“The Sin in Syria is Low Wages,” by Ehsani

The Sin in Syria is Low Wages
By Ehsani
for Syria Comment
October 17, 2010

My motivation for writing this essay is to offer a counter argument to an article that I read this morning by a fellow Syrian who lashed out at the Syrian private sector. The article is by Abu Fares, “The Syrian Private Sector: A Socioeconomic Farce,” which was posted on his website.  As regular readers of Syria Comment know, I have consistently and forcefully sided with the economic reform process in Syria.

Indeed, my only lament is that it is too little too late. I believe that the process has not been fast enough or radical enough. I am fully aware that my support for the reform process is not shared by a significant number of Syrians. This is not surprising. Change will produce new winners and losers. In this short essay, I will first list the winners and losers of the socialist era. I will then explain how the reform process has caught most Syrians off guard and unprepared for the changes that they must face. The failure of many Syrians to understand what needs to be fixed in order to assure the next generation a better life is causing many to blame the reform process and the private sector for the growing poverty and income disparity in our country. It has also brought growing anger at those leading and benefiting from the change.

The winners of the pre-reform system

The socialist experiment that dates back to the 1960’s was launched by confiscating private property, nationalizing industries and giving the state a dominant role in the economy. Moreover, the nationalist fever as well as the geopolitical considerations of the period demanded a policy of self-sufficiency and import substitution when it comes to production and the raw materials needed for this output. It was not difficult to see who the winners were likely to be in this system.

The growth of the public sector meant that the state would be the destination of first choice for young Syrians who did not necessarily have the education or skills that may have been required by a none-state employer. Since these public sector jobs were secure till retirement, it was not difficult to see how government jobs multiplied to exceed two million in number over the past three decades. The way these jobs were allocated usually had little to do with merit or qualifications. Indeed, they were largely dolled out by senior party and government officials for personal gain and to buy loyalty from underlings. Stories of of the occasional kickback paid to secure a key government job quickly gave way to persistent rumors of how nepotism and the selling of state position had become institutionalized over time.

The goal of staying independent and self-sufficient also produced its own winners. For almost forty years, the most coveted trophy of local manufacturers was to secure “himaye watanniye” or protection from imports for their products. The allure of this trophy also meant a huge source of income to senior party and government officials. Local manufacturers were more than happy to pay. One of my close friends was smart enough to start producing ketchup over 20 years ago. His business plan was simple. Pay whatever it takes to obtain the himaye wataniye for his product. Once he did, he flew to Germany (China was not in the game then) and bought the cheapest and most primitive production line available. A few months later, he had the Syrian market largely to himself. Imports of ketchup were not permitted. The Syrian consumer had little choice but to buy this third-rate product enriching my lucky (or smart) relative for close to a decade.

The local manufacturers not only benefited from a monopolistic business environment but also from ridiculously subsidized and cheap heating fuel (mazot), electricity and water. For decades, they enjoyed nearly free inputs for their production and no competition. If this were not enough, they sent their children to state schools and universities for free and paid almost no taxes.

Who were the losers of this system?

The vast resources that were used to subsidize the public sector could have been spent on infrastructure, health care, and export incentives. The average Syrian citizen has paid a very heavy price in the form of run down services and national infrastructure. What is more, Syria has few of the vigorous state institutions and private corporations that would have grown up in a properly competitive system with some measure of quality control and accountability.

The education system has also suffered. Rather than offering totally free education that has become unsustainable and cannot keep up with quality necessary for today’s demanding market, the state should be means-testing students and asking the wealthy to pay something. If not for elementary education and high school, at least for university.

Other obvious losers are Syrian consumers who have been forced to buy inferior local products for decades. They have subsidized local manufacturers, which are today uncompetitive for the most part and will soon collapse if they have not already been driven into bankruptcy.  University graduates in anything other than the schools of medicine and engineering were also losers.

Allow me to relate a personal story to make an important point. When I decided to study Economics in the UK in the late 1970’s, most of my parents’ friends and relatives were bewildered. “Why would you spend this much money on your son to study Economics?” they were often asked. What would he do with this degree? Will he Work as a teller at the local commercial bank of Syria when he returns? What would be his salary? Would it not make more sense if he simply joined his father’s business form now and saved you the money? Interestingly, all Syrian students of that era had to obtain what was referred to at the time as “taleb taht al-ishraf” or student under government supervision. With strict currency control in place, it was impossible for my parents to pay for my tuition unless I qualified. But, it was impossible to qualify as a student of Economics. You had to do either Engineering or medicine to obtain the government approval. Given that computer engineering was a new subject at the time, I enrolled myself in that department for one course and used a letter from the university that I was indeed taking part in their “engineering” school. The trick worked. I proceeded to earn my Economics degree and then my MBA from an Ivy League school in the U.S. When I arrived at the latter institution, I was greeted by the admission officer this way:

“Welcome, you are the first Syrian we have had here since 1964”. These words still ring in my ear some 27 years later. My relatives were correct though. There was nothing for me to do with my new degree in Syria.

The reform process:

I will spare the readers the history of the reform process or the geopolitical events that may have led to the possible delay in its implementation. What is important is that the train has departed the station. Reform began with the introduction of the private bank law back in 2003-2004.

The system of himaye wattaniye was slowly dismantled. Local manufacturers are no longer able to sell inferior products as quasi-monopolies. They now needed to compete with relentless regional producers who are mostly exempt from import duties thanks to the Arab free trade agreement. The recent opening to Turkey has added a new formidable competitor. The same can be said about imports from China. In sum, the local Syrian manufacturing base is now facing an onslaught that it is ill-prepared to face following years of protection and underinvestment. If this was not enough, government officials must have used their excel spreadsheets to figure out that the existing level of subsidies cannot possibly continue. The reduction and streamlining of some of these subsidies has dealt a further blow to the profitability of local producers.

The growth of the public sector has slowed down as government jobs have largely disappeared. The state sector has endured a hiring freeze for a number of years. Who is hiring now? Who are the winners in the new system? What are we to make of recent reports detailing the “incredible” and “shocking” salaries of the senior executives of the country’s new private banks?

These questions and more were posed by Abu Fares in his article, “The Syrian Private Sector: A Socioeconomic Farce”. Reading his post this morning inspired me to write this article.

