This paper examines Egypt’s shift from socialism to neo-liberalism in the wake of the economic crisis of the late 1980s and the implications of this shift for its socialist legacy. It argues that the decline of the welfare state in Egypt since 1991 has contributed to the erosion of the social contract forged in the post-independence period, which was marked by state-led development and high social mobility and a prominent role for the middle class. Neoliberal ‘reforms’ dictated by economic crisis and pressures from transnational capital as well international financial institutions led to the alienation of the middle and lower classes and the emergence of a new economic elite, whose dubious links to the ruling class has undermined the regime’s legitimacy and helped fuel the 25 January 2011 uprising.

## Introduction

The Egyptian public is divided on Egypt’s socialist legacy and on the relationship between the 25 January “Revolution” and the 23 July “Revolution,”1 or coup d’état, as it is sometimes called. Some believe that the aim and principles of the 23 July Revolution have been derailed, interrupted by infitah, then Mubarak’s neoliberal agenda. Some believe that Gamal Abdel Nasser’s project has been aborted by the forces of global capital (Kadri 2016) and that the January Revolution could resurrect it (Fathi 2015); others make the accusation that Nasser re-instituted military rule in Egypt in 1952 and believe that the January Revolution represents a total rupture with it (Ashour 2011).

Whichever side of the debate is advocated, it is difficult to deny or overlook the congruence between the demands of the 25 January Revolution and the message Nasser promoted and worked to implement. In a speech delivered on the ninth anniversary rally of the 23 July 1952 Revolution, Nasser reasserted his commitment to building “a new state based on justice, based on fair distribution, based on equal opportunity and based on freedom of choice” (Nasser 1961).2 The message, embodied in these few words, has unmistakable resonance with the call for “bread, freedom, social justice.”

Nasser’s dream of a strong, united, and modern Arab nation remains ingrained in the Egyptian and, indeed, the Arab psyche as something to aspire towards. His project and ideals were emblematic of the exuberance and optimism of the post-independence era. This is often contrasted with the political, social, and moral decay with which Egyptians are grappling today. Amin (2000) explains it succinctly in his seminal work. Since the adoption of the open-door policy of Anwar Sadat, or infitah, in the 1970s, the prospects of an independent developmental model in Egypt, and indeed in the Arab region, have diminished and in its place we see everywhere economic growth without development, rising inequality, persistent poverty, and social upheavals which have finally culminated in a serious crisis of legitimacy for the Arab regimes.

This paper argues that the decline of the welfare state in Egypt since 1991 has contributed to the erosion of the legitimacy of the Hosni Mubarak regime, leading to the 25 January uprising. Neoliberal “reforms” dictated by the economic crisis and international financial institutions (IFIs) led to the alienation of the middle and lower classes and the emergence of a new economic elite, whose dubious links to the ruling class have undermined the regime’s legitimacy and helped fuel the 25 January uprising.

The paper is structured as follows. The next section outlines the shifting relationship between social justice and development in the neoliberal era. The following section then examines Egypt’s paradigmatic shift from socialism to Neoliberalism, and the social and political cost it entailed. Finally, the paper briefly overviews Egypt’s current social policies and their implications for social justice.

## Social Justice and Neoliberalism

Social justice is typically taken to mean distributive justice, the “fair and just distribution of rights, opportunities, and resources” within a society (Cramme and Diamond 2009, 3). From a Marxist perspective, it is about social equality. Injustice in this reading appears in the form of class inequalities, rooted in the economic structure of society (Miller, cited in Morvaridi 2008, 21). The neoliberal conception, on the other hand, emphasizes equal respect and equal opportunity. The World Bank discourse holds that: “The evidence that equity and economic efficiency as well as growth are complementary in the long run helps to integrate the main two components of the World Bank’s poverty reduction strategy. The focus on broadening opportunities strongly supports the first pillar of the World Bank’s development strategy, namely enhancing the investment climate for everyone” (United Nations Development Program (UNDP) 2005, xi). In this reading, the poor are perceived as rational, free individuals who could choose to work hard and lift themselves out of deprivation. This rational choice approach underpins neoliberalism and therefore the dominant mainstream development theory and practice followed by global institutions and imposed on countries of the Global South. Thus, a process of “depoliticization of development” has shifted the emphasis from the role of the state to individual agency within the market. This explains the growth of microfinance in recent years. The underlying assumption is that if the poor are provided with loans, then they should be able to work their way out of poverty and thus the structural problems in society need not be confronted and engaging with them can be avoided altogether. According to the World Bank, “When markets are missing or imperfect, the distributions of wealth and power affect the allocation of investment opportunities. Correcting the market failures is the ideal response” (2).

