Egypt as a Transitioning Welfare State
The last chapter concentrated on historicizing the social contract in Egypt. Nasser
sought to reform Egypt under a ‘socialist state’ structure in order to consolidate
government power. Sadat implemented different policies in order to achieve a more
capitalist free market state, without reforming the political structure. Although Mubarak
continued similar policies early in his reign, he has taken steps to increase social
protection and welfare programs during the last few years. During the last two presidents,
Egypt has attempted to transition from a rentier capitalist regime to a capitalist welfare
state. The state under Mubarak has tried to embrace more welfare-oriented polices while
retaining capitalist, neoliberal, and privatization strategies. In theory, the goal has been to
merge these ideas together to achieve sustainable, equitable, efficient, and properly
targeted social policies. In reality, what has emerged is an uncomfortable paradox of
social, political, and economic contradictions between the Egyptian state and its
population. In order to assess the issues relating to state responsibility and society, several
questions must be addressed. Has the government ever fundamentally changed its
infrastructure to implement pro-poor and social reforms over time? Did social policy truly
improve? Is Egypt transitioning into a welfare state? Is the government effective in
catering to the needs of the poor?
This thesis does not operate under the assumption that a welfare state is
necessarily the final solution to alleviate poverty. Instead, it looks at the particular criteria
and policy making of the government in addressing the welfare of its citizens under
certain socio-political models. Before this issue can be understood, several concepts need
to be elaborated on.
The Role of Poor Within a Regime: Mechanisms for Poverty Reduction
Entitlements, and Incentives
Entitlements are the rights and privileges of any citizen or the legislative
provisions given to a population by its government. An individual has a certain level of
entitlement and exchange, which is influenced by outside factors, such as cost of
resources, economic conditions, the availability of employment and wage rates. The state
is responsible for ensuring these social rights by providing equal access, distribution, and
opportunity to all its citizens. “Social rights are necessary because the lack of material
resources could prevent an individual from becoming an autonomous economic agent or a
competent political actor; they are feasible through a system of mutual insurance against
measurable contingencies and risks.”
However, there is a distinct line between what citizens ‘should’ receive and what
they actually do receive. Although a state may endorse a service that it deems necessary
and socially just. But this does not automatically guarantee equal access or quality of the
service. In Egypt, a public and free school system is seen as essential to encourage
education programs for every citizen. Yet the government’s commitment to providing
education as a universal good has had significant costs. The quality of public schools are
substandard and they are renowned for being inefficient and unproductive. Should quality
of service be sacrificed for universal access?
Mechanisms for Entitlement and Provisions
Entitlement programs include social and income security, social protection, healthcare,
and education. Entitlement and provisions for the poor and vulnerable can be classified
into different functional mechanisms. Prevention mechanisms aid in reducing the
probability of social shocks; mitigation mechanisms reduce the magnitude of their
impact; and coping mechanisms relieve the impact once the shock has materialized.
Programs such as social insurance, social security, labor market interventions and social
assistance, all are mechanisms for societal entitlement. A citizen’s entitlement stems from
two prevailing factors: equal membership (we are all Egyptian citizens) and from
acknowledged needs (disabled, single parents, or other groups that need social
entitlements more than others.)
“Although individuals, should, in principle, themselves be responsible for
insurance against social risks, governments are also called upon to take responsibility for
their citizens social protection when necessary. Often a household is unwilling or unable
to take sufficient precautions and state intervention is required to restore the economy’s
allocative efficiency and distributive justice. However, the state’s social security strategy
must be efficient and just in and of itself.” Services and entitlements are factors that
contribute to the regulation of a society.
Incentives and Welfare
Welfare programs and state-sponsored social initiatives can create serious
problems of dependency. Many of these programs are expensive and their sustainability
requires a certain measure of success in poverty alleviation. Ideally, the intent of welfare
services works under the assumption that recipients will eventually achieve
selfsufficiency. Welfare programs should not be structured to continuously exhaust state
funds or put pressure on society. Social programs are often targeted as facilitating social
dependency on the state and draining state resources. To offset certain welfare initiatives,
such as subsidies, incentive plans are often introduced to balance out social provisions
and justify the affordability of social spending.
Because progress and social development are critical to the long-term goals of
welfare, it cannot be one-sided on the behalf of the state. Therefore, incentives must be
put in place to discourage dependency and encourage responsibility and human capacity.
Incentives can be in the form of conditional welfare whereby an eligible recipient must
meet certain requirements. For example, they must enroll their children in school, register
with an unemployment office, maintain steady employment, apply and be screened for
social housing, and other development incentives. This discourages reliance on the system
and voluntary unemployment.
Subsidies
Food subsidies have been used by many governments, including Egypt, as a form of
poverty alleviation and as an extension of the social contract. Targeting addresses the
issue of how the system will provide the subsidized commodity and for whom it is
intended. This can be through either administrative or self-targeting program.
Administrative targeting involves a substantial role on the part of the state to set up an
effective and accountable infrastructure. A functional and accountable administration will
facilitate the screening of the poor from the non-poor, the distribution of food stamps and
deliverance of income transfers to those who are qualified. The administration would hold
the responsibility of identifying and targeting those in need, as well as delivering and
distributing the subsidy, either directly or through ration cards. Transparency and
cooperation would be required for administrative targeting to be successful—a daunting
task.
Another method to select beneficiaries for subsidies is through self-targeting. “Food
subsidies can be considered to be self-targeted when the subsidized item is an inferior
good; that is, the food is consumed more in both absolute and relative terms by the poor
than by the non-poor.” Food subsidies in Egypt provide “cheap, calorie dense foods to
protect the income and nutritional status of particular groups such as the poor, children,
and pregnant mothers.” In Egypt, however, subsidized inferior goods such as coarse flour
and Baladi bread are universally available and acceptable to all citizens. This has led to
major leakages and inefficient targeting because non-poor families also have the same
access to the subsidy.
Food subsidies and their political and distributional impacts play a significant role in
Egyptian social safety net programs; the low-income population has come to rely on this
program for their socio-economic welfare. For many households in Egypt, the bread
subsidy is the primary method to ensure that they are able to afford food for themselves
and their families.
Since its inception in the 1940s, the operation and evolution of the Egyptian subsidy
program has gone through many distinct transformations. The food subsidy program did
not originally target the poor when it was first created, but was another public benefit for
every Egyptian citizen under Nasser. By 1975, subsidies accounted for almost 17% of
government expenditures. The subsidy system continued to grow to an unsustainable
level in the 1980s when it expanded to almost 20 foods categories available to all
Egyptians. Since then, the subsidy system has quietly contracted from 20 food types to
just 4. However, there are still huge leakages in the program due to inefficiency and lack
of proper targeting measures. The universal availability of such subsidies in Egypt,
without regard to specific income or welfare levels, demonstrates the financially draining
effect of the program. Thus, subsidies are often deemed fiscally wasteful and
uneconomical.
The subsidy system in Egypt attracted criticism from financial international institutions.
Western style capitalist development proponents argue that, because of the general
ineffectiveness and subsidy leakage problems, the fiscal costs of maintaining the program
outweighs the social benefits. They advocate the gradually elimination of the subsidy
programs because of the unnecessary burden placed on the public budget.157 Yet, the
political sensitivity of subsidies, especially bread, has put the State in an awkward
position: balancing the desire to achieve economic pragmatism without creating domestic
tension. While the Egyptian Government has in effect paid lip service to embracing
affordable social spending, the food subsidy program has remained stable. Regardless of
the pressure to eliminate or reform the subsidy system, the state has been curiously
inactive by neither reducing or expanding the system nor addressing critical targeting
problems. There was a steady and slow decline in subsidy social expenditure after 1992,
although per capita share of subsidies did increase.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Social Protection
Social protection programs are tools used by governments to alleviate poverty by
reducing the vulnerability and risks of the poor, while at the same time increasing the
opportunities and capabilities of those in need. These programs target low income and
ultra poor groups. They promote poverty mitigation and social assistance while
attempting to achieve financially viable and effective social protection systems.159 For
example, in Egypt, income supplements and support systems are in place as a part of
social protection and poverty alleviation strategies. Social protection programs include
policies that bolster the role of the poor in the labor market and target socially
marginalized citizens such as women, children and the disable. They also promote local
business development and access to social insurance and welfare services.
There are also other social policies that help the capabilities and development of
the poor. Labor policies are extremely important in the direction and success of social
protection. Minimum wage, public sector or minority employment opportunities, and the
protection of workers play a significant role in the security and rights of the citizen.
Social insurance also provides security for those who face social risks, providing
management for the unemployed, disable, retired, or those who become ill. Welfare
assistance programs target the most vulnerable giving those in need support and
protection. Microfinance and local business investment programs can also be used as
social protection measures at the community level. These programs offer loans and
initiatives to low-income groups as a means to bolster their capacity and access to
financial services. In these government implemented social protection programs, the state
takes on the role of the protector.
These different aspects of social protection help define the responsibilities of the
state toward society. The extent in which these programs are implemented and how they
fare in success can shed light on the Egyptian government’s transitioning role in society
and how the poor are affected. By examining this role, one can understand the criteria for
a welfare state and whether Egypt, during the past three presidents has actively pursued a
shift in policy alleviate poverty.
The Welfare State
At the minimum level, a welfare state depends on the government as the primary
actor in facilitating the social, political, and economic well being of its population. A
public responsibility exists between government and citizen—social and economic
equality, fair distribution, and minimal provisions for living standards. The state assumes
responsibility for the widening disparities in terms of inequality, social protection,
opportunity, entitlements, services, and incentives. A welfare state “involves state
responsibility for securing some basic modicum of welfare for its citizens. Such a
definition skirts the issue of whether social policies are emancipatory or not; whether they
help system legitimation or not; whether they contradict or aid the market process; and
what, indeed, is meant by basic?” Welfare sociologist Gøsta Epsing Anderson raises
important questions, not just in terms of a welfare state, but also in regard to the actual
role of state responsibility to its citizens. Is a state required to meet the needs of a
population? And are everyone’s basic welfare needs the same?
“Most historical regime shifts have one thing in common, namely an
intensification of ideological competition between rival visions of the ‘Good Society’.”
The policies implemented under Nasser were less about social solidarity, nationalization,
or welfare and more about consolidating the power of the regime. As previously
mentioned, the dominant role of the state did not change fundamentally with Nasser’s
state autonomous socialism, Sadat’s capitalist rentier economy, or Mubarak’s post
capitalist policies.
The remainder of this chapter will focus on Egypt in the last thirty years and the
government’s attempts to transition from a rentier state to a welfare state. This will shed
light on the government’s attitudes and commitments towards the ultra poor.
Rentier Economies
A rentier state rarely promotes economic development; it essentially allows the
government a certain degree of domestic autonomy due to its monopoly on economic
power. This was the case under Sadat’s government. During this era, Egypt relied heavily
on foreign aid, revenue from the Suez Canal, and on exporting labor and the return of
remittances. The economy relied heavily on foreign grants, worker remittances, oil
revenue, and tourism. This money accounted for a huge portion of the GDP in the
mid1980s and left Egypt financially dependent, internally oriented and weak. This led to a
rentier effect. While remittances did facilitate employment and revenue, the real need to
address economic reform and the demands from the population were not acknowledged
by the state. The result was an economy which was extremely susceptible to external
shocks and had difficulties maintaining a positive economic growth rate. Therefore, Egypt
accumulated massive deficits in both foreign debt and balance of payments. The reliance
of interregional migration during the 1980’s promoted an environment in which the state
could remain negligent and apathetic in instituting real economic or social changes. Sadat
attempted to fix the problem through the economy, rather than society.
Role of International Donors and Foreign Aid
Foreign aid policy in the 1980s reflect “the cumulative effects of decades of
borrowing and manifested by large and increasing balance-of-payments and budget
deficits in most of the developing world” This, along with other factors, marked the
beginning of extensive changes and reforms in international donors and aid strategy.
Equilibrium, both externally through balance of payments and internally through national
budgets, became the target for aid objectives. To counter unsustainable rent seeking
policies, Sadat tried to embrace free market and privatization principles that foreign
donors so vigorously promoted. This was done in superficial conformity with western
style capitalist reform, which also extended to Mubarak’s early reform efforts.
This era of economic reform sought to promote a more outward oriented approach and
relied on deregulation and liberalization programs. These policies were an extension of
the Washington Consensus economic and social development programs that extend from
Sadat to early Mubarak’s era.
Washington Consensus Reform
Throughout Egypt in the eighties and nineties, new socioeconomic policies attempted to
adhere to the Washington Consensus style of reform. The Washington Consensus
developed during the 1980’s as a branch of neoclassical economics, which emphasized
capital intensive development. It promoted right-wing, conservative development policies
that operated on the assumption that the “market is efficient and the state is inefficient.”
This school of thought promoted strict and specific economic prescriptions, such as
reliance on deregulation, fiscal discipline, direct foreign investment, trade liberalization,
and privatization of state operated programs. However, the deviation from this model and
the subsequent success of several East Asian economies, along with the negative impact
of human costs and increases in poverty for other states that implemented such polices,
presented challenges to this theory. The “Washington Consensus policies focus
inordinately on short term stabilization while undercutting the basis for long term
growth.”
This was applied to Egypt to counter the inward-looking, heavily regulated, and
interventionist political economy of the state, as well as to challenge the over reliance on
rents. Washington Consensus international financial institutions argued that state
centralization policies were unproductive; therefore, liberalizing and privatizing the
economy would bring profitable and effective results. In terms of welfare, the Washington
Consensus approach operated on the conclusion that economic growth reaches the upper
echelons of society first before eventually dispersing to the rest of the population.
Eventually, the growth from this “trickle down” effect would indirectly benefit the poor.
Socio-economic inequalities would subsequently be minimized through the trickle down
effect of market revenue.
Mubarak sought to continue the Washington Consensus style development and
integration. The best example of this is the economic reform and structural adjustment
programs of the early nineties. These policies operated under the assumption that once
prices and institutional barriers were deregulated, the private sector and new investors
would utilize comparative advantage through the market. Believing that state-owned
enterprises were detrimental to growth, the ERSAP followed the strategy that economic
growth and development would thrive in a market competitive economy free of
government restriction. Given this opportunity, the supply-side of the economy would
respond appropriately. Theoretically, socio-economic inequalities would subsequently be
minimized through the trickle down effect of market revenue.
