton 1982,67-68). It appears that pressure from foreign and domestic capital, combined with the emergence of a group of military officers dubbed “revolutionary capitalists” who became part of the bourgeoisie, accounted for this dramatic policy change.1 3 An accommodation was thus reached between the revolutionary state and capital interests (Hamilton 1982, 107). Indeed, Hamilton points out that “the post-revolutionary economic reconstruction o f Mexico involved considerable cooperation between the state and the private sector” (Hamilton 1982,80). For example, bankers cooperated with state officials to influence the creation o f pivotal institutions o f economic and monetary policy such as the Central Bank (Banco de Mexico) (Johnson Ceva 1998a, 94). In turn, these institutions were instrumental to the state’s ability to provide an enabling environment for private sector economic activity (Brachet-Marquez 1994, S9, Hamilton 1982,81). Domestic and foreign capital ultimately played an increasingly important economic role in the early the post- revolutionary period. Nonetheless, due in large part to the interventionist nature of the state, the bourgeoisie was now dependent on the Mexican state to provide the necessary conditions for capitalist accumulation. 137 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Cardenas and the Progressive Alliance (1934-1940) By consolidating the alliance between the state, the working class and the peasants, the government of Lazaro Cardenas (1934-1940) was able to establish the basis of a progressive state that would break with the more conservative traditions o f the previous post-revolutionary governments. Among the populist-oriented policies of the Cardenas government were agrarian reform, mobilization of labor and peasants, and protection o f workers. By supporting the mobilization of labor and ultimately allying itself with it, the Cardenas government hoped to achieve a “balance” between the forces of production (Hamilton 1982,140). While the 1917 Constitution first brought workers and peasants into the political sphere, it was not until 1938 that they were formally incorporated into the structures of the newly established hegemonic party, the Party of the Mexican Revolution (PRM) (Patroni 1998,116). Indeed, the Cardenas government established Mexico's corporatist political apparatus, which has served to link the state to workers and peasants since the mid-1930s and has acted as an important mechanism of government control over these groups (Johnson Ceva 1998a, 95). In its new capacity as one o f the principal pillars of the ruling party and strategic ally of the government, labor was able to play a fundamental role in economic policy decisions (Johnson Ceva 1998a, 96). 138 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Although Cardenas' government aligned itself with the popular sectors and formally excluded the private sector from the structure o f the governing party, it was by no means anti-capitalist His government continued to promote the conditions for private capital accumulation. However, “the policies of the Cardenas government were based on an assumption that while capitalism was a necessary state o f Mexican development it could be controlled and regulated by the state” (Hamilton 1982,141). Hamilton argues that this assumption was inherently flawed. Structural factors such as the state's dependence on credit provided by the private sector intervened and limited its ability to direct capital (Hamilton 1982, 187,213). Nonetheless, one o f the ways in which the government attempted to regulate private capital was through the semi-official business confederations. The 1936 Law o f Chambers o f Commerce and Industry established the principle of compulsory membership in an industrial or commercial chamber for all businesses with capital amounting to over 500 pesos (approximately $143) (Hamilton 1982,196). By dividing business into different business confederation according to sector, the government intended to limit its political power (Maxfield 1990,55). It also defined these chambers as “consulting organs for the state," subject to government regulation (Luna 1995, 79). The nationalization of the foreign-owned petroleum companies in 1938 was a highly significant event for the Cardenas administration. The act was 139 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. motivated in part by a desire to end the foreign monopoly o f a key economic sector and challenge the continued foreign presence in other key sectors (Hamilton 1982). It resulted in the mobilization o f the conservative forces within the government, which forced concessions from the government and ultimately led it to include more “moderate elements” in the progressive coalition (Hamilton 1982,241). In the end, although the business sector felt alienated by the populist tone of the Cardenas government, throughout the sexenio it maintained a significant presence in the economy, and the more powerful elements were ultimately strengthened by those policies of the Cardenas government, which favored private capital accumulation (Hamilton 1982,275).1 4 Alliance for Profits (1940-1946) President Avila Camacho (1940-1946) placed a high priority on economic growth and considered the restoration o f business confidence a critical factor needed to insure the success of the new import substitution development strategy (Johnson Ceva 1998a, 96). The Avila Camacho government therefore courted business, offering it incentives to invest such as tax exemptions and protection o f domestic industry. At the same time, the state-owned enterprise sector grew rapidly and was harnessed to provide the necessary infrastructure and even low-cost inputs needed by the private sector (Basurto 1999,80). 140 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Avila Camacho’s term marked the emergence of a new pattern of cooperative business-govemment relations labeled the alliance for profits (Johnson Ceva 1998a, 96). This economic “alliance” was based on an implicit agreement between business and government in which the government would provide a propitious investment climate in exchange for the private sector’s commitment to refrain from participating in partisan politics. The pact also granted the private sector the right to participate in the formulation of policies affecting the business climate (Maxfield 1989, 221). This arrangement would remain a prominent feature of the Mexican economy for more than three decades. The government of Avila Camacho also instituted the practice of consulting and negotiating with the chambers on matters that could affect business economic interests (Luna, Tirado, and Valdes 1987, 16). These consultations were very discreet and took place at the level o f special commissions, advisory councils and government committees; each affiliated with different state agencies. “Such meetings, however, took place at the margins; direct access to the highest level of government officials was reserved for the most outstanding businessmen and business leaders” (Luna, Tirado, and Valdes 1987,16). This practice has since allowed business to participate in the formulation of public policies, albeit through informal mechanisms and personal ties. 141 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Stabilizing Development (1955-1970) Between 1955 and 1970, Mexico experienced a period o f unprecedented economic growth accompanied by low inflation. The model o f accumulation followed during this period was dubbed “stabilizing development” It was based on the protectionist state-led ISI model instituted by Avila Camacho in the 1940s. During this period, “An extensive para-statal sector supported private enterprise through subsidized services (railroads, petroleum, electricity, etc.) and investment loans, and high levels of protection benefited both domestic and foreign corporations producing for the internal market” (Hamilton and Kim 1993,123). Although the public sector played a supporting role for private sector activities, its role in industrial transformation was limited (Garrido Noguerra and Quintana Lopez 1987,108). The banking sector was one group that fared particularly well throughout the stabilizing development period (Garrido Noguera and Quintana Lopez 1987,108). Indeed, Maxfield (1990,93) argues that the bankers’ alliance, composed of private bankers, large-scale traders and industrialists, and public sector monetary authorities, was highly influential in the policy arena because it was able to provide access to badly needed foreign credit. The tremendous economic growth that Mexico experienced during this period resulted in the ’ increased economic, political, ideological and cultural influence o f the business sector” (Luna, Tirado and Valdes 1987,16). The increased influence of the business sector during this period forced 142 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. modifications to be made to the social pact between business and the state. Whereas previously, the state would consult the chambers on matters that could affect it, during this period business acquired veto power over policies it did not approve (Luna, Tirado, and Valdes 1987, 17, Puga 1993,85). In addition, the business sector also enjoyed increased influence in the appointment o f government officials (Luna, Tirado, and Valdes 1987, 17). The Mexican Council of Businessmen (CMHN), one of the most important business organizations in Mexico was established in 1964. A unique feature of the CMHN is that it represents between 30 and 40 elite businessmen. Its significance lies in its having combined the most powerful businessmen in Mexico in an autonomous organization that possesses access to the highest levels o f government. Due to the unequal distribution o f the benefits o f growth, not all social groups fared well during the stabilizing development phase. Although the populist-oriented administration of Lopez Mateo (1958-1964) improved the situation of labor, peasants, and rural dwellers for most o f the stabilizing development period, income distribution was skewed against them. “Strict budgetary and monetary policies since 1954 had significantly reduced the space for social spending, thus further accelerating the accumulated social and political pressures associated with highly skewed income and wealth structure” (Heredia 1992,3). Provoked by their frustration with government policies, 143 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. members of the middle and lower strata joined the antigovemment student protests of 1968, which the government o f Gustavo Diaz Ordaz violently repressed (Basurto 1999,80). Shared Development and the Alliance for Production (1970-1976) Upon assuming power, the government of Luis Echevem'a (1970-1976) was confronted with a political crisis that resulted from his predecessor’s repression of the student movement and the frustration o f the middle and lower strata over the skewed income distribution. The government responded to these challenges by adopting populist macroeconomic policies and increasingly creating new channels of political participation and inclusion (Heredia 1992, 7, Carillo Arronte 1987,56). Echeverria’s government promoted a shared development model, which aimed at achieving both growth and a more equitable distribution of the benefits. Business elites feared both the increase in the government’s intervention in the economy and the government’s nationalistic and revolutionary appeal. They perceived these as a direct assault on their interests (Heredia 1992, 7). Business-govemment relations grew increasingly tense and confrontational during this period. ’ ’ Major business groups viewed the state’s heightened role as a violation o f the rules of the game upon which previous cooperation had 144 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. depended— profits for business and political power for regime elites— and a clear threat to their long-term interests” (Heredia 1992, 7). In this increasingly tumultuous environment, radical antigovemment groups within the business sector increased their activities. For example, they began publicly criticizing the government and they became active in the National Action Party (PAN) (Heredia 1992,8). The radicals' conservative and highly public position highlighted the traditional cleavages within the private sector (Heredia 1992). Business has historically been divided along two axes: size and level of dependence on the state (Hamilton and Kim 1994,124). Though small- and medium-size firms (largely represented by the National Chamber of Manufacturing Industry, CANACINTRA) have tended to be more dependent on the state, some larger enterprises and business groups have developed under the protection of the state and are therefore dependent on it (Hamilton 1984,10). This group, labeled the moderates, has favored continued state protection and has tended to support the government and the Institutional Revolutionary Party. At the other extreme, the more independent businesses, which constitute the radical faction, have generally taken a more confrontational posture vis-a-vis the government and are considered the “strongest proponents o f resistance to the state-led economic program” (Luna, Tirado, and Valdes 1987,20). The radical faction, centered in the northeastern city o f Monterrey, has called for the transformation o f the Mexican political and economic model 145 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. o f development from what in their view is “a strategy o f import substitution, protectionism, and state interventionism, resting on corporativism and populist authoritarianism" to an outward-oriented market economy (Luna, Tirado, and Valdes 1987,40). The views o f this faction have been expressed by organizations like COPARMEX and CONCANACO (Table 8). In an effort to unite and thus strengthen the business community’s position vis-a-vis the state, the radical faction o f business created the Business Coordinating Council (CCE) in 1975. To this aim, the CCE was organized