From the ‘60s to the present—Needs have changed:     A state that subscribes to socialist principles is obviously unwilling to admit that prices obey the law of supply and demand and chooses, instead, to fix prices, at least of some commodities. But because supply and demand is an infallible economic law, prices fixed by decisions of the state are bound to become, in time, lower than the real prices of these commodities. It follows that in order to maintain the prices at predesignated levels, the state must carry the difference between the sale prices and the real prices. Hence the need for subsidies.     But with the index of state-fixed prices held constant, on the one hand, and real prices steadily rising, on the other, clearly the cost of covering the ever-growing gap between the two becomes progressively heavier. One has only to look at those countries which adopted the system of subsidies to see that the payments they made to finance their commitment in the early years were marginal compared to the cost of maintaining such programs. Eventually the cost of financing subsidies spiraled out of control, leaving these countries with no funds to spare for any significant investment.     Subsidies were introduced in Egypt in the 1960s when the state was controlling wages. This, in turn, entailed state control over prices, especially of basic commodities for which demand is, in economic terms, non-elastic. Since the, and especially in recent years, debate has been ongoing—and often acrimonious—over subsidies. There are three main schools of thought, all of them, it should be noted, sharing a very narrow perspective on the system as it is applied in Egypt. They are: 1.         The so-called “right” calls for the removal of subsidies due to their heavy burden on the economy. They note that the sum spent by the government to finance its subsidies program in 1989 alone—just over 10 billion pounds—causes deteriorating economic and social conditions and with the social injustice and class chaos now prevailing in Egypt, subsidies represent partial compensation for the destitute classes, a lifeline, as it were, that can save them from drowning under the wave of soaring prices. 2.         The remnants of the Nasserite movement and the standard-bearers of socialism and communism regard subsidies as an inalienable right of the lowest social classes. Conveniently overlooking the heavy toll exacted on the economy by the subsidies policy, they vociferously support it as an obligation on the part of the government towards the suffering masses. In fact, their real—Machiavellian—concern is the destabilizing effect which the removal of subsidies could have on the Egyptian street. 3.         The third group is made up of an eclectic mix of public figures and opinion leaders exactly the size of the Egyptian budget deficit. So the primary justification for subsidies is that they provide economic support to the middle and lower classes, helping them meet their basic needs. But at what cost? Has the state revealed the real cost of the subsidies policy to Egypt? Have political and popular institutions explained the range of effects—positive and adverse—of this policy? Do the mass media project a true picture of the situation? An outside observer might assume that the views on subsidies held by the various players on the Egyptian political stage are consonant with their general line of thinking. However, he would be mistaken. To explain this inconsistency, we must look at Egypt's recent past which for the most part was devoid of a free political life in which divergent views could be aired. This period also saw the emergence of amorphous “groupings” of individuals, in contradistinction to Western democracies where like-minded people come together on such clearly-defined common ground as unity of thought, ideological consensus, orientations and strategic goals. Thus we find a party like the Socialist Labor Party,53 which is actually an offshoot of the now-defunct fascist party, Misr El Fatat54 or Young Egypt, using similar arguments to the leftists to defend the subsidies policy. This is less of a paradox than may at first appear if we remember that fascists are among the most ardent believers in the supremacy of the state and its patriarchal role. But while there might be a certain logic in this meeting of fascists and leftists, it is totally illogical for a party like the Wafd,55 whose whole philosophy is based on liberalism as the mainstay of economic life, to support the subsidies policy and to castigate the government whenever it tries to cut down on its expenditures in that direction. In fact, both proponents and critics of the subsidies policy depart from the wrong premise. It would be wise for them to liberate themselves from the conventional political dogmas in which the debate is mired and ask themselves, rather, who actually benefits from subsidies. More specifically, it is high time for the man in the street to learn that the subsidies which appeared to serve his interest in the short term have become a very real threat to his well-being in the medium and long term. Having determined his income artificially, thereby creating a work climate not conductive to productivity, the state then decided to help him meet his basic needs by setting up another artificial system, the subsidies, which ultimately is detrimental for all concerned—the man in the street and the state. The funds sunk into the subsidies program could—and should—have been invested in projects yielding a high rate of return for the state and, ultimately, for its citizens. Thus as a direct consequence of the subsidies policy huge opportunities for investment, production and wealth were lost. Another, less obvious consequence of the policy is the spread of unemployment: with huge amounts of capital channeled into subsidies rather than into new projects, no new job opportunities were created for the rising generations and the state found itself in the bizarre situation of feeding the fathers instead of employing the sons This is an extremely dangerous social trend which helps lay the groundwork for social chaos and turmoil, and could even lead to civil war. For some inexplicable reason, this aspect