Posted by Joshua on Monday, November 16th, 2009
Neo-liberalism in Syria: Long live the TINA Argument
By Shamel Azmeh (See his Blog)
Margaret Thatcher used to challenge her critics by employing what became known as the TINA argument (There is no alternative). Following her example, and for about two decades, neo-liberals, using their influence in governments, media, and academic institutions, managed to convince the world that TINA is a valid argument and that unless you provide an alternative policy, you are not entitled to criticize the dominant political and economic paradigm.
Luckily, the TINA argument has been discredited in most countries and people across the world have become aware that there are always alternatives and that the issue is not the existence of these alternatives but, rather, the balance of interests in a certain country that allows some alternatives to become dominant and unchallengeable.
Probably one of the few places where the TINA argument is still considered a valid argument is Syria. It is very normal in Syria to hear economists and officials using the TINA argument to corner their critics and to discredit their opinions just as Ehsani tried to do with Dahi’s comment. Let me be very clear here. The TINA argument is totally unacceptable. When someone is in a policy-making position, he/she is in charge of designing policies and people are totally entitled to criticize these policies even without providing alternatives. And if the policies in place are not working and if the policy-maker is unable to come up with alternative policies, he/she should step down and let other people try to develop such policies. The job of the policy-maker/researcher/commentator is not to suggest a certain policy because he/she thinks that there are no alternatives but to show us why and how the strategy he/she is suggesting is superior to other alternatives.
Now, and more into the topic of discussion, Ehsani is suggesting what Dahi rightly calls a typical neo-liberal prescription. The idea here is that all problems are created by government intervention in the market and that if we deregulate and liberalize the economy internally and externally, the market will magically produce the most efficient allocation of resources and economic growth will follow.
Now, in short, this theory is as outdated as it gets. Some of the most prominent economists in the world including Paul Krugman, Joseph Stiglitz, Ha-Joon Chang, Dani Rodrik and others have made it perfectly clear that this is far too simplistic to capture the reality and how “the economy” functions and particularly in the case of developing country’s economies. These economists also explained how this theory is not only flawed empirically, judging by the results of the World Bank’s Structural Adjustments Programs (SAP), but it is also flawed theoretically as the theoretical underpinnings of it are highly simplistic.
A nice summary of this transition in economic thinking can be found in the following excerpt from Harvard’s prominent economists Dani Rodrik: “Once upon a time, economists believed the developing world was full of market failures, and the only way in which poor countries could escape from their poverty traps was through forceful government interventions. Then there came a time when economists started to believe government failure was by far the bigger evil, and that the best thing that government could do was to give up any pretense of steering the economy. Reality has not been kind to either set of expectations. Import substitution, planning, and state ownership did produce some successes, but where they got entrenched and ossified over time, they led to colossal failures and crises. Economic liberalization and opening up benefited export activities, financial interests, and skilled workers, but more often than not, they resulted in economy-wide growth rates (in labor and total factor productivity) that fell far short of those experienced under the bad old policies of the past”.
It seems to me that Ehsani is still at the second stage; the stage when people thought that government failures is the biggest evil of all and that deregulation, liberalization, and privatization are the magical solutions to these failures. Ehsani is not only putting forward the same argument but also using the exact same terms that prevailed in economic literature at this stage. Examples include the idea that the “reform” process is difficult and painful (this is the nice way of saying that millions of people will lose their jobs and go into poverty and that consumer prices will soar so that a large part of the population will not be able to afford their food) but the results will come at the end. And the argument that if there are difficulties on the road, the reason is the reluctance of the “reformers” and the medicine should be more of the same (the example of the car is heartened by neo-liberals in this regard). Reflecting on this kind of arguments in regard to free trade, Stiglitz argues that according to neo-liberal economists, when the economy is liberalized, the resource will move from low-productivity activities to high-productivity activities. In most countries however, Stiglitz says, what has actually happened is that resources moved from low productivity activities to zero productivity (i.e. unemployment). Of course, the neo-liberals will respond to this argument by analysing that the labour market is not de-regulated enough and that the solution is to implement more reforms regardless of the disastrous results of the current policies.