as a comprehensive multi-sector umbrella organization (Table 9). The significance of the CCE derived from the fact that it combined all major business groups in a single organization, it was autonomous with respect to the government, and it was a peak association, which aspired to represent the entire private sector. It has been “criticized for being undemocratic and unrepresentative, because each business association regardless o f the number of its members, receives one vote in its council" (Johnson Ceva 1998a, 100). Consequently, organizations like the Confederation of Chambers o f Commerce, which boasts 500,000 members, has the same voting weight as the Mexican Council o f Businessmen, which has less than 40 members. Another criticism of the CCE is that big 146 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 8 Ideological Factions and Principle Members of the CCE 1 5 Radicals Moderates Position vis-a-vis the government and Institutional Revolutionary Party Strong Criticism M oderate Criticism Unconditional Support Principle Sectors Manufacturing, Services Financial. Export Manufacturing Size of business in member organizations Large and Small to Medium Large Small to mid-sized Most prominent | member organizations • Employers' Confederation of the Mexican Republic (COPARMEX) ■ Confederation of National Chambers of Commeice (CONCACO) ■ National Agriculture Council (CNA) • Mexican Council of Businessmen (CMHN) ■ Mexican Association of Brokerage Houses (AMCB) ■ Mexican Association of Insurance (AMIS) • Mexican Bankers' Association (ABM) ■ Confederation o f Chambers of Industry ( CONCAMIN)* ■ National Chamber of Manufacturing Industries (CANACINT RA) a. Because the CANACINTRA is formally part of Confederation of Chambers of Industry, Confederation of Chambers of Industry holds an ambivalent position - it has both moderate and radical elements. Source Adapted from Luna, Tirado and Valdes 1987,21. and Luna and Tirado 1992. “El Consejo Coordinador Empresarial: Una Radiografia," Cuademos del Proyecto Organtzaciones Empresartales en Mexico, no. 1, Mexico City: Institute for Social Research, National Autonomous University ofM exico, cited in Luna(1995,81). 147 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 9 The CCE and Its Affiliated Business Organizations1 6 O rganization Established Type of Affiliation M em bership C riteria Business Coordinating Council (CCE) 1975 Voluntary Umbrella, multi-sectoral organization Mexican Council o f Businessmen (CMHN) 1962 By invitation Leaders o f principal national business groups (37 members) Mexican Association of Brokerage Houses (AMCB) 1980 Voluntary Brokerage houses Mexican Association of Insurance (AMIS) 1946 Voluntary Insurance firms Mexican Bankers* Association (ABM)'*’ 1928 Voluntary Financial institutions National Agricultural Council (CNA) 1984 Voluntary Agricultural industries Employers’ Confederation o f the Mexican Republic (COPARMEX) 1929 Voluntary Employers Confederation of Chambers of Commerce (CONCANACO) 1917 Obligatory Commercial and service firms Confederation o f Chambers of Industry (CONCAMIN) 1918 Mixed Industrial firms National Chamber o f Manufacturing Industry (CANACINTRA) 1941 Obligatory Industrial firms a The data on the ABM refers to 1982, when the banks were nationalized. Source: Luna and Tirado cited in Johnson Ceva (1998, 101). 148 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. business is over represented; it dominates at least three of the constituent organizations, namely, AMCB, the CMHN, and AMIX (Puga 1993, 72). Nonetheless, "The CCE has played an important role as a harsh and open critic of the government’s statist economic policies in the busmess-govemment conflicts which characterized the end of the Echeverria administration’ ’ (Johnson Ceva 1998a, 100). The expansionist policies of the Echeverria government resulted in a sharp deterioration of Mexico’s balance of payments and inflation above 20 percent (Heredia 1992, 8). The peso was devalued and capital flight ensued, leaving the succeeding government with an economic crisis on its hands. In addition, the creation of an independent peak business organization, the CCE, during the Echeverria sexenio was evidence of the increasing organizational strength of the private sector. The existence of the CCE was particularly menacing to the government because it came at a time when business- govemment relations were increasingly antagonistic. When Lopez Portillo assumed the executive in 1976, the dual challenge of overcoming an economic crisis and improving business-govemment relations awaited him. Lopez Portillo negotiated an agreement with the IMF and for a short while adopted orthodox stabilization policies (Heredia 1992,9). However, with the discovery of sizable oil reserves and the increased access to foreign 149 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. credit that it afforded, the government abandoned the stabilization measures and instead resumed an expansionist macroeconomic policy. The Lopez Portillo government moved quickly to restore confidence among the business community and improve business-goverament relations. “Lopez Portillo's conciliatory stance towards business, along with the formidable opportunities for profit-making provided by the oil boom, allowed the new government to quickly mend fences with major economic elites" (Heredia 1992,9). However, the improvement in relations would not survive Lopez Portillo’s sexenio. The expansionist economic policies o f his administration resulted in a high public sector foreign debt and inflation. The fall in oil prices in 1981, coupled with higher world interest rates, was devastating to the Mexican economy. By 1982, inflation was close to 100 percent, there was a massive peso devaluation, and the GNP growth dropped to -0.5 percent (Heredia 1992,9). The government responded to the crisis by nationalizing the banks in September o f 1982. With the exception of the CANACINTRA (a semi-official business confederation which represents small- and medium-size firms), business opposition to the nationalization was widespread. Most of the business community agreed that the unilateral decision on the part o f the government to nationalize the banks violated the terms of the long-standing business- 150 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. government pact that granted business the right to veto economic policies that could affect the business environment (Maxfield 1990,147). However, those who opposed the nationalization disagreed as to the proper response. On the one hand, the expropriated bankers and Mexico’s large industrial-commercial- financiaJ groups to whom the nationalization posed a direct material threat generally took a more cautious approach, preferring to negotiate and bargain with the government (Maxfield 1990,147-8, Shadlen 1997,82). On the other hand, the radicals and their allies in the PAN who had not been materially affected by the nationalization felt ideologically threatened by the government’s action, which expanded state intervention into traditionally private sector activities. The radical presidents of three of the most prominent business associations the CCE, COPARMEX, and the CONCANACO responded forcefully, by organizing social mobilizations and supporting the PAN (Maxfield 1990,148). Radical business leaders explicitly incorporated the demand for democracy into their discourse for the first time (Heredia 1992,10). They thus called into question the Mexican political system. During this period, previously apolitical moderate business groups directly challenged the hegemonic position o f the PRI by lending support and joining the more radical current within the opposition party the PAN (Hamilton and Kim 1993,125). Businesspeople also engaged in new forms o f political intervention including 151 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. launching media campaigns to mobilize public opinion, investing in research departments that generated studies to support their position, actively participating in political parties, and protests (Johnson Ceva 1998a, 104. Luna, Tirado, and Valdes 1987, 18). For example, business radicals organized a series of “Mexico in Freedom" meetings in cities and towns across Mexico in order to initiate a discourse on the related issues of democracy and build a cross-class electoral coalition (Heredia 1992, 10; Shadlen 1997,88). In the end, the alliance for profits, in which business promised to remain outside of partisan politics in exchange for a hospitable economic climate, had been broken (Johnson Ceva 1 998a, 1 O S). The consequence for the political sphere in Mexico was that “For the first time in 40 years, business-goverament conflict spilled into the electoral arena” (Johnson Ceva 1998a, 105). By the end of Lopez Portillo’s term in office, an open confrontation with business had erupted. Indeed, even some of the more moderate sectors o f the business community, which were traditionally supporters o f the state, began to actively oppose it (Hamilton and Kim 1993,125). The private sector as a whole was, therefore, mobilized and politicized by the nationalization and what they perceived to be the government’s mismanagement o f the economy. 152 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. A Brief History of Modern Basiness-Government Relations in Mexico: Reform When Miguel de la Madrid Hurtado assumed office in 1982, his government was faced with a deep economic crisis. The previous governments o f Echeverria and Lopez Portillo had relied heavily on oil exports and borrowing in world capital markets to finance their expansionist policies. Consequently, the Mexican economy became vulnerable to two international variables: world interest rates and international prices o f oil (Lustig 1992,2). Due to the combination o f a significant increase in world interest rates and a drop in oil prices. Mexico’s economic prosperity came to an abrupt end in 1981 (Johnson Ceva 1998a, 113). Inflation was nearing 100 percent, the public deficit had reached unprecedented levels, the price of oil, Mexico’s main export, had plummeted and the government was no longer able to obtain foreign credit (Heredia 1992, 11). In addition, the recent bank nationalization carried out by the Lopez Portillo government had exacerbated the massive capital flight problem. By 1982, the Lopez Portillo government had declared its inability to pay the interest on its debt, ushering in the Third World debt crisis. The de la Madrid government responded to the crisis by negotiating an orthodox stabilization program with the IMF in 1983 and a second agreement that included structural adjustment in 1985. The structural adjustment program entailed a fundamental restructuring o f the Mexican economy: from an ISI, 153 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. protectionist, state-led model of economic development to a neoliberal market- oriented model that focused on free trade and international competitiveness. Busin ess-Government Relations and Labor Market Reform Under Miguel de la Madrid (1982-1988): Hostility, Business Pressure, Alliance and Reform Business-goverament relations in Mexico had been increasingly hostile since the re-introduction o f populist policies under the Echeverria government in the early 1970s. By 1982, they had reached the breaking point. The business community had become deeply mistrustful of the government and important elements of it were growing increasingly confrontational. This is evidenced by the fact that “the presidents of the three most important private-sector organizations in the country (i.e., COPARMEX, CONCANACO, and the CCE) came from the most actively politicized and antigovemment currents within the business community’ ' (Heredia 1992,12). The business community was disappointed by what it regarded as the ineptitude o f the Mexican government to manage the economy and by the “authoritarian modes o f decision-making which lacked sufficient input from the private sector” (Johnson Ceva 1998a, 116). The radical business sector felt particularly threatened by the bank nationalization, which it understood as a direct assault against the institution o f property rights and an attempt by the government to gain control o f capitalists. In an effort to express a lack o f confidence in the government’s economic management and 154 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. pressure the government to meet its demands for both greater business participation in policy making and a more orthodox economic strategy, business used the two most powerful resources at its disposal: independent financial resources and private-sector institutions Throughout Mexican history the private sector never shied away from using either capital flight (or the threat o f it) or the withholding o f investment as tools to pressure the government (Puga 1993,87, 88). Given both the significance of private investment in the Mexican economy, which by 1975 represented close to 60 percent o f total investment and overall the dominance of private capital in the Mexican economy, the effects o f these measures were potentially destabilizing (World Bank 1998). The private sector withdrew massive amounts o f capital from the Mexican economy because o f the crisis. As is evident from Table 10, although the levels of capital flight diminished after 1983, the phenomenon continued throughout the 1980s. Furthermore, private investment during the 1981 to 1986 period decreased an average o f 2.8 percent per year. Both o f these phenomena significantly contributed to the severity of the economic crisis. 