Social justice: The unfulfilled dream of the Egyptian revolution

Ahmed El-Sayed Al-Naggar , Wednesday 9 Jul 2014

Socio-economic demands were at the heart of the 25 January and 30 June uprisings - so what happened, and what can be done to ensure dignity for all Egyptians?

While revolutions usually take decisive actions to achieve the goals that triggered them, achieving social justice – the main demand of the Egyptian revolution – remains unfulfilled, as the revolution overthrew two regimes but has not ruled.

Simply put, the Egyptian revolution was made of a hundred teams who all revolted against Hosni Mubarak to overthrow his regime, but there was no leading force to shape the revolution and thus directly reach power. All these forces succeeded in overthrowing Mubarak and the top tier of his regime, but they could not agree on the handover of power because of their ideological and political differences. In the end, the decision was left to the ballot boxes, irrespective of their credibility or integrity.

The 2012 presidential election ushered in a president from the conservative right – Mohamed Morsi – who did not even believe in social justice. Instead, he believed that inequality and class divide are God's will and thus should not be interfered with except through zakat (almsgiving), which barely impacts the reality of sharp class differences.

In 2014, the ballots produced a president – Abdel-Fattah El-Sisi – who has declared his intention to achieve social justice but has not given us a specific programme as to how he will do this. This leaves only the credibility of his promise of direct action, so far limited to a decree establishing a maximum wage in the public sector.

Belated initiatives to apply social justice after 25 January and 30 June have been very slow, which means the fundamentals of the issue have so far not changed much.

The political elite's visions and efforts on the matter have varied. The left and Nasserists have a genuine historic position and have always fought to achieve social justice and all its aspects. There are other elites who find the slogan "social justice" very trendy and thus adopt it, perhaps deceptively.

Although this concept may contradict the political and ideological foundations of some political factions, like the Muslim Brotherhood, it was easy for them to claim they championed social justice in general. The real test came when they reached power, when their actions revealed they were very removed from the heart of the matter. The issue for them was essentially reduced to almsgiving, and the tax adjustments they made focused on indirect taxes on consumption, primarily at the expense of the poor and middle class.

Meanwhile, the wage system remained in place with some patching here and there. Consecutive governments since the January revolution have argued they did not succeed in social justice because of a lack of economic foundations to achieve it.

The debate always focuses on the importance and mechanisms of achieving social justice and its position in Egypt's socio-political-economic struggle – but without a clear definition of social justice as a reference, which is needed as the foundation for discussing the matter. Social justice means equal opportunities for citizens in terms of living, healthcare, education, housing and work. It also means economic, political and social participation, as well as regulations that reduce class disparity in terms of wages, subsidies, remittances and taxes.

Social justice is not a social luxury or ideological catchphrase but a necessity for social peace, cohesion of the social fabric and political stability. It is also necessary for the continuation or sustainability of economic growth.

Fairer income distribution results in the relative rise in the share of the poor and lower classes. These segments do not have the luxury of saving and so their incomes become an effective demand on goods and services. This is an incentive for the state and new private sector investors to create new projects to meet rising effective demand. These new projects employ new workers and distribute new incomes to them, which in turn become an effective demand on services and goods and are an incentive for more new projects. This creates an infinite cycle known as "investment multiplier", the main building block for any noteworthy and sustainable economic progress or prosperity.

In short: social justice is a requisite for continued economic development, as well as a precondition for political stability based on mutual consent rather than police repression. It is also a more humane environment for co-existence among all sectors of society.

History has proven that oppression can suppress social tension but that it also builds up tension beneath a false surface of social stability until it reaches a boiling point. After that, neither oppression nor police repression can stop it, as we saw in Arab revolution states, most notably Egypt, where the slogan of "social justice" was a main demand alongside bread, freedom and human dignity.

On another front, social justice is not exclusive to domestic soci-economic relations alone – it also extends to fair economic and political relations with other countries. Although social justice in international relations is not directly part of the social justice system, it is the foundation for justice among nations and a contributing factor to domestic social justice. Egypt has not made any worthy changes on the economic front; social justice in international economic relations requires a country to be productive and capable of extracting and processing its natural resources as well as manufacturing its agriculture products.

In Egypt, there has not been a manufacturing strategy for four decades. Scientific research has deteriorated and the link between research institutions and production sectors has vanished. Egypt has relied on imported technologies and related services which cost more than half its natural resources and are a shocking haemorrhage of resources as the price for backwardness. This haemorrhaging is evident in the vast disparity between a low GNP and much higher GDP, of which foreign companies receive a large share.

