While transfers must be part of any plan to cope with poverty, they shouldn't be viewed as a substitute for jobs. Restoration of Egypt's once-booming tourism industry, which is more labor-intensive than most modern industries, should thus be a top priority. But the key to job creation in the long-run is a flowering of small- and medium-sized enterprises that can make productive use of unskilled labor, as well as aiding mobility for middle-class entrepreneurs.
To that end, these firms need better access to credit. While subsidizing credit can be a slippery slope -- the costs are hard to contain, and the target group has a way of expanding -- some preferred access makes sense to offset the capital market's bias toward large-scale enterprise. This might take the form of direct business loans or credit guarantees through private banks. Moreover, the government cannot afford to give short shrift to rural areas, where the poverty is greatest and the exit to cities is creating social dislocation.
Consider, too, in this regard, the importance of bringing the large numbers of small businesses that find it too expensive to operate legally into the open. The astonishing size of this underground economy -- by one estimate, it accounts for 40 percent of all employment -- reflects the general difficulty of doing business in a climate of corruption and bureaucratic indifference. But until underground enterprises become part of the formal economy, they will not directly benefit from measures designed to make it easier to challenge entrenched producers.
While unemployment is a chronic problem for Egypt, its nature has changed considerably in the last few decades. It's no surprise that unemployment is exceptionally high among the young (around 25 percent) -- high fertility rates in the 1990s guaranteed unmanageable labor force growth now. What is surprising is that young college graduates are faring no better than their less-educated peers.
One reason: As the government shed enterprises in the last decade, it ceased to be a reliable employer of last resort for college graduates. Another: Business owners traditionally give first priority in employment to relatives. But arguably the most important reason is that universities don't provide the skills that the rapidly evolving Egyptian private sector needs.
The main issue isn't underinvestment in tertiary education -- one-third of high school graduates go to university -- but the system's failure to make good use of the resources. The new government thus faces the difficult task of remaking a higher-education establishment built for a different era.
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