Ehsani uses the example of Brazil to argue his point (although I am not sure if citing a country with a socialist president who thinks Chavez is the best president Venezuela had in the last 100 years is a point for or against neo-liberalism). To me, the best example is not Brazil but Asia which is rising today to become a huge economic power. The “Asian tigers” have achieved the fastest technological and economic upgrading in history and their story does not fit nicely with the neo-liberal model. Probably with the exception of Hong Kong, not a single Asian country has adopted the laissez faire economic strategy neo-liberals would have us to believe. In Japan, South Korea, Taiwan, Singapore, Malaysia, and China, the government have been highly involved in directing the economy and in allocating resources using all means possible such as active industrial policy, active trade policy, state ownership of enterprises, etc. The examples here are numerous. I can think about the story of the Taiwanese IT industry. Taiwan today is one of the biggest centres of the IT industry producing more than 50% of the laptops that are sold across the world. The Taiwanese government played a crucial role in developing this industry. It first identified the industry as a strategic sector to support (an intervention with the market allocation of resources!!) and it invested directly in the industry while at the same time encouraging local entrepreneurs and foreign investors to take part in the process. A number of Taiwanese public and quasi-public organizations such as the Industrial Technology Research Institute (ITRI) were established to help upgrade the industry and diffuse the needed knowledge. These organizations have played a crucial role in transforming Taiwan from a low-wage assembly platform into a technologically advanced centre of innovation. The stories of South Korea shipbuilding and steel industries are also illustrative in this regard.
These stories should not, however, be surprising as historically government support has been crucial in building industrial and technological capabilities. Cambridge economist Ha-Joon Chang uses the story of Toyota as an example. When Toyota started to produce cars, encouraged by a monopoly of the local market and a range of subsidies by the government, most free trade economists in Japan were highly sceptical. Japan comparative advantage is in silk, they believed, and it will be impossible for Japan to compete in the automobile industry. After decades of protection and support, Toyota exported the first car to the US. This proved to be a huge failure to the degree that Toyota had to withdraw the cars from the US market. The free trade economists said: We told you from the beginning. Japan will never be able to compete in this industry and it is now time to focus on our comparative advantage and forget about cars and leave it to the market to decide what we should produce. Luckily for Japan, the government decided to continue with the effort to promote the automobile industry and Toyota is considered today one of the most efficient automobile producer in the world.
I think my point is clear. Economic development is essentially a process in which countries move from low-value added activities and sectors to high-value added ones. While it is possible for this process to take place through the market mechanism, history shows us that a number of market failures prevent this and require an external role to facilitate this process. This role may take different forms. The most successful way has been a strategy that incorporates the important role of the market with a set of interventionist tools (industrial policy, trade policy, state ownership, etc) to steer the market in the right direction.
What Syria needs is such a strategy; A strategy that focuses on achieving results and not on adhering to certain ideologically-driven theories whether these are the state-led development theories or, the equally ideologically-driven, neo-liberal theories. To develop such a theory, we need people who understand how the economy really works and who are capable of understanding the lessons from other countries. But, before that, we need people who believe that there is always an alternative.
* Shamel Azmeh, MSc Globalization and Development,
PhD CandidateInstitute of Development and Policy Management
University of Manchester
Some Historical Context
by Zubaida (An economist who reports for a leading economic intelligence outfit.)
May I throw some empirical and historical context into this debate, which has been cast as being between neo-liberal and statist models of development. The roots of Syria’s state sector were laid down during the UAR period, during which Syria had the misfortune to fall under the most doctrinaire phase of Nasserist state socialism. Nasser backtracked as early as 1968, and Sadat started the very slow process of rolling back the state’s domination of the Egyptian economy in 1974. The state sector is still a powerful part of the Egyptian economy to this day, but the contribution of Egyptian and foreign private investment to the relatively rapid growth in production of goods and services in recent years has been of critical importance. I would argue that Egypt would be in much worse shape today without the reforms that have been enacted over the past 35 years, and in particular in the mid-1980s, mid-1990s and since 2004.
Syria’s recovery from its damaging encounter with Nasserism has been much more limited, although the successive Assad regimes have shown little ideological affinity with state socalism. Hafez al-Assad made accommodations with Syrian merchant families in the 1970s and 1980s, and kicked off his own version of “open door” policy in 1991 with Law 10. Hafez al-Assad also recognised that the Barcelona process, under which the EU Association Agreements fall, provided a means for his government to sketch out an economic reform programme with the help of European finance and technical assistance. The decision to allow the establishment of private banks and a stock exchange was taken towards the end of Assad senior’s rule, and this has resulted in the rapid expansion of Syria’ financial services industry over the past few years.
It is thus nothing new for the Syrian government to recognise the validity of some neo-liberal ideas. The difficulty has been the hesitancy with which reform has been pursued. This can be ascribed to various factors: politically generated finance from Arab states, Iran and (in the form of weapons effectively free of charge) the Soviet Union, which alleviated the pressure for reform; vested interests in the state and Baath party that were resistant to reform; rent-seeking behaviour from privileged economic elites closely connected to the centres of power.
