Challenging Colonialism: Bank Misr and Egyptian Industrialization, 1920-1941

by Eric Davis

Overview

Eric Davis challenges classic theories of dependency and imperialism and explains the history of the Bank Misr by interrelating world market forces, Egyptian class structure, and the Egyptian nationalist movement and state apparatus.

Originally published in 1983.

The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

Product Details

ISBN-13:	9780691641362
Publisher:	Princeton University Press
Publication date:	04/19/2016
Series:	Princeton Studies on the Near East , #885
Pages:	254
Product dimensions:	6.20(w) x 9.30(h) x 1.10(d)

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Challenging Colonialism

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By Eric Davis

PRINCETON UNIVERSITY PRESS

Copyright © 1983 Princeton University Press
All rights reserved.
ISBN: 978-0-691-07640-9

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CHAPTER 1

Introduction

Although there are notable exceptions, most attempts at industrialization in non-Western countries have not had a significant impact on problems of underdevelopment. The debate over the causes underlying the failure of industrialization to bring about modernization has been characterized by writings which are either highly theoretical or utilize aggregate data analysis. Case studies, which would provide the opportunity to focus more sharply on the problems surrounding the industrialization process in the non-Western world, are still limited in number. Taking account of this deficiency, the present study examines an ambitious attempt at industrialization that began in Egypt during the 1920s under the auspices of the first bank to be entirely financed and administered by native Egyptians, the Bank Misr. Although initially very successful, the bank's efforts at industrialization fell short of its goals to lessen Egypt's economic dependence upon the production of long-staple cotton and to create a modern industrial sector in the Egyptian economy.

Established on April 13, 1920, the Bank Misr was not intended to be an ordinary commercial bank but rather was envisioned by its founders as a source of industrial credit and as the center of a large holding company of Egyptian firms. As such the Bank Misr was meant to be the motor force behind the creation of a modern industrial sector in the Egyptian economy. During the inter-war period the bank was highly successful, having created companies that included the largest textile firm in the Middle East, transportation, cotton ginning and insurance companies, Egypt's first national airline and a host of smaller enterprises. Having begun with a mere 80,000 £E in 1920, the Misr Group had a nominal share capital of almost five million £E on the eve of the second world war. Nor was the bank's influence limited to its own companies. The Bank Misr played a pivotal role in the formation of government fiscal policy during the 1920s and 1930s and was instrumental in encouraging the state to assume an active role in promoting Egyptian economic development. In addition to Egypt, the bank extended its activities throughout the Arab world. Although unsuccessful in attempts to open branches in Palestine and Iraq, it was able to establish the Banque Misr-Syrie Liban with offices in Syria and Lebanon. The bank and several of its companies were instrumental in dramatically improving accommodations for Muslims traveling to Saudi Arabia for the pilgrimage in addition to becoming involved in numerous economic projects in the Hijaz. Through its airline and shipping company, the Bank Misr established commercial ties throughout the eastern Mediterranean and the Sudan. As such, the Misr Group became the first Arab multinational corporation.

These activities earned the Bank Misr accolades not only from Egyptian nationalists but nationalists throughout the Arab world. Indeed, the extent to which the bank was identified with a feeling of national revival is seen in the many odes (qasa'id) written to the bank by the Arab world's "prince of poets" (amir al-shu'ara') Ahmad Shawqi. Nevertheless, the Bank Misr collapsed after the outbreak of the second world war in September 1939. The bank's managing director and architect of its industrialization policy, Muhammad Tal'at Harb, was forced to resign along with the majority of the board of directors. After an extensive audit of its financial affairs, the Egyptian government agreed in 1941 to assist the bank but only on condition that it cease any further activity aimed at creating new industrial enterprise.

Despite the important role it played m the economic development of modern Egypt and other Arab states, the Bank Misr has not been the subject of an in-depth study. The growth and expansion as well as the collapse of the Misr Group clearly demonstrates the inadequacy of any theory which views the process of industrialization in non-Western countries in narrow economic terms. The technological development of the West and the highly integrated nature of the world market during the twentieth century has necessitated an active role on the part of the state in order to protect nascent industry in underdeveloped countries. In many non-Western nations, particularly those that suffered colonial domination, industrialization has been associated with the desire to achieve a strong economic base which would break the bonds of dependency upon manufactured commodities from the West. Since colonial rule has so often been associated with an economy that is agriculturally based and produces a limited number of primary products, industrialization has frequently been perceived as the antithesis of colonial domination. Thus during the twentieth century, the industrialization process in the non-Western world has often been part of a larger nationalist movement.

Given this larger context within which industrialization in underdeveloped countries must be viewed, this study poses four broad questions. The first two are historically specific while the latter two are more theoretical in nature. First, what were the social forces behind the formation of the Bank Misr and why was it established at a particular point in time? Secondly, why did the bank experience a period of rapid economic growth only to later face financial collapse? Thirdly, what light do answers about the first two questions shed upon the larger issue of whether industrialization is possible in non-Western nations and whether it is able to have an impact on living standards in these countries? To what extent can an indigenously financed and administered process of industrialization be successful if it seeks to remain independent of and challenge the domination of foreign capital? Further, is it inevitable that groups that attempt to foster industrialization in underdeveloped countries must ultimately be coopted by foreign capital?