155 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 10 Private Sector Structural Power 1 i 1 Capital Flight (Billions o f U.S. Dollars) Private Investment (Annual Percent Change) 1981 11.6 13.9 1982 6.5 -17.3 1983 2.7 -24.2 1984 1.6 9.0 1985 0.7 12.2 1986 -2 2 -10.4 1987 0.3 6.8 1988 1.1 10.9 1989 -2.9 9.5 Source: Lustig (1992,40-41). In an effort to pressure the government to shift its development strategy, the business sector continued to both mobilize its organizations and engage in political activism. In particular, the radical faction proposed the adoption of a free-market development model that would integrate Mexico into international markets through export promotion that would emphasize Mexico's comparative advantage: labor (Luna, Tirado, and Valdes 1987,40). In order to take advantage of Mexico’s comparative advantage, the radicals argued that it would be necessary to introduce flexibility into the labor market. They also called for the government to withdraw from the economy by privatizing its state-owned enterprises (Teicbman 1996,157). 156 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. This sector argued that the norms and practices governing the relationship between the government and society would have to be modified for this new model to be fully implemented (Luna, Tirado, and Valdes 1987,28). It therefore called for a change in the sociopolitical organization o f the Mexican state. In particular, it proposed that it eliminate its tripartite, corporatist base and replace it with a more pluralist model in which “the competing interests of different pressure groups in society would supplant class contradictions” (Luna, Tirado, and Valdes 1987,32,40). It was hoped that the proposed model would end the continuation of the negotiating scenario in which the private sector confronted a united front o f public and “social sectors” (Luna, Tirado, and Valdes 1987,40). Given that labor was considered a “social sector,” this proposal essentially called for the dissolution of the state labor alliance. COPARMEX specifically complained that rigidities in labor legislation constituted a key obstacle to Mexico’s economic recovery and modernization (Patroni 1998,119). Employer groups pressured the government to reform the labor laws to allow for increased employer discretion, flexibility in labor relations (especially in hiring and firing), and lower employer costs (Cook 1998, 13, Patroni 1998,121). “Without exception, business organizations demanded more flexibility in negotiating labor contracts by the job or by the hour and according to the possibility o f each firm” rather than negotiating these contracts with large sectoral blocks (Luna, Tirado, and Valdes 1987,25). W hile business 157 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. had been calling for privatization o f the state-owned enterprises for some time, they complained that the nature o f the state-owned enterprises’ collective agreements made their purchase significantly less attractive (Teichman 1996. 157; Luna, Tirado, and Valdes 1987,25-26). Finally, organizations like COPARMEX also sponsored opposition to official unionism and called instead for a new form of unionism based on freedom of association (Luna, Tirado, and Valdes 1987,20; Patroni 1998,121). Due to the social pact that emerged in the 1940s prohibiting the private sector from becoming a partisan political actor, for over three decades the Mexican business community’s participation in Mexican politics had been highly circumscribed and discreet (Puga 1993,10). However, the bank nationalization impelled the business sectors, both radical and more moderate business groups, to mobilize politically. “The bank nationalization ushered in a period in which the rhetoric of the radical faction of business shifted from a concern with state intervention in the economy and protection of individual rights and liberties, to a campaign to democratize Mexico” (Maxfield 1989, 222). Thus, the radical leaders o f COPARMEX, the CONCANACO and the CCE linked their economic demands to political demands. “For these businessmen, elimination of the corporatist and authoritarian aspects o f the political system [was] a sine qua non for renewed investment in Mexico” (Maxfield 1989,222). Indeed, they considered political action indispensable for 158 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. resolving the business sector’s problems and defending their existence as a class (Luna, Tirado, and Valdes 1987,29-30). As discussed previously, business, especially the radical faction, engaged in social and political mobilization. Business radicals also forged closer ties with the PAN. Business’ active participation in the electoral contests and its opposition to the government is cited as an important factor that helped to seal the PAN’s victory in the 1983 municipal elections in the state of Chihuahua (Heredia 1992,21). Indeed, from 1983 onward “local-level opposition victories shook the Institutional Revolutionary Party’s traditional predominance and altered the terms o f political competition” (Loaeza 1994, 111). The political activities of the private sector therefore significantly contributed to the transformation of the vote from a symbolic validation of the Mexican regime to a means of protest (Loaeza 1994,112). The private sector thus used economic and political pressure against a government that was vulnerable to both. Government Response to Business Pressure Early in his administration, de la Madrid realized that stabilization and structural adjustment could not be successfully implemented without the cooperation of business. The government found itself vulnerable to the economic and growing political power of business and realized that it had to find a way to improve the relationship. Business interests thus acquired a new 159 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. prominence in Mexico's governing coalition. Indeed, Jesus Silva Herzog (Minister of Finance, 1982-1986) claimed that policymakers felt that they needed to improve business-govemment relations through any means possible (Schneider 1997, 197). De la Madrid's government therefore set out to achieve reconciliation with business with a series of initiatives designed to win back business confidence. These included providing generous compensation to expropriated bankers, restoring their non-banking assets, returning pro-business public financial institutions (such as the Central Bank and the Ministry o f Finance) back to the center o f policy formulation, and assisting heavily indebted firms in meeting their debt obligations and implementing tight fiscal and monetary policies (Heredia 1992, 16-17, Johnson Ceva 1998a, 116). In addition, in 1982 the de la Madrid government instituted constitutional reforms that limited state ownership to the strategic areas o f communications, petroleum and basic petrochemicals, nuclear energy, railroad transportation, and banking (Middlebrook 1995,298). The government also instituted a monthly business survey to gauge business opinions on a variety of economic issues, and it renewed the practice of meeting frequently with major business elites in the CMHN (Heredia 1992,18, Schneider 1997,197). The de la Madrid government used the CMHN as the organizational structure for these meetings and relied on it because it was less politicized than the other prominent private sector organizations like the CCE, CONCANACO, and COPARMEX. 160 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Collaborating with it served to marginalize the more radical business associations (Heredia 1992,18) and it represented some o f the most powerful businessmen in the country. In 1985, the Mexican government shed its state-led ISI model and initiated market-oriented reform. The break with its traditional inward-oriented and state-led growth strategies shifted the balance of power away from those sectors, which had benefited from the protection and toward the outward- oriented sectors (Heredia 1992,19). The government’s signing o f the GATT in 1986 shortly thereafter helped convince the Mexican private sector of the government’s commitment to economic liberalization (Hamilton and Kim 1993, 125). The privatization program was another factor that facilitated the administration’s success in re-establishing cordial relations with the private sector and in convincing it that “the government was committed to an economic development strategy in which the private sector would play a leading role” (Middlebrook 1995,299). Jesus Silva Herzog stated that the goal o f improving business-govemment relations “figured prominently in the privatization program (Schneider 1997,107). The government therefore privatized its state-owned enterprises at a quick pace, despite the potential for labor unrest. By the mid- 1980s, the newly re-invigorated financial sector and the export sector had cultivated a set o f allies for the government within the private sector (Heredia 1992,18). Indeed, “the measures o f the de la Madrid government had 161 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. succeeded at least partially in restoring the state-private sector alliance, as became evident in the support of the PRI candidate by major business groups’ * (Hamilton and Kim 1993,126). Labor Market Reform under de la Madrid The economic reforms undertaken by de la Madrid’s government, which promoted market mechanisms, efficiency, privatization, and increasing international competitiveness, were in direct conflict with the social protection model of labor relations and ultimately favored business interests over those of labor. Indeed in 1983, the government o f de la Madrid announced its National Development Plan, which focused on reorienting and modernizing production in order to meet domestic demand and become more internationally competitive (Teichman 1996, 153). The modernization of labor relations (i.e., increased flexibility in the labor market) was seen as integral to achieving efficiency, and international competitiveness. In addition to the long-term goals o f efficiency and international competitiveness, the Mexican government also had a short term goal: stabilizing its finances. Achieving both would require an assault on the labor market institutions that had traditionally provided protection and entitlements to labor. As part of the stabilization program aimed at controlling government expenditures, the de la Madrid government dramatically reduced social spending 162 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. by 1982. In particular, social security and welfare as a percentage o f government spending fell S O percent between 1981 and the end of de la Madrid’s sexenio in 1988 (World Bank 1998. Business had been calling for tight fiscal policy and was therefore in favor of government policy to reduce social welfare expenditures. The government also severely limited wage increases, relaxed price controls on basic commodities and reduced consumption subsidies (Middlebrook 199S, 286). The combination o f these measures resulted in a decline in real wages of approximately 30 percent between 1982 and 1988 (erasing advances in wages that had been made over the previous 25 years) and a dramatic reduction in the workers’ standard o f living (Table 11) (Brachet- Marquez 1994,152; Davila Capalleja 1997,302; Kaufman 1990,102; Middlebrook 1995,286). The de la Madrid government used various strategies to promote economic efficiency, modernize labor relations, and ultimately increase flexibility in the labor market Privatization of state-owned enterprises and industrial restructuring (mandatory in the public sector and encouraged in the private sector) were seen as integral to the transformation o f the economy. Both inevitably involved a large number of layoffs, an erosion or dissolution of collective agreements, and lower wages and benefits (Middlebrook 1995,286, Teichman 1996, 157). 163 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 11 Average Manufacturing Wage Daily. annual avenges in 1995 pesos Year Average M anufacturing Wage 1975 164.90 1976 179.05 1977 180.88 1978 177.18 1979 175.56 1980 162.26 1981 169.11 1982 166.26 1983 127.66 1984 119.67 1985 121.50 1986 112.68 1987 112.93 1988 110.61 1989 120.44 1990 124.74 1991 132.13 1992 143.41 1993 149.50 1994 155.33 1995 133.60 Source: Informe de Gobiemo. Mexico (1994) cited in Davila Capalleja (1997,302). Unlike Egypt, where privatization proceeded at a snail’s pace, Mexico moved aggressively. While privatization was part o f the structural adjustment program launched in 1985, by 1986 the government had privatized 36 percent of the firms scheduled (Valdes Ugalde 1994,226). Privatization clearly had a Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. negative impact on labor. Indeed, it resulted in massive employment cuts such that between 1983 and 1993 more than 400,000jobs had been eliminated (Goodman 1997,160, Middlebrook 1995,297). Tough restructuring measures were imposed on state-owned enterprises before their sale in order to make them more attractive for purchase because the private sector had complained to the government that the collective agreements made purchase of state-owned enterprises unattractive (Teichman 1996,157). Those unions that resisted the restructuring measures could be subject to the company being declared bankrupt and the collective agreement’s being dissolved. The government employed this tactic in the cases o f Fundidora Monterrey (a steel company) in 1986, Cananea (a mining company), Aeromexico (a state-owned airline company) in 1988, and Concaril and Sicartsa (both steel companies) in 1991. In other cases where the government encountered difficulty selling the state-owned enterprises, such as that of Masa (a bus manufacturing enterprise), the enterprise was closed and the collective agreements were dissolved, allowing the government to later sell the enterprise and avoid labor resistance (Teichman 1996,157). Finally, in other instances, the government used its right to intervene in labor disputes (requisa) to abrogate labor rights and the collective agreement and force the workers back to work (Teichman 1996,157). 