Iran and World

The major challenge facing Arab states transitioning from totalitarian regimes to democracy is how to manage social expenditure: that is, state spending on health, education, direct subsidies to poor citizens, cash support for poor families, pensions and social security for those working in the private sector. Even though these states face different situations, such spending shares a number of traits.

The amounts spent on social expenditures -- about 40% to 50% of GDP -- are high in the Arab states, including Morocco, Tunisia, Egypt, Jordan, Lebanon, and Syria. This means that the chances of allocating additional resources for social expenses are slim.

In addition, social spending is distinguished by low levels of competency, especially in healthcare and education -- the two sectors that capture the greatest share of social expenditure. These sectors are usually not subject to oversight and lack indicators to measure their operational efficiency. Most of the expenditures go to wages and salaries, rather than to areas such as research and development, which could help improve competency and reduce waste.

These sectors also are resistant to change. They are based on obsolete regulations and bureaucratic measures that are difficult to change. Because of the low average employee salary, they often do not attract the most competent candidates and offer employees too few incentives to increase their work efficiency and motivation.

The mechanism for targeting expenditure is seriously flawed as well, and the targets are not usually reached. For example, subsidizing a commodity such as bread or fuel means allocating larger subsidies to those who consume more, which benefits the rich rather than the poor, as the former are the largest consumers.

Finally, social expenditure is often used for political ends. The ruling regimes direct spending to purchase political loyalty based on geography or demography, regardless of whether beneficiaries need the help.

As several Arab states suffer from serious budget deficits, social expenditure remains one of the basic avenues to provide social justice alongside economic growth, the two main citizens� demands during the "Arab Spring."

But states are unable to fulfill citizens' demands by providing sufficient work opportunities, because the public sector is already saturated and the private sector suffers a lack of dynamism stemming from low levels of investments due to public-policy uncertainties.

Governments thus find themselves facing difficult choices. The emerging political regimes -- such as those in Egypt and Tunisia -- are aware of the problems associated with public expenditure, but halting it risks exacerbating the current situation. Yet they are also unable to expand spending in order to meet citizens' desires.

It's worth drawing a distinction between two kinds of expenditure. The first yields swift results and has direct political effects, such as direct commodity subsidies or cash

ARAB WORLD: Why social expenditure in the Arab states isn�t working