Pillars of social justice

There are several main pillars to achieve relative social justice. We cannot talk about absolute social justice except in primitive communal societies or communism, as an idea based in the future. According to these fundamentals, income is distributed and redistributed within societies in a manner that achieves relative social justice.

The first pillar is empowering citizens to earn their living with dignity by providing genuine job opportunities so they can participate in developing the country's economy and receive a portion of the national income with dignity for their work and labour. Whether this is done through real job opportunities provided by the state, its public sector, government apparatus and economic agencies, or by the government through creating an economic environment and facilitating the creation of all sizes of business to create job opportunities in the private sector – the final outcome is raising the level of operations and empowering people to earn their living with dignity.

The second pillar is reforming the wage system for those who are already employed – a marker of wage earners' standard of living and also a reflection of the fairness of distribution of the added-value generated in the production process between employers and their employees.

The third pillar is a tax system that redistributes income by distributing tax burdens. The more tax brackets and progressive taxation proportionate to the cost capabilities of financiers, the more efficient the tax system will be in improving income distribution and achieving social justice. A tax system of multiple brackets and progressive taxation is based on the logic that those with higher incomes benefit more from public resources, land, infrastructure expenditure and basic public services. This means they should pay higher taxes to fund this type of public spending. The more direct taxation, the more the tax system will be transparent and fair. This is unlike indirect taxation which is unfair and opaque, as is the case in Egypt.

The fourth pillar is subsidies on goods, public services and remittances. This is public spending that should be directed to the poor, low income and the majority of the middle class to provide them with healthcare and education. It should also be an income source for the poorest and unemployed since it is their right and share in revenues from natural resources and older projects in their country. It is also the duty and social responsibility of the state towards its citizens and their right to life, food, drink, housing, work, education and healthcare. If this subsidy is distorted and the majority of it is directed to the wealthy and the large native and foreign capitalist class in the country, it increases social imbalances instead of achieving justice, as is the case in the subsidy system which Egypt inherited.

Revolutionary Egypt inherited an economy full of distortions and imbalances from the era of the ousted dictator Mubarak, when it lost great opportunities to transition into a new or advanced industrial economy similar to economies that trailed far behind Egypt even until the early 1970s, such as South Korea and China, or were at a similar level as Egypt when Mubarak came to power, such as Malaysia, Thailand and most of Southeast Asia.

On top of all the lost opportunities for progress, Egypt is also facing more complicated economic conditions today because of corruption, an illegal covert economy, parasitic capitalism and some financial and economic figures from Mubarak's era who are using their immense wealth to resist any changes to his corrupt and unjust policies.

Egypt also suffers from the consequences of how the two cabinets under the Supreme Council of the Armed Forces (SCAF), followed by the cabinet of deposed president Mohamed Morsi, continued to adopt the same unsuccessful socio-economic policies that are biased against the poor and middle class, as Mubarak did.

Nonetheless, there are attempts and initiatives to support the pillars of social justice, whether through the new constitution in Egypt or some genuine changes in financial policies. It is certain that Egypt can overcome this difficult phase to develop strong and continued economic growth and achieve social justice. This depends on a strong will and effective programme by the new president.

His actions so far demonstrate good intentions, as promised during his electoral campaign and confirmed in his inaugural speech.

Tax reform to achieve social justice

In 2005, Mubarak's regime adopted a tax system that exempts anyone with an annual income of LE9,000; applied a 10 percent tax for those with an income between LE9,000 and LE20,000; 15 percent on incomes between LE20,000 and LE40,000 and 20 percent on incomes more than LE40,000. This top category covered the middle and high classes.

That law equated between individual companies and financial firms with a 20 percent tax rate on trade and industrial profit, instead of the pre-2005 law which put a tax ceiling for individual companies at 32 percent and 42 percent for financial firms.

The 2005 law also exempted capital gains from taxation altogether, and thus profits on the stock exchange were not taxed – neither were interests on deposits, bonds and treasury bills. It also exempted poultry, bee, livestock and fishery projects and fishing boats from taxation, which does not make sense, especially since they sell their products at prices higher than world prices. The exemption demonstrates the influence of capitalists in this sector under Mubarak.

At the same time, the law taxed income from copyrights and gave self-employed a three-year tax holiday whenever they start work within 14 years of graduation. The tax holiday drops to only one year if they begin working 15 years after graduating. This is a blow to the heart of the middle class, who are mostly professionals, especially doctors, lawyers, engineers and in the field of commerce, who need a tax holiday that is twice as long so their projects can be built on solid foundations to prosper and expand.