165 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. In addition to restructuring labor relations in state-owned enterprises, the government’s shift toward export-oriented production resulted in its support o f private sector efforts to restructure labor relations, increasing their flexibility. Since the mid-1980s, “the negotiation or renegotiation of collective bargaining agreements in Mexico has been governed by the concept of increased flexibility” (de la Garza Toledo 1994,209). Indeed, COPARMEX has called for such increased flexibility and the government has encouraged such moves. Patroni (1998, 121) argues that the increased flexibility that employers have been able to achieve in the collective agreements has satisfied most of their demands, making reform of labor legislation a virtual non-issue. The case of the Ford plant in Cuautitlan provides a clear example of the government’s support of industrial restructuring in the private sector. In 1987, 3.200 workers went on strike for 61 days at the Ford plant to demand a 23 percent wage increase that the de la Madrid government had recently approved. The government tacitly supported the company’s temporary closing of the plant and dismissal of the workforce because Ford argued that the wage increase would harm its international competitiveness. Ford eventually re-opened the plant, rehired 2,500 o f the original 3,200 workers and modified the collective agreement to greatly increase production flexibility and reduce the wage and benefits levels of the workers (Middlebrook 1995,276). 166 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Another element o f the government’s tough stand against labor was its intolerance o f work conflicts. The de la Madrid government used its authority to reject an unusually high number of strike petitions. In fact. Middlebrook (1995. 261) reports that although the number of strike petitions filed in federal- jurisdiction economic activities remained high; between 1983 and 1988 the de la Madrid government only approved 1.8 percent In addition, the government frequently terminated strikes by applying an unusually strict interpretation of the labor code that allows the government to declare strikes illegal or nonexistent (Kaufman 1990,107, Teichman 1996,157). Organized labors’ reaction to these tough measures generally followed the lead of Fidel Velazquez (leader of the CTM since the 1940s), who by 1986 had begun to express harsh and public criticism of the reforms (Samstad and Collier 1995, 16). Organized labor further protested these policies through strikes and threatened the government with general strikes (that were never realized). However, as noted previously, the government severely limited labor’s ability to engage in strikes. Ultimately, “official” labor (those federations and unions incorporated into the governing party) was in a delicate situation: it opposed the new economic policies, yet it wanted to m aintain its privileged position within the governing coalition. “While the CTM and other powerful labor leaders could tactically threaten a rupture, in the end they could not really risk one” (Samstad and Collier 1995,17). Consequently, the CTM 167 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. and other “official*' unions tried to work to change the system from within, for example, trying (unsuccessfully) to influence the PRI's choice for the presidential candidate. The Economic Solidarity Pact (PSE) o f 1987 represented the de la Madrid government’s attempt to simultaneously control inflation and gain the support of the private sector. The pact, which prominently featured concerted income and price controls, specifically entailed wage and price controls and resulted in decreasing real wages by 29 percent in the first year (Johnson Ceva 1998a, 125).1 7 The private sector favored the pact because it offered wage restraint. “Businesspeople saw the government’s success in wage control as a key factor affecting their confidence in the long-term investment environment” (Johnson Ceva 1998a, 122). Labor’s participation in the tripartite negotiations amounted to essentially ratifying the agreement reached between business and the state (de la Garza Toledo 1994,211). The PSE negotiations thus signaled a fundamental loss o f labor’s power within the Institutional Revolutionary Party in the 1980s (Roxborough 1989). With regard to the negotiations. Pastor and Wise (1994) assert. In essence, elite representatives, led by the CCE, and their public-sector counterparts, including executive level appointees from the PRI and highly qualified technocrats from the major trade (Secofi) and financial ministries (Programming and Budget, Finance and Bank of Mexico), more or less set key targets and then announced them to labor and smaller business interests after the fact (Johnson Ceva 1998a, 123) 168 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Then- CCE president Augustin Legorreta made it clear that business interests dominated the formulation of the pact He stated, [The authorities] understood that if in July, inflation was running close to 1000 percent they risked losing power. Since holding onto power is of paramount importance to them, they agreed to the conditions imposed by the three hundred people comprising the business elite. (Valdes Ugalde 1994,230) While the CTM had historically played a significant role in policy decisions, it was not included as an equal negotiating partner in the pact. In fact labor was subordinate to business in the pact negotiations, illustrating the fundamental loss of labor power within the PRI that had occurred in the 1980s (Johnson Ceva 1998a, 124). Labor had historically been an important pillar of PRI support and these negotiations demonstrated that a transformation of the governing coalition away from labor and toward business was occurring. In its commitment to pursue a new open development model, the party sought to build new political support among private sector groups, which was seen as the key to success of this model. The PRI planned for these business groups to fill a vacuum left by the party’s dismantling of the corporatist system, which had traditionally incorporated more substantial participation from labor and popular groups in policy making. The pact represented a turning point in business-govemment relations and the first concrete expression of a new strategic alliance. (Johnson Ceva 1998a, 125) In sum, the business-govemment relationship began to be transformed as a result of a combination o f the structural and institutional power o f business, which was reinforced by its growing politicization and the changing economic context in the country as a whole. What emerged was a shift by the regime 169 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. toward an alliance with business and away from labor. This transformation represents a significant institutional change that helps to explain the de la Madrid administration’s aggressive policy towards labor. Business-Government Relations and Labor Market Reform Under Salinas (1988-1994): Economic Strategy, Big Business Concentration, Consolidation of the Business-Government Alliance and Reform The presidential election of 1988 was significant because it was the first time that the ruling party candidate had come close to losing. Carlos Salinas de Gortari, the PRI candidate, received S0.7 percent of the vote representing the lowest proportion of the popular vote garnered by the ruling party candidate in Mexican electoral history (Teichman 1996.149). Both the National Democratic Front (FDN) and the PAN contested the results of the election as fraudulent (Hamilton and Kim 1993, 126). The left-of-center FDN organized mass protests and claimed that its candidate, Cauhtemoc Cardenas, was the real victor. The highly contested nature o f the elections called into question the legitimacy o f both the Salinas administration and the regime. Upon assuming office, Salinas was thus faced with two challenges: bolstering his legitimacy and that of the PRI and jump-starting a stagnant Mexican economy. The Salinas government responded to these challenges by 170 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. making the economy its priority. In particular, the government “[pursued] an even more ambitious plan o f economic restructuring in order to promote economic stability and restore the regime’s performance-based claims to political legitimacy” (Johnson Ceva 1998a, 128). This was not surprising given that as the Secretary o f Budget and Planning during much o f de la Madrid’s sexenio, Salinas had been the principal architect o f much o f the government’s restructuring program. His efforts to accelerate the pace o f neoliberal economic restructuring won his government “widespread approval from domestic and foreign investors” (Middlebrook 1995,299). In particular, the government’s plan contained four fundamental goals and strategies for achieving them. First, fiscal austerity would be pursued in an effort to eliminate inflationary pressures and provide a basis for growth. Second, the government’s participation in the economy would be significantly curtailed and private sector investments increased through vigorous privatization. Third, a wide range o f economic activities would be deregulated in order to eliminate barriers to private sector investment. Fourth, trade liberalization would be expanded (Heath 1998,46). The signing of the North American Free Trade (NAFTA) agreement with the United States in 1993 signaled the commitment of the Salinas government to the opening of the Mexican economy to free trade. In addition to pursuing these economic goals, the Salinas government also initiated a social program in the early 1990s called National Solidarity 171 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Program (PRONASOL). PRONASOL represented an effort on the part o f the Salinas government to both address the legitimacy problem that was made clear by the 1988 elections and make economic reforms politically viable. PRONASOL targeted the urban poor and marginalized populations. Most of PRONASOL’s resources were allocated to areas that were strongholds o f the electoral opposition (Fox 1994,166). Thus, it is clear that the Salinas government saw this program as a political tool. Indeed, PRONASOL was designed to establish more direct links between the state and society, bypassing both the opposition and the corporatist apparatus (Fox 1994,166). Concurrent with PRONASOL, Salinas’ government continued to slash labor’s protections. Clearly, by instituting PRONASOL, the government intended to shift its base of popular support away from organized labor. The government used this program to enhance its legitimacy with the urban poor and marginalized groups, weaken the power of sectoral groups like labor (and thus the corporatist system), strengthen the PRI’s territorial structure, and further centralize power in the executive branch of government (Fox 1994,168; Middlebrook 1995,305). Big Business Concentration Mexican capital is characterized by relatively high concentration. That is, “it is dominated by a small number o f large financial-industrial-commercial conglomerates” (Maxfield 1990,48). In the Mexican context, these diversified 172 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. business organizations are referred to as grupos. Grupos “consist o f industrial firms (often vertically integrated), commercial houses, financial institutions (in many cases integrated into powerful “financial groups”), and, sometimes, transportation firms, mines or other economic firms, which are related through common ownership and interlocking directorates (Hamilton 1982,33). Unlike Egypt, grupos have historically played an important role in the Mexican economy. Expansion magazine’s 1991 report on Mexico’s principal economic groups found that, Significant economic concentration is still present.... Companies that occupy the top ten positions in the total o f 119 principal groups— Telmex, Vitro, Grupo Industrial Alfa, Cifra, Valores Industriales, Desc, Cemex, Bimbo, Grupo Industrial Minera de Mexico and Industria Pefioles— generated 56 percent o f total sales, mobilized 61 percent o f total assets, and represented 53.7 percent of employment (Valdes Uglade 1994, 234) Furthermore, in the manufacturing sector, the largest 1.3 percent o f the firms accounted for 71.8 percent of aggregate value in 1990; while micro-enterprises, which represented 86.9 percent o f manufacturing enterprises, produced only 4.7 percent of aggregate value (Luna 1995,85). The Salinas administration’s industrial development policies, which focused on achieving international competitiveness, explicitly encouraged large- scale enterprises to the detriment o f small business (Luna 1995,84). For example, the privatization program was criticized because it 173 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. sought to reallocate the property o f the large public companies mainly among the major national private sector oligopolies, but also to some conglomerates that had been medium-scale and have more recently become giants— giving rise to new and very powerful economic actors. (Luna 1995,85) Clearly, these groups continued to dominate economic activity, and may have even fortified their position under Salinas. Significantly, the heads of these businesses held key decision-making positions in the country’s most prominent business associations, the CMHN, the Mexican Association o f Insurance, Mexican Association of Brokerage Houses, the CCE, etc. (Valdes Ugalde 1994, 234). “Altogether there are some 121 individuals who control the principal representational channels within the private sector, as well as this sector’s capacity to negotiate with the government and with other social groups” (Valdes Ugalde 1994,234). Clearly, as indicated in Chapter 2, business power in Mexico is concentrated in the hands of a limited group of business elites. Consolidation of the Business-Government Alliance The Salinas government was committed to transforming Mexico into an export-oriented free-raarket economy and understood that it needed the support of the private sector to insure its success. Indeed, collaboration with private- sector institutions proved to be critical to the government’s reform efforts. It therefore forged ties with the most important