Labour unrest has minimal effect on economy, say experts

Originally published in Daily News Egypt

During a question and answer session broadcast recently, Gamal Mubarak was asked why people continue to queue for hours for government-subsidized bread despite government promises that its free-market policies will transform the economy.

Mubarak, general secretary of the ruling National Democratic Party’s Policy Committee, pointed to the Chinese experience where, he said, the transition from a state-directed economy to free market policies has not been without teething pains: results cannot be expected immediately.

However, he failed to mention that China’s privatization process has been accompanied by a surge of industrial action instigated by migrant workers whose economic circumstances force them to accept nightmarish employment conditions in sweatshops.

There are clear parallels between the Chinese scenario and the situation in Egypt, itself in the throes of the transition to a neo-liberal economy initiated after its 1991 structural adjustment program agreements with the International Monetary Fund and the World Bank.

The privatization process has necessarily meant reduced government investment in, and the sell-off of, Egypt’s previously dominant public sector. This has translated into job losses and reduced job security for Egypt’s industrial workers, some of whom have been forced to seek precarious employment in the newly-expanded private sector.

Workers at a labor rights workshop attended last month by Daily News Egypt made reference to a resignation form workers in some privately-owned companies are routinely made to sign at the start of their employment.

The date is left blank and filled in by management as necessary, allowing companies to ‘legitimately’ dismiss employees at will, with minimal or zero compensation.

Joel Beinin, a professor of history at Stanford University and director of Middle East Studies at the American University in Cairo, says that the free market policies introduced over the past two decades has not translated into enhanced standards of living for the majority of Egyptians.

“The main cause [of industrial unrest] is the neo-liberal agenda which is creating a new Egypt for 10 percent of the population while disenfranchising industrial workers and white collar employees, especially those in the diminishing public sector,” Beinin says in an article published in Le Monde Diplomatique this month.

This is particularly apparent at the moment as Egypt grapples with the fallout from the international wheat crisis.

Diminishing bread supplies (millions of Egyptians living below the poverty line depend on government-subsidized bread) and skyrocketing inflation led to an uprising in the industrial Delta town of Mahalla on April 6 and 7, during which thousands of Mahalla residents protested against rising food prices. A 15-year-old boy was killed while standing on the balcony of his home, allegedly by security forces using live ammunition.

It is unsurprising that this took place in Mahalla, home to the Ghazl El-Mahalla textile factory whose six-day December 2006 strike (over 20,000 workers went on strike) is credited with instigating the nearly 600 incidents of industrial action the country witnessed in 2007.
Journalists Mostafa Bassiouny and Omar Said suggest in a study of industrial action during the course of 2007 that workers strikes between December and September alone translate into the loss of nearly 648 million work hours.

Beinin suggests that Mahalla is significant because of its legacy of spearheading industrial action.
“There is no doubt that Mahalla has a huge significance,” Beinin told Daily News Egypt. It is the biggest industrial enterprise in Egypt and the first nationalized enterprise.”

“When workers in Mahalla went on strike in 1947, their gains were eventually shared by other textile workers,” Beinin continued.

The strike planned for April 6 at the city’s Misr Factory collapsed through a combination of divisions among worker and security body interference.

Keen to placate workers — and by extension angry Mahalla residents — a delegation led by Prime Minister Ahmed Nazif went to Mahalla on April 8 and announced that workers in the Misr Factory would receive a month’s bonus. Textile workers in other companies would receive a 15-day bonus.

But how much economic influence do Egypt’s workers now yield?

Tagammu Party economic expert Gouda Abdel Khaleq suggests that economic restructuring has weakened their influence.

“The power of trade unions has been on the decline for the past 20 to 30 years,” Abdel Khaleq told Daily News Egypt.

“Two factors are important here. Firstly, there is the fact that trade unions have been under state control since 1952, and secondly, the impact of neo-liberal policies — the new industrial sectors are not unionized.”

The government seeks to encourage foreign direct investment through the establishment of industrial zones.

The Qualified Industrial Zone (QIZ) in areas such as Cairo’s 10th Ramadan City, Suez and the coastal governorate of Damietta attract foreign investors because of the favorable trade terms and their proximity to the European market.

EFG-Hermes economist Mohamed Abu Basha says that foreign investment is primarily in these as yet, non-unionised areas. “As a developing country in its early stages of attracting foreign investment the priority is to attract as much as you can — particularly given that we are trying to diversify out of petroleum-directed FDI because it’s capital intensive and doesn’t provide employment opportunities. … There are no direct benefits for the people,” Abu Basha told Daily News Egypt.

Abu Basha suggests that the wave of industrial action Egypt saw in 2007 had little effect on investor activity in Egypt.

“Strikes are of minimal concern to investors. It doesn’t affect them directly because it doesn’t affect the budget deficit — their main concern. This is evident by the fact that money kept coming into the country during 2007.”

“The events of Mahalla were of little concern to investors because they occurred in the context of an international crisis,” Abu Basha continued.Beinin confirms the limited effect that strikes have had on the economy.

“Labor unrest clearly hasn’t had any effect on macroeconomic indicators, which have continued to grow over the past three years.”

However, he qualifies this by pointing out that “a good part of what is sustaining GDP is both not self-sustaining, and outside the purview of the labor movement.”

Beinin points to the sale of the public sector and the construction boom caused by the upper classes’ demand for luxury housing and gated communities as examples of non-sustainable GDP income.

He suggests that this “raises question marks about the success of Egypt’s neo-liberal economic policy.”

This month the government announced a 30 percent increase in the wages of public sector employees, just days before a general strike planned for May 4. On May 6, a bill was approved which eliminated or reduced energy subsidies and increased the price of fuel, a move which critics warned would exacerbate already steep inflation and eliminate the arguably notional benefits of the 30 percent rise.

Is this series of seemingly contradictory, perhaps even knee-jerk, decisions — taken in the context of increasing economic hardship for the majority of the population — an indication that government policy is unable to shelter the country from the vicissitudes of the global economy?

Abu Basha thinks not.“The economy has been continuously growing at seven percent with some setbacks in the form of a wave of inflation in 2004, food subsidy cuts in 2006 and food price increases this year.”

“People will not feel the benefits of economic programs in three years: it takes eight years of continuous growth before this happens,” Abu Basha continued.
Beinin says that the number of Egyptians living below the poverty line has increased since the introduction of neo-liberal policies.

What does he envisage the future holds for the workers’ movement during the course of Egypt’s privatization?

“There are two possibilities: laborers will either be crushed for a period of time until capital has become established — as happened in China — or, depending on how long the current workers’ upsurge lasts, workers might be able to reach non-unionized people,” he suggests.

Even if this does not happen, and the negative impact of FDI (as experienced by workers in other developing countries) does not mobilize workers in the ever-expanding private sector to rally together, Beinin points to strikes in white-collar sectors, by teachers, doctors and civil servants, as evidence that even if industrial unrest does not influence the economy directly, it has the capability to inspire other movements.

“The tax collectors' strike, by white-collar workers, was twice the size of the Mahalla workers strike. It’s scary. They went on strike and the government responded quickly.

“Clearly, there are things which are indirectly or directly inspired by the workers’ movement.”