Calls for Social Justice and talks about wages have been hyping in Egypt, but why does inequality matter at all economically?
Many people in the Egyptian political arena call for the termination of strikes until Egypt overcomes the heated transitional period. Their argument lies upon the idea that stability in itself would guarantee an increase in wages and consequently the attainment of a rather narrow-view of economic justice.
The policy prescription goes on with the recommendation of austerity measures in order to reduce the budget deficit and make resources available for investment. The notion of austerity here usually means cutting down wages and expenditure on public goods such as education and health, which more often than not generate positive externalities and are vital for economic progress. Cutting down wages, from an economic point of view, is detrimental during a recession as it reduces aggregate demand for goods and services and thus prolongs the span of recession.
This school of thought believes that the aptitude of rich business men to make massive investments would naturally mean that the fruits of growth generated reach the majority of the society in a mechanism called “the trickle down effect”. Nevertheless, the experience of Egypt in this regard turned out to be of complete failure during Mubarak’s era.
Indeed, Egypt was recording high levels of growth but this was never reflected in the standards of living of the vast majority of Egyptians. High poverty rates, degrading education and health care systems, failed and bloated public administration and ailing infrastructure are all features of the Egyptian economy. Only a small part of the society enjoyed the fruits of this growth and hence the question of inequality and injustice seems to be of significant importance.
Why does inequality matter at all? It matters because we as human beings naturally care about how others live. Injustice in a society leads to societal diseases and envy and damages communal bonding and sense of unity.
One can clearly observe the social unrest as a repercussion of social injustice in the case of Egypt. On the economic side, low standards of living is a lost potential and harms economic growth and development. The exclusion of the development process makes it rather difficult to industrialize because of lack of trained human resources and makes it difficult for the majority to engage in the formal economy and take part in productive and financially rewarding employment.
On the political side, democracy cannot function in a severely unjust society for several reasons. The economically privileged usually have a sufficient power to manipulate the political process for their own sake. The poor are typically underrepresented in such a society, which makes it rather complex for them to mount pressure for more radical reforms.
Furthermore, as has been observed in Egypt, the economic elite exploits the needy in elections by giving them food or money to vote for them. Therefore, I believe high levels of inequality in Egypt cannot be sustained if Egypt is to move forward as a promising model for economic modernization and democratic reforms.
Achieving social justice
There is no general consensus about what social justice signifies. Yet, social justice is a much broader concept than just an increase in wages or better infrastructure in poor slums. Social justice entails a vast improvement in economic outcomes but more importantly the equality of opportunity, that is the ability of every member of the society to receive decent education, health care and rewarding employment regardless of their family financial status or education or background in general.
More importantly, following Amartya Sen’s view of development, social justice requires the state to give people the freedom to lead the life they would like to pursue. As an example, a rich man/woman who lives in a society where endemic diseases are common and health care system is not functioning well cannot be perceived as a free man. Illness and lack of health care constrains him/her from leading the life they would want to pursue. A child who comes from a poor family usually drops out to work with the family in order to increase their income, here again is a constraint on that child’s freedom to choose among many alternatives and pick what is best for him.
In the case of Egypt, the continuation of economic injustice is a serious threat to economic progress. As mentioned earlier, the persistence of this phenomenon has negative repercussions on social coherence, the political process and economic development. What is it then that the Egyptian government can do at least in the short run to close the gap and paves the way for more radical reforms in the future?
Food subsidies in Egypt requires substantial reform because many people who receive the benefit do not necessarily deserve it. 78 percent of Egypt’s food subsidies is leaked and wasted through the black market, feeding animals and purchasing the subsidized food by the rich.
The tax structure in Egypt is also distorted and favours the rich. A new tax structure has to be implemented through dialogue and consultations among stakeholders. In other words, if some argue that investment and capital would fly if taxes increase one has to incentevize investors in ways, such as public administration reforms or right to use land for a specific period of time for free, that do not compromise the right of the rest of the society. Tax on capital gains and property are also worth serious consideration. Moreover, energy subsidies especially for industries that make profits above acceptable margins have to be revised. The latter ideas are just a few among many that can make some change in the lives of the poor in the short run.
The long run
In the long run, however, the picture is more complicated. Egypt is in desperate need to address some of its structural problems that lead to economic stagnation. The institutional and political establishment in Egypt is controlled by the economically privileged and the political outcomes only serve this class and excludes major parts of the society. One can say it is a two way street, the political outcomes serve the rich but the rich also have the stronger say in the political process. The opening up of the politics from the municipal level upwards can serve as an important tool to achieve better economic outcomes and social justice.
Another major issue that has to be addressed in the long-run is the source of revenue and the whole structure of the economy that can be labeled as a rentier-state. Egypt has to establish a new industrial policy that focuses first on productive small and medium enterprises, which represent more than 60 percent of Egypt’s employment, as well as a special focus on high end products industries where knowledge and technology can be accumulated and not rely on unstable sources of revenue such as Suez Canal and remittances.
Now it has been nearly four years since the revolution, which means that children born on the 25th of January 2011 are on the verge of entering school. This means we have a new generation in the making that is probably poorer and has less access to public services so the inclusive development process has to start as soon as possible.