To be sure, Abu Fares’ article makes for entertaining reading. It is hard to disagree with his negative portrayal of the current income disparity in Syria. However, his story is akin to taking a snapshot of a movie without watching its start, middle or end. What is noteworthy is that while Abu Fares lashes out against the rich, both the nouveau and old money, he conveniently omits any discussion of why the poor make a measly monthly salary of SYP 11,000 (US$ 234). Central to his article is the following question that he poses to his readers:

“Who in the hell gets paid a salary of $42,000 a month in Syria? While the average accountant’s monthly salary is $400 in the private sector, some accountants are making $20,000 and up”?

Since he did not attempt to answer his own question, I thought that I would give it a shot:

Those making a salary of $42,000 a month or $504,000 a year are the general managers of the country’s private banks. Is this an excessive salary? No. The compensation system of such banks is decided on by an independent board and the institution’s human resource department. Had any of the boards been able to recruit their managers for $4200 instead of $42,000, they would have gladly done so. The truth is that they cannot.

Syrian universities cannot produce qualified bank executives that can manage $1 billion balance sheets. Indeed, Syrian universities cannot even produce English speaking graduates that can take basic starting jobs at financial institutions. As a result, the boards of these banks have had to recruit their top managers from abroad. The only way such qualified individuals would choose to leave their existing jobs and come to Syria, which is under economic sanctions and presents them with a difficult and insecure working environment is if they are paid competitively. While Abufares and most Syrians may think $42,000 is outrageous, they are misinformed. Were they aware of the salaries earned by senior bankers in the rest of the world, they would not be shocked. Syria is slowly becoming part of the global economy again and that is good news. It is going to cause Syrians more than a few shocks.

To look at the problem in a different way, we should not be shocked at the bank manager who earns $42,000 a month but the accountant who goes home with only $400 at the end of the month and must face his family.  It is not the Four Seasons hotel and its prices that should dismay us but the fact that Damascus only has one 5-star hotel. Dubai has over 70. Similarly, it is not the $170,000 Beemer that should make us angry but the fact that so many Syrians must still ride “battered micro-buses with 9 sweaty (and stinking) passengers” who live below the poverty line.

Syria is slowly taking its place in the global market place. Rather than venting against the reformers and the private sector, people must direct their anger at the socialist planners whose ill-advised past policies had held back their country’s infrastructure, education, heath care, competitiveness, productivity, incomes and standards of living for way too long.

The days of getting an eternal government job by making a call to a senior party operative are over. The days of being employed in the public sector without a high school degree are gone. The times of stuffing consumers with inferior products by banning imports have disappeared. In order to get off that smelly bus you now need to learn English, have computer skills, learn credit analysis, and be proficient in new computer software, advertising, marketing and commercial law.

While on the subject, the Syrian public would do better to cease its attacks on Mr. Dardari and the reformers. Better that they embrace the changes underway and get on the train. The President would not have kept Mr. Dardari in this job had he not agreed and supported the spirit of the process underway. No reform process is perfect. I, for one, think that it has been, if anything, too slow. I wish the word “socialism” would be dropped from the constitution. I also wish that we would stop pretending to be half-pregnant with terms like “social market economy”.

I would be ecstatic if the government stopped supporting its 250 losing businesses and embark on a privatization drive. I wish Mr. Dardari would further reduce the subsidies (eliminate all that goes to the wealthy by means testing) and use the savings to spend money on education and export incentives. The reformers must also better articulate their message to the public by explaining the merits of the reform process and how the old system cannot possibly continue. They must show through a simple excel sheet analysis that state coffers will be drained if bread, fuel, sugar, electricity, rice and tea subsidies plus free education keep on being dolled out at the present pace. There is no free lunch. The more you spend on subsidies and inefficient businesses, the less you can spend on education, health care, infrastructure and export promotion.

The money to fund all these programs will have to come from somewhere. Printing money will be the last resort. As for the high price of real estate, reforms must address the speed of the “tanzeem” otherwise known as the process by which more land becomes zoned and prepared for residential use. In sum, while we all may have own criticisms of the process, the public must be made to unite around the fact that the general thrust of the reform policy is sound, appropriate and necessary.

It is time for the Syrian public to realize that rather than criticizing the new Syria, they must lament the old Syria which could not keep its promise of growth, higher incomes and rising standards of living. The days of quitting school and opening a “dekkane” or store and expecting to thrive and grow wealthy are over. It is now Carrefour, the new malls and international brands, Lafarge, the banks and the new expected leasing companies that will become the employers of choice for Syria’s youth. Syria needs to start graduating MBA’s and not only engineers and doctors. The best and brightest of the country ought to start to entertain thinking about careers in advertising, banking, leasing, commercial law and private equity and not just medicine. The $42,000 a month ought to work as an incentive rather than a source of frustration and anger.

The cancer of corruption

While Abufares and the Syrian public have the right to wonder about income disparities, they should direct some of their anger and frustration at Syria’s past economic mismanagement rather than present reforms.  The vast majority of Syrians who eek out an existence on pitiful salaries should not be seen as the norm. The most disturbing feature of the so-called socialist system has been the culture of corruption that it has created for us – a culture that will be very difficult to undo. The pitiful civil servant salaries have institutionalized official corruption to levels that are difficult to fathom.

The best example of such corruption can be seen in the scandal that has recently come to light in Aleppo in the area of real estate cooperatives. This article details the cancer that now plagues city officials. They abuse an archaic system far removed from the functioning of free markets to enrich their pockets and those of mid-level government officials to the tune of hundreds of millions. This cost is born by the average citizen. I encourage readers to go through the comments section of the article in order to understand the depth and seriousness of the problem. The prime minister has recently convened a meeting of his ministers to discuss the runaway prices of real estate and what to do about it. Regrettably, we are unlikely to see concrete actions taken to address this issue any time soon. It is disturbing to see the government paralyzed as it has watched the prices of real estate soar to stratospheric heights over the past 5 years. It has offered no explanation or solution. There is a lot that can and should be done. Untaxed empty apartments dot the country. Speculation in land is a national pastime. Tanzeem takes decades and the list goes on.

Taxes

The bank executive making $43,000 a month is subject to a 20% income tax. Bank profits are subject to 25% corporate income tax. Given that such income earners are subject to international standards of auditing and reporting, they are some of the few Syrians who pay their tax bills in full. The problem of not paying taxes lies outside the publicly listed companies. Not a single family owned business in Syria decided to list on the new stock exchange. This was a telling fact. Large family businesses in Syria pay an effective tax rate of something around 4% it is believed. The government keeps making noise about changing this fact and cracking down of tax cheats. They threaten hefty fines for none compliance but thus far they have done nothing. What is more disturbing is that the owners of such businesses send their children to university for free. They receive subsidized items just like those making $300 a month.