According to Bogaert (2013), the neoliberal reforms stressing privatization, deregulation, and fiscal discipline, embedded in the Washington Consensus, were underpinned by a technocratic view on how to reform public institutions in order to deal with globalization. This kind of thinking has produced a depoliticized conception of reform, drawing a clear line between the sphere of economics and the sphere of politics. The late 1990s saw the rise of the post-Washington Consensus as the new hegemonic discourse on development, which essentially added the concept of “good governance” to the old recipe. Good governance embodied a guiding principle that recipient governments should abide by when adopting the institutional reforms dictated by donor institutions. With this shift, the World Bank and other international donor institutions emphasized the crucial role of governmental institutions in supporting “inclusive” economic growth. Basically, the ills plaguing developing countries were now being attributed to “bad governance” and are, therefore, “indigenous” or rather endemic to the region, and not related to social contradictions inherent in the development models promoted by donor governments and institutions since the 1980s (217–18).

However, “the local is not just the product of the global” (216). Neoliberalism cannot succeed without the involvement of local actors who perceive the neoliberal model as conducive to their own interests. The ruling class and local capitalists may therefore embrace and promote the dominant neoliberal model. In democratic countries, neoliberalism constrains the choices of policymakers and undermines the legitimacy of elected governments (Joya 2011). In (non-democratic) Arab countries, neoliberal reforms represented a qualitative shift from some form of state-led development essentially to authoritarian modes of neoliberal government. Consequently, authoritarianism in the region has been transformed by the ways in which the interests of local ruling elites and global capital became increasingly entangled. This gave rise to new arrangements where “market imperatives” shaped and justified the authoritarian modes of government (Bogaert 2013, 215).

Bogaert (2013) argues that the Arab uprisings, known as the Arab Spring, represent not only a revolt against dictatorship but also expressions of a systemic crisis, a structural crisis of the social order of neoliberal globalization. A rich body of literature was produced over the course of the past few years analyzing the “Arab Spring” as a distributional conflict. Joya (2011), for example, argues that the January uprising in Egypt was directed against authoritarianism and also the neoliberal agenda imposed on Egypt since the 1980s, and this has led to “accumulation by dispossession.” Economic reform and structural adjustment were intricately linked to corruption and crony capitalism. Joya contends that rising inequality and the wealth gap between the economic elite, who benefited from the economic reform, and the vast majority of Egyptians, who remained marginalized economically and politically, and who bore the brunt of neoliberal economic reforms, fueled social tension and led to the mass mobilization against the ruling and economic elite, but also against economic exploitation and continued injustice.

Similarly, Mansour (2016) discusses what she calls “Mubarakism” and the failure of development policies in Egypt. She argues that the Economic Reform and Structural Adjustment Program (ERSAP) failed to bring about genuine reform and instead created “a deficient economic system in a supposed ‘liberalized’ and ‘open’ capitalist economy, characterized by monopolies” (3). Mansour concludes that the January uprising was the result of “politics of exclusion” and what she calls “the poverty of rights.”

Similarly, Abdelrahman (2017) attributes the January Revolution to the uneven and partial application of neoliberalism. She argues that although neoliberalism may take different forms depending on the nature of capitalist development in each country, its outcome is basically similar everywhere, with a greater share of the surplus going to the wealthy elites (185). Abdelrahman contends that increasing income inequality and what she calls “policies of dispossession” led to the 25 January uprising. She then goes on to explain how police brutality and growing political repression contributed to the alienation of the masses and helped create a focus for mobilization (186).