The Asian crisis in 1997-98 and subsequent global economic fallout showed how
disconnected Egypt was from the modern capitalist infrastructure of a globalized
economy. Although social expenditure continued to increase, GDP annual growth was
also not critically affected, due to the lack of integrated economic and social policies were
supposed to take place in the early nineties. It also demonstrated how Egypt relied on the
informal sector, which was not tied to global enterprises or international free market
cooperation.
Source: World Bank national accounts data, and OECD National Accounts data files
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
One of the primary purposes Mubarak’s agenda was to transform the Egyptian
economy into a more market-focused system. This would relieve rising fiscal imbalances
and distortions in the current economy by adjusting and reforming the public sector,
monetary policies, social policies, investment, exchange rates, trade liberalization, budget
reduction, balance of payments, and domestic prices.
Social Services for the Poor in Egypt: Healthcare and Education
Free public healthcare and education are two examples of government services
which have historically been granted to the Egyptian population. Nasser “resorted to
health services as a conduit for ideological messages.” Although Sadat emphasized
privatization and “personal initiatives, the state support of healthcare was not abandoned,
given the great symbolic value of healthcare in politics. Governmental health care
programs, such as subsidized health services, are financed through general revenues and a
social health insurance system administered through the Health Insurance Organization.
The public healthcare sector can be categorized as facilities owned and operated by the
Ministry of Health and Population, other government medical centers such as military or
university clinics, or public institutions such as the Health Insurance Organization. The
services provided by the Ministry of Health are available mostly free of cost to all
citizens. Even though these mechanisms are in place, quality is a notable problem.
Government support is minimal and divided, which results in a general absence of real
effectiveness and quality.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Healthcare
In Egypt, as in many other countries, health care services are provided unequally
to different demographic and social groups. In Egypt, 57% of health care expenditures are
paid directly out of pocket which can be attributed to the poor quality of government
healthcare. Because public healthcare is inefficient and not properly targeted, primary
care is usually sought through the private sector. It is significant to note the rising trend of
household expenditure increases in direct, out of pocket payment to private health care
providers and pharmacies. According to a report published in 2004, for the years 1994/95:
“Less than 60% of MOF funds were actually spent in MOHP facilities. The rest
was transferred to teaching and university hospitals, HIO and CCO. MOHP facilities thus
only received 19% of all health sector resources, or 0.7% of GDP. Of all resources, 56%
were spent in the private sector, most of it for the purchase of drugs (63%) or paying for
private ambulatory care (17%). Less than 10% of private funds were used to purchase
inpatient care”
As a result, there was been unequal access to healthcare, with low-income or poor
households unable to afford quality healthcare. This inequality demonstrates that wealthy
households can afford proper care, while the poor are left with little public funding. This
lack of funding for the poor results in minimal health care, which may lead to more severe
long-term health problems. Those that can afford private care are turning away from
public healthcare because of the deteriorating quality and “must turn to private suppliers
for health and education services, or else forgo them.” Many Egyptians have used other
healthcare facilities, such as clinics because, as an alternative to government or private
healthcare providers, they provide better quality and care, have better equipment, and hire
specialized physicians.
Religious charity such as zakat, or tithing, as well as waqf endowments are
important within religious charitable organizations to help fund and support public
institutions such as schools and hospitals. However, these practices “have all but
disappeared in Egypt, a combination of government interference and lack of
contemporary understanding of this form of endowed giving.” Yet the organization and
implementation of zakat and waqf have helped direct resources to maintaining some
public services and goods to the impoverished and have helped fill in some of the social
gaps overlooked by the government.
Yet these public services offered by Islamic organizations have been given carte
blanche. “In addition to the Ministry of Interior’s supervision of financial contributions to
Islamic philanthropic organizations, such organizations are subject to tight bureaucratic
controls. The increase of state aid to Islamic private organizations and their eventual
annexation represent additional means of tightening government regulation. In short, the
state encourages Islamic service organizations to the extent that it considers their services
to be a contribution toward placating the masses, but it always keeps these organizations
under surveillance through various governmental agencies.”
While the system itself has remained the same, trends in healthcare access have
not. Poor household’s expenditure on healthcare dramatically exceeds that of middle class
or wealthy households in terms of proportion of household income level.
Additionally, low-income populations spend more on health expenditures than before the
economic reform. The share of health expenditure in total expenditure of lowincome
groups has steadily increased from 1.8% in 1990 to 2.2% in 2004. The most drastic
increases in health expenditures were especially evident in rural areas.
Education
“Education is without doubt a valuable asset for the Egyptian poor. Since the
sixties the Government of Egypt has made great strides to universalize basic education
through large investments and by making education compulsory and free.” However,
issues of quality, efficiency and access to education by marginalized groups have been
major issues in the education sector.
Universal public education, especially at the elementary level, is lacking in both quality
and effectiveness. Classrooms are often crowded, decrepit, and minimally funded
facilities, with understaffed and overworked teachers, as well as minimal learning
materials and limited supplies for classes. According to a report in 1995, only 30% of
students in primary school attend classes on a regular full day basis. Classes average
almost 50 students per teacher, with inner city ratios increasing to 100. Drop out and
repetition rates are between 25-35%, and achievements in basic literacy and arithmetic are
very low.
The problems of access and quality that exist within Egyptian public education has led to
families, especially who can easily afford it, to send their children to private schools or
hire private tutors. In order to compensate for the deteriorating quality in public
institutions, there have been dramatic increases in household private expenditures in
education; beginning in 1990. Low-income groups represent the greatest proportional
increase. According to data from the Institute of National Planning, poor groups spend
approximately 19.7% of household total spending on education alone, placing an
enormous burden on family finances. This is important because education is often linked
directly to employment, which is subsequently linked to a higher standard of living and
This thesis does not operate under the assumption that a welfare state is
necessarily the final solution to alleviate poverty. Instead, it looks at the particular criteria
and policy making of the government in addressing the welfare of its citizens under
certain socio-political models. Before this issue can be understood, several concepts need
to be elaborated on.
The Role of Poor Within a Regime: Mechanisms for Poverty Reduction
Entitlements, and Incentives
Entitlements are the rights and privileges of any citizen or the legislative
provisions given to a population by its government. An individual has a certain level of
entitlement and exchange, which is influenced by outside factors, such as cost of
resources, economic conditions, the availability of employment and wage rates. The state
is responsible for ensuring these social rights by providing equal access, distribution, and
opportunity to all its citizens. “Social rights are necessary because the lack of material
resources could prevent an individual from becoming an autonomous economic agent or a
competent political actor; they are feasible through a system of mutual insurance against
measurable contingencies and risks.”
However, there is a distinct line between what citizens ‘should’ receive and what
they actually do receive. Although a state may endorse a service that it deems necessary
and socially just. But this does not automatically guarantee equal access or quality of the
service. In Egypt, a public and free school system is seen as essential to encourage
education programs for every citizen. Yet the government’s commitment to providing
education as a universal good has had significant costs. The quality of public schools are
substandard and they are renowned for being inefficient and unproductive. Should quality
of service be sacrificed for universal access?
Mechanisms for Entitlement and Provisions
Entitlement programs include social and income security, social protection, healthcare,
and education. Entitlement and provisions for the poor and vulnerable can be classified
into different functional mechanisms. Prevention mechanisms aid in reducing the
probability of social shocks; mitigation mechanisms reduce the magnitude of their
impact; and coping mechanisms relieve the impact once the shock has materialized.
Programs such as social insurance, social security, labor market interventions and social
assistance, all are mechanisms for societal entitlement. A citizen’s entitlement stems from
two prevailing factors: equal membership (we are all Egyptian citizens) and from
acknowledged needs (disabled, single parents, or other groups that need social
entitlements more than others.)
“Although individuals, should, in principle, themselves be responsible for
insurance against social risks, governments are also called upon to take responsibility for
their citizens social protection when necessary. Often a household is unwilling or unable
to take sufficient precautions and state intervention is required to restore the economy’s
allocative efficiency and distributive justice. However, the state’s social security strategy
must be efficient and just in and of itself.” Services and entitlements are factors that
contribute to the regulation of a society.
Incentives and Welfare
Welfare programs and state-sponsored social initiatives can create serious
problems of dependency. Many of these programs are expensive and their sustainability
requires a certain measure of success in poverty alleviation. Ideally, the intent of welfare
services works under the assumption that recipients will eventually achieve
selfsufficiency. Welfare programs should not be structured to continuously exhaust state
funds or put pressure on society. Social programs are often targeted as facilitating social
dependency on the state and draining state resources. To offset certain welfare initiatives,
such as subsidies, incentive plans are often introduced to balance out social provisions
and justify the affordability of social spending.
Because progress and social development are critical to the long-term goals of
welfare, it cannot be one-sided on the behalf of the state. Therefore, incentives must be
put in place to discourage dependency and encourage responsibility and human capacity.
Incentives can be in the form of conditional welfare whereby an eligible recipient must
meet certain requirements. For example, they must enroll their children in school, register
with an unemployment office, maintain steady employment, apply and be screened for
social housing, and other development incentives. This discourages reliance on the system
and voluntary unemployment.
Subsidies
Food subsidies have been used by many governments, including Egypt, as a form of
poverty alleviation and as an extension of the social contract. Targeting addresses the
issue of how the system will provide the subsidized commodity and for whom it is
intended. This can be through either administrative or self-targeting program.
Administrative targeting involves a substantial role on the part of the state to set up an
effective and accountable infrastructure. A functional and accountable administration will
facilitate the screening of the poor from the non-poor, the distribution of food stamps and
deliverance of income transfers to those who are qualified. The administration would hold
the responsibility of identifying and targeting those in need, as well as delivering and
distributing the subsidy, either directly or through ration cards. Transparency and
cooperation would be required for administrative targeting to be successful—a daunting
task.
Another method to select beneficiaries for subsidies is through self-targeting. “Food
subsidies can be considered to be self-targeted when the subsidized item is an inferior
good; that is, the food is consumed more in both absolute and relative terms by the poor
than by the non-poor.” Food subsidies in Egypt provide “cheap, calorie dense foods to
protect the income and nutritional status of particular groups such as the poor, children,
and pregnant mothers.” In Egypt, however, subsidized inferior goods such as coarse flour
and Baladi bread are universally available and acceptable to all citizens. This has led to
major leakages and inefficient targeting because non-poor families also have the same
access to the subsidy.
Food subsidies and their political and distributional impacts play a significant role in
Egyptian social safety net programs; the low-income population has come to rely on this
program for their socio-economic welfare. For many households in Egypt, the bread
subsidy is the primary method to ensure that they are able to afford food for themselves
and their families.
Since its inception in the 1940s, the operation and evolution of the Egyptian subsidy
program has gone through many distinct transformations. The food subsidy program did
not originally target the poor when it was first created, but was another public benefit for
every Egyptian citizen under Nasser. By 1975, subsidies accounted for almost 17% of
government expenditures. The subsidy system continued to grow to an unsustainable
level in the 1980s when it expanded to almost 20 foods categories available to all
Egyptians. Since then, the subsidy system has quietly contracted from 20 food types to
just 4. However, there are still huge leakages in the program due to inefficiency and lack
of proper targeting measures. The universal availability of such subsidies in Egypt,
without regard to specific income or welfare levels, demonstrates the financially draining
effect of the program. Thus, subsidies are often deemed fiscally wasteful and
uneconomical.
The subsidy system in Egypt attracted criticism from financial international institutions.
Western style capitalist development proponents argue that, because of the general
ineffectiveness and subsidy leakage problems, the fiscal costs of maintaining the program
outweighs the social benefits. They advocate the gradually elimination of the subsidy
programs because of the unnecessary burden placed on the public budget.157 Yet, the
political sensitivity of subsidies, especially bread, has put the State in an awkward
position: balancing the desire to achieve economic pragmatism without creating domestic
tension. While the Egyptian Government has in effect paid lip service to embracing
affordable social spending, the food subsidy program has remained stable. Regardless of
the pressure to eliminate or reform the subsidy system, the state has been curiously
inactive by neither reducing or expanding the system nor addressing critical targeting
problems. There was a steady and slow decline in subsidy social expenditure after 1992,
although per capita share of subsidies did increase.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Social Protection
Social protection programs are tools used by governments to alleviate poverty by
reducing the vulnerability and risks of the poor, while at the same time increasing the
opportunities and capabilities of those in need. These programs target low income and
ultra poor groups. They promote poverty mitigation and social assistance while
attempting to achieve financially viable and effective social protection systems.159 For
example, in Egypt, income supplements and support systems are in place as a part of
social protection and poverty alleviation strategies. Social protection programs include
policies that bolster the role of the poor in the labor market and target socially
marginalized citizens such as women, children and the disable. They also promote local
business development and access to social insurance and welfare services.
There are also other social policies that help the capabilities and development of
the poor. Labor policies are extremely important in the direction and success of social
protection. Minimum wage, public sector or minority employment opportunities, and the
protection of workers play a significant role in the security and rights of the citizen.
Social insurance also provides security for those who face social risks, providing
management for the unemployed, disable, retired, or those who become ill. Welfare
assistance programs target the most vulnerable giving those in need support and
protection. Microfinance and local business investment programs can also be used as
social protection measures at the community level. These programs offer loans and
initiatives to low-income groups as a means to bolster their capacity and access to
financial services. In these government implemented social protection programs, the state
takes on the role of the protector.
These different aspects of social protection help define the responsibilities of the
state toward society. The extent in which these programs are implemented and how they
fare in success can shed light on the Egyptian government’s transitioning role in society
and how the poor are affected. By examining this role, one can understand the criteria for
a welfare state and whether Egypt, during the past three presidents has actively pursued a
shift in policy alleviate poverty.
The Welfare State
At the minimum level, a welfare state depends on the government as the primary
actor in facilitating the social, political, and economic well being of its population. A
public responsibility exists between government and citizen—social and economic
equality, fair distribution, and minimal provisions for living standards. The state assumes
responsibility for the widening disparities in terms of inequality, social protection,
opportunity, entitlements, services, and incentives. A welfare state “involves state
responsibility for securing some basic modicum of welfare for its citizens. Such a
definition skirts the issue of whether social policies are emancipatory or not; whether they
help system legitimation or not; whether they contradict or aid the market process; and
what, indeed, is meant by basic?” Welfare sociologist Gøsta Epsing Anderson raises
important questions, not just in terms of a welfare state, but also in regard to the actual
role of state responsibility to its citizens. Is a state required to meet the needs of a
population? And are everyone’s basic welfare needs the same?