A way forward

1- The government must use tax policy to increase the opportunity cost of holding on to unused and none primary residential units. It must also use tax policy to slow land speculation. The fact that the Tanzeem moves at a snail’s pace means that new residential developments take decades to bring to the market.

2- For a country that has such expensive subsidies in place and a large unprofitable public sector that sucks up state resources, every unit of tax revenue is critical to bridge the funding gap. That the richest people in the country can get away with paying 4% in tax is shameful. But, wouldn’t you do it if you could? Is it possible for the government to enforce compliance to the above two suggestions when it pays its employees $300-400 a month? When a $400 a month employee shows up on the doorstep of a business tycoon that has a huge tax liability, what are the chances of ethics and honesty winning out over temptation and the desire to fatten one’s income? We all know the answer to this rhetorical question. This brings us to the third and most important suggestion for a way forward.

3- Syria will never put its economic house in order unless it makes a clean break from socialism. Introducing vague German economic terminology and saying that we are now a “social market economy” is not enough. For a country with such limited financial resources, our government has no business being in the business of making shoes, cloths, tires, bottled water, beer and 244 other constantly losing establishments. Every manager in charge of these inefficient businesses sees his job as a license to steal and plunder. All the money wasted in salaries and balancing the losses at year end is money that was stolen from one Syrian to pay another. In this case, the robbed Syrian is everyone who has no connections in the government or the Party. Those robbed include every hospital, university, school and road that has been starved for the lack of investment. The answer to Syria’s many problems is privatization. It is a taboo subject that the government is not educating its people about.

I am sure that my recommendation to privatize will elicit a number of passionate responses explaining how this cannot be done and accusing me of being heartless be of the many employees who will lose their jobs. Nonsense is my answer. The new buyers of these businesses will also need to employ people and will not rely on robots. They will most likely make a profit which will allow them to grow and invest further in the business. This will add to economic growth and end up employing more accountants, lawyers, advertising professionals etc. Once the government stops having to close the hole at these 250 businesses, it will have the funds to pay its tax collectors three or four times their current salaries. Once this is done, it will then be able to announce a strict and enforceable tax compliance drive. A well paid tax collector who accepts a bribe can be dealt with severely and publicly. The same goes for the business person offering the bribe.

Conclusion

Abu Fares should not attack the Syrian private sector, the senior bank executives, the ostentatious BMW drivers, or those sipping coffee at the Four-Seasons. He would do better to save his anger for the old economic habits that have squandered close to $15 billion on uneconomic irrigation projects that were carried out with no regard to return on capital criterion. He must lash out at a the corrupt and inefficient public sector that has wasted billions of scarce Dollars on uneconomic projects that has drained the state coffers of critical funding that could have gone to improve education, health care and infrastructure. That we can still stick our heads in the sand and think that these issues will somehow get solved with time is a travesty. The government must streamline and shed its vast wasteful assets. The government must address the rising cost of real estate and punish those who neglect to pay their taxes. It is high time that Syria adopted sound public policies and taxed people according to their earnings. The reform process is bound to cause much pain and offend our sense of fairness and equality, but their is no alternative. Syrians have unfairly been denied the opportunity to compete in the international marketplace and enjoy its fruits for too long.

Global Voices: Syria: Gap in Private Sector Salaries Disturbing
2010-10-15
By Yazan Badran

“Officially disclosed salaries in the Syrian private sector range from the minimum full-time wage of $125 to $42,000 a month”, Abu Fares lashes out on the Syrian private sector, and the disturbing imbalance in the wages it …

Comments (112)


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51. jad said:

Dear Ehsani,
Thank you for the reply.
Quick notes on your 41 post

You wrote
“The median price of real estate does not reflect median incomes”
In theory I would agree with you, however, and In the existing condition of the Syrian real estate market today don’t you agree that if the salary goes up the market will fly and then you will have a boom in the illegal settlement? if you agree which I assume you will, then the theory doesn’t fit the reality of Syria and we need a different approach to solve the real estate market high price problem, this is where my point that we need to legalize and develop the shadow market (it doesn’t take as long as developing and rezoning a new area).

Again, the 60% I was suggesting was an idea out of personal experience, that to feel fair in any country, the tax system should be balanced to everybody in that country, so if I’m paying 40% income tax and on top of that I pay 13-15% service tax on everything I buy then the tax bracket needs to be higher for the 500k a year citizen.
BUT I do understand your theory for a country like Syria where everything is not as it should be so getting the 20% out of the rich guys is better than getting nothing.

‘First, where are Syria’s water resources to promote agriculture?’
How about using technology in that sector, as Why wrote, isn’t that a choice? Doesn’t Syria have enough land to produce enough food for its citizens without the need for the middle man to import some potato from china?

‘where is the electricity capacity going to come from?’
Technology again, how about building green electrical hubs in the unused vast desert we have and try to use our brains and creativity in a way to get something instead of sitting and getting everything from everywhere else and pay for all those middle men their fees and stay behind everybody else in the world.

I accept Service Sector as a complimentary for other sectors as you wrote in your reply to Nour, nothing more than that at least until we have enough wealth as a country to move fully toward the service sectors.

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October 20th, 2010, 5:17 pm

 

52. WHY said:

JAD:

You said:
“I was merely asking what did they do on the ground to deserve the salary”

A banker does not need to do anything to the country in order for him to get the job of CEO of a private bank. He needs to have the right credentials for the JOB, and that is educational background and work experience. This is something that the members of the board at the bank decide, not the government! The baath when they came over nationalized the banks and gave the top position to a members of the party because they said that this position is sensitive and we need to have someone loyal in this position. You see, the private sector doesn’t run on a system of who’s most loyal to the party or the country. What do you want the CEO of the bank to have done before he became CEO, shout bel ro7 bel dam nafdeek ya sourya? or oma 3arabiya wa7ida zat risala khalida?

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October 20th, 2010, 5:32 pm

 

53. jad said:

Why,
Let me rephrase the question so you can answer it more directly without trying to explain the obvious:

Do you know what the CEO of any bank in Syria did for his bank to deserve the salary?

“What do you want the CEO of the bank to have done before he became CEO, shout bel ro7 bel dam nafdeek ya sourya? or oma 3arabiya wa7ida zat risala khalida?”
That would be great :), can you ask them to do that?