Pfeifer (2016) explains how social movements in Egypt and Tunisia grew in opposition to neoliberal policies. She explains how the IFIs took credit for the macroeconomic successes in both countries and how they continued to push for more liberalization and for better “good governance” indicators. Kandil (2012) explains how the neoliberal reforms undertaken in recent decades have diminished many of the material and political achievements of the middle class and led to the rise of a new class of capitalists connected to the regime. This created widespread dissatisfaction among the middle class and led to what he describes as a “middle-class uprising.” Diwan (2013) makes a similar argument, contending that the shifting interests of the middle class would have to be a main aspect of a coherent explanation of the Arab revolts, on both distributional and modernization grounds, and that the ongoing transformation can be best understood in terms of the “defection” of the middle class from the authoritarian bargain.

## The Neoliberal Turn in Egypt

The transformation of the Egyptian economy from a statist developmental model in the 1950s and 1960s to first rentierism in the 1980s and, finally, to a neoliberalism one in the 1990s and 2000s can be divided roughly into four periods:

• 1961–73: the post-Revolution period saw a gradual shift towards state-led development when the economic sphere was dominated by the state (officially institutionalized in the National Charter of 1962) and marked by nationalization of the private sector with a central role for the public sector and dramatic expansion of welfare policies.

• 1974–85: the Open Door Policy, “Infitah,” coincided with an economic boom brought about by a series of windfall rents: high oil prices; Israel returning the Sinai oil fields; the reopening of the Suez Canal; and remittances from Egyptian workers in Arab countries. This encouraged the expansion of public-sector expenditures, in particular through public employment and subsidies.

• 1986–90: this period was characterized by Egypt’s failure to deal with the economic crisis brought about by the crash of oil prices and the challenges posed by the changing world economic structure. The economic slowdown of 1981,3 caused by the recession in Western industrial countries, affected all major regions of the world, and was particularly felt in the developing countries, most of which experienced a significant fall in per capita income, Egypt included.

• 1991–2011: Egypt’s neoliberal “turn,” inaugurated with the conclusion of a Stand-By Agreement (SBA) with the International Monetary Fund (IMF) and a Structural Adjustment Loan (SAL) with the World Bank in 1991.

In an attempt to explain the implications of this paradigmatic shift in the Egyptian economy for the welfare state, a brief account will be given of the interplay of state-led development and the welfare state in the post-independence period followed by a discussion on how the relationship between the two became reordered in transition to neoliberalism after the crisis of the 1980s.

### The post-1952 Revolution era

In addition to the agrarian reforms of 1952, 1961 and 1970, there were reforms under the twin objectives of accumulation and redistribution. These policies introduced direct state control over the major economic assets, as mentioned above. As a result of the expansion of formal employment for graduates of secondary schools and universities and the state’s direct involvement in the production process, social protection schemes emerged as a main component of Egypt’s welfare regime, in addition to the universal food subsidy system, which has remained the main mechanism for extending income security to the poor. Finally, the third dynamic influencing the welfare regime’s development was Nasser’s adoption of Arab socialism as the official state ideology, thus linking the legitimacy of the regime to the extension of social rights. This was the essence of the authoritarian social contract forged in the Nasserist era; people received the benefits of free public services in return for their political acquiescence.

Arab socialism in mid-century was a movement of protest against the concentration of political and economic power in the hands of a small elite (Torrey and Devlin 1965, 47), and this is where its appeal lies. However, despite its emphasis on social justice, freedom and equality, Arab socialism was based primarily upon economic improvements from above and not a popular democratic initiative (Abdel-Malek 1964, 46). The intelligentsia remained divided ideologically, between Marxism, Arab socialism, and Islamic fundamentalism, which constituted the major ideological affiliations. The masses, while rallying around Nasser as a person and leader, remained largely ambivalent towards socialism as an ideology and a guiding principle for economic and social organization. Socialism essentially means that “the delegates of the ‘popular forces’ direct the political and economic life of the country”—this was never the case in Egypt. The socialist project in Egypt was an elitist project, so much so that Ahmad Baha Eddine4 wrote that “the revolution has concentrated its efforts on building the ‘material characteristics’ of socialist society without concentrating on its ‘human characteristics,’ i.e. the socialists! There can be no socialism without socialists!” (Ahmed Baha Eddine, cited in Abdel-Malek 1964, 46). This is the reason why, when Egypt’s socialist system came under attack, there was no one there to defend it.

