Introduction Orthodox methodologies
Orthodox methodologies have historically treated poverty as composed of one or
two characteristics. If poverty can be identified within the confines of a specific entity
with singular dynamics, then understanding and addressing poverty becomes quite
simple. It becomes easy to determine the cause, to fashion a model and to eliminate the
problem. If poverty is truly based only on income, then the problem lies inherently with
monetary measurement. Subsequent poverty alleviation programs will target these goals
specifically. Yet, modern interpretations of poverty conclude that income is merely one of
many facets of poverty. This multidimensional process is more complicated and it goes
beyond tangible measures of welfare.
The idea that poverty can be eradicated or eliminated is an inadequate and unproductive
way to understand the problem. This is reflected in attitudes and approaches that
understand poverty in fixed terms: based on income, expenditure, or consumption as the
only determinants of poverty. By focusing on poverty approaches this way, it becomes a
simple matter of increasing income or consumption levels as an effective means of
poverty reduction.
However, this one-size fits all approach has not worked in poverty reduction
strategies, nor will it in the future. Poverty is not defined by a combination of fixed
principles that determine welfare. Welfare and poverty are dynamic processes and should
be treated as multidimensional in poverty profiling in order to truly evaluate and address
the problems.
Understanding who the poor are and what defines their level of deprivation is also
critical in this thesis. Understanding the limits in definitions, methodologies, processes,
and perceptions of poverty aid in understanding broader issues concerning the role of the
state and its obligations on a population’s welfare. By examining the criteria of how the
poor are identified, the different dynamics of poverty, and the methods of measuring
welfare, one can better understand the role of the government towards this particular
group of people which helps shed light on the broader processes of poverty reduction,
welfare, and social protection in Egypt.
Chapter Two
POLICIES, OBJECTIVES, AND ATTITUDES:
HOW DOES THE EGYPTIAN GOVERNMENT APPROACH POVERTY?
This chapter will further examine poverty through the relationship between state and
society and the evolution of the social contract between the Egyptian Government and its
constituents. This relationship can be illustrated by examining the values and incentives
that affect policy, the role of the state and the people, the institutional environment, and
the fiscal and welfare policies that operate within this framework. How has the
Government of Egypt acknowledged and understood poverty? In order to answer this
question, it is important to look at the different social and economic policies pursued by
the government that influence poverty in Egypt.
Furthermore, it is necessary to understand the historical context of the state’s
relationship with society and how this has aided in an evolution of government perception
of poverty, deprivation, and welfare. How does the Egyptian Government counter the
process of poverty? Has the government always targeted the poor specifically or were
polices in place that benefited the entire population? Does the government have a larger
commitment to the ultra poor in their society? This chapter seeks to expand on how the
attitudes and commitments of the state play a crucial role in determining who the poor
are, what polices should benefit members of society, what institutions are in place for
society and how to structure poverty alleviation programs.
The contemporary Egyptian State has one of the primary roles in influencing the direction
and implementation of social and economic policies. The power relations between
different political structures, such as the government and its ministries, along with the
role of a powerful bureaucracy, play a significant part in the application and effectiveness
of poverty alleviation strategies. The Egyptian State is clearly instrumental in determining
the feasibility of poverty reduction policies for the country. Before one can look at the
direct role of particular polices that target the poor, it is relevant to look first at the
objectives and attitudes of the state towards the problem of poverty. Do they differentiate
between poor or ultra poor? Do social and economic ministries target poverty as
something that goes beyond mere income measure? What are the priorities and
obligations of the state in poverty reduction? Are the government and its ministries active
and receptive to policies that effectively target and combat poverty?
First, this chapter will look at the historical theory behind a social contract.
Second, it will apply this theory to the relationship between the state and Egyptian
citizens. This is done through historicizing the historical social contract in modern Egypt
from Nasser to Mubarak and looking at political and economic policies that affect the
poor. Third, it will focus on the shifts and transitions in state polices in terms of poverty,
social spending, and development.
Social Contract And The Capacity Of The State
It is important within this thesis to expand on the political theory of social contract
in order to illustrate the relationship between state and society in Egypt. In principle, one
must look at how a society is arranged, what obligations that society has within itself, and
what agreements and conditions are being made for and by this group.
In other words, what kind of agreements exists between a population, a government, or an
institutional mechanism that allow a society to function?
One of the most prominent social contract theorists, Thomas Hobbes, suggested that
violence and the uncertainty of life in the state of nature was the underlying motivation
for people to form governments. According to Hobbes, in order to “preserve their lives
and achieve a comfortable existence,” people create political societies. The
“state of nature” is constantly in conflict and only political authority can maintain peace.
The most natural state, Hobbes argues, is when every member of society has complete
and total natural freedom. In this natural society, freedom neither limits the right to hurt
others nor limits the freedom to act without consequences to achieve self-preservation.
This results in disorder and chaos. Therefore, people enter into a social contract with a
government to establish a civil society in which the community forfeits some rights and
freedoms in order to achieve a functioning political society. The means—exchanging
individual rights for civil rights in order to become a part of society—justify the end—a
politically and socially functional order.
Jean Jacques Rousseau expanded on this idea by adding the importance of the
general will of the people into regulating a social contract. The social contract would be
true and legitimate if it benefited the majority of the society. Members of society had the
freedom to agree upon and chose the fundamental laws and organization for the
community. John Locke also supported this idea of a contract that recognized and
supported the general will and common good of people within a society. Locke argued
that people would naturally come together in an organized society, rather than out of fear
like Hobbes.
While social contracts should be created for the collective good of the people,
Rousseau also took into account the problems with individual sovereignty. A person
within a society may not always behave in a manner that benefits the collective interest of
the group, thus, the need arises for a rule of law for which both the people and the
governments are accountable. The social contract represents an agreement in which a
people choose to give up certain natural freedoms in order to achieve order, stability, and
civil society. The consent of the people is the most crucial component in the social
contract.
Historicizing The Social Contract In Modern Egypt:
From Nasser To Mubarak
Egypt has gone through many transitions over the past sixty years, with the
relationship between the government and its population evolving in terms of the social
benefits it extends to the society and in particular, the poor. It is important to understand
the historical social contract between state and society. This helps to shed light on how the
state understands and recognizes the processes of poverty and how they attempt to
address it through social contracts with the population.
One this is established, one must also look at some of the development discourses
and schools of thought that have influenced the states polices towards social welfare. This
aids in understanding how the Egyptian State approaches poverty reduction through
political policies, social contracts, and economic development and how the attitudes and
objectives of the state have shifted over time.
Nasser And The Social Contract Through State Autonomy
Gamal Abdel Nasser, the second president of Egypt, implemented drastic national
socialist reforms which allowed his regime a certain degree of solidarity with the
Egyptian population. The coup in 1952 led to Nasser’s consolidation of power and the
beginning of a socialist authoritarian regime. Nasser did many things to assert his
legitimacy and control over Egypt. Under his regime, agrarian and socioeconomic
reforms “left no doubt to the masses and the political elite that he was the ultimate source
of power and authority” in the Egyptian state. The heavy reliance on state-led
industrialization eliminated colonial and landowning elite interests as powerful influences
in civil society. Instead, the polices of Nasser’s government led to the growth of internal
bureaucracies, government organizations and the development of a strong military
establishment, establishing these institutions as powerful social and political agents within
the Egyptian state. Also, state initiated programs provided for free health care, free public
education, social services that targeted low-income groups, a strong subsidy program for
state resources, and labor reforms with a standard minimum wage and labor
rights.
State Polices Under Nasser
Nasser nationalized major companies and industries including banks, foreign assets,
newspapers and the Suez Canal. State led agrarian reform and redistribution polices led to
the Land Reform Law of 1952. This law limited land ownership in an effort to eliminate
the political and economic influence of large land owning elites. He also nationalized
industries such as petroleum and mining, which fell under state control. These agricultural
and industrial nationalization and sequestration policies did in fact allow the growth of
state domination in politics, society, and economy. But the raising of minimum wages,
social services, investments in agriculture and industry, manufacturing, and the growing
power of the army and government contributed to “the rise in the rate of social mobility in
Egypt during the Nasserist era.” The social circumstances under Nasser allowed for a
greater degree of social mobility in exchange for acceptance of total state control.
Social Polices Under Nasser: Addressing The Social Contract
Through The Consolidation Of Power
Social policies and programs under the Nasser regime redefined the social contract
between Nasser and the Egyptian population. These policies and programs included the
guaranteed employment of state university graduates and national insurance programs.
These programs redefined the social contract between Nasser and the Egyptian
population. These policies also provided new social and economic rights to the working
classes in return for submission to an “institutionalized formal system of personal
political control over individuals, groupings, and state institutions.” These new state
policies allowed some degree of social entitlement: access to state establishments, new
employment opportunities, and development of human capital. Historically, it is often
understood that Nasser garnered support from the rising middle class in order to
legitimize his power, rather than the traditionally powerful elitist class. However, a more
persuasive argument is that these policies were genuine efforts to develop as an
economically and politically independent state as strong, and self-sufficient as possible.
Towards the end of Nasser’s regime, Egypt’s growth began to decline. This was due to
the massive social expenditures the government spent on economic policies as well as a
general lack of foreign investment for projects within the state. Nationalization and
socialist policies were unsustainable. However, powerful social elements within Nasser’s
regime, such as institutions that emphasized the military and the military controlled
civilian bureaucracy, continued to grow as powerful forces in Egyptian society. “It was a
premise of Egypt’s growth strategy in the 1950s and throughout the 1960s that the state
must undertake far more than infrastructural investment and the mobilization of
development capital and, through public enterprises, nationalized banks, and state-
controlled foreign trade, must dominate and lead the entire economy.”
Sadat, Continuing The Consolidation Of Power And Addressing
The Social Contract Through The Economy
In 1970, Anwar Al Sadat came to power. Sadat and his government were intent on
addressing Egypt’s economic problems through privatization and direct foreign
investment schemes—evident in Law 65. Implemented in 1971, this law was designed to
attract foreign private investment by providing exemptions from taxation and promoted
further economic liberalization. The fruits of this policy were not really long lasting
because the 1973 war directed the attention of the state elsewhere.
Under Sadat, the state embarked on the Infitah or Open Door Policy, by passing Law 43
in 1974. These policies sought to focus on the private sector as a means to rapidly
generate revenue while still attempting to continue to provide welfare benefits. Law 43
included “guarantees against sequestration, nationalization, or transfer to public use
without compensation. It also stipulated that projects based on it are private enterprises
irrespective of the legal nature of the shareholders.” The Infitah gave new rights and
opportunities to private sector interests, leading to the establishment of private
businessmen, foreign corporations, entrepreneurial elites, and other non-state actors.88
Yet the Infitah saw the emergence of Egypt as a rentier economy that became
increasingly dependent on foreign investment and revenue. Multinational stakeholders
competed with local institutions for economic control of the private sector, trade,
export/imports, and investment. Furthermore, the established bureaucracy from Nasser’s
era remained a powerful force during Sadat’s regime in Egyptian society and economy.
The Infitah and new private sector development did not do much to alter this picture
because the main proponents of this policy were only interested in tourist, real estate, and
service industries.
The negative social effects of the Infitah economic policies allowed a new platform for
religious groups and charities, such as the Muslim Brotherhood. They began providing
welfare services to the growing number of poor in Egypt, a role which not only assured
them of popular support amongst low-income populations, but also provide an alternative
as a political force to constituents who were unhappy with government policies. This
resulted in a power struggle within Egypt, resulting in the extreme suppression of the
Muslim Brotherhood, particularly as seen later under the Mubarak regime.90
State Polices Under Sadat: Public vs. Private Sector
Under Nasser, the state focused on public sector growth; under Sadat, the state focused
on private sector growth. During these periods, the labor market played a tremendous role
in the social contract between population and state. Citizens must adapt to this system by
choosing between decreasing their wages and securing employment or risking salary
instability and unemployment. This represents a bargain and commitment between
citizens and the state. In Egypt, the balance between the rights and goals of workers is
highly contingent on public/private sector relations. Nasser promoted highly centralized
economic growth policies such as land reform, independence from foreign investment,
and domestic industrialization. These policies proved advantageous to the rising middle
class and bureaucracy, which was where much of his social and political support came
from. However, after Nasser, Sadat pushed for a more liberal economic policy and the
Egyptian economy suffered. The rise of the private sector widened the gap between the
rich and poor and the economy experienced growth, but inflation and high levels of
unemployment as well.
The rise of the private sector was the most substantial achievement of the Infitah,
however these investments were limited to luxury goods and enterprises rather than
production, industry, and manufacturing sectors. This targeted development excluded the
poor, further alienating the relationship between government and people. As Egypt
became a rentier state—a state dependent on revenue from external rents, such as foreign
aid, natural gas, or oil—inequality rose drastically and poverty became a widespread
problem. Rentier states rarely promote economic development. They essentially allow the
government a certain degree of domestic autonomy due to their monopoly on economic
power.
Furthermore, Sadat did not account for a rapidly growing population with more labor
market entrants than ever. Likewise, his economic policies did not promote a rise in
employment to cope with the expanding workforce. Aside from employment issues,
inflation grew to catastrophic rates, averaging around 30%. During this time, the
economy transferred from large landholding elites to private investors and relied
increasingly on generating rents, rather than internal development. Sadat’s economic
policies would be the subject of much controversy later. It was perceived to widen the
gap between rich and poor and it allowed foreign investors to control state enterprises
without regulation. The Open Door Policy was also viewed as Egypt’s attempt to become
even more politically and economically integrated into international markets.
Year 1960 1965 1970 1975 1980 1985
Population 27,798,152 31,572,753 35,574,953 39,599,405 44,433,037 50,654,901
Source: World Databank
Social Impacts Of Privatization
The transfer from public to private sector under the Sadat Regime had many social and
political repercussions. “The death of Gamal Abdel Nasser in September 1971 and Anwar
al Sadat’s consolidation of power by the arrest of leading Nasserists on May 15, 1971
created an opening to articulate economic demands that first emerged during the
economic crisis of 1965-1966 but were postponed by the 1967 war and the 1969-1970
war of attrition over the Suez Canal.”95 The early 70s saw a rise in collective action and
mass strikes with workers demonstrating for higher wages. Results were repressive, and
many strike leaders were arrested and imprisoned. The strikes were mostly contained to
public sector enterprises, which had benefited from Nasser’s previous policies. One of the
most notable demonstrations occurred in 1977 when the government, influenced by the
IMF, cut subsidies on basic consumer goods, while raising commodity prices 25-50
percent. Workers, students, and the unemployed all protested this policy in the Bread
Riots of 1977.
Economy And Society: Migration And Remittances Under Sadat
The substantial changes in Egypt under Sadat were a result of the oil boom in the
1970S and its subsequent impact on regional migration. Aside from liberalization and
privatization, the Infitah sought to promote trade and investment from Western countries.
It also sought to attract remittances and capital from the oil rich Gulf States. The economy
had trouble supporting the policies of Nasser and the resources and employment
availability to support the burgeoning population of Egypt presented an immediate
problem. Two of the largest demographic pressures were a rapid population growth and
high levels of unemployment, particularly in the youth age range. Thus, many Egyptians
sought work out of the country, which helped create opportunities and employment for
citizens.
Migration meant a circulation of labor and money within the economy, with a
promise of creating a balance between the very wealthy gulf countries and the non-oil
countries that supplied them with labor capital. The remittances brought back by the
migrants provided increasing domestic capital. In return, the labor importing countries
also benefited from cheaper labor, a lessening of labor shortages, and a circulation of
labor and capital within the region.
Year 1977 1978 1979 1980 1981 1982 1983 1984 1985
Workers remittances
and receipts
.927 1.77 2.21 2.69 2.18 2.44 3.66 3.96 3.21
Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files.
In the short term, the benefits of regional migration under Sadat seemed to solve
many problems. The rising pressures of growing populations on education, healthcare,
and the labor market forced Egyptians to satisfy their economic needs elsewhere. The
government infrastructure—both in the public and private sectors—could not keep up and
maintain liberalization at the same time. Domestic markets could not absorb neither the
growing number of labor entrants in the public sector nor continue to provide social
returns in the work force. However, along with the massive flight of migration workers,
there was a corresponding outflow of skills and human investment. This was and is one of
the biggest issues with migration.
“If we ignore the terrible eight years that followed the 1967 military defeat, in
which nothing seemed to happen neither in terms of GDP growth nor to equity (both
largely as a result of the military defeat), the next ten years (1975 – 85) was a period of
very high growth rates, rapid increase in inequality but also a significant improvement in
the state of the poor. The greater integration with the world (and regional) economy, as a
result of Sadat’s Open Door Policy, brought about all the three results, but it must be
emphasized that the favorable impact on the standard of living of the poor was the result
of a particular, and unusual form of such integration, namely massive migration of
Egyptian labor to the oil-rich Arab countries. This time, greater ‘globalization’ seems to
be good for the poor, even though inequality also increased” While Egypt’s economy
experienced growth through an increase in foreign investment and a rising GDP, the
government, which accounts for major public sector employment, failed to adequately
raise wages or the standard of living for the population.
However, this one-size fits all approach has not worked in poverty reduction
strategies, nor will it in the future. Poverty is not defined by a combination of fixed
principles that determine welfare. Welfare and poverty are dynamic processes and should
be treated as multidimensional in poverty profiling in order to truly evaluate and address
the problems.
Understanding who the poor are and what defines their level of deprivation is also
critical in this thesis. Understanding the limits in definitions, methodologies, processes,
and perceptions of poverty aid in understanding broader issues concerning the role of the
state and its obligations on a population’s welfare. By examining the criteria of how the
poor are identified, the different dynamics of poverty, and the methods of measuring
welfare, one can better understand the role of the government towards this particular
group of people which helps shed light on the broader processes of poverty reduction,
welfare, and social protection in Egypt.
Chapter Two
POLICIES, OBJECTIVES, AND ATTITUDES:
HOW DOES THE EGYPTIAN GOVERNMENT APPROACH POVERTY?
This chapter will further examine poverty through the relationship between state and
society and the evolution of the social contract between the Egyptian Government and its
constituents. This relationship can be illustrated by examining the values and incentives
that affect policy, the role of the state and the people, the institutional environment, and
the fiscal and welfare policies that operate within this framework. How has the
Government of Egypt acknowledged and understood poverty? In order to answer this
question, it is important to look at the different social and economic policies pursued by
the government that influence poverty in Egypt.
