Thursday,19 July, 2018
Current issue | Issue 1241, (9-15 April 2015)
Thursday,19 July, 2018
Issue 1241, (9-15 April 2015)

Ahram Weekly

The state is dead, long live the state

Al-Ahram Weekly

Four years after the 25 January 2011 Revolution, Egypt is still searching for its right economic system. The easy answer always given is that “it is sort of mixed economy”. That may have been right during the Cold War era, but not now. What Egyptians, foreign investors and multinationals need clearly is a “positive definition”, to clarify the nature of the Egyptian economic system. To be clear and transparent means to be attractive.

No matter what kind of system, clarity, efficiency and high productivity are the driving engine of growth and development. Being vague is a recipe for failure and disaster. Compare China, Vietnam, South Korea and Brazil to some other developing countries and you will realise the importance of having a clear, transparent and well-defined economic system.

Sadly, since Deauville in 2011 to Sharm El-Sheikh in 2015, successive Egyptian governments received foreign aid of more than LE200 billion in grants, cash deposits, loans and supplies of fuel and other goods. In nominal money terms, that was more than all West European countries received according to the Marshall Plan after World War II ($13 billion). That aid to Egypt helped the economy to stay just about alive, keeping its head above water. Only very recently the government started sort of a structural reform programme in order to bring some balance to Egypt’s public finances. Fuel and food subsidies have been restructured and income taxes are streamlined. Some other reforms are still in the pipeline.

The big question after the Sharm El-Shiekh Economic Development Conference regarding the nature of Egypt’s economic system is still pending. Primarily a line defining the social role of the state in providing social security for all its citizens should be drawn and made publicly clear and understood. It is also very important to define the role of the state in ownership, management and regulations. Other lines should also define the power of the market and its sphere of influence, forms of ownership and their limits, the role of trade unions, their rights and obligations and finally a clear mechanism to eliminate monopoly and wealth concentration. The state in a country like Egypt can’t escape its responsibility for laying solid foundations for inclusive and sustainable growth. This will require the state to play an active and vibrant role in economic and social life.

RETREAT OF THE STATE: The trouble here is that the state has, for a long time, withdrawn gradually from that required role in a country of about 90 million people, almost half of them poor and one quarter of the population either suffering from one or more chronic diseases or illiterate or living in slums. Most of its young educated people are unemployed. Unfortunately most of those young unemployed have lost hope in finding proper jobs.

It seems as if policymakers are assuming that the state is dead and has no function to play. Based on this assumption they are delegating the role of the state to the private sector in housing, health, education and employment. Most recently, and according to a public-private partnership (PPP) law that was issued in 2010 but was not as active, the state will give multinationals and foreign investors a bigger role in health, insurance and in electricity generation and distribution.

The social security system, or social safety net in Egypt is badly designed, mostly corrupt and practically run as a charitable gift service not a citizen’s right. The system needs to be completely restructured and established as a means to provide basic social protection for individuals and families against poverty and inequality. Such a system should provide for family social allowances, child benefit, income support, housing benefits, health insurance, unemployment benefit, adequate state pensions, and vocational training and retraining funding and facilities. In order to provide for such a system, the state should enjoy sound finance and a credible financial policy.

Not only that, but also the state will have to play an encouraging and balancing role in production, basic services and physical infrastructure. After years, perhaps decades, of economic decay and deterioration, neither individuals nor foreign investors should pay for the failure of public policy. Traditionally, foreign investment goes hand in hand with local investment, public or private. It is wrong to assume that foreign investors will shoulder the responsibility of sustainable, equitable and inclusive growth. Foreign investors usually chase profits, not social security for foreign citizens.

The low ranking of Egypt on international human development indices provides very strong justification for a wider - not narrower - role to be played by the state. The poverty rate in Egypt is almost twice the world average. Egypt’s ranking in some social services such as quality of education, health service and housing is touching the bottom of world indices, especially in education.

In industry and other commodity producing sectors, Egypt lacks basic foundations for sustainable growth and the ability to compete worldwide. Without building a sound basis to be able to produce engines and engineering products, electronics, machines, advanced military equipment, renewable energy intermediates and a space industry, Egypt will always depend on imports and will always remain an exporter of raw materials. Agriculture needs also to be developed. Egypt has to transform this sector from “basic trade” to a “developed industry” in order to enable it to feed its growing population. Food security is one of Egypt’s main concerns.

