Posted by Joshua on Tuesday, July 12th, 2011
Syria’s Leadership and Opposition Need an Economic Policy
for Syria Comment
12 July 2011
We are nearly four months into the crisis in Syria and neither the opposition nor the Syrian leadership has articulated anything that resembles an economic policy to address the country’s challenges. And this, despite the central importance of economic factors in igniting the Arab revolts..
Syrian parties are not alone in their silence on the economy. Egypt, too, has no viable economic plan. How will it create jobs? The country is lost. One of the leading figures in that country’s Freedom and Justice Party, the most recent incarnation of the Muslim Brotherhood, recently confessed: “I don’t know much about the economy”.
In a stunning admission, Vice President Farouq al-Sharaa confessed that the previous Syrian government had “manipulated” the economic growth figures. It claimed growth rates as high as 6% and 7% for Syria when they never exceeded 3.7%.
For those of us who believe that the recent events in the Arab world are being driven by years of economic under-achievement and falling living-standards for the majority, it is disappointing to hear so little discussion of economic policy.
The opposition, for example, is yet to offer a single credible plan that would explain to the Syrian people how their lives may improve under different leadership. It is true that the opposition is still too fragmented to offer such a plan. However, it is a fact that not a single camp in this so-called opposition has articulated a well thought-out economic alternative.
The same goes for the current leadership. While an implicit and even an explicit admission has taken place that the past economic policy failed to deliver the earlier promises of growth and employment, one is yet to hear a fundamental rethinking of the failed policies that brought us here in the first place.
Set below is a list of questions for the opposition and the leadership:
- In light of the current trends in population growth, what will happen to the subsidies? Will the Syrian treasury be able to afford paying close to $8 billion a year in subsidies and for how long? Is there a plan to replace them with cash assistance to the lower income groups only?
- What will the country do about the public sector? Fewer than 10 percent of the 260 public enterprises are profitable. How long can the country keep throwing good money after bad? Will we keep promising to reform this sector with the most predictable of outcomes?
- Will the government act to control population growth and how?
- How will the economy grow enough to generate nearly 300,000 jobs a year? This number of new jobs is required merely to absorb the new entrants into the labor force. It will not reduce the present level of unemployment.
One can go on of course. This list is by no means sufficient to address all the challenges that will face the country going forward.
While the removal of article 8 from the Syrian constitution has received widespread support from the opposition, one is yet to hear much about article 13 that governs the country’s economic principals. This is how 13 (1) reads today:
“The state economy is a planned socialist economy which seeks to end all forms of exploitation.”
Once article 13 is addressed, article 23 needs to follow. It states that:
“The nationalist socialist education is the basis for building the unified socialist Arab society. It seeks to strengthen moral values, to achieve the higher ideals of the Arab nation, to develop the society, and to serve the causes of humanity. The state undertakes to encourage and to protect this education.”
Article 49 is also linked since it states:
“The Popular organizations by law effectively participate in the various sectors and councils to realize the following:
- Building the socialist Arab society and defending the system.
- Planning and guiding the socialist economy.”
The Syrian people deserve a vigorous debate over their future economic policy. As Egypt has found out, regime change does not automatically put food on the table, just as it does not magically create jobs or lift standards of living.
Both the Syrian leadership and those in the opposition need to articulate a realistic, decisive and effective economic policy that inspires the 23 million Syrians who must dream of a brighter future for their kids.
The time for a national dialogue on the economy is now. The leadership must lead the charge and offer the country a progressive, bold and inspiring new path forward.
Addendum (14 July 2011) by Author : EIU
Ehsani is raising a crucial issue not only for Syria but for other countries afected by uprisings inspired to some extent by frustration at the failure of economic policy.
On the real GDP growth question it would be interesting to get a more precise idea from Shara about the extent of the manipulation. Actually the latest quarterly bulletin of the central bank includes a provisional figure of 3.2% for growth in 2010, which may or may not be plausible; in the previous five years, the official figures show growth averaging 5.4%, which you could argue is too high, but would be consistent with the performance of some sections of the economy, in particular exports of goods and services in the context of generally strong growth across the region. The point is that given the long legacy of poor economic performance going back to the disastrous UAR, a country in Syria’s position would need growth rates of over 7% to make any impact on poverty and unemployment.