business groups and associations in Mexico (Johnson Ceva 1998a, 130). The government used a variety of 174 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. mechanisms, such as meetings, pacts, and bargains in order to formulate policies that were acceptable to business (Johnson Ceva 1998a, 130). The Salinas government collaborated extensively with the CCE, an autonomous umbrella organization, whose free market orientation coincided with that of the government (Johnson Ceva 1998a, 131). From its inception in 1975, the CCE had been controlled by the anti-statist element o f big business. However, by the mid-1980s “the less confrontational, internationalized sector of business” (mostly representing large firms in industry and finance) took control o f the CCE (Shadlen 1997,9-10). “This was an important change, because traditionally Mexico’s most prominent industrialists and bankers tended to interact with the state discreetly, through narrow, individualistic channels” (Shadlen 1997,10). The transformation of the CCE thus provided a formal channel through which the government and business could interact The CCE’s influence in economic decision-making grew significantly under Salinas. In fact the CCE “climbed to the role of the most privileged interlocutor and advisor to the government on all matters concerning private interests. One former president o f the CCE was appointed as special economic advisor to President Salinas and CCE leaders were invited to most trips abroad” (Puga 1993, cited by Johnson Ceva 1998a, 131). During his term, Salinas moved to further consolidate the business- govemment alliance. Since his development strategy envisaged Mexico as an 175 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. export-oriented private sector driven economy, be needed the cooperation of business in order to succeed. The Salinas government's collaborative and public relationship with organizations like CCE was a symbol o f the new business- govemment association that was being forged (Johnson Ceva 1998a, 131). The negotiations over NAFTA are also illustrative of the cooperative nature of business-govemment relations under Salinas. Indeed, NAFTA was negotiated by a small group of economic policymakers and the Business Coordinating Council on Foreign Trade (COECE), a newly created private sector trade I A advisory group. The final factor that facilitated the more cooperative business- govemment relationship under Salinas was the fact that business political mobilization had significantly abated. Part o f the reason lay in the fact that the government had co-opted the “counter-hegemonic” project advocated by the radicals (Hamilton and Kim 1994,127). Furthermore, the radical faction o f business, which had aligned with the PAN, was disturbed by the strong showing o f the leftist presidential candidate and by the dismal results o f their candidate. It consequently “de-emphasized participation in the PAN” and toned down its criticism of the government (Luna 1995, 83-4). 176 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reform of Labor Market Policies Although the Salinas government made minor concessions to labor, overall its business-supported reform agenda resulted in policies that were even tougher on labor than those o f his predecessor. Salinas’ aggressive policy toward labor consolidated the regime’s shift away from labor (and toward business) that was initiated by de la Madrid. Shortly after assuming power, the Salinas government attacked organized labor, sending “an unmistakable message that Mexico’s new president intend[ed] to curb the power that unions [had] traditionally wielded” (Collier 1991, 138). In his 1990 May Day speech Salinas announced an initiative he called “new unionism” that aimed at making unions more representative; changing the state-labor relationship by granting unions more autonomy from the state; and changing the nature of labor-management relations by increasing the communication and cooperation between labor and management with a focus on increased productivity (Samstad and Collier 1995,19-20). In practice, however, new unionism focused on “securing greater flexibility for enterprises in restructuring their operations, raising their productivity and generally improving their international competitiveness without meeting resistance from powerful labor interests” (Samstad and Collier 1995,20). Part and parcel of the new unionism was an emphasis on a reorientation away from contract negotiations at the national level (which generally involved 177 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. state concessions and protection) and toward firm-level negotiations, where state intervention would be minimized (Samstad and Collier 1995,20). Indeed, in 1992 the Salinas government supported employers’ attempts to abrogate the terms of industry-wide contracts by negotiating wage and productivity agreements at the level o f the firms (Middlebrook 1995,295). As such, new unionism was an explicit attempt by the Salinas government to facilitate improvements in productivity, modernize enterprises, shift the arena of labor contract negotiations from the national to the firm level, and ultimately increase flexibility in the labor market. This policy ultimately undermined the position of the “official” labor unions and favored the newer more independent unions like Federation o f Unions of Goods and Services (FESEBES), which were supportive of the government’s and the private sector’s calls for attention to productivity, enterprise modernization, and flexible workplace relations (Middlebrook 1995,296). The Salinas government was bolder in its anti-labor position than the government of de la Madrid. Among the tactics used by Salinas to weaken labor was the replacement of aggressive labor leaders with more accommodating union leadership (Middlebrook 1995,295, Teichman 1996, 157). The w'ell- known case o f the arrest of Joaquin (“La Quina”) Hernandez Galicia, leader of the powerful Sindicato de Mexican Petroleum Workers’ Union (STPRM) on charges of illegal firearms possession is an example o f the government’s 178 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. aggressive policy vis-a-vis labor unions (Middlebrook 1995,294). La Quina’s arrest is significant because he had broken ranks with the PRI during the 1988 presidential elections and had supported publicly Cardenas. The government also imposed new collective agreements in petrol, mining, and airlines that eliminated union control over important issues areas like worker mobility, technological innovation, promotion, and movement through the ranks (Teichman 1996,160). In particular, the modernization plans for the Mexican Petroleum Company (PEMEX) resulted in the modification o f 94 clauses of the collective agreement, the outright elimination of 15 clauses, large-scale layoffs, and the elimination o f union control over workers* mobility (Teichman 1996, 160). Other tactics used by the Salinas government to confront labor included the continuation of the hard-line approach taken by the de la Madrid government toward strikes. Indeed, the Salinas government accepted only 2.1 percent of strike petitions filed by unions between 1989 and 1993 (Middlebrook 1995, 295). In addition, the government extended the PSE, renaming it the Pact for Stability and Economic Growth (PECE). Again, the government and business (represented by the CCE) dominated the negotiations, leaving little room for organized labor to influence the terms o f the pact. Another strategy used by the government to weaken labor was the use of its power to arbitrate between labor and capital. It frequently used the role of 179 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. arbiter to ensure a favorable outcome for business in its disputes with labor (Middlebrook 1995,295). The case of the Volkswagen plant in Puebla, where in 1992 workers went on strike because they opposed the new wage scale and job reclassifications, illustrates this government policy of using the Federal Conciliation and Arbitration Board (JFCA), to rule in favor o f business. The workers demanded that a vote be held to rescind the new agreement and remove the labor leader that negotiated it Much like the earlier case o f Ford, Volkswagen managers responded by declaring bankruptcy, closing the plant laying off all 14,200 workers, and re-opening it as a new company that did not recognize the previous union contract (Samstad and Collier 1995,25). Volkswagen petitioned the JFCA for the right to annul the original contract and suspend the terms of employment at the plant (Middlebrook 1995,284). The JFCA ruled in favor of Volkswagen’s petition. The company later selectively rehired some o f the workers; however, it imposed a new contract, which allowed for a significant increase in managerial control over the production process (i.e., increased flexibility). The JFCA’s decision is illustrative o f the Salinas administration’s support of private sector interests at the expense o f labor’s welfare. As previously mentioned, the privatization program has negatively affected labor by eliminating hundreds of thousands o f jobs, eroding or abrogating labor’s contracts, and lowering wages and benefits for those workers 180 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. that remain with the newly privatized company. Mexican business associations have traditionally favored privatization and therefore pressured die Salinas government to take a more aggressive approach to privatization. Under Salinas, the Mexican government increased the pace and depth o f privatization such that by 1991 80 percent o f the listed state-owned enterprises were privatized (Valdes Ugalde 1994,226). Unlike Egyptian workers, Mexican employees o f privatized state-owned enterprises could be (and were) dismissed in order to streamline the companies’ operation. In addition, in order to make the purchase o f state-owned enterprises more attractive, the Mexican government either dissolved the state- owned enterprises collective agreement (as in the case o f Masa) or modified and eliminated a substantial number of clauses from their collective agreements (Teichman 1996,156-157). In contrast to the Egyptian government, which dealt with the potential labor problem associated with privatization by developing an elaborate two-pronged strategy that included allowing labor to buy shares in privatized companies and providing voluntary early retirement schemes to state- owned enterprises employees, the Mexican government did nothing to provide protection for these workers. The Mexican government’s inaction in this regard is illustrative o f a government that did not feel it had to uphold the social protection model of state-labor relations. The privatization of TELMEX, the state-owned telecommunications firm represents an exception to the government’s harsh treatment o f labor throughout 181 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the privatization process. TELMEX’s employees were members o f the Mexican Telephone Workers Union (STRM) which was affiliated with FESEBES a non- traditional federation that had pledged to “raise productivity and facilitate restructuring in exchange for its support of the government’s call for flexible workplace relations, its mobilization for increased productivity, and its rejection o f confrontation in favor of concertation (de la Garza Toledo 1994,213; Tuman 1999,6-8). The STRM successfully negotiated employment guarantees, and the maintenance o f working conditions and benefits during privatization. The union was able to acquire 4.4 percent of TELMEX stock (Samstad and Collier 199S, 23). In essence, the STRM embraced a more flexible model o f labor relations in exchange for the maintenance of limited protections. It must be noted that traditional labor unions did not support this model and that the STRM and FESEBES remained exceptional in the privatization experience in Mexico. The final aspect of labor market reform that freed the Salinas government was the labor law itself. In an effort to gain more protections, the CTM had initiated discussions of labor law reform in 1987 (Middlebrook 1995, 298). In 1989, (and again in 1994) COPARMEX floated proposals to modify existing labor legislation. They specifically called for increased flexibility in labor relations (e.g., facilitating internal labor mobility, reducing the costs of dismissing workers, promoting workers on the basis o f performance as opposed to seniority-based promotions, and hiring workers under temporary contracts), 182 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the prohibition o f closed and union shops, the prohibition o f union leaders holding union and political offices simultaneously, and the banning o f collective affiliation to political parties, inter alia (Cook 1998,14). Salinas called for the creation of a tripartite commission to discuss the issue in 1989 (Patroni 1998, 123-4). While labor rejected business’s proposals, the Salinas administration publicly agreed with the business’s concerns regarding the need to change the labor legislation. However, the Salinas government “later abandoned this approach and opted instead to advance in the restructuring o f labor relations through the introduction of changes in collective agreements” (Patroni 1998, 124). It appears that Salinas feared that supporting an increase in the flexibility of existing labor legislation might have “fueled arguments within the US against the alternative of a trade deal with Mexico” (Bensusan and Garcia 1993, cited in Patroni 1998, 123). In addition, labor recognized that business interests “were politically influential in the Salinas government, and the labor movement’s weakened bargaining position all made the CTM fear it might have little influence over the final terms of the new legislation” (Middlebrook 1995,298). Consequently, labor pressured the Salinas government to suspend the activities of the tripartite commission. In the end, the Salinas government distanced itself from the private