This article originally appeared in Arabic on cipe-arabia.org
As I prepared for the final paper of my college years, I recall my unwavering conviction in the infamous saying by Muhammad Yunus – Founder of Grameen Bank – that, “Once poverty is gone, we’ll need to build museums to display its horrors to future generations.”
Multiple public policies and methods have been devised, yet the primary objective has always remained unchanged: provide citizens with a decent standard of living. This, I believe, can be achieved through paving the way for entrepreneurial initiatives and creating a just and equitable investment environment, where investors, citizens, workers, and employees alike are familiar with their respective rights and obligations.
Over time however, it has become increasingly apparent to me that any practice devoid of theory would be blind, and any theory without practice would be deemed hollow. During the few years of my engagement with the reform process I drew a number of important lessons that I would like to share.
1. Outcomes of efforts in the public policy domain are difficult to quantify using short-term indicators
Contrary to other disciplines – such as engineering, accounting, trade, commerce, and medicine – the outcomes of public policy work are not immediate. For instance, support for entrepreneurship in a country such as Egypt cannot occur overnight, especially in light of an economic milieu where it is difficult to participate in the market, and lacks a just mechanism for filing for bankruptcy or completing a successful market exit. This is in addition to the absence of real and tangible funding tools, coupled with the deterioration of education. Having said this, however, it is imperative to make a start somewhere. The continuity of these efforts and the relentless resumption of reforms must not be abandoned. The status of entrepreneurship in Egypt today –though it falls short of fulfilling aspirations on many different levels – is still considered much better than what it was several years previously. At least today, there is some knowledge and understanding of the concept of entrepreneurship and its correlation with institutional reform. Sound initiatives are coming to light every day, and are expected to result in cumulative change.
In short, efforts exerted in the public policy domain are cumulative and cannot be measured by short-term indicators, thus one should not be frustrated or discouraged. The challenge lies, however, in conducting assessments and gauging impact in order to develop reform strategies and to avoid committing the same errors, while expecting different outcomes.
2. The social contract binding the state to its citizens is reflected in all aspects of life, including the economy
Citizenship is not just a political concept, it constitutes the core of the economic reform process in the sense that in some developing countries (e.g. Egypt), the social contract is based on guardianship and not citizenship. This means that the state assists its people by rationing food, housing, health, and education in return for their compliance to state dictation. The end result being: poor quality of public services, owed to the state’s goal of expanding its production activities and hence negatively impacting the growth of the public sector and compromising the creation of employment and operation opportunities. Over time, state expenses will overcome revenues, leading to the deterioration of public services and to that state becoming prone to a series of interrelated and complex ailments.
In contrast, and in the case of states that are founded on the basis of citizenship, we find that at the core of the social contract lie rights and obligations. This contract obligates the state to assume the role of an effective regulator and legislator and to oversee the efficient enforcement of these laws and pieces of legislation in a manner that safeguards upholding the regulation of market transactions – such as the protection of consumers and competition and the prohibition of monopolistic practices, etc. A state of this kind should be able to pave the way for citizens to allow them to invest by creating a competitive environment that would ultimately enhance economic growth. A state that does not abandon those citizens unable to work, by assisting those in need of support instead of rationing goods—a practice that is prone to aggravating corruption. Finally, a state that is able to collect due taxes is the cornerstone of the rights and obligations system.
3. There is no one-size-fits-all solution
Though the reform process is multi-faceted and primarily built on local trials and experiences, it can still benefit from global input and expertise. With this said, one must bear in mind that what may prove successful in Latin America may not necessarily bear fruition in East Asia, since local expertise and social capital must be the prime determinants of a locally-driven reform strategy. For example, when tackling an issue such as the informal economy in Egypt, some may suggest registering all entities operating within that sector in order to improve economic indicators. However, in practice, it might become apparent that the dilemma of reforming the informal sector in Egypt does not lie with registration, but instead revolves around a more precarious phenomenon – parallel institutions in various areas including education, health, transport, and the economy. In this sense, any reform that fails to accommodate these parallel institutions won’t work. Incidentally, not all practices in these parallel institutions are detrimental. Those few positive practices must be codified and capitalized upon in the formal domain, while the exclusionary ones must be tackled – occasionally through penalization and suspension, but more frequently via incentives.
In conclusion, to summarize the lessons in this article in one phrase: “Institutions are the solution.” However, the creation of institutions is a long-term process that is not merely limited to changing public policies, but also involves changing practices and taking the social structure into consideration while doing so.
Seif El-Khawanky is a Program Officer for CIPE Egypt