### 1974–85: The Open Door Policy, Infitah

The decision to embark on Infitah was a political decision; it was not directly dictated by new international or domestic imperatives. Rather, it was the product of the political leadership’s reading and translation of the economic situation and the nature of Egypt’s political and economic crisis at the time. At the national level, Sadat inherited a centralized economy burdened with chronic problems. At the regional level, the oil boom of the mid-1970s led to the accumulation of large amounts of petro-dollars looking for investment opportunities. More importantly was Sadat desire to distance Egypt from the Soviet Union and join the US camp (Kandil 2012, 204). Thus, in 1973, Sadat presented the October Paper, which called for the opening of the Egyptian economy to foreign and Arab investments, as well as promoting the role of the private sector in the economy.5

Egypt’s structural economic problems were traced to an inefficient state-led model of development that had been pursued since the time of Nasser. It was argued that a comprehensive strategy of economic reform was essential for economic recovery (Selim 2015, 51). In June 1974, Law No. 43 of 1974 was passed: it allowed tax concessions for foreign private companies in the form of tax exemptions, exemptions from labor laws, import/export licenses, and exchange rate control regulations. They were seen to be a solution to Egypt’s economic problems as well as a new vehicle of economic development. In 1977, the government was hoping to conclude a stabilization agreement with the IMF, but it was soon abandoned following the mass protests of 1977 that came to be known as the “bread riots.”

Infitah turned the Egyptian economy into a semi-rentier economy (El-Beblawi 2008, 20). The state became dependent on a series of windfall rents, including revenues from oil sales, foreign aid, workers’ remittances, Suez Canal fees, and tourism. In the short run, Egypt benefited from the semi-rentier status. Between 1974 and 1981, the economy grew at an average rate of 8 percent per year.6 This led to an increase in social welfare spending. For example, the subsidy system expanded during the 1970s and increased from less than 1 percent of government expenditures in 1970–71 to 16.9 percent in 1975, reaching 19.5 percent in 1981–82. Starting in 1985, however, welfare spending as a percentage of gross domestic product (GDP) started a gradual decline, amounting to 22.8 percent of GDP in 1980–84 and dropping to 13.1 percent in 1985–89 and again to 6.7 percent in 1990–94 (El-Meehy 2009, 100).

By the mid-1980s, the sharp decline in oil prices, diminishing of remittances from migrant workers, recession in the global economy, and the sharp decrease in the flow of foreign aid had a negative impact on revenues (El-Beblawi 2008). The crisis was further aggravated by accumulated foreign debt, which in 989, amounted to US$49 billion (World Bank 1990) plus a large share of social expenditures that amounted to approximately 30 percent of GDP in 1981–86 (El-Meehy 2009, 107). With no solution in sight, the IMF was called in to help. Until the late 1980s, Infitah meant no more than a limited version of economic liberalization in which the state continued to be the dominant player in the economy (Selim 2015, 52). Until the late 1980s, the state managed to evade fully implementing the IMF program and thus avoided negating the corporatist role and welfare obligations that were part of the social contract forged under Nasser and provided political legitimacy to the Sadat regime. By the 1990s, however, Egypt’s debt crisis, coupled with mounting international pressures and the debacle of the Second Gulf War (estimated to have cost Egypt between US$2.5 billion and US$3.6 billion) left the government no choice but to conclude a SBA with the IMF in May 1991, and a SAL with the World Bank in October that year. These together made up the core of the so-called ERSAP (Lofgren 1993, 408). ### 1991–2010: Egypt’s “neoliberal turn” In 1991, conditions became more favorable to conclude the ERSAP. During the Gulf War, aid received from Western and Arab governments doubled Egypt’s foreign-exchange reserves. In the same period, Egypt’s debts to the United States and Arab Gulf countries, amounting to a total of some US$14 billion, were forgiven (Lofgren 1993). The improved economic situation made the policy shift more palatable to the people and the agreement was finally concluded in September 1991. The ERSAP marked a complete change of direction in Egypt’s economic policy and a paradigmatic shift from statism to a neoliberal framework. The program covered two policy areas: short-term “stabilization,” which included fiscal and monetary reforms designed to cut public expenditure, increase public savings, and achieve sustainable growth; and “structural adjustment,” which included domestic price liberalization, foreign trade liberalization, and the privatization of the public sector (Korayem 1997).

