Islam as the Solution in the Age of Islamism III: The Salafi Mutation and Likely Economic Directions

Events in my native Egypt have simplified my life to a great extent in finishing this string of blog posts. First, the Salafist Nour Party winning nearly 25% of the vote in the first round of elections, compared to the Muslim Brotherhood (MB)'s Freedom and Justice Party winnings of nearly 37% suggests that I was right about the median voter having moved to the right within the Islamist agenda. Second, it has become clear that the question about how "Islam as the solution" will be defined in this age of Islamism will depend on the strategy of the Freedom and Justice Party going forward, and how it would interact with the Liberal (in Egypt they also like to use the word civilian or civil - مدني - really to mean secular علماني, but the latter term has come to carry implications of atheism, so they prefer the former, which also doubles usefully as an antonym of military) and Salafist approaches that will be pulling it in opposite directions.

First things first: I expect that as elections move into rural areas, the Salafist fraction of the vote will decline, and the MB's fraction will increase. The MB has been a stalwart of Egyptian sociopolitical development for nearly a generation, and although it has strong pan-Islamist leanings, remains grounded in Egyptian society to a greater extent than the Salafists.

Second: Salafists seeking political power are not well grounded. Their ethos was imported from GCC countries where migrant workers with weak religious education absorbed the apolitical type of religiosity characteristic of Saudi Arabia and her neighbors -- focusing on dress codes, modes of speech, segregation of the sexes, and most recently "Islamic finance" that is devoid of any social or economic agenda beyond formulaic adherence to premodern contracts and their adaptations by contemporary clerics who glorify premodern jurisprudence in a show of pietism ostensibly to follow Divine commands.

The MB and Salafism shared an agenda of making society more pious, but the latter has certainly been more focused on form, and also more focused on enforcing outward signs of adherence using the State for power. That was the bargain in Saudi Arabia from its inception, whereby the scholars preaching and enforcing the teachings of Muhammad ibn Abdel-Wahhab (including destruction of shrines, veiling and segregation of women, etc.) were given control over society with assistance from the state, provided that they stayed away from politics.

Surprisingly to the Saudis, the advent of many MB members into Saudi society, especially as they fled the persecution of Nasser and to some extent later regimes, politicized some elements of the Salafist movement, even as the latter helped transform the former: MB members well into the 1960s didn't sport beards and their wives were not wearing veils, all signaling devices that only entered Egyptian society in significant rates after the 1970s. To this day, most of them sport the short beards that seem to be a compromise between clean-shavedness and the fist-long beards deemed mandatory in Salafist circles, and their wives mostly wear hair-covering scarves rather than the Saudi-style niqab. In other words, each of the two styles of Islamism -- one (MB) supported by petrodollars to undermine Nasserist pan-Arabism that threatened oil monarchies and the other (Salafism) supported as part of the original sociopolitical bargain for power sharing at the inception of these oil monarchies -- influenced the other. Salafists running for elections are the strongest testament to this phenomenon, given that Salafism considered elections a forbidden innovation and advocated apolitical behavior, to the point that Salafist leaders were preaching that challenging Mubarak as the ruler was against religion, even during the very last days of Mubarak's rule. These are not your father's Salafists, but they share the early Salafists obsession with outward signs of puritanical piety and their enforcement by the state -- a terrifying mixture not only for Egyptian Christians, but also for many Egyptian Muslims.

So, there is no question -- barring a Turkish or God forbid an Algerian coup -- that the near future will bring Islamist economic policies to my native Egypt, but what does that mean? The absence of a coup is not a remote possibility, esp. given the military's insistence so far that in a presidential system, parliamentary majority does not get to form a cabinet. A soft coup would reach a bargain between the military, a secular-minded president with respect for parliament (say Amr Moussa or Mohamed El-Baradei) or a religiously minded president with respect for secularist forces (say Abdul-Moneim Abou-El-Fotouh), and an Islamist dominated parliament. A hard coup would be a disaster. So, assuming no coup, the next parliament will push the country's policies in an Islamist direction. What would that be?

