Egypt spends the equivalent of its entire earnings from tourism on food subsidies. Government redistribution in Egypt seeks to act as a social safety net – 19.6% live under $1/day; however, far from supporting the population, government activities perpetuates the poverty and hinders the ability of the people to consume adequately.
The intrinsic link between government controlled food subsidies and wages leaves the majority of Egyptian population incredibly vulnerable to even the smallest changes. In 1997, according to the IFPRI, the total cost of food subsidies reached 1.1 billion Egyptian Pounds (LE). Government regulated food redistribution depends upon import of wheat from the United States due to the fact that Egypt does not produce enough for domestic consumption – thus the exchange rate plays a huge role in the ability of the Egyptian government to subsidize the food. In 1997 the exchange rate was 3.40LE : $1 but in little over a decade the exchange jumped to 5.59LE : $1 – over the last decade it has become increasingly more expensive for the government to purchase food on behalf of the people. Taxes cannot be increased when it may endanger the people’s entitlement to the already subsidized food. Therefore the result is a forced reduction of public spending in vital sectors like education, health, and sanitation.
So what are the consequences of having controlled wages in a market that is incapable of sustaining the prices? Consider David Ricardo’s speech to the parliament in 1822:
“The people are dying or want of food in Ireland, and the farmers are said to be suffering from superabundance… the honorable gentleman thinks there is a manifest contradiction… [but] where was the contradiction in supposing that in a country where wages are regulated mainly by the price of potatoes the people should be suffering the greatest distress if the potato crop failed and their wages are inadequate to purchase the dearer commodity corn”
The presence of food within the territorial borders matter very little unless the people are able to purchase it. The condition of wages derived by potato harvest in 19th century Ireland is replicated by government controlled wages in Egypt – while intended to parallel the cost of living, controlled wage cannot adequately accommodate the various circumstances of individuals or even fluctuations in a state controlled market. What happens in the place of equity is an overall seizure of consumer choice. Egypt has not been reduced to the desperate conditions of Ireland during the potato famine yet – nonetheless, the people’s ability to readily purchase food is under threat.
The described entitlement failure has created an immobile society where the poor cannot divert attention from the procurement of basic income because the price of food continues to increase despite serious cuts in government spending (and disturbing mismanagements). The result is the establishment of a class society with the majority of the population grounded in their respective neighborhoods and professions. A definite juncture on the road to serfdom.
Food subsidies should be gradually eliminated, but this would take something close to a political revolution since it’s generally agreed amongst scholars that the government is more interested in procuring consent by providing cheap food – It is crucial that Egyptian politicians realize that subsidizing food equates to national suicide, especially when there is no circus to accompany the bread.
So what will the liberalization of food distribution achieve?
In the short term the price of food (especially bread) will increase – this achieves two important tasks:
1) The rich will consume less, decreasing the demand for basic grains like wheat which can be redistributed in the form of cheap bread – baked with other filler grains to maximize the quantity but minimize the cost per loaf (In fact, this is what IFPRI suggested in its 2001 report). With Egypt’s growing obesity problem, the cut back on carbohydrates should be a good thing. Joking aside, since the subsidized bread is consumed by all social classes, as the government seeks to phase out the bread subsidies, those who can afford non-subsidized bread should be taken off the state payroll first.
2) End to government intervention will encourage private enterprises to take their own initiative in provide affordable food for their own profit. Many Egyptians are enterprising. Many are conducting illegal enterprises smuggling government subsidized bread and selling them to private bakeries – they should have no problems lowering costs and entitling the masses to more food with their somewhat backhanded entrepreneurship. Furthermore, a robust food distribution sector will encourage a more expansive food production sector.
This is a rudimentary sketch, but the skeleton of my grievance and theory are present – A free Egypt, capable of feeding itself, is the best deterrence against its frequent outbursts of violence. A dash of Thatcherism is what the Arab Republic needs – and if both Hosni or Gamal Mubarak cannot fulfill the iron role, they should step aside.
Horreya!
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