sector’s proposals for the reform o f labor legislation. However, it did allow for increased flexibility in labor relations by supporting changes in 183 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. collective agreements and continuing the practice o f consistently supporting the private sector in the settlement o f labor disputes, even if it meant loosely interpreting the existing labor legislation. As previously discussed, since the launching o f structural adjustment and the shift to neoliberal policies in the 1980s and 1990s, the governments of de la Madrid and Salinas have increasingly abandoned their earlier protection of labor in favor of business (Cook 1998, 12). Because o f these practices, a de facto increase in the flexibility of the labor market has occurred, making the need for legal reform less critical (Cook 1998,12, Patroni 1998,127, Tuman 2000). Consequently, labor law reform has not been aggressively pursued by business. While the proposals succeeded in starting a dialogue on the issue, business was not able to mobilize sufficient pressure to actually effect any de ju re changes in the labor market. This may be because the costs o f engaging in collective action in support o f labor law reform that would merely formalize and legalize the de fa cto changes in labor market practices that had already been informally accepted by the government likely outweighed the benefits. Conclusion This chapter has sought to present the role played by the business- govemment relationship in promoting labor market reform in Mexico. This study revealed that while for the greater part o f the post-revolutionary period the private sector in Mexico was excluded from participating in formal partisan 184 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. politics, it has played a critical role in the development o f the Mexican economy and as a result has acquired credible structural power which it has used (and threatened to use) against the state on numerous occasions. In addition, since the early pre-revolutionary period the business sector’s interests have been represented by a combination of quasi-corporatist institutions and independent business associations. By the 1980s, they were well organized (many o f them having been established during the stabilizing development phase) and had developed complex mechanisms for pressuring the government Consequently, when the crisis hit the Mexican economy in 1982, the private sector had two powerful tools at its disposal—structural power and well-organized institutions. It therefore responded with capital flight withholding investment and mobilizing its organizations to pressure the government to alter its development strategy. In addition, the politicization of the private sector, which began in the early 1980s, served to reinforce its structural and institutional power. Both the de la Madrid and Salinas’s governments were vulnerable to the private sector in a way previous administrations had not been. The Mexican economy could not endure more capital flight, and the private sector was needed to aid in the implementation of economic reform. Both governments realized that without private sector cooperation and support, the IMF-dictated reforms would fail. The private sector also realized this and used its structural and organizational strength to re-negotiate its relationship to the state. What 185 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. emerged was a shift by the regime away from its traditional alliance with labor toward an alliance with business. Business was ultimately able to use its position within the new alliance to successfully influence the labor market policy in its favor. The business-govemment relationship in Mexico clearly influenced the direction of the labor market policy. Given that labor had acted as a strategic base of government support for most o f the post-revolutionary period, had the government not had a strong and reliable potential base o f support in the private sector it might have been reluctant to move forward on labor market reform. However, the combination of the existence o f a business sector that possessed both structural and organizational power vis-a-vis the government allowed the business-govemment alliance to emerge and labor market reform to move forward. In the end, this analysis has shown that understanding social actors, in particular business, and how they interact with the state, is crucial for a fuller understanding of economic policy choice. 186 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ENDNOTES 1 Similar to the previous chapter, this chapter uses an expanded definition of labor market policy. By labor market policy, we specifically refer to the policies that govern the labor market and provide protections for labor. For example, job security, labor legislation, and protections for labor are included in this definition. 2 See Chapter 1 for a more complete explanation of the analytical framework used. 3 While the constitution embodied the ideals o f the revolution, it was not until the Cardenas administration (1934-1940) that these ideals were largely realized (Hamilton 1982). 4 The military sector was excluded in the early 1940s (Gibson 1997, 349). The popular sector consists o f “organizations o f small landowners, teachers and state employees, etc., loosely joined in the National Confederation of Popular Organizations” (Hamilton 1982: 35). 5 Labor leaders generally constituted a relatively large proportion o f the Institutional Revolutionary Party’s candidates for the Chamber o f Deputies. 6 Mexican labor legislation is among the most pro-worker in the world (Cook 1998,11). However, it is important to note that as in many developing countries (Egypt included), a large percentage of the working population do not fully benefit from these protections. Organized labor generally benefits the most from these protections. In the case o f Mexico, the ILO’s World Labor Report (1997-8) found that organized labor accounted for 54.1 percent o f the non- agricultural work force in 1989, while in Egypt this group represented 38.9 percent o f the non-agricultural labor force in 1985. 7 The Mexican government reserves the right to declare strikes nonexistent or illegal and to recognize unions. 8 The social security and profit sharing were not implemented until 1943 and 1961, respectively. 9 The tripartite arrangement o f the conciliation and arbitration boards gives the government the decisive vote in all labor conflicts. In addition, these 187 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. boards have the authority to investigate and approve a firm’s request for contract modifications, wage cuts, or personnel reductions (Middlebrook 1995,61). 1 0 In the case o f job security provisions, Mexican labor legislation provides for dismissal only in the case of employee misconduct (Cox Edwards 1997,138). Further, the Mexican Federal Labor Law specifically requires a severance payment to the employee both in cases o f employees that were dismissed with just cause and those where dismissal is deemed unjustified. In most cases, the law grants the worker the right to choose to be re-instated (Davila Capalleja 1997,308). Employers complain that these provisions deny them the flexibility needed to adjust to market conditions, hindering their ability to achieve competitiveness. 1 1 While most unions have been weakened, there are a few such as the Federation o f Unions o f Goods and Services (FESEBES) formed in 1990 (and officially recognized in 1992) and the affiliated Mexican Telephone Workers Union (STRM) whose relationship with the state has improved since economic restructuring began. This is because they supported the government’s call for flexible workplace relations, agreed to mobilize for increased productivity, eschewed confrontation in favor o f concertation, and ultimately rejected the traditional social protection model o f labor relations (de la Garza Toledo 1994, 213). In particular, the STRM members received real wage increases, guaranteed employment through the privatization process and the protection of unionization (Tuman 1999,6-8). 1 2 Relative to the independent business associations established later, the autonomy o f these organizations vis-a-vis the state is more severely circumscribed. 1 3 The government actively encouraged the revolutionary generals to participate in business ventures as a way to “[channel] their political ambitions into less dangerous directions” (Hamilton 1982: 86). In addition to the “revolutionary capitalists,” government officials also used their positions to go into business. 1 4 Sexenio refers to the six-year presidential term. 1 3 Luna (1995) referred to the radical and moderate factions as “conservative liberal” and “technocratic liberal” factions. In addition, CANACINTRA was labeled as protectionist 188 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 1 6 The CCE includes the following business associations: the Mexican Council o f Businessmen (Consejo Mexicano de Hombres de Negocio, CMHN); Mexican Association of Brokerage Houses (Asociacion Mexicana de Casas de Bolsa, AMCB); the Mexican Association o f Insurance Institutions (Asociacion Mexicana de Institutes de Seguro, AMIS); Mexican Bankers* Association (Asociacion de Banqueros Mexicanos, ABM); National Agro-Industry Council (Consqo Nacional Agropecuario, CAN); the Confederation o f Chambers of Commerce (Confederacion de Camaras Nacionales de Comercio, CONCANACO); Employers’ Confederation o f the Mexican Republic (Confederacion Patronal de la Republica Mexicana, COPARMEX); and Confederation o f Chambers o f Industry (Confederacion de Camaras Industriales, CONCAMIN), which includes the National Chamber o f Manufacturing Industry (Camara Nacional de la Industria de Transformacion, CANACINTRA). 1 7 While the pact was originally conceived o f as a temporary measure to help control inflation, it continued (although renamed the Pact for Stability and Economic Growth) until 1995 (Schneider 1997,202). 18 The Mexican government encouraged the creation o f COECE (Johnson Ceva 1998a: 155). COECE specifically gathered Mexico’s most important business organizations and associations linked to foreign trade (Luna 1995, 86). t 189 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CHAPTER 5 CONCLUSIONS This study revealed that the business-govemment relationship is an important determinant o f labor market reform in less developed countries. Using both quantitative and qualitative methods, this study has demonstrated that in the context of economic liberalization, business strength (both institutional and structural) has a positive effect on labor market reform. The cases of Egypt and Mexico are good illustrations o f the effects o f the business- govemment relationship on labor market policy reform. This study examined how and why the labor market policy choices of two countries, Egypt and Mexico, possessing similar political economies pre- reform have radically diverged after the initiation o f economic liberalization. Chapter 2 presented empirical evidence through regression analysis that shows strong evidence that business strength is an important determinant o f labor market policy. It also revealed that business strength is positively related to neo liberal labor market reform.1 Chapters 3 and 4 confirmed the findings of the first and supplemented these results by specifying more fully under what conditions business is able to affect labor market reform. 190 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Summary and Analytical Conclusions Prior to undertaking economic restructuring, Egypt and Mexico possessed similar political economies. Both had stable, single-party authoritarian regimes where power was highly concentrated in the executive branch. Both states traced their origins to a revolution and thus their legitimacy was tied to the revolutionary ideology, which in both cases was statist, nationalist, populist, and stressed social justice. For most of the post- revolutionary period, Egypt and Mexico followed an inward-oriented, state-led ISI model of economic development. Their political systems were characterized by corporatism, whereby different social groups, labor prominent among them, were integrated into the political system. The corporatist system facilitated the maintenance o f social order and simultaneously provided labor with political access. Indeed, labor became a member of the governing coalition in both countries. The state-labor relationship was cemented by a social contract that provided labor with generous protections and benefits in exchange for its political support. The state-labor relationship as it had evolved in the post-revolutionary period was symbolic of the governments’ commitment to the revolutionary ideals. Consequently, the legitimacy o f both regimes was in part tied to the maintenance o f their relationship with labor. 191 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Economic crises in the 1980s forced Egypt and Mexico to undertake economic restructuring. Economic liberalization, especially labor market reform, threatened the system of state-labor relations in Egypt and Mexico because it called for the elimination o f the social protection model o f state- labor relations. Labor market reform thus directly threatened labor. As labor played a critical role in m aintaining social stability and regime legitimacy in both Egypt and Mexico, undertaking labor market reform was politically risky. When neoliberal economic reform began, the Mexican government chose to promote labor market policies that were clearly anti-labor and thus pro-business. The governments o f de la Madrid and Salinas moved aggressively forward on labor market reform increasingly abandoning the social protection model o f labor relations. For example, non-wage benefits such as social security and welfare expenditures were drastically reduced, the government supported the practice o f abrogating collective agreements and replacing them with more flexible contracts, and massive layoffs and firings were a regular part of the reform process. Furthermore, the Salinas government called for a “new unionism” that would allow for more flexible labor relations and the government also encouraged contract negotiations on a firm-by-firm basis as opposed to industry wide. The Mexican government succeeded in increasing flexibility in the labor market and dismantling the social contract that it had established with labor. 