“Most historical regime shifts have one thing in common, namely an
intensification of ideological competition between rival visions of the ‘Good Society’.”
The policies implemented under Nasser were less about social solidarity, nationalization,
or welfare and more about consolidating the power of the regime. As previously
mentioned, the dominant role of the state did not change fundamentally with Nasser’s
state autonomous socialism, Sadat’s capitalist rentier economy, or Mubarak’s post
capitalist policies.
The remainder of this chapter will focus on Egypt in the last thirty years and the
government’s attempts to transition from a rentier state to a welfare state. This will shed
light on the government’s attitudes and commitments towards the ultra poor.
Rentier Economies
A rentier state rarely promotes economic development; it essentially allows the
government a certain degree of domestic autonomy due to its monopoly on economic
power. This was the case under Sadat’s government. During this era, Egypt relied heavily
on foreign aid, revenue from the Suez Canal, and on exporting labor and the return of
remittances. The economy relied heavily on foreign grants, worker remittances, oil
revenue, and tourism. This money accounted for a huge portion of the GDP in the
mid1980s and left Egypt financially dependent, internally oriented and weak. This led to a
rentier effect. While remittances did facilitate employment and revenue, the real need to
address economic reform and the demands from the population were not acknowledged
by the state. The result was an economy which was extremely susceptible to external
shocks and had difficulties maintaining a positive economic growth rate. Therefore, Egypt
accumulated massive deficits in both foreign debt and balance of payments. The reliance
of interregional migration during the 1980’s promoted an environment in which the state
could remain negligent and apathetic in instituting real economic or social changes. Sadat
attempted to fix the problem through the economy, rather than society.
Role of International Donors and Foreign Aid
Foreign aid policy in the 1980s reflect “the cumulative effects of decades of
borrowing and manifested by large and increasing balance-of-payments and budget
deficits in most of the developing world” This, along with other factors, marked the
beginning of extensive changes and reforms in international donors and aid strategy.
Equilibrium, both externally through balance of payments and internally through national
budgets, became the target for aid objectives. To counter unsustainable rent seeking
policies, Sadat tried to embrace free market and privatization principles that foreign
donors so vigorously promoted. This was done in superficial conformity with western
style capitalist reform, which also extended to Mubarak’s early reform efforts.
This era of economic reform sought to promote a more outward oriented approach and
relied on deregulation and liberalization programs. These policies were an extension of
the Washington Consensus economic and social development programs that extend from
Sadat to early Mubarak’s era.
Washington Consensus Reform
Throughout Egypt in the eighties and nineties, new socioeconomic policies attempted to
adhere to the Washington Consensus style of reform. The Washington Consensus
developed during the 1980’s as a branch of neoclassical economics, which emphasized
capital intensive development. It promoted right-wing, conservative development policies
that operated on the assumption that the “market is efficient and the state is inefficient.”
This school of thought promoted strict and specific economic prescriptions, such as
reliance on deregulation, fiscal discipline, direct foreign investment, trade liberalization,
and privatization of state operated programs. However, the deviation from this model and
the subsequent success of several East Asian economies, along with the negative impact
of human costs and increases in poverty for other states that implemented such polices,
presented challenges to this theory. The “Washington Consensus policies focus
inordinately on short term stabilization while undercutting the basis for long term
growth.”
This was applied to Egypt to counter the inward-looking, heavily regulated, and
interventionist political economy of the state, as well as to challenge the over reliance on
rents. Washington Consensus international financial institutions argued that state
centralization policies were unproductive; therefore, liberalizing and privatizing the
economy would bring profitable and effective results. In terms of welfare, the Washington
Consensus approach operated on the conclusion that economic growth reaches the upper
echelons of society first before eventually dispersing to the rest of the population.
Eventually, the growth from this “trickle down” effect would indirectly benefit the poor.
Socio-economic inequalities would subsequently be minimized through the trickle down
effect of market revenue.
Mubarak sought to continue the Washington Consensus style development and
integration. The best example of this is the economic reform and structural adjustment
programs of the early nineties. These policies operated under the assumption that once
prices and institutional barriers were deregulated, the private sector and new investors
would utilize comparative advantage through the market. Believing that state-owned
enterprises were detrimental to growth, the ERSAP followed the strategy that economic
growth and development would thrive in a market competitive economy free of
government restriction. Given this opportunity, the supply-side of the economy would
respond appropriately. Theoretically, socio-economic inequalities would subsequently be
minimized through the trickle down effect of market revenue.
The Asian crisis in 1997-98 and subsequent global economic fallout showed how
disconnected Egypt was from the modern capitalist infrastructure of a globalized
economy. Although social expenditure continued to increase, GDP annual growth was
also not critically affected, due to the lack of integrated economic and social policies were
supposed to take place in the early nineties. It also demonstrated how Egypt relied on the
informal sector, which was not tied to global enterprises or international free market
cooperation.
Source: World Bank national accounts data, and OECD National Accounts data files
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
One of the primary purposes Mubarak’s agenda was to transform the Egyptian
economy into a more market-focused system. This would relieve rising fiscal imbalances
and distortions in the current economy by adjusting and reforming the public sector,
monetary policies, social policies, investment, exchange rates, trade liberalization, budget
reduction, balance of payments, and domestic prices.
Social Services for the Poor in Egypt: Healthcare and Education
Free public healthcare and education are two examples of government services
which have historically been granted to the Egyptian population. Nasser “resorted to
health services as a conduit for ideological messages.” Although Sadat emphasized
privatization and “personal initiatives, the state support of healthcare was not abandoned,
given the great symbolic value of healthcare in politics. Governmental health care
programs, such as subsidized health services, are financed through general revenues and a
social health insurance system administered through the Health Insurance Organization.
The public healthcare sector can be categorized as facilities owned and operated by the
Ministry of Health and Population, other government medical centers such as military or
university clinics, or public institutions such as the Health Insurance Organization. The
services provided by the Ministry of Health are available mostly free of cost to all
citizens. Even though these mechanisms are in place, quality is a notable problem.
Government support is minimal and divided, which results in a general absence of real
effectiveness and quality.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Healthcare
In Egypt, as in many other countries, health care services are provided unequally
to different demographic and social groups. In Egypt, 57% of health care expenditures are
paid directly out of pocket which can be attributed to the poor quality of government
healthcare. Because public healthcare is inefficient and not properly targeted, primary
care is usually sought through the private sector. It is significant to note the rising trend of
household expenditure increases in direct, out of pocket payment to private health care
providers and pharmacies. According to a report published in 2004, for the years 1994/95:
“Less than 60% of MOF funds were actually spent in MOHP facilities. The rest
was transferred to teaching and university hospitals, HIO and CCO. MOHP facilities thus
only received 19% of all health sector resources, or 0.7% of GDP. Of all resources, 56%
were spent in the private sector, most of it for the purchase of drugs (63%) or paying for
private ambulatory care (17%). Less than 10% of private funds were used to purchase
inpatient care”
As a result, there was been unequal access to healthcare, with low-income or poor
households unable to afford quality healthcare. This inequality demonstrates that wealthy
households can afford proper care, while the poor are left with little public funding. This
lack of funding for the poor results in minimal health care, which may lead to more severe
long-term health problems. Those that can afford private care are turning away from
public healthcare because of the deteriorating quality and “must turn to private suppliers
for health and education services, or else forgo them.” Many Egyptians have used other
healthcare facilities, such as clinics because, as an alternative to government or private
healthcare providers, they provide better quality and care, have better equipment, and hire
specialized physicians.
Religious charity such as zakat, or tithing, as well as waqf endowments are
important within religious charitable organizations to help fund and support public
institutions such as schools and hospitals. However, these practices “have all but
disappeared in Egypt, a combination of government interference and lack of
contemporary understanding of this form of endowed giving.” Yet the organization and
implementation of zakat and waqf have helped direct resources to maintaining some
public services and goods to the impoverished and have helped fill in some of the social
gaps overlooked by the government.
Yet these public services offered by Islamic organizations have been given carte
blanche. “In addition to the Ministry of Interior’s supervision of financial contributions to
Islamic philanthropic organizations, such organizations are subject to tight bureaucratic
controls. The increase of state aid to Islamic private organizations and their eventual
annexation represent additional means of tightening government regulation. In short, the
state encourages Islamic service organizations to the extent that it considers their services
to be a contribution toward placating the masses, but it always keeps these organizations
under surveillance through various governmental agencies.”
While the system itself has remained the same, trends in healthcare access have
not. Poor household’s expenditure on healthcare dramatically exceeds that of middle class
or wealthy households in terms of proportion of household income level.
Additionally, low-income populations spend more on health expenditures than before the
economic reform. The share of health expenditure in total expenditure of lowincome
groups has steadily increased from 1.8% in 1990 to 2.2% in 2004. The most drastic
increases in health expenditures were especially evident in rural areas.
Education
“Education is without doubt a valuable asset for the Egyptian poor. Since the
sixties the Government of Egypt has made great strides to universalize basic education
through large investments and by making education compulsory and free.” However,
issues of quality, efficiency and access to education by marginalized groups have been
major issues in the education sector.
Universal public education, especially at the elementary level, is lacking in both quality
and effectiveness. Classrooms are often crowded, decrepit, and minimally funded
facilities, with understaffed and overworked teachers, as well as minimal learning
materials and limited supplies for classes. According to a report in 1995, only 30% of
students in primary school attend classes on a regular full day basis. Classes average
almost 50 students per teacher, with inner city ratios increasing to 100. Drop out and
repetition rates are between 25-35%, and achievements in basic literacy and arithmetic are
very low.
The problems of access and quality that exist within Egyptian public education has led to
families, especially who can easily afford it, to send their children to private schools or
hire private tutors. In order to compensate for the deteriorating quality in public
institutions, there have been dramatic increases in household private expenditures in
education; beginning in 1990. Low-income groups represent the greatest proportional
increase. According to data from the Institute of National Planning, poor groups spend
approximately 19.7% of household total spending on education alone, placing an
enormous burden on family finances. This is important because education is often linked
directly to employment, which is subsequently linked to a higher standard of living and
This thesis does not operate under the assumption that a welfare state is
necessarily the final solution to alleviate poverty. Instead, it looks at the particular criteria
and policy making of the government in addressing the welfare of its citizens under
certain socio-political models. Before this issue can be understood, several concepts need
to be elaborated on.
The Role of Poor Within a Regime: Mechanisms for Poverty Reduction
Entitlements, and Incentives
Entitlements are the rights and privileges of any citizen or the legislative
provisions given to a population by its government. An individual has a certain level of
entitlement and exchange, which is influenced by outside factors, such as cost of
resources, economic conditions, the availability of employment and wage rates. The state
is responsible for ensuring these social rights by providing equal access, distribution, and
opportunity to all its citizens. “Social rights are necessary because the lack of material
resources could prevent an individual from becoming an autonomous economic agent or a
competent political actor; they are feasible through a system of mutual insurance against
measurable contingencies and risks.”
However, there is a distinct line between what citizens ‘should’ receive and what
they actually do receive. Although a state may endorse a service that it deems necessary
and socially just. But this does not automatically guarantee equal access or quality of the
service. In Egypt, a public and free school system is seen as essential to encourage
education programs for every citizen. Yet the government’s commitment to providing
education as a universal good has had significant costs. The quality of public schools are
substandard and they are renowned for being inefficient and unproductive. Should quality
of service be sacrificed for universal access?
Mechanisms for Entitlement and Provisions
Entitlement programs include social and income security, social protection, healthcare,
and education. Entitlement and provisions for the poor and vulnerable can be classified
into different functional mechanisms. Prevention mechanisms aid in reducing the
probability of social shocks; mitigation mechanisms reduce the magnitude of their
impact; and coping mechanisms relieve the impact once the shock has materialized.
Programs such as social insurance, social security, labor market interventions and social
assistance, all are mechanisms for societal entitlement. A citizen’s entitlement stems from
two prevailing factors: equal membership (we are all Egyptian citizens) and from
acknowledged needs (disabled, single parents, or other groups that need social
entitlements more than others.)
“Although individuals, should, in principle, themselves be responsible for
insurance against social risks, governments are also called upon to take responsibility for
their citizens social protection when necessary. Often a household is unwilling or unable
to take sufficient precautions and state intervention is required to restore the economy’s
allocative efficiency and distributive justice. However, the state’s social security strategy
must be efficient and just in and of itself.” Services and entitlements are factors that
contribute to the regulation of a society.
Incentives and Welfare
Welfare programs and state-sponsored social initiatives can create serious
problems of dependency. Many of these programs are expensive and their sustainability
requires a certain measure of success in poverty alleviation. Ideally, the intent of welfare
services works under the assumption that recipients will eventually achieve
selfsufficiency. Welfare programs should not be structured to continuously exhaust state
funds or put pressure on society. Social programs are often targeted as facilitating social
dependency on the state and draining state resources. To offset certain welfare initiatives,
such as subsidies, incentive plans are often introduced to balance out social provisions
and justify the affordability of social spending.
Because progress and social development are critical to the long-term goals of
welfare, it cannot be one-sided on the behalf of the state. Therefore, incentives must be
put in place to discourage dependency and encourage responsibility and human capacity.
Incentives can be in the form of conditional welfare whereby an eligible recipient must
meet certain requirements. For example, they must enroll their children in school, register
with an unemployment office, maintain steady employment, apply and be screened for
social housing, and other development incentives. This discourages reliance on the system
and voluntary unemployment.
Subsidies
Food subsidies have been used by many governments, including Egypt, as a form of
poverty alleviation and as an extension of the social contract. Targeting addresses the
issue of how the system will provide the subsidized commodity and for whom it is
intended. This can be through either administrative or self-targeting program.
Administrative targeting involves a substantial role on the part of the state to set up an
effective and accountable infrastructure. A functional and accountable administration will
facilitate the screening of the poor from the non-poor, the distribution of food stamps and
deliverance of income transfers to those who are qualified. The administration would hold
the responsibility of identifying and targeting those in need, as well as delivering and
distributing the subsidy, either directly or through ration cards. Transparency and
cooperation would be required for administrative targeting to be successful—a daunting
task.
