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Minimum wage a cure for 'corruption'

  by: :


The word fasad, corruption, has been chanted like a mantra in Egypt for the past month and a half. Ever since Hosni Mubarak “stepped aside” as head of the Egyptian state, “mini-Mubaraks” have been discovered in every corner of the administrative apparatus and private sector with surprising consistency. Whether it's the plutocrat who’s been put on trial with assets frozen or the one who’s suspected to have embezzled many more state assets, the head of a syndicate or a state-controlled newspaper, the high-ranking military officer and the lower rank and file security guard, the construction ministry bureaucrat or the sayis (the self-styled car hustler on Cairene streets), the sudden rediscovery of Egypt’s generally corrupt moral fiber raises a question fraught with defeatism: What do we do? Where do we start the clean-up process?
The moral outrage evident in such generalized talk of corruption leads to more than a healthy dose of confusion. Can one so easily equate the corruption of a multi-billionaire steel tycoon with that of a lowly postal office employee? Corruption, to paraphrase German sociologist Max Weber, is the (mis)use of public office for private gain. For instance, if a police officer were to use his handgun to go camel-hunting while stationed in some part of the western desert, he could face charges of corruption on two counts.  First, he would have used public money — a couple of bullets and the amortization of the usage of the gun — in order to acquire some private gain, namely, camel-meat and, arguably, some social prestige at having killed the animal. Second, in this particular case, he would have defected during hours of duty, for which officers are paid public money, in order to perform acts outside of his contractual functions.
This traditional definition of corruption contains a number of unstated assumptions. Chief among them is the assumption of a functioning state bureaucracy that guarantees the reproduction costs of its labor force, meaning wages that, at the very least, are sufficient for the survival of the bureaucrat and his immediate dependents. To go back to our example above, it's hard to imagine the police officer not using his gun to indulge in camel-hunting when he has run out of any legal way, on the basis of his wage, of feeding himself and his family. Camel-hunting, in this case does not constitute corruption — a moral category — but rather necessity — an economic one.

This distinction has serious practical implications. A steel magnate who pays off a public official to obtain natural resources at a preferential rate would be liable to charges of bribery (and the official would be liable to charges of corruption) while a police officer’s camel-hunting or request for a “gift” in exchange for not giving you a speeding ticket would be liable to a good slap on the wrist. Instead of lumping these two very different cases under the moral umbrella of "corruption", the police officer’s actions should instead be considered a kind of “informal taxation” — the abusive, arbitrary and unregulated extortion of variable sums from citizens’ purses from a position of state-conferred power. As the Egyptian case suggests — and the experiences of many other poor or middle-income countries confirm — informal taxation becomes systemically embedded in bureaucratic practice once real wages start falling below the level needed for survival.

Take a now notorious case of Egyptian failed reform, the example of the education system. Western, NGO- or IGO-sponsored programs led by talented and qualified technocrats have systematically failed to produce any real improvement of the public education system, despite the hefty amounts that have been spent on it. One of the main reasons has been the proliferation of extra-curricular “private lessons” with school or university professors as a means of ensuring students’ success. Without paying that informal tax, students would often fail their classes, regardless of their academic abilities since teachers would stop teaching useful material during official class time to ensure maximal recruitment for their “extra-curricular” teaching hours.

The compulsory “private tutoring” trend grew during the last two decades as the percentage of GDP spending on the education system by the Egyptian state fell dramatically due to austerity measures included in the 1990s IMF Structural Adjustment Policy package, declining from 5.2 percent in 1990 to 3.6 percent in 2008 (World Bank figures). As classrooms got more crowded, from an average of 23 pupils per teacher in 1991 to 27 in 2007, and teachers' real wages dropped, parents bore a growing share of the cost of the educational bureaucracy. Informal bureaucratic taxation was the result of a semi-privatization of the state bureaucracy, whereby the state, on the one hand, and private citizens, on the other, shared the costs of bureaucratic maintenance.

Bearing in mind the social burdens of bureaucratic semi-privatization, the implementation of a well-devised minimum wage appears to be the most cost effective antidote to the ills of “corruption”. By allowing public officials to live decently, minimum wages reduce the motivation to engage in informal taxation. Moreover, adopting competitive remuneration for public service employees on the basis of skill and private sector benchmarks, in the way that Singapore or Switzerland have done, is the most plausible way to counter the lack of bureaucratic professionalism rampant through the Egyptian state apparatus.

Backed by a 2010 Egyptian Administrative Court ruling obligating the government to raise the minimum wage in accordance with current living standards, labor representatives have been calling for a minimum wage of LE1200 per month — a 300 percent increase from its current level. Many economic commentators argue that in the wake of a recession this would amount to fiscal suicide. “Where would we get the money from?” they ask on a regular basis.

Well, here are some possible answers:

First, the Egyptian government can reintroduce progressive taxation. Under the current law, passed in 2005 as part the Nazif cabinet’s tax reform policies, anyone making above LE40,000 — including people who earn millions — pays a fixed income tax of 20 percent, as opposed to the more justifiable 35 percent or 48 percent paid by the highest tax bracket in the United States or France.

Second, if the IMF, the World Bank, and foreign governments were willing to provide Mubarak's autocratic regime with massive loans and development aid, shouldn’t they, just as easily, want to lend money to a newly-born democratic and representative Egyptian government?

Informal taxation took a heavy toll on the Egyptian state in more ways than one.  It eroded public confidence in the government and promoted tax evasion by citizens, who could opt out of paying taxes by making smaller informal payments to state officials.  Furthermore, by semi-criminalizing bureaucratic activity — since half or more of one’s income originated from informal taxation — people involved in such practices have invested their money in real estate or luxury items instead of depositing capital in the financial sector, thereby driving up the price of money and contributing to the low rates of national surplus re-investment in productive activities.

The implementation of a higher minimum wage constitutes a short-term investment with high returns in the medium-term. Harnessing the political momentum imparted on the country by this revolution is crucial to securing a decent minimum wage and ensuring it is properly enforced. To do so requires the shedding of our moralistic vocabulary around issues of corruption, and instead adopting a political-economic analysis to grasp the roots of the problem.

Marc Michael is a PhD student at Cambridge University currently working on issues of development in Egypt. A version of this article has also appeared inopenDemocracy