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Women Workers at Misr Spinning and Weaving Co.

“This didn’t have anything to do with Twitter and Facebook.  This had to do with people’s dignity, people’s pride. People are not able to feed their families.”  – Richard Engel

As anticipated in these pages, there has been ever mounting evidence that the engine behind the Egyptian uprising has been less the educated tweeters, bloggers and middle-class youth than the ‘unschooled’ working class – particularly factory workers, many unionized, and the impoverished.

This has become even more undeniable as tweeters went home and back to work after Mubarak resigned, while the workers instead went out on strike.  As Weal Ghonim, the feted techno-leader, tweeter and Google marketing executive proclaimed after Mubarak resigned,

“It shows how civilized the Egyptian people are… Now our nightmare is over. Now it is time to dream.”

Apparently the nightmare was not over for the Egyptian workers, however.  Nor was dreaming part of the plan.  Rather, pushing forward the real revolution was the plan.  Economic and political strikes were the plan.  While the tweeters go home, the Egyptian military remains untouched.  The Egyptian rulers, military and even many “democrats” are menacingly warning the workers to stop striking – for the “benefit of the nation”.

To anyone who has looked at Egypt prior to January 2011, the emerging split between the “democratic technocrats” and the working class behind the uprising should come as no surprise. There has been a growing surge of strikes across the country – ever more widespread over the past two years, ever more desperately seeking survival from relentless increases in food prices and cost of living.

Especially recently, it has been noted,

“Strikers have different priorities but have coalesced around a central demand that the government raise the minimum wage to 1,200 pounds a month.  The rate has remained fixed at only 35 pounds per month since 1984.”

For some reason American literati have been declaring the Egyptian Revolution (which isn’t yet a revolution, and isn’t in any way over) to be a “Facebook” or “Twitter Revolution”.  Said the New York Times,

“Facebook and YouTube also offered a way for the discontented to organize and mobilize — and allowed secular-minded young people to seize the momentum from Egypt’s relatively neutered, organized opposition… Social media tools…provided a new means for ordinary people to connect with human rights advocates trying to amass support”

However, the Wall Street Journal discovered the tweeters were largely left out of the initial uprising, as they were outmaneuvered by the police, and had never before been able to mobilize any large numbers:

“The plotters say they knew that the demonstrations’ success would depend on the participation of ordinary Egyptians in working-class districts like this one[Bulaq al-Dakrour], where the Internet and Facebook aren’t as widely used. They distributed fliers around the city in the days leading up to the demonstration, concentrating efforts on Bulaq al-Dakrour. […] The Bulaq al-Dakrour marchers, the only group to reach their objective, occupied Tahrir Square for several hours until after midnight, when police attacked demonstrators with tear gas and rubber bullets.

“It was the first time Egyptians had seen such a demonstration in their streets, and it provided a spark credited with emboldening tens of thousands of people to come out to protest the following Friday.”

The initial uprising, though coordinated to a point with social media, had as its center of gravity poor youth with no twitter, blogs or computers.  Perhaps more representative of attitudes of Egypt’s tweeters and bloggers was Tarek Amr, an NGO blogger and software programmer:

“I didn’t participate in the first day of the revolution. I was a bit scared, a bit not convinced that it will change anything, and also I prefer to follow such events on twitter and facebook instead of participating in them.”

After weeks of stalemated protests, the trigger that finally tipped the military into ousting Mubarak, not surprisingly, was not techno-savvy democracy activists.  Instead it was the surge of strikes that swept the nation, according to Hossam el-Hamalawy:

All classes in Egypt took part in the uprising. In Tahrir Square you found sons and daughters of the Egyptian elite, together with the workers, middle class citizens, and the urban poor. Mubarak has managed to alienate all social classes in society including wide section of the bourgeoisie. But remember that it’s only when the mass strikes started three days ago that’s when the regime started crumbling and the army had to force Mubarak to resign because the system was about to collapse.