Another method to select beneficiaries for subsidies is through self-targeting. “Food
subsidies can be considered to be self-targeted when the subsidized item is an inferior
good; that is, the food is consumed more in both absolute and relative terms by the poor
than by the non-poor.” Food subsidies in Egypt provide “cheap, calorie dense foods to
protect the income and nutritional status of particular groups such as the poor, children,
and pregnant mothers.” In Egypt, however, subsidized inferior goods such as coarse flour
and Baladi bread are universally available and acceptable to all citizens. This has led to
major leakages and inefficient targeting because non-poor families also have the same
access to the subsidy.
Food subsidies and their political and distributional impacts play a significant role in
Egyptian social safety net programs; the low-income population has come to rely on this
program for their socio-economic welfare. For many households in Egypt, the bread
subsidy is the primary method to ensure that they are able to afford food for themselves
and their families.
Since its inception in the 1940s, the operation and evolution of the Egyptian subsidy
program has gone through many distinct transformations. The food subsidy program did
not originally target the poor when it was first created, but was another public benefit for
every Egyptian citizen under Nasser. By 1975, subsidies accounted for almost 17% of
government expenditures. The subsidy system continued to grow to an unsustainable
level in the 1980s when it expanded to almost 20 foods categories available to all
Egyptians. Since then, the subsidy system has quietly contracted from 20 food types to
just 4. However, there are still huge leakages in the program due to inefficiency and lack
of proper targeting measures. The universal availability of such subsidies in Egypt,
without regard to specific income or welfare levels, demonstrates the financially draining
effect of the program. Thus, subsidies are often deemed fiscally wasteful and
uneconomical.
The subsidy system in Egypt attracted criticism from financial international institutions.
Western style capitalist development proponents argue that, because of the general
ineffectiveness and subsidy leakage problems, the fiscal costs of maintaining the program
outweighs the social benefits. They advocate the gradually elimination of the subsidy
programs because of the unnecessary burden placed on the public budget.157 Yet, the
political sensitivity of subsidies, especially bread, has put the State in an awkward
position: balancing the desire to achieve economic pragmatism without creating domestic
tension. While the Egyptian Government has in effect paid lip service to embracing
affordable social spending, the food subsidy program has remained stable. Regardless of
the pressure to eliminate or reform the subsidy system, the state has been curiously
inactive by neither reducing or expanding the system nor addressing critical targeting
problems. There was a steady and slow decline in subsidy social expenditure after 1992,
although per capita share of subsidies did increase.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Social Protection
Social protection programs are tools used by governments to alleviate poverty by
reducing the vulnerability and risks of the poor, while at the same time increasing the
opportunities and capabilities of those in need. These programs target low income and
ultra poor groups. They promote poverty mitigation and social assistance while
attempting to achieve financially viable and effective social protection systems.159 For
example, in Egypt, income supplements and support systems are in place as a part of
social protection and poverty alleviation strategies. Social protection programs include
policies that bolster the role of the poor in the labor market and target socially
marginalized citizens such as women, children and the disable. They also promote local
business development and access to social insurance and welfare services.
There are also other social policies that help the capabilities and development of
the poor. Labor policies are extremely important in the direction and success of social
protection. Minimum wage, public sector or minority employment opportunities, and the
protection of workers play a significant role in the security and rights of the citizen.
Social insurance also provides security for those who face social risks, providing
management for the unemployed, disable, retired, or those who become ill. Welfare
assistance programs target the most vulnerable giving those in need support and
protection. Microfinance and local business investment programs can also be used as
social protection measures at the community level. These programs offer loans and
initiatives to low-income groups as a means to bolster their capacity and access to
financial services. In these government implemented social protection programs, the state
takes on the role of the protector.
These different aspects of social protection help define the responsibilities of the
state toward society. The extent in which these programs are implemented and how they
fare in success can shed light on the Egyptian government’s transitioning role in society
and how the poor are affected. By examining this role, one can understand the criteria for
a welfare state and whether Egypt, during the past three presidents has actively pursued a
shift in policy alleviate poverty.
The Welfare State
At the minimum level, a welfare state depends on the government as the primary
actor in facilitating the social, political, and economic well being of its population. A
public responsibility exists between government and citizen—social and economic
equality, fair distribution, and minimal provisions for living standards. The state assumes
responsibility for the widening disparities in terms of inequality, social protection,
opportunity, entitlements, services, and incentives. A welfare state “involves state
responsibility for securing some basic modicum of welfare for its citizens. Such a
definition skirts the issue of whether social policies are emancipatory or not; whether they
help system legitimation or not; whether they contradict or aid the market process; and
what, indeed, is meant by basic?” Welfare sociologist Gøsta Epsing Anderson raises
important questions, not just in terms of a welfare state, but also in regard to the actual
role of state responsibility to its citizens. Is a state required to meet the needs of a
population? And are everyone’s basic welfare needs the same?
“Most historical regime shifts have one thing in common, namely an
intensification of ideological competition between rival visions of the ‘Good Society’.”
The policies implemented under Nasser were less about social solidarity, nationalization,
or welfare and more about consolidating the power of the regime. As previously
mentioned, the dominant role of the state did not change fundamentally with Nasser’s
state autonomous socialism, Sadat’s capitalist rentier economy, or Mubarak’s post
capitalist policies.
The remainder of this chapter will focus on Egypt in the last thirty years and the
government’s attempts to transition from a rentier state to a welfare state. This will shed
light on the government’s attitudes and commitments towards the ultra poor.
Rentier Economies
A rentier state rarely promotes economic development; it essentially allows the
government a certain degree of domestic autonomy due to its monopoly on economic
power. This was the case under Sadat’s government. During this era, Egypt relied heavily
on foreign aid, revenue from the Suez Canal, and on exporting labor and the return of
remittances. The economy relied heavily on foreign grants, worker remittances, oil
revenue, and tourism. This money accounted for a huge portion of the GDP in the
mid1980s and left Egypt financially dependent, internally oriented and weak. This led to a
rentier effect. While remittances did facilitate employment and revenue, the real need to
address economic reform and the demands from the population were not acknowledged
by the state. The result was an economy which was extremely susceptible to external
shocks and had difficulties maintaining a positive economic growth rate. Therefore, Egypt
accumulated massive deficits in both foreign debt and balance of payments. The reliance
of interregional migration during the 1980’s promoted an environment in which the state
could remain negligent and apathetic in instituting real economic or social changes. Sadat
attempted to fix the problem through the economy, rather than society.
Role of International Donors and Foreign Aid
Foreign aid policy in the 1980s reflect “the cumulative effects of decades of
borrowing and manifested by large and increasing balance-of-payments and budget
deficits in most of the developing world” This, along with other factors, marked the
beginning of extensive changes and reforms in international donors and aid strategy.
Equilibrium, both externally through balance of payments and internally through national
budgets, became the target for aid objectives. To counter unsustainable rent seeking
policies, Sadat tried to embrace free market and privatization principles that foreign
donors so vigorously promoted. This was done in superficial conformity with western
style capitalist reform, which also extended to Mubarak’s early reform efforts.
This era of economic reform sought to promote a more outward oriented approach and
relied on deregulation and liberalization programs. These policies were an extension of
the Washington Consensus economic and social development programs that extend from
Sadat to early Mubarak’s era.
Washington Consensus Reform
Throughout Egypt in the eighties and nineties, new socioeconomic policies attempted to
adhere to the Washington Consensus style of reform. The Washington Consensus
developed during the 1980’s as a branch of neoclassical economics, which emphasized
capital intensive development. It promoted right-wing, conservative development policies
that operated on the assumption that the “market is efficient and the state is inefficient.”
This school of thought promoted strict and specific economic prescriptions, such as
reliance on deregulation, fiscal discipline, direct foreign investment, trade liberalization,
and privatization of state operated programs. However, the deviation from this model and
the subsequent success of several East Asian economies, along with the negative impact
of human costs and increases in poverty for other states that implemented such polices,
presented challenges to this theory. The “Washington Consensus policies focus
inordinately on short term stabilization while undercutting the basis for long term
growth.”
This was applied to Egypt to counter the inward-looking, heavily regulated, and
interventionist political economy of the state, as well as to challenge the over reliance on
rents. Washington Consensus international financial institutions argued that state
centralization policies were unproductive; therefore, liberalizing and privatizing the
economy would bring profitable and effective results. In terms of welfare, the Washington
Consensus approach operated on the conclusion that economic growth reaches the upper
echelons of society first before eventually dispersing to the rest of the population.
Eventually, the growth from this “trickle down” effect would indirectly benefit the poor.
Socio-economic inequalities would subsequently be minimized through the trickle down
effect of market revenue.
Mubarak sought to continue the Washington Consensus style development and
integration. The best example of this is the economic reform and structural adjustment
programs of the early nineties. These policies operated under the assumption that once
prices and institutional barriers were deregulated, the private sector and new investors
would utilize comparative advantage through the market. Believing that state-owned
enterprises were detrimental to growth, the ERSAP followed the strategy that economic
growth and development would thrive in a market competitive economy free of
government restriction. Given this opportunity, the supply-side of the economy would
respond appropriately. Theoretically, socio-economic inequalities would subsequently be
minimized through the trickle down effect of market revenue.
The Asian crisis in 1997-98 and subsequent global economic fallout showed how
disconnected Egypt was from the modern capitalist infrastructure of a globalized
economy. Although social expenditure continued to increase, GDP annual growth was
also not critically affected, due to the lack of integrated economic and social policies were
supposed to take place in the early nineties. It also demonstrated how Egypt relied on the
informal sector, which was not tied to global enterprises or international free market
cooperation.
Source: World Bank national accounts data, and OECD National Accounts data files
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
One of the primary purposes Mubarak’s agenda was to transform the Egyptian
economy into a more market-focused system. This would relieve rising fiscal imbalances
and distortions in the current economy by adjusting and reforming the public sector,
monetary policies, social policies, investment, exchange rates, trade liberalization, budget
reduction, balance of payments, and domestic prices.
Social Services for the Poor in Egypt: Healthcare and Education
Free public healthcare and education are two examples of government services
which have historically been granted to the Egyptian population. Nasser “resorted to
health services as a conduit for ideological messages.” Although Sadat emphasized
privatization and “personal initiatives, the state support of healthcare was not abandoned,
given the great symbolic value of healthcare in politics. Governmental health care
programs, such as subsidized health services, are financed through general revenues and a
social health insurance system administered through the Health Insurance Organization.
The public healthcare sector can be categorized as facilities owned and operated by the
Ministry of Health and Population, other government medical centers such as military or
university clinics, or public institutions such as the Health Insurance Organization. The
services provided by the Ministry of Health are available mostly free of cost to all
citizens. Even though these mechanisms are in place, quality is a notable problem.
Government support is minimal and divided, which results in a general absence of real
effectiveness and quality.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Healthcare
In Egypt, as in many other countries, health care services are provided unequally
to different demographic and social groups. In Egypt, 57% of health care expenditures are
paid directly out of pocket which can be attributed to the poor quality of government
healthcare. Because public healthcare is inefficient and not properly targeted, primary
care is usually sought through the private sector. It is significant to note the rising trend of
household expenditure increases in direct, out of pocket payment to private health care
providers and pharmacies. According to a report published in 2004, for the years 1994/95:
“Less than 60% of MOF funds were actually spent in MOHP facilities. The rest
was transferred to teaching and university hospitals, HIO and CCO. MOHP facilities thus
only received 19% of all health sector resources, or 0.7% of GDP. Of all resources, 56%
were spent in the private sector, most of it for the purchase of drugs (63%) or paying for
private ambulatory care (17%). Less than 10% of private funds were used to purchase
inpatient care”
As a result, there was been unequal access to healthcare, with low-income or poor
households unable to afford quality healthcare. This inequality demonstrates that wealthy
households can afford proper care, while the poor are left with little public funding. This
lack of funding for the poor results in minimal health care, which may lead to more severe
long-term health problems. Those that can afford private care are turning away from
public healthcare because of the deteriorating quality and “must turn to private suppliers
for health and education services, or else forgo them.” Many Egyptians have used other
healthcare facilities, such as clinics because, as an alternative to government or private
healthcare providers, they provide better quality and care, have better equipment, and hire
specialized physicians.
Religious charity such as zakat, or tithing, as well as waqf endowments are
important within religious charitable organizations to help fund and support public
institutions such as schools and hospitals. However, these practices “have all but
disappeared in Egypt, a combination of government interference and lack of
contemporary understanding of this form of endowed giving.” Yet the organization and
implementation of zakat and waqf have helped direct resources to maintaining some
public services and goods to the impoverished and have helped fill in some of the social
gaps overlooked by the government.
Yet these public services offered by Islamic organizations have been given carte
blanche. “In addition to the Ministry of Interior’s supervision of financial contributions to
Islamic philanthropic organizations, such organizations are subject to tight bureaucratic
controls. The increase of state aid to Islamic private organizations and their eventual
annexation represent additional means of tightening government regulation. In short, the
state encourages Islamic service organizations to the extent that it considers their services
to be a contribution toward placating the masses, but it always keeps these organizations
under surveillance through various governmental agencies.”
While the system itself has remained the same, trends in healthcare access have
not. Poor household’s expenditure on healthcare dramatically exceeds that of middle class
or wealthy households in terms of proportion of household income level.
Additionally, low-income populations spend more on health expenditures than before the
economic reform. The share of health expenditure in total expenditure of lowincome
groups has steadily increased from 1.8% in 1990 to 2.2% in 2004. The most drastic
increases in health expenditures were especially evident in rural areas.
Education
“Education is without doubt a valuable asset for the Egyptian poor. Since the
sixties the Government of Egypt has made great strides to universalize basic education
through large investments and by making education compulsory and free.” However,
issues of quality, efficiency and access to education by marginalized groups have been
major issues in the education sector.
Universal public education, especially at the elementary level, is lacking in both quality
and effectiveness. Classrooms are often crowded, decrepit, and minimally funded
facilities, with understaffed and overworked teachers, as well as minimal learning
materials and limited supplies for classes. According to a report in 1995, only 30% of
students in primary school attend classes on a regular full day basis. Classes average
almost 50 students per teacher, with inner city ratios increasing to 100. Drop out and
repetition rates are between 25-35%, and achievements in basic literacy and arithmetic are
very low.