It depends on what alliance the MB makes. Let's assume that when all is said and done, the MB's FJP gets 45% of the vote and the Salafists get 20%. My suspicion is that FJP will not rule out an alliance with the Salafists because that would be a great threat in their bargain with the liberals (and external powers that favor them) for power sharing. However, I cannot believe -- short of total obstinacy on the part of liberals -- that the MB will make an alliance with the Salafists. Nonetheless, the latter will have substantial presence, so the FJP will have to appease them to some extent, and some of the cosmetic and meaningless policies -- like accommodation and promotion of "Islamic banking," which makes no substantive difference whatsoever -- are likely to materialize.

Of course, these are not the "Islamization of the economy" problem that worries people. The introduction of Islamic banking was already ongoing before Mubarak was deposed, in part to compete with Malaysia, Turkey, and others for GCC petrodollars. It is an industry controlled and managed by UK investment bankers and lawyers, and very much part of the international financial system, posing no threat whatsoever to the way business is conducted and appeasing form-oriented Salafists -- which is the reason it was allowed and has prospered in the GCC.

There are problems that will be unique to Egypt, and for which one can make predictions right away, for example regarding tourism. Perversely, more outward Islamicity will drive away western tourists but will not be successful in attracting high spending GCC tourists, who are attracted to Bahrain, Dubai, Egypt, and Europe mainly for their sin industries. Yes, there may be greater inflow of lower-spending Arab tourists, but that will be a catalyst further to drive away the other two categories, and tourism will suffer no matter what alliance takes place. To the extent that one of the most important growth engines for Egypt  (and indeed for the whole region) has been construction, and to the extent that the latter is fueled by expectations of tourist receipts, there will be secondary effects on construction and the industries that rely on it, including steel, cement, and banking... This is unequivocally bad news.

The fear of isolationism, including anti-American and anti-Israeli policies, is misplaced, in my opinion, unless a new mutation in Islamism takes place. One needs only to look at the cozy relationships that GCC states have had with the U.S. and Israel to see how mainstream Salafism may up the ante rhetorically in their calls for freeing Al-Aqsa or boycotting products from western producers, but in the end they have not influenced policy in this area. Of course, we have the mutation that resulted in Al-Qaeda, which took elements of Salafism and elements of political Islam and challenged authority including in Saudi Arabia for its cozy relationships with the West. To the extent that the GCC base of funding and support for Egyptian Salafists is likely to continue, I cannot imagine any large and substantive change in the international economic/political behavior of an Islamist-dominated state in the short to medium term -- although the official and tolerated unofficial rhetoric will be quite worrisome to westerners, to be sure.

This leaves us with the domestic economy and likely policies that an Islamist government will pursue. This is the area where it will make a great difference whether the FJP aligns itself more with the Salafists or the liberal forces favored by the military and the West. I have already mentioned that my expectation is that they will form the latter alliance, not only because it will be more expeditious, but also because at heart, the MB has a lot more in common with the personally religious but outwardly secular liberal forces than with the outwardly-flaunting-their-religiosity-and-wanting-to-force-it-on-others Salafists. However, there will be a number of areas, even in this alliance, where the new government is expected to deviate substantially from the neo-liberal policies pursued by the Mubarak regime, which produced high rates of growth but increased inequality and corruption to unsustainable levels. Therefore, we are not going to see neo-liberal or even post-Washington-consensus quasi-liberal policies with higher regulation.

This post has already run too long, so perhaps I should summarize a few areas where economic policy may go in a different direction, and hopefully discuss them in my next post:
1. Privatization is likely to stop completely, and some renationalization of privatized companies may take place
2. Populist policies like employment creation and restricted power to fire workers, emboldened by Islamist-controlled syndicates, and price subsidies and controls are likely to be strengthened
3. Pursuit of massive industrialization policies and infrastructure projects is likely to resume, even as early as the Ganzouri cabinet to be sworn in this week, possibly with positive, but more likely with wasteful resource allocation effects

All of the above (excluding the effect on tourism, which I expect to be unequivocally negative) are likely policies regardless of the Islamicity of the regime, and therefore worrisome for long term economic prospects, but not necessarily unique to Islamists.

Two areas where the advent of Islamists may be helpful are:
1. Corruption may be better contained at the highest levels of government, although this is far from certain, and the gains from any reduction in corruption may be minuscule
2. The environment for small and medium enterprises may improve if credit provision is made possible through changes in the financial sector, and provided that the government does not crowd out private investment at this scale by favoring larger enterprises and using borrowed funds to subsidize prices and boost public-sector wages