Why would this final ‘tipping point’ be reached, after three painful weeks, only by a surge of factory strikes, rather than by the huge crowds peacefully gathered in Tahrir Square?  This question would need to be asked to those who actually run the country:  the generals-cum-enterprise-managers who own and insinuate themselves into every pore of Egyptian business and corrupt dealing.  The guarding of wealth in Egyptian enterprises is the sina-qua-non of Egyptian rule and rulers.  El-Hamalawy continues:

Some have been surprised that the workers started striking. I really don’t know what to say. The workers have been staging the longest and most sustained strike wave in Egypt’s history since 1946, triggered by the Mahalla strike in December 2006. It’s not the workers’ fault that you were not paying attention to their news. Every single day over the past three years there was a strike in some factory whether it’s in Cairo or the provinces. These strikes were not just economic, they were also political in nature.

And after Mubarak was pushed out, and Ghonim went home to “dream”, the uprising split decisively in two, according to the Wall Street Journal (“Splits Emerge Among Egypt’s Young Activists”):

“Three Facebook pages devoted to trashing Mr. Ghonim have gone online in the past few days. They have titles such as ‘Ghonim Traitor,’ and already have over 40,000 members.

“Labor activists accused the Revolutionary Youth of selling out the workers after they endorsed the military’s call for striking workers to return to their jobs…’They’re not real revolutionaries,’ said Gigi Ibrahim, a youth activist with the Revolutionary Socialists.”

And so the crisis in Egypt continues to spread – strikes, both economic and political, spread against the ruling class in Suez, Port Said and Ismailiya (where the American USS Enterprise aircraft carrier and a guided missile cruiser patrolled today, as if to remind Egyptians whose interests are at stake in Egypt), to Mahalla el-Kobra in the textile heartland – the very same location which sparked nation-wide strikes in 2006, and to Alexandria and Damietta.  And in Cairo, where state banks are under siege from their employees who relentlessly hound the corrupt managers, the Charmain of the Egyptian National Bank resigned.

“Outside the headquarters of Banque Misr, another state-owned institution, a 10-minute walk from Tahrir Square, chants of “Leave, leave, leave” echoed into the night”

The workers are assuredly not dreaming now – they have woken up.

Suez workers strik

A short revisit to the issue of runaway food prices.

Why?  Because Paul Krugman has just put the blame on… well, not Quantitative Easing or the Fed, not on speculation by commodity traders, in fact not on any human cause whatsoever.  But on weather… and moreover, climate change. One wonders how climate change might cause a 100% spike in food prices in one year.  Nonetheless, Mr Krugman derides those who might see Adam Smith’s “invisible hand” of the financial market at work causing a spike in prices as an outcome of what Smith would have called “selfish interests” of the Fed or commodity traders.  Mr. Krugman writes,

“American right-wingers (and the Chinese) blame easy-money policies at the Federal Reserve […] Meanwhile, President Nicolas Sarkozy of France blames speculators, accusing them of ‘extortion and pillaging.'”

While weather is not a wholly irrational explanation at first blush (climate change is), the data do not however support such conclusion.

To review the evidence already presented on this question days before Mr. Krugman entered the fray: on Feb 1 we noted the skyrocketing food prices in Egypt (due greatly to speculation and Fed policies) contributing to the uprising there.  The following graphic illustrated the severity of the issue:

On Feb 5 we discussed worldwide boom in food prices, and provided evidence of Fed monetary easing influence on this rise:

Corn, wheat and sugar futures prices

Finally, on Feb. 6, we find Mr. Krugman opining that “huge increases in the prices of wheat, corn, sugar and oils” and food in general is primarily due to weather.  He then examines only wheat, noting wheat production dropped this year, to explain away all food price increases of all commodities.

True, a five percent drop in wheat production may raise wheat prices if supplies are insufficient. But according to the FAO, wheat stocks are not in any jeopardy of running out:

“Although global production in 2010 is set to decline by at least 5 percent from 2009, wheat stocks have proven sufficient to cover this year’s decline in world output, especially in major exporting countries.”

And the problem with the ‘weather theory’ of food prices is that major food staples are up in price across the board regardless of their supply, scarce or plentiful – just as they were during the last worldwide bout of spiking food prices in 2008.

