Which way forward?

For Syrians in the Diaspora, the exact state of the Syrian economy has always represented somewhat of a mystery. At a particularly turbulent time in the history of the region—coupled with a highly unstable and uncertain international climate both on the economic and political fronts—we are especially anxious to discover the ramifications of these events on the lives or ordinary people. We are therefore, always on the look out for any news items coming from the homeland regarding the health and future direction of the economy. The last few months have been rather abundant in telling signs indicating some dramatic changes within the economy in the not so distant future.

In a recent interview, Syria’s Finance Minister Mohammad al-Hussein made a series of statements of substantial significance. He explained that, in large part due to an increasing deficit in oil trade balance, government revenues will be insufficient to cover expenditures and commitments, such as salaries of civil servants. He also discussed the increasing burden that state enterprises are imposing on the government budget. The clear and worrisome implication was that a major fiscal impasse is on the horizon.

Two separate events that took place in the recent months are also illustrative. The first was the introduction of the “Sham” automobile, the joint Syrian-Iranian venture. The other was the imminent release of a greatly shortened “negative list” that traditionally cites commodities that cannot be imported. Although the first received wider publicity, the second carries larger significance for the future of the Syrian economy. On the surface, the two are contradictory. On the one hand, the new “negative list” (which reportedly will not be in the hundreds versus tens of thousands) confirms the clear direction by the government towards trade liberalization. The joint Iranian-Syrian venture, however, is reminiscent of a different development model, one that is based on protecting and building domestic industrial capacity and interindustry linkages, regional cooperation and technology transfer, and import substitution.

What these varying news items indicate is an economy in transition, though to where is unclear. With the EU-Syrian Association agreement still in the backburner, and the issuing of private bank licenses, as well as negotiations regarding entry into the WTO still to come, there is something new and dramatic afoot. In this period when the Syrian economy is clearly in transition, with declining oil revenues, along with continued regional political instability, it is important to highlight and clarify what are the national priorities and to think carefully about the possible and desirable alternative paths. What is needed is a long-term development strategy rather than a series of ad hoc measures designed to patch problems as they arise.

Syria is clearly a latecomer to the process of significant economic reform. Being a latecomer to integration into the world economy certainly has its disadvantages (for example, if Syria hopes to join the WTO we must bargain and offer tariff reductions to every single existing member which has resulted in dramatic concessions by other latecomers such as Cambodia) however it also has clear advantages. One obvious advantage is the chance to learn from the lessons of other countries that have under-gone such reform and not fall into a trap of repeating the same mistakes. Simply be-cause we are latecomers does not mean we have to replicate the debate as it unfolded two decades ago in the global arena. Fifteen or so years ago, in the early 1990s, the dominant policy prescriptions were codified as the Washington Consensus, containing the three main edicts: liberalization, privatization, and deregulation. That consensus no longer exists.

Whether we look at countries in South America, or South East Asia, or whether we examine the performance of our more immediate neighbors such as the other Arab countries or Turkey, we find similar patterns. We observe that the countries that have implemented these reforms have witnessed, at best, disappointing results. At worst, they have seen their economies enter through periodic financial crises as well as increasing poverty and inequality. More importantly, privatization and financial liberalization, has often led to vicious cycles of increased, not decreased public debt.

In other words, these policies have often exacerbated, not mitigated, the problems that they were allegedly designed to solve. Furthermore, integration into the world economy often has the paradoxical result of increasing the burdens on the state, because the state is forced to act as a counterveiling power to the destructive forces unleashed through the process of liberalization. For example, there is much discussion currently about the losses incurred by Syrian public sector enterprises, which are a major burden on fiscal expenditures. The suggested solutions by domestic liberal voices are either privatization or somehow transforming them into becoming profit-oriented. It may very well be the case that some enterprises represent an excess bur-den. But public sector enterprises are not designed to maximize profit, they exist for other purposes, such as generating employment opportunities or other industrial goals. Privatization often (of industry and services) leads to massive unemployment, an increase in the prices of final products, a double burden on the poor precisely at a time when the state is rolling back its sup-port of basic necessities.

We need only to look at the experiences of the other Arab countries. One of the few advantages that the Arab countries had compared to other regions is the lower incidence of poverty and income inequality compared to other developing regions- a fact confirmed repeatedly by the UN Human Development Reports which were otherwise quite critical of economic performance in the region. In a study by Richard Adams and John Page, they found that the two main reasons for these lower poverty and inequality rates are labor remittances and public sector employment. In addition, they and other scholars have found that since the period of economic reforms and the roll back of the state in many parts of the Arab world, almost all countries have witnessed an increase in poverty and in-equality. These are not the only expected outcomes from such reform. It is clear that in the process of reform, some groups stand as absolute losers. Coupled with the climate of overall political instability in the region, economic reforms have also exacerbated the fault lines within Arab societies, further increasing the schism between urban and rural, religious and secular, and among ethnic and religious groups.

Syria needs a long-term development strategy, rather than ad hoc measures to patch up problems as they arise.

As is well known, human development is a comprehensive process that extends beyond the economic realm to include political, social, and cultural dimensions. In the words of Nobel Laureaute and Indian economist Amartya Sen, development entails the extension of human freedom, not simply increasing wealth, though that plays a large part. It involves allowing people the capacity to become what they choose to become, thus increasing their capabilities. While it is true that Western rhetoric often only focuses on political freedom to the exclusion of economic freedom, both are essential components of human development. Therefore without real and meaningful debate and public participation in the process of development where initiatives are conceived, developed, and implemented, from the bottom up rather than the top down, human development is not possible.

Moreover, in this period of transition, the state should first and foremost address basic needs and target the weakest and most vulnerable sectors of society rather than cater to those who are relatively well off. This includes addressing first and foremost rural urban disparities and female-male in-equality. While education is necessary, it is essential to have increased expenditure on elementary and secondary education as opposed to higher education since the former yields much higher social returns than the latter.

On the international front it is important to resist pressures for total liberalization and implement strategic rather than full integration into the world economy, focusing on liberalizing certain sectors and fostering others. Finally, strengthening industrial and agricultural regional cooperation and attracting regional capital should continue to be a priority. By increasing collaboration with other developing countries (including those outside the region) Syria can join the growing coalitions among the developing countries of the South in resisting the pressures of homogenization and acquiescence to Western dictates.