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October 20th, 2010, 5:58 pm

 

54. Elie Elhadj said:

WHY,

You said in 47: “It was like the Syrian oil revenues from 80s until mid 90s, when that money used to go directly to the President’s palace without anyone finding out how much it was or where it was spent. It was not part of the budget”.

Here are some numbers from the Central Bank of Syria that you might find interesting:

In 2008, Syria’s “Government Royalty of Joint Oil Fields
“أتاوة الحكومة من حقول النفط المشتركة
http://www.cbssyr.org/yearbook/2009/chapter14-EN.htm
was S£ 42,452,000,000, or US$ 850 million (at forex rate of S£50=US$1).

In 2008, Syria extracted 20,245,000 m3 of oil:
http://www.cbssyr.org/yearbook/2009/chapter5-EN.htm
or some 145 million barrels (at 7.15 barrels = 1 m3).

The average price of crude oil in 2008 was in the region of $91/barrel:
http://www.ioga.com/Special/crudeoil_Hist.htm

As such Syria’s gross revenues from crude oil should have been $13 billion (145 million barrels x $91 per barrel).

Assuming, just assuming, that Syria’s take after foreign companies royalties and extraction costs is 50% of the total (I have no idea what the exact % might be), then Syria’s revenues from crude oil ought to be in the region of $6.5 billion, not $0.85 billion.

The assumption of 50% might be completely wrong. It might very well be only 6.5% ($0.85 / $13 billion)!

For the removal of speculation and erroneous conclusions regarding the amount of the country’s oil revenues and in the interest of transparency it would be enlightening to learn how the figure of S£42,542,000,000 or $0.85 billion was arrived at.

Elie

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October 20th, 2010, 6:27 pm

 

55. WHY said:

Jad,

Your question “Do you know what the CEO of any bank in Syria did for his bank to deserve the salary?” is a very valid one and quite different from the one you initially posted regarding what they did for the country.

Ehsani summarized it very well economically speaking. The bank simply would not be able to attract good bankers to run the bank if they paid much less. I for example would not leave my current job now and take a job in Syria if they pay me the same amount. I would need more than my current salary now to take the same job in Syria. I need to be compensated and be paid a premium for all the valuable things that I can’t find in Syria, and this includes freedom of thought and speech! I also need to be compensated for living under pollution!

As for picking someone to run a bank if I was a board member or a shareholder, I would demand someone with very high credibility. I would look at educational background as a starter, someone an MBA from one of the top business schools in North America or Europe. It would be an extra if he has a PhD in Finance. It’s alright if they got their undergrad degree in an Arabic country (For those who were educated in the Arab world, you have a chance 🙂

Work experience is very important. You can’t have someone in such position without having top experience in the banking sector. This means an executive at the current bank or some other bank for at least 10 years. Let’s not forget that generally employees don’t become executives before 10 years (there are exceptions of course). So this means the person needs at least 20 years of experience in the sector. (There are always exceptions, but you can say that this is the standard in the banking business).

Economics is very simple ladies and gentlemen. If you were an owner of a company and the managing director/CEO of the company is able to generate $50 million dollars in profit for you..wouldn’t you give him at least half a million?

After checking the financials of Audi Bank, the bank made a NET PROFIT (this is after costs and everything) of over $254 million as at 30/9/2010. There are 3 more month to add! This is $43 million more than the same period (9 month) in 2009 in which they made $213 million. Not bad at a time of “recession”.
http://www.banqueaudi.com/Financials/Pages/ISMain.aspx?pic_url=Financials

If the CEO was making them loose or not setting the goals for growth rate, then he would have been out on his ass a long time ago. I’m sure they aren’t going to pay him mshan sawad 3yoono (for his black eyes 🙂

If I was a shareholder I have nothing to complain about. As for the government, they shouldn’t either because the more money the banks make the more taxes they will end up paying. You want socialism? Fine, but I guarantee you most of the foreign banks will close down on their own (thats if they aren’t forced to close down) and the government will have to end up running the banking sector on their own, having to cope with more corruption, bureaucracy and losses!

ELIE:

Thank you for your research. This surely raises many questions. Isn’t there one member of parliament or politician in Syria with a conscience?

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October 20th, 2010, 7:41 pm

 

56. Jad said:

Why,
Thank you for the explanations and for Audi bank example.

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October 20th, 2010, 8:35 pm

 

57. jad said:

If you live in Canada:

http://www.cjpme.org/

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October 21st, 2010, 2:23 am

 

58. Honest Patriot said:

test

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October 21st, 2010, 3:59 am

 

59. Anonymous said:

Elie,

It will be good to do some more research before publishing figures as they are facts!

“Government Royalty of Joint Oil Fields” is only one item through which oil revenues are channeled into the budget. If you check the latest IMF figures, you would see that oil revenues in 2008 were SP 131.4 billion (US$ 2.6 billions) and the average price of each barrel exported was US$ 84.2.

Second, and obviously, not all oil produced in Syria is exported! This means that using the international oil price for all production is totally wrong.

I am not going to get to more details here but the idea that oil does not go into the budget is one of the funniest urban legends common in Syria especially considering that oil has been funding the state over the last two decades. It is a pity to hear “researchers” repeat this myth.

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October 21st, 2010, 4:44 am

 

60. EIU said:

Elie,

Interesting point on the government take from oil royalties, but the calculation you make is based on Syria’s total oil production, whereas the entry in the accounts specifies jointly operated oilfields. SPC now produces about 190,000 b/d and the joint operators (Shell, Total etc) produce about 180,000 b/d between them. The standard royalty paid to the foreign operators is 12.5%; the operators are also entitled to a variable amount for cost recovery. The government gets other revenue from the oil sector in the form of tax on both the foreign operators and SPC, and through a share of SPC’s profits.

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October 21st, 2010, 7:07 am

 

61. Elie Elhadj said:

ANONYMOUS

The Central Bank of Syria states under:

الواردات التقديرية في الموازنة الموحدة 2008 ( بآلاف الليرات السورية )
ESTIMATED REVENUES IN THE CONSOLIDATED BUDGET, 2008( S.P.000)
http://www.cbssyr.org/yearbook/2009/chapter14-EN.htm

That: Government Royalty of Joint Oil Fields
أتاوة الحكومة من حقول النفط المشتركة
is S£ 42,452,000,000

There is no other entry in the table that signifies additional revenues from oil. Please look for yourself and advise if there exists in the table additional revenues from oil.