The problems of access and quality that exist within Egyptian public education has led to
families, especially who can easily afford it, to send their children to private schools or
hire private tutors. In order to compensate for the deteriorating quality in public
institutions, there have been dramatic increases in household private expenditures in
education; beginning in 1990. Low-income groups represent the greatest proportional
increase. According to data from the Institute of National Planning, poor groups spend
approximately 19.7% of household total spending on education alone, placing an
enormous burden on family finances. This is important because education is often linked
directly to employment, which is subsequently linked to a higher standard of living and
This thesis does not operate under the assumption that a welfare state is
necessarily the final solution to alleviate poverty. Instead, it looks at the particular criteria
and policy making of the government in addressing the welfare of its citizens under
certain socio-political models. Before this issue can be understood, several concepts need
to be elaborated on.
The Role of Poor Within a Regime: Mechanisms for Poverty Reduction
Entitlements, and Incentives
Entitlements are the rights and privileges of any citizen or the legislative
provisions given to a population by its government. An individual has a certain level of
entitlement and exchange, which is influenced by outside factors, such as cost of
resources, economic conditions, the availability of employment and wage rates. The state
is responsible for ensuring these social rights by providing equal access, distribution, and
opportunity to all its citizens. “Social rights are necessary because the lack of material
resources could prevent an individual from becoming an autonomous economic agent or a
competent political actor; they are feasible through a system of mutual insurance against
measurable contingencies and risks.”
However, there is a distinct line between what citizens ‘should’ receive and what
they actually do receive. Although a state may endorse a service that it deems necessary
and socially just. But this does not automatically guarantee equal access or quality of the
service. In Egypt, a public and free school system is seen as essential to encourage
education programs for every citizen. Yet the government’s commitment to providing
education as a universal good has had significant costs. The quality of public schools are
substandard and they are renowned for being inefficient and unproductive. Should quality
of service be sacrificed for universal access?
Mechanisms for Entitlement and Provisions
Entitlement programs include social and income security, social protection, healthcare,
and education. Entitlement and provisions for the poor and vulnerable can be classified
into different functional mechanisms. Prevention mechanisms aid in reducing the
probability of social shocks; mitigation mechanisms reduce the magnitude of their
impact; and coping mechanisms relieve the impact once the shock has materialized.
Programs such as social insurance, social security, labor market interventions and social
assistance, all are mechanisms for societal entitlement. A citizen’s entitlement stems from
two prevailing factors: equal membership (we are all Egyptian citizens) and from
acknowledged needs (disabled, single parents, or other groups that need social
entitlements more than others.)
“Although individuals, should, in principle, themselves be responsible for
insurance against social risks, governments are also called upon to take responsibility for
their citizens social protection when necessary. Often a household is unwilling or unable
to take sufficient precautions and state intervention is required to restore the economy’s
allocative efficiency and distributive justice. However, the state’s social security strategy
must be efficient and just in and of itself.” Services and entitlements are factors that
contribute to the regulation of a society.
Incentives and Welfare
Welfare programs and state-sponsored social initiatives can create serious
problems of dependency. Many of these programs are expensive and their sustainability
requires a certain measure of success in poverty alleviation. Ideally, the intent of welfare
services works under the assumption that recipients will eventually achieve
selfsufficiency. Welfare programs should not be structured to continuously exhaust state
funds or put pressure on society. Social programs are often targeted as facilitating social
dependency on the state and draining state resources. To offset certain welfare initiatives,
such as subsidies, incentive plans are often introduced to balance out social provisions
and justify the affordability of social spending.
Because progress and social development are critical to the long-term goals of
welfare, it cannot be one-sided on the behalf of the state. Therefore, incentives must be
put in place to discourage dependency and encourage responsibility and human capacity.
Incentives can be in the form of conditional welfare whereby an eligible recipient must
meet certain requirements. For example, they must enroll their children in school, register
with an unemployment office, maintain steady employment, apply and be screened for
social housing, and other development incentives. This discourages reliance on the system
and voluntary unemployment.
Subsidies
Food subsidies have been used by many governments, including Egypt, as a form of
poverty alleviation and as an extension of the social contract. Targeting addresses the
issue of how the system will provide the subsidized commodity and for whom it is
intended. This can be through either administrative or self-targeting program.
Administrative targeting involves a substantial role on the part of the state to set up an
effective and accountable infrastructure. A functional and accountable administration will
facilitate the screening of the poor from the non-poor, the distribution of food stamps and
deliverance of income transfers to those who are qualified. The administration would hold
the responsibility of identifying and targeting those in need, as well as delivering and
distributing the subsidy, either directly or through ration cards. Transparency and
cooperation would be required for administrative targeting to be successful—a daunting
task.
Another method to select beneficiaries for subsidies is through self-targeting. “Food
subsidies can be considered to be self-targeted when the subsidized item is an inferior
good; that is, the food is consumed more in both absolute and relative terms by the poor
than by the non-poor.” Food subsidies in Egypt provide “cheap, calorie dense foods to
protect the income and nutritional status of particular groups such as the poor, children,
and pregnant mothers.” In Egypt, however, subsidized inferior goods such as coarse flour
and Baladi bread are universally available and acceptable to all citizens. This has led to
major leakages and inefficient targeting because non-poor families also have the same
access to the subsidy.
Food subsidies and their political and distributional impacts play a significant role in
Egyptian social safety net programs; the low-income population has come to rely on this
program for their socio-economic welfare. For many households in Egypt, the bread
subsidy is the primary method to ensure that they are able to afford food for themselves
and their families.
Since its inception in the 1940s, the operation and evolution of the Egyptian subsidy
program has gone through many distinct transformations. The food subsidy program did
not originally target the poor when it was first created, but was another public benefit for
every Egyptian citizen under Nasser. By 1975, subsidies accounted for almost 17% of
government expenditures. The subsidy system continued to grow to an unsustainable
level in the 1980s when it expanded to almost 20 foods categories available to all
Egyptians. Since then, the subsidy system has quietly contracted from 20 food types to
just 4. However, there are still huge leakages in the program due to inefficiency and lack
of proper targeting measures. The universal availability of such subsidies in Egypt,
without regard to specific income or welfare levels, demonstrates the financially draining
effect of the program. Thus, subsidies are often deemed fiscally wasteful and
uneconomical.
The subsidy system in Egypt attracted criticism from financial international institutions.
Western style capitalist development proponents argue that, because of the general
ineffectiveness and subsidy leakage problems, the fiscal costs of maintaining the program
outweighs the social benefits. They advocate the gradually elimination of the subsidy
programs because of the unnecessary burden placed on the public budget.157 Yet, the
political sensitivity of subsidies, especially bread, has put the State in an awkward
position: balancing the desire to achieve economic pragmatism without creating domestic
tension. While the Egyptian Government has in effect paid lip service to embracing
affordable social spending, the food subsidy program has remained stable. Regardless of
the pressure to eliminate or reform the subsidy system, the state has been curiously
inactive by neither reducing or expanding the system nor addressing critical targeting
problems. There was a steady and slow decline in subsidy social expenditure after 1992,
although per capita share of subsidies did increase.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Social Protection
Social protection programs are tools used by governments to alleviate poverty by
reducing the vulnerability and risks of the poor, while at the same time increasing the
opportunities and capabilities of those in need. These programs target low income and
ultra poor groups. They promote poverty mitigation and social assistance while
attempting to achieve financially viable and effective social protection systems.159 For
example, in Egypt, income supplements and support systems are in place as a part of
social protection and poverty alleviation strategies. Social protection programs include
policies that bolster the role of the poor in the labor market and target socially
marginalized citizens such as women, children and the disable. They also promote local
business development and access to social insurance and welfare services.
There are also other social policies that help the capabilities and development of
the poor. Labor policies are extremely important in the direction and success of social
protection. Minimum wage, public sector or minority employment opportunities, and the
protection of workers play a significant role in the security and rights of the citizen.
Social insurance also provides security for those who face social risks, providing
management for the unemployed, disable, retired, or those who become ill. Welfare
assistance programs target the most vulnerable giving those in need support and
protection. Microfinance and local business investment programs can also be used as
social protection measures at the community level. These programs offer loans and
initiatives to low-income groups as a means to bolster their capacity and access to
financial services. In these government implemented social protection programs, the state
takes on the role of the protector.
These different aspects of social protection help define the responsibilities of the
state toward society. The extent in which these programs are implemented and how they
fare in success can shed light on the Egyptian government’s transitioning role in society
and how the poor are affected. By examining this role, one can understand the criteria for
a welfare state and whether Egypt, during the past three presidents has actively pursued a
shift in policy alleviate poverty.
The Welfare State
At the minimum level, a welfare state depends on the government as the primary
actor in facilitating the social, political, and economic well being of its population. A
public responsibility exists between government and citizen—social and economic
equality, fair distribution, and minimal provisions for living standards. The state assumes
responsibility for the widening disparities in terms of inequality, social protection,
opportunity, entitlements, services, and incentives. A welfare state “involves state
responsibility for securing some basic modicum of welfare for its citizens. Such a
definition skirts the issue of whether social policies are emancipatory or not; whether they
help system legitimation or not; whether they contradict or aid the market process; and
what, indeed, is meant by basic?” Welfare sociologist Gøsta Epsing Anderson raises
important questions, not just in terms of a welfare state, but also in regard to the actual
role of state responsibility to its citizens. Is a state required to meet the needs of a
population? And are everyone’s basic welfare needs the same?
“Most historical regime shifts have one thing in common, namely an
intensification of ideological competition between rival visions of the ‘Good Society’.”
The policies implemented under Nasser were less about social solidarity, nationalization,
or welfare and more about consolidating the power of the regime. As previously
mentioned, the dominant role of the state did not change fundamentally with Nasser’s
state autonomous socialism, Sadat’s capitalist rentier economy, or Mubarak’s post
capitalist policies.
The remainder of this chapter will focus on Egypt in the last thirty years and the
government’s attempts to transition from a rentier state to a welfare state. This will shed
light on the government’s attitudes and commitments towards the ultra poor.
Rentier Economies
A rentier state rarely promotes economic development; it essentially allows the
government a certain degree of domestic autonomy due to its monopoly on economic
power. This was the case under Sadat’s government. During this era, Egypt relied heavily
on foreign aid, revenue from the Suez Canal, and on exporting labor and the return of
remittances. The economy relied heavily on foreign grants, worker remittances, oil
revenue, and tourism. This money accounted for a huge portion of the GDP in the
mid1980s and left Egypt financially dependent, internally oriented and weak. This led to a
rentier effect. While remittances did facilitate employment and revenue, the real need to
address economic reform and the demands from the population were not acknowledged
by the state. The result was an economy which was extremely susceptible to external
shocks and had difficulties maintaining a positive economic growth rate. Therefore, Egypt
accumulated massive deficits in both foreign debt and balance of payments. The reliance
of interregional migration during the 1980’s promoted an environment in which the state
could remain negligent and apathetic in instituting real economic or social changes. Sadat
attempted to fix the problem through the economy, rather than society.
Role of International Donors and Foreign Aid
Foreign aid policy in the 1980s reflect “the cumulative effects of decades of
borrowing and manifested by large and increasing balance-of-payments and budget
deficits in most of the developing world” This, along with other factors, marked the
beginning of extensive changes and reforms in international donors and aid strategy.
Equilibrium, both externally through balance of payments and internally through national
budgets, became the target for aid objectives. To counter unsustainable rent seeking
policies, Sadat tried to embrace free market and privatization principles that foreign
donors so vigorously promoted. This was done in superficial conformity with western
style capitalist reform, which also extended to Mubarak’s early reform efforts.
This era of economic reform sought to promote a more outward oriented approach and
relied on deregulation and liberalization programs. These policies were an extension of
the Washington Consensus economic and social development programs that extend from
Sadat to early Mubarak’s era.
Washington Consensus Reform
Throughout Egypt in the eighties and nineties, new socioeconomic policies attempted to
adhere to the Washington Consensus style of reform. The Washington Consensus
developed during the 1980’s as a branch of neoclassical economics, which emphasized
capital intensive development. It promoted right-wing, conservative development policies
that operated on the assumption that the “market is efficient and the state is inefficient.”
This school of thought promoted strict and specific economic prescriptions, such as
reliance on deregulation, fiscal discipline, direct foreign investment, trade liberalization,
and privatization of state operated programs. However, the deviation from this model and
the subsequent success of several East Asian economies, along with the negative impact
of human costs and increases in poverty for other states that implemented such polices,
presented challenges to this theory. The “Washington Consensus policies focus
inordinately on short term stabilization while undercutting the basis for long term
growth.”
This was applied to Egypt to counter the inward-looking, heavily regulated, and
interventionist political economy of the state, as well as to challenge the over reliance on
rents. Washington Consensus international financial institutions argued that state
centralization policies were unproductive; therefore, liberalizing and privatizing the
economy would bring profitable and effective results. In terms of welfare, the Washington
Consensus approach operated on the conclusion that economic growth reaches the upper
echelons of society first before eventually dispersing to the rest of the population.
Eventually, the growth from this “trickle down” effect would indirectly benefit the poor.
Socio-economic inequalities would subsequently be minimized through the trickle down
effect of market revenue.
Mubarak sought to continue the Washington Consensus style development and
integration. The best example of this is the economic reform and structural adjustment
programs of the early nineties. These policies operated under the assumption that once
prices and institutional barriers were deregulated, the private sector and new investors
would utilize comparative advantage through the market. Believing that state-owned
enterprises were detrimental to growth, the ERSAP followed the strategy that economic
growth and development would thrive in a market competitive economy free of
government restriction. Given this opportunity, the supply-side of the economy would
respond appropriately. Theoretically, socio-economic inequalities would subsequently be
minimized through the trickle down effect of market revenue.
The Asian crisis in 1997-98 and subsequent global economic fallout showed how
disconnected Egypt was from the modern capitalist infrastructure of a globalized
economy. Although social expenditure continued to increase, GDP annual growth was
also not critically affected, due to the lack of integrated economic and social policies were
supposed to take place in the early nineties. It also demonstrated how Egypt relied on the
informal sector, which was not tied to global enterprises or international free market
cooperation.
