Egypt: Taking the meaning of a Welfare State one step too far

Egypt has been blessed to have been the country that produced some outstanding thinkers in its modern history. Some are more famous than others, some more fortunate than others, and some with more luck than others. Among these amazing men and women was one of the finest people I ever knew. A man who won the Wall Street Journal prize for finance at the age of 25, holder of two Doctorates from both the University of Chicago and the London School of Economics, founder of Egypt’s first business school, and the accolades are too many to mention here.

This man, after an illustrious career at the United Nations, and being exiled from Egypt during the last half decade of Nasser’s rule, was brought back to Egypt by Anwar Sadat in 1976 to help transform Egypt into a modern economy after decades of war with Israel. He was only 49 when he was selected to be a Cabinet Minister and the press was abuzz about this brilliant Egyptian who was coming home and how under his stewardship Egypt would be transformed. In fact, in one article that I have kept over the years, this brilliant and progressive mind was referred to as Egypt’s Kamal Ataturk. Sadly, within a few months after joining Anwar Sadat’s Cabinet he was dead. God had given him everything except length of years.

As many Egyptians mourned his passing, I struggled more than anyone could ever imagine. To me, he was more than a brilliant mind, he was my father. An ultra nationalist, he lived for Egypt and wanted to see it great. We would talk for hours about what could be done to get the Egyptian economy to boom, how it could become an industrial giant, how quickly it could become a MIC. I was only 16, and these were our discussions, not soccer, not homework, but bringing Egypt out of the dark ages, making it progressive, making it great. He could see the end of the hostilities with Israel years before the Camp David accords were signed, and it was as if he had predicted the future.

One thing that stayed with me over the years as my father became a Cabinet Minister and we prepared to leave our home in New York to go back to Egypt wasn’t just the discussions we were having about Egypt’s transformation, it was what books he was reading at the time. In our house over the years he had amassed a library of over 3,000 books, something that drove my mother crazy. He was always reading something and a book would never be too far away from his grasp. Closets weren’t for clothing, they were for his books and they were filled to the brim.

Most of his books were on subjects related to economics and management, and his own books were also in the same two disciplines. But, as he prepared to take on a lead role in altering the structure of the Egyptian economy, and to move it away from central planning to a more open and market-driven economy, he wasn’t reading books about development, structural reform, or any related topic, he was reading about sociology. Everything he had on his desk was related to sociology.

For years I struggled to understand why he had such a sudden interest in sociology. Now I think I have an inkling of what may have been on his mind. Productivity varies from country to country, and it isn’t simply because of technology. Take Turkey and Egypt for example. In the 1980’s Turkey had much higher productivity than Egypt did, even though the industrial base was eerily similar. But, today Turkey has a much higher level of productivity per worker than Egypt does; although the level of industrialization is radically higher in Turkey, not making for a fair comparison.

In my father’s readings, I remember that one of his sociology books was focused on the Protestant Ethic. He seemed to be grappling with the question, why some cultures are more productive than others, why workers in one state simply worked harder than others. From his sociology readings, I deduced a clear link between productivity and societies where only a small percentage of the populace gets a free ride. And, in these highly productive societies free rides are given only to the unemployed, or those on disability, discounting of course, those individuals that choose not to be in the work force. The unemployed in these societies only get a free ride for a short period of time, through unemployment benefits that usually don’t exceed two years.

But, in Egypt we have become a society living off free goods. Education is free, healthcare is free, bread is effectively free, and so many other things are subsidized to the point of being free goods, gas and electricity among them. President Nasser created a society of workers all of whom had entitlements. You graduate and get a degree that costs you nothing, to a job in the civil service where very little was expected, and you went home to the state-built apartment that likely also cost you nothing, and a palace it wasn’t. It was just a very humble home.

So, what happens in a country where over a period of 50 years everyone gets accustomed to living off the lamb? Free education becomes a right, even if it is effectively useless in teaching you a skill. Free healthcare becomes a right, even though you stand a very good chance of dying in public care because of medical incompetence. A Government guaranteed job becomes a right, even though you don’t get paid very much, LE400/monthly on average to be exact, roughly USD$80. And, how does $80 feed the average family size in Egypt, of five monthly? That equates to each family member living on less than $2 dollars a day, with a disposable income of approximately $2.7 dollars a day for a Government employee. But, you get benefits; you can probably go home at 2pm and have a second job in the private sector, get free education and free healthcare from the state, and likely free housing. Working only in the private sector you would not reap these benefits.

In the US by comparison, you have to work for everything you have, unless you’re on welfare. But, in Egypt everyone seems to be on welfare, including the rich and the middle class. They all get subsidized gas, and most well to do households still have ration cards so that they can buy subsidized foodstuffs. Yes, everyone gets some form of a free ride regardless of income level, and when it comes to fuel, I don’t mean that literally.

I believe that what my father was trying to comprehend was how you could get an entire society off welfare, and away from entitlements, and bring back a work ethic that is clearly being stymied by perverse economic incentives. That is, you give very little and get very little in return. I strongly believe that my father was trying to understand how Egypt could get its own protestant ethic and to create a system where high productivity and high reward were the norm rather than the mirror opposite. To truly transform the Egyptian economy means unlocking the mystery of creating a highly productive society with real incentives for households to produce more, get paid more, spend more, and to create an economic cycle that will generate real jobs rather than fictional ones.

For me, it now seems clear that a brilliant economist needs to understand not just how to transform an economy, but to transform a society as well. Only then will we get it right, and my father figured that out long ago. This is what Egypt’s brilliant minds need to focus on now, because clearly trying to maintain the status quo is simply untenable. Changing the Egyptian economy is one thing, changing the mindset of an entire nation is another. This is Egypt’s true challenge, and if we fail to understand this, the outcome is obvious, a society of entitlements that is not very productive, mired in poverty, and unable to foster any meaningful path to prosperity.