The manner in which the Central Bank presents government revenues in the specific table leads to raising exactly the type of question that I raised. I said in my comment:

For the removal of speculation and erroneous conclusions regarding the amount of the country’s oil revenues and in the interest of transparency it would be enlightening to learn how the figure of S£42,542,000,000 or $0.85 billion was arrived at.

That is all I asked for.

Please advice the Central Bank and the budget preparers to present the revenue numbers differently if they wish people to avoid concluding what I have concluded.

Elie

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October 21st, 2010, 7:59 am

 

62. EIU said:

Elie,

The IMF Article IV report presents Ministry of Finance fiscal data on page 18. It shows that in 2008 the government budgeted to receive oil revenue of S£90bn but was actually expected to have received S£131bn as the price was higher than that assumed.

http://www.imf.org/external/pubs/ft/scr/2010/cr1086.pdf

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October 21st, 2010, 8:23 am

 

63. Mr. PRSEIDENT said:

Abu Fares,
it seems that one of the limited social activities in Syria is drinking a glass of arak in an upscale café. After all, that was the invitation that you offered Ehsani. Why don’t offer him a nice cup of green tea instead? There are millions of Syrians who offer their guests a simple and a cheap cup of tea. How much antioxidant does this arak drink has compared to green tea? The answer is minus a million (so boys and girls of syriacomment.com make sure you drink muchooo green tea like I do 🙂 ). Did you offer him Arak versus tea as a higher price for attracting a stronger social bind and friendship? Off course you did. YOU ARE WILLING TO PAY THE MARKET PRICE TO GET THE REQUIRED RESULT.

Also, you could drink the same thing by sitting in a café in the alley of old souk elHal (vegetable market of Damascus). In such place you still enjoy the smell and the taste of your favorite drink for a very cheap price. You would also get to experience the sickening smell of natural substances left by surrounding horses and donkeys. I wonder why are you willing to pay that upscale café owner the high price to sit in his coffee shop. Is it fair that YOU pay $30 dollars to the café owner while his dishwasher is making $200 a month working 12 hours a day? Off course it is fair and acceptable to you. The owner should be more compensated for taking more risks opening and running the business.

If that bank manager worked for me I would advice him not to take the job considering the risks and the added hidden costs and headache of managing such an operation in Syria. He could be better in Dubai. After paying 20% income tax his salary would hardly be enough to finance and live in a single family home in the suburb of Damascus, put his kids in a private college, and finance two family cars,…

Cheers.
Mr. President.

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October 21st, 2010, 8:26 am

 

64. Elie Elhadj said:

EIU

Your explanation is enlightening.

You said: “The joint operators (Shell, Total etc) produce about 180,000 b/d between them”.

On the basis of 180,000 b/d or 65,700,000 barrels per annum, gross revenues in 2008 should have been shown in the table referred to in comments 61 and 54 above just under $6 billion (65.7 million barrels x $90/ barrel). Assuming that the cost recovery that the operators receive is, say, 7.5% (I have no idea how much) plus 12.5% royalty, government revenues should be around $4.8 billion ($6 billion x 80%. Less than $4.8 billion if cost recovery is more than 7.5%).

As such, explanation by the Central Bank and the preparers of the budget is still due, if clarity on this issue is to be preserved.

I do hope that there are perfect explanations for the apparent differences and that those differences are merely presentational anomalies. However, until and unless a clear accounting is presented in the home budget doubts regarding the truthfulness of the numbers will not go away. The issue being raised here is in the interest of the government and citizens.

That explanations might exist in IMF statistics, as ANANYMOUS stated is no substitute to accurate and clear presentation in the home budget.

Elie

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October 21st, 2010, 8:34 am

 

65. Mr. PRESIDENT said:

Abu Fares,
it seems that one of the limited social activities in Syria is drinking a glass of arak in an upscale café. After all, that was the invitation that you offered Ehsani. Why don’t offer him a nice cup of green tea instead? There are millions of Syrians who offer their guests a simple and a cheap cup of tea. How much antioxidant does this arak drink has compared to green tea? The answer is minus a million (so boys and girls of syriacomment.com make sure you drink muchooo green tea like I do 🙂 ). Did you offer him Arak versus tea as a higher price for attracting a stronger social bind and friendship? Off course you did. YOU ARE WILLING TO PAY THE MARKET PRICE TO GET THE REQUIRED RESULT.

Also, you could drink the same thing by sitting in a café in the alley of old souk elHal (vegetable market of Damascus). In such place you still enjoy the smell and the taste of your favorite drink for a very cheap price. You would also get to experience the sickening smell of natural substances left by surrounding horses and donkeys. I wonder why are you willing to pay that upscale café owner the high price to sit in his coffee shop. Is it fair that YOU pay $30 dollars to the café owner while his dishwasher is making $200 a month working 12 hours a day? Off course it is fair and acceptable to you. The owner should be more compensated for taking more risks opening and running the business.

If that bank manager worked for me I would advice him not to take the job considering the risks and the added hidden costs and headache of managing such an operation in Syria. He could be better in Dubai. After paying 20% income tax his salary would hardly be enough to finance and live in a single family home in the suburb of Damascus, put his kids in a private college, and finance two family cars,…..

Cheers.
Mr. President.

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October 21st, 2010, 8:42 am

 

66. ANANYMOUS said:

Elie,

Yes, maybe a better presentation of oil revenues should be provided, although budgets are usually prepared according to fiscal pricplies and not on a product-by product basis. However, and I am not saying there is no corruption in the oil field, the idea that oil is not counted in the budget, as some people here said (I dont mean you), is laughable. The budget of Syria relied on oil for far too long and this is the major reason for the difficult economic situation was are in right now.

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October 21st, 2010, 9:04 am

 

67. Elie Elhadj said:

EIU,

Thanks.

At S£131.4 billion for 2008, as shown on page 18 of the IMF Country Report, revenues from oil would be $2.62 billion (at forex rate of S£50=$1).

£2.62 billion is still far less than the $6 billion referred to in my comment 63 to your good self. $2.62 billion is far far less than the $13 billion referred to in my comment no. 54 to WHY.

Please note that the IMF Report classifies the subject figure as “Revenues. Oil”. It does not say “Government Royalty of Joint Oil Fields” or SPC operations. As such, one should be able to reasonably conclude that the $2.62 billion represents Syria’s entire revenues from oil.

The IMF Report did not explain the subject difference. It actually complicated matters.