ERSAP was supposed to open Egypt to global trade, but this did not happen. The country’s openness index, which measures the value of exports and imports of goods and non-factor services as a proportion of GDP, plummeted from 88 percent in 1985 to 47 percent between 1996 and 1999 (Mitchell 1999, 457). Privatization, perceived as the cornerstone of Egypt’s economic reform, was a highly corrupt “state-led and state-controlled process,” which led to the rise of crony capitalism and enabled the government to “socialize costs and privatize gains” (Cox 2015). It became “a new source of patronage to reinforce and extend links between the political and economic elites” (Bogaert 2013, 222) and led to the sale of profitable public companies.

Despite obvious improvement in macroeconomic indicators and initial economic growth, which was hailed by the IMF as a “remarkable turnaround in Egypt’s macroeconomic fortunes,” these changes in the Egyptian economy had a detrimental impact on the nature of the social contract forged since 1952 between the state and society. This social contract was enshrined in the 1971 Constitution (amended in 1980). Articles 1 and 4 of the Constitution stated that Egypt was a socialist democracy and emphasized socialist principles and central planning. Article 13 stated that employment was considered “a right, a duty, and an honor guaranteed by the state.” Article 16 guaranteed social and health services. Article 20 stated that state-sponsored education was free. The Constitution also gave the state the main role in managing and allocating resources by giving the public sector a dominant place in the economy and insisting on central planning to achieve economic and social development (Republic of Egypt 1971).

In this respect, Egypt’s turn to neoliberalism was not simply about changing economic policy: it involved a radical transformation in the state–economy–society relationship. In March 2007, the Constitution was amended to reflect these developments. Some of the most relevant amendments were found in Article 4, which defines the nature of the Egyptian economy and social justice, and in Article 24, which defines the role of the state in the economy. These amended articles turned Egypt into a laissez-faire economy and confined the role of state (Republic of Egypt 1971, 7).

These changes had a negative impact on welfare. If we look at the ratio of indirect taxes, which mainly affect lower income groups who spend more (if not most) of their income on consumption (Handoussa 2010, 51), to the expenditure on subsidies, which benefit these groups, we can better estimate the full impact of these reforms on welfare and equity. Between 1991 and 1994, welfare spending fell to 6.7 percent of GDP, while indirect taxes amounted to 4 percent of GDP. Between 1995 and 1999, welfare spending fell further to 4.0 percent of GDP, while indirect taxes rose to 5.0 percent of GDP (El-Meehy 2009, 16, 108).

According to El-Meehy (2009, 106), the process of welfare regime retrenchment in Egypt has proceeded in two stages. In the first stage, in the late 1980s, social expenditure decreased from 30 to 17 percent of GDP. During this stage, the structure of social provision was not changed, but the state sought to cut spending through subtle reforms, such as gradually reducing the quantity of a certain subsidized food item. The second stage of retrenchment started with the implementation of structural adjustment reforms in 1991. After 1991, the state continued to resort to socialist rhetoric and continued to espouse a pro-poor stance. However, the rights-based conceptualization of social welfare which in the past guaranteed citizens equal access to public goods and services was gradually eroded and gave way to a poverty-alleviation approach, which led to a proliferation of programs of social assistance to the poor such as subsidies and cash transfers that addressed the symptoms and not the causes of poverty and did not contribute to building human capital (Jawad 2013). According to Handoussa (2010, 53): “A fiscal policy that relies on subsidies and transfers to protect vulnerable groups yields only short-lived protection. It ignores investing in the human capital and thus relinquishes the future permanent payback in terms of jobs, growth and poverty reduction that guarantees its sustainability.” This approach was encouraged by donors and IFIs such as the World Bank and the IMF. Thus, the new agenda for social policy in Egypt became focused on the provision of social safety nets and unconditional cash transfers for the poor, with a trivial emphasis on measures to promote social cohesion or social rights (Jawad 2013). In 1991, the Social Fund for Development (SFD) was created with the support of the World Bank’s International Development Association (IDA) and aimed to serve as a safety net in the face of rising unemployment and the poverty that it brought.