Furthermore, it is necessary to understand the historical context of the state’s
relationship with society and how this has aided in an evolution of government perception
of poverty, deprivation, and welfare. How does the Egyptian Government counter the
process of poverty? Has the government always targeted the poor specifically or were
polices in place that benefited the entire population? Does the government have a larger
commitment to the ultra poor in their society? This chapter seeks to expand on how the
attitudes and commitments of the state play a crucial role in determining who the poor
are, what polices should benefit members of society, what institutions are in place for
society and how to structure poverty alleviation programs.
The contemporary Egyptian State has one of the primary roles in influencing the direction
and implementation of social and economic policies. The power relations between
different political structures, such as the government and its ministries, along with the
role of a powerful bureaucracy, play a significant part in the application and effectiveness
of poverty alleviation strategies. The Egyptian State is clearly instrumental in determining
the feasibility of poverty reduction policies for the country. Before one can look at the
direct role of particular polices that target the poor, it is relevant to look first at the
objectives and attitudes of the state towards the problem of poverty. Do they differentiate
between poor or ultra poor? Do social and economic ministries target poverty as
something that goes beyond mere income measure? What are the priorities and
obligations of the state in poverty reduction? Are the government and its ministries active
and receptive to policies that effectively target and combat poverty?
First, this chapter will look at the historical theory behind a social contract.
Second, it will apply this theory to the relationship between the state and Egyptian
citizens. This is done through historicizing the historical social contract in modern Egypt
from Nasser to Mubarak and looking at political and economic policies that affect the
poor. Third, it will focus on the shifts and transitions in state polices in terms of poverty,
social spending, and development.
Social Contract And The Capacity Of The State
It is important within this thesis to expand on the political theory of social contract
in order to illustrate the relationship between state and society in Egypt. In principle, one
must look at how a society is arranged, what obligations that society has within itself, and
what agreements and conditions are being made for and by this group.
In other words, what kind of agreements exists between a population, a government, or an
institutional mechanism that allow a society to function?
One of the most prominent social contract theorists, Thomas Hobbes, suggested that
violence and the uncertainty of life in the state of nature was the underlying motivation
for people to form governments. According to Hobbes, in order to “preserve their lives
and achieve a comfortable existence,” people create political societies. The
“state of nature” is constantly in conflict and only political authority can maintain peace.
The most natural state, Hobbes argues, is when every member of society has complete
and total natural freedom. In this natural society, freedom neither limits the right to hurt
others nor limits the freedom to act without consequences to achieve self-preservation.
This results in disorder and chaos. Therefore, people enter into a social contract with a
government to establish a civil society in which the community forfeits some rights and
freedoms in order to achieve a functioning political society. The means—exchanging
individual rights for civil rights in order to become a part of society—justify the end—a
politically and socially functional order.
Jean Jacques Rousseau expanded on this idea by adding the importance of the
general will of the people into regulating a social contract. The social contract would be
true and legitimate if it benefited the majority of the society. Members of society had the
freedom to agree upon and chose the fundamental laws and organization for the
community. John Locke also supported this idea of a contract that recognized and
supported the general will and common good of people within a society. Locke argued
that people would naturally come together in an organized society, rather than out of fear
like Hobbes.
While social contracts should be created for the collective good of the people,
Rousseau also took into account the problems with individual sovereignty. A person
within a society may not always behave in a manner that benefits the collective interest of
the group, thus, the need arises for a rule of law for which both the people and the
governments are accountable. The social contract represents an agreement in which a
people choose to give up certain natural freedoms in order to achieve order, stability, and
civil society. The consent of the people is the most crucial component in the social
contract.
Historicizing The Social Contract In Modern Egypt:
From Nasser To Mubarak
Egypt has gone through many transitions over the past sixty years, with the
relationship between the government and its population evolving in terms of the social
benefits it extends to the society and in particular, the poor. It is important to understand
the historical social contract between state and society. This helps to shed light on how the
state understands and recognizes the processes of poverty and how they attempt to
address it through social contracts with the population.
One this is established, one must also look at some of the development discourses
and schools of thought that have influenced the states polices towards social welfare. This
aids in understanding how the Egyptian State approaches poverty reduction through
political policies, social contracts, and economic development and how the attitudes and
objectives of the state have shifted over time.
Nasser And The Social Contract Through State Autonomy
Gamal Abdel Nasser, the second president of Egypt, implemented drastic national
socialist reforms which allowed his regime a certain degree of solidarity with the
Egyptian population. The coup in 1952 led to Nasser’s consolidation of power and the
beginning of a socialist authoritarian regime. Nasser did many things to assert his
legitimacy and control over Egypt. Under his regime, agrarian and socioeconomic
reforms “left no doubt to the masses and the political elite that he was the ultimate source
of power and authority” in the Egyptian state. The heavy reliance on state-led
industrialization eliminated colonial and landowning elite interests as powerful influences
in civil society. Instead, the polices of Nasser’s government led to the growth of internal
bureaucracies, government organizations and the development of a strong military
establishment, establishing these institutions as powerful social and political agents within
the Egyptian state. Also, state initiated programs provided for free health care, free public
education, social services that targeted low-income groups, a strong subsidy program for
state resources, and labor reforms with a standard minimum wage and labor
rights.
State Polices Under Nasser
Nasser nationalized major companies and industries including banks, foreign assets,
newspapers and the Suez Canal. State led agrarian reform and redistribution polices led to
the Land Reform Law of 1952. This law limited land ownership in an effort to eliminate
the political and economic influence of large land owning elites. He also nationalized
industries such as petroleum and mining, which fell under state control. These agricultural
and industrial nationalization and sequestration policies did in fact allow the growth of
state domination in politics, society, and economy. But the raising of minimum wages,
social services, investments in agriculture and industry, manufacturing, and the growing
power of the army and government contributed to “the rise in the rate of social mobility in
Egypt during the Nasserist era.” The social circumstances under Nasser allowed for a
greater degree of social mobility in exchange for acceptance of total state control.
Social Polices Under Nasser: Addressing The Social Contract
Through The Consolidation Of Power
Social policies and programs under the Nasser regime redefined the social contract
between Nasser and the Egyptian population. These policies and programs included the
guaranteed employment of state university graduates and national insurance programs.
These programs redefined the social contract between Nasser and the Egyptian
population. These policies also provided new social and economic rights to the working
classes in return for submission to an “institutionalized formal system of personal
political control over individuals, groupings, and state institutions.” These new state
policies allowed some degree of social entitlement: access to state establishments, new
employment opportunities, and development of human capital. Historically, it is often
understood that Nasser garnered support from the rising middle class in order to
legitimize his power, rather than the traditionally powerful elitist class. However, a more
persuasive argument is that these policies were genuine efforts to develop as an
economically and politically independent state as strong, and self-sufficient as possible.
Towards the end of Nasser’s regime, Egypt’s growth began to decline. This was due to
the massive social expenditures the government spent on economic policies as well as a
general lack of foreign investment for projects within the state. Nationalization and
socialist policies were unsustainable. However, powerful social elements within Nasser’s
regime, such as institutions that emphasized the military and the military controlled
civilian bureaucracy, continued to grow as powerful forces in Egyptian society. “It was a
premise of Egypt’s growth strategy in the 1950s and throughout the 1960s that the state
must undertake far more than infrastructural investment and the mobilization of
development capital and, through public enterprises, nationalized banks, and state-
controlled foreign trade, must dominate and lead the entire economy.”
Sadat, Continuing The Consolidation Of Power And Addressing
The Social Contract Through The Economy
In 1970, Anwar Al Sadat came to power. Sadat and his government were intent on
addressing Egypt’s economic problems through privatization and direct foreign
investment schemes—evident in Law 65. Implemented in 1971, this law was designed to
attract foreign private investment by providing exemptions from taxation and promoted
further economic liberalization. The fruits of this policy were not really long lasting
because the 1973 war directed the attention of the state elsewhere.
Under Sadat, the state embarked on the Infitah or Open Door Policy, by passing Law 43
in 1974. These policies sought to focus on the private sector as a means to rapidly
generate revenue while still attempting to continue to provide welfare benefits. Law 43
included “guarantees against sequestration, nationalization, or transfer to public use
without compensation. It also stipulated that projects based on it are private enterprises
irrespective of the legal nature of the shareholders.” The Infitah gave new rights and
opportunities to private sector interests, leading to the establishment of private
businessmen, foreign corporations, entrepreneurial elites, and other non-state actors.88
Yet the Infitah saw the emergence of Egypt as a rentier economy that became
increasingly dependent on foreign investment and revenue. Multinational stakeholders
competed with local institutions for economic control of the private sector, trade,
export/imports, and investment. Furthermore, the established bureaucracy from Nasser’s
era remained a powerful force during Sadat’s regime in Egyptian society and economy.
The Infitah and new private sector development did not do much to alter this picture
because the main proponents of this policy were only interested in tourist, real estate, and
service industries.
The negative social effects of the Infitah economic policies allowed a new platform for
religious groups and charities, such as the Muslim Brotherhood. They began providing
welfare services to the growing number of poor in Egypt, a role which not only assured
them of popular support amongst low-income populations, but also provide an alternative
as a political force to constituents who were unhappy with government policies. This
resulted in a power struggle within Egypt, resulting in the extreme suppression of the
Muslim Brotherhood, particularly as seen later under the Mubarak regime.90
State Polices Under Sadat: Public vs. Private Sector
Under Nasser, the state focused on public sector growth; under Sadat, the state focused
on private sector growth. During these periods, the labor market played a tremendous role
in the social contract between population and state. Citizens must adapt to this system by
choosing between decreasing their wages and securing employment or risking salary
instability and unemployment. This represents a bargain and commitment between
citizens and the state. In Egypt, the balance between the rights and goals of workers is
highly contingent on public/private sector relations. Nasser promoted highly centralized
economic growth policies such as land reform, independence from foreign investment,
and domestic industrialization. These policies proved advantageous to the rising middle
class and bureaucracy, which was where much of his social and political support came
from. However, after Nasser, Sadat pushed for a more liberal economic policy and the
Egyptian economy suffered. The rise of the private sector widened the gap between the
rich and poor and the economy experienced growth, but inflation and high levels of
unemployment as well.
The rise of the private sector was the most substantial achievement of the Infitah,
however these investments were limited to luxury goods and enterprises rather than
production, industry, and manufacturing sectors. This targeted development excluded the
poor, further alienating the relationship between government and people. As Egypt
became a rentier state—a state dependent on revenue from external rents, such as foreign
aid, natural gas, or oil—inequality rose drastically and poverty became a widespread
problem. Rentier states rarely promote economic development. They essentially allow the
government a certain degree of domestic autonomy due to their monopoly on economic
power.
Furthermore, Sadat did not account for a rapidly growing population with more labor
market entrants than ever. Likewise, his economic policies did not promote a rise in
employment to cope with the expanding workforce. Aside from employment issues,
inflation grew to catastrophic rates, averaging around 30%. During this time, the
economy transferred from large landholding elites to private investors and relied
increasingly on generating rents, rather than internal development. Sadat’s economic
policies would be the subject of much controversy later. It was perceived to widen the
gap between rich and poor and it allowed foreign investors to control state enterprises
without regulation. The Open Door Policy was also viewed as Egypt’s attempt to become
even more politically and economically integrated into international markets.
Year 1960 1965 1970 1975 1980 1985
Population 27,798,152 31,572,753 35,574,953 39,599,405 44,433,037 50,654,901
Source: World Databank
Social Impacts Of Privatization
The transfer from public to private sector under the Sadat Regime had many social and
political repercussions. “The death of Gamal Abdel Nasser in September 1971 and Anwar
al Sadat’s consolidation of power by the arrest of leading Nasserists on May 15, 1971
created an opening to articulate economic demands that first emerged during the
economic crisis of 1965-1966 but were postponed by the 1967 war and the 1969-1970
war of attrition over the Suez Canal.”95 The early 70s saw a rise in collective action and
mass strikes with workers demonstrating for higher wages. Results were repressive, and
many strike leaders were arrested and imprisoned. The strikes were mostly contained to
public sector enterprises, which had benefited from Nasser’s previous policies. One of the
most notable demonstrations occurred in 1977 when the government, influenced by the
IMF, cut subsidies on basic consumer goods, while raising commodity prices 25-50
percent. Workers, students, and the unemployed all protested this policy in the Bread
Riots of 1977.
Economy And Society: Migration And Remittances Under Sadat
The substantial changes in Egypt under Sadat were a result of the oil boom in the
1970S and its subsequent impact on regional migration. Aside from liberalization and
privatization, the Infitah sought to promote trade and investment from Western countries.
It also sought to attract remittances and capital from the oil rich Gulf States. The economy
had trouble supporting the policies of Nasser and the resources and employment
availability to support the burgeoning population of Egypt presented an immediate
problem. Two of the largest demographic pressures were a rapid population growth and
high levels of unemployment, particularly in the youth age range. Thus, many Egyptians
sought work out of the country, which helped create opportunities and employment for
citizens.
Migration meant a circulation of labor and money within the economy, with a
promise of creating a balance between the very wealthy gulf countries and the non-oil
countries that supplied them with labor capital. The remittances brought back by the
migrants provided increasing domestic capital. In return, the labor importing countries
also benefited from cheaper labor, a lessening of labor shortages, and a circulation of
labor and capital within the region.
Year 1977 1978 1979 1980 1981 1982 1983 1984 1985
Workers remittances
and receipts
.927 1.77 2.21 2.69 2.18 2.44 3.66 3.96 3.21
Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files.
In the short term, the benefits of regional migration under Sadat seemed to solve
many problems. The rising pressures of growing populations on education, healthcare,
and the labor market forced Egyptians to satisfy their economic needs elsewhere. The
government infrastructure—both in the public and private sectors—could not keep up and
maintain liberalization at the same time. Domestic markets could not absorb neither the
growing number of labor entrants in the public sector nor continue to provide social
returns in the work force. However, along with the massive flight of migration workers,
there was a corresponding outflow of skills and human investment. This was and is one of
the biggest issues with migration.
“If we ignore the terrible eight years that followed the 1967 military defeat, in
which nothing seemed to happen neither in terms of GDP growth nor to equity (both
largely as a result of the military defeat), the next ten years (1975 – 85) was a period of
very high growth rates, rapid increase in inequality but also a significant improvement in
the state of the poor. The greater integration with the world (and regional) economy, as a
result of Sadat’s Open Door Policy, brought about all the three results, but it must be
emphasized that the favorable impact on the standard of living of the poor was the result
of a particular, and unusual form of such integration, namely massive migration of
Egyptian labor to the oil-rich Arab countries. This time, greater ‘globalization’ seems to
be good for the poor, even though inequality also increased” While Egypt’s economy
experienced growth through an increase in foreign investment and a rising GDP, the
government, which accounts for major public sector employment, failed to adequately
raise wages or the standard of living for the population.
However, this one-size fits all approach has not worked in poverty reduction
strategies, nor will it in the future. Poverty is not defined by a combination of fixed
principles that determine welfare. Welfare and poverty are dynamic processes and should
be treated as multidimensional in poverty profiling in order to truly evaluate and address
the problems.
Understanding who the poor are and what defines their level of deprivation is also
critical in this thesis. Understanding the limits in definitions, methodologies, processes,
and perceptions of poverty aid in understanding broader issues concerning the role of the
state and its obligations on a population’s welfare. By examining the criteria of how the
poor are identified, the different dynamics of poverty, and the methods of measuring
welfare, one can better understand the role of the government towards this particular
group of people which helps shed light on the broader processes of poverty reduction,
welfare, and social protection in Egypt.
Chapter Two
POLICIES, OBJECTIVES, AND ATTITUDES:
HOW DOES THE EGYPTIAN GOVERNMENT APPROACH POVERTY?
This chapter will further examine poverty through the relationship between state and
society and the evolution of the social contract between the Egyptian Government and its
constituents. This relationship can be illustrated by examining the values and incentives
that affect policy, the role of the state and the people, the institutional environment, and
the fiscal and welfare policies that operate within this framework. How has the
Government of Egypt acknowledged and understood poverty? In order to answer this
question, it is important to look at the different social and economic policies pursued by
the government that influence poverty in Egypt.
Furthermore, it is necessary to understand the historical context of the state’s
relationship with society and how this has aided in an evolution of government perception
of poverty, deprivation, and welfare. How does the Egyptian Government counter the
process of poverty? Has the government always targeted the poor specifically or were
polices in place that benefited the entire population? Does the government have a larger
commitment to the ultra poor in their society? This chapter seeks to expand on how the
attitudes and commitments of the state play a crucial role in determining who the poor
are, what polices should benefit members of society, what institutions are in place for
society and how to structure poverty alleviation programs.
The contemporary Egyptian State has one of the primary roles in influencing the direction
and implementation of social and economic policies. The power relations between
different political structures, such as the government and its ministries, along with the
role of a powerful bureaucracy, play a significant part in the application and effectiveness
of poverty alleviation strategies. The Egyptian State is clearly instrumental in determining
the feasibility of poverty reduction policies for the country. Before one can look at the
direct role of particular polices that target the poor, it is relevant to look first at the
objectives and attitudes of the state towards the problem of poverty. Do they differentiate
between poor or ultra poor? Do social and economic ministries target poverty as
something that goes beyond mere income measure? What are the priorities and
obligations of the state in poverty reduction? Are the government and its ministries active
and receptive to policies that effectively target and combat poverty?
First, this chapter will look at the historical theory behind a social contract.
Second, it will apply this theory to the relationship between the state and Egyptian
citizens. This is done through historicizing the historical social contract in modern Egypt
from Nasser to Mubarak and looking at political and economic policies that affect the
poor. Third, it will focus on the shifts and transitions in state polices in terms of poverty,
social spending, and development.
Social Contract And The Capacity Of The State
It is important within this thesis to expand on the political theory of social contract
in order to illustrate the relationship between state and society in Egypt. In principle, one
must look at how a society is arranged, what obligations that society has within itself, and
what agreements and conditions are being made for and by this group.
In other words, what kind of agreements exists between a population, a government, or an
institutional mechanism that allow a society to function?
