Shrinking state role undermines social protection

Dr. Majdi Abdel-Hamid
The Egyptian Association for Community Participation Enhancement

Decades of liberalization and structural adjustment policies have severely undermined what was once a highly developed social protection system. Most old-age pensions do not cover even the most basic needs of daily life, while the burden of payment for health care services is increasingly shifting to individual shoulders, and even the public health insurance system is being partially privatized. Meanwhile, growing poverty and inequality are creating social contradictions that threaten to lead to social outbursts with dire consequences.

The application of liberalization and structural adjustmentpolicies in Egypt resulted in a range of adverse social repercussions. The rightto work enshrined in the Constitution has lost its meaning, and the livingconditions of the working class have deteriorated due to the rise inunemployment and decline in real wages. Weak levels of economic growth, alongwith the absence of active industrial expansion, represent sizeable obstaclesfor the jobless as well as new entrants into the labour market in terms offinding jobs that offer consequential returns for both the economy as a wholeand the individuals themselves. Serious gaps have emerged in the distribution ofincome and wealth among rural and urban segments of the population, while theincidence of poverty has risen, especially in rural areas. This was, in fact,the inevitable impact of the reduced developmental role of the state and thedecline in its social duties. The rich became even richer and the poor poorer,as the policies adopted are generally biased towards the rich and the concept ofequality of opportunities is usually traded off.

Social protection provided by the government to vulnerable segments of thepopulation shrank with the increasing pressure on aid allocations, education,and health care, the continuous rise in the cost of basic services such aswater, electricity and transportation, and the increase in fees levied onservices provided by governmental authorities. There are no signs of policychange to remedy these adverse repercussions. On the contrary, successivegovernments have reinforced these impacts, under the growing influence of thosecalling for a free market economy and integration in the globalized capitalistsystem. It should be kept in mind that capitalism transforms many publicservices into private services, as the concept of public goods is abandoned andsocial issues are addressed from a market mentality.

Income distribution, poverty and safety nets

Poverty is closely related to two issues: economic growth and equitabledistribution. More often than not, weak levels of economic growth are among themain causes for poverty, which means that improving and maintaining growth arecrucial for poverty reduction. This however is a necessary but not sufficientfactor, because if the benefits of economic growth are not adequatelydistributed, increased growth will not automatically lead to reduced poverty. Inorder for growth to favour the poor, there must be policies to reduce gaps inlevels of income, wealth and assets. Hence in order to reduce (and eradicate)poverty, increased growth must be accompanied by improved wages, productivity,and job opportunities, especially since low wage earners, low productivityworkers and the unemployed represent a large share of the population mostvulnerable to poverty.

A quick overview of the evolution of the share of wages in GDP over the last 30years depicts a significant deterioration in the conditions of wage-earnersduring this period. In 1975, wages represented about 40% of GDP; this sharedropped to a third in 1985-1986 and to a fourth in 1995-1996. Although the shareof wages in GDP rose slightly during the first five years of the new century, itremained below the level achieved 25 years earlier. Assuming that the descendingtrend that extended between 1974-1975 and 1999-2000 was maintained, wages wouldnot make up more than 21% of GDP in 2004-2005.

Finally, the provision of social safety nets (education and health services,pensions, social assistance, etc.) is considered to be crucial for reducing theshare of people who fall below the poverty line.

Social insurance does not protectpensioners from poverty

One of the longest standing and most highly developed safety nets is thesocial insurance system, which ensures that beneficiaries and/or their familiesare compensated for risks that leave them unable to work, and thus unable togenerate income. This system basically relies on contributions paid by employeesand employers, with benefits paid out in cases of work-related accidents,sickness and maternity, unemployment, old age, disability and death.

In terms of coverage, Egypt’s social insurance system is one of the mosthighly developed in the world, covering workers in both the formal and informalsectors, employers, government employees, seasonal workers and workers basedabroad, as well as the armed forces, with a wide range of social provisions.

However, the question remains: Is the social insurance and social securitysystem playing its role in terms of providing individuals with pensions that areadequate to ensure an acceptable standard of living upon retirement, old age,disability or death, in the case of survivors’ pensions? In order to answerthis question, it is worth considering the following figures.

The minimum monthly pension for the self-employed is EGP 35 (USD 6), while 75.4%of formerly self-employed pensioners receive less than EGP 100 (USD 18), andalmost all of the pensioners in this category (99.1%) receive less than EGP 200(USD 35). As for those who were salaried employees in the formal sector, morethan half (52%) receive monthly pensions under EGP 100.

Seasonal and informal sector workers are eligible for participation in aninsurance scheme under the so-called Comprehensive Social Security System, whichis limited to old-age, disability and survivors’ pensions (in other words,they are not provided with the sickness, maternity and unemployment benefitsoffered by the conventional social insurance scheme). In return for a monthlycontribution of EGP 1 (USD 0.18), subscribers to this scheme receive pensionsthat currently average EGP 80 (USD 14) a month.

Meanwhile, for those not covered by any social insurance scheme, there is asocial security pension known as the ‘Sadat pension’, an unfunded monthlybenefit paid on a means-tested basis to the elderly poor aged 65 and over. InSeptember 2006, the government raised the social security pension from EGP 60 toEGP 70 (USD 11 to USD 12.50) for recipients living alone.

These figures are more meaningful when compared, for example, to the povertyline, which is currently set at EGP 3,000 (USD 533) annually – or EGP 250 (USD44) a month. In fact, this poverty line is quite modest, as it represents justover EGP 8 a day, or less than USD 1.50. This amount is barely enough topurchase three humble meatless meals and two cups of tea, thus leaving otherbasic needs – other essential food and drink items, health care, education,housing, clothing and transportation – unsatisfied.