The question is still as follows: How are the Central Bank and the preparers of Syria’s budget to explain the difference between $2.62 billion and $6 billion, let alone $13 billion?

Elie

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October 21st, 2010, 9:15 am

 

68. EIU said:

Elie,

The inner workings of production-sharing contracts are notoriously difficult to unpick — but my understanding is that the royalty that accrues to the government (typically 87.5%) from foreign companies operating in Syria comes from the share that those companies are entitled to in proportion to their equity stake in the oilfield operating company, which is normally 50%. Under the Syrian system, the oil is marketed by a Syrian state-owned trading company, and the foreign partner receives the 12.5% royalty in cash (which provides an opportunity for gains for the state or its employees via arbitrage). The other 50% goes to SPC, and part of this sum finds its way to the government in the form of tax and profit share. It is probable that in Syria, as elsewhere, there is a certain amount of skimming by officials of greater or lesser weight.

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October 21st, 2010, 9:48 am

 

69. Elie Elhadj said:

EIU,

Thanks for your added clarifications.

Might these formulae cut government’s NET oil revenues by the billions of dollars?

Government revenues from oil are reported to the IMF in 2008 as being $2.6 billion.

“Government Royalty of Joint Oil Fields” is reported in the same year by the Central Bank as being $0.85 billion.

The theoretical GROSS government revenues from oil for 2008 ought to be in the region of $13 billion.

No matter how big the deductions might be for cost of production, royalties to foreign partners, etc…. the revenues figure ought to be greater than the one reported to the IMF. The same logic applies to the figures of the joint projects in the budget.

The budget preparers should provide a detailed accounting of oil revenues and related outlays. The citizens and the parliament have the right to know. Unless such an accounting is provided, questions marks will persist.

Elie

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October 21st, 2010, 11:09 am

 

70. Global Voices teny Malagasy » Siria: Iza no mandray $42,000 isam-bolana? said:

[…] izany tao anatin'ny sokajy fametrahana fanamarihana, na tany anatin'ny lahatsoratra. Alex, nanamarika tao amin'ny lahatsoratr'i Ehsani, milaza fa tokony hihaino misimisy kokoa, ary mihaino tsara […]

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October 21st, 2010, 11:37 am

 

71. abufares said:

To MP
If you think I am one to drink Arak in an upscale café you’re way off the mark. I won’t even drink it in Damascus. I have that much respect for… Arak.

For the rest of you, I haven’t stopped whining. Here it is my latest release “Syrian Economics 101”

http://www.abufares.net/2010/10/syrian-economics-101.html

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October 21st, 2010, 11:37 am

 

72. jad said:

I post the same comments on your site Abu Fares:

Dear Abu Fares,
I salute your courage in saying the obvious without trying to sugarcoat the truth that with or without any degree in economy the average Syrian ‘Abu Ahmad’ not only understand it but he also live with it everyday.

I asked something similar to the question you asked:
“Since the debate veered into private banking in Syria, shouldn’t I ask what did these banks contribute to the country and its economy.”
I got no proper answer because obviously there is none. It’s funny how the people’s mentality change, asking such question will make you sound ‘bad’ as if doing good to Syria is something Taboo that nobody should ask and we should be ashamed of!!?

My friend, we are living in a Mad World and the answer to your big and dangerous question of:
“If there is a consensus among economists about the human validity of the above argument then the field of economics is the only social science that is openly void of any moral values.”
is YES, in economics there is no place for Morals it has only Materialistic ‘Values’ and we the very few left average middle class Syrians are the big losers 🙂
Thank you.

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October 21st, 2010, 12:19 pm

 

73. idaf said:

Ehsani Pacha 🙂

You make a very strong case. I totally agree.

However, I have one point you may want to consider in your well-reasoned conclusion, especially when talking about taxes in Syria.

In all normally functioning states, other than rich tax-free havens, taxes are considered one of citizens’ obligations in return for the services provided by the state. This includes providing security, high quality and affordable (or free) healthcare and educational systems, solid infrastructure, transportation system, social security systems, etc. Additionally, these rights also include the state allowing citizens to practice accountability against the officials and have a say in the policy-making and the way the country is run.

In Syria, the system that was developed and put in place since four decades was based on a social contract between the ruling elite (businesses and government) and the population. This contract effectively and implicitly stated that: The government will ignore tax collection, will provide mediocre social services and will give a free hand to wide scale petty corruption. In return, according to this social contract, the Syrian population will relinquish its right in receiving high quality services and the right to have a say in running the country. A whole ecosystem was developed based on this implicit social contract. It’s like your boss telling you: “let’s make a deal… you can make money on your own illegally by exploiting your job and even not showing up to work while you keep receiving your salary and benefits; while in return you turn a blind eye on me while I steal from the company’s coffers and make under-the-table deals with external businesses”. This system was gradually developed in complicity over the years and grew out of control during more than four decades with implicit agreement between the two sides. In this system, the worst thing that can happen to you if you steel from the state or get bribes in your government job is getting gently laid off after getting a fat bank account overseas or in Lebanon, which you can keep. One key component of this system is having everyone in the country joining this game. In other words, there can only be one employer.. the state, with no real private sector, no banking systems, no rule of law, etc. The business elite of course jumped onboard immediately and allied itself with the ruling government elite through major under-the-table deals which became the norm of in Syria. Although they didn’t have much say, the population adapted and was largely content that they are not paying taxes, while receiving free services, even if mediocre.

That was the pre-Bashar era.

Growing the economy, developing the private sector and opening the market meant that this unsustainable system has to be abolished. However, after four decades, it is not easy to ask the whole society that adapted to this system to just start paying taxes without providing them with their rights in return. If the water and electricity infrastructure is still a disaster, the education system is broken, the healthcare system is mediocre and public transport infrastructure is lacking then people will continue to find it a sensible thing not to pay taxes. This is not even mentioning getting back the right to participate in running the country! Unless the Syrian population sees strong indications that they will eventually get a healthcare system like Paris, a transportation infrastructure like London and water and electricity infrastructure like Tokyo, then why would they pay taxes and change the system they adapted to?

This said, the real resistance to abolishing this system comes from the business community that thrived under it for four decades (i.e. your ketchup-making relative). I remember having coffee with you in café in Aleppo two years ago. You mentioned then a discussion you had the night before with members of the Aleppian business elite in ‘nadi Halab’. According to you, the businessmen were complaining and were pessimistic about the ‘future of the country’. They were reading the writing on the wall and knew that abandoning that system meant that they will now have to pay taxes, lose their monopoly over the population, and compete with other players providing higher quality services and products. Eventually many of them did go bankrupt over the past few years as they weren’t able to adapt. In my view this is a good sign.