192 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. By contrast, although the logic of neoliberal economic reform calls for eliminating benefits to labor and promoting a more flexible labor market, the Egyptian government has been reluctant to reform its labor market and has thus largely maintained labor’s traditional protections and benefits. Unlike Mexico, government expenditures on social security and welfare have remained constant, privatized enterprises are subject to extant labor legislation with its protections against layoffs and dismissals, and flexibility in labor relations has not been achieved. In addition, the Egyptian government has developed new mechanisms in its effort to cushion the potentially negative effects of the restructuring process on labor. For example, in cooperation with the World Bank the Egyptian government created a social safety net which targets labor, it also established an early retirement program, which stipulates that privatized firms are subject to a “no lay o ff clause,” and the government reserved 10 percent of all privatized companies for labor, inter alia. The puzzle that emerged from a comparison of the Egyptian and Mexican cases is that striking similarities in their pre-reform political economies notwithstanding, Mexico and Egypt reacted quite differently to the political challenge posed by economic liberalization. This study asked why die labor market policies o f Egypt and Mexico took such radically divergent paths. 193 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Findings Quantitative Section Using time-series regression analysis, chapter two set out to explain the labor market policy choices o f Egypt and Mexico. The results o f Chapter 2 suggest that big business concentration (which was used as a proxy for business strength) has a significant influence on labor market policy reform in Egypt and Mexico.* More specifically, the following hypothesis was tested and confirmed: the higher the concentration o f big business, the lower the benefits to labor. In essence, the findings of this chapter suggested that business strength is an important determinant of labor market policy reform. The regression results found that the positive relationship between business strength and labor market policy reform held across both Egypt and Mexico. As the trend in labor benefits was relatively constant in Egypt and decreased in Mexico, the chapter concluded by suggesting that the positive correlation in the Egyptian case implied that big business was not sufficiently concentrated to engage in collective action in favor of labor market reform; while in the Mexican case the positive correlation implied that big business was, in fact, sufficiently concentrated to engage in collective action. However, it was left to the qualitative analysis in the subsequent section to explore in depth and explain why the positive relationship between business strength and labor market policy reform should be interpreted differently in the cases of Egypt and Mexico. 194 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Finally, this section developed a new variable, business concentration. This variable captures the ability of business to influence government policies through collective action in the context of labor market reform. This variable is a useful tool that can be employed in the subsequent studies o f the effects of business on economic policymaking. The business concentration variable, however, assumes that business impacts policy through collective action, which is carried out (in large part) through institutions and their relationship with government. The quantitative nature o f the analysis in this section did not lend itself to exploring how business demands are translated into policy. The qualitative portion of this study did exactly this, by specifying the conditions under which business is able to impact policy. Qualitative Section The comparative case studies in Chapters 3 and 4 confirmed and supplemented the findings of the previous section. In particular, the case studies confirmed that in the context of economic liberalization, business strength (both institutional and structural) is positively related to labor market reform. Furthermore, the case studies shed light on the meaning behind the coefficients that emerged in the quantitative analysis and provided a more precise specification o f the conditions under which business is able to impact labor 195 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. market reform. This was accomplished in part by mapping the relationship between business and tracing whether and how it affected policy outcomes. In the case o f Egypt, the legacy of the Nasserist era was a private sector that was dependent on the government Despite the fact that the policy o f infitah initiated in the 1970s led to a gradual strengthening of the private sector (both economically and organizationally) and thus a lessening of its dependence on the government it was still not sufficiently strong to truly transform its relationship with the government. It therefore remained outside o f the governing coalition, and its ability to influence policy was minimal and strictly limited to areas that were not considered strategic by the government As labor market policy was regarded as strategic, business was not able to influence it in its favor. By contrast the private sector in Mexico, while regulated, played a significant role in the Mexican economy for most of the post-revolutionary period. Unlike the private sector in Egypt the private sector in Mexico developed effective tools such as capital flight and well-organized business associations that it used to pressure the government. When the crisis hit in the early 1980s, it used these tools to pressure the government and was ultimately able to forge an alliance with the government. By way o f its new position inside the governing coalition, business was able to influence labor market policy in its favor. 196 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The case studies revealed that in order for a government to make a policy change that involves a shift away from (or even abandoning) a significant member o f the governing coalition, an alternative social group that is capable of acting as a new coalition partner must be available. In its absence, the government will not make the policy shift Indeed, in the case o f Egypt die government made it clear that it was reluctant to move forward on labor market reform because it did not have an alternative base o f support with which to replace organized labor. By contrast the private sector in Mexico was able to forge an alliance with the government and ultimately use its position within the new alliance to influence labor market reform in its favor. Finally, although broad categorizations o f regime type were not useful in helping to understand policy choice (as is evidenced by the lack o f significance of the democracy variable in the regression analysis), the case studies revealed that what matters are the more subtle differences in the level of political opening. Indeed, the case studies revealed that the private sector’s voice is more effective when there is an opening of the political system. Beginning in the early 1980s, local-level opposition victories challenged the traditional dominance of the PRI and changed the terms of political opposition in Mexico (Loaeza 1994, 111). Important elements o f the private sector (which had previously been apolitical) supported the main opposition party, the PAN, and their activities helped to transform the vote from a mere validation o f the regime 197 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. to a means of protest (Loaeza 1994,112). The regime, which had enjoyed relatively unchallenged hegemony in the Mexican political system for decades, thus became more vulnerable to the demands o f well-organized groups like business. The political vulnerability of the Mexican regime reinforced the private sector’s influence. The private sector was thus able to bring to bear economic and political pressure on the Mexican regime. In the end, two succeeding governments courted the private sector, conceding to many o f its policy demands and ultimately forging an alliance with it. By contrast, while there was some talk o f political liberalization toward the beginning of the Mubarak government, to date it has not occurred. Instead, the government has maintained the emergency law enacted in 1981, elections have continued to be rigged, and Mubarak has stated that because economic liberalization is a priority, political liberalization would be put on the back burner. Unlike the Mexican government, the Egyptian government has therefore not become more accountable to the demands o f social groups. This may help to explain why, despite the fact that the organizational strength o f business has grown in the 1980s, its ability to influence labor market policy has not grown in tandem. In sum, this dissertation has made three important findings. First, this study revealed that in the context o f liberalization, business institutional and structural strength vis-a-vis the government is positively related to labor market 198 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. reform. Second, it found that when labor market reform involves a shift away from a traditional coalition partner, governments will be reluctant to move forward on labor market reform unless an alternative coalition is established that will provide the political support necessary to make the policy change. Finally, it exposed how examining the level of political opening, as opposed to broad categorizations of regime type, sheds light on policy outcomes. Specifically, political opening (even if it is slight) serves to improve the effectiveness of the private sector’s voice. Implications This study sheds light on why seemingly inefficient policies are maintained during the process o f economic restructuring. It also reveals that seemingly efficient policies can have negative repercussions on unprotected social groups. This study has specifically highlighted the importance of international financial institutions and governments considering the historical- institutional context as well as the constellation of social forces and their relationship to the state when designing policy. If these variables are taken into account, then policies can be designed that are more relevant for the specific country context and thus more effective in promoting both improved economic performance and development Egypt and Mexico are cases in point In both cases, the extant labor market was seen as inefficient and in need o f reform. 199 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. However, despite the many similarities in the political economies o f Egypt and Mexico, only Mexico undertook the prescribed policy shift However, it did so without the benefit of a social safety net for labor. The result o f this policy shift in the absence of a social safety net was disastrous for labor in Mexico. Had the international financial institutions and/or the government taken into consideration the historical state-labor relationship and the need to replace the protections that it provided labor with some sort of a social safety net that would cushion the blow of the policy shift, the negative repercussions o f this policy shift could have been minimized. In the case of Egypt, the government undertook other aspects of economic liberalization, but balked when it came to making a policy shift in the area of the labor market reform. This resulted in a situation in which other elements of reform, such as privatization, were stalled. In addition, the government issued seemingly irrational policies such as requiring that all privatized firms be subject to the existing labor laws and restricting them from dismissing employees for a period o f three years after the purchase o f the state- owned enterprises. Clearly, these regulations decreased investor enthusiasm, and resulted in an unbalanced liberalization process. Had the international financial institutions promoted both the development of private-sector institutions and the development of more effective social safety nets earlier in the process these irrational policies might have been avoided. 