Source: World Bank national accounts data, and OECD National Accounts data files
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
One of the primary purposes Mubarak’s agenda was to transform the Egyptian
economy into a more market-focused system. This would relieve rising fiscal imbalances
and distortions in the current economy by adjusting and reforming the public sector,
monetary policies, social policies, investment, exchange rates, trade liberalization, budget
reduction, balance of payments, and domestic prices.
Social Services for the Poor in Egypt: Healthcare and Education
Free public healthcare and education are two examples of government services
which have historically been granted to the Egyptian population. Nasser “resorted to
health services as a conduit for ideological messages.” Although Sadat emphasized
privatization and “personal initiatives, the state support of healthcare was not abandoned,
given the great symbolic value of healthcare in politics. Governmental health care
programs, such as subsidized health services, are financed through general revenues and a
social health insurance system administered through the Health Insurance Organization.
The public healthcare sector can be categorized as facilities owned and operated by the
Ministry of Health and Population, other government medical centers such as military or
university clinics, or public institutions such as the Health Insurance Organization. The
services provided by the Ministry of Health are available mostly free of cost to all
citizens. Even though these mechanisms are in place, quality is a notable problem.
Government support is minimal and divided, which results in a general absence of real
effectiveness and quality.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Healthcare
In Egypt, as in many other countries, health care services are provided unequally
to different demographic and social groups. In Egypt, 57% of health care expenditures are
paid directly out of pocket which can be attributed to the poor quality of government
healthcare. Because public healthcare is inefficient and not properly targeted, primary
care is usually sought through the private sector. It is significant to note the rising trend of
household expenditure increases in direct, out of pocket payment to private health care
providers and pharmacies. According to a report published in 2004, for the years 1994/95:
“Less than 60% of MOF funds were actually spent in MOHP facilities. The rest
was transferred to teaching and university hospitals, HIO and CCO. MOHP facilities thus
only received 19% of all health sector resources, or 0.7% of GDP. Of all resources, 56%
were spent in the private sector, most of it for the purchase of drugs (63%) or paying for
private ambulatory care (17%). Less than 10% of private funds were used to purchase
inpatient care”
As a result, there was been unequal access to healthcare, with low-income or poor
households unable to afford quality healthcare. This inequality demonstrates that wealthy
households can afford proper care, while the poor are left with little public funding. This
lack of funding for the poor results in minimal health care, which may lead to more severe
long-term health problems. Those that can afford private care are turning away from
public healthcare because of the deteriorating quality and “must turn to private suppliers
for health and education services, or else forgo them.” Many Egyptians have used other
healthcare facilities, such as clinics because, as an alternative to government or private
healthcare providers, they provide better quality and care, have better equipment, and hire
specialized physicians.
Religious charity such as zakat, or tithing, as well as waqf endowments are
important within religious charitable organizations to help fund and support public
institutions such as schools and hospitals. However, these practices “have all but
disappeared in Egypt, a combination of government interference and lack of
contemporary understanding of this form of endowed giving.” Yet the organization and
implementation of zakat and waqf have helped direct resources to maintaining some
public services and goods to the impoverished and have helped fill in some of the social
gaps overlooked by the government.
Yet these public services offered by Islamic organizations have been given carte
blanche. “In addition to the Ministry of Interior’s supervision of financial contributions to
Islamic philanthropic organizations, such organizations are subject to tight bureaucratic
controls. The increase of state aid to Islamic private organizations and their eventual
annexation represent additional means of tightening government regulation. In short, the
state encourages Islamic service organizations to the extent that it considers their services
to be a contribution toward placating the masses, but it always keeps these organizations
under surveillance through various governmental agencies.”
While the system itself has remained the same, trends in healthcare access have
not. Poor household’s expenditure on healthcare dramatically exceeds that of middle class
or wealthy households in terms of proportion of household income level.
Additionally, low-income populations spend more on health expenditures than before the
economic reform. The share of health expenditure in total expenditure of lowincome
groups has steadily increased from 1.8% in 1990 to 2.2% in 2004. The most drastic
increases in health expenditures were especially evident in rural areas.
Education
“Education is without doubt a valuable asset for the Egyptian poor. Since the
sixties the Government of Egypt has made great strides to universalize basic education
through large investments and by making education compulsory and free.” However,
issues of quality, efficiency and access to education by marginalized groups have been
major issues in the education sector.
Universal public education, especially at the elementary level, is lacking in both quality
and effectiveness. Classrooms are often crowded, decrepit, and minimally funded
facilities, with understaffed and overworked teachers, as well as minimal learning
materials and limited supplies for classes. According to a report in 1995, only 30% of
students in primary school attend classes on a regular full day basis. Classes average
almost 50 students per teacher, with inner city ratios increasing to 100. Drop out and
repetition rates are between 25-35%, and achievements in basic literacy and arithmetic are
very low.
The problems of access and quality that exist within Egyptian public education has led to
families, especially who can easily afford it, to send their children to private schools or
hire private tutors. In order to compensate for the deteriorating quality in public
institutions, there have been dramatic increases in household private expenditures in
education; beginning in 1990. Low-income groups represent the greatest proportional
increase. According to data from the Institute of National Planning, poor groups spend
approximately 19.7% of household total spending on education alone, placing an
enormous burden on family finances. This is important because education is often linked
directly to employment, which is subsequently linked to a higher standard of living and
This thesis does not operate under the assumption that a welfare state is
necessarily the final solution to alleviate poverty. Instead, it looks at the particular criteria
and policy making of the government in addressing the welfare of its citizens under
certain socio-political models. Before this issue can be understood, several concepts need
to be elaborated on.
The Role of Poor Within a Regime: Mechanisms for Poverty Reduction
Entitlements, and Incentives
Entitlements are the rights and privileges of any citizen or the legislative
provisions given to a population by its government. An individual has a certain level of
entitlement and exchange, which is influenced by outside factors, such as cost of
resources, economic conditions, the availability of employment and wage rates. The state
is responsible for ensuring these social rights by providing equal access, distribution, and
opportunity to all its citizens. “Social rights are necessary because the lack of material
resources could prevent an individual from becoming an autonomous economic agent or a
competent political actor; they are feasible through a system of mutual insurance against
measurable contingencies and risks.”
However, there is a distinct line between what citizens ‘should’ receive and what
they actually do receive. Although a state may endorse a service that it deems necessary
and socially just. But this does not automatically guarantee equal access or quality of the
service. In Egypt, a public and free school system is seen as essential to encourage
education programs for every citizen. Yet the government’s commitment to providing
education as a universal good has had significant costs. The quality of public schools are
substandard and they are renowned for being inefficient and unproductive. Should quality
of service be sacrificed for universal access?
Mechanisms for Entitlement and Provisions
Entitlement programs include social and income security, social protection, healthcare,
and education. Entitlement and provisions for the poor and vulnerable can be classified
into different functional mechanisms. Prevention mechanisms aid in reducing the
probability of social shocks; mitigation mechanisms reduce the magnitude of their
impact; and coping mechanisms relieve the impact once the shock has materialized.
Programs such as social insurance, social security, labor market interventions and social
assistance, all are mechanisms for societal entitlement. A citizen’s entitlement stems from
two prevailing factors: equal membership (we are all Egyptian citizens) and from
acknowledged needs (disabled, single parents, or other groups that need social
entitlements more than others.)
“Although individuals, should, in principle, themselves be responsible for
insurance against social risks, governments are also called upon to take responsibility for
their citizens social protection when necessary. Often a household is unwilling or unable
to take sufficient precautions and state intervention is required to restore the economy’s
allocative efficiency and distributive justice. However, the state’s social security strategy
must be efficient and just in and of itself.” Services and entitlements are factors that
contribute to the regulation of a society.
Incentives and Welfare
Welfare programs and state-sponsored social initiatives can create serious
problems of dependency. Many of these programs are expensive and their sustainability
requires a certain measure of success in poverty alleviation. Ideally, the intent of welfare
services works under the assumption that recipients will eventually achieve
selfsufficiency. Welfare programs should not be structured to continuously exhaust state
funds or put pressure on society. Social programs are often targeted as facilitating social
dependency on the state and draining state resources. To offset certain welfare initiatives,
such as subsidies, incentive plans are often introduced to balance out social provisions
and justify the affordability of social spending.
Because progress and social development are critical to the long-term goals of
welfare, it cannot be one-sided on the behalf of the state. Therefore, incentives must be
put in place to discourage dependency and encourage responsibility and human capacity.
Incentives can be in the form of conditional welfare whereby an eligible recipient must
meet certain requirements. For example, they must enroll their children in school, register
with an unemployment office, maintain steady employment, apply and be screened for
social housing, and other development incentives. This discourages reliance on the system
and voluntary unemployment.
Subsidies
Food subsidies have been used by many governments, including Egypt, as a form of
poverty alleviation and as an extension of the social contract. Targeting addresses the
issue of how the system will provide the subsidized commodity and for whom it is
intended. This can be through either administrative or self-targeting program.
Administrative targeting involves a substantial role on the part of the state to set up an
effective and accountable infrastructure. A functional and accountable administration will
facilitate the screening of the poor from the non-poor, the distribution of food stamps and
deliverance of income transfers to those who are qualified. The administration would hold
the responsibility of identifying and targeting those in need, as well as delivering and
distributing the subsidy, either directly or through ration cards. Transparency and
cooperation would be required for administrative targeting to be successful—a daunting
task.
Another method to select beneficiaries for subsidies is through self-targeting. “Food
subsidies can be considered to be self-targeted when the subsidized item is an inferior
good; that is, the food is consumed more in both absolute and relative terms by the poor
than by the non-poor.” Food subsidies in Egypt provide “cheap, calorie dense foods to
protect the income and nutritional status of particular groups such as the poor, children,
and pregnant mothers.” In Egypt, however, subsidized inferior goods such as coarse flour
and Baladi bread are universally available and acceptable to all citizens. This has led to
major leakages and inefficient targeting because non-poor families also have the same
access to the subsidy.
Food subsidies and their political and distributional impacts play a significant role in
Egyptian social safety net programs; the low-income population has come to rely on this
program for their socio-economic welfare. For many households in Egypt, the bread
subsidy is the primary method to ensure that they are able to afford food for themselves
and their families.
Since its inception in the 1940s, the operation and evolution of the Egyptian subsidy
program has gone through many distinct transformations. The food subsidy program did
not originally target the poor when it was first created, but was another public benefit for
every Egyptian citizen under Nasser. By 1975, subsidies accounted for almost 17% of
government expenditures. The subsidy system continued to grow to an unsustainable
level in the 1980s when it expanded to almost 20 foods categories available to all
Egyptians. Since then, the subsidy system has quietly contracted from 20 food types to
just 4. However, there are still huge leakages in the program due to inefficiency and lack
of proper targeting measures. The universal availability of such subsidies in Egypt,
without regard to specific income or welfare levels, demonstrates the financially draining
effect of the program. Thus, subsidies are often deemed fiscally wasteful and
uneconomical.
The subsidy system in Egypt attracted criticism from financial international institutions.
Western style capitalist development proponents argue that, because of the general
ineffectiveness and subsidy leakage problems, the fiscal costs of maintaining the program
outweighs the social benefits. They advocate the gradually elimination of the subsidy
programs because of the unnecessary burden placed on the public budget.157 Yet, the
political sensitivity of subsidies, especially bread, has put the State in an awkward
position: balancing the desire to achieve economic pragmatism without creating domestic
tension. While the Egyptian Government has in effect paid lip service to embracing
affordable social spending, the food subsidy program has remained stable. Regardless of
the pressure to eliminate or reform the subsidy system, the state has been curiously
inactive by neither reducing or expanding the system nor addressing critical targeting
problems. There was a steady and slow decline in subsidy social expenditure after 1992,
although per capita share of subsidies did increase.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Social Protection
Social protection programs are tools used by governments to alleviate poverty by
reducing the vulnerability and risks of the poor, while at the same time increasing the
opportunities and capabilities of those in need. These programs target low income and
ultra poor groups. They promote poverty mitigation and social assistance while
attempting to achieve financially viable and effective social protection systems.159 For
example, in Egypt, income supplements and support systems are in place as a part of
social protection and poverty alleviation strategies. Social protection programs include
policies that bolster the role of the poor in the labor market and target socially
marginalized citizens such as women, children and the disable. They also promote local
business development and access to social insurance and welfare services.
There are also other social policies that help the capabilities and development of
the poor. Labor policies are extremely important in the direction and success of social
protection. Minimum wage, public sector or minority employment opportunities, and the
protection of workers play a significant role in the security and rights of the citizen.
Social insurance also provides security for those who face social risks, providing
management for the unemployed, disable, retired, or those who become ill. Welfare
assistance programs target the most vulnerable giving those in need support and
protection. Microfinance and local business investment programs can also be used as
social protection measures at the community level. These programs offer loans and
initiatives to low-income groups as a means to bolster their capacity and access to
financial services. In these government implemented social protection programs, the state
takes on the role of the protector.
These different aspects of social protection help define the responsibilities of the
state toward society. The extent in which these programs are implemented and how they
fare in success can shed light on the Egyptian government’s transitioning role in society
and how the poor are affected. By examining this role, one can understand the criteria for
a welfare state and whether Egypt, during the past three presidents has actively pursued a
shift in policy alleviate poverty.
The Welfare State
At the minimum level, a welfare state depends on the government as the primary
actor in facilitating the social, political, and economic well being of its population. A
public responsibility exists between government and citizen—social and economic
equality, fair distribution, and minimal provisions for living standards. The state assumes
responsibility for the widening disparities in terms of inequality, social protection,
opportunity, entitlements, services, and incentives. A welfare state “involves state
responsibility for securing some basic modicum of welfare for its citizens. Such a
definition skirts the issue of whether social policies are emancipatory or not; whether they
help system legitimation or not; whether they contradict or aid the market process; and
what, indeed, is meant by basic?” Welfare sociologist Gøsta Epsing Anderson raises
important questions, not just in terms of a welfare state, but also in regard to the actual
role of state responsibility to its citizens. Is a state required to meet the needs of a
population? And are everyone’s basic welfare needs the same?
“Most historical regime shifts have one thing in common, namely an
intensification of ideological competition between rival visions of the ‘Good Society’.”
The policies implemented under Nasser were less about social solidarity, nationalization,
or welfare and more about consolidating the power of the regime. As previously
mentioned, the dominant role of the state did not change fundamentally with Nasser’s
state autonomous socialism, Sadat’s capitalist rentier economy, or Mubarak’s post
capitalist policies.