One of the most prominent social contract theorists, Thomas Hobbes, suggested that
violence and the uncertainty of life in the state of nature was the underlying motivation
for people to form governments. According to Hobbes, in order to “preserve their lives
and achieve a comfortable existence,” people create political societies. The
“state of nature” is constantly in conflict and only political authority can maintain peace.
The most natural state, Hobbes argues, is when every member of society has complete
and total natural freedom. In this natural society, freedom neither limits the right to hurt
others nor limits the freedom to act without consequences to achieve self-preservation.
This results in disorder and chaos. Therefore, people enter into a social contract with a
government to establish a civil society in which the community forfeits some rights and
freedoms in order to achieve a functioning political society. The means—exchanging
individual rights for civil rights in order to become a part of society—justify the end—a
politically and socially functional order.
Jean Jacques Rousseau expanded on this idea by adding the importance of the
general will of the people into regulating a social contract. The social contract would be
true and legitimate if it benefited the majority of the society. Members of society had the
freedom to agree upon and chose the fundamental laws and organization for the
community. John Locke also supported this idea of a contract that recognized and
supported the general will and common good of people within a society. Locke argued
that people would naturally come together in an organized society, rather than out of fear
like Hobbes.
While social contracts should be created for the collective good of the people,
Rousseau also took into account the problems with individual sovereignty. A person
within a society may not always behave in a manner that benefits the collective interest of
the group, thus, the need arises for a rule of law for which both the people and the
governments are accountable. The social contract represents an agreement in which a
people choose to give up certain natural freedoms in order to achieve order, stability, and
civil society. The consent of the people is the most crucial component in the social
contract.
Historicizing The Social Contract In Modern Egypt:
From Nasser To Mubarak
Egypt has gone through many transitions over the past sixty years, with the
relationship between the government and its population evolving in terms of the social
benefits it extends to the society and in particular, the poor. It is important to understand
the historical social contract between state and society. This helps to shed light on how the
state understands and recognizes the processes of poverty and how they attempt to
address it through social contracts with the population.
One this is established, one must also look at some of the development discourses
and schools of thought that have influenced the states polices towards social welfare. This
aids in understanding how the Egyptian State approaches poverty reduction through
political policies, social contracts, and economic development and how the attitudes and
objectives of the state have shifted over time.
Nasser And The Social Contract Through State Autonomy
Gamal Abdel Nasser, the second president of Egypt, implemented drastic national
socialist reforms which allowed his regime a certain degree of solidarity with the
Egyptian population. The coup in 1952 led to Nasser’s consolidation of power and the
beginning of a socialist authoritarian regime. Nasser did many things to assert his
legitimacy and control over Egypt. Under his regime, agrarian and socioeconomic
reforms “left no doubt to the masses and the political elite that he was the ultimate source
of power and authority” in the Egyptian state. The heavy reliance on state-led
industrialization eliminated colonial and landowning elite interests as powerful influences
in civil society. Instead, the polices of Nasser’s government led to the growth of internal
bureaucracies, government organizations and the development of a strong military
establishment, establishing these institutions as powerful social and political agents within
the Egyptian state. Also, state initiated programs provided for free health care, free public
education, social services that targeted low-income groups, a strong subsidy program for
state resources, and labor reforms with a standard minimum wage and labor
rights.
State Polices Under Nasser
Nasser nationalized major companies and industries including banks, foreign assets,
newspapers and the Suez Canal. State led agrarian reform and redistribution polices led to
the Land Reform Law of 1952. This law limited land ownership in an effort to eliminate
the political and economic influence of large land owning elites. He also nationalized
industries such as petroleum and mining, which fell under state control. These agricultural
and industrial nationalization and sequestration policies did in fact allow the growth of
state domination in politics, society, and economy. But the raising of minimum wages,
social services, investments in agriculture and industry, manufacturing, and the growing
power of the army and government contributed to “the rise in the rate of social mobility in
Egypt during the Nasserist era.” The social circumstances under Nasser allowed for a
greater degree of social mobility in exchange for acceptance of total state control.
Social Polices Under Nasser: Addressing The Social Contract
Through The Consolidation Of Power
Social policies and programs under the Nasser regime redefined the social contract
between Nasser and the Egyptian population. These policies and programs included the
guaranteed employment of state university graduates and national insurance programs.
These programs redefined the social contract between Nasser and the Egyptian
population. These policies also provided new social and economic rights to the working
classes in return for submission to an “institutionalized formal system of personal
political control over individuals, groupings, and state institutions.” These new state
policies allowed some degree of social entitlement: access to state establishments, new
employment opportunities, and development of human capital. Historically, it is often
understood that Nasser garnered support from the rising middle class in order to
legitimize his power, rather than the traditionally powerful elitist class. However, a more
persuasive argument is that these policies were genuine efforts to develop as an
economically and politically independent state as strong, and self-sufficient as possible.
Towards the end of Nasser’s regime, Egypt’s growth began to decline. This was due to
the massive social expenditures the government spent on economic policies as well as a
general lack of foreign investment for projects within the state. Nationalization and
socialist policies were unsustainable. However, powerful social elements within Nasser’s
regime, such as institutions that emphasized the military and the military controlled
civilian bureaucracy, continued to grow as powerful forces in Egyptian society. “It was a
premise of Egypt’s growth strategy in the 1950s and throughout the 1960s that the state
must undertake far more than infrastructural investment and the mobilization of
development capital and, through public enterprises, nationalized banks, and state-
controlled foreign trade, must dominate and lead the entire economy.”
Sadat, Continuing The Consolidation Of Power And Addressing
The Social Contract Through The Economy
In 1970, Anwar Al Sadat came to power. Sadat and his government were intent on
addressing Egypt’s economic problems through privatization and direct foreign
investment schemes—evident in Law 65. Implemented in 1971, this law was designed to
attract foreign private investment by providing exemptions from taxation and promoted
further economic liberalization. The fruits of this policy were not really long lasting
because the 1973 war directed the attention of the state elsewhere.
Under Sadat, the state embarked on the Infitah or Open Door Policy, by passing Law 43
in 1974. These policies sought to focus on the private sector as a means to rapidly
generate revenue while still attempting to continue to provide welfare benefits. Law 43
included “guarantees against sequestration, nationalization, or transfer to public use
without compensation. It also stipulated that projects based on it are private enterprises
irrespective of the legal nature of the shareholders.” The Infitah gave new rights and
opportunities to private sector interests, leading to the establishment of private
businessmen, foreign corporations, entrepreneurial elites, and other non-state actors.88
Yet the Infitah saw the emergence of Egypt as a rentier economy that became
increasingly dependent on foreign investment and revenue. Multinational stakeholders
competed with local institutions for economic control of the private sector, trade,
export/imports, and investment. Furthermore, the established bureaucracy from Nasser’s
era remained a powerful force during Sadat’s regime in Egyptian society and economy.
The Infitah and new private sector development did not do much to alter this picture
because the main proponents of this policy were only interested in tourist, real estate, and
service industries.
The negative social effects of the Infitah economic policies allowed a new platform for
religious groups and charities, such as the Muslim Brotherhood. They began providing
welfare services to the growing number of poor in Egypt, a role which not only assured
them of popular support amongst low-income populations, but also provide an alternative
as a political force to constituents who were unhappy with government policies. This
resulted in a power struggle within Egypt, resulting in the extreme suppression of the
Muslim Brotherhood, particularly as seen later under the Mubarak regime.90
State Polices Under Sadat: Public vs. Private Sector
Under Nasser, the state focused on public sector growth; under Sadat, the state focused
on private sector growth. During these periods, the labor market played a tremendous role
in the social contract between population and state. Citizens must adapt to this system by
choosing between decreasing their wages and securing employment or risking salary
instability and unemployment. This represents a bargain and commitment between
citizens and the state. In Egypt, the balance between the rights and goals of workers is
highly contingent on public/private sector relations. Nasser promoted highly centralized
economic growth policies such as land reform, independence from foreign investment,
and domestic industrialization. These policies proved advantageous to the rising middle
class and bureaucracy, which was where much of his social and political support came
from. However, after Nasser, Sadat pushed for a more liberal economic policy and the
Egyptian economy suffered. The rise of the private sector widened the gap between the
rich and poor and the economy experienced growth, but inflation and high levels of
unemployment as well.
The rise of the private sector was the most substantial achievement of the Infitah,
however these investments were limited to luxury goods and enterprises rather than
production, industry, and manufacturing sectors. This targeted development excluded the
poor, further alienating the relationship between government and people. As Egypt
became a rentier state—a state dependent on revenue from external rents, such as foreign
aid, natural gas, or oil—inequality rose drastically and poverty became a widespread
problem. Rentier states rarely promote economic development. They essentially allow the
government a certain degree of domestic autonomy due to their monopoly on economic
power.
Furthermore, Sadat did not account for a rapidly growing population with more labor
market entrants than ever. Likewise, his economic policies did not promote a rise in
employment to cope with the expanding workforce. Aside from employment issues,
inflation grew to catastrophic rates, averaging around 30%. During this time, the
economy transferred from large landholding elites to private investors and relied
increasingly on generating rents, rather than internal development. Sadat’s economic
policies would be the subject of much controversy later. It was perceived to widen the
gap between rich and poor and it allowed foreign investors to control state enterprises
without regulation. The Open Door Policy was also viewed as Egypt’s attempt to become
even more politically and economically integrated into international markets.
Year 1960 1965 1970 1975 1980 1985
Population 27,798,152 31,572,753 35,574,953 39,599,405 44,433,037 50,654,901
Source: World Databank
Social Impacts Of Privatization
The transfer from public to private sector under the Sadat Regime had many social and
political repercussions. “The death of Gamal Abdel Nasser in September 1971 and Anwar
al Sadat’s consolidation of power by the arrest of leading Nasserists on May 15, 1971
created an opening to articulate economic demands that first emerged during the
economic crisis of 1965-1966 but were postponed by the 1967 war and the 1969-1970
war of attrition over the Suez Canal.”95 The early 70s saw a rise in collective action and
mass strikes with workers demonstrating for higher wages. Results were repressive, and
many strike leaders were arrested and imprisoned. The strikes were mostly contained to
public sector enterprises, which had benefited from Nasser’s previous policies. One of the
most notable demonstrations occurred in 1977 when the government, influenced by the
IMF, cut subsidies on basic consumer goods, while raising commodity prices 25-50
percent. Workers, students, and the unemployed all protested this policy in the Bread
Riots of 1977.
Economy And Society: Migration And Remittances Under Sadat
The substantial changes in Egypt under Sadat were a result of the oil boom in the
1970S and its subsequent impact on regional migration. Aside from liberalization and
privatization, the Infitah sought to promote trade and investment from Western countries.
It also sought to attract remittances and capital from the oil rich Gulf States. The economy
had trouble supporting the policies of Nasser and the resources and employment
availability to support the burgeoning population of Egypt presented an immediate
problem. Two of the largest demographic pressures were a rapid population growth and
high levels of unemployment, particularly in the youth age range. Thus, many Egyptians
sought work out of the country, which helped create opportunities and employment for
citizens.
Migration meant a circulation of labor and money within the economy, with a
promise of creating a balance between the very wealthy gulf countries and the non-oil
countries that supplied them with labor capital. The remittances brought back by the
migrants provided increasing domestic capital. In return, the labor importing countries
also benefited from cheaper labor, a lessening of labor shortages, and a circulation of
labor and capital within the region.
Year 1977 1978 1979 1980 1981 1982 1983 1984 1985
Workers remittances
and receipts
.927 1.77 2.21 2.69 2.18 2.44 3.66 3.96 3.21
Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files.
In the short term, the benefits of regional migration under Sadat seemed to solve
many problems. The rising pressures of growing populations on education, healthcare,
and the labor market forced Egyptians to satisfy their economic needs elsewhere. The
government infrastructure—both in the public and private sectors—could not keep up and
maintain liberalization at the same time. Domestic markets could not absorb neither the
growing number of labor entrants in the public sector nor continue to provide social
returns in the work force. However, along with the massive flight of migration workers,
there was a corresponding outflow of skills and human investment. This was and is one of
the biggest issues with migration.
“If we ignore the terrible eight years that followed the 1967 military defeat, in
which nothing seemed to happen neither in terms of GDP growth nor to equity (both
largely as a result of the military defeat), the next ten years (1975 – 85) was a period of
very high growth rates, rapid increase in inequality but also a significant improvement in
the state of the poor. The greater integration with the world (and regional) economy, as a
result of Sadat’s Open Door Policy, brought about all the three results, but it must be
emphasized that the favorable impact on the standard of living of the poor was the result
of a particular, and unusual form of such integration, namely massive migration of
Egyptian labor to the oil-rich Arab countries. This time, greater ‘globalization’ seems to
be good for the poor, even though inequality also increased” While Egypt’s economy
experienced growth through an increase in foreign investment and a rising GDP, the
government, which accounts for major public sector employment, failed to adequately
raise wages or the standard of living for the population.
However, this one-size fits all approach has not worked in poverty reduction
strategies, nor will it in the future. Poverty is not defined by a combination of fixed
principles that determine welfare. Welfare and poverty are dynamic processes and should
be treated as multidimensional in poverty profiling in order to truly evaluate and address
the problems.
Understanding who the poor are and what defines their level of deprivation is also
critical in this thesis. Understanding the limits in definitions, methodologies, processes,
and perceptions of poverty aid in understanding broader issues concerning the role of the
state and its obligations on a population’s welfare. By examining the criteria of how the
poor are identified, the different dynamics of poverty, and the methods of measuring
welfare, one can better understand the role of the government towards this particular
group of people which helps shed light on the broader processes of poverty reduction,
welfare, and social protection in Egypt.
Chapter Two
POLICIES, OBJECTIVES, AND ATTITUDES:
HOW DOES THE EGYPTIAN GOVERNMENT APPROACH POVERTY?
This chapter will further examine poverty through the relationship between state and
society and the evolution of the social contract between the Egyptian Government and its
constituents. This relationship can be illustrated by examining the values and incentives
that affect policy, the role of the state and the people, the institutional environment, and
the fiscal and welfare policies that operate within this framework. How has the
Government of Egypt acknowledged and understood poverty? In order to answer this
question, it is important to look at the different social and economic policies pursued by
the government that influence poverty in Egypt.
Furthermore, it is necessary to understand the historical context of the state’s
relationship with society and how this has aided in an evolution of government perception
of poverty, deprivation, and welfare. How does the Egyptian Government counter the
process of poverty? Has the government always targeted the poor specifically or were
polices in place that benefited the entire population? Does the government have a larger
commitment to the ultra poor in their society? This chapter seeks to expand on how the
attitudes and commitments of the state play a crucial role in determining who the poor
are, what polices should benefit members of society, what institutions are in place for
society and how to structure poverty alleviation programs.
The contemporary Egyptian State has one of the primary roles in influencing the direction
and implementation of social and economic policies. The power relations between
different political structures, such as the government and its ministries, along with the
role of a powerful bureaucracy, play a significant part in the application and effectiveness
of poverty alleviation strategies. The Egyptian State is clearly instrumental in determining
the feasibility of poverty reduction policies for the country. Before one can look at the
direct role of particular polices that target the poor, it is relevant to look first at the
objectives and attitudes of the state towards the problem of poverty. Do they differentiate
between poor or ultra poor? Do social and economic ministries target poverty as
something that goes beyond mere income measure? What are the priorities and
obligations of the state in poverty reduction? Are the government and its ministries active
and receptive to policies that effectively target and combat poverty?
First, this chapter will look at the historical theory behind a social contract.
Second, it will apply this theory to the relationship between the state and Egyptian
citizens. This is done through historicizing the historical social contract in modern Egypt
from Nasser to Mubarak and looking at political and economic policies that affect the
poor. Third, it will focus on the shifts and transitions in state polices in terms of poverty,
social spending, and development.
Social Contract And The Capacity Of The State
It is important within this thesis to expand on the political theory of social contract
in order to illustrate the relationship between state and society in Egypt. In principle, one
must look at how a society is arranged, what obligations that society has within itself, and
what agreements and conditions are being made for and by this group.
In other words, what kind of agreements exists between a population, a government, or an
institutional mechanism that allow a society to function?
One of the most prominent social contract theorists, Thomas Hobbes, suggested that
violence and the uncertainty of life in the state of nature was the underlying motivation
for people to form governments. According to Hobbes, in order to “preserve their lives
and achieve a comfortable existence,” people create political societies. The
“state of nature” is constantly in conflict and only political authority can maintain peace.
The most natural state, Hobbes argues, is when every member of society has complete
and total natural freedom. In this natural society, freedom neither limits the right to hurt
others nor limits the freedom to act without consequences to achieve self-preservation.
This results in disorder and chaos. Therefore, people enter into a social contract with a
government to establish a civil society in which the community forfeits some rights and
freedoms in order to achieve a functioning political society. The means—exchanging
individual rights for civil rights in order to become a part of society—justify the end—a
politically and socially functional order.
Jean Jacques Rousseau expanded on this idea by adding the importance of the
general will of the people into regulating a social contract. The social contract would be
true and legitimate if it benefited the majority of the society. Members of society had the
freedom to agree upon and chose the fundamental laws and organization for the
community. John Locke also supported this idea of a contract that recognized and
supported the general will and common good of people within a society. Locke argued
that people would naturally come together in an organized society, rather than out of fear
like Hobbes.
While social contracts should be created for the collective good of the people,
Rousseau also took into account the problems with individual sovereignty. A person
within a society may not always behave in a manner that benefits the collective interest of
the group, thus, the need arises for a rule of law for which both the people and the
governments are accountable. The social contract represents an agreement in which a
people choose to give up certain natural freedoms in order to achieve order, stability, and
civil society. The consent of the people is the most crucial component in the social
contract.
Historicizing The Social Contract In Modern Egypt:
From Nasser To Mubarak
Egypt has gone through many transitions over the past sixty years, with the
relationship between the government and its population evolving in terms of the social
benefits it extends to the society and in particular, the poor. It is important to understand
the historical social contract between state and society. This helps to shed light on how the
state understands and recognizes the processes of poverty and how they attempt to
address it through social contracts with the population.
One this is established, one must also look at some of the development discourses
and schools of thought that have influenced the states polices towards social welfare. This
aids in understanding how the Egyptian State approaches poverty reduction through
political policies, social contracts, and economic development and how the attitudes and
objectives of the state have shifted over time.