So given this reality, paying taxes, having a clear break with socialism and privatization -as you propose- cannot take place as fast as you want. The state has to gain the trust again that it can deliver these services and give the population back its rights if it was to ask them to abandon the previous agreement and start paying taxes again. This will only take time naturally for the population to adjust to urbanized normalcy again after living in a jungle for four decades! Luckily for Syria however, the population is very young and they should have high flexibility and be able to adapt fast enough. But until then Dardari will continue to be vilified by both the beneficiaries of the old social contract: the businesses elite and the associated officials and government network.

So to conclude, in my view Abu Fares may be right to attack the private businesses that existed and exploited the system over the past four decades with its connection to the ruling circles. Although he should not mix this with the newly developed healthy private sector in Syria, even if it pays salaries up-to USD 42K.

Mr. PRESIDENT,
As far as I know, Ehsani is not a big alcohol drinker, so you can calm down a bit 🙂

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October 21st, 2010, 12:31 pm

 

74. EHSANI2 said:

Dear Abu Fares,

I hope that we are still up for Arak when I am in Syria soon. Not in an upscale café. Incidentally, I love your new post as much as I liked the first. Neither one was “amateurish”. What I meant by “entertaining” was that it was very lucid and well written. Indeed, it is next to impossible for any reader not to identify with that you wrote. Jad and many have saluted you. I do the same. You have hit a nerve and triggered this healthy debate.

A number of commentators believe that I used your post as an opportunity to rant about my drop-socialism-and-privatize theme. The feeling is that I have been too “repetitive” with my writings. To that, I apologize. I will try to sing a different theme next time.

My smart fellow Aleppian friend Idaf does a great job of describing what he calls the “social contract” that existed between the business community and the government. In conclusion, he agrees with you that the private businesses” exploited the system over the past four decades with its connection to the ruling circles”.

Please allow me to disagree with both of you again:

First, I want to draw your attention back to the top of my post when I wrote:

“The socialist experiment that dates back to the 1960’s was launched by confiscating private property.”

I think that it is critical that we don’t forget this. Before one attacks the private sector, it is important to hit the rewind button first:

Capital and private property was not only confiscated and taken away. Those who had anything left or who were starting new were subject to significant tax rates and stringent anti-business draconian laws. Tax on higher income (no, not $42,000 a month then) tax brackets were known to hit close to 80%. The laws concerning currency transfers or trade finance were treated like capital punishment. Soon enough, a drive under the heading of “men-ayna-laka-haza” or “how-did-get-this-rich) was underway. I still recall how members of my extended family used to shiver at the thought of being called in by the “mahkame Iktisadiye” or “economic court”. The ruling of this court was final. It was “hukem urfi. No need to hire a lawyer. Many well-to-do families had had enough. Since the first property confiscation, many decided to settle in Lebanon. It is interesting that one of those families is actually the owner of one of the “Lebanese” private banks operating in Syria now. Many wealthy Lebanese with Syrian origins were a product of this era.

The laws governing the private sector under the new socialist era were so draconian that those who broke them stood to be handsomely rewarded for taking the risk.

Yes, in the end it is all about risk-reward. Doing private business in Syria had, has and will continue to be fraught with risk. Those that decide to commit their capital to projects will only do so when the return is commensurate with the risk that they are taking.

Many who are attacking the private sector on this forum have not said a word about the “risks “that this sector assumes when doing business in the country. Many have committed millions of Dollars to their factories, trade finance or real estate holdings. They could have liquidated their net worth, called their friendly private banker and placed it all in Geneva living happily thereafter sipping Arak in Tartous. But they did not. Why? Because they figure that the adjusted-for-risk-return that they make in Syria exceeds the return that they may make in Geneva. Syrian merchants are not fools. They make these implicit calculations every minute in their heads. Once the government taxes them at 60% (and they have to comply) as some suggested, they may quickly realize that on a risk-adjusted-basis it now makes more sense to close shop and get on a plane to Geneva. The country has been under US economic sanctions lately. Those that have stayed investing in the country only do so because they calculate that they will be allowed to make a high enough return to justify
taking such risks.

To all those that attack the greed of the private sector, I ask:

Have you considered the risks that this sector operates under? Ask yourselves whether you would invest in such a risky environment if the return was not worthwhile.

Please remember that while money transfers out of the country are seemingly free today, the laws of the land still restrict free money transfers. Based on literal interpretation of the law, every single merchant in Syria may have broken the law at one point. I have often joked that if you look closely, every single businessman in Syria has broken the law one day.

High risk environment dictates high expected return. Draconian and business unfriendly environments breed a culture of I-have-to-break-the-law-to-survive.

Dear Abu Fares,

The Syrian private sector is not “brutal, heartless, destructive, parasitic and hugely culpable for the rapid deterioration in the standard of living of most Syrians and for the further erosion and eventual disappearance of the middle class”. The middle class has disappeared because economic growth has been too slow to absorb the expanding population. Your anger must be directed at an economic policy that has delivered sub-par performance for way too long in this country.

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October 21st, 2010, 3:08 pm

 

75. abufares said:

Ehsani
I would not settle for anything less than Arak. I look forward drinking with you. I’m honored. 
That we disagree despite the fact that I come from a family that lost plenty during the witch hunt and property confiscation has no bearing on who I am today. 
I was not angry in the least when I voiced my opinion. I seldom am. I look forward a private debate with you somewhere, sometime where and when none of this really matters. 
Cheers!

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October 21st, 2010, 3:37 pm

 

76. Alex said:

Dear Idaf and Ehsani,

This is another chicken and egg question … should the state deliver first, then ask people to start paying taxes, or should people pay taxes to provide the state with enough funds to do what is needed.

I think the answer is the second one. Thanks to US sanctions and to Syria’s “resistance” leadership role, Syria will not get much funding from outside its borders. Saudi Arabia and Gulf states will invest in projects, but they are not donating billions for infrastructure work (yet).

As for the challenge of asking people to pay taxes while they are currently not impressed with the government’s choices in spending or its ability to manage and upkeep Syria’s infrastructure and assets in general, again … the government needs to invest in learning how to communicate with its people. The problem is that our ruling party always believed that its leadership knows best … no need to ask anyone below.