The Bashar al-Assad government has made some limited progress towards creating the conditions for the Syrian private sector to become an effective engine for sustainable growth and job creation. It is likely to continue to try to build on these achievements through further gradual steps. Ehsani and his supporters are right to be concerned that this is all far too little too late.
Omar Dahi Replies: (Addendum Nov. 15 2009)
Ehsani Replies: (Addendum, Nov. 16, 2009)
Mr. Azmeh introduces the interesting catchy phrase of TINA but he gets confused with its application.
He makes it sound like my proposals are Syrian policy and that Mr. Dahi’s opinions are being cornered and discredited. This is laughable.
Mr. Dahi wants to preserve the status quo. He and his supporters are trying to convince us that there is no alternative (TINA). I am the one who is saying, “yes there are alternatives.” Speaking of privatization has long been considered a taboo subject in Syria. Mr. Dahi wants it to remain that way by arguing that there is no alternative to what we have. It is remarkable to read how Mr. Azmeh misapplies a concept that he picked up from the Thatcher days and ends up arguing in favor of an argument he is trying to ridicule.
Both Mr. Dahi and Mr. Azmeh are yet to explain why their solutions have not worked in Syria. They point to fancy academic articles and point us to examples from Asia to Bolivia and Venezuela. They conveniently gloss over the subject at hand; the Syrian experience.
State-led intervention in the economy has been around for four decades. Protectionism has been around for as long. Attempts to make the private sector partner with the public sector have been around for just as long. What have the results been? I don’t need to bore the readers with my list.
Mr. Dahi concluded his comment from the previous post by saying:
“Ehsani’s prescriptions will not get us to where he wants us to go,they will lead us to a situation even worse then we are now.”
I don’t think I could do that even if I tried.
Mr. Dahi continues to cite the need for “industrial policy”. I would appreciate it if he could explain in layman terms what he means by that from a Syrian perspective. What specifically does this mean? And how can this recommendation be financed and implemented in today’s Syria?
Zubaida makes a number of very interesting observations drawing our attention to how this movie got its beginning during Nasser’s UAR.
As to the power projects, I am sure that the Syrian government would have jumped at the chance to borrow at 3% from the institutions listed above. My guess is that the funding was not there. The Cham holding deal (yet to be finalized) involved loans from the local private banks to the tune of $100 mm while Cham holding puts up the other $100 mm. Incidentally, the recent law to increase the capital of the local private banks is precisely to enable them to make such project finance loans; their current balance sheets are too small to allow them to participate in such projects.
Shamel Azmeh Replies:
I am quite surprised with the response from Ehsani on my comment. I am not sure if he read the comment or he just grouped me with the “state-led development” supporters and conveniently used the same arguments that he uses against this camp despite that what I was saying is significantly different from what classical state-led development scholars argue for (and as argued by Rodrik, few economists still believe that the old theories of state-led development can be successful in today’s world).
I am not arguing for a return to blanket protectionism and state-ownership of business enterprises. What I am arguing for, as is clear in my comment, is a mixed strategy that understands the role of the market and the private sector but also understands that to achieve upgrading and a shift from low value added activities to technology-intensive high-value added activities, a steering role of the state using active industrial and trade policy is needed.
He is saying that what I am saying has been tried in Syria and failed. This is laughable because the economic strategy in Syria over the last few decades has moved from a classical state-led development theory that views protectionism and state-ownership of firms as an end rather than a tool to an end (which is the transformation of the economy and the move into technology-intensive sectors) to a theory of a passive role of the state in which the state is only required to maintain the regulatory framework in which the economy functions (it doesn’t matter if there are some enterprises that are still owned by the state because the basic issue here is not the ownership of some enterprise but the active or passive role of the state regarding the process of upgrading and structural change). So, the strategy I am arguing for (and which was implemented successfully in the Asian countries) was never implemented in Syria.
Now, Ehsani is asking Dahi to explain what industrial policy is. Of course, it is beyond the scope of a comment here to explain this but I can refer him to the following papers to see what industrial policy is and how it can be used to promote economic development. Many of these policies can be used in Syria and it is always possible to invent creative policies at a general and a sectoral level.
Dani Rodrik “Industrial Policy for the twenty-first Century”
Sanjaya Lall “Reinventing Industrial Strategy: The Role of Government Policy in Building Industrial Competitiveness”
Hope that I won’t be “accused” of using “fancy academic articles”!!!
[ Landis comment] It should be added that the entire comment section stimulated by the Dahi-Ehsani debate on the last post is excellent. I should really publish a broad selection of the many thoughtful comments. I recommend everyone read them. I cannot thank SC readers enough for being so smart and interesting. It does Syria a great service.