Nasser And The Social Contract Through State Autonomy
Gamal Abdel Nasser, the second president of Egypt, implemented drastic national
socialist reforms which allowed his regime a certain degree of solidarity with the
Egyptian population. The coup in 1952 led to Nasser’s consolidation of power and the
beginning of a socialist authoritarian regime. Nasser did many things to assert his
legitimacy and control over Egypt. Under his regime, agrarian and socioeconomic
reforms “left no doubt to the masses and the political elite that he was the ultimate source
of power and authority” in the Egyptian state. The heavy reliance on state-led
industrialization eliminated colonial and landowning elite interests as powerful influences
in civil society. Instead, the polices of Nasser’s government led to the growth of internal
bureaucracies, government organizations and the development of a strong military
establishment, establishing these institutions as powerful social and political agents within
the Egyptian state. Also, state initiated programs provided for free health care, free public
education, social services that targeted low-income groups, a strong subsidy program for
state resources, and labor reforms with a standard minimum wage and labor
rights.
State Polices Under Nasser
Nasser nationalized major companies and industries including banks, foreign assets,
newspapers and the Suez Canal. State led agrarian reform and redistribution polices led to
the Land Reform Law of 1952. This law limited land ownership in an effort to eliminate
the political and economic influence of large land owning elites. He also nationalized
industries such as petroleum and mining, which fell under state control. These agricultural
and industrial nationalization and sequestration policies did in fact allow the growth of
state domination in politics, society, and economy. But the raising of minimum wages,
social services, investments in agriculture and industry, manufacturing, and the growing
power of the army and government contributed to “the rise in the rate of social mobility in
Egypt during the Nasserist era.” The social circumstances under Nasser allowed for a
greater degree of social mobility in exchange for acceptance of total state control.
Social Polices Under Nasser: Addressing The Social Contract
Through The Consolidation Of Power
Social policies and programs under the Nasser regime redefined the social contract
between Nasser and the Egyptian population. These policies and programs included the
guaranteed employment of state university graduates and national insurance programs.
These programs redefined the social contract between Nasser and the Egyptian
population. These policies also provided new social and economic rights to the working
classes in return for submission to an “institutionalized formal system of personal
political control over individuals, groupings, and state institutions.” These new state
policies allowed some degree of social entitlement: access to state establishments, new
employment opportunities, and development of human capital. Historically, it is often
understood that Nasser garnered support from the rising middle class in order to
legitimize his power, rather than the traditionally powerful elitist class. However, a more
persuasive argument is that these policies were genuine efforts to develop as an
economically and politically independent state as strong, and self-sufficient as possible.
Towards the end of Nasser’s regime, Egypt’s growth began to decline. This was due to
the massive social expenditures the government spent on economic policies as well as a
general lack of foreign investment for projects within the state. Nationalization and
socialist policies were unsustainable. However, powerful social elements within Nasser’s
regime, such as institutions that emphasized the military and the military controlled
civilian bureaucracy, continued to grow as powerful forces in Egyptian society. “It was a
premise of Egypt’s growth strategy in the 1950s and throughout the 1960s that the state
must undertake far more than infrastructural investment and the mobilization of
development capital and, through public enterprises, nationalized banks, and state-
controlled foreign trade, must dominate and lead the entire economy.”
Sadat, Continuing The Consolidation Of Power And Addressing
The Social Contract Through The Economy
In 1970, Anwar Al Sadat came to power. Sadat and his government were intent on
addressing Egypt’s economic problems through privatization and direct foreign
investment schemes—evident in Law 65. Implemented in 1971, this law was designed to
attract foreign private investment by providing exemptions from taxation and promoted
further economic liberalization. The fruits of this policy were not really long lasting
because the 1973 war directed the attention of the state elsewhere.
Under Sadat, the state embarked on the Infitah or Open Door Policy, by passing Law 43
in 1974. These policies sought to focus on the private sector as a means to rapidly
generate revenue while still attempting to continue to provide welfare benefits. Law 43
included “guarantees against sequestration, nationalization, or transfer to public use
without compensation. It also stipulated that projects based on it are private enterprises
irrespective of the legal nature of the shareholders.” The Infitah gave new rights and
opportunities to private sector interests, leading to the establishment of private
businessmen, foreign corporations, entrepreneurial elites, and other non-state actors.88
Yet the Infitah saw the emergence of Egypt as a rentier economy that became
increasingly dependent on foreign investment and revenue. Multinational stakeholders
competed with local institutions for economic control of the private sector, trade,
export/imports, and investment. Furthermore, the established bureaucracy from Nasser’s
era remained a powerful force during Sadat’s regime in Egyptian society and economy.
The Infitah and new private sector development did not do much to alter this picture
because the main proponents of this policy were only interested in tourist, real estate, and
service industries.
The negative social effects of the Infitah economic policies allowed a new platform for
religious groups and charities, such as the Muslim Brotherhood. They began providing
welfare services to the growing number of poor in Egypt, a role which not only assured
them of popular support amongst low-income populations, but also provide an alternative
as a political force to constituents who were unhappy with government policies. This
resulted in a power struggle within Egypt, resulting in the extreme suppression of the
Muslim Brotherhood, particularly as seen later under the Mubarak regime.90
State Polices Under Sadat: Public vs. Private Sector
Under Nasser, the state focused on public sector growth; under Sadat, the state focused
on private sector growth. During these periods, the labor market played a tremendous role
in the social contract between population and state. Citizens must adapt to this system by
choosing between decreasing their wages and securing employment or risking salary
instability and unemployment. This represents a bargain and commitment between
citizens and the state. In Egypt, the balance between the rights and goals of workers is
highly contingent on public/private sector relations. Nasser promoted highly centralized
economic growth policies such as land reform, independence from foreign investment,
and domestic industrialization. These policies proved advantageous to the rising middle
class and bureaucracy, which was where much of his social and political support came
from. However, after Nasser, Sadat pushed for a more liberal economic policy and the
Egyptian economy suffered. The rise of the private sector widened the gap between the
rich and poor and the economy experienced growth, but inflation and high levels of
unemployment as well.
The rise of the private sector was the most substantial achievement of the Infitah,
however these investments were limited to luxury goods and enterprises rather than
production, industry, and manufacturing sectors. This targeted development excluded the
poor, further alienating the relationship between government and people. As Egypt
became a rentier state—a state dependent on revenue from external rents, such as foreign
aid, natural gas, or oil—inequality rose drastically and poverty became a widespread
problem. Rentier states rarely promote economic development. They essentially allow the
government a certain degree of domestic autonomy due to their monopoly on economic
power.
Furthermore, Sadat did not account for a rapidly growing population with more labor
market entrants than ever. Likewise, his economic policies did not promote a rise in
employment to cope with the expanding workforce. Aside from employment issues,
inflation grew to catastrophic rates, averaging around 30%. During this time, the
economy transferred from large landholding elites to private investors and relied
increasingly on generating rents, rather than internal development. Sadat’s economic
policies would be the subject of much controversy later. It was perceived to widen the
gap between rich and poor and it allowed foreign investors to control state enterprises
without regulation. The Open Door Policy was also viewed as Egypt’s attempt to become
even more politically and economically integrated into international markets.
Year 1960 1965 1970 1975 1980 1985
Population 27,798,152 31,572,753 35,574,953 39,599,405 44,433,037 50,654,901
Source: World Databank
Social Impacts Of Privatization
The transfer from public to private sector under the Sadat Regime had many social and
political repercussions. “The death of Gamal Abdel Nasser in September 1971 and Anwar
al Sadat’s consolidation of power by the arrest of leading Nasserists on May 15, 1971
created an opening to articulate economic demands that first emerged during the
economic crisis of 1965-1966 but were postponed by the 1967 war and the 1969-1970
war of attrition over the Suez Canal.”95 The early 70s saw a rise in collective action and
mass strikes with workers demonstrating for higher wages. Results were repressive, and
many strike leaders were arrested and imprisoned. The strikes were mostly contained to
public sector enterprises, which had benefited from Nasser’s previous policies. One of the
most notable demonstrations occurred in 1977 when the government, influenced by the
IMF, cut subsidies on basic consumer goods, while raising commodity prices 25-50
percent. Workers, students, and the unemployed all protested this policy in the Bread
Riots of 1977.
Economy And Society: Migration And Remittances Under Sadat
The substantial changes in Egypt under Sadat were a result of the oil boom in the
1970S and its subsequent impact on regional migration. Aside from liberalization and
privatization, the Infitah sought to promote trade and investment from Western countries.
It also sought to attract remittances and capital from the oil rich Gulf States. The economy
had trouble supporting the policies of Nasser and the resources and employment
availability to support the burgeoning population of Egypt presented an immediate
problem. Two of the largest demographic pressures were a rapid population growth and
high levels of unemployment, particularly in the youth age range. Thus, many Egyptians
sought work out of the country, which helped create opportunities and employment for
citizens.
Migration meant a circulation of labor and money within the economy, with a
promise of creating a balance between the very wealthy gulf countries and the non-oil
countries that supplied them with labor capital. The remittances brought back by the
migrants provided increasing domestic capital. In return, the labor importing countries
also benefited from cheaper labor, a lessening of labor shortages, and a circulation of
labor and capital within the region.
Year 1977 1978 1979 1980 1981 1982 1983 1984 1985
Workers remittances
and receipts
.927 1.77 2.21 2.69 2.18 2.44 3.66 3.96 3.21
Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files.
In the short term, the benefits of regional migration under Sadat seemed to solve
many problems. The rising pressures of growing populations on education, healthcare,
and the labor market forced Egyptians to satisfy their economic needs elsewhere. The
government infrastructure—both in the public and private sectors—could not keep up and
maintain liberalization at the same time. Domestic markets could not absorb neither the
growing number of labor entrants in the public sector nor continue to provide social
returns in the work force. However, along with the massive flight of migration workers,
there was a corresponding outflow of skills and human investment. This was and is one of
the biggest issues with migration.
“If we ignore the terrible eight years that followed the 1967 military defeat, in
which nothing seemed to happen neither in terms of GDP growth nor to equity (both
largely as a result of the military defeat), the next ten years (1975 – 85) was a period of
very high growth rates, rapid increase in inequality but also a significant improvement in
the state of the poor. The greater integration with the world (and regional) economy, as a
result of Sadat’s Open Door Policy, brought about all the three results, but it must be
emphasized that the favorable impact on the standard of living of the poor was the result
of a particular, and unusual form of such integration, namely massive migration of
Egyptian labor to the oil-rich Arab countries. This time, greater ‘globalization’ seems to
be good for the poor, even though inequality also increased” While Egypt’s economy
experienced growth through an increase in foreign investment and a rising GDP, the
government, which accounts for major public sector employment, failed to adequately
raise wages or the standard of living for the population.
However, this one-size fits all approach has not worked in poverty reduction
strategies, nor will it in the future. Poverty is not defined by a combination of fixed
principles that determine welfare. Welfare and poverty are dynamic processes and should
be treated as multidimensional in poverty profiling in order to truly evaluate and address
the problems.
Understanding who the poor are and what defines their level of deprivation is also
critical in this thesis. Understanding the limits in definitions, methodologies, processes,
and perceptions of poverty aid in understanding broader issues concerning the role of the
state and its obligations on a population’s welfare. By examining the criteria of how the
poor are identified, the different dynamics of poverty, and the methods of measuring
welfare, one can better understand the role of the government towards this particular
group of people which helps shed light on the broader processes of poverty reduction,
welfare, and social protection in Egypt.
Chapter Two
POLICIES, OBJECTIVES, AND ATTITUDES:
HOW DOES THE EGYPTIAN GOVERNMENT APPROACH POVERTY?
This chapter will further examine poverty through the relationship between state and
society and the evolution of the social contract between the Egyptian Government and its
constituents. This relationship can be illustrated by examining the values and incentives
that affect policy, the role of the state and the people, the institutional environment, and
the fiscal and welfare policies that operate within this framework. How has the
Government of Egypt acknowledged and understood poverty? In order to answer this
question, it is important to look at the different social and economic policies pursued by
the government that influence poverty in Egypt.
Furthermore, it is necessary to understand the historical context of the state’s
relationship with society and how this has aided in an evolution of government perception
of poverty, deprivation, and welfare. How does the Egyptian Government counter the
process of poverty? Has the government always targeted the poor specifically or were
polices in place that benefited the entire population? Does the government have a larger
commitment to the ultra poor in their society? This chapter seeks to expand on how the
attitudes and commitments of the state play a crucial role in determining who the poor
are, what polices should benefit members of society, what institutions are in place for
society and how to structure poverty alleviation programs.
The contemporary Egyptian State has one of the primary roles in influencing the direction
and implementation of social and economic policies. The power relations between
different political structures, such as the government and its ministries, along with the
role of a powerful bureaucracy, play a significant part in the application and effectiveness
of poverty alleviation strategies. The Egyptian State is clearly instrumental in determining
the feasibility of poverty reduction policies for the country. Before one can look at the
direct role of particular polices that target the poor, it is relevant to look first at the
objectives and attitudes of the state towards the problem of poverty. Do they differentiate
between poor or ultra poor? Do social and economic ministries target poverty as
something that goes beyond mere income measure? What are the priorities and
obligations of the state in poverty reduction? Are the government and its ministries active
and receptive to policies that effectively target and combat poverty?
First, this chapter will look at the historical theory behind a social contract.
Second, it will apply this theory to the relationship between the state and Egyptian
citizens. This is done through historicizing the historical social contract in modern Egypt
from Nasser to Mubarak and looking at political and economic policies that affect the
poor. Third, it will focus on the shifts and transitions in state polices in terms of poverty,
social spending, and development.
Social Contract And The Capacity Of The State
It is important within this thesis to expand on the political theory of social contract
in order to illustrate the relationship between state and society in Egypt. In principle, one
must look at how a society is arranged, what obligations that society has within itself, and
what agreements and conditions are being made for and by this group.
In other words, what kind of agreements exists between a population, a government, or an
institutional mechanism that allow a society to function?
One of the most prominent social contract theorists, Thomas Hobbes, suggested that
violence and the uncertainty of life in the state of nature was the underlying motivation
for people to form governments. According to Hobbes, in order to “preserve their lives
and achieve a comfortable existence,” people create political societies. The
“state of nature” is constantly in conflict and only political authority can maintain peace.
The most natural state, Hobbes argues, is when every member of society has complete
and total natural freedom. In this natural society, freedom neither limits the right to hurt
others nor limits the freedom to act without consequences to achieve self-preservation.
This results in disorder and chaos. Therefore, people enter into a social contract with a
government to establish a civil society in which the community forfeits some rights and
freedoms in order to achieve a functioning political society. The means—exchanging
individual rights for civil rights in order to become a part of society—justify the end—a
politically and socially functional order.
Jean Jacques Rousseau expanded on this idea by adding the importance of the
general will of the people into regulating a social contract. The social contract would be
true and legitimate if it benefited the majority of the society. Members of society had the
freedom to agree upon and chose the fundamental laws and organization for the
community. John Locke also supported this idea of a contract that recognized and
supported the general will and common good of people within a society. Locke argued
that people would naturally come together in an organized society, rather than out of fear
like Hobbes.
While social contracts should be created for the collective good of the people,
Rousseau also took into account the problems with individual sovereignty. A person
within a society may not always behave in a manner that benefits the collective interest of
the group, thus, the need arises for a rule of law for which both the people and the
governments are accountable. The social contract represents an agreement in which a
people choose to give up certain natural freedoms in order to achieve order, stability, and
civil society. The consent of the people is the most crucial component in the social
contract.
Historicizing The Social Contract In Modern Egypt:
From Nasser To Mubarak
Egypt has gone through many transitions over the past sixty years, with the
relationship between the government and its population evolving in terms of the social
benefits it extends to the society and in particular, the poor. It is important to understand
the historical social contract between state and society. This helps to shed light on how the
state understands and recognizes the processes of poverty and how they attempt to
address it through social contracts with the population.
One this is established, one must also look at some of the development discourses
and schools of thought that have influenced the states polices towards social welfare. This
aids in understanding how the Egyptian State approaches poverty reduction through
political policies, social contracts, and economic development and how the attitudes and
objectives of the state have shifted over time.
Nasser And The Social Contract Through State Autonomy
Gamal Abdel Nasser, the second president of Egypt, implemented drastic national
socialist reforms which allowed his regime a certain degree of solidarity with the
Egyptian population. The coup in 1952 led to Nasser’s consolidation of power and the
beginning of a socialist authoritarian regime. Nasser did many things to assert his
legitimacy and control over Egypt. Under his regime, agrarian and socioeconomic
reforms “left no doubt to the masses and the political elite that he was the ultimate source
of power and authority” in the Egyptian state. The heavy reliance on state-led
industrialization eliminated colonial and landowning elite interests as powerful influences
in civil society. Instead, the polices of Nasser’s government led to the growth of internal
bureaucracies, government organizations and the development of a strong military
establishment, establishing these institutions as powerful social and political agents within
the Egyptian state. Also, state initiated programs provided for free health care, free public
education, social services that targeted low-income groups, a strong subsidy program for
state resources, and labor reforms with a standard minimum wage and labor
rights.
State Polices Under Nasser
Nasser nationalized major companies and industries including banks, foreign assets,
newspapers and the Suez Canal. State led agrarian reform and redistribution polices led to
the Land Reform Law of 1952. This law limited land ownership in an effort to eliminate
the political and economic influence of large land owning elites. He also nationalized
industries such as petroleum and mining, which fell under state control. These agricultural
and industrial nationalization and sequestration policies did in fact allow the growth of
state domination in politics, society, and economy. But the raising of minimum wages,
social services, investments in agriculture and industry, manufacturing, and the growing
power of the army and government contributed to “the rise in the rate of social mobility in
Egypt during the Nasserist era.” The social circumstances under Nasser allowed for a
greater degree of social mobility in exchange for acceptance of total state control.
Social Polices Under Nasser: Addressing The Social Contract
Through The Consolidation Of Power
Social policies and programs under the Nasser regime redefined the social contract
between Nasser and the Egyptian population. These policies and programs included the
guaranteed employment of state university graduates and national insurance programs.
