convey a flavor of this problem. I have already quoted the Ministry of the Public Enterprise Sector’s estimate that in 1996 (before the Egyptian authorities had agreed to a restructuring of the public enterprise labor force under an IMF/World Bank program), almost one-third of the more than 900,000 workers employed in public-sector enterprises were redundant. Earlier, Waterbury (1983, 246) quoted an official report on overstaffing which noted that in 1975 the Ministry of Human Resources asked the Ministry of Agriculture for the number of graduates that it would need in the following year. The answer was 261 university graduates and 495 with secondary agricultural diplomas. Facing this demand was a supply of eight thousand graduates of agriculture faculties and higher institutes, and eleven thousand holders of agricultural secondary school diplomas. One can only guess at the frustration suffered by graduates who were unsuccessful in getting one of the advertised jobs, and also by those who were forced by circumstances to accept jobs the requirements of which fell well below the graduate’s qualifications.
The problem is durable. Nearly a quarter of a century after the incident described by Waterbury, a headline in the Egyptian Mail (December 5, 1998, p. 2) blared that “3 Million Employees Get Paid for Doing Nothing.” The report quoted the state minister of administrative development complaining that “there are 5 million [public] employees in Egypt, but there are only 2 million jobs. It means that 3 million employees are doing nothing, not to mention that they can slow down the progress of the work.” He urged the country to stop appointing ten persons where there was work only for one. As yet another instance, Galal (2002) reported a government announcement of the availability of 170,000 jobs being confronted by a tsunami of more than 5 million applications.
The Egyptian bureaucracy has shown itself to be a powerful group that will strongly resist attempts at reform. In part, the strength derives from its sheer size—the civil service expanded from 350,000 in 1952 to 6.37 million employees in 2014 (excluding military personnel); this works out at one civil servant for every thirteen Egyptians (World Bank 2015, 16n28).
The size, growth, and structure of the bureaucracy has attracted a good deal of unfavorable comment. Thus, for example, McDermott (1988, 122–24) described the bureaucracy and its growth as “a deadly combination of Ottoman complexities, Eastern European inflexible committee rule, a touch here and there of British and French secretive intrigue, and Egyptian indiscipline. . . . Nasser may have purged the state apparatus, but he basically did not restructure it. It could be said that the revolution… bypassed the civil servants almost as much as it did the fellah.”
The crux of the problem was that governments tended to make the bureaucracy and the public enterprise sector perform a social welfare function, namely, to act as repositories for the rapidly growing labor force. Budgetary constraints meant that the numbers involved could only be accommodated at appallingly low salaries, made even worse by price inflation. Handoussa and El Oraby (2004, tables 3 and 4) reported, for example, that the top of the salary for the highest grade (First Undersecretary) increased by only 30 percent in nominal terms between 1964 and 1999, a period of 35 years.18 Similarly, in 1964 prices, the salary range for Grade 6 (the lowest grade after 1978) dropped to LE11.86–21.01 in 1999 from LE330–600 in 1964.
The low salaries sap morale and encourage civil servants to work (illegally) at two or more jobs. The numbers involved can be daunting. Palmer et al. (1988, 61–2) reported that 89 percent of the respondents in their survey admitted to holding such second jobs and defended it as an economic necessity. Moreover, 84 percent of those respondents holding second jobs said that they spent between three to five hours a day (that is, half a normal working day) on this supplemental job. Ayubi (1980, 507) points out that government officials were not technically ignorant of how to do a job; they were simply not socially motivated as to why they should do it. Matters change when the pay increases. “The same ministry employees who sit idly most of the days,” writes Weinbaum (1986, 115), “are examples of industriousness in hustling to make extra cash once off the [government] job.”
The employment issue poses a delicate political-economy conundrum—the creation of large numbers of essentially artificial jobs at low salaries works against the government’s aim of mobilizing sufficient savings to invest in accelerating GDP growth that would create sufficient numbers of more meaningful jobs. However, there are time lags between mobilizing the savings and investment and achieving the output and sustainable job growth, and the political-economy of successive regimes gave priority to the short-term.19
Government attempts to increase flexibility and to improve efficiency have not gained much traction. Thus, for example, in 2005 the government attempted to make it easier to hire temporary contract employees and to discipline poor performers. However, the vehement opposition of civil servants and public employee unions compelled the government to withdraw the proposed amendments to the civil service legislation.
The question of labor in the public sector has attracted particular attention. Measures to shed the excess labor in public enterprises form part of the conditions attached to virtually every IMF program or World Bank policy loan, while measures to make labor markets more flexible are the subject of numerous discussions between donors and the Egyptian authorities. Simulations are run and spreadsheets flourished, all purporting to show large benefits to the economy of “resizing” or “rightsizing” (other euphemisms for firing workers are not unknown) the labor force in the public sector. The argument that the econometric exercises make is straightforward: If the public sector were to reduce its excess labor, the savings could be invested, which in turn would raise the GDP growth rate and create productive employment of numbers that would substantially exceed those that the public sector had eliminated. The country as a whole would benefit.
Why, then, is the government loath to take this seemingly straightforward and socially beneficial measure?
The political-economy answer lies to a considerable extent in the “insider–outsider” problem. The point is that although the number of jobs created would outweigh those abolished, those fired and those hired would be different persons. Those who stood to be fired would be “insiders,” those already employed and whose positions were protected by laws and by the costs of labor turnover (such as advertising the jobs, screening applicants, training the new hires, and so on). The “outsiders” would be those who were working in the informal sector of the economy or were unemployed; in either case they would not enjoy the protection that the insiders did.
Public enterprises would be discouraged from firing workers because of the legal costs involved in separation and because of the costs involved in training their replacements. Lindbeck and Snower (2002) discuss some other reasons that might also discourage this replacement of workers. They point out that, for example, insiders who have been working together for some time are known to form groups or factions and cooperate with each other in the production process and thereby raise each other’s productivity, but could threaten not to cooperate with newcomers and thereby reduce overall productivity and increase costs. Moreover, Egypt’s stringent legal protection against dismissals (and a drawn-out legal process in case it occurs) makes the costs of firing an insider significantly higher. Furthermore, insiders are generally unionized and thus able to exert a degree of political power; outsiders of course would be unable to do the same.
Finally, uncertainty about the shape of the post-reform environment plays an important role in the resistance of the insiders to economic reform, including those who are in no danger of immediate dismissal. Once a long-lasting, not to say sclerotic, structure of public-sector employment is threatened by the possibility of a reform policy being introduced, a great deal of uncertainty is created as to whether the initial reform is only the thin edge of a process that will keep on being repeated in the future. The IFIs’ studies underpinning the 1991 reforms contain references to workers asking whether the tradition of stable public-sector employment was to be abandoned. There was much concern about the terms of the employment of the retained workers and of the size of the compensation package of those deemed redundant,
