What price bread in Egypt?

Moving from an "autocracy of bread" to a "democracy of bread".

Debate rages as to the exact nature of events leading to the military ousting of President Mohamed Morsi. Was it a conspiracy engineered by the legions of personnel left in place after the departure of former President Hosni Mubarak; the failure of the police to maintain law and order and state agencies to provide adequate power supplies that whipped the people into fever pitch?

While the validity of these accusations may be a matter of contention, the challenges facing Mubarak, Morsi and Egypt’s next president are the same: how to restructure Egypt’s economy to end the crippling regime of subsidies that hamper growth and act as a drag on government finances.

Food subsidies have been used as a tool to buy loyalty and ensure stability for decades. While a continuing burden, Egypt began to feel the pain in 2008, when grain prices reached record levels and unemployment soared.

By 2010, the Egypt government’s bread subsidy bill topped $3bn a year. Much of this took the form of selling subsidised flour to local bakeries; an inefficient process system that lent itself to massive corruption. As global prices rose bakers resold subsidised flour and bread into the black market, where they could go for five or more times the subsidised rate, pushing up the price of bread for consumers.

The US contributed to the creation of the "autocracies of bread" through the provision of cheap wheat as a device to secure influence during the Cold War. Egypt’s Hosni Mubarak was the main recipient along with Iraq’s Saddam Hussein who received billions of dollars’ worth of surplus American wheat through grants and loan guarantees, while Jordan, Yemen, and other Middle Eastern countries got lesser amounts. This funding of the "social safety net" was seen as a cheap way of keeping friendly regimes in power.

In the long term cheap wheat has come at a high price; lack of investment in domestic agricultural production and a dangerous dependence on cheap imports from abroad. Bread subsidies also failed to lift the recipients out of poverty. The Middle East is the only region outside sub-Saharan Africa where the number of malnourished people has risen since the early 1990s with Egypt and Tunisia experiencing declines in the standard of living for all income groups outside of the top 20 per cent, despite the rise in GDP.

In 2008 when the price of bread soared, a wave of bread riots broke out across the MENA region. Governments intervened by raising wages, cash handouts and increased subsidies. These were short term remedies that proved unsustainable and had the unintended consequence of making more people dependent on subsidised bread.

Over the next two years a combination of factors - changing consumption patterns among the developing world’s middle class, drought, poor harvests, bio fuels and export embargoes - pushed food prices to an all-time high. The United Nations’ Food and Agriculture Organisation announced in early 2011 that food prices had surpassed 2008 levels.

The regimes in the region responded in the way they always had - with subsidies. Egypt, Yemen and Jordan increased food subsidies, Algeria, Tunisia and Morocco lifted customs duties and import tariffs on food, while Saudi Arabia unveiled a multi-billion dollar spending plan.

For hydrocarbons poor Egypt, the challenge was how to keep pace with subsidies at a time of contracting government revenue. Egypt’s food bill is unsustainable without significant donor handouts or high tourist receipts. The donors have been deterred by the policies of the Morsi government and the tourists have stayed away because of violence on the streets.

If the ousting of Morsi leads to the election of a secular leadership the donors may return. Saudi Arabia is willing to find a non-Muslim Brotherhood leadership and a new president may reach accommodation with the IMF for the release of funds. While these scenarios may stabilise Egypt in the short term and allow the government to continue to fund its food bill, donor aid will simply allow the restructuring of the Egyptian economy to be postponed until some indeterminate time in the future. The fundamental problems and grievances will be perpetuated transforming the government from an "autocracy of bread" to a "democracy of bread".

Photograph: Getty Images

JLT Head of Credit & Political Risk Advisory

Photo: Getty Images
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How can the left make the case for immigration?

All too often, we drift into telling people we want to convince that they just don't get it.

We don’t give the public enough credit. You’ll often hear their views dismissed with sighs in intellectual circles. In fact on most issues the public are broadly sensible, most are these days supportive of cutting the deficit and dubious about political giveaways, but in favor of protecting spending on the NHS and education. Yet there is one issue where most, “knowledgeable” folks will tell you the public are well out of step: immigration. 