A fourth and final question raises the issue of the role of the so-called national bourgeoisie in the Third-World industrialization process. How has this class come to be formed and what is its social composition? What are the conditions that influence the political cohesion of this class and what effect does such cohesion or lack of it have upon the industrialization process?

In seeking answers to these questions, the most comprehensive and holistic framework for studying industrialization in the Third World and its impact on problems of underdevelopment is provided by Marxian political economy, particularly Marxist theories of imperialism. While holistic, the Marxian literature on underdevelopment is by no means cohesive. Marx himself showed a certain ambiguity regarding the nature of capitalist development in the non-Western world and the relationship of such development to world market forces. One way to distinguish between the differences among Marxian approaches to underdevelopment is to refer to the "optimistic" as opposed to the "pessimistic" hypothesis. Proponents of the optimistic hypothesis interpret Marx to have argued that, in its later stages, the internal contradictions of capitalism would lead to the rise of monopoly capitalism at home and the export of capital to the non-Western world in the form of manufacturing operations as opposed to earlier stages of capital penetration in which non-Western countries were viewed as sources of raw materials and as markets for finished goods. As the nascent capitalist order grew, the traditional or precapitalist society would be swept away. In this model, to use Marx's oft-quoted phrase, "the country that is more developed industrially only shows to the less developed the image of its own future." Lenin's theory of imperialism, which grew out of the optimistic hypothesis, projected that the export of capital would ultimately lead to a nationalist response as native capitalists sought to establish themselves in the face of foreign economic domination. For Lenin, the relationship between the foreign and local bourgeoisies was inherently contradictory.

The pessimistic hypothesis is foreshadowed in Marx's comments about England's colonial domination of Ireland. In this instance Marx emphasized the expropriation of surplus inherent in this domination whereby England depleted Ireland of its resources. Rather than setting the stage for the development of capitalism, the penetration of foreign capital led to the social and economic decay of Ireland. Among theorists of underdevelopment who consider themselves in the Marxian tradition, most have subscribed to the pessimistic hypothesis. This is particularly true among adherents of the so-called dependency school which argues that industrial development is largely precluded in the non-Western world due to the expropriation of the surplus of these countries by the advanced industrialized nations of the West. In this model, local ruling classes do not develop an antagonism to foreign capital. Since they are beneficiaries of the surplus expropriation process, they actively work to exploit their own societies as "junior partners" of foreign capital.

Both of these approaches define the onset of the modern period of underdeveloped countries as the point at which they were integrated into the world market. As will become clear, the process whereby Egypt was transformed from what was essentially a self-sufficient economy to a dependency upon the world market for the sale of a single cash crop is critical for an understanding of the social forces that combined to create the Bank Misr. However, while Marxian categories proved to be the most conceptually useful in analyzing early industrialization in Egypt, neither the dependency nor Leninist model could adequately grasp this process. The founding of the bank casts doubt upon the dependency model since it does not sustain the idea of a harmony of interests between domestic bourgeoisies at the "periphery" and foreign bourgeoisies in the "core." Furthermore, it cannot be denied that during the 1920s and 1930s, the Bank Misr did lay the foundations for an industrial sector in the Egyptian economy. The development of an antagonistic relationship between a large segment of the Egyptian upper class and foreign capital as well as a significant amount of industrial development lends credence to the frequent criticism that the dependency model is too rigid and static in positing a unity of interests between bourgeoisies in the core and periphery. Likewise, the experience of the Misr Group demonstrates that there is no inherent antagonism to industrialization in the periphery by the advanced capitalist nations as most dependency theorists argue. Despite the Misr Group's hostility to foreign capital, Western capitalists largely ignored it during the 1920s while some became actively involved in Egyptian industrialization during the 1930s.

The deficiency of the dependency model is paralleled by noted deficiencies in writings which posit the inevitability of industrialization in non-Western countries and, by implication, the notion that the historical trajectory of these countries will follow that of the West. While not hostile to Egyptian industrial development, the type of joint-venture enterprise promoted by foreign capital during the 1930s was meant to serve its own interests and not necessarily to foster balanced economic growth in Egypt. Likewise the failure of the Misr Group to establish itself as a viable institution independent of foreign control and to create a self-sustaining industrial sector in the Egyptian economy raises the critical question about the extent to which industrial development can take place in underdeveloped countries given the constraints of the world market and the nature of the precapitalist society in which such industrialization must occur. Furthermore, the shift in perception of Egypt by the core from primarily a source of raw materials and a market for manufactured goods to a source of direct investment in industrial enterprise forced the nationalist elements within the Misr Group to come to terms during the 1930s with foreign capital. It also gave substantial power within the Misr Group to a Europhile segment of the Egyptian bourgeoisie which felt little commitment to the industrialization policies and goals of the nationalist elements. Thus the antagonism between local capital committed to industrialization and foreign capital, which had existed during the 1920s and early Depression, had abated by the end of the 1930s. If the Egyptian case does not substantiate the hypothesis advanced by dependency theory of a continuing harmony of interests between ruling classes in the core and periphery, neither does it support the obverse argument that there is an inherent antagonism between the so-called national bourgeoisie and foreign capital. Theories of imperialism which follow Lenin's elaboration of Marx pose the problem of providing a deterministic analysis of political and socio-economic transformation in the non-Western world.

