Book Review: Higher wages in Egypt without inflation

Mahmoud El-Wardani, Sunday 30 Oct 2011

Ahmed El-Sayed El-Naggar provides a thoughtful investigation in the latest Strategic Papers series of the economic crisis facing the current regime and proposes some solutions

Ahmed El-Naggar
Ahmed El-Naggar

The Strategic Papers Series, published by Al-Ahram Centre isn’t important just due to its monthly regularity, but mainly because it tackles current pressing issues. The title of each paper is quite reflective for this issue, dealing mostly with topics such as the revolution, the Salafist and Islamist movements, elections, youth movements and so on.

This paper by Ahmed El-Sayed El-Naggar is already on its second edition due to the increasing importance of the economic problems facing Egypt since the revolution. El-Naggar summarises this problem as follows, “Issues of weak growth and retardation of the production structures, corruption, unemployment, poverty, poor distribution of incomes, corrupt wage system, and poor weak funding for public service education and health.”

Considering that the interim government is facing a heavy economic burden leftover from the Mubarak regime, the study here attempts to offer some solutions to possibly get out of this quagmire. The author refers to many of his earlier studies at the time of ousted president, such as The Economic Collapse at the time of Mubarak, published by Dar Merit 2005, as well as Strategic Economic Trends Report for 2000 and 2006.

According to El-Naggar, getting out of this crisis requires some measures, including for example, raising the minimum wage requirements to match the cost of living and reducing the gap between social classes, especially following the court ruling agreeing with reforms to minimum wage. The author also proposes a wage ceiling that is no more than 15 times the minimum wage.

Most importantly, El-Naggar proposes specific source of financing for achieving social justice, and that is through reducing the subsidies on companies that are protected by monopolies and, thus, see very high profits. The industries include cement, compost, aluminium, and steel; all of which are run on heavily subsidised oil, natural gas, electricity and diesel oil energies. He argues that there’s no reason to give away the natural resources owned by the Egyptians at such a low price.

Another proposed measure is raising taxes and demanding retroactive taxes from large capitalist companies, which have evaded payment for a long time due to the corrupt tax system that doesn’t consider progressive taxation that is more equitable with the diversity of income levels.

Among the proposed measures for financing is fixing the financial imbalances; the public debt to finance the national budget was as high as LE187 billion in 2010/2011, reflecting the absolute necessity to restructure the entire spending not reducing it. At the same time, there’s a need to increase spending on items such as health and education, investing in potable water and sanitation, while reducing other items, such as the export and energy subsidies.

With regard to reducing the budget deficit, he states that the only possible means is by increasing public funding. Reforming the tax system to offer multiple progressive measures and to include the stock market and international transfers among the taxable incomes is the way to go. El-Naggar also proposed increasing taxes on cement companies in particular, and on the foreign partners in oil investments.

Investing in education is a topic where the author pauses to emphasise its importance and on the necessity of developing the investments in education through public spending.  While the national budget of 2010/11 allocated LE46.8 billion (or 3.4 per cent of GDP) for spending on education, it only puts Egypt among the lowest spenders on education globally. For perspective: Tunisia spends LE 7.1 per cent.

The author explained the reduction in education spending during the Mubarak era as the overall withdrawal of the public spending in favour of the privately-run schools.

Similarly on health spending, the allocation was a mere 1.4 per cent of GDP, at a time when kidney, liver and chest diseases are spreading against a weak and deteriorating health service and insurance.

Finally, the author was keen to publish a separate appendix with the title, “How to fix the wage system without inflation?” This appendix adds a lot and sheds light on the extreme injustice of the current wage system and points to how the entire system can be fixed without inflation.

Al thawra wa muwagahat mo’delat al iktisad al masy (The Revolution and facing the challenges of the Egyptian economy)
Author: Ahmed E-Sayed El-Naggar
Published in: Cairo: Al-Ahram Centre for Political and Strategic Studies
Strategic Papers Series, 2011. pp.55.

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