The policy questions are more difficult. The 2006-10 five-year plan aspired to achieve growth rates of around 7%, but was categorical about the need for restructuring, for example phasing out ruinous petroleum price subsidies and widening the government’s tax base through introducing VAT (supposed to have happened in 2008), as well as developing the domestic debt market through launching T-bills. The plan also included measures to put public sector companies on an autonomous commercial footing, which would logically lead to privatisation. These policies can be crudely categorised under the Dardari heading. The problem is that Dardari (like his equivalents in Egypt) is discredited in the popular mind for having collaborated with a corrupt and oppressive regime and for pushing a neo-liberal agenda whose effects would be to make life even harder for the poor. I would suggest that Dardari was nobbled by a combinatiion of his own pretensions (fed by over-enthusiastic would-be foreign investors), the Baath party and sections of the business elite–and ultimately of course by the lack of effective support from the president.
Any new government in Syria would have to go back to these ideas and decide whether there is still a place for liberal economic policies–which would be guaranteed to receive significant external financial support from the IMF and the World Bank–or whether the answer is to revert to a more sttae-centred model. Arguing for the former approach would be a challenge of intellectual honesty. We have already seen in Egypt that the caretaker government was not up to this challenge, and retreated into a muddled policy of self-reliance that will probably only store up more problems for the future.
Unless this government liberalizes the economy properly, it is inconceivable that the economy will improve by much. Rather than heading in that direction, the recent crisis has brought out the anti-economic reformers back with a vengeance. The reformers are now on the run. They are blamed for everything now. In this atmosphere, this country will suffer further for years to come. Socialist policies have not worked. They have made the country poor. They have made corruption widespread. Sadly, one is hard pressed to see the light at the end of the tunnel.
One of the major headwinds in Syria is low money velocity. Not to get technical but this refers to how much income and production is produced per one dollar of currency in circulation and bank deposits. The lower this number is (velocity), the more hoarding and less risk taking there is. Syria is caught in a very low money velocity due to the lack of animal spirit and trust in the system which allows for both borrowing and lending. The money essentially stays dormant inside the banking system or under mattresses. This situation existed even before the crisis.
Ehsani take on the notion that the West is in decline:
The U.S. households borrowed way too much between 1997 and 2007 as speculation mounted in the real estate sector. This was due to lax regulation and loose monetary policy. Since that particular bubble burst, it will take years for household balance sheets to be restored. The inability of households to borrow and spend meant that the government had to step in and boost borrowing and spending to make sure that the money supply and economic growth does not collapse. The U.S. economy is still growing but not nearly at the level that is needed to lower the 9.2% unemployment rate. Yes, by some measures it is even higher. This process of repairing balance sheets takes a long time as Japan as found out. The U.S. could be in this slow growth period for a decade till household feel that their balance sheets are restored. For the record, the size of the U.S. e!
conomy is still $15 trillion (yearly income/production). Households in the U.S carry a debt of $13.8 trillion but have assets that are worth $ 71.9 trillion. Those assets are made up of financial assets amounting to $48.8 trillion and tangible assets adding up to $23 trillion. In other words, despite the high $13.8 trillion in debt, household asset values are enormous. The difference between the two is networth and is currently at $58 trillion. This means that every U.S household has an average networth equal to 3.86 of yearly income (networth/gdp).
The EU issues incidentally also stem from excessive borrowing in the southern nations. Countries like Greece, Portugal and Spain (and even Italy) were not used to low single digit interest rates. After they joined, they could not resist the temptation to borrow. The bills are now coming home. They too will suffer from years of slow growth as they curtail borrowing.
Ehsani on the sectoral mix of the Syrian Economy
The last published figures by the Central Bank were for 2009. The size of the economy then was supposedly $54 Billion.
- Agriculture share = 22%
- Mining and manufacturing (oil) = 25%
- Building and construction = 3%
- Wholesale and retail trade = 23%
- Transport and communication = 10%
- Finance and Insurance = 5%
- Social and personal services = 2%
- Government services = 10%