Avoiding the blind integration of Syria into world economy

One of the main goals declared by the Syrian government, as part of the economic reform process, was the “integration in the global economy.” Surprisingly enough, this has hardly received any attention despite the fact that it holds serious implications for the structure of the Syrian economy and its position globally.The lack of integration efforts is largely due to the fact that economic discussions in Syria are extremely “local,” focusing almost entirely on local issues, while ignoring regional and global dynamics, which seem to be of interest only to a handful of analysts without affecting policy or policy discussions.

National economies are not separate entities isolated from each other, however; they are linked together through flows of goods, capital, technology, ideas, people, among other elements, in a way that affects and determines the position of each country in the global production system. Thus, in order to understand the development potential of any country, we have to move beyond local issues into a discussion of the issues in the context of the country’s position internationally.

In the last few decades, this global production system has passed through a number of rapid political, economic, and technological changes. A catch-all phrase that emerged was “globalization,” and while the term always pops up, it is a misfortune that we never really discuss how globalization affects us and the way we run our economy. In fact, we never discuss what on earth globalization is to begin with!

Economic Globalization:

Underneath the hype Globalization is a complex and multifaceted process that takes place in different fields, and not a singular phenomenon. It is easily seen in politics, economics, media, and arts. Nevertheless, the most important aspect of globalization, the one that, to a large extent, underlines all others, is economic globalization.

Economic globalization is, in a nutshell, a restructuring of the organization of global production. In the first half of the twentieth century, this was organized according to a division of labor, where developed countries controlled the activities of manufacturing, while developing countries played the role of supplying raw materials and some agricultural products.

Within these developed nations, the processing of these raw materials took place in highly integrated supply chains, and the system as a whole was known as “Fordism.” This system persisted for many decades. However, in the 1960s and the 1970s, different factors – technological changes, the Japanese competition, the rise in oil prices – undermined this system, and created a new environment where the large industrial firms faced intensifying competition, forcing them to break down their supply chains and outsource to other lower-cost locations.

This created an opportunity for some developing countries to exploit their lower labor cost and attract mass manufacturing, assembly, and other functions to their countries. East Asia benefited the most from this opportunity, creating the “Asian Tigers.” This process intensified over the last three decades to a degree that virtually all economic sectors today are organized along the lines of global supply chains. It is normal today to buy an “American” laptop originally designed in the US but with components sourced from Singapore, Taiwan, and Malaysia, and the final assembly done in China, and then shipped through Dubai to Syria. Anon other example can be found in the clothing industry.

Today, the most important company in the world of sports is Nike, which does not own a single factory. It focuses solely on research and development, design, branding, and marketing, while it outsources all its manufacturing to more than 900 plants all over the world.Whether in IT, textiles, automobiles, services or even agriculture, the world economy today can be envisaged as a complex system of global supply chains that link different locations with each other in highly dynamic processes of production. The key players are the multinational corporations who control and coordinate these chains through withholding key functions such as finance, the management of the chain, and access to market.

These multinationals outsource other stages in the chain to different locations with specific “locational assets” such as cheap, highly skilled labor or geographical proximity to markets, among others.Trade is, therefore, no longer a transaction between two independent firms based on the law of supply and demand. Instead, at least a third of world trade today is intratrade, between different units of the same firm located in different countries (i.e. Toshiba China selling semi-manufactured goods to Toshiba Japan at an internally determined transfer price). A large share of the remaining two-thirds is trade that is governed by strategic agreements and partnerships between firms in different locations (i.e. a Syrian clothing firm producing a certain amount of shirts at a pre-determined price to a multinational firm according to the design and the specifications of the multinational).

Where is Syria in all this?

Syria has remained largely isolated from these dynamics, because of the “import substitution” strategy delinking the Syrian economy from the global economy that was in place for so long. This policy failed to achieve development, and the Syrian economy remained highly dependent on exporting raw material and primary products.

Over the last few years, the government announced a shift in this policy, the strategy now to integrate into the global economy and to achieve development through an export-promotion strategy and attracting foreign investments. To understand this strategy’s potential and to maximize its benefits and minimize its costs, we have first to understand what we are integrating into.

We have to understand why multinationals rush to invest in China while they never go to, say, Ghana. The explanations to these differences go far beyond the simplistic explanations based on investment laws or tax incentives or even “doing business” reports. Without such an understanding and without a strategy based on this understanding, the consequences of such a “blind integration” may indeed be disastrous.