In theory, the old social contract has been kept, and although the Constitution was amended in 2005 to accommodate political change (i.e., the direct election of the president), the social terms of engagement between citizens and the state have not changed but have been relentlessly hollowed out (Handoussa 2010, 46). The government continued to proclaim that it was on the side of limited-income groups “mahdudi aldakhl,” and stressed the heavy burden of its pro-poor policies.7 Unfortunately, these policies were grossly distorted, disproportionately benefiting the non-poor. For example, the richest 20 percent of the population received 30.5 percent of total food subsidies, and the richest 60 percent of the population received 45 percent of the total food subsidies (48). Furthermore, subsidy programs were often marred by allegations of corruption, leakages, and lack of transparency in implementation and delivery. A famous example where corruption undermined pro-poor programs was the National Housing Program (NHP) known as “iskan Mubarak” launched in 2005 (Shawkat 2014, 227).

Other social rights, such as public education and healthcare, were not explicitly withdrawn but were left to deteriorate. According to Hatem (2005, 240), the unchecked deterioration of the public education system led to what she calls “unregulated privatization” of this system, which limited the access of the poor to a higher quality education (241). In short, “There was an official tolerance of policies of benign neglect of basic welfare programs, and the acceptance of growing inequity in the distribution of income and in the quality of social services” (Waterbury, cited in Hatem 2005, 240). This trend went parallel with another trend, namely the growth of a hidden or informal economy. The two trends seemed to share a symbiotic relationship and thus they both thrived and reinforced each other. Because the political leadership wished to retain “hegemonic control with a minimalist role” (Tadros 2006, 237), formal economic institutions would not allow a meaningful transition to materialize. They facilitated, instead, the spread of informality.

In the institutional vacuum left by the retreat of the state, a hidden system of public services seemed to grow and thrive in the ruins of the formal system. The more the formal system of social services became dilapidated, the more the middle and lower classes had to rely on the informal system to get their needs met (Tadros 2006, 251). For example, expenditure on private tutoring represents a large share of what families spend on their children, amounting to 41 percent of the total family expenditure for primary school children and 61 percent for students in preparatory and secondary education (Handoussa 2010, 69).

Despite decades of neoliberal reforms, Egypt has not emerged as a truly neoliberal economy. Neoliberal reform in the Egyptian case meant the state controlled “the economy more indirectly through specific forms of market de- and re-regulation, the redistribution of resources among domestic and foreign economic elites (e.g., through privatizations)” (Bogaert 2013, 223). Businessmen closely connected to the ruling elite acquired a monopoly over key sectors of the economy and amassed wealth through “the state sponsored appropriation of public resources facilitated by the IMF-led privatization program” (Joya 2011, 371). It is against this backdrop of “accumulation by dispossession” that the 25 January Revolution, and indeed all the Arab revolts, need to be understood.

Resentment grew in the 2000s and peaked around the 2008 financial crisis. Protestations mainly came from middle-class civic groups and the rank and file of the labor movement. El-Mahdi (2011, 399) argues that the workers’ movement arose from a rupture in the hegemonic relationship between the workers and the state as an employer and a political ally. However, far from aiming at restoring this relationship and the economic gains and privileges that came with it, it aimed to secure political demands having to do with minimum wage and autonomous organization. In fact, labor action in 2006 and 2007 is said to have ushered the January uprising (Pfeifer 2016, 60). According to El-Mahdi (2011, 400), through their protests and strikes, workers hastened the break of the populist–corporatist ruling pact that has bound successive Egyptian regimes to society since 1952. The workers’ movement has succeeded in challenging the hegemony of the state-dominated union, and paved the way for a more active civil society based on collective organization (El-Mahdi 2011).