These programs redefined the social contract between Nasser and the Egyptian
population. These policies also provided new social and economic rights to the working
classes in return for submission to an “institutionalized formal system of personal
political control over individuals, groupings, and state institutions.” These new state
policies allowed some degree of social entitlement: access to state establishments, new
employment opportunities, and development of human capital. Historically, it is often
understood that Nasser garnered support from the rising middle class in order to
legitimize his power, rather than the traditionally powerful elitist class. However, a more
persuasive argument is that these policies were genuine efforts to develop as an
economically and politically independent state as strong, and self-sufficient as possible.
Towards the end of Nasser’s regime, Egypt’s growth began to decline. This was due to
the massive social expenditures the government spent on economic policies as well as a
general lack of foreign investment for projects within the state. Nationalization and
socialist policies were unsustainable. However, powerful social elements within Nasser’s
regime, such as institutions that emphasized the military and the military controlled
civilian bureaucracy, continued to grow as powerful forces in Egyptian society. “It was a
premise of Egypt’s growth strategy in the 1950s and throughout the 1960s that the state
must undertake far more than infrastructural investment and the mobilization of
development capital and, through public enterprises, nationalized banks, and state-
controlled foreign trade, must dominate and lead the entire economy.”
Sadat, Continuing The Consolidation Of Power And Addressing
The Social Contract Through The Economy
In 1970, Anwar Al Sadat came to power. Sadat and his government were intent on
addressing Egypt’s economic problems through privatization and direct foreign
investment schemes—evident in Law 65. Implemented in 1971, this law was designed to
attract foreign private investment by providing exemptions from taxation and promoted
further economic liberalization. The fruits of this policy were not really long lasting
because the 1973 war directed the attention of the state elsewhere.
Under Sadat, the state embarked on the Infitah or Open Door Policy, by passing Law 43
in 1974. These policies sought to focus on the private sector as a means to rapidly
generate revenue while still attempting to continue to provide welfare benefits. Law 43
included “guarantees against sequestration, nationalization, or transfer to public use
without compensation. It also stipulated that projects based on it are private enterprises
irrespective of the legal nature of the shareholders.” The Infitah gave new rights and
opportunities to private sector interests, leading to the establishment of private
businessmen, foreign corporations, entrepreneurial elites, and other non-state actors.88
Yet the Infitah saw the emergence of Egypt as a rentier economy that became
increasingly dependent on foreign investment and revenue. Multinational stakeholders
competed with local institutions for economic control of the private sector, trade,
export/imports, and investment. Furthermore, the established bureaucracy from Nasser’s
era remained a powerful force during Sadat’s regime in Egyptian society and economy.
The Infitah and new private sector development did not do much to alter this picture
because the main proponents of this policy were only interested in tourist, real estate, and
service industries.
The negative social effects of the Infitah economic policies allowed a new platform for
religious groups and charities, such as the Muslim Brotherhood. They began providing
welfare services to the growing number of poor in Egypt, a role which not only assured
them of popular support amongst low-income populations, but also provide an alternative
as a political force to constituents who were unhappy with government policies. This
resulted in a power struggle within Egypt, resulting in the extreme suppression of the
Muslim Brotherhood, particularly as seen later under the Mubarak regime.90
State Polices Under Sadat: Public vs. Private Sector
Under Nasser, the state focused on public sector growth; under Sadat, the state focused
on private sector growth. During these periods, the labor market played a tremendous role
in the social contract between population and state. Citizens must adapt to this system by
choosing between decreasing their wages and securing employment or risking salary
instability and unemployment. This represents a bargain and commitment between
citizens and the state. In Egypt, the balance between the rights and goals of workers is
highly contingent on public/private sector relations. Nasser promoted highly centralized
economic growth policies such as land reform, independence from foreign investment,
and domestic industrialization. These policies proved advantageous to the rising middle
class and bureaucracy, which was where much of his social and political support came
from. However, after Nasser, Sadat pushed for a more liberal economic policy and the
Egyptian economy suffered. The rise of the private sector widened the gap between the
rich and poor and the economy experienced growth, but inflation and high levels of
unemployment as well.
The rise of the private sector was the most substantial achievement of the Infitah,
however these investments were limited to luxury goods and enterprises rather than
production, industry, and manufacturing sectors. This targeted development excluded the
poor, further alienating the relationship between government and people. As Egypt
became a rentier state—a state dependent on revenue from external rents, such as foreign
aid, natural gas, or oil—inequality rose drastically and poverty became a widespread
problem. Rentier states rarely promote economic development. They essentially allow the
government a certain degree of domestic autonomy due to their monopoly on economic
power.
Furthermore, Sadat did not account for a rapidly growing population with more labor
market entrants than ever. Likewise, his economic policies did not promote a rise in
employment to cope with the expanding workforce. Aside from employment issues,
inflation grew to catastrophic rates, averaging around 30%. During this time, the
economy transferred from large landholding elites to private investors and relied
increasingly on generating rents, rather than internal development. Sadat’s economic
policies would be the subject of much controversy later. It was perceived to widen the
gap between rich and poor and it allowed foreign investors to control state enterprises
without regulation. The Open Door Policy was also viewed as Egypt’s attempt to become
even more politically and economically integrated into international markets.
Year 1960 1965 1970 1975 1980 1985
Population 27,798,152 31,572,753 35,574,953 39,599,405 44,433,037 50,654,901
Source: World Databank
Social Impacts Of Privatization
The transfer from public to private sector under the Sadat Regime had many social and
political repercussions. “The death of Gamal Abdel Nasser in September 1971 and Anwar
al Sadat’s consolidation of power by the arrest of leading Nasserists on May 15, 1971
created an opening to articulate economic demands that first emerged during the
economic crisis of 1965-1966 but were postponed by the 1967 war and the 1969-1970
war of attrition over the Suez Canal.”95 The early 70s saw a rise in collective action and
mass strikes with workers demonstrating for higher wages. Results were repressive, and
many strike leaders were arrested and imprisoned. The strikes were mostly contained to
public sector enterprises, which had benefited from Nasser’s previous policies. One of the
most notable demonstrations occurred in 1977 when the government, influenced by the
IMF, cut subsidies on basic consumer goods, while raising commodity prices 25-50
percent. Workers, students, and the unemployed all protested this policy in the Bread
Riots of 1977.
Economy And Society: Migration And Remittances Under Sadat
The substantial changes in Egypt under Sadat were a result of the oil boom in the
1970S and its subsequent impact on regional migration. Aside from liberalization and
privatization, the Infitah sought to promote trade and investment from Western countries.
It also sought to attract remittances and capital from the oil rich Gulf States. The economy
had trouble supporting the policies of Nasser and the resources and employment
availability to support the burgeoning population of Egypt presented an immediate
problem. Two of the largest demographic pressures were a rapid population growth and
high levels of unemployment, particularly in the youth age range. Thus, many Egyptians
sought work out of the country, which helped create opportunities and employment for
citizens.
Migration meant a circulation of labor and money within the economy, with a
promise of creating a balance between the very wealthy gulf countries and the non-oil
countries that supplied them with labor capital. The remittances brought back by the
migrants provided increasing domestic capital. In return, the labor importing countries
also benefited from cheaper labor, a lessening of labor shortages, and a circulation of
labor and capital within the region.
Year 1977 1978 1979 1980 1981 1982 1983 1984 1985
Workers remittances
and receipts
.927 1.77 2.21 2.69 2.18 2.44 3.66 3.96 3.21
Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files.
In the short term, the benefits of regional migration under Sadat seemed to solve
many problems. The rising pressures of growing populations on education, healthcare,
and the labor market forced Egyptians to satisfy their economic needs elsewhere. The
government infrastructure—both in the public and private sectors—could not keep up and
maintain liberalization at the same time. Domestic markets could not absorb neither the
growing number of labor entrants in the public sector nor continue to provide social
returns in the work force. However, along with the massive flight of migration workers,
there was a corresponding outflow of skills and human investment. This was and is one of
the biggest issues with migration.
“If we ignore the terrible eight years that followed the 1967 military defeat, in
which nothing seemed to happen neither in terms of GDP growth nor to equity (both
largely as a result of the military defeat), the next ten years (1975 – 85) was a period of
very high growth rates, rapid increase in inequality but also a significant improvement in
the state of the poor. The greater integration with the world (and regional) economy, as a
result of Sadat’s Open Door Policy, brought about all the three results, but it must be
emphasized that the favorable impact on the standard of living of the poor was the result
of a particular, and unusual form of such integration, namely massive migration of
Egyptian labor to the oil-rich Arab countries. This time, greater ‘globalization’ seems to
be good for the poor, even though inequality also increased” While Egypt’s economy
experienced growth through an increase in foreign investment and a rising GDP, the
government, which accounts for major public sector employment, failed to adequately
raise wages or the standard of living for the population.
However, this one-size fits all approach has not worked in poverty reduction
strategies, nor will it in the future. Poverty is not defined by a combination of fixed
principles that determine welfare. Welfare and poverty are dynamic processes and should
be treated as multidimensional in poverty profiling in order to truly evaluate and address
the problems.
Understanding who the poor are and what defines their level of deprivation is also
critical in this thesis. Understanding the limits in definitions, methodologies, processes,
and perceptions of poverty aid in understanding broader issues concerning the role of the
state and its obligations on a population’s welfare. By examining the criteria of how the
poor are identified, the different dynamics of poverty, and the methods of measuring
welfare, one can better understand the role of the government towards this particular
group of people which helps shed light on the broader processes of poverty reduction,
welfare, and social protection in Egypt.
Chapter Two
POLICIES, OBJECTIVES, AND ATTITUDES:
HOW DOES THE EGYPTIAN GOVERNMENT APPROACH POVERTY?
This chapter will further examine poverty through the relationship between state and
society and the evolution of the social contract between the Egyptian Government and its
constituents. This relationship can be illustrated by examining the values and incentives
that affect policy, the role of the state and the people, the institutional environment, and
the fiscal and welfare policies that operate within this framework. How has the
Government of Egypt acknowledged and understood poverty? In order to answer this
question, it is important to look at the different social and economic policies pursued by
the government that influence poverty in Egypt.
Furthermore, it is necessary to understand the historical context of the state’s
relationship with society and how this has aided in an evolution of government perception
of poverty, deprivation, and welfare. How does the Egyptian Government counter the
process of poverty? Has the government always targeted the poor specifically or were
polices in place that benefited the entire population? Does the government have a larger
commitment to the ultra poor in their society? This chapter seeks to expand on how the
attitudes and commitments of the state play a crucial role in determining who the poor
are, what polices should benefit members of society, what institutions are in place for
society and how to structure poverty alleviation programs.
The contemporary Egyptian State has one of the primary roles in influencing the direction
and implementation of social and economic policies. The power relations between
different political structures, such as the government and its ministries, along with the
role of a powerful bureaucracy, play a significant part in the application and effectiveness
of poverty alleviation strategies. The Egyptian State is clearly instrumental in determining
the feasibility of poverty reduction policies for the country. Before one can look at the
direct role of particular polices that target the poor, it is relevant to look first at the
objectives and attitudes of the state towards the problem of poverty. Do they differentiate
between poor or ultra poor? Do social and economic ministries target poverty as
something that goes beyond mere income measure? What are the priorities and
obligations of the state in poverty reduction? Are the government and its ministries active
and receptive to policies that effectively target and combat poverty?
First, this chapter will look at the historical theory behind a social contract.
Second, it will apply this theory to the relationship between the state and Egyptian
citizens. This is done through historicizing the historical social contract in modern Egypt
from Nasser to Mubarak and looking at political and economic policies that affect the
poor. Third, it will focus on the shifts and transitions in state polices in terms of poverty,
social spending, and development.
Social Contract And The Capacity Of The State
It is important within this thesis to expand on the political theory of social contract
in order to illustrate the relationship between state and society in Egypt. In principle, one
must look at how a society is arranged, what obligations that society has within itself, and
what agreements and conditions are being made for and by this group.
In other words, what kind of agreements exists between a population, a government, or an
institutional mechanism that allow a society to function?
One of the most prominent social contract theorists, Thomas Hobbes, suggested that
violence and the uncertainty of life in the state of nature was the underlying motivation
for people to form governments. According to Hobbes, in order to “preserve their lives
and achieve a comfortable existence,” people create political societies. The
“state of nature” is constantly in conflict and only political authority can maintain peace.
The most natural state, Hobbes argues, is when every member of society has complete
and total natural freedom. In this natural society, freedom neither limits the right to hurt
others nor limits the freedom to act without consequences to achieve self-preservation.
This results in disorder and chaos. Therefore, people enter into a social contract with a
government to establish a civil society in which the community forfeits some rights and
freedoms in order to achieve a functioning political society. The means—exchanging
individual rights for civil rights in order to become a part of society—justify the end—a
politically and socially functional order.
Jean Jacques Rousseau expanded on this idea by adding the importance of the
general will of the people into regulating a social contract. The social contract would be
true and legitimate if it benefited the majority of the society. Members of society had the
freedom to agree upon and chose the fundamental laws and organization for the
community. John Locke also supported this idea of a contract that recognized and
supported the general will and common good of people within a society. Locke argued
that people would naturally come together in an organized society, rather than out of fear
like Hobbes.
While social contracts should be created for the collective good of the people,
Rousseau also took into account the problems with individual sovereignty. A person
within a society may not always behave in a manner that benefits the collective interest of
the group, thus, the need arises for a rule of law for which both the people and the
governments are accountable. The social contract represents an agreement in which a
people choose to give up certain natural freedoms in order to achieve order, stability, and
civil society. The consent of the people is the most crucial component in the social
contract.
Historicizing The Social Contract In Modern Egypt:
From Nasser To Mubarak
Egypt has gone through many transitions over the past sixty years, with the
relationship between the government and its population evolving in terms of the social
benefits it extends to the society and in particular, the poor. It is important to understand
the historical social contract between state and society. This helps to shed light on how the
state understands and recognizes the processes of poverty and how they attempt to
address it through social contracts with the population.
One this is established, one must also look at some of the development discourses
and schools of thought that have influenced the states polices towards social welfare. This
aids in understanding how the Egyptian State approaches poverty reduction through
political policies, social contracts, and economic development and how the attitudes and
objectives of the state have shifted over time.
Nasser And The Social Contract Through State Autonomy
Gamal Abdel Nasser, the second president of Egypt, implemented drastic national
socialist reforms which allowed his regime a certain degree of solidarity with the
Egyptian population. The coup in 1952 led to Nasser’s consolidation of power and the
beginning of a socialist authoritarian regime. Nasser did many things to assert his
legitimacy and control over Egypt. Under his regime, agrarian and socioeconomic
reforms “left no doubt to the masses and the political elite that he was the ultimate source
of power and authority” in the Egyptian state. The heavy reliance on state-led
industrialization eliminated colonial and landowning elite interests as powerful influences
in civil society. Instead, the polices of Nasser’s government led to the growth of internal
bureaucracies, government organizations and the development of a strong military
establishment, establishing these institutions as powerful social and political agents within
the Egyptian state. Also, state initiated programs provided for free health care, free public
education, social services that targeted low-income groups, a strong subsidy program for
state resources, and labor reforms with a standard minimum wage and labor
rights.
State Polices Under Nasser
Nasser nationalized major companies and industries including banks, foreign assets,
newspapers and the Suez Canal. State led agrarian reform and redistribution polices led to
the Land Reform Law of 1952. This law limited land ownership in an effort to eliminate
the political and economic influence of large land owning elites. He also nationalized
industries such as petroleum and mining, which fell under state control. These agricultural
and industrial nationalization and sequestration policies did in fact allow the growth of
state domination in politics, society, and economy. But the raising of minimum wages,
social services, investments in agriculture and industry, manufacturing, and the growing
power of the army and government contributed to “the rise in the rate of social mobility in
Egypt during the Nasserist era.” The social circumstances under Nasser allowed for a
greater degree of social mobility in exchange for acceptance of total state control.
Social Polices Under Nasser: Addressing The Social Contract
Through The Consolidation Of Power
Social policies and programs under the Nasser regime redefined the social contract
between Nasser and the Egyptian population. These policies and programs included the
guaranteed employment of state university graduates and national insurance programs.
These programs redefined the social contract between Nasser and the Egyptian
population. These policies also provided new social and economic rights to the working
classes in return for submission to an “institutionalized formal system of personal
political control over individuals, groupings, and state institutions.” These new state
policies allowed some degree of social entitlement: access to state establishments, new
employment opportunities, and development of human capital. Historically, it is often
understood that Nasser garnered support from the rising middle class in order to
legitimize his power, rather than the traditionally powerful elitist class. However, a more
persuasive argument is that these policies were genuine efforts to develop as an
economically and politically independent state as strong, and self-sufficient as possible.
Towards the end of Nasser’s regime, Egypt’s growth began to decline. This was due to
the massive social expenditures the government spent on economic policies as well as a
general lack of foreign investment for projects within the state. Nationalization and
socialist policies were unsustainable. However, powerful social elements within Nasser’s
regime, such as institutions that emphasized the military and the military controlled
civilian bureaucracy, continued to grow as powerful forces in Egyptian society. “It was a
premise of Egypt’s growth strategy in the 1950s and throughout the 1960s that the state
must undertake far more than infrastructural investment and the mobilization of
development capital and, through public enterprises, nationalized banks, and state-
controlled foreign trade, must dominate and lead the entire economy.”
Sadat, Continuing The Consolidation Of Power And Addressing
The Social Contract Through The Economy
In 1970, Anwar Al Sadat came to power. Sadat and his government were intent on
addressing Egypt’s economic problems through privatization and direct foreign
investment schemes—evident in Law 65. Implemented in 1971, this law was designed to
attract foreign private investment by providing exemptions from taxation and promoted
further economic liberalization. The fruits of this policy were not really long lasting
because the 1973 war directed the attention of the state elsewhere.
Under Sadat, the state embarked on the Infitah or Open Door Policy, by passing Law 43
in 1974. These policies sought to focus on the private sector as a means to rapidly
generate revenue while still attempting to continue to provide welfare benefits. Law 43
included “guarantees against sequestration, nationalization, or transfer to public use
without compensation. It also stipulated that projects based on it are private enterprises
irrespective of the legal nature of the shareholders.” The Infitah gave new rights and
opportunities to private sector interests, leading to the establishment of private
businessmen, foreign corporations, entrepreneurial elites, and other non-state actors.88
Yet the Infitah saw the emergence of Egypt as a rentier economy that became
increasingly dependent on foreign investment and revenue. Multinational stakeholders
competed with local institutions for economic control of the private sector, trade,
export/imports, and investment. Furthermore, the established bureaucracy from Nasser’s
era remained a powerful force during Sadat’s regime in Egyptian society and economy.