of subsidies is largely ignored. No one ever suggested not only were the 10b. pounds allocated to subsidies in the fiscal budget for 1989/1990 lost at the end of that year, but also millions of job opportunities which could have been created for our youth if that sum, or even part of it, had been spent in setting up new projects. Indeed, only by offering employment opportunities in real and productive jobs can the need for subsidies be eliminated. Young people who are given the chance to perform real work can dispense with subsidies, unlike the millions now holding down jobs artificially created by the state who cannot make ends meet on their "salaries" which are, in fact, nothing more than a handout. One has only to compare private sector salaries, which afford a reasonable standard of living, with those in the public sector to understand this. Failing public companies: Blame subsidies: Among the most insatiable recipients of subsidies, severely depleting the meager financial resources of a poor country like Egypt, are the public companies which are either operating at a loss, barely breaking even or, at best, showing a narrow profit margin incommensurate with the capital invested in them. Somehow, this wasteful allocation of resources does not win much attention from any side in the subsidies debate. For example, no one has noted that loss-making public sector units, as well as those realizing net annual returns below a given level (say, 7% in real terms, or constant money value, i.e., after taking inflation into account), are not only allowed to continue through massive injections of financial aid but also receive vast sums of money which are distributed among employees as "profits." This prodigal outflow of capital is ultimately financed by the average Egyptian citizen, whose loss takes more than one form: -        He is deprived of the profits which can legitimately be expected from any project and which should be used either in defraying the cost of public services and utilities or in setting up projects that can generate employment. -        He is deprived of the funds actually generated by profitable sectors of the economy which, instead of being deployed to create new jobs and improve public services and utilities, are used to shore up moribund sectors of the economy. Sound economic thinking equates loss-making concerns with those realizing marginal profits, since both can be replaced by more efficient forms of investment which can, by generating the minimum profits, avoid the losses we have spoken of. This indirect form of subsidies, more than any other, must be confronted head-on; we must not be deterred by the hue and cry anticipated by the agitators who have been spawned by Egypt in the last three decades. We have listened long enough to these demagogues and, as we see the economy deteriorating at an alarming rate year after year, our patience has worn thin. They must be silenced and their subversive acts put down with an iron fist, a course of action the government followed when it stepped in firmly to quell the disturbance at the Hilwan Iron and Steel Works in August 1989.56 The time has also come for responsible members of the mass media to bring this sorry state of affairs to light. The public must be made aware that the money used to subsidize floundering public companies and keep them operating at a loss could have been used to generate jobs and finance infrastructure projects. A campaign must also be launched to alert productive members of the labor force that they are being forced to accept a steady decline salaries—and thus in their living standards—for the sake of the inefficient workers who contribute nothing to the national economy and actually constitute a drain on it. Leaving the field free to the leftists, Nasserites and certain trade unionists with a vested interest in maintaining the status quo would be a major strategic error. Failure to face up to the problem now will only allow it to grow more intractable and make the cost of solving it in the future prohibitive in political, social and economic terms. It is therefore imperative to confront the problem decisively before it is too late, despite the backlash that can be expected. Needless to say, we must not overlook the security dimensions of the problem. The security apparatus in Egypt is as duty-bound to stand up to the saboteurs of law and order (a duty they carried out in masterly fashion during the Hilwan events in August 1989) as to the fundamentalists who would turn Egypt into a religious theocracy and to the drug dealers who are destroying its youth and, with them, its hopes for the future. A methodological approach to reducing—and canceling—subsidies: Advocates of political liberalism and a free market economy maintain that only by abandoning the subsidies policy can Egypt hope to climb out of the long slump which has made it one of the world’s poorest nations. Indeed, it is among the 10 countries with the largest debts in the world. While there can be no question that subsidies are a major cause of Egypt's economic woes, it is equally true that the seeds of the problem were sown by the political choices Egypt made after 1952. After all, economic backwardness, like economic progress, is the fruit of political choice. It follows that no solution can be envisaged, either on the theoretical or practical level, as long as Egypt remains committed to those political choices. At the same time, removing subsidies in one fell swoop will not solve the problem. In order to create a favorable economic climate in which Egypt can move ahead from economic stagnation, subsidies should be phased out according to a comprehensive plan that provides for the reallocation of funds to spheres and projects that will generate high profits and create new job opportunities. It is only through the successful implementation of a rational plan—reducing subsidies while simultaneously increasing investments in productive projects—that the subsidies controversy can be settled in a manner that will maintain social harmony and win over public opinion to the merits of their cancellation. For, unless tangible benefits accrue from the removal of subsidies, it will be extremely