With [today’s] net migration figures showing yet another record high, it is an ever more salient issue. On a lot of measures ‘too much immigration’ ranks highest as the number one concern (see Ipossmori). The ongoing rise of right wing political parties across Europe demonstrates that simply enough. But concerns about immigration don’t just sit with those with more extreme views, they’re also shared across the mainstream of public opinion. Yet unlike thinking on cutting the deficit or funding the NHS the public consensus that immigration is bad for Britain, flies flat in the face of the intellectual consensus, and by that I mean the economics. 

Given the intense public debate many a study has tried to spell out the economic impact of immigration, most find that it is positive. Immigration boosts the nation’s GDP. As the theory goes this is because immigrants bring with them entrepreneurialism and new ideas to the economy. This means firstly that they help start new ventures that in turn create more wealth and jobs for natives. They also help the supply chains to keep ticking. A example being British agriculture, where seasonal workers are are needed, for example, to pick the strawberries which help keeps the farms, the truckers and the sellers in business. 

Most studies also find little evidence of British jobs being lost (or displaced) due to immigrants, certainly when the economy is growing. Indeed economists refer to such “ “they’re” taking our jobs” arguments as the “lump of labour fallacy’. On top of all that the average migrant is younger than the native population and less likely to rely on welfare, so their net contribution to the state coffers are more likely to be positive than natives as they don’t draw as much state spending from pensions or the NHS. 

So why haven't the public cottoned on? Many progressive types dismiss such views as racist or xenophobic. But it turns out this is to misunderstand the public just as much as the public ‘misunderstand’ immigration. When you study people’s views on immigration more closely it becomes clear why. Far from being racist most people asked by focus groups cite practical concerns with immigration. Indeed if you go by the British Social Attitudes Survey a much smaller number of people express racist view than say they are concerned about migration.  

The think tank British Future broadly set out that while a quarter of people are opposed to immigration in principle and another quarter are positive about it the majority are concerned for practical reasons - concerns about whether the NHS can cope, whether there are enough social houses, whether our border controls are up to scratch and whether we know how many people are coming here in the first place (we don’t since exit checks were scrapped, they only came back a few months ago). But more than anything else they also have very little confidence that government can or wants to do anything about it. 

This truth, which is to often ignored, begets two things. Firstly, we go about making the argument in the wrong way. Telling someone “you don’t understand immigration is good for our economy etc etc” is going to get a reaction which says “this person just doesn't get my concerns”. Despite the moans of progressives, this is precisely why you won't hear left leaning politicians with any nous ‘preaching’ the the unconditional benefits of immigration.

More importantly, the economic arguments miss the central issue that those concerned with immigration have, that the benefits and effects of it are not shared fairly. Firstly migrants don’t settle homogeneously across the country, some areas have heavy influxes other have very little. So while the net effect of immigration may be positive on the national tax take that doesn't mean that public services in certain areas don’t loose out. Now there isn't clear evidence of this being the case, but that could just as well be because we don’t record the usage of public services by citizenship status. 

The effects are also not equal on the income scale, because while those of us with higher incomes scale tend to benefit from cheep labour in construction, care or agriculture (where many lower skilled migrants go) the lower paid British minority who work in those sectors do see small downward pressure on their wages. 

It’s these senses of unfairness of how migration has been managed (or not) that leads to the sense of concern and resentment. And any arguments about the benefit to the UK economy fail to answer the question of what about my local economy or my bit of the labour market. 

Its worth saying that most of these concerns are over-egged and misused by opponents of immigration. Its only a small factor in stagnating wages, and few local areas are really overrun. But the narrative is all important, if you want to win this argument you have to understand the concerns of the people you are trying to convince. That means the right way to make the argument about immigration is to start by acknowledging your opponents concerns - we do need better border controls and to manage demands on public services. Then persuade them that if we did pull up the drawbridge there is much we’d loose in smart entrepreneurs and in cultural diversity. 

Just whatever you do, don’t call them racist, they’re probably not.

Steve O'Neill was deputy head of policy for the Liberal Democrats until the election.