## Social Welfare After the January 25 Revolution

It has been argued that the “Arab Spring” has opened a new window of opportunity in the Middle East and North Africa (MENA) region, including Egypt, to formulate a new social contract that can achieve the twin objectives of development and social justice. It has also been argued that it is time to shift from the “authoritarian corporatist” social policy regime that prevailed before the Arab revolutions to a democratic and developmental one and that this new social policy regime should be the outcome of social dialogue between different social groups and the active participation of civil society (Karshenas, Moghadam, and Alamia 2014). However, neoliberalism has proved resilient. It is clear that the political leadership is adamant on deepening Egypt’s neoliberal transformation. In his September 2014 speech, before the Euromoney Egypt Conference, President el-Sisi made his priorities clear invoking stability, investment, and growth: “For too long, excessive and ineffective government spending, wasteful energy subsidies, endemic corruption and economic mismanagement have undermined the promise of our country, strangling our economy and our people’s dreams” (El-Sisi 2014).

In 2014, the IMF urged Egypt to adopt “prudent economic management” coupled with “bold reforms” in order to facilitate “private sector-led growth.” The economic reform program was officially initiated in November 2016 with the signing of the Extended Facility Fund (EFF) with the IMF, under which Egypt received US\$12 billion loan over three years. In order to secure the loan, the government floated the Egyptian pound and liberalized fuel prices. In August 2016, the government approved a new 13 percent value-added tax, with exemptions for some basic goods and services. These reforms aimed to address the budget deficit, but they also meant shifting a big part of the burden for fiscal restructuring over to the middle class and the poorer segments of Egyptian society, who are most affected by inflation and higher taxes (Shokr 2017, 4).

In order to weather the negative effects of the IMF-sponsored economic reform program, the government has been investing in reforming and bolstering the social safety net that targets the poorest households and the most marginalized communities by way of cash transfers, microfinance, and other poverty-alleviation measures. However, political stability is contingent on the regime’s ability to forge a new social contract with all segments of Egyptian society. Poverty alleviation, while commendable and much needed, should be an integral part of social policy and cannot replace a long-term holistic approach to a welfare system designed to build and invest in Egypt’s human capital. The provision of education and healthcare services, for example, remains extremely underfunded, despite being the two pillars of economic development. The percentage of the government’s budget allocated for pre-university education declined from 11.9 percent in 2004 to 7.4 percent in 2017. Similarly, the percentage of the state budget allotted for university education fell from 3.5 percent to 2.3 percent. This decrease becomes more substantial when viewed against a population growth rate of 2.017 percent, double the global average. Moreover, the bulk of the state’s current education budget goes toward teachers’ salaries, amounting to 82 percent, while only 10.48 percent goes toward the construction of new schools. The ambitious reforms to the education system proposed by Tarek Shawki, the current Egyptian Minister of Education, cannot be implemented without a substantial increase in funding. Similarly, government expenditure on public healthcare has been very low amounting to only 2.15 percent of the gross national product (GNP) in 2014 (Abdel Ghaffar 2018).

Providing good-quality social services is not a luxury, it is a key component of sustainable development, it is a means for building a social contract between the state and its citizens and ensuring social justice for all. Here, another important question that arises is how the government will deal with the informal economy, which according to the estimates of the World Bank accounts for 40 percent of employment in the country (Shokr 2017, 5). The informal economy includes a population whose “habitation or livelihood verges on the margins of legality” (Chatterjee, cited in Shokr 2017, 5). Inclusive growth and a sound development plan require bringing this segment into the formal boundaries of state control to be able to target them for social assistance and funnel them into the formal economy.

The current austerity measures have taken their toll on the middle and lower classes and, in the absence of a strong welfare state which could underpin a new authoritarian bargain, political and social stability could eventually be at stake. According to the World Bank, between 2016 and 2018, nominal wage growth fell below inflation. Official estimates reported that the share of the population living below the national poverty line in FY18 rose to 32.5 percent, from 27.8 percent in 2015, with the highest poverty rates still in rural Upper Egypt (World Bank 2019).

## Conclusions

Thirteen years ago, the UNDP dedicated its Egypt Human Development Report (2005) to promoting the idea that a new social contract was needed. It argued that efficient social services and utilities are crucial to higher living standards and social mobility, and that this in turn “promotes higher levels of human development, greater labor productivity and increased economic growth” (vii). At the same time, it called for a bigger role for the private sector in the provision of public services, since a universal welfare regime in Egypt is too costly to be shouldered by the government alone. In its report titled Egypt’s Social Contract: The Role of Civil Society (2009), the UNDP builds on the notion of a new social contract, introduced in its previous report, this time by calling for the integration of civil society “as the ‘third’ pillar of the state, alongside government and the private sector, in a new social contract for all” (UNDP 2009, vii). In order for this new social contract to materialize, the report declares, in its introduction, that legislative and administrative “measures” must be taken by the government in order to enable civil society organizations to participate as active partners in welfare and services provision, emphasizing the role of civil society as “the voice of reform through its capacity to monitor and to render accountable all stakeholders in the national endeavor” (viii). Sadly, however, the advice went unheeded.