difficult to convince the public of the wisdom and advantage of such a course. On the other hand, if a reduction in subsidies were to be accompanied by, say, an expansion in government spending or bigger budgets for certain ministries, this would alienate the public opinion and bring into doubt the government’s credibility—an image it would find hard to shake; nor would it represent any real advantage in economic terms. The real measure of success here is not the extent to which the removal of subsidies will lighten the burden on the government but how far the savings generated by their removal can be channeled into investment areas that translate into higher incomes and new jobs. A prime minister who can satisfy this dialectical equation will be the economic reformer Egypt has long been waiting for—ever since, in fact, ill-advised political and economic choices plunged her into poverty and hardship. The defenders of subsidies versus the silent proponents of a free economy: To complete the picture of the subsidies tragedy, which is sapping the vitality of the Egyptian economy and taxing it to the limits of endurance, we must take a look at the configuration of the country’s political map. While public life in Egypt is teeming with prominent representatives of the left, it is noticeably lacking genuine proponents of a free market system who also believe in the bankruptcy of socialist regimes, in general, and of those applying a command economy, in particular. Rather, it is a hybrid class of middlemen, brokers, merchants, speculators and other symbols of the ‘70s who are—mistakenly—regarded as the custodians of liberalism and a free market economy. This class emerged as a result of the erratic course of government in the 1960s-‘70s and enjoyed its heyday under Anwar Sadat's economic open-door policy. The mercantile mentality of the members of this class, their narrow intellectual horizons and cultural insularity renders them incapable of grasping the rudiments of liberalism and a free market economy. It is as unimaginable to regard them as upholders of these values as it would be to apply this description to supporters of corruption, illegal currency dealers and drug traffickers. In short, then, while the left can boast thousands of champions in Egyptian public life, the school of thought which believes in liberalism and a free market economy has practically none. The mass media and subsidies: < An important responsibility rests on the shoulders of the mass media to explain to the man in the street that the real beneficiaries of subsidies are the moneyed classes, the members of Egypt's new "upper class," while the working class and the poor can only lose out in the medium and long term. In fact, the continued application of this policy will impoverish them still further and destroy any hope of a better future for themselves and their children. To get this message across, however, is to swim against the tide of public opinion. The official media spent so many years convincing Egyptians of their right to receive government assistance in the form of subsidies that this belief is now firmly entrenched in the public consciousness, making any attempt to debunk it a daunting task. Moreover, any such campaign would bring fierce reaction from the proponents of a command economy and the demagogues who will not allow their vested interests to be swept under the carpet of reform. This is nothing new: the history of humankind is one long struggle between the harbingers of reform and those who will stop at nothing to preserve the status quo and with it their considerable privileges. The mass media must stand up to them.      Few have been the examples of public figures in Egypt who have stood up for a free economy—and they should be lauded. In fact, only those ministers who have not succumbed to pressure and intimidation and who translated their disenchantment with the subsidies policy into concrete action have achieved real success. For example, thanks to one minister of petroleum who remained uncowed by the vilifying campaign launched against him by an opposition party notorious for its foreign affiliations ,base tactics and extremism, Egypt succeeded in building up a strategic reserve of gas as a buffer against any potential energy crisis. He boosted Egypt's natural gas reserve from 10 to 30 years by encouraging private investment in this domain, echoing Egypt's success in becoming an oil-producing and exporting country since the mid-‘60s due to private investment. In addition, a minister of tourism braved the loud protests emanating from the left to institute reforms in that sector, also opening it up to local and foreign private investment, and succeeded in multiplying Egypt's revenues from tourism several times over in recent years. But these are isolated incidents. Too few people are willing to brave the wrath of the self-appointed keepers of the faith, who defend subsidies as a sacrosanct right of the people and decry those who call for their reappraisal, labeling them traitors. That is precisely why, despite their negative aspects, subsidies remain a cornerstone of the regime. The crisis of confidence between the government and the people: This chapter would be incomplete if it failed to address the crisis of confidence between the government and the people of Egypt. One government after another has pledged to institute reforms, to rationalize government spending, to improve government performance and to secure a better future for the Egyptian citizen. But the Egyptian citizen, though assured by successive governments that they will rationalize spending, sees them doing just the opposite. Although Egyptians are renowned for their stoicism and forbearance in the face of hardship, their patience is stretched to breaking point by the obvious discrepancy between a government's words and its deeds.      A plan by the government—any government—to rationalize subsidies and divert some of the massive subsidy allocations into investment projects stands no chance of success unless a real attempt is made to actually implement the plan. In other words, it must be carried out in full view of the people, the press and the world. And it is high time this happened.