Despite their criticism of so-called bourgeois development theory, be it political or economic, for its narrowness and ahistoricism, Marxian theories of underdevelopment suffer from a reductionism of their own. Both the dependency and the Leninist model suffer from an economism that cannot grasp the complexities of the process of underdevelopment. It is ironic that while Marx emphasized the primacy of class struggle for an understanding of social change, neither model contains a developed analysis of class structure and class struggle at the national or transnational level as they relate to underdevelopment. The importance of class analysis for comprehending the experience of the Bank Misr and its companies cannot be overemphasized and therefore occupies a considerable portion of this study.

Still another shortcoming of much Marxian writing on underdevelopment is its failure to address adequately the problem of continuity in change or the ability of underdevelopment to assume a variety of forms. If, as Marx argued, all social and political institutions contain the seeds of their own contradiction, then underdevelopment cannot be understood as a unitary and static phenomenon. Not only does underdevelopment pass through different stages (e.g. integration into the world market, imperialism, and neocolonialism) but these stages can assume different forms depending upon the society or geographical region that is being analyzed. Accepting the argument that underdevelopment began with the integration of non-Western countries into the world market, it is important to remember that world market forces interacted with very different political and socio-economic configurations in Latin America, Africa, and Asia. For example, both Egypt and Lebanon suffer from underdevelopment yet the structure of underdevelopment is markedly different in each country.

What this theoretical analysis implies for the present study is that it is not sufficient simply to understand the nature of the world market forces which began to affect Egypt during the latter half of the eighteenth and early part of the nineteenth centuries. Rather these forces must be studied in the context of their interaction with the givens of Egyptian society, particularly the social structure that existed during the precapitalist era. Secondly, it is crucial to understand the transformation of Egyptian social structure as the result of Egypt's integration into the world market and the change in consciousness that such transformation created among the various social strata of Egyptian society. Thirdly, emphasis needs to be given to the contradictions inherent in the integration process and how these contradictions worked themselves out in such a way as to lead to the founding of the Bank Misr at a particular point in time. Finally, the role of the Misr Group in the changing character of underdevelopment likewise provides a critical section of this study as it becomes the key factor in the new stage of foreign domination which developed during the 1930s, neocolonialism.

This study does not claim to have provided a comprehensive theoretical framework of its own for understanding the industrialization process in non-Western countries. Instead, it is hoped that in attempting to answer the questions posed earlier, it has provided the elements of such a theory. While Marxian categories of analysis were found to be most useful as a point of departure for understanding the social forces which led to the creation of the Bank Misr, as well as its growth and expansion, existing Marxian theories of underdevelopment and imperialism were found to be deficient. Where Marxism proved to be most useful was in its emphasis on the notion of contradiction. Paradoxically, all the major factors which played such a key role at one point in time in fostering Egyptian industrialization — world market forces, the large landowning class, the Egyptian nationalist movement, the state and inter-imperialist rivalry — served to undermine and retard the process at yet another. One of the major themes disciplining the arguments presented here is the analytic significance of contradiction as a concept for understanding social change. Where the Marxian model proved to be most deficient was in its inability to provide a developed analytic framework for studying the impact of kinship ties, the role of the state and the dynamics of intra-class factionalism within the Egyptian bourgeoisie. In analyzing these phenomenon, which had such an important impact on the industrialization process in Egypt, as well as delineating some of the deficiencies of Marxian approaches to underdevelopment, it is hoped that this study has made some modest contribution to a larger body of theory rooted in political economy.

(Continues...)

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Table of Contents

• FrontMatter, pg. i
• Contents, pg. vii
• Tables, pg. ix
• Preface, pg. xi
• Chapter One. Introduction, pg. 1
• Chapter Two. Egypt's Integration into the World Market, 1760-1882, pg. 12
• Chapter Three. The Contradictions of Dependent Development, 1882-1920, pg. 42
• Chapter Four. Muhammad Ṭaٵ at Harb and the Nationalist Movement, pg. 80
• Chapter Five. Colonialism Renegotiated, 1920-1930, pg. 108
• Chapter Six. Bank Miṣr and Neocolonialism, 1930-1941, pg. 134
• Chapter Seven. Bank Miṣr and Arab Economic Development, pg. 169
• Chapter Eight. The Political Economy of Dependent Industrialization, pg. 192
• Selected Bibliography, pg. 213
• Glossary of Arabic Words, pg. 223
• Index, pg. 225