Arab Middle Class and Social Policies: Key to Successful Transition

In light of the Arab Spring, this column argues that the successful in political transition and economic development will mostly depend on the role of middle class in the region since they are instrumental in mobilizing support, in redefining the existing development framework and governance model and in renegotiating a new social contract in the region. In this respect, looking at the middle class in the Arab region is imperative for understanding and providing guidance to a new economic and development model in the transition process.

 

Introduction

The Arab uprisings demonstrate that the growth and development model in the region was no longer valid. Despite registering 4-6% annual growth over the past decade and impressive gains in human development, what can explain the Arab population’s frustration and anger that led to overthrowing the Arab dictators within months. The uprisings have left Arab countries at a crossroads regarding their implicit social contract.

This column focuses on the middle class, in part because of their involvement in the protests. It has been widely reported that those who went to the Arab streets in protest against their governments included mostly the urban middle class. These groups were increasingly economically and politically marginalized. In addition the middle class is an important category of interest not only because they are the main drivers of economic activity and, thus, vital to the economic development of any country, but also because they are an interest group which influences political and social life. In comparison to other groups, members of the middle class typically constitute a broader stratum of the population, including a wide range of professional, political, economic and social profiles. Often politicians count on the middle class as their main constituent and draw on them for substantial support for policy positions.

Who are the middle class

There is no universally accepted definition of the middle class nor is there a standard way on how to measure the middle class. It is difficult to classify the middle class as one group since it consists of a range of individuals, including wealthy urban professional to village clerks and school teachers who have different political, social and ideological values. Various indicators are used to define the middle class and to separate them from elites (e.g. “upper” class) or from more disadvantaged, possibly marginalised groups within society. Middle class is often defined from an income perspective, consumption pattern, occupation, educational status, or even cultural patterns.

Using a methodology introduced by Abu-Ismail & Sarangi (2013) to measure middle class which is based on the consumption expenditure of non-essential goods and services of individuals between the upper poverty line and the 90th percentile income, the figure 1 shows the size of the Arab middle class is around 30-61%. In Egypt, the middle class increased from 48% in 2000 to 52% in 2005, and then falling to 44% in 2011. Similar pattern is also observed in Jordan with 57% of middle class population in 2002 and increasing to 61% in 2006, and then declining to 55% in 2010. In Syria and Yemen, the middle class has stayed stable at 56 and 31% respectively. Oman as a high income country has a higher proportion of rich than the middle class.

Figure 1: Size of the Arab Middle Class

Source: ESCWA (2014), forthcoming

 

Social policies in the Arab region

 

There are wide regional variations in social spending, with developed countries spending the most on average at around 28.6% GDP followed by Eastern Europe and Central Asia (17.5%), while Arab countries (13.8) and Latin America (13.6) have similar levels. Sub-Saharan Africa (11.8), East Asia (9.4) and South Asia (8.2) have the lowest levels (Figure 2).

Figure 2: Social spending % of GDP (latest years)

Source: Author’s calculations based on World Bank (2013 a.)

On average, Arab countries spend 14% of their GDP on social expenditure, which is half that of the developed countries. As shown in Figure 2 the Arab region spends some 2.7% of GDP on to provide health care. However, quality of health services are deteriorating and out-of-pocket spending is increasing (at around 50% of total health expenditure). Social protection in the Arab countries has been operating under two broad categories: contributory social insurance system based on formal employment (30-40% of the workforce) and secondly social assistance, which mainly includes cash transfers and subsidies (energy and food). On the side-lines, civil society organizations provide relief to the poor and destitute, such as the Zakt funds. The pension system in the Arab region mainly caters for the formal sector which represent around 30-40% of labour force. Arab countries also have a plethora of social assistance programmes with low coverage and limited benefits. Only around 18% of the poorest are covered by social assistance programme in the Arab region compared to 50% for other regions (World Bank 2013).

High subsidies are part of the Arab countries spending patterns for various reasons ranging from calming social unrest, rewarding specific allies, for providing social protection. Most of the Arab countries’ subsidization rate for energy is between 50-85 per cent, representing 3-14 per cent of GDP (Fattouh & El-Katiri 2012). The Arab region spends over 8% of GDP on subsidies, and fuel subsidies alone account for three quarters of this subsidy at around 6% GDP while only 0.7% GDP goes to social assistance programmes (IMF 2013).

Social policies to gain political legitimacy and nation building…. through Arab social contract

Social policies in the Arab region were generally put in the place after the independence era to buy political support and legitimize the regimes (generally authoritarian) that emanated from independence, and for nation building purposes. This implicit social contract in the Arab region stayed in place to provide social development and social peace. In other words, the ruling elites try to regulate and diffuse political threats through the use of social policy by offering generous benefits to those that pose the greatest threats to the regimes in place. The loyalty of the bureaucrats (who operationalize the State) and military was extremely important for the regimes in the Arab states. This explains why they have privileged positions in the Arab society with generous social benefits.

Middle class as main beneficiaries of social policies

The middle class reaps the benefits of the social policies and how it has been instrumental in creating and consolidating universal social policies in the form of subsidies in the Arab region. A large but shrinking middle class have benefited the most from government in terms of jobs and subsidies (food, fuel, housing, higher education, social protection). The subsidies are captured by the middle class or the non poor population. For example, middle class (2-4 quintiles) in Egypt capture 35 per cent of the energy subsidies compared to only 9 per cent for the poorest groups and the richest quintile captures some 22% (Fattouh & El-Katiri 2012). Only 25% of the poor are able to capture the benefits of the social assistance programme in Arab region (World Bank 2013).

The middle-class led the Arab Spring: Socially empowered but economically blocked

But how could then the middle class be involved in the Arab Spring when they are the ones who benefited the most. Indeed, the middle class had been socially empowered through social policies such as free education and guaranteed jobs in the public sector for graduates. With increasing budgetary constraints and mismanagement of the economy, the government could not afford to provide guaranteed jobs to all university graduates and the middle class lacked economic opportunities. As mentioned above there was a squeeze of the middle class and their size was decreasing. In addition to being blocked economically, the middle class found themselves politically constraint under authoritarian regimes with increasing oppression. This led to their joining, if not being instrumental, in the Arab Spring.

Way forward…

Crises often provide opportunities for trying something new. History provides many examples when crises were used to put in place innovative policies such as US’s Social Security Act after the Great Depression, welfare state in Europe after the world war II, innovative social policies in Asia and Latin America after their financial crisis of late 1990s and early 2000s (Prasad & Gerecke 2010). The 2008 global financial crisis gave added focus on implementing a social protection floor. As such, the current Arab crisis and political transition undergoing in the region can provide an impetus for innovative social policies.

As a way forward and in order to mend the broken relationship, social policy in the Arab region should be developmental, transformative and democratic. In this respect, transformative social policy emphasizes equitable distribution of wealth, universal or non-contributory social protection, production of human capital through accessible and affordable health and education services, and family and child care policies. To achieve the desired developmental and social goals, the Arab countries must create holistic and integrated universal social policies for all and not just restricted to certain groups. In order to avoid social unrest, the Arab countries should seek a new model of development, based on inclusive group where all segments of the society benefits from the growth process. The Arab countries should put in place the social protection floor and macroeconomic and social policies should be well coordinated in order to increase well-being of the people. The most logical choice should be to use macroeconomic and social policies for the creation of decent jobs.