The Infitah and new private sector development did not do much to alter this picture
because the main proponents of this policy were only interested in tourist, real estate, and
service industries.
The negative social effects of the Infitah economic policies allowed a new platform for
religious groups and charities, such as the Muslim Brotherhood. They began providing
welfare services to the growing number of poor in Egypt, a role which not only assured
them of popular support amongst low-income populations, but also provide an alternative
as a political force to constituents who were unhappy with government policies. This
resulted in a power struggle within Egypt, resulting in the extreme suppression of the
Muslim Brotherhood, particularly as seen later under the Mubarak regime.90
State Polices Under Sadat: Public vs. Private Sector
Under Nasser, the state focused on public sector growth; under Sadat, the state focused
on private sector growth. During these periods, the labor market played a tremendous role
in the social contract between population and state. Citizens must adapt to this system by
choosing between decreasing their wages and securing employment or risking salary
instability and unemployment. This represents a bargain and commitment between
citizens and the state. In Egypt, the balance between the rights and goals of workers is
highly contingent on public/private sector relations. Nasser promoted highly centralized
economic growth policies such as land reform, independence from foreign investment,
and domestic industrialization. These policies proved advantageous to the rising middle
class and bureaucracy, which was where much of his social and political support came
from. However, after Nasser, Sadat pushed for a more liberal economic policy and the
Egyptian economy suffered. The rise of the private sector widened the gap between the
rich and poor and the economy experienced growth, but inflation and high levels of
unemployment as well.
The rise of the private sector was the most substantial achievement of the Infitah,
however these investments were limited to luxury goods and enterprises rather than
production, industry, and manufacturing sectors. This targeted development excluded the
poor, further alienating the relationship between government and people. As Egypt
became a rentier state—a state dependent on revenue from external rents, such as foreign
aid, natural gas, or oil—inequality rose drastically and poverty became a widespread
problem. Rentier states rarely promote economic development. They essentially allow the
government a certain degree of domestic autonomy due to their monopoly on economic
power.
Furthermore, Sadat did not account for a rapidly growing population with more labor
market entrants than ever. Likewise, his economic policies did not promote a rise in
employment to cope with the expanding workforce. Aside from employment issues,
inflation grew to catastrophic rates, averaging around 30%. During this time, the
economy transferred from large landholding elites to private investors and relied
increasingly on generating rents, rather than internal development. Sadat’s economic
policies would be the subject of much controversy later. It was perceived to widen the
gap between rich and poor and it allowed foreign investors to control state enterprises
without regulation. The Open Door Policy was also viewed as Egypt’s attempt to become
even more politically and economically integrated into international markets.
Year 1960 1965 1970 1975 1980 1985
Population 27,798,152 31,572,753 35,574,953 39,599,405 44,433,037 50,654,901
Source: World Databank
Social Impacts Of Privatization
The transfer from public to private sector under the Sadat Regime had many social and
political repercussions. “The death of Gamal Abdel Nasser in September 1971 and Anwar
al Sadat’s consolidation of power by the arrest of leading Nasserists on May 15, 1971
created an opening to articulate economic demands that first emerged during the
economic crisis of 1965-1966 but were postponed by the 1967 war and the 1969-1970
war of attrition over the Suez Canal.”95 The early 70s saw a rise in collective action and
mass strikes with workers demonstrating for higher wages. Results were repressive, and
many strike leaders were arrested and imprisoned. The strikes were mostly contained to
public sector enterprises, which had benefited from Nasser’s previous policies. One of the
most notable demonstrations occurred in 1977 when the government, influenced by the
IMF, cut subsidies on basic consumer goods, while raising commodity prices 25-50
percent. Workers, students, and the unemployed all protested this policy in the Bread
Riots of 1977.
Economy And Society: Migration And Remittances Under Sadat
The substantial changes in Egypt under Sadat were a result of the oil boom in the
1970S and its subsequent impact on regional migration. Aside from liberalization and
privatization, the Infitah sought to promote trade and investment from Western countries.
It also sought to attract remittances and capital from the oil rich Gulf States. The economy
had trouble supporting the policies of Nasser and the resources and employment
availability to support the burgeoning population of Egypt presented an immediate
problem. Two of the largest demographic pressures were a rapid population growth and
high levels of unemployment, particularly in the youth age range. Thus, many Egyptians
sought work out of the country, which helped create opportunities and employment for
citizens.
Migration meant a circulation of labor and money within the economy, with a
promise of creating a balance between the very wealthy gulf countries and the non-oil
countries that supplied them with labor capital. The remittances brought back by the
migrants provided increasing domestic capital. In return, the labor importing countries
also benefited from cheaper labor, a lessening of labor shortages, and a circulation of
labor and capital within the region.
Year 1977 1978 1979 1980 1981 1982 1983 1984 1985
Workers remittances
and receipts
.927 1.77 2.21 2.69 2.18 2.44 3.66 3.96 3.21
Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files.
In the short term, the benefits of regional migration under Sadat seemed to solve
many problems. The rising pressures of growing populations on education, healthcare,
and the labor market forced Egyptians to satisfy their economic needs elsewhere. The
government infrastructure—both in the public and private sectors—could not keep up and
maintain liberalization at the same time. Domestic markets could not absorb neither the
growing number of labor entrants in the public sector nor continue to provide social
returns in the work force. However, along with the massive flight of migration workers,
there was a corresponding outflow of skills and human investment. This was and is one of
the biggest issues with migration.
“If we ignore the terrible eight years that followed the 1967 military defeat, in
which nothing seemed to happen neither in terms of GDP growth nor to equity (both
largely as a result of the military defeat), the next ten years (1975 – 85) was a period of
very high growth rates, rapid increase in inequality but also a significant improvement in
the state of the poor. The greater integration with the world (and regional) economy, as a
result of Sadat’s Open Door Policy, brought about all the three results, but it must be
emphasized that the favorable impact on the standard of living of the poor was the result
of a particular, and unusual form of such integration, namely massive migration of
Egyptian labor to the oil-rich Arab countries. This time, greater ‘globalization’ seems to
be good for the poor, even though inequality also increased” While Egypt’s economy
experienced growth through an increase in foreign investment and a rising GDP, the
government, which accounts for major public sector employment, failed to adequately
raise wages or the standard of living for the population.
However, this one-size fits all approach has not worked in poverty reduction
strategies, nor will it in the future. Poverty is not defined by a combination of fixed
principles that determine welfare. Welfare and poverty are dynamic processes and should
be treated as multidimensional in poverty profiling in order to truly evaluate and address
the problems.
Understanding who the poor are and what defines their level of deprivation is also
critical in this thesis. Understanding the limits in definitions, methodologies, processes,
and perceptions of poverty aid in understanding broader issues concerning the role of the
state and its obligations on a population’s welfare. By examining the criteria of how the
poor are identified, the different dynamics of poverty, and the methods of measuring
welfare, one can better understand the role of the government towards this particular
group of people which helps shed light on the broader processes of poverty reduction,
welfare, and social protection in Egypt.
Chapter Two
POLICIES, OBJECTIVES, AND ATTITUDES:
HOW DOES THE EGYPTIAN GOVERNMENT APPROACH POVERTY?
This chapter will further examine poverty through the relationship between state and
society and the evolution of the social contract between the Egyptian Government and its
constituents. This relationship can be illustrated by examining the values and incentives
that affect policy, the role of the state and the people, the institutional environment, and
the fiscal and welfare policies that operate within this framework. How has the
Government of Egypt acknowledged and understood poverty? In order to answer this
question, it is important to look at the different social and economic policies pursued by
the government that influence poverty in Egypt.
Furthermore, it is necessary to understand the historical context of the state’s
relationship with society and how this has aided in an evolution of government perception
of poverty, deprivation, and welfare. How does the Egyptian Government counter the
process of poverty? Has the government always targeted the poor specifically or were
polices in place that benefited the entire population? Does the government have a larger
commitment to the ultra poor in their society? This chapter seeks to expand on how the
attitudes and commitments of the state play a crucial role in determining who the poor
are, what polices should benefit members of society, what institutions are in place for
society and how to structure poverty alleviation programs.
The contemporary Egyptian State has one of the primary roles in influencing the direction
and implementation of social and economic policies. The power relations between
different political structures, such as the government and its ministries, along with the
role of a powerful bureaucracy, play a significant part in the application and effectiveness
of poverty alleviation strategies. The Egyptian State is clearly instrumental in determining
the feasibility of poverty reduction policies for the country. Before one can look at the
direct role of particular polices that target the poor, it is relevant to look first at the
objectives and attitudes of the state towards the problem of poverty. Do they differentiate
between poor or ultra poor? Do social and economic ministries target poverty as
something that goes beyond mere income measure? What are the priorities and
obligations of the state in poverty reduction? Are the government and its ministries active
and receptive to policies that effectively target and combat poverty?
First, this chapter will look at the historical theory behind a social contract.
Second, it will apply this theory to the relationship between the state and Egyptian
citizens. This is done through historicizing the historical social contract in modern Egypt
from Nasser to Mubarak and looking at political and economic policies that affect the
poor. Third, it will focus on the shifts and transitions in state polices in terms of poverty,
social spending, and development.
Social Contract And The Capacity Of The State
It is important within this thesis to expand on the political theory of social contract
in order to illustrate the relationship between state and society in Egypt. In principle, one
must look at how a society is arranged, what obligations that society has within itself, and
what agreements and conditions are being made for and by this group.
In other words, what kind of agreements exists between a population, a government, or an
institutional mechanism that allow a society to function?
One of the most prominent social contract theorists, Thomas Hobbes, suggested that
violence and the uncertainty of life in the state of nature was the underlying motivation
for people to form governments. According to Hobbes, in order to “preserve their lives
and achieve a comfortable existence,” people create political societies. The
“state of nature” is constantly in conflict and only political authority can maintain peace.
The most natural state, Hobbes argues, is when every member of society has complete
and total natural freedom. In this natural society, freedom neither limits the right to hurt
others nor limits the freedom to act without consequences to achieve self-preservation.
This results in disorder and chaos. Therefore, people enter into a social contract with a
government to establish a civil society in which the community forfeits some rights and
freedoms in order to achieve a functioning political society. The means—exchanging
individual rights for civil rights in order to become a part of society—justify the end—a
politically and socially functional order.
Jean Jacques Rousseau expanded on this idea by adding the importance of the
general will of the people into regulating a social contract. The social contract would be
true and legitimate if it benefited the majority of the society. Members of society had the
freedom to agree upon and chose the fundamental laws and organization for the
community. John Locke also supported this idea of a contract that recognized and
supported the general will and common good of people within a society. Locke argued
that people would naturally come together in an organized society, rather than out of fear
like Hobbes.
While social contracts should be created for the collective good of the people,
Rousseau also took into account the problems with individual sovereignty. A person
within a society may not always behave in a manner that benefits the collective interest of
the group, thus, the need arises for a rule of law for which both the people and the
governments are accountable. The social contract represents an agreement in which a
people choose to give up certain natural freedoms in order to achieve order, stability, and
civil society. The consent of the people is the most crucial component in the social
contract.
Historicizing The Social Contract In Modern Egypt:
From Nasser To Mubarak
Egypt has gone through many transitions over the past sixty years, with the
relationship between the government and its population evolving in terms of the social
benefits it extends to the society and in particular, the poor. It is important to understand
the historical social contract between state and society. This helps to shed light on how the
state understands and recognizes the processes of poverty and how they attempt to
address it through social contracts with the population.
One this is established, one must also look at some of the development discourses
and schools of thought that have influenced the states polices towards social welfare. This
aids in understanding how the Egyptian State approaches poverty reduction through
political policies, social contracts, and economic development and how the attitudes and
objectives of the state have shifted over time.
Nasser And The Social Contract Through State Autonomy
Gamal Abdel Nasser, the second president of Egypt, implemented drastic national
socialist reforms which allowed his regime a certain degree of solidarity with the
Egyptian population. The coup in 1952 led to Nasser’s consolidation of power and the
beginning of a socialist authoritarian regime. Nasser did many things to assert his
legitimacy and control over Egypt. Under his regime, agrarian and socioeconomic
reforms “left no doubt to the masses and the political elite that he was the ultimate source
of power and authority” in the Egyptian state. The heavy reliance on state-led
industrialization eliminated colonial and landowning elite interests as powerful influences
in civil society. Instead, the polices of Nasser’s government led to the growth of internal
bureaucracies, government organizations and the development of a strong military
establishment, establishing these institutions as powerful social and political agents within
the Egyptian state. Also, state initiated programs provided for free health care, free public
education, social services that targeted low-income groups, a strong subsidy program for
state resources, and labor reforms with a standard minimum wage and labor
rights.
State Polices Under Nasser
Nasser nationalized major companies and industries including banks, foreign assets,
newspapers and the Suez Canal. State led agrarian reform and redistribution polices led to
the Land Reform Law of 1952. This law limited land ownership in an effort to eliminate
the political and economic influence of large land owning elites. He also nationalized
industries such as petroleum and mining, which fell under state control. These agricultural
and industrial nationalization and sequestration policies did in fact allow the growth of
state domination in politics, society, and economy. But the raising of minimum wages,
social services, investments in agriculture and industry, manufacturing, and the growing
power of the army and government contributed to “the rise in the rate of social mobility in
Egypt during the Nasserist era.” The social circumstances under Nasser allowed for a
greater degree of social mobility in exchange for acceptance of total state control.
Social Polices Under Nasser: Addressing The Social Contract
Through The Consolidation Of Power
Social policies and programs under the Nasser regime redefined the social contract
between Nasser and the Egyptian population. These policies and programs included the
guaranteed employment of state university graduates and national insurance programs.
These programs redefined the social contract between Nasser and the Egyptian
population. These policies also provided new social and economic rights to the working
classes in return for submission to an “institutionalized formal system of personal
political control over individuals, groupings, and state institutions.” These new state
policies allowed some degree of social entitlement: access to state establishments, new
employment opportunities, and development of human capital. Historically, it is often
understood that Nasser garnered support from the rising middle class in order to
legitimize his power, rather than the traditionally powerful elitist class. However, a more
persuasive argument is that these policies were genuine efforts to develop as an
economically and politically independent state as strong, and self-sufficient as possible.
Towards the end of Nasser’s regime, Egypt’s growth began to decline. This was due to
the massive social expenditures the government spent on economic policies as well as a
general lack of foreign investment for projects within the state. Nationalization and
socialist policies were unsustainable. However, powerful social elements within Nasser’s
regime, such as institutions that emphasized the military and the military controlled
civilian bureaucracy, continued to grow as powerful forces in Egyptian society. “It was a
premise of Egypt’s growth strategy in the 1950s and throughout the 1960s that the state
must undertake far more than infrastructural investment and the mobilization of
development capital and, through public enterprises, nationalized banks, and state-
controlled foreign trade, must dominate and lead the entire economy.”
Sadat, Continuing The Consolidation Of Power And Addressing
The Social Contract Through The Economy
In 1970, Anwar Al Sadat came to power. Sadat and his government were intent on
addressing Egypt’s economic problems through privatization and direct foreign
investment schemes—evident in Law 65. Implemented in 1971, this law was designed to
attract foreign private investment by providing exemptions from taxation and promoted
further economic liberalization. The fruits of this policy were not really long lasting
because the 1973 war directed the attention of the state elsewhere.
Under Sadat, the state embarked on the Infitah or Open Door Policy, by passing Law 43
in 1974. These policies sought to focus on the private sector as a means to rapidly
generate revenue while still attempting to continue to provide welfare benefits. Law 43
included “guarantees against sequestration, nationalization, or transfer to public use
without compensation. It also stipulated that projects based on it are private enterprises
irrespective of the legal nature of the shareholders.” The Infitah gave new rights and
opportunities to private sector interests, leading to the establishment of private
businessmen, foreign corporations, entrepreneurial elites, and other non-state actors.88
Yet the Infitah saw the emergence of Egypt as a rentier economy that became
increasingly dependent on foreign investment and revenue. Multinational stakeholders
competed with local institutions for economic control of the private sector, trade,
export/imports, and investment. Furthermore, the established bureaucracy from Nasser’s
era remained a powerful force during Sadat’s regime in Egyptian society and economy.
The Infitah and new private sector development did not do much to alter this picture
because the main proponents of this policy were only interested in tourist, real estate, and
service industries.
The negative social effects of the Infitah economic policies allowed a new platform for
religious groups and charities, such as the Muslim Brotherhood. They began providing
welfare services to the growing number of poor in Egypt, a role which not only assured
them of popular support amongst low-income populations, but also provide an alternative
as a political force to constituents who were unhappy with government policies. This
resulted in a power struggle within Egypt, resulting in the extreme suppression of the
Muslim Brotherhood, particularly as seen later under the Mubarak regime.90
State Polices Under Sadat: Public vs. Private Sector
Under Nasser, the state focused on public sector growth; under Sadat, the state focused
on private sector growth. During these periods, the labor market played a tremendous role
in the social contract between population and state. Citizens must adapt to this system by
choosing between decreasing their wages and securing employment or risking salary
instability and unemployment. This represents a bargain and commitment between
citizens and the state. In Egypt, the balance between the rights and goals of workers is
highly contingent on public/private sector relations. Nasser promoted highly centralized
economic growth policies such as land reform, independence from foreign investment,
and domestic industrialization. These policies proved advantageous to the rising middle
class and bureaucracy, which was where much of his social and political support came
from. However, after Nasser, Sadat pushed for a more liberal economic policy and the
Egyptian economy suffered. The rise of the private sector widened the gap between the
rich and poor and the economy experienced growth, but inflation and high levels of
unemployment as well.
The rise of the private sector was the most substantial achievement of the Infitah,
however these investments were limited to luxury goods and enterprises rather than
production, industry, and manufacturing sectors. This targeted development excluded the
poor, further alienating the relationship between government and people. As Egypt
became a rentier state—a state dependent on revenue from external rents, such as foreign
aid, natural gas, or oil—inequality rose drastically and poverty became a widespread
problem. Rentier states rarely promote economic development. They essentially allow the
government a certain degree of domestic autonomy due to their monopoly on economic
power.