The remainder of this chapter will focus on Egypt in the last thirty years and the
government’s attempts to transition from a rentier state to a welfare state. This will shed
light on the government’s attitudes and commitments towards the ultra poor.
Rentier Economies
A rentier state rarely promotes economic development; it essentially allows the
government a certain degree of domestic autonomy due to its monopoly on economic
power. This was the case under Sadat’s government. During this era, Egypt relied heavily
on foreign aid, revenue from the Suez Canal, and on exporting labor and the return of
remittances. The economy relied heavily on foreign grants, worker remittances, oil
revenue, and tourism. This money accounted for a huge portion of the GDP in the
mid1980s and left Egypt financially dependent, internally oriented and weak. This led to a
rentier effect. While remittances did facilitate employment and revenue, the real need to
address economic reform and the demands from the population were not acknowledged
by the state. The result was an economy which was extremely susceptible to external
shocks and had difficulties maintaining a positive economic growth rate. Therefore, Egypt
accumulated massive deficits in both foreign debt and balance of payments. The reliance
of interregional migration during the 1980’s promoted an environment in which the state
could remain negligent and apathetic in instituting real economic or social changes. Sadat
attempted to fix the problem through the economy, rather than society.
Role of International Donors and Foreign Aid
Foreign aid policy in the 1980s reflect “the cumulative effects of decades of
borrowing and manifested by large and increasing balance-of-payments and budget
deficits in most of the developing world” This, along with other factors, marked the
beginning of extensive changes and reforms in international donors and aid strategy.
Equilibrium, both externally through balance of payments and internally through national
budgets, became the target for aid objectives. To counter unsustainable rent seeking
policies, Sadat tried to embrace free market and privatization principles that foreign
donors so vigorously promoted. This was done in superficial conformity with western
style capitalist reform, which also extended to Mubarak’s early reform efforts.
This era of economic reform sought to promote a more outward oriented approach and
relied on deregulation and liberalization programs. These policies were an extension of
the Washington Consensus economic and social development programs that extend from
Sadat to early Mubarak’s era.
Washington Consensus Reform
Throughout Egypt in the eighties and nineties, new socioeconomic policies attempted to
adhere to the Washington Consensus style of reform. The Washington Consensus
developed during the 1980’s as a branch of neoclassical economics, which emphasized
capital intensive development. It promoted right-wing, conservative development policies
that operated on the assumption that the “market is efficient and the state is inefficient.”
This school of thought promoted strict and specific economic prescriptions, such as
reliance on deregulation, fiscal discipline, direct foreign investment, trade liberalization,
and privatization of state operated programs. However, the deviation from this model and
the subsequent success of several East Asian economies, along with the negative impact
of human costs and increases in poverty for other states that implemented such polices,
presented challenges to this theory. The “Washington Consensus policies focus
inordinately on short term stabilization while undercutting the basis for long term
growth.”
This was applied to Egypt to counter the inward-looking, heavily regulated, and
interventionist political economy of the state, as well as to challenge the over reliance on
rents. Washington Consensus international financial institutions argued that state
centralization policies were unproductive; therefore, liberalizing and privatizing the
economy would bring profitable and effective results. In terms of welfare, the Washington
Consensus approach operated on the conclusion that economic growth reaches the upper
echelons of society first before eventually dispersing to the rest of the population.
Eventually, the growth from this “trickle down” effect would indirectly benefit the poor.
Socio-economic inequalities would subsequently be minimized through the trickle down
effect of market revenue.
Mubarak sought to continue the Washington Consensus style development and
integration. The best example of this is the economic reform and structural adjustment
programs of the early nineties. These policies operated under the assumption that once
prices and institutional barriers were deregulated, the private sector and new investors
would utilize comparative advantage through the market. Believing that state-owned
enterprises were detrimental to growth, the ERSAP followed the strategy that economic
growth and development would thrive in a market competitive economy free of
government restriction. Given this opportunity, the supply-side of the economy would
respond appropriately. Theoretically, socio-economic inequalities would subsequently be
minimized through the trickle down effect of market revenue.
The Asian crisis in 1997-98 and subsequent global economic fallout showed how
disconnected Egypt was from the modern capitalist infrastructure of a globalized
economy. Although social expenditure continued to increase, GDP annual growth was
also not critically affected, due to the lack of integrated economic and social policies were
supposed to take place in the early nineties. It also demonstrated how Egypt relied on the
informal sector, which was not tied to global enterprises or international free market
cooperation.
Source: World Bank national accounts data, and OECD National Accounts data files
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
One of the primary purposes Mubarak’s agenda was to transform the Egyptian
economy into a more market-focused system. This would relieve rising fiscal imbalances
and distortions in the current economy by adjusting and reforming the public sector,
monetary policies, social policies, investment, exchange rates, trade liberalization, budget
reduction, balance of payments, and domestic prices.
Social Services for the Poor in Egypt: Healthcare and Education
Free public healthcare and education are two examples of government services
which have historically been granted to the Egyptian population. Nasser “resorted to
health services as a conduit for ideological messages.” Although Sadat emphasized
privatization and “personal initiatives, the state support of healthcare was not abandoned,
given the great symbolic value of healthcare in politics. Governmental health care
programs, such as subsidized health services, are financed through general revenues and a
social health insurance system administered through the Health Insurance Organization.
The public healthcare sector can be categorized as facilities owned and operated by the
Ministry of Health and Population, other government medical centers such as military or
university clinics, or public institutions such as the Health Insurance Organization. The
services provided by the Ministry of Health are available mostly free of cost to all
citizens. Even though these mechanisms are in place, quality is a notable problem.
Government support is minimal and divided, which results in a general absence of real
effectiveness and quality.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Healthcare
In Egypt, as in many other countries, health care services are provided unequally
to different demographic and social groups. In Egypt, 57% of health care expenditures are
paid directly out of pocket which can be attributed to the poor quality of government
healthcare. Because public healthcare is inefficient and not properly targeted, primary
care is usually sought through the private sector. It is significant to note the rising trend of
household expenditure increases in direct, out of pocket payment to private health care
providers and pharmacies. According to a report published in 2004, for the years 1994/95:
“Less than 60% of MOF funds were actually spent in MOHP facilities. The rest
was transferred to teaching and university hospitals, HIO and CCO. MOHP facilities thus
only received 19% of all health sector resources, or 0.7% of GDP. Of all resources, 56%
were spent in the private sector, most of it for the purchase of drugs (63%) or paying for
private ambulatory care (17%). Less than 10% of private funds were used to purchase
inpatient care”
As a result, there was been unequal access to healthcare, with low-income or poor
households unable to afford quality healthcare. This inequality demonstrates that wealthy
households can afford proper care, while the poor are left with little public funding. This
lack of funding for the poor results in minimal health care, which may lead to more severe
long-term health problems. Those that can afford private care are turning away from
public healthcare because of the deteriorating quality and “must turn to private suppliers
for health and education services, or else forgo them.” Many Egyptians have used other
healthcare facilities, such as clinics because, as an alternative to government or private
healthcare providers, they provide better quality and care, have better equipment, and hire
specialized physicians.
Religious charity such as zakat, or tithing, as well as waqf endowments are
important within religious charitable organizations to help fund and support public
institutions such as schools and hospitals. However, these practices “have all but
disappeared in Egypt, a combination of government interference and lack of
contemporary understanding of this form of endowed giving.” Yet the organization and
implementation of zakat and waqf have helped direct resources to maintaining some
public services and goods to the impoverished and have helped fill in some of the social
gaps overlooked by the government.
Yet these public services offered by Islamic organizations have been given carte
blanche. “In addition to the Ministry of Interior’s supervision of financial contributions to
Islamic philanthropic organizations, such organizations are subject to tight bureaucratic
controls. The increase of state aid to Islamic private organizations and their eventual
annexation represent additional means of tightening government regulation. In short, the
state encourages Islamic service organizations to the extent that it considers their services
to be a contribution toward placating the masses, but it always keeps these organizations
under surveillance through various governmental agencies.”
While the system itself has remained the same, trends in healthcare access have
not. Poor household’s expenditure on healthcare dramatically exceeds that of middle class
or wealthy households in terms of proportion of household income level.
Additionally, low-income populations spend more on health expenditures than before the
economic reform. The share of health expenditure in total expenditure of lowincome
groups has steadily increased from 1.8% in 1990 to 2.2% in 2004. The most drastic
increases in health expenditures were especially evident in rural areas.
Education
“Education is without doubt a valuable asset for the Egyptian poor. Since the
sixties the Government of Egypt has made great strides to universalize basic education
through large investments and by making education compulsory and free.” However,
issues of quality, efficiency and access to education by marginalized groups have been
major issues in the education sector.
Universal public education, especially at the elementary level, is lacking in both quality
and effectiveness. Classrooms are often crowded, decrepit, and minimally funded
facilities, with understaffed and overworked teachers, as well as minimal learning
materials and limited supplies for classes. According to a report in 1995, only 30% of
students in primary school attend classes on a regular full day basis. Classes average
almost 50 students per teacher, with inner city ratios increasing to 100. Drop out and
repetition rates are between 25-35%, and achievements in basic literacy and arithmetic are
very low.
The problems of access and quality that exist within Egyptian public education has led to
families, especially who can easily afford it, to send their children to private schools or
hire private tutors. In order to compensate for the deteriorating quality in public
institutions, there have been dramatic increases in household private expenditures in
education; beginning in 1990. Low-income groups represent the greatest proportional
increase. According to data from the Institute of National Planning, poor groups spend
approximately 19.7% of household total spending on education alone, placing an
enormous burden on family finances. This is important because education is often linked
directly to employment, which is subsequently linked to a higher standard of living and
This thesis does not operate under the assumption that a welfare state is
necessarily the final solution to alleviate poverty. Instead, it looks at the particular criteria
and policy making of the government in addressing the welfare of its citizens under
certain socio-political models. Before this issue can be understood, several concepts need
to be elaborated on.
The Role of Poor Within a Regime: Mechanisms for Poverty Reduction
Entitlements, and Incentives
Entitlements are the rights and privileges of any citizen or the legislative
provisions given to a population by its government. An individual has a certain level of
entitlement and exchange, which is influenced by outside factors, such as cost of
resources, economic conditions, the availability of employment and wage rates. The state
is responsible for ensuring these social rights by providing equal access, distribution, and
opportunity to all its citizens. “Social rights are necessary because the lack of material
resources could prevent an individual from becoming an autonomous economic agent or a
competent political actor; they are feasible through a system of mutual insurance against
measurable contingencies and risks.”
However, there is a distinct line between what citizens ‘should’ receive and what
they actually do receive. Although a state may endorse a service that it deems necessary
and socially just. But this does not automatically guarantee equal access or quality of the
service. In Egypt, a public and free school system is seen as essential to encourage
education programs for every citizen. Yet the government’s commitment to providing
education as a universal good has had significant costs. The quality of public schools are
substandard and they are renowned for being inefficient and unproductive. Should quality
of service be sacrificed for universal access?
Mechanisms for Entitlement and Provisions
Entitlement programs include social and income security, social protection, healthcare,
and education. Entitlement and provisions for the poor and vulnerable can be classified
into different functional mechanisms. Prevention mechanisms aid in reducing the
probability of social shocks; mitigation mechanisms reduce the magnitude of their
impact; and coping mechanisms relieve the impact once the shock has materialized.
Programs such as social insurance, social security, labor market interventions and social
assistance, all are mechanisms for societal entitlement. A citizen’s entitlement stems from
two prevailing factors: equal membership (we are all Egyptian citizens) and from
acknowledged needs (disabled, single parents, or other groups that need social
entitlements more than others.)
“Although individuals, should, in principle, themselves be responsible for
insurance against social risks, governments are also called upon to take responsibility for
their citizens social protection when necessary. Often a household is unwilling or unable
to take sufficient precautions and state intervention is required to restore the economy’s
allocative efficiency and distributive justice. However, the state’s social security strategy
must be efficient and just in and of itself.” Services and entitlements are factors that
contribute to the regulation of a society.
Incentives and Welfare
Welfare programs and state-sponsored social initiatives can create serious
problems of dependency. Many of these programs are expensive and their sustainability
requires a certain measure of success in poverty alleviation. Ideally, the intent of welfare
services works under the assumption that recipients will eventually achieve
selfsufficiency. Welfare programs should not be structured to continuously exhaust state
funds or put pressure on society. Social programs are often targeted as facilitating social
dependency on the state and draining state resources. To offset certain welfare initiatives,
such as subsidies, incentive plans are often introduced to balance out social provisions
and justify the affordability of social spending.
Because progress and social development are critical to the long-term goals of
welfare, it cannot be one-sided on the behalf of the state. Therefore, incentives must be
put in place to discourage dependency and encourage responsibility and human capacity.
Incentives can be in the form of conditional welfare whereby an eligible recipient must
meet certain requirements. For example, they must enroll their children in school, register
with an unemployment office, maintain steady employment, apply and be screened for
social housing, and other development incentives. This discourages reliance on the system
and voluntary unemployment.
Subsidies
Food subsidies have been used by many governments, including Egypt, as a form of
poverty alleviation and as an extension of the social contract. Targeting addresses the
issue of how the system will provide the subsidized commodity and for whom it is
intended. This can be through either administrative or self-targeting program.
Administrative targeting involves a substantial role on the part of the state to set up an
effective and accountable infrastructure. A functional and accountable administration will
facilitate the screening of the poor from the non-poor, the distribution of food stamps and
deliverance of income transfers to those who are qualified. The administration would hold
the responsibility of identifying and targeting those in need, as well as delivering and
distributing the subsidy, either directly or through ration cards. Transparency and
cooperation would be required for administrative targeting to be successful—a daunting
task.
Another method to select beneficiaries for subsidies is through self-targeting. “Food
subsidies can be considered to be self-targeted when the subsidized item is an inferior
good; that is, the food is consumed more in both absolute and relative terms by the poor
than by the non-poor.” Food subsidies in Egypt provide “cheap, calorie dense foods to
protect the income and nutritional status of particular groups such as the poor, children,
and pregnant mothers.” In Egypt, however, subsidized inferior goods such as coarse flour
and Baladi bread are universally available and acceptable to all citizens. This has led to
major leakages and inefficient targeting because non-poor families also have the same
access to the subsidy.
