Tuesday, March 8, 2011

The Next Big Steps for Egypt

I’m excited to bring you Carpe Daemon’s third guest blogger. Michael Maag is a 2009 graduate of Princeton University. He currently lives in New York and works for an Internet advertising analytics company. He’s a four minute miler--which doesn’t qualify him to write about economics. However, his economics degree does. Read on to see what he thinks the next big step is for Egypt.

- 44 Maagnum


There are two unemployment rates in Egypt depending on your level of education: 5% and 17%. If you are an Egyptian who has decided to invest the time and money necessary to obtain a college education, you will probably be disappointed to find you’ve earned yourself an unemployment rate more than 3x that of your illiterate countrymen. Yes, you read that correctly. College educated Egyptians are 3x as likely as illiterate Egyptians to be unemployed . This is a problem.


So why is it that Egypt’s most productive workers sit idle while day laborers, chambermaids, and dish washers find work like it’s America in the 90’s? It turns out, the answer probably has something to do with Egypt’s recent economic success and the government’s reinvestment of that success in education.

In last week’s New Yorker article (cleverly) entitled “Prophet Motive”, John Cassidy examines the interplay - apparent tension, even - between Islam and economic prosperity. Nations with predominately Muslim populations by and large remain stuck on the bottom rung of the economic ladder, but Cassidy is careful to acknowledge the exceptions to the rule - namely Turkey and Egypt. The governments in Turkey and Egypt (97% and 90% Muslim, respectively) have both managed to shepherd their countries to robust economic growth in recent years. The economic expansion itself is good, but the the recency and alacrity of said expansions have combined to produce some serious growing pains. In Egypt’s case, one of the pain points is a mismatch between the supply of educated labor coming from the universities and the demand for that labor coming from corporate sector.

To Egypt’s credit, the government has been taking a good portion of it’s recent economic winnings and investing them in education, producing an ever larger cohort of college educated 20 somethings. With the preponderance of evidence indicating that educated labor will continue to win higher and higher wages relative to uneducated labor (see: income inequality in America), the Egyptian government’s investment is likely to pay big dividends in the long run. Only problem is, right now, kids are graduating and have no place to work. Egypt simply hasn’t had the time to build a large enough corporate sector to absorb all the educated labor the country’s education system is churning out. So today, Egypt has a large, educated, and very frustrated younger set that’s clamoring for the Egyptian government to lend a hand.  

How the Egyptian government decides to do so is a huge question mark. Given the populist conflagration presently raging, the impulse to saddle the government with the entire burden of recovery is surely strong. Of all the institutions in Egypt, the government is probably the one poised to act most swiftly, but it would likely prove unable to sustain high employment for educated workers deep into the future (see: Greece). Thankfully, Egypt has other options that will stimulate demand for educated labor in the near term and beyond.

This is where technology comes in (and, conveniently, where this post becomes contextually relevant). Egypt needs to encourage - through the usual means like low taxes, free trade, simple laws surrounding incorporation, forgiving bankruptcy law, etc - an influx of foreign investment. If Egypt can’t build it’s own corporate sector overnight, the next best thing is to have a developed country install an outpost of it’s own. And remember, we’re not talking about Nike building a shoe factory that will employ the rural poor; we’re talking about college graduates working lab and desk jobs. By doing so, the educated and unemployed gain employment doing fulfilling work at a skill level the native industry has not had the time to reach.... yet. The immediate effects of foreign investment are good, but the real beauty of this strategy is manifest in the inevitable scenario where the employees of those foreign firms, after learning the tricks of the trade, grow weary of working for IBM Egypt (or Caterpillar Egypt, Toyota Egypt, SIEMENS Egypt...you get the idea) and decide to take a crack at doing their own thing. On this road Egypt gets to have its cake and eat it too: a high quality boost to employment today and an enduring tack towards a native industrial compliment to their strong educational system.

Ultimately, the employment problem in Egypt is a good sign - it wouldn’t be happening unless Egypt was progressing. Now that the Egyptian people have their scalp, it’s time to get to work building the foundations of an economy designed to employ the skilled labor Egypt already has in plentiful supply.

1 comment:

  1. Man, large quantities of University educated, unemployed folks in their 20's would be my nightmare as a totalitarian leader. Anyway, an influx of western capital sounds good and all, but I have to imagine there will be some serious trust issues following 30 years of Western supported dictatorship - not to mention the religious opposition which will certainly arise.

    I think the best anyone can hope for at this point is a transition from the current status quo of military rule to a conservative representative government with serious limits on development (at least from the secular Western point of view) stemming from a non-trivial minority of fundamentalist Islamists. Given the dramatic uncertainties in how such a new government will come into being such economic speculation seems premature and a bit idealistic to me. From a purely economic perspective I hope all unfolds as you've laid out however I don't see the road to that point being an easy one. Nice first article - keep 'em coming!

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