Furthermore, Sadat did not account for a rapidly growing population with more labor
market entrants than ever. Likewise, his economic policies did not promote a rise in
employment to cope with the expanding workforce. Aside from employment issues,
inflation grew to catastrophic rates, averaging around 30%. During this time, the
economy transferred from large landholding elites to private investors and relied
increasingly on generating rents, rather than internal development. Sadat’s economic
policies would be the subject of much controversy later. It was perceived to widen the
gap between rich and poor and it allowed foreign investors to control state enterprises
without regulation. The Open Door Policy was also viewed as Egypt’s attempt to become
even more politically and economically integrated into international markets.
Year 1960 1965 1970 1975 1980 1985
Population 27,798,152 31,572,753 35,574,953 39,599,405 44,433,037 50,654,901
Source: World Databank
Social Impacts Of Privatization
The transfer from public to private sector under the Sadat Regime had many social and
political repercussions. “The death of Gamal Abdel Nasser in September 1971 and Anwar
al Sadat’s consolidation of power by the arrest of leading Nasserists on May 15, 1971
created an opening to articulate economic demands that first emerged during the
economic crisis of 1965-1966 but were postponed by the 1967 war and the 1969-1970
war of attrition over the Suez Canal.”95 The early 70s saw a rise in collective action and
mass strikes with workers demonstrating for higher wages. Results were repressive, and
many strike leaders were arrested and imprisoned. The strikes were mostly contained to
public sector enterprises, which had benefited from Nasser’s previous policies. One of the
most notable demonstrations occurred in 1977 when the government, influenced by the
IMF, cut subsidies on basic consumer goods, while raising commodity prices 25-50
percent. Workers, students, and the unemployed all protested this policy in the Bread
Riots of 1977.
Economy And Society: Migration And Remittances Under Sadat
The substantial changes in Egypt under Sadat were a result of the oil boom in the
1970S and its subsequent impact on regional migration. Aside from liberalization and
privatization, the Infitah sought to promote trade and investment from Western countries.
It also sought to attract remittances and capital from the oil rich Gulf States. The economy
had trouble supporting the policies of Nasser and the resources and employment
availability to support the burgeoning population of Egypt presented an immediate
problem. Two of the largest demographic pressures were a rapid population growth and
high levels of unemployment, particularly in the youth age range. Thus, many Egyptians
sought work out of the country, which helped create opportunities and employment for
citizens.
Migration meant a circulation of labor and money within the economy, with a
promise of creating a balance between the very wealthy gulf countries and the non-oil
countries that supplied them with labor capital. The remittances brought back by the
migrants provided increasing domestic capital. In return, the labor importing countries
also benefited from cheaper labor, a lessening of labor shortages, and a circulation of
labor and capital within the region.
Year 1977 1978 1979 1980 1981 1982 1983 1984 1985
Workers remittances
and receipts
.927 1.77 2.21 2.69 2.18 2.44 3.66 3.96 3.21
Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files.
In the short term, the benefits of regional migration under Sadat seemed to solve
many problems. The rising pressures of growing populations on education, healthcare,
and the labor market forced Egyptians to satisfy their economic needs elsewhere. The
government infrastructure—both in the public and private sectors—could not keep up and
maintain liberalization at the same time. Domestic markets could not absorb neither the
growing number of labor entrants in the public sector nor continue to provide social
returns in the work force. However, along with the massive flight of migration workers,
there was a corresponding outflow of skills and human investment. This was and is one of
the biggest issues with migration.
“If we ignore the terrible eight years that followed the 1967 military defeat, in
which nothing seemed to happen neither in terms of GDP growth nor to equity (both
largely as a result of the military defeat), the next ten years (1975 – 85) was a period of
very high growth rates, rapid increase in inequality but also a significant improvement in
the state of the poor. The greater integration with the world (and regional) economy, as a
result of Sadat’s Open Door Policy, brought about all the three results, but it must be
emphasized that the favorable impact on the standard of living of the poor was the result
of a particular, and unusual form of such integration, namely massive migration of
Egyptian labor to the oil-rich Arab countries. This time, greater ‘globalization’ seems to
be good for the poor, even though inequality also increased” While Egypt’s economy
experienced growth through an increase in foreign investment and a rising GDP, the
government, which accounts for major public sector employment, failed to adequately
raise wages or the standard of living for the population.
However, this one-size fits all approach has not worked in poverty reduction
strategies, nor will it in the future. Poverty is not defined by a combination of fixed
principles that determine welfare. Welfare and poverty are dynamic processes and should
be treated as multidimensional in poverty profiling in order to truly evaluate and address
the problems.
Understanding who the poor are and what defines their level of deprivation is also
critical in this thesis. Understanding the limits in definitions, methodologies, processes,
and perceptions of poverty aid in understanding broader issues concerning the role of the
state and its obligations on a population’s welfare. By examining the criteria of how the
poor are identified, the different dynamics of poverty, and the methods of measuring
welfare, one can better understand the role of the government towards this particular
group of people which helps shed light on the broader processes of poverty reduction,
welfare, and social protection in Egypt.
Chapter Two
POLICIES, OBJECTIVES, AND ATTITUDES:
HOW DOES THE EGYPTIAN GOVERNMENT APPROACH POVERTY?
This chapter will further examine poverty through the relationship between state and
society and the evolution of the social contract between the Egyptian Government and its
constituents. This relationship can be illustrated by examining the values and incentives
that affect policy, the role of the state and the people, the institutional environment, and
the fiscal and welfare policies that operate within this framework. How has the
Government of Egypt acknowledged and understood poverty? In order to answer this
question, it is important to look at the different social and economic policies pursued by
the government that influence poverty in Egypt.
Furthermore, it is necessary to understand the historical context of the state’s
relationship with society and how this has aided in an evolution of government perception
of poverty, deprivation, and welfare. How does the Egyptian Government counter the
process of poverty? Has the government always targeted the poor specifically or were
polices in place that benefited the entire population? Does the government have a larger
commitment to the ultra poor in their society? This chapter seeks to expand on how the
attitudes and commitments of the state play a crucial role in determining who the poor
are, what polices should benefit members of society, what institutions are in place for
society and how to structure poverty alleviation programs.
The contemporary Egyptian State has one of the primary roles in influencing the direction
and implementation of social and economic policies. The power relations between
different political structures, such as the government and its ministries, along with the
role of a powerful bureaucracy, play a significant part in the application and effectiveness
of poverty alleviation strategies. The Egyptian State is clearly instrumental in determining
the feasibility of poverty reduction policies for the country. Before one can look at the
direct role of particular polices that target the poor, it is relevant to look first at the
objectives and attitudes of the state towards the problem of poverty. Do they differentiate
between poor or ultra poor? Do social and economic ministries target poverty as
something that goes beyond mere income measure? What are the priorities and
obligations of the state in poverty reduction? Are the government and its ministries active
and receptive to policies that effectively target and combat poverty?
First, this chapter will look at the historical theory behind a social contract.
Second, it will apply this theory to the relationship between the state and Egyptian
citizens. This is done through historicizing the historical social contract in modern Egypt
from Nasser to Mubarak and looking at political and economic policies that affect the
poor. Third, it will focus on the shifts and transitions in state polices in terms of poverty,
social spending, and development.
Social Contract And The Capacity Of The State
It is important within this thesis to expand on the political theory of social contract
in order to illustrate the relationship between state and society in Egypt. In principle, one
must look at how a society is arranged, what obligations that society has within itself, and
what agreements and conditions are being made for and by this group.
In other words, what kind of agreements exists between a population, a government, or an
institutional mechanism that allow a society to function?
One of the most prominent social contract theorists, Thomas Hobbes, suggested that
violence and the uncertainty of life in the state of nature was the underlying motivation
for people to form governments. According to Hobbes, in order to “preserve their lives
and achieve a comfortable existence,” people create political societies. The
“state of nature” is constantly in conflict and only political authority can maintain peace.
The most natural state, Hobbes argues, is when every member of society has complete
and total natural freedom. In this natural society, freedom neither limits the right to hurt
others nor limits the freedom to act without consequences to achieve self-preservation.
This results in disorder and chaos. Therefore, people enter into a social contract with a
government to establish a civil society in which the community forfeits some rights and
freedoms in order to achieve a functioning political society. The means—exchanging
individual rights for civil rights in order to become a part of society—justify the end—a
politically and socially functional order.
Jean Jacques Rousseau expanded on this idea by adding the importance of the
general will of the people into regulating a social contract. The social contract would be
true and legitimate if it benefited the majority of the society. Members of society had the
freedom to agree upon and chose the fundamental laws and organization for the
community. John Locke also supported this idea of a contract that recognized and
supported the general will and common good of people within a society. Locke argued
that people would naturally come together in an organized society, rather than out of fear
like Hobbes.
While social contracts should be created for the collective good of the people,
Rousseau also took into account the problems with individual sovereignty. A person
within a society may not always behave in a manner that benefits the collective interest of
the group, thus, the need arises for a rule of law for which both the people and the
governments are accountable. The social contract represents an agreement in which a
people choose to give up certain natural freedoms in order to achieve order, stability, and
civil society. The consent of the people is the most crucial component in the social
contract.
Historicizing The Social Contract In Modern Egypt:
From Nasser To Mubarak
Egypt has gone through many transitions over the past sixty years, with the
relationship between the government and its population evolving in terms of the social
benefits it extends to the society and in particular, the poor. It is important to understand
the historical social contract between state and society. This helps to shed light on how the
state understands and recognizes the processes of poverty and how they attempt to
address it through social contracts with the population.
One this is established, one must also look at some of the development discourses
and schools of thought that have influenced the states polices towards social welfare. This
aids in understanding how the Egyptian State approaches poverty reduction through
political policies, social contracts, and economic development and how the attitudes and
objectives of the state have shifted over time.
Nasser And The Social Contract Through State Autonomy
Gamal Abdel Nasser, the second president of Egypt, implemented drastic national
socialist reforms which allowed his regime a certain degree of solidarity with the
Egyptian population. The coup in 1952 led to Nasser’s consolidation of power and the
beginning of a socialist authoritarian regime. Nasser did many things to assert his
legitimacy and control over Egypt. Under his regime, agrarian and socioeconomic
reforms “left no doubt to the masses and the political elite that he was the ultimate source
of power and authority” in the Egyptian state. The heavy reliance on state-led
industrialization eliminated colonial and landowning elite interests as powerful influences
in civil society. Instead, the polices of Nasser’s government led to the growth of internal
bureaucracies, government organizations and the development of a strong military
establishment, establishing these institutions as powerful social and political agents within
the Egyptian state. Also, state initiated programs provided for free health care, free public
education, social services that targeted low-income groups, a strong subsidy program for
state resources, and labor reforms with a standard minimum wage and labor
rights.
State Polices Under Nasser
Nasser nationalized major companies and industries including banks, foreign assets,
newspapers and the Suez Canal. State led agrarian reform and redistribution polices led to
the Land Reform Law of 1952. This law limited land ownership in an effort to eliminate
the political and economic influence of large land owning elites. He also nationalized
industries such as petroleum and mining, which fell under state control. These agricultural
and industrial nationalization and sequestration policies did in fact allow the growth of
state domination in politics, society, and economy. But the raising of minimum wages,
social services, investments in agriculture and industry, manufacturing, and the growing
power of the army and government contributed to “the rise in the rate of social mobility in
Egypt during the Nasserist era.” The social circumstances under Nasser allowed for a
greater degree of social mobility in exchange for acceptance of total state control.
Social Polices Under Nasser: Addressing The Social Contract
Through The Consolidation Of Power
Social policies and programs under the Nasser regime redefined the social contract
between Nasser and the Egyptian population. These policies and programs included the
guaranteed employment of state university graduates and national insurance programs.
These programs redefined the social contract between Nasser and the Egyptian
population. These policies also provided new social and economic rights to the working
classes in return for submission to an “institutionalized formal system of personal
political control over individuals, groupings, and state institutions.” These new state
policies allowed some degree of social entitlement: access to state establishments, new
employment opportunities, and development of human capital. Historically, it is often
understood that Nasser garnered support from the rising middle class in order to
legitimize his power, rather than the traditionally powerful elitist class. However, a more
persuasive argument is that these policies were genuine efforts to develop as an
economically and politically independent state as strong, and self-sufficient as possible.
Towards the end of Nasser’s regime, Egypt’s growth began to decline. This was due to
the massive social expenditures the government spent on economic policies as well as a
general lack of foreign investment for projects within the state. Nationalization and
socialist policies were unsustainable. However, powerful social elements within Nasser’s
regime, such as institutions that emphasized the military and the military controlled
civilian bureaucracy, continued to grow as powerful forces in Egyptian society. “It was a
premise of Egypt’s growth strategy in the 1950s and throughout the 1960s that the state
must undertake far more than infrastructural investment and the mobilization of
development capital and, through public enterprises, nationalized banks, and state-
controlled foreign trade, must dominate and lead the entire economy.”
Sadat, Continuing The Consolidation Of Power And Addressing
The Social Contract Through The Economy
In 1970, Anwar Al Sadat came to power. Sadat and his government were intent on
addressing Egypt’s economic problems through privatization and direct foreign
investment schemes—evident in Law 65. Implemented in 1971, this law was designed to
attract foreign private investment by providing exemptions from taxation and promoted
further economic liberalization. The fruits of this policy were not really long lasting
because the 1973 war directed the attention of the state elsewhere.
Under Sadat, the state embarked on the Infitah or Open Door Policy, by passing Law 43
in 1974. These policies sought to focus on the private sector as a means to rapidly
generate revenue while still attempting to continue to provide welfare benefits. Law 43
included “guarantees against sequestration, nationalization, or transfer to public use
without compensation. It also stipulated that projects based on it are private enterprises
irrespective of the legal nature of the shareholders.” The Infitah gave new rights and
opportunities to private sector interests, leading to the establishment of private
businessmen, foreign corporations, entrepreneurial elites, and other non-state actors.88
Yet the Infitah saw the emergence of Egypt as a rentier economy that became
increasingly dependent on foreign investment and revenue. Multinational stakeholders
competed with local institutions for economic control of the private sector, trade,
export/imports, and investment. Furthermore, the established bureaucracy from Nasser’s
era remained a powerful force during Sadat’s regime in Egyptian society and economy.
The Infitah and new private sector development did not do much to alter this picture
because the main proponents of this policy were only interested in tourist, real estate, and
service industries.
The negative social effects of the Infitah economic policies allowed a new platform for
religious groups and charities, such as the Muslim Brotherhood. They began providing
welfare services to the growing number of poor in Egypt, a role which not only assured
them of popular support amongst low-income populations, but also provide an alternative
as a political force to constituents who were unhappy with government policies. This
resulted in a power struggle within Egypt, resulting in the extreme suppression of the
Muslim Brotherhood, particularly as seen later under the Mubarak regime.90
State Polices Under Sadat: Public vs. Private Sector
Under Nasser, the state focused on public sector growth; under Sadat, the state focused
on private sector growth. During these periods, the labor market played a tremendous role
in the social contract between population and state. Citizens must adapt to this system by
choosing between decreasing their wages and securing employment or risking salary
instability and unemployment. This represents a bargain and commitment between
citizens and the state. In Egypt, the balance between the rights and goals of workers is
highly contingent on public/private sector relations. Nasser promoted highly centralized
economic growth policies such as land reform, independence from foreign investment,
and domestic industrialization. These policies proved advantageous to the rising middle
class and bureaucracy, which was where much of his social and political support came
from. However, after Nasser, Sadat pushed for a more liberal economic policy and the
Egyptian economy suffered. The rise of the private sector widened the gap between the
rich and poor and the economy experienced growth, but inflation and high levels of
unemployment as well.
The rise of the private sector was the most substantial achievement of the Infitah,
however these investments were limited to luxury goods and enterprises rather than
production, industry, and manufacturing sectors. This targeted development excluded the
poor, further alienating the relationship between government and people. As Egypt
became a rentier state—a state dependent on revenue from external rents, such as foreign
aid, natural gas, or oil—inequality rose drastically and poverty became a widespread
problem. Rentier states rarely promote economic development. They essentially allow the
government a certain degree of domestic autonomy due to their monopoly on economic
power.
Furthermore, Sadat did not account for a rapidly growing population with more labor
market entrants than ever. Likewise, his economic policies did not promote a rise in
employment to cope with the expanding workforce. Aside from employment issues,
inflation grew to catastrophic rates, averaging around 30%. During this time, the
economy transferred from large landholding elites to private investors and relied
increasingly on generating rents, rather than internal development. Sadat’s economic
policies would be the subject of much controversy later. It was perceived to widen the
gap between rich and poor and it allowed foreign investors to control state enterprises
without regulation. The Open Door Policy was also viewed as Egypt’s attempt to become
even more politically and economically integrated into international markets.
Year 1960 1965 1970 1975 1980 1985
Population 27,798,152 31,572,753 35,574,953 39,599,405 44,433,037 50,654,901
Source: World Databank
Social Impacts Of Privatization
The transfer from public to private sector under the Sadat Regime had many social and
political repercussions. “The death of Gamal Abdel Nasser in September 1971 and Anwar
al Sadat’s consolidation of power by the arrest of leading Nasserists on May 15, 1971
created an opening to articulate economic demands that first emerged during the
economic crisis of 1965-1966 but were postponed by the 1967 war and the 1969-1970
war of attrition over the Suez Canal.”95 The early 70s saw a rise in collective action and
mass strikes with workers demonstrating for higher wages. Results were repressive, and
many strike leaders were arrested and imprisoned. The strikes were mostly contained to
public sector enterprises, which had benefited from Nasser’s previous policies. One of the
most notable demonstrations occurred in 1977 when the government, influenced by the
IMF, cut subsidies on basic consumer goods, while raising commodity prices 25-50
percent. Workers, students, and the unemployed all protested this policy in the Bread
Riots of 1977.
Economy And Society: Migration And Remittances Under Sadat
The substantial changes in Egypt under Sadat were a result of the oil boom in the
1970S and its subsequent impact on regional migration. Aside from liberalization and
privatization, the Infitah sought to promote trade and investment from Western countries.
It also sought to attract remittances and capital from the oil rich Gulf States. The economy
had trouble supporting the policies of Nasser and the resources and employment
availability to support the burgeoning population of Egypt presented an immediate
problem. Two of the largest demographic pressures were a rapid population growth and
high levels of unemployment, particularly in the youth age range. Thus, many Egyptians
sought work out of the country, which helped create opportunities and employment for
citizens.