Below is a sampling of major supplies and commodities composed from the FAO, USDA and commodity exchanges, then graphed by the author.  Note how the only product that could possibly be affected by supply is wheat… which Mr. Krugman just happens to choose to explain all commodity prices:

Rise in Food Prices Regardless of Supplies

 

It appears that commodity prices have a mind of their own, defying convenient but ultimately specious explanations. Rather prices follow the laws of the market – a market hoarded, swindled or otherwise manipulated – but a market following it’s own laws just the same.  Could it be that President Sarkozy, that ranting Frenchman who blames “extortion and pillaging”, could perhaps “avoir raison”?

As mentioned previously, the privatization of state property carried out by ‘President’ Mubarak at the behest of the IMF and USAID beginning in 1991 was a boldfaced looting of the highest magnitude supported by the leading international financial institutions of the world, and with the cooperation of international investors in these enterprises.  While this may sound like hyperbole, let us remind our readers that the ‘proof is in the pudding’.

The Guardian reported today,

“President Hosni Mubarak’s family fortune could be as much as $70bn (£43.5bn) according to analysis by Middle East experts, with much of his wealth in British and Swiss banks or tied up in real estate in London, New York, Los Angeles and along expensive tracts of the Red Sea coast.

“After 30 years as president and many more as a senior military official, Mubarak has had access to investment deals that have generated hundreds of millions of pounds in profits. Most of those gains have been taken offshore and deposited in secret bank accounts or invested in upmarket homes and hotels.”

While this in itself is not surprising, one wonders how deeply foreign investors, one and all, had paid off the bloody dictator (though Joe Biden insists Mubarak is not one) in order to extract their profits from the backs of the Egyptian working class.  Professor Christopher Davidson of Middle East politics at Durham University, tells us the payoff is in fact less than the rate in other cleptocracies in the area – only a 20 percent ownership served up to Mubarak is required to get a business concession.

The Algerian newspaper Al Khabar reported

“Alaa Mubarak [Hosni’s son] allegedly owns $2.1 billion worth of properties in Rodeo Drive… real estate in Washington and New York and owns two royal yachts with a value of 60 million pounds.”

The booty has been spread throughout the Mubarak family and it appears Mrs. Mubarak has decamped to London complete with 97 suitcases (which could contain not all, but perhaps only this month’s lucre).  The rest of the family’s fortune is deposited in UBS, Credit Suisse and accounts all across Europe.

However, the mechanics of this monumental thievery perpetrated on the Egyptian nation by USAID and IMF connivance and “new economy” corporate neoliberalism has spawned two entire Egyptian classes who are competing today to rule the country.  These two have been deftly described by Paul Amar at University of California at Santa Barbara as: a “military/nationalist” class of capitalists including much of the military leadership of the last decades, with allegiance to the state and national capital; and the “neoliberal crony capitalists” who, along with Gamal Mubarak, are civilians with close ties to international capital and have most benefited from the state asset privatization debauchery of the last 20 years.  Yet the former class still dominates Egypt:

“Since 1977, the military has not been allowed to fight anyone. Instead, the generals have been given huge aid payoffs by the US. They have been granted concessions to run shopping malls in Egypt, develop gated cities in the desert and beach resorts on the coasts. And they are encouraged to sit around in cheap social clubs.

“These buy-offs have shaped them into an incredibly organized interest group of nationalist businessmen. They are attracted to foreign investment; but their loyalties are economically and symbolically embedded in national territory.”

The recent half-measures of Mubarak for appeasement over the last week have sacked all civilian ministers from the government and from the ruling party belonging to the “crony capital” class (wholly attached to foreign capital) including, most notoriously, his son Gamal.  Despite this attempt to placate both the protesters and his rivals in the military, the military/nationalist class now has the upper hand.  That is, Director of Intelligence, Omar Suleiman, the military’s representative, the butcher of Cairo, now has Washington’s ear.  He is the one Obama and Clinton have anointed to take over from Mubarak to continue the dictatorship… or in the Americanese language of today, the “change we can believe in”.  Suleiman headed the extraordinarily renditions by the CIA to Egypt and even personally carried out some of the torture, including against the Egyptian-born Australian citizen Mamdouh Habib.

Mamdouh Habib, left

Mamdouh Habib, left (and family), tortured in US rendition by Suleiman

Word on the street in Cairo is that Egyptians are understandably underwhelmed by Obama’s endorsement of Suleiman:

“We won’t accept this American plan if it does not cut off the head of the snake,” said Ahmed Mora, a university lecturer among the demonstrators. “America has not been good for us in Egypt. It supported Mubarak for 30 years. If he’s still there, or other people from the system are still there, we will not accept it.”