Food subsidies and their political and distributional impacts play a significant role in
Egyptian social safety net programs; the low-income population has come to rely on this
program for their socio-economic welfare. For many households in Egypt, the bread
subsidy is the primary method to ensure that they are able to afford food for themselves
and their families.
Since its inception in the 1940s, the operation and evolution of the Egyptian subsidy
program has gone through many distinct transformations. The food subsidy program did
not originally target the poor when it was first created, but was another public benefit for
every Egyptian citizen under Nasser. By 1975, subsidies accounted for almost 17% of
government expenditures. The subsidy system continued to grow to an unsustainable
level in the 1980s when it expanded to almost 20 foods categories available to all
Egyptians. Since then, the subsidy system has quietly contracted from 20 food types to
just 4. However, there are still huge leakages in the program due to inefficiency and lack
of proper targeting measures. The universal availability of such subsidies in Egypt,
without regard to specific income or welfare levels, demonstrates the financially draining
effect of the program. Thus, subsidies are often deemed fiscally wasteful and
uneconomical.
The subsidy system in Egypt attracted criticism from financial international institutions.
Western style capitalist development proponents argue that, because of the general
ineffectiveness and subsidy leakage problems, the fiscal costs of maintaining the program
outweighs the social benefits. They advocate the gradually elimination of the subsidy
programs because of the unnecessary burden placed on the public budget.157 Yet, the
political sensitivity of subsidies, especially bread, has put the State in an awkward
position: balancing the desire to achieve economic pragmatism without creating domestic
tension. While the Egyptian Government has in effect paid lip service to embracing
affordable social spending, the food subsidy program has remained stable. Regardless of
the pressure to eliminate or reform the subsidy system, the state has been curiously
inactive by neither reducing or expanding the system nor addressing critical targeting
problems. There was a steady and slow decline in subsidy social expenditure after 1992,
although per capita share of subsidies did increase.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Social Protection
Social protection programs are tools used by governments to alleviate poverty by
reducing the vulnerability and risks of the poor, while at the same time increasing the
opportunities and capabilities of those in need. These programs target low income and
ultra poor groups. They promote poverty mitigation and social assistance while
attempting to achieve financially viable and effective social protection systems.159 For
example, in Egypt, income supplements and support systems are in place as a part of
social protection and poverty alleviation strategies. Social protection programs include
policies that bolster the role of the poor in the labor market and target socially
marginalized citizens such as women, children and the disable. They also promote local
business development and access to social insurance and welfare services.
There are also other social policies that help the capabilities and development of
the poor. Labor policies are extremely important in the direction and success of social
protection. Minimum wage, public sector or minority employment opportunities, and the
protection of workers play a significant role in the security and rights of the citizen.
Social insurance also provides security for those who face social risks, providing
management for the unemployed, disable, retired, or those who become ill. Welfare
assistance programs target the most vulnerable giving those in need support and
protection. Microfinance and local business investment programs can also be used as
social protection measures at the community level. These programs offer loans and
initiatives to low-income groups as a means to bolster their capacity and access to
financial services. In these government implemented social protection programs, the state
takes on the role of the protector.
These different aspects of social protection help define the responsibilities of the
state toward society. The extent in which these programs are implemented and how they
fare in success can shed light on the Egyptian government’s transitioning role in society
and how the poor are affected. By examining this role, one can understand the criteria for
a welfare state and whether Egypt, during the past three presidents has actively pursued a
shift in policy alleviate poverty.
The Welfare State
At the minimum level, a welfare state depends on the government as the primary
actor in facilitating the social, political, and economic well being of its population. A
public responsibility exists between government and citizen—social and economic
equality, fair distribution, and minimal provisions for living standards. The state assumes
responsibility for the widening disparities in terms of inequality, social protection,
opportunity, entitlements, services, and incentives. A welfare state “involves state
responsibility for securing some basic modicum of welfare for its citizens. Such a
definition skirts the issue of whether social policies are emancipatory or not; whether they
help system legitimation or not; whether they contradict or aid the market process; and
what, indeed, is meant by basic?” Welfare sociologist Gøsta Epsing Anderson raises
important questions, not just in terms of a welfare state, but also in regard to the actual
role of state responsibility to its citizens. Is a state required to meet the needs of a
population? And are everyone’s basic welfare needs the same?
“Most historical regime shifts have one thing in common, namely an
intensification of ideological competition between rival visions of the ‘Good Society’.”
The policies implemented under Nasser were less about social solidarity, nationalization,
or welfare and more about consolidating the power of the regime. As previously
mentioned, the dominant role of the state did not change fundamentally with Nasser’s
state autonomous socialism, Sadat’s capitalist rentier economy, or Mubarak’s post
capitalist policies.
The remainder of this chapter will focus on Egypt in the last thirty years and the
government’s attempts to transition from a rentier state to a welfare state. This will shed
light on the government’s attitudes and commitments towards the ultra poor.
Rentier Economies
A rentier state rarely promotes economic development; it essentially allows the
government a certain degree of domestic autonomy due to its monopoly on economic
power. This was the case under Sadat’s government. During this era, Egypt relied heavily
on foreign aid, revenue from the Suez Canal, and on exporting labor and the return of
remittances. The economy relied heavily on foreign grants, worker remittances, oil
revenue, and tourism. This money accounted for a huge portion of the GDP in the
mid1980s and left Egypt financially dependent, internally oriented and weak. This led to a
rentier effect. While remittances did facilitate employment and revenue, the real need to
address economic reform and the demands from the population were not acknowledged
by the state. The result was an economy which was extremely susceptible to external
shocks and had difficulties maintaining a positive economic growth rate. Therefore, Egypt
accumulated massive deficits in both foreign debt and balance of payments. The reliance
of interregional migration during the 1980’s promoted an environment in which the state
could remain negligent and apathetic in instituting real economic or social changes. Sadat
attempted to fix the problem through the economy, rather than society.
Role of International Donors and Foreign Aid
Foreign aid policy in the 1980s reflect “the cumulative effects of decades of
borrowing and manifested by large and increasing balance-of-payments and budget
deficits in most of the developing world” This, along with other factors, marked the
beginning of extensive changes and reforms in international donors and aid strategy.
Equilibrium, both externally through balance of payments and internally through national
budgets, became the target for aid objectives. To counter unsustainable rent seeking
policies, Sadat tried to embrace free market and privatization principles that foreign
donors so vigorously promoted. This was done in superficial conformity with western
style capitalist reform, which also extended to Mubarak’s early reform efforts.
This era of economic reform sought to promote a more outward oriented approach and
relied on deregulation and liberalization programs. These policies were an extension of
the Washington Consensus economic and social development programs that extend from
Sadat to early Mubarak’s era.
Washington Consensus Reform
Throughout Egypt in the eighties and nineties, new socioeconomic policies attempted to
adhere to the Washington Consensus style of reform. The Washington Consensus
developed during the 1980’s as a branch of neoclassical economics, which emphasized
capital intensive development. It promoted right-wing, conservative development policies
that operated on the assumption that the “market is efficient and the state is inefficient.”
This school of thought promoted strict and specific economic prescriptions, such as
reliance on deregulation, fiscal discipline, direct foreign investment, trade liberalization,
and privatization of state operated programs. However, the deviation from this model and
the subsequent success of several East Asian economies, along with the negative impact
of human costs and increases in poverty for other states that implemented such polices,
presented challenges to this theory. The “Washington Consensus policies focus
inordinately on short term stabilization while undercutting the basis for long term
growth.”
This was applied to Egypt to counter the inward-looking, heavily regulated, and
interventionist political economy of the state, as well as to challenge the over reliance on
rents. Washington Consensus international financial institutions argued that state
centralization policies were unproductive; therefore, liberalizing and privatizing the
economy would bring profitable and effective results. In terms of welfare, the Washington
Consensus approach operated on the conclusion that economic growth reaches the upper
echelons of society first before eventually dispersing to the rest of the population.
Eventually, the growth from this “trickle down” effect would indirectly benefit the poor.
Socio-economic inequalities would subsequently be minimized through the trickle down
effect of market revenue.
Mubarak sought to continue the Washington Consensus style development and
integration. The best example of this is the economic reform and structural adjustment
programs of the early nineties. These policies operated under the assumption that once
prices and institutional barriers were deregulated, the private sector and new investors
would utilize comparative advantage through the market. Believing that state-owned
enterprises were detrimental to growth, the ERSAP followed the strategy that economic
growth and development would thrive in a market competitive economy free of
government restriction. Given this opportunity, the supply-side of the economy would
respond appropriately. Theoretically, socio-economic inequalities would subsequently be
minimized through the trickle down effect of market revenue.
The Asian crisis in 1997-98 and subsequent global economic fallout showed how
disconnected Egypt was from the modern capitalist infrastructure of a globalized
economy. Although social expenditure continued to increase, GDP annual growth was
also not critically affected, due to the lack of integrated economic and social policies were
supposed to take place in the early nineties. It also demonstrated how Egypt relied on the
informal sector, which was not tied to global enterprises or international free market
cooperation.
Source: World Bank national accounts data, and OECD National Accounts data files
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
One of the primary purposes Mubarak’s agenda was to transform the Egyptian
economy into a more market-focused system. This would relieve rising fiscal imbalances
and distortions in the current economy by adjusting and reforming the public sector,
monetary policies, social policies, investment, exchange rates, trade liberalization, budget
reduction, balance of payments, and domestic prices.
Social Services for the Poor in Egypt: Healthcare and Education
Free public healthcare and education are two examples of government services
which have historically been granted to the Egyptian population. Nasser “resorted to
health services as a conduit for ideological messages.” Although Sadat emphasized
privatization and “personal initiatives, the state support of healthcare was not abandoned,
given the great symbolic value of healthcare in politics. Governmental health care
programs, such as subsidized health services, are financed through general revenues and a
social health insurance system administered through the Health Insurance Organization.
The public healthcare sector can be categorized as facilities owned and operated by the
Ministry of Health and Population, other government medical centers such as military or
university clinics, or public institutions such as the Health Insurance Organization. The
services provided by the Ministry of Health are available mostly free of cost to all
citizens. Even though these mechanisms are in place, quality is a notable problem.
Government support is minimal and divided, which results in a general absence of real
effectiveness and quality.
Social Expenditure in Egypt 1990-2000 in Percentages ECES/Ministry of Finance
Healthcare
In Egypt, as in many other countries, health care services are provided unequally
to different demographic and social groups. In Egypt, 57% of health care expenditures are
paid directly out of pocket which can be attributed to the poor quality of government
healthcare. Because public healthcare is inefficient and not properly targeted, primary
care is usually sought through the private sector. It is significant to note the rising trend of
household expenditure increases in direct, out of pocket payment to private health care
providers and pharmacies. According to a report published in 2004, for the years 1994/95:
“Less than 60% of MOF funds were actually spent in MOHP facilities. The rest
was transferred to teaching and university hospitals, HIO and CCO. MOHP facilities thus
only received 19% of all health sector resources, or 0.7% of GDP. Of all resources, 56%
were spent in the private sector, most of it for the purchase of drugs (63%) or paying for
private ambulatory care (17%). Less than 10% of private funds were used to purchase
inpatient care”
As a result, there was been unequal access to healthcare, with low-income or poor
households unable to afford quality healthcare. This inequality demonstrates that wealthy
households can afford proper care, while the poor are left with little public funding. This
lack of funding for the poor results in minimal health care, which may lead to more severe
long-term health problems. Those that can afford private care are turning away from
public healthcare because of the deteriorating quality and “must turn to private suppliers
for health and education services, or else forgo them.” Many Egyptians have used other
healthcare facilities, such as clinics because, as an alternative to government or private
healthcare providers, they provide better quality and care, have better equipment, and hire
specialized physicians.
Religious charity such as zakat, or tithing, as well as waqf endowments are
important within religious charitable organizations to help fund and support public
institutions such as schools and hospitals. However, these practices “have all but
disappeared in Egypt, a combination of government interference and lack of
contemporary understanding of this form of endowed giving.” Yet the organization and
implementation of zakat and waqf have helped direct resources to maintaining some
public services and goods to the impoverished and have helped fill in some of the social
gaps overlooked by the government.
Yet these public services offered by Islamic organizations have been given carte
blanche. “In addition to the Ministry of Interior’s supervision of financial contributions to
Islamic philanthropic organizations, such organizations are subject to tight bureaucratic
controls. The increase of state aid to Islamic private organizations and their eventual
annexation represent additional means of tightening government regulation. In short, the
state encourages Islamic service organizations to the extent that it considers their services
to be a contribution toward placating the masses, but it always keeps these organizations
under surveillance through various governmental agencies.”
While the system itself has remained the same, trends in healthcare access have
not. Poor household’s expenditure on healthcare dramatically exceeds that of middle class
or wealthy households in terms of proportion of household income level.
Additionally, low-income populations spend more on health expenditures than before the
economic reform. The share of health expenditure in total expenditure of lowincome
groups has steadily increased from 1.8% in 1990 to 2.2% in 2004. The most drastic
increases in health expenditures were especially evident in rural areas.
Education
“Education is without doubt a valuable asset for the Egyptian poor. Since the
sixties the Government of Egypt has made great strides to universalize basic education
through large investments and by making education compulsory and free.” However,
issues of quality, efficiency and access to education by marginalized groups have been
major issues in the education sector.
Universal public education, especially at the elementary level, is lacking in both quality
and effectiveness. Classrooms are often crowded, decrepit, and minimally funded
facilities, with understaffed and overworked teachers, as well as minimal learning
materials and limited supplies for classes. According to a report in 1995, only 30% of
students in primary school attend classes on a regular full day basis. Classes average
almost 50 students per teacher, with inner city ratios increasing to 100. Drop out and
repetition rates are between 25-35%, and achievements in basic literacy and arithmetic are
very low.
The problems of access and quality that exist within Egyptian public education has led to
families, especially who can easily afford it, to send their children to private schools or
hire private tutors. In order to compensate for the deteriorating quality in public
institutions, there have been dramatic increases in household private expenditures in
education; beginning in 1990. Low-income groups represent the greatest proportional
increase. According to data from the Institute of National Planning, poor groups spend
approximately 19.7% of household total spending on education alone, placing an
enormous burden on family finances. This is important because education is often linked
directly to employment, which is subsequently linked to a higher standard of living and