POLICY PARADOX: Two big events in Egypt’s recent economic history prove that the state failed in mobilising the country’s resources and holding on to gains that could have changed the economic landscape. Economic policy lost a chance to capitalise on “peace dividends” after the peace treaty with Israel in 1979, and it also lost a chance to make use of gains resulting from the withdrawal of the state from economic activity in the following decades.

Cutting down on war expenditure did not reflect in increasing spending on development. The irony was that peace dividends and savings on state owned enterprises, through the sale of a large chunk of them, the receipts of sales entering the state budget, did not result in reducing the budget deficit. On the contrary, the state deficit mushroomed year after year, to reach more than 90 per cent of GDP at present.

The so-called “open door policy” was introduced with the blessing of the International Monetary Fund on a promise that it would provide more welfare to the people and more strength to the economy. It produced neither. Poverty has been on the increase ever since, and economic competition is diminishing.

The wrong economic policy coupled with increasing population resulted in a deterioration of the quality of life for the majority of the Egyptian people.  There is nothing that can explain this economic policy paradox but corruption of the state. This corruption added to a deliberate discriminatory policy favouring rich people helped them to become “super-rich” at the expense of the majority. The most serious deterioration took place in education, healthcare and housing.  In production, manufacturing was the main victim. The sale of most of the state-owned enterprises also resulted in mass unemployment and made the state less able to carry out the full employment policy of the 1960s.

In order to draw the line between right and wrong, economic policymakers will have to define real, practical and achievable goals for development. It is not useful to repeat expressions such as “inclusive growth”, “sustainable development”, or “knowledge-based economy” in economic strategy texts while failing to evaluate previous policy targets and find out why past policies failed in achieving their targets. It is also wrong to borrow policies or targets merely because they will satisfy IMF officials.

WELL-DEFINED TARGETS: Historically, we satisfied such officials and failed in getting the hoped for results. Policies such as “import substitution”, the “open door policy”, “export-led growth” and the “private sector-led economy” were introduced to us by the World Bank and the IMF and were embraced by our policymakers at different times. But they produced one crisis after the other. What Egypt needs is a home grown economic reform programme, not to satisfy the IMF but to provide a solid base for an economic leap forward on the basis of sustainability and equality.

In order to carry out such a programme, the state will have to play a positive, not neutral or regressive role. The state will have to get engaged in production, as a partner on equal ground with others. It will also be engaged in the economy through regulation. Fighting monopoly and concentration of wealth should be one of the prime responsibilities of state regulation. The state will also have to become actively engaged in building a sound and efficient social security system.

INSTITUTIONAL REFORM:  Two main concerns about the role of the state in Egypt should be dealt with before anything. In order to build an even ground for competition and administration, the state should act quickly to resolve conflicts of interest between government institutions and organs, and also to resolve conflict between different laws and regulations. For example, the allocation of plots of land for investment, and authority over land in Egypt, can’t stay divided between ministries, governorates and public authorities. These organs have conflicts of interest that spoil any move to streamline investment procedures.

The state also, deliberately or by chance, is using different laws and procedures in order to regulate similar activities. There are different employment laws for civil servants, for public companies, for public authorities and even for healthcare. This situation has created a huge and frightening jungle of laws that lead to inequality and a state of corruption. The state will have to run a serious clean up operation in order to become healthy and fit enough to play a leading role in the rebuilding of the country. The state will remain corrupt and inefficient without such a clean up.

Don’t wait for somebody else to do the job for you! The state is already facing serious threats from market forces, globalisation, multinationals and international NGOs. It has to be fit and strong enough to fight threats coming from within and from without. A weak state will clear the way for more “destructive chaos” and instability. But a strong state is not at all the authoritarian state. On the contrary, it should be democratic, promoting freedom of choice, respect of law and human rights. It will be wrong to assume otherwise. The state is coming back on a democratic basis.

The writer is chairman of the Arab Organisation for Freedom of the Press.

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