The political economy of distribution in the Middle East:is there scope for a new social contract?

The majority of Arab political economies are characterised by a peculiar distributional system built on excess public employment and wide-ranging energy subsidies—features that exist in other developing countries but are more pronounced in the Arab world. This chapter provides an overview of this distribution regime, develops hypotheses regarding its historical origin, and analyses the political and economic distortions it creates. It builds on a wide range of literature on energy subsidies and on recent publications on (the weakness of) conventional social safety regimes. In its comparative analysis of public employment, it mostly relies on primary data.The chapter proposes that the current distribution regime not only benefits insiders and creates multiple segmentation of labour markets, it also weakens links between business and citizens. There follows a discussion of the outlines of an alternative social contract based on less distortionary welfare systems, notably direct cash grants for citizens. In this, the text again draws on a well-developed literature on energy subsidy reform and on potential strategies for compensating for energy price increases. The chapter’s main contribution to the literature lies in its analysis of public employment reform and its labour market implications and of the wider political economy implications of distributional reform. It spells out the potential impact of a more inclusive and less distortionary distribution and welfare regime on social stratification and on relations between state, business and citizens.