Role of the state as a salient stakeholder in a transition economy: the case of Egypt.

ABSTRACT

Egypt, a developing country, is still going through a transition process from a socialist to a free market economy. With the declining role of centralized control, an institutional void was created. The various business stakeholders expected to fill in this gap are still in the

process of formulation. The State continues to be in control of resources and is considered a major source of values that have considerable impact on society. Its tremendous sources of power make it more salient than other stakeholders. This paper aims at identifying this role of the State and its impact on other stakeholders

1. INTRODUCTION

Since the 1980s, Egypt, a developing country, has been going through a transformation process from a socialist economy, where the State controlled 90 percent of the economy, to a mixed economy with the private sector controlling 75 percent of total economic activities. For about thirty years, prior to the start of economic liberalization, the business community was totally removed from proper business practices. The issues of business stakeholders, business ethics and social responsibility were not relevant. The Egyptian Government (Government, State or Bureaucracy are used interchangeably) assumed full responsibility for the society at large. Different stakeholders had no role because the Government was the sole arbitrator of their conflicting claims. During the transition stage which has started in 1975 and is still ongoing, some relevant stakeholders are still absent from the scene while those who have emerged are still weak. The purpose of this paper is to identify the role of the State as a salient stakeholder in a transition economy, using Egypt as an example, in light of the relevant theoretical formulations.

2. THEORETICAL ISSUES

The subject of this paper is related to a number of theories dealing with the issues of stakeholders, transaction costs, principal-agent relationships, bureaucracy and corporate governance and integrity. Business stakeholders are those groups or entities that have a claim or influence on company's resources and their welfare should be embedded in the company's decision making process. The moment that business firms and their managers accept these claims and the ensuing responsibilities, they have entered the domain of moral principles and ethical behavior (Clakson, 1995). This takes place either in reaction to existing laws or in a proactive manner regardless of legal obligations (Frederick, 1995). The latter case is important in situations where laws or the status of stakeholders lag behind society's expectations, a situation prevalent in less developed countries (LDCs) going through transition. It is generally agreed in management literature that achieving a balance between corporate interests and those of the various stakeholders will lead to a positive impact on corporate performance in the long run (Donaldson & Preston, 1995). Corruption as well as unethical behavior may create some short-term gains but it will cause long term difficult to repair damage to development and the social fabric of society (Williams, 1999). For example, bribery can help to cut "red tape" but it encourages uncivil behavior and disobedience of the law.