Surging Food Prices

World Food Price Index

World food prices are off the charts.  Uprisings surge through North Africa and the Middle East: Tunisia, Egypt, Yemen, Jordan.

‘Not my problem’, says the Federal Reserve Board.

The Financial Times reported,

“Asset purchases by the US Federal Reserve do not cause rising food prices in countries such as Egypt, the central bank’s chairman Ben Bernanke said. … ‘I think it’s entirely unfair to attribute excess demand pressures in emerging markets to US monetary policy, because emerging markets have all the tools they need to address excess demand in those countries.”

Under the headline, “Bernanke Denies That Fed Is Stoking Inflation“, the WSJ said:

“Mr. Bernanke, speaking at the National Press Club in Washington, said it is up to other countries to control their inflation.”

In other words, this is not to deny that QE2 is the cause, but rather that every country in the world needs to take serious and immediate measures to try to throttle the inflation brought on, presumably, by the ‘Quantitative Easing 2’ (the printing of $600 billion in new currency)… This would assume, of course, that every country in the world is in full control of it’s economy and monetary policy (for example, not under the boot of the IMF or international finance) and can act swiftly and ‘rationally’.  The further argument Bernanke offered is that inflation in food doesn’t significantly affect developed economies’ core inflation, and it will abate soon enough.

Perhaps true for a developed economy.

But, for an ’emerging’ economy, things are quite different.  For example, in both Egypt and Yemen, 40% of the population live on the equivalent of less than $2 per day.  According to researchers, families at this income level spend from 55% to 80% of their income on food alone.  In the United States, on the other hand, the Department of Agriculture says Americans spend 9.5% of their income on food.  That is, 40% of Egyptians spend an average seven times as high a portion of their income on food as Americans.  It should not be surprising to find when food prices double, many in Egypt, Yemen, and throughout the developing world quite simply struggle desperately to survive.

Another opinion:

“All of the Fed’s money printing is having the obviously expected effects. The dollar is weakening. Commodities are skyrocketing. Even gold may be getting in the act. Equities are inflating, and foreign governments who usually buy our bonds are facing raging inflation, which is weakening their economies and increasing the cost of their manufactured goods in the US. It’s all bad.”

Mr. Bernanke went even farther in defense by blaming the rising prices on the developing countries themselves:

“Some of the emerging markets are facing inflationary pressures because their own economies are growing perhaps even faster than their capacity.”

And further, in the long term, the rising prices were actually caused by people eating better:

“As people’s diets are becoming more sophisticated and as they eat more beef and less grains and so on, the demand for food and energy rise and that’s the primary long-term factor affecting the real price of commodities and food.”

This is strange, as the food price chart above shows almost twenty years of mostly flat food prices.  That is, no long term rise, only recent short-term spikes – and those spikes during times of declining beef consumption.  Bernanke apparently didn’t check with the USDA – they find world beef production has been declining for the last four years – 2008 through 2011.

The Fed’s Pollyannaish denial brings to mind Rousseau’s famous quip about a great French Princess who upon hearing the peasants had no bread said,

“Qu’ils mangent de la brioche!”  – Let them eat cake!

But great French Princesses don’t always fair well during times of hunger and revolution, as Marie Antoinette can well attest.

Why Egypt, Why Now?

“If the rise in food costs persists, there will be an explosion of popular anger against the government.” – 19 Nov 2010Hamdi Abdelazim, economist, Sadat Academy for Administrative Sciences, Cairo

Should one be surprised about the uprisings in Egypt?  Hardly.  Perhaps one may be surprised that it was this week, instead of three months ago or later this year.  But surprised that it happened, not at all.  As noted above, a prominent Egyptian economist accurately predicted the uprising two months ago.

To explain why Egypt, and why now, one need only do a little homework.

The Social Contract Holding Together the Egyptian Economy Has Been Eviscerated

To understand how Egypt came to stand on the edge of the economic abyss, one needs to step back a bit and briefly review what has recently happened in the Egyptian economy.

Privatization of state-owned enterprises in Egypt, pushed inexorably over the last two decades by the IMF and US finance under the watchful eyes of the US Agency for International Development (USAID), has decimated what used to be a vast state-run economic sector.  That sector, among other things, actually provided employment, stability, wages, benefits and opportunities to millions upon millions of Egyptians workers in energy, ports, rail, housing construction, water, banking, textiles, cement, agriculture, beverages, etc.  The large state enterprises in Egypt originated in Nasser’s time – under the sobriquet “Arab Socialism” – with significant support from the Soviet Union (e.g. the construction of the Aswan Dam).  These state-owned businesses have long been in the cross-hairs of international capital, as they represented a valuable asset for takeover, in addition to being an impediment to foreign domination of the Egyptian economy. Under Nasser’s Egypt, according to the World Bank,

“the public sector accounted for some 90 percent of total (monetized) investment throughout the 1960s and until 1973.”

After Sadat took power in 1970, he dismantled many of the accomplishments of Nasserite society using the 1974 ‘Open Door’ or Infitah, and subsequent agreements with the IMF.  Yet still many state-run enterprises persisted under Sadat and Mubarak.  According to USAID, until Mubarak and his much-resented son, Gamal, dismembered the state enterprises in 1991 for the the IMF and World Bank in the Economic Reform and Structural Adjustment Program (ERSAP),

“the public sector remained a dominant force in the economy constituting around 37% of GDP, was responsible for about 55% of the industrial production, controlled over 80% of import/export and about 90% of the banking and insurance sectors”.

This, one should note, is in the eyes of the IMF an ipso facto ‘evil’ and needed to be eliminated.  This would allow private capital to drain the public wealth of the country accumulated over the many earlier decades, and also bring the working class, previously well-treated by the state, to its knees.

The trigger to denationalization was pulled in 1991 by Mubarak and the IMF with Public Law 203 which aimed to eliminate all vestiges of state enterprises and national sovereignty in the economic sphere.  According to the NYT, Amr El-Shobaki, a political scientist at the Ahram Center for Political and Strategic Studies concluded,

“privatization was a way for the friends of the rich and powerful to grow more rich and powerful. Even the government acknowledges that the economic changes have had little impact on average lives.”

The result is a typical globalization model of deconstructing the social fabric, built over decades:

  • The choicest plums of high-profit state enterprises were auctioned off at embarrassingly low bids with military officials enriching themselves.  Of 315 enterprises, only 150 unprofitable concerns now remain.
  • “Efficiencies” in what was the former state workforce were instituted – layoffs, wage cuts, etc., further skewing the economy toward inequality.  Three-quarters of state enterprise jobs from 1978 are now gone forever.  The GINI coefficient (indicator of inequality) worsened from 30 in 1995 to 35 in 2005.
  • Revenue from profitable state enterprises evaporated, putting great stress on the budget
  • Remaining state enterprises that are not profitable and can’t be sold now drain the national budget
  • resulting wave of protests, much from privatization, “erupting from the largest social movement Egypt has witnessed in more than half a century. Over 1.7 million workers engaged in morethan 1,900 strikes and other forms of protest from 2004 to 2008” according to Dr Joel Beinin of Stanford University, and the protests continues to today.

The North African Food Crisis Which Was Engineered Abroad

Egypt (and Tunisia, most of North Africa and much of the Middle East) is in a severe food crisis. One must keep in mind the impact of food prices upon a nation like Egypt where twenty percent of the population lives on less than $1 per day, fifty percent on less than $2 per day.

This food crisis is not a ‘natural’ crisis arising out of insufficient production (even though wheat production this year has been moderate). Instead, food being simply a subset of internationally traded commodities, behaves as most other commodities in the market.  That is, it undergoes speculation, market manipulation and hoarding.  Prices of imported food on the streets at the Suleiman Gohar market in Cairo are no longer set by local Egyptian farmers, as twenty years ago, but today by derivatives, futures and hedge fund traders in Chicago, New York and London. That is, skyrocketing grain prices, as were seen for example in 2008 and now again today, are an outgrowth of removal of national protections of agricultural prices and production to international trade.  Food prices in Egypt, due to IMF agreements, is now pegged to international prices and markets.

Egypt Food Prices and 2008 Food Riot and 2011 Uprising

While one might think that great rises in food prices simply reflect shortages in supply, this is frequently not the case. In an interview with John Kleist, a commodities broker in the US, he explained the reverse process which forces prices up:

“While the world is right to be concerned about food shortages, Kleist said global grain levels are not as low as they were in 2008. Many speculative investors are buying up agriculture-related commodities – whether it’s futures contracts or stocks in companies – on the idea of higher demand for food in the future.”

Egypt now imports 40% of its food and 60% of its wheat.  It is now the largest wheat  importer in the world, and one of the largest corn importers.   There has been a 30% rise in food prices in Egypt from June to December of this year, while many food supplies have been growing.  Upon the launching of the uprising in January 2011, Egypt has formally eclipsed the highest food prices ever recorded in the country – those of 2008 when riots flared across Egypt, six other African countries, Haiti and a host of other mideast countries.

Egypt All Food Prices

These facts are not auspicious when 39 million men, women and (mostly) children of Egypt’s 78 million live on less than US $2 per day.

Adrian Day, a global investment manager and noted author adds,

“There are always two major areas to consider any time you look at commodities—the supply/demand factors and the overall economic environment. Other things being equal, a declining dollar means higher commodity prices. More money being put into the system and low interest rates mean higher prices for commodities. Well, guess what? We’ve got a falling dollar, more money being put into the system and low interest rates. So, we have the perfect economic environment on top of the perfect supply/demand situation.”

That is, the perfect storm of commodity speculation.  Which brings us to what underpins skyrocketing commodities, particularly Egyptian food prices.

The Fed’s ‘Quantitative Easing’, also known as the ‘Immiseration of the Developing Economies’

We have known, for at least the previous year, that the Federal Reserves’ policy of “Quantitative Easing” (QE), which is pumping trillions of US dollars into the world economy would inflict great damage on commodities in the developing world.  Since fall 2009 alone, $600 billion was ‘eased’ out of the Fed into American bank coffers.  But where did the dollars end up?

‘QE’  was proffered as an injection of liquidity into the US economy to increase US business activity.  Yet it was patently obvious to those outside the US (and a silenced minority within the US) that the main beneficiaries would not be struggling US businesses strapped for credit, but US banks who would use the liquidity, not to invest in the moribund US economy, but to speculate in foreign currencies, driving currencies higher in relation to the US dollar. This would allow the later repatriation of the resulting foreign-currency inflated investments back into US dollars to bolster US bank profits.  For example, Brazil, amongst other countries, harshly criticized the Fed policy which would, “create dangerous bubbles in such countries as Brazil”.

Not surprisingly, the Fed and others pooh-poohed this viewpoint.  And even less surprising, this outcome is precisely what has occurred.  Even the Wall Street Journal now admits this is the prevailing view of US ‘quantitative easing’ throughout the world:

“In the developing world, the Fed is widely seen as the inflation culprit because it has pushed interest rates to zero and pumped trillions of dollars into the global financial system through a policy known as quantitative easing.”

Egyptian Inflation

Chotaro Morita, head of Japan fixed-income strategy at Barclays Capital Japan warned:

The short-term situation in Egypt is uncertain, but if the main cause of the surge in commodity prices since last year has been excessive monetary accommodation by developed economies, especially the U.S., then the macroeconomic policies aimed at balance-sheet adjustment in developed economies appear to have backfired by causing social unrest in developing economies and a further rise in resource prices.

So Adrian Day’s earlier recipe for the perfect storm of commodities, “a declining dollar […] More money being put into the system and low interest rates”, has been accomplished by none other than the US Federal Reserve Bank at the behest of American finance capital.  The Fed has:

  • Lowered the interest rate to near-zero
  • Poured 2.1 trillion dollars into the world economy through June 2010 to increase liquidity by buying mortgages, bank debt and treasuries
  • Lowered the US dollar exchange rate by continuing to buy US treasuries by simply printing money ($600 billion in QE2)

And if the storm is not quite perfect enough, simply note that:

  • Egypt is the largest wheat importer in the world
  • US is the largest wheat exporter in the world

Revolts have now taken place in Egypt and Tunisia with massive demonstrations continuing in Jordan, Yemen and Algeria as well.