Many segments of the population fall below the poverty line due to theinexistence of alternative sources of income, including 69% of those eligiblefor pensions who were salaried employees, all of those who were self-employed,and all recipients of the so-called Sadat pension, even after the recentincrease in benefits.

The dangerously increasing privatizationof health care

Public spending on health care faced tremendouspressure in the 1980s and 1990s amidst the shrinking socioeconomic role of thestate in an effort to reduce the budget deficit. The decline in public spendingon health transferred spending from public funds to private ones, in otherwords, to individuals and households.

According to the World Health Organization (WHO), total expenditure on health in2004 amounted to 6.1% of GDP. Private expenditure represented 61.8% of totalexpenditure, while government expenditure accounted for just 38.2%.[1]

These figures are especially troubling when one compares Egypt to the rest ofthe world. The ratio of public spending on health care to GDP is lower than the3% average of middle-income countries, to which Egypt belongs. Moreover,individuals carry a bigger share of the health bill (61.8%) than theircounterparts in other middle-income countries (50.4% on average). It is alsonoteworthy that Egyptians carry a heavier share of the health bill than citizensof high-income countries (59.4% on average). Therefore, Egyptians have becomemore exposed to poor health and disease, and in addition to their rising healthcare bills, the difficulties they face in receiving treatment add to the plightcreated by slow development and the increasingly limited role of the state.

Since the implementation of neoliberal economic policies in the early 1970s, thepublic health system has faced a series of events that have had an adversequantitative and qualitative impact on the health services available to thepopulation, due to cuts in public spending. The capitalist restructuring of theeconomy wrought havoc with the public health system, resulting in disparities inthe level of services provided, uneven access to health services, lowcompetencies, imbalances in the distribution of private resources betweenpreventive and curative care, and a shifting of the burden of payment to privatecitizens.

As for public health insurance, which was established in 1964, its resources andcapabilities are seriously limited in comparison to the demand on its services.By the end of June 2005, the system covered 36.7 million individuals, or 52% ofthe country’s inhabitants. The majority of beneficiaries (73.8%) are infants,preschool children and students. Workers in the public and private sectorsaccount for another 20.6%, and the remaining 5.5% are pensioners and widows.Although the total number of subscribers has risen, the ratio of subscribersworking in the government and the public and private sectors to the total numberof currently employed workers and the workforce as a whole remains very low, at39.2% of total workers and 34.7% of the total workforce in 2004-2005. Inaddition, the system does not cover large segments of the population such asfarmers, homemakers, seasonal workers, informal sector workers, and theunemployed, all of whom have no steady income.

Despite the large subscribers’ base in the public health insurance system, thetotal spending of the Health Insurance Organization (HIO) was EGP 2.14 billion(USD 380.2 million) in 2004-2005. This figure is not much higher than the EGP 2billion (USD 355.3 million) spent that same fiscal year by the Ministry ofHealth on treatment at the state’s expense, which is restricted to fewthousands citizens.

The government then decided to transform the HIO into a holding company as perPrime Ministerial Resolution No. 637/2007. This decision represents a major steptowards the total privatization of health insurance and health care. Itundermines the concept of social health insurance and the right of citizens tomedical treatment. The resolution transforms the HIO into an administrativeagency that does not provide services, but rather buys them from the privatesector. In addition, it privatizes the administration of the HIO, which willconsequently be based on commercial considerations.

The danger of such a step lies in the increased reduction of the role of thestate and the deterioration of the concepts of social equity and socialsolidarity, which form the basis of society according to the Constitution. Italso reduces public service to its minimum possible level. This transformationimplies shifting the majority of what used to be public services, which thegovernment pledged to provide to the citizens, towards the commercial sector,i.e., private sector establishments or the remaining public sectorestablishments working on the basis of maximizing profit. This will increasehealth care costs to levels that only a small section of the population canafford.

Such measures may succeed in reducing the budget deficit; however, they willdeprive large segments of the population of the health services they need,except perhaps for primary health care. The current direction being followedwithin the current social and political system increases social disparities,defeats the concept of equal opportunities among citizens, and increases socialmarginalization, which may have dire consequences on social harmony andcohesion.

A multidimensional crisis

The country was hit by a thorough social crisisas the ruling regime attempted to rebuild capitalism on its soil, under theslogans of liberalization, structural adjustment, and transformation to an openand integrated market economy. It was essentially a follower of a worldcapitalist economy, in a framework of a totalitarian regime and increasedforeign hegemony. The crisis has had economic, social, administrative andpolitical dimensions.

At the economic level, the crisis has revealed the inability of the regime toincrease resources and widen the country’s resource base, in addition to itsinability to effectively manage existing resources amidst widespread corruption.

At the social level, the crisis reflects policies that are biased towards therich, leading to increased poverty, destroyed safety nets, widespreadcorruption, and increased crime rates. This has led to severe socialcontradictions and amplified class struggle in society, which could in turn leadto social outbursts with dire consequences.

At the administrative level, the crisis reveals the weakness of theadministration, its incapacity to manage its various responsibilities and thefailure to provide the population with basic services. Government agencies areineffective and have become unable to carry out their basic tasks with even amodicum of capability.

Finally, the political dimension is very clear. It has become common to describethe internal political situation as suppressed and tense. Popular outrage hasgrown alongside a power monopoly, political tyranny and totalitarianism, coupledwith increased personification of power and the emergence of a family regime.There is increasing evidence of the intent to pass power through inheritance,which in turn feeds the internal crisis, as it reveals evidence of theunwillingness of the regime to democratize political life. All of this iscombined with the increased concentration of wealth in the hands of a minority,and increased social polarization: the concentration of power intensifies, thebasics of popular participation disappear, and the inequality of opportunitiesavailable to citizens is even further exacerbated.


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