200 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Contribution to the Literature This study contributes to several bodies o f literature: the politics of economic policy, comparative politics, and business-govemment relations. The cases of Egypt and Mexico are by no means exceptional. Many governments in Africa, the Middle East, and Latin America are facing similar choices and have, to varying degrees, similar domestic political constraints that they must negotiate. Consequently, these bodies of literature will benefit from the detailed cross-regional case studies generated in this dissertation. All three bodies o f literature stand to gain from the quantitative analysis performed and the cross-regional case studies generated by this study. In particular, the quantitative analysis developed a proxy for business strength that is quantifiable and allows future research to empirically test hypotheses on the role of business in economic policymaking. Furthermore, this study offers significant insight into labor market reform by expanding the boundaries of existing conceptual and empirical work on the politics o f labor market reform. It makes three contributions to this literature. First, this study fills in gaps in the literature by investigating two previously overlooked variables: labor market reform and business-govemment relations. Although the process of structural reform has been widely studied, labor market reform has received considerably less attention. This is surprising given that labor market reform is part of the economic restructuring programs being applied in Less developed 201 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. countries. It is also a highly political issue because it directly targets labor and, to the extent that a government relies on labor as a base of support, reform of the labor market may be difficult and highly contentious. Furthermore, those studies that have examined labor market reform have tended to focus solely on the impact of labor on these reforms, virtually ignoring the influence o f business— the other domestic actor directly affected by labor market reform. However, this study did not focus on labor and its attempts to block reform, but instead it examined the role o f business in influencing policy. This study thus contributes to the literature by investigating whether and how business-govemment relations impact labor market reform. Second, this analysis highlights conceptual problems in the literature. In particular, this study found that the assumptions in the existing literature (especially the sectoral vein of the literature) regarding business interests did not apply in the context of labor market reform. Consequently, the tools developed to analyze reform and in particular, reform o f trade and financial markets, do not help further our understanding of labor market reform. This analysis therefore argued that labor market reform should be disaggregated from other aspects of economic reform. Third, this dissertation developed a proxy for business political strength that is quantifiable, testable empirically, and captures the ability o f business to influence policies through collective action. This variable 202 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. will be useful in future studies on the effect of business on economic policymaking. While many comparative studies on policy reform rely on single cases, there is a growing number of studies that compares policy reform in Latin America and East Asia. This cross-regional study succeeds in crossing the borders o f the existing literature by including the Middle Ea»L rinally, empirical research on business-govemment relations in developing countries lags behind the rich body of literature that examines this subject in the context of industrialization, and developed countries. This study thus provides the novel context of liberalization, specifically labor market reform, instead of industrialization and focuses on developing as opposed to developed countries. 203 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ENDNOTES 1 Chapter 2 showed that there was a negative relationship between business strength and labor benefits. Decreasing labor benefits was understood as a proxy for the presence o f neoliberal labor market reform. Consequently, if we consider neoliberal labor market reform instead o f its proxy, then the relationship between business strength and labor market reform will be positive. 2 Recall that “high concentration” simply denotes the existence o f a small number o f large businesses relative to the total number o f businesses in the economy. 204 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. BIBLIOGRAPHY Abboushi, W.F. 1970. 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APPENDIX A GOVERNMENTS OF EGYPT AND MEXICO Governments of Egypt Constitutional Monarchy (1920-1952) Gamal abdel Nasser (1952-1970) Anwar Sadat (1970-1 981) Hosni Mubarak (1981-Present) Governments of Mexico Early Post-Revolutionary Period (1917-1934) Lazaro Cardenas (1934-1940) Manuel Avila Camacho (1940-1946) Miguel Aleman (1945-1952) Ruiz Cortines (1952-1948) Adolfo Lopez Mateos (1958-1964) Gustavo Diaz Ordaz (1964-1970) Luis Echeverria (1970-1976) Jose Lopez Portillo (1976-1982) Miguel de la Madrid Hurtado (1982-1988) Carlos Salinas de Gortari (1988-1994) Emesto Zedillo Ponce de Leon (1994-2000) 225 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. APPENDIX B VARIABLES, MEASUREMENTS AND DEFINITIONS \a n o 0 te i M e a su re m e n ts D e T u u iw u /liu rrp re tu tu * io a a i Secm nn amd 1 M f e r O w n — m c m I a c n r a y t w l a e rip rn rtM iim r i p i m r t r ' ' — ' p o v c n a e a ip c ndoip Ifteocfl S o c m a a o e y c o a u s a o i s c o n e in a v tc tv prnvafcnpncnciii- ■ a r i l a f a k a r t for o ld ope. av a la d e ? o r dcadL v erm o tv a d o r n a d m a c n a y . w t s t u n . a e c a p fc m n c m . u a riv d t o i e n a d h t a h c o r W c M at a defined a s a m u n r r d e b v e a d a c k e » u e b a d e yoeop. d e old o r inc h M d io p p ed (IM F. v e n o m y a r n On—tm r u x ta i a c to n C m w i m m i o f B ig B a n n r i r C a e e o m u o n * 1 - • bey b e M a e u c s a m - g f — p p o s e r o f tabor" m b e n n o o f th e a a n b c r o f c a p io y e d a M a r- i d a r v e a n o e b e n e a p io je d m driB- a a t a p t a e d b v d e level o f s o p ta a tabor. [la b iu x .] T b e ~ * B ip ~ ic f c n B d e o o e b c r o f ta p h o i o r w i a d e economy T o o T trie rs to tbc n u i nurnncr o f NrM0 C " O r e . ■be e c m m y . T he ta p e r coac. (be m e c o o e e m m e d ibe b it b e s o m m o o t t i e - ib e a m b e r tb e o a a b e r o f ta p b o s a e a te ta D T O B tb e e m s a d e r o f b v s n e s ie s i: U o s k i U a r tabor . a f B S B d t a a o a r t m s b o l a v e e p B o p n a a r y v ic c o o d a ry ! o b r p i i b a d s e a i e i b t r s p b i.n d m lo s -d u B a a o d a c s e a f a d w n n By f o e r r a i. - j f a l t a r labor refcn to . d e e s o f t e n s o b a e e d a o a b a a c e d o a o a n s b o s e I e e a lly ctaployad a lo p ta -fta ■ o n o facsin n p e b a t e t T e p l n i tabor" a d e a m tabor laree ftv o te d by d e m o o a o f m b t a ta d d f l to d a 2 0 0 1 1 tm rfnantm al > o e to n P i u H R b y m m nation il finw inal ~ u ^~ ic fe n n IM F cred o s c n r a ib r t a Epypi an d M exico M ore m o & a D y . b o i M i b b i r p a e w t ic p e e c b a e o b fa p o a m a d a IM F lo r all a m o f B I F l a o e f c o . ta ■ c b d o a t a p e d a e e e a a resoarees. n o s b a d h a e a a d o p e a n o a ae d er a n e a o a i a f t e o o e a la a h u e a <W orld BaoL I99P I . G iobaitzautm T n d r f l o w | m * | •rude ■ e fto n * * ta p o n a /C O P Ecrmammc tinrtnpim ent G D P p ro v ed I f p ie iiitm e p e a c o o a p e c h a p e s G O P ! C n u s T otal d eb t te n n e r \d eb t\ S e a o f d a p n a e ip a i c p e y a e a i a e d a a a s p a d a f o n p e a e te o c y .p io d a a services o n ta o p - e n o d c a an d o e e re s p e y a n e i m y o e ib o n -re im d cb r (W orld B a n t I9 0> ) O emnrrgpku: v a n o b iti i A pe dependency rau o {depend). T b e -a p e d rp e o d ro ry m a 'i e f c n e d e m a o f d a a o e b e r o f apes o f 13 a d 6 4 T h e " u r t a o u a a a level" ts m a t e d as H a p e e e a a p e o f d a a m p a p e ta a e b v a p a a e a defined a a b a l W t d M B a h I 99BI > P okttcai 1 Onetofmmem 1 i : i i i i i i i F b U o s a p d e ir a d a o e a a a a c r a a s q a a o a m iv c s o m e s .d e dem ocracy r a ta b le a c o o s to c a d f r o a F ie e d o a H o n e 's d a a rei c o a le d F re o d s n a f t r W orld H o t a n t e n r v e y prevrde* raonps o f n o a a s o o to o d n o e o a o a o f d e o a c a c y . T be f i m .'p e b o a l n p b o " . a i a i i e s s a b tie o p i a d e npM a o rp an o e pM aeaH y. d e e s s e n c e a o p p o e m o pom es. d e npM a v o e . ao M -p o n y s y a e a s . a d p o v c n o n e a a rie p e n d e o ■ f r o m lo m p n o r a o b ia r y c o a r o i. T l e a c a a d "o v fl I t e m " . e v a h a e s fre e d o m a ' speech. aa e o d d y . a H p n o . ecom ooc n p b a . d e m e o f l a s .'a m h o a a m p b a . A f te rfin r re re n a p d o ii im lu iu n k i .e a a p b f y r e a d f t i l d y . b e e e i i p d b e o i w n i i i i v a t B M i i v i w M w i w H dem ocracy vanaM e a do* ao d y . T in s y e ld c d a 7- p o ie icaic. 226 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. APPENDIX C DATA SOURCES [benef]: IMF, Government Finance Statistics and International Finance Statistics. 1980-1999. [cone]: Mexico: INEGI. 1994. Anuario Estadistico de los Estados Unidos Mexicanos. INEGI. 1998. Estadisticas Demograficas y Socioeconomicas de Mexico. Egypt: CAPMAS. Annual o f Industrial Statistics. Private Sector. 1988-1995. CAPMAS. The General Census o f Population. Housing and Establishments Cairo: 1976,1986. [labpow]: UNIDO. Database o f Industrial Statistics. 1978-1997. World Bank. World Development Indicators. Cd-Rom. [debt] : World Bank. World Development Indicators. Cd-Rom. [trade] : World Bank. World Development Indicators. Cd-Rom. [growth] : World Bank. World Development Indicators. Cd-Rom. [imf]: World Bank. World Development Indicators. Cd-Rom. [democ] : Freedom House. Freedom House in the W orld [urban] : World Bank. World Development Indicators, Cd-Rom. [depend]: World Bank. World Development Indicators. Cd-Rom. 227 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. APPENDIX D SCATTERPLOTS OF SOCIAL SECURITY AND WELFARE AND ALL SIGNIFICANT VARIABLES E gy p t Scatterplot o f social security & welfare and big b u sin ess concentration 15 ♦ ♦ 10 ♦ ♦ 5 « ” 5 § > 0 0.92 0.93 0.94 0.95 0.96 0.97 Big buainora concentration Source: IMF. various years and CAPMAS, various years. Figure 4. Egypt: Scatterplot of social security and welfare and big business concentration Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Egypt Scatterplot of social security & welfare and labor power m f 15 I ® S. 10 5 to ■ = S o o 0.15 02 0.05 0.1 Labor power Source: IMF, various years: UNIDO, various years: and World Bank, 1998. Figure 5. Egypt* Scatterplot of social security and welfare and labor power 229 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Egypt Scatterplot of social security & welfare and debt 15 ♦ ♦ 10 5 « T 1 5 I I I *° • > * S o 2 0 4 6 8 10 Debt Source: IMF. various years and World Bank, 1998. Figure 6. Egypt: Scatterplot of social security and welfare and debt Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Egypt Scatterplot of social security & welfare and IM F credits . 5 ? ! * t • m T * • I « • i » m F £ 5 • co s > • a 15 ♦ ♦ 10 5 0 200000000 400000000 600000000 0 IM F credits ($US) Source: IMF, various years and World Bank, 1998. Figure 7. Egypt: Scatterplot of social security and welfare and IMF credit Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Egypt Scatterplot of social security & welfare and urbanization level 15 10 5 44.5 42.5 43 43.5 44 Urbanization laval _________________________________________________________________I Source: IMF. various years and World Bank, various years. Figure 8. Egypt: Scatterplot of social security and welfare and urbanization level Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Mexico: Scatterplot o f so cia l security & welfare and big b u sin ess concentration 2 | 30 < 5 c 25 * ill2 0 f s S 15 I | S 1 0 - ° c 3 * 5 « i o t 0.997 0.998 0.999 1 Big buainaae concentration 1.001 Source: IMF, various years and INEGI, various years. Figure 9. Mexico: Scatterplot of social security and welfare and big business concentration Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Mexico: Scatterplot of social security & welfare and labor power S i 30 II 1 1 t o > * a 25 f 2 0 6 e & 8 £ * 10 _ o i * 8 g (A ■ ♦♦ V 0.1 0 2 Labor power 0.3 Source: IMF. various years; World Bank, 1998 and UNIDO, various years. Figure 10. Mexico: Scatterplot of social security and welfare and labor power Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Mexico: Scatterplot of social security & welfare and debt 5 | 30 6 I | I 25 « I f 20 if 11 5 8 £ S’ 10 - ° c « j! 5 U & i 0 t ; & 10 Debt 15 Source: IMF. various years and World Bank, 1998. Figure 1 1 . Mexico: Scatterplot of social security and welfare and debt Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Mexico: Scatterplot o f social security & welfare and trade • c i i II * 5 30 25 f 20 3 5 S 2 • * 5 2 s? o O S (0 *. 1 15 S 10 5 0 e 20 40 Trade 60 Source: IMF. various years and World Bank. 1998. Figure 12. Mexico: Scatterplot of social security and welfare and trade Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Mexico: Scatterplot o f social security & welfare and IM F credits 9 c £ E | E 1 8 o ? £*=5 H i S i 'S s' o ° S c o £, 0.3 025 02 ^ 0.15 0.1 0.05 0 5E+09 1E+10 1.5E+10 2E+10 IMF credits (SUS) Source: IMF. various years and World Bank. 1998. Figure 13. Mexico: Scatterplot of social security and welfare and IMF credit 237 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Mexico: Scatterplot o f so cia l security & welfare and growth • e II i i * s U O I * _ o ■ S ! u o • (0 £ -10 - 30- - 25- - 20- - 45- -*10- ♦ ♦ ♦ o 10 % Growth 20 Source: IMF. various years and World Bank, 1998. Figure 14. Mexico: Scatterplot of social security and welfare and growth Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

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Creator Salem, Samira Hamdy (author)

Core Title A comparative examination of the impact of business -government relations on labor market reform in Egypt and Mexico, 1975--1995

School Graduate School

Degree Doctor of Philosophy

Degree Program Political Economy and Public Policy

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, Commerce-Business,OAI-PMH Harvest,political science, general

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Brand, Laurie (committee chair), Hamilton, Nora (committee member), Kalaba, Robert E. (committee member), Vuong, Quang (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c16-203947

Unique identifier UC11339042

Identifier 3065844.pdf (filename),usctheses-c16-203947 (legacy record id)

Legacy Identifier 3065844.pdf

Dmrecord 203947

Document Type Dissertation

Rights Salem, Samira Hamdy

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA