by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The second thing Washington should do is of a longer-term nature: focus constructively on what it can do to help Egypt achieve a rapidly growing economy à la those of South Korea, Taiwan, Singapore and, yes, Israel, whose high-tech achievements now surpass those of all the EU members.
The Egyptian economy is in shambles, on life support from Saudi Arabian subsidies and IMF loans. The steps needed to be taken are basic.
– Currency board. An economy can’t function well without a stable currency. The Egyptian pound is prey to speculative attack. Cairo should fix it to the dollar via a currency board, whereby the pound would be backed 100% by the greenback. Currency boards done properly always work. Hong Kong has had one–with its dollar fixed to the U.S. dollar–since 1983. Bulgaria, Lithuania and other countries also have currency boards, with their monies fixed to the euro. The IMF will object, because it’s addicted to the notion that funny money hastens economic growth, even though it actually does the opposite. The agency should firmly be told to take a hike.
– Taxes. Adopt a low-rate flat tax the way Hong Kong and more than 30 countries have done. This will encourage local entrepreneurship and job creation.
– New businesses. Make starting a new, legal business a simple formality, a process that could be completed within minutes. Follow the example of New Zealand. This, along with a simple tax code, would encourage new businesses and reduce the informal economy.
– Subsidies. Don’t phase them out until the economy improves markedly.
– Labor laws. Remove restrictive labor laws; they hobble hiring and fuel the shadow economy.
The combination of a very benign tax regime and a stable currency would put Egypt on the road to impressive growth. Given its history and overwhelming size, this would have a profoundly positive impact on this treacherous and bloody region.