Why Social Expenditure in the Arab States is Not Working

Ibrahim Saif Op-Ed June 24, 2011 Los Angeles Times

Summary

The major challenge facing Arab states transitioning from totalitarian regimes to democracy is how to manage social expenditures, such as state spending on health, education, subsidies to poor citizens, pensions, and social security for those working in the private sector.

Related Topics

The major challenge facing Arab states transitioning from totalitarian regimes to democracy is how to manage social expenditure: that is, state spending on health, education, direct subsidies to poor citizens, cash support for poor families, pensions and social security for those working in the private sector. Even though these states face different situations, such spending shares a number of traits.

The amounts spent on social expenditures -- about 40% to 50% of GDP -- are high in the Arab states, including Morocco, Tunisia, Egypt, Jordan, Lebanon, and Syria. This means that the chances of allocating additional resources for social expenses are slim.

In addition, social spending is distinguished by low levels of competency, especially in healthcare and education -- the two sectors that capture the greatest share of social expenditure. These sectors are usually not subject to oversight and lack indicators to measure their operational efficiency. Most of the expenditures go to wages and salaries, rather than to areas such as research and development, which could help improve competency and reduce waste.

These sectors also are resistant to change. They are based on obsolete regulations and bureaucratic measures that are difficult to change. Because of the low average employee salary, they often do not attract the most competent candidates and offer employees too few incentives to increase their work efficiency and motivation.

The mechanism for targeting expenditure is seriously flawed as well, and the targets are not usually reached. For example, subsidizing a commodity such as bread or fuel means allocating larger subsidies to those who consume more, which benefits the rich rather than the poor, as the former are the largest consumers.

Finally, social expenditure is often used for political ends. The ruling regimes direct spending to purchase political loyalty based on geography or demography, regardless of whether beneficiaries need the help.

As several Arab states suffer from serious budget deficits, social expenditure remains one of the basic avenues to provide social justice alongside economic growth, the two main citizens’ demands during the "Arab Spring."

But states are unable to fulfill citizens' demands by providing sufficient work opportunities, because the public sector is already saturated and the private sector suffers a lack of dynamism stemming from low levels of investments due to public-policy uncertainties.

Governments thus find themselves facing difficult choices. The emerging political regimes -- such as those in Egypt and Tunisia -- are aware of the problems associated with public expenditure, but halting it risks exacerbating the current situation. Yet they are also unable to expand spending in order to meet citizens' desires.

It's worth drawing a distinction between two kinds of expenditure. The first yields swift results and has direct political effects, such as direct commodity subsidies or cash handouts. It is therefore considered to have a high political return, which urges politicians to pursue it despite its negative long-term effects on the state treasury, such as a burdensome fiscal deficit.

The second kind of expenditure is associated with longer-range concerns, such as education and healthcare and its effects do not appear quickly and are thus not considered priorities. Even though education and healthcare are essential sectors, few resources are allocated to reforming them because obtaining significant results would require years.

The challenge of reconciling states' present and strategic interests can be overcome by implementing new policies. For example, the arbitrariness of commodity subsidy policies has negative financial and political consequences and sometimes deepens the imbalance it sought to correct. Subsidies aimed at poor individuals can achieve an acceptable level of social justice, but mismanagement of such expenditure deepens the existing imbalances. In this regard, policymakers must design policies to reach their targeted groups instead of the arbitrary policy adopted now. That would improve the efficacy of social spending and reduce public dissatisfaction with the current policy.

Moreover, there is a pressing need for good governance and transparency in social expenditure, in order to enhance better regulation and control over it. But improving governance requires institutions that can oversee the government, channels for citizens to participate in setting priorities, and better political institutions as well. The international community and donors can play a more serious role in oversight and consultations to set priorities. Past experience reveals that direct budget-support models used by a number of donor states with recipient states have often failed.

Social expenditure is no doubt a central avenue for approaching social justice. The money currently being spent, however, is not achieving its goals, and continuing with the same model is not sustainable. Reconciling compliance with citizens' present demands with planning for long-term, strategic goals is a first step in the right direction. Much more can be done to improve the management of such spending, so that citizens can judge the effectiveness of the new regimes. But without oversight, the strategy of giving grants and donations to protect the poor is no longer convincing and cannot continue.

Source: http://carnegie-mec.org/2011/06/24/why-social-expenditure-in-arab-states-is-not-working/d0nt

More from The Global Think Tank

The New Moroccan Constitution: Real Change or More of the Same?

Summary Morocco's political future will be determined not only by the king’s actions in the coming months, but also on the capacity and willingness of Moroccan political organizations to build on the opportunities the new constitution, presented on June 17, offers them. More >

Egypt’s Revolution Stumbles Forward

Summary The strength of Egyptian institutions and continuing post-revolutionary enthusiasm will help Egypt overcome the growing political chasm between Islamist and non-Islamist political forces inside the country and the political mistakes made by the country’s ruling council. More >

Los Angeles Times

Democracy Uprisings Should Herald a New Dawn of Education Reform

Summary New democracies in the Arab world will have to commit to comprehensive education reform, since educated citizens are necessary for the successful consolidation of political democracy and economic liberalization. More >

May 18, 2011 Washington, D.C.

Egypt's Transition and the Challenge of Security Sector Reform

Summary After the dismantling of the Mubarak regime’s State Security Investigations apparatus, questions remain about how the new National Security sector will differ from its predecessor and what security sector reforms will be implemented. More >

May 17, 2011 Washington, D.C.

Reflections on Citizen Revolt in the Middle East

Summary The uprisings sweeping across the Arab world will carry far-reaching—and difficult-to-predict—consequences for regional and international politics. More >

May 9, 2011 Washington, D.C.

The Economic and Political Outlook for the Middle East in Turmoil

Summary The Middle East and North Africa have seen more change in the last three months than in the previous fifty years and the current turmoil will have far-reaching and, in the short-run, adverse economic implications both within the region and beyond. More >

Twitter

@CarnegieMEC

In Fact

70%

of oil consumed in the United States

is for the transportation sector.

20%

of Chechnya’s pre-1994 population

has fled to different parts of the world.

58%

of oil consumed in China

was from foreign sources in 2012.

million cases pending

in India’s judicial system.

million people killed

in Cold War conflicts.

18%

of the U.S. economy

is consumed by healthcare.

$536

billion in goods and services

traded between the United States and China in 2012.

$100

billion in foreign investment and oil revenue

have been lost by Iran because of its nuclear program.

4700%

increase in China’s GDP per capita

between 1972 and today.

$11

billion have been spent

to complete the Bushehr nuclear reactor in Iran.

of Iran’s electricity needs

is all the Bushehr nuclear reactor provides.

new airports

are set to be built in China by 2015.

journalists

were imprisoned in Turkey as of August 2012 according to the OSCE.

67%

of the world's population

will reside in cities by 2050.

million Russian citizens

are considered “ethnic Muslims.”

Stay in the Know

Enter your email address in the field below to receive the latest Carnegie analysis in your inbox!

Carnegie Middle East Center

Regions

Countries

Suzanne Abourjeili

Lahcen Achy

Anas El Gomati

Muhammad Faour

Sami Moubayed

Paul Salem

Yezid Sayigh