Migration meant a circulation of labor and money within the economy, with a
promise of creating a balance between the very wealthy gulf countries and the non-oil
countries that supplied them with labor capital. The remittances brought back by the
migrants provided increasing domestic capital. In return, the labor importing countries
also benefited from cheaper labor, a lessening of labor shortages, and a circulation of
labor and capital within the region.
Year 1977 1978 1979 1980 1981 1982 1983 1984 1985
Workers remittances
and receipts
.927 1.77 2.21 2.69 2.18 2.44 3.66 3.96 3.21
Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files.
In the short term, the benefits of regional migration under Sadat seemed to solve
many problems. The rising pressures of growing populations on education, healthcare,
and the labor market forced Egyptians to satisfy their economic needs elsewhere. The
government infrastructure—both in the public and private sectors—could not keep up and
maintain liberalization at the same time. Domestic markets could not absorb neither the
growing number of labor entrants in the public sector nor continue to provide social
returns in the work force. However, along with the massive flight of migration workers,
there was a corresponding outflow of skills and human investment. This was and is one of
the biggest issues with migration.
“If we ignore the terrible eight years that followed the 1967 military defeat, in
which nothing seemed to happen neither in terms of GDP growth nor to equity (both
largely as a result of the military defeat), the next ten years (1975 – 85) was a period of
very high growth rates, rapid increase in inequality but also a significant improvement in
the state of the poor. The greater integration with the world (and regional) economy, as a
result of Sadat’s Open Door Policy, brought about all the three results, but it must be
emphasized that the favorable impact on the standard of living of the poor was the result
of a particular, and unusual form of such integration, namely massive migration of
Egyptian labor to the oil-rich Arab countries. This time, greater ‘globalization’ seems to
be good for the poor, even though inequality also increased” While Egypt’s economy
experienced growth through an increase in foreign investment and a rising GDP, the
government, which accounts for major public sector employment, failed to adequately
raise wages or the standard of living for the population.
However, this one-size fits all approach has not worked in poverty reduction
strategies, nor will it in the future. Poverty is not defined by a combination of fixed
principles that determine welfare. Welfare and poverty are dynamic processes and should
be treated as multidimensional in poverty profiling in order to truly evaluate and address
the problems.
Understanding who the poor are and what defines their level of deprivation is also
critical in this thesis. Understanding the limits in definitions, methodologies, processes,
and perceptions of poverty aid in understanding broader issues concerning the role of the
state and its obligations on a population’s welfare. By examining the criteria of how the
poor are identified, the different dynamics of poverty, and the methods of measuring
welfare, one can better understand the role of the government towards this particular
group of people which helps shed light on the broader processes of poverty reduction,
welfare, and social protection in Egypt.
Chapter Two
POLICIES, OBJECTIVES, AND ATTITUDES:
HOW DOES THE EGYPTIAN GOVERNMENT APPROACH POVERTY?
This chapter will further examine poverty through the relationship between state and
society and the evolution of the social contract between the Egyptian Government and its
constituents. This relationship can be illustrated by examining the values and incentives
that affect policy, the role of the state and the people, the institutional environment, and
the fiscal and welfare policies that operate within this framework. How has the
Government of Egypt acknowledged and understood poverty? In order to answer this
question, it is important to look at the different social and economic policies pursued by
the government that influence poverty in Egypt.
Furthermore, it is necessary to understand the historical context of the state’s
relationship with society and how this has aided in an evolution of government perception
of poverty, deprivation, and welfare. How does the Egyptian Government counter the
process of poverty? Has the government always targeted the poor specifically or were
polices in place that benefited the entire population? Does the government have a larger
commitment to the ultra poor in their society? This chapter seeks to expand on how the
attitudes and commitments of the state play a crucial role in determining who the poor
are, what polices should benefit members of society, what institutions are in place for
society and how to structure poverty alleviation programs.
The contemporary Egyptian State has one of the primary roles in influencing the direction
and implementation of social and economic policies. The power relations between
different political structures, such as the government and its ministries, along with the
role of a powerful bureaucracy, play a significant part in the application and effectiveness
of poverty alleviation strategies. The Egyptian State is clearly instrumental in determining
the feasibility of poverty reduction policies for the country. Before one can look at the
direct role of particular polices that target the poor, it is relevant to look first at the
objectives and attitudes of the state towards the problem of poverty. Do they differentiate
between poor or ultra poor? Do social and economic ministries target poverty as
something that goes beyond mere income measure? What are the priorities and
obligations of the state in poverty reduction? Are the government and its ministries active
and receptive to policies that effectively target and combat poverty?
First, this chapter will look at the historical theory behind a social contract.
Second, it will apply this theory to the relationship between the state and Egyptian
citizens. This is done through historicizing the historical social contract in modern Egypt
from Nasser to Mubarak and looking at political and economic policies that affect the
poor. Third, it will focus on the shifts and transitions in state polices in terms of poverty,
social spending, and development.
Social Contract And The Capacity Of The State
It is important within this thesis to expand on the political theory of social contract
in order to illustrate the relationship between state and society in Egypt. In principle, one
must look at how a society is arranged, what obligations that society has within itself, and
what agreements and conditions are being made for and by this group.
In other words, what kind of agreements exists between a population, a government, or an
institutional mechanism that allow a society to function?
One of the most prominent social contract theorists, Thomas Hobbes, suggested that
violence and the uncertainty of life in the state of nature was the underlying motivation
for people to form governments. According to Hobbes, in order to “preserve their lives
and achieve a comfortable existence,” people create political societies. The
“state of nature” is constantly in conflict and only political authority can maintain peace.
The most natural state, Hobbes argues, is when every member of society has complete
and total natural freedom. In this natural society, freedom neither limits the right to hurt
others nor limits the freedom to act without consequences to achieve self-preservation.
This results in disorder and chaos. Therefore, people enter into a social contract with a
government to establish a civil society in which the community forfeits some rights and
freedoms in order to achieve a functioning political society. The means—exchanging
individual rights for civil rights in order to become a part of society—justify the end—a
politically and socially functional order.
Jean Jacques Rousseau expanded on this idea by adding the importance of the
general will of the people into regulating a social contract. The social contract would be
true and legitimate if it benefited the majority of the society. Members of society had the
freedom to agree upon and chose the fundamental laws and organization for the
community. John Locke also supported this idea of a contract that recognized and
supported the general will and common good of people within a society. Locke argued
that people would naturally come together in an organized society, rather than out of fear
like Hobbes.
While social contracts should be created for the collective good of the people,
Rousseau also took into account the problems with individual sovereignty. A person
within a society may not always behave in a manner that benefits the collective interest of
the group, thus, the need arises for a rule of law for which both the people and the
governments are accountable. The social contract represents an agreement in which a
people choose to give up certain natural freedoms in order to achieve order, stability, and
civil society. The consent of the people is the most crucial component in the social
contract.
Historicizing The Social Contract In Modern Egypt:
From Nasser To Mubarak
Egypt has gone through many transitions over the past sixty years, with the
relationship between the government and its population evolving in terms of the social
benefits it extends to the society and in particular, the poor. It is important to understand
the historical social contract between state and society. This helps to shed light on how the
state understands and recognizes the processes of poverty and how they attempt to
address it through social contracts with the population.
One this is established, one must also look at some of the development discourses
and schools of thought that have influenced the states polices towards social welfare. This
aids in understanding how the Egyptian State approaches poverty reduction through
political policies, social contracts, and economic development and how the attitudes and
objectives of the state have shifted over time.
Nasser And The Social Contract Through State Autonomy
Gamal Abdel Nasser, the second president of Egypt, implemented drastic national
socialist reforms which allowed his regime a certain degree of solidarity with the
Egyptian population. The coup in 1952 led to Nasser’s consolidation of power and the
beginning of a socialist authoritarian regime. Nasser did many things to assert his
legitimacy and control over Egypt. Under his regime, agrarian and socioeconomic
reforms “left no doubt to the masses and the political elite that he was the ultimate source
of power and authority” in the Egyptian state. The heavy reliance on state-led
industrialization eliminated colonial and landowning elite interests as powerful influences
in civil society. Instead, the polices of Nasser’s government led to the growth of internal
bureaucracies, government organizations and the development of a strong military
establishment, establishing these institutions as powerful social and political agents within
the Egyptian state. Also, state initiated programs provided for free health care, free public
education, social services that targeted low-income groups, a strong subsidy program for
state resources, and labor reforms with a standard minimum wage and labor
rights.
State Polices Under Nasser
Nasser nationalized major companies and industries including banks, foreign assets,
newspapers and the Suez Canal. State led agrarian reform and redistribution polices led to
the Land Reform Law of 1952. This law limited land ownership in an effort to eliminate
the political and economic influence of large land owning elites. He also nationalized
industries such as petroleum and mining, which fell under state control. These agricultural
and industrial nationalization and sequestration policies did in fact allow the growth of
state domination in politics, society, and economy. But the raising of minimum wages,
social services, investments in agriculture and industry, manufacturing, and the growing
power of the army and government contributed to “the rise in the rate of social mobility in
Egypt during the Nasserist era.” The social circumstances under Nasser allowed for a
greater degree of social mobility in exchange for acceptance of total state control.
Social Polices Under Nasser: Addressing The Social Contract
Through The Consolidation Of Power
Social policies and programs under the Nasser regime redefined the social contract
between Nasser and the Egyptian population. These policies and programs included the
guaranteed employment of state university graduates and national insurance programs.
These programs redefined the social contract between Nasser and the Egyptian
population. These policies also provided new social and economic rights to the working
classes in return for submission to an “institutionalized formal system of personal
political control over individuals, groupings, and state institutions.” These new state
policies allowed some degree of social entitlement: access to state establishments, new
employment opportunities, and development of human capital. Historically, it is often
understood that Nasser garnered support from the rising middle class in order to
legitimize his power, rather than the traditionally powerful elitist class. However, a more
persuasive argument is that these policies were genuine efforts to develop as an
economically and politically independent state as strong, and self-sufficient as possible.
Towards the end of Nasser’s regime, Egypt’s growth began to decline. This was due to
the massive social expenditures the government spent on economic policies as well as a
general lack of foreign investment for projects within the state. Nationalization and
socialist policies were unsustainable. However, powerful social elements within Nasser’s
regime, such as institutions that emphasized the military and the military controlled
civilian bureaucracy, continued to grow as powerful forces in Egyptian society. “It was a
premise of Egypt’s growth strategy in the 1950s and throughout the 1960s that the state
must undertake far more than infrastructural investment and the mobilization of
development capital and, through public enterprises, nationalized banks, and state-
controlled foreign trade, must dominate and lead the entire economy.”
Sadat, Continuing The Consolidation Of Power And Addressing
The Social Contract Through The Economy
In 1970, Anwar Al Sadat came to power. Sadat and his government were intent on
addressing Egypt’s economic problems through privatization and direct foreign
investment schemes—evident in Law 65. Implemented in 1971, this law was designed to
attract foreign private investment by providing exemptions from taxation and promoted
further economic liberalization. The fruits of this policy were not really long lasting
because the 1973 war directed the attention of the state elsewhere.
Under Sadat, the state embarked on the Infitah or Open Door Policy, by passing Law 43
in 1974. These policies sought to focus on the private sector as a means to rapidly
generate revenue while still attempting to continue to provide welfare benefits. Law 43
included “guarantees against sequestration, nationalization, or transfer to public use
without compensation. It also stipulated that projects based on it are private enterprises
irrespective of the legal nature of the shareholders.” The Infitah gave new rights and
opportunities to private sector interests, leading to the establishment of private
businessmen, foreign corporations, entrepreneurial elites, and other non-state actors.88
Yet the Infitah saw the emergence of Egypt as a rentier economy that became
increasingly dependent on foreign investment and revenue. Multinational stakeholders
competed with local institutions for economic control of the private sector, trade,
export/imports, and investment. Furthermore, the established bureaucracy from Nasser’s
era remained a powerful force during Sadat’s regime in Egyptian society and economy.
The Infitah and new private sector development did not do much to alter this picture
because the main proponents of this policy were only interested in tourist, real estate, and
service industries.
The negative social effects of the Infitah economic policies allowed a new platform for
religious groups and charities, such as the Muslim Brotherhood. They began providing
welfare services to the growing number of poor in Egypt, a role which not only assured
them of popular support amongst low-income populations, but also provide an alternative
as a political force to constituents who were unhappy with government policies. This
resulted in a power struggle within Egypt, resulting in the extreme suppression of the
Muslim Brotherhood, particularly as seen later under the Mubarak regime.90
State Polices Under Sadat: Public vs. Private Sector
Under Nasser, the state focused on public sector growth; under Sadat, the state focused
on private sector growth. During these periods, the labor market played a tremendous role
in the social contract between population and state. Citizens must adapt to this system by
choosing between decreasing their wages and securing employment or risking salary
instability and unemployment. This represents a bargain and commitment between
citizens and the state. In Egypt, the balance between the rights and goals of workers is
highly contingent on public/private sector relations. Nasser promoted highly centralized
economic growth policies such as land reform, independence from foreign investment,
and domestic industrialization. These policies proved advantageous to the rising middle
class and bureaucracy, which was where much of his social and political support came
from. However, after Nasser, Sadat pushed for a more liberal economic policy and the
Egyptian economy suffered. The rise of the private sector widened the gap between the
rich and poor and the economy experienced growth, but inflation and high levels of
unemployment as well.
The rise of the private sector was the most substantial achievement of the Infitah,
however these investments were limited to luxury goods and enterprises rather than
production, industry, and manufacturing sectors. This targeted development excluded the
poor, further alienating the relationship between government and people. As Egypt
became a rentier state—a state dependent on revenue from external rents, such as foreign
aid, natural gas, or oil—inequality rose drastically and poverty became a widespread
problem. Rentier states rarely promote economic development. They essentially allow the
government a certain degree of domestic autonomy due to their monopoly on economic
power.
Furthermore, Sadat did not account for a rapidly growing population with more labor
market entrants than ever. Likewise, his economic policies did not promote a rise in
employment to cope with the expanding workforce. Aside from employment issues,
inflation grew to catastrophic rates, averaging around 30%. During this time, the
economy transferred from large landholding elites to private investors and relied
increasingly on generating rents, rather than internal development. Sadat’s economic
policies would be the subject of much controversy later. It was perceived to widen the
gap between rich and poor and it allowed foreign investors to control state enterprises
without regulation. The Open Door Policy was also viewed as Egypt’s attempt to become
even more politically and economically integrated into international markets.
Year 1960 1965 1970 1975 1980 1985
Population 27,798,152 31,572,753 35,574,953 39,599,405 44,433,037 50,654,901
Source: World Databank
Social Impacts Of Privatization
The transfer from public to private sector under the Sadat Regime had many social and
political repercussions. “The death of Gamal Abdel Nasser in September 1971 and Anwar
al Sadat’s consolidation of power by the arrest of leading Nasserists on May 15, 1971
created an opening to articulate economic demands that first emerged during the
economic crisis of 1965-1966 but were postponed by the 1967 war and the 1969-1970
war of attrition over the Suez Canal.”95 The early 70s saw a rise in collective action and
mass strikes with workers demonstrating for higher wages. Results were repressive, and
many strike leaders were arrested and imprisoned. The strikes were mostly contained to
public sector enterprises, which had benefited from Nasser’s previous policies. One of the
most notable demonstrations occurred in 1977 when the government, influenced by the
IMF, cut subsidies on basic consumer goods, while raising commodity prices 25-50
percent. Workers, students, and the unemployed all protested this policy in the Bread
Riots of 1977.
Economy And Society: Migration And Remittances Under Sadat
The substantial changes in Egypt under Sadat were a result of the oil boom in the
1970S and its subsequent impact on regional migration. Aside from liberalization and
privatization, the Infitah sought to promote trade and investment from Western countries.
It also sought to attract remittances and capital from the oil rich Gulf States. The economy
had trouble supporting the policies of Nasser and the resources and employment
availability to support the burgeoning population of Egypt presented an immediate
problem. Two of the largest demographic pressures were a rapid population growth and
high levels of unemployment, particularly in the youth age range. Thus, many Egyptians
sought work out of the country, which helped create opportunities and employment for
citizens.
Migration meant a circulation of labor and money within the economy, with a
promise of creating a balance between the very wealthy gulf countries and the non-oil
countries that supplied them with labor capital. The remittances brought back by the
migrants provided increasing domestic capital. In return, the labor importing countries
also benefited from cheaper labor, a lessening of labor shortages, and a circulation of
labor and capital within the region.
Year 1977 1978 1979 1980 1981 1982 1983 1984 1985
Workers remittances
and receipts
.927 1.77 2.21 2.69 2.18 2.44 3.66 3.96 3.21
Source: International Monetary Fund, Balance of Payments Statistics Yearbook and data files.
In the short term, the benefits of regional migration under Sadat seemed to solve
many problems. The rising pressures of growing populations on education, healthcare,
and the labor market forced Egyptians to satisfy their economic needs elsewhere. The
government infrastructure—both in the public and private sectors—could not keep up and
maintain liberalization at the same time. Domestic markets could not absorb neither the
growing number of labor entrants in the public sector nor continue to provide social
returns in the work force. However, along with the massive flight of migration workers,
there was a corresponding outflow of skills and human investment. This was and is one of
the biggest issues with migration.
“If we ignore the terrible eight years that followed the 1967 military defeat, in
which nothing seemed to happen neither in terms of GDP growth nor to equity (both
largely as a result of the military defeat), the next ten years (1975 – 85) was a period of
very high growth rates, rapid increase in inequality but also a significant improvement in
the state of the poor. The greater integration with the world (and regional) economy, as a
result of Sadat’s Open Door Policy, brought about all the three results, but it must be
emphasized that the favorable impact on the standard of living of the poor was the result
of a particular, and unusual form of such integration, namely massive migration of
Egyptian labor to the oil-rich Arab countries. This time, greater ‘globalization’ seems to
be good for the poor, even though inequality also increased” While Egypt’s economy
experienced growth through an increase in foreign investment and a rising GDP, the
government, which accounts for major public sector employment, failed to adequately
raise wages or the standard of living for the population.
