The government's role as caretaker can only be reconciled with the requisites of economic reform if the prevalent public sector mentality is relinquished. Talaat Abdel-Malek* writes The government has repeatedly made statements that it is proceeding with economic reform at a good pace, taking note of the "special circumstances" of the Egyptian economy. Meanwhile, the Sharm El-Sheikh donors conference earlier this year dealt with the pace of reform among other things. Announcements followed the conclusion of the conference, by both government and donor representatives, to the effect that the pace of reform will quicken and more serious reform measures will be undertaken soon. Apparently, these have become de facto pre-conditions for releasing the funds negotiated. Yet, several months later, there is little evidence of serious actions being taken, despite promising statements to which we have become accustomed. No major moves are afoot to speed up privatisation. Difficulties discouraging prospective private investors -- Egyptian and foreign -- from showing enough interest persist. Egypt's special circumstances continues to be given as reason for maintaining slow reform. As a result, little if any of the monies committed by donors has been released. A recent statement by Minister of State for International Cooperation Fayza Abul- Naga referred to the prospects of a successful conclusion of ongoing negotiations with donors by September, implying that donors are still expecting more action before releasing the money. There is no doubt that the government has access to the substantial body of knowledge derived from the lessons of experience with reform in different countries. These countries cut across various ideological and developmental conditions and systems, including the economies-in-transition and developing countries in Latin America, Asia and Africa. The approaches to reform have varied, leading to varied results. But the one cardinal lesson that emerges from these experiences is that, whenever the pace of reform slows down below a certain level, the cost borne by society escalates. This cost refers not only to the maintenance of a high degree of inefficiency but -- more importantly -- to lost opportunities to gain once reform measures take hold. Although the latter cost is hidden, it is very real and also quite substantial. To be more specific, we need only refer to a vastly improved role of the private sector in stimulating the domestic economy and expanding exports, and also to the real prospects of attracting greater foreign direct investment, especially to sectors that show promise, such as technology development and IT. The current suffering of small and medium enterprises SMEs for reasons that are well known will give way to a more robust role, thus at last building a more diversified economic and social base. The flow of foreign investments is still well below Egypt's potential and its capacity to absorb more capital and know-how. A critical end result of these outcomes will be a significant increase in job opportunities, helping to reverse the alarming rise in unemployment, especially among the educated youth. None of these likely effects is new or warrants much debate. But all these positive results demand a more serious, rigorous and sustained reform programme. Why then are we falling behind in reform? I suggest that one reason is the dominance of a public sector mentality in dealing with economic and social reform. It is as though the whole economy is still made up of public sector enterprises and institutions and the job at hand is how to make it work better without altering its essential features. When we consider recent statements about privatising the remaining public enterprises, including public banks, or the new legislation for NGOs for example, we see evidence of a continued public sector tradition in handling these issues. The problem with this approach is simply this: a public sector mentality for planning and implementing genuine reform is a mutually inconsistent strategy. In other words, it will not work. This does not necessarily imply that the only way to reform is to take drastic actions in a short span of time, as this option also has shown its disadvantages. What, then, is likely to happen? Should the present approach and pace continue, we must expect a continuation of the status quo. To say that current problems facing the Egyptian economy are caused by global events is telling only half the truth. It is the other half that we need to attend to, as only our own policies and actions can improve Egypt's competitiveness in meeting global challenges. As many commentators have rightly stated before, there is no doubt that more rigorous reform will generate some hardships and social costs, following the old adage "No Pain, No Gain". The issue is not how to avoid these costs, as no other economy has been able to completely escape them. It is rather that we need to set the mechanisms of a social safety net -- based on other countries' experiences and adapted to suit our conditions -- capable of alleviating such costs while allowing the positive consequences of reform to take root. These positive effects, in turn, require certain measures that are themselves an integrated part of any serious reform programme. First, there is a need to reverse the recent trend of expanding public service employment, which is, at best, a temporary measure that has more costs than benefits. It inflates an already bulging and largely incompetent civil service bureaucracy. Instead, it is more rewarding to deal with the real causes of persistent unemployment and to generate more jobs outside government -- difficult as this is. Second, the machinery for implementing policies and decisions must be streamlined and strengthened. Achieving a cleaner environment does not require yet another conference as proposed recently, it needs immediate action in order to demonstrate that the government is really serious about a cleaner environment. The embarrassing and unacceptable polluting of Cairo air by public transport vehicles and private mini-buses puts us to shame. We have had good legislation on the books in this regard for many years. Are we that incapable of carrying it out? If so, what message does this failure send regarding the efficacy of other laws affecting investment, exports, transparency and the rest? Third, there is a need for greater public participation in the development debate. To launch such a debate, the government should take the bold initiative of sharing with the public a candid recognition of the difficulties facing us as a society and an economy. More than any other step, such an initiative would boost credibility enormously, give way to a meaningful resolution of these challenges and rid us of the largely passive involvement that is driven more by narrow self-interests than by any concern about the public good. Essentially, we badly and urgently need the government to assume its proper new role as a reform government -- not as a caretaker government. This means taking tough decisions to pull the economy out of its present rut, which include taking actions to facilitate and support viable economic activities, monitor and deal with market imperfections and manage the country's social safety net. In doing so, the government should give up its role as a manager of a public sector economy. No matter how hard it tries to preserve that role, other countries' experiences have clearly demonstrated that it will lead to a dead end. * The writer is professor of economics at the American University in Cairo and a former senior adviser to the International Trade Centre UNCTAD/GATT, Geneva.