This system continued after the 25 January 2011 revolution. The first initiative to change this and achieve some degree of social justice was taken by Samir Radwan when he was finance minister in 2011. Radwan decided to tax capital gains on the stock exchange at a rate of 10 percent, but the cabinet failed him and succumbed to blackmail by interested parties. The measure which would have led to some tax justice was retracted and never became law.

Radwan also suggested raising the minimum income for tax exemption from LE9,000 to LE12,000 in 2011, but this was not applied until 2013 – when exemption should have started at LE18,000 to reflect the true value of the tax exemption applied in 2005. Thus the first initiative by the finance minister in 2011 was undermined by the government, but it pointed in the right direction.

The incumbent government announced it would raise income taxes on those earning more than LE1 million per annum to 30 percent, instead of 25 percent. It did the same to companies, which is the first strong and real signal of tax reform. The cabinet also imposed 10 percent taxes on capital gains in the stock market, with losses deferred for three years so they are deducted from gross profits before taxable net profits are calculated.

International data shows that taxation on integrated capital gains in 2011 were nearly 50.8 percent in the US, half of which were in the stock market; 59.8 percent in Italy; 56.5 percent in Denmark; 54.9 percent in France; 46.7 percent in the UK; 43.9 percent in Brazil; 33.2 percent in India and 25 percent in China.

Thus, using the excuse of "fleeing" investors as justification not to tax capital gains in the stock exchange is a fabrication made by those with domestic vested interests in Egypt. They, of all people, know that the majority of developing and advanced capitalist countries that attract investments apply these taxes.

Reforming public spending: healthcare and education

Public spending on education is vital to achieving social justice because it provides public education services for free – or almost for free – to poor and low-income classes.

There have been few changes in spending on education post-25 January, with limited improvement in the conditions of the teaching sector but no core reforms. In 2011/2012, public spending on education came to LE51.8 billion which is 3.3 percent of GDP for that year. In 2010/2011, it was LE47 billion or 3.5 percent of GDP for that fiscal year after it was amended. Spending was LE41.7 billion in 2009/2010 or 3.5 percent of GDP for that year, compared to LE39.9 billion in 2008/2009 or 3.8 percent of GDP for that year.

Public spending on education in 2012/2013 rose to LE64 billion or 3.6 percent of GDP and it was raised to LE81.3 billion in the 2013/2014 budget, or nearly four percent of GDP and 11.7 percent of overall public spending. Despite progress in the last fiscal year, public spending on education remains below global and Arab rates. It is also less than what president Morsi had promised to spend on education during his campaign, when he vowed to raise the rate to 5.2 percent of GDP.

The increase was intended to boost the incomes of tens of thousands of new workers in the education sector. The draft budget for 2013-2014 (p 20) shows that 89,000 people were newly recruited to address the deficit in teachers, janitors, security guards and other administrative jobs. The increase in the education budget also went towards raising wages, despite the grossly unfair distribution of these funds among state employees in the education sector. Meanwhile, the quality of education, laboratories, facilities and student numbers in class remained at unacceptable levels.

Low spending on education under Mubarak came as part of the government stepping aside in favour of the private sector taking over the "business" of education in Egypt. This was a poor format to deal with this sector, instead of seeing it as a vital component of human development to develop knowledge and scientific capacity in all fields and achieve social and human enlightenment and civility and to produce graduates equipped with life skills and ready for the job market.

The more important initiative to develop public spending on education as a component of social justice came in Egypt's new constitution. Articles 19 and 21 of the 2014 constitution stipulate that 4 percent of GNP should be spent on pre-college education and 2 percent on higher education, making that 6 percent of the GNP, compared to less than 4 percent of both the ousted and deposed presidents. This is a leap that will allow great progress in the education system by paying good wages to everyone in this sector, as well as improving equipment, facilities, laboratories and curriculum. Also, expanding school buildings and reducing the student ratio in classes, as well as ending private tutoring for good to save Egyptian families from this burden which costs more than LE20 billion every year. The constitution also stated that compulsory education is until secondary or technical school, and guaranteed free education at all stages.

Initiatives for wage reform were limited to raising minimum wages and applying a wage ceiling that is 35 times the minimum wage, but there is great distortion in application and no real reform of the entire wage system. This is a truly deformed situation in the absence of any reform of the employment system to create a new culture of respect for work and its duties through a strict system of reward and punishment.

Pensions are another component to achieve genuine social justice that require core reforms, in terms of raising minimum retirement rates which were recently raised to LE470. However, more comprehensive reforms are needed to give retirees their money back to investment in the safest and most profitable ways, despite immense actuarial imbalances. The government needs to take new balanced decisions to raise social security payments as a percentage of wages to prevent the collapse of the insurance system and guarantee enough pension income for retirees to maintain a good life.


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