Whether the current government of Egypt, or indeed other Arab governments, will keep these recommendations in mind when designing future social policy is unclear. What is certain, however, is that Egypt’s political leadership has chosen to continue on the neoliberal path. What is worrisome, however, is that policymakers in Egypt insist on defining poverty as a phenomenon that could be alleviated by social assistance programs and, therefore, they tend to focus on mitigating the impact of neoliberal reforms on the most vulnerable groups and not on addressing the causes and roots of inequality. The current perception that cash transfers can supplant public provision of social goods and services and become a magic pill for poverty reduction is false (Ghosh 2011). What Egypt needs today is a new approach to social policy based on a clear conceptualization of social rights and a new social contract between state and citizens that would promote social cohesion and social justice. The 2014 Constitution provides a good base for such an approach. Social justice is mentioned eight times in the preamble and in Articles 8, 9, 27, 38 and 78. The Constitution requires parliament to allocate no less than 3 percent of GNP for the health sector, no less than 4 percent for education, and 2 percent for university education. What Egypt now needs is an open and earnest national dialogue on how rights, duties, and social solidarity should contribute to a more comprehensive and integrated social policy agenda (Jawad 2013).

Finally, the official political discourse on social welfare in Egypt needs to change. The government needs to adopt a clear right-based approach to welfare provision and avoid politicizing welfare programs by using them for populist propaganda aims. More avenues for expression and participation need to be opened for citizens and the top-down approach to policymaking needs to be reconsidered. Adding political exclusion to economic and social marginalization would, in the long run, erode the regime’s legitimacy and undermine social and political stability.

Meanwhile, the government and the press can continue to invoke the memory of Egypt’s socialist era, drawing comparisons between the two regimes. The official website of the Egyptian government features a news article on Egypt’s nuclear project titled “Abdel Nasser’s, Dream Sisi’s Achievement.”8 The country’s leading newspapers keep resurrecting Nasser’s legacy. For example, the Ahram online featured an article recently titled “The Dream that Won’t Quit—A Nasserite Welfare State.”9 The Chairman of the Egyptian Federation for Investors Associations likened President Sisi to Nasser, saying that he is walking in the latter’s footsteps, in his inaugural speech at the “Egypt in the Heart of Africa” conference (Nadi, Bahi and Ramadan 2014). In a television interview with famous anchors Lamis El-Hadidi and Ibrahim Eissa, Sisi, a presidential candidate at the time, was asked about being compared with Nasser. He answered by saying that it was an honor to be likened to Nasser and that he wished he could be like him.10 Nasser’s shadow is long indeed, but behind this nostalgia lies the story of a long and painful transition from a welfare state to a semi-neoliberal one that has cost the Egyptians their dream of social justice.

1.

The Egyptian Constitution terms the two incidents in question “Revolution” or “thawra,” although in academia whether these two incidents constitute a revolution is subject to controversy.

4.

A prominent Egyptian writer who was editor-in-chief of several magazines and newspapers, including Sabah El Khair, Akhbar El Youm and Al Ahram, who died in 1996.

5.

Sadat’s October Paper (Speech of President Sadat on 18 April 1974) translated from the Arabic by the author; see http://www.moqatel.com/openshare/Wthaek/Khotob/Khotub8/AKhotub72_4-17.htm_cvt.htm/.

7.

For example, addressing the workers on Labor Day in 2010, President Mubarak declared: “you will always find me on your side, biased to your cause and supporting your rights. […] Our goal is decent wages for workers, pensions that take into consideration inflation, high prices and unemployment. The fruits of economic growth must reach the simple citizen, we continue to reform the subsidies system and protect vulnerable families.”

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