I understand that we do not have “democracy” … but communicating with the Syrian people is not as challenging as establishing “democracy” today … Learning to ask the people or to inform them of what and why you are planning for them, is one safe step towards that Utopian Democracy objective.

Abu Fares mentioned examples of greed among owners of private businesses in Syria … those who were trying to import Indian workers because they did not want to hire Syrians for $200 a month. This is pure greed and has no justification by rewinding to the mistakes of Abdul Nasser and the Baath in confiscating the assets of the wealthy in the 60’s

There is too much greed … it might be tolerated in the US but in Syria, you have to be more sensitive to Syria’s idiosyncrasies … Just like Islamic Banking’s limitations are respected by banks that do business with Saudi Arabia.

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October 21st, 2010, 4:03 pm

 

77. EHSANI2 said:

What our people need is economic growth.

consider this (assuming syrian population grows at 2.7%):

If the Syrian economy grows at 8% for the next forty years, per capita income will be $1289 a month by 2050

If the economy grows by only 4% for the next forty years, per capita income will be $296 a month by 2050.

Economic policy that strives and achieves the doubling of growth ends up producing 4.4 times the income that would have prevailed had growth been half as strong.

This is how you create a middle class

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October 21st, 2010, 4:07 pm

 

78. Majhool said:

Ehsani,

Do you mind answering my previous question, I am copying it here again, thanks

Isn’t someone’s worth ultimately have to do with government policy? In the US bankers make make more money because they are allowed to take more risk (deregulation). Doctors in the US make more than their counterparts in Europe because how the health care system in the US is set up. What’s you take on this?

Should not the debate be centered around what this high salary is telling us about that sector in particular? a bubble maybe? an untapped revenue stream for the government?

Its the government job to controls bubbles and redirect incentive and regulation to protect the people. no?

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October 21st, 2010, 4:19 pm

 

79. Majhool said:

Alex,

I totally support your communication argument. It will make it easier for lower-income syrians to pay their share. However, is it reasonable for a high-income syrian already making loads of money complain about taxes? I personally don’t think think so. what’s to complain if the society is affording you the opportunity to make so much money?

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October 21st, 2010, 4:24 pm

 

80. EHSANI2 said:

Majhool,

Just like any other product/service, the price of labor (wage) is determined by demand and supply. Very successful Hedge fund managers make a lot because it is difficult to find them. When investors do, they end up having to pay them enormous compensation.

Renovating a house needs a smart architect. Finding brilliant ones is not easy and when you do, you have to pay up.

The banker in Syria is the same. There are many bankers around. The $42,000 a month is not for everyone. It is for the star performers who rise to become general managers and who get responsible for running billion dollar balance sheets.

The government has nothing to do with this.

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October 21st, 2010, 4:35 pm

 

81. Majhool said:

Ehsani,

Thank you for your answer. I have to disagree with you as i believe that supply and demand works only in the confines of a set government policies.

Back to the doctors examples, The ratio of the average income of U.S. physicians to average employee compensation for the United States as a whole was about 5.5. Germany’s was the next highest, at only 3.4; Canada, 3.2; Australia, 2.2; Switzerland, 2.1; France, 1.9; Sweden, 1.5; and the United Kingdom, 1.4.

Also, Massive money made in the housing market in the US was a direct result of lax regulations on the part of the government.

Clearly some governments in an effort to curb cost/inflation design their systems accordingly. I see nothing wrong with that.

Income inequality should be taken as a bad sign. There is no need to couple inequality with growth. that would give growth a bad name.

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October 21st, 2010, 5:58 pm

 

82. Norman said:

Idaf,
I like your note, and it makes sense ,Alex, Ehsani , i want to ask what you think ,

We have to understand that what brought the Baath Revolution and Nasser before it was the significant inequality in wealth and standard of living between the wealthy and the poor , The mistake that the rich made as they did in Russia, Cuba , China and other countries is that they did not take care of the less fortunate and that led to the revolution , on the other hand in the US and the West , the elite had foresight and through taxation they took care of their poor with Affirmative action for women and blacks , food stamps so nobody is hungry as hungry people get out in the street and cause mayhem for everybody , Affordable and subsidised housing kept people from being homeless , these measure were not done because the rich cared about the poor , they were done to pacify the poor and protect the assets of the rich ,
Syria in it’s new found economic growth and the new riches has to be careful not to create the atmosphere that led to the last revolution and confiscation of property , therefore through taxation on profits the rich can do what was done in the US and the West , take care of the less fortunate and that is not for the sake of the poor even if they can claim that , it is for the sake of the rich and the preservation of their wealth and assets ,

SHARE A LITTLE TO SAVE A LOT ,

The Question is , are they smart enough to see it ,

WE WILL SEE ,

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October 21st, 2010, 9:38 pm

 

83. Alex said:

Majhool,

I’m sure you know that complaining is part of our culture … a businessman who is doing so well will still complain, … to avoid an evil eye for example.

Having said that, I think a gradual increase in income taxes (not a jump from 20% to 60%) is doable, … with the standard complaining always expected.

so when it comes to raising taxes, perhaps we need a “corrective movement”, not a revolution 🙂

Norman,

I totally agree.

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October 22nd, 2010, 1:13 am

 

84. SimoHurtta said:

Just like any other product/service, the price of labor (wage) is determined by demand and supply. Very successful Hedge fund managers make a lot because it is difficult to find them. When investors do, they end up having to pay them enormous compensation.

Renovating a house needs a smart architect. Finding brilliant ones is not easy and when you do, you have to pay up.

The banker in Syria is the same. There are many bankers around. The $42,000 a month is not for everyone. It is for the star performers who rise to become general managers and who get responsible for running billion dollar balance sheets.

The government has nothing to do with this.

The Finnish bosses who lead the major companies in financial and industrial sector after WW2 and before 1995 earned normally 20-30 times an average workers yearly salary. These bosses were the guys who did in reality lead the building of the foundation of the industrialized Finland. And they did it with compensations which nowadays would be considered as laughable. Jorma Ollila at the height of Nokia’s success earned 2300 times (salary + options) an average Nokia’s worker’s (in Finland) salary. It is rather normal that the bosses of listed companies in this option age now earn several hundreds times the salary of an average worker in form of salary and other compensations. But are the present days bosses tens of times better than the bosses of before the option age? Surely not. The “earlier” bosses lead the creation and building of companies in economical and technological circumstances of which the present option bosses can’t even imagine. The option bosses came to a ready table.

The claim the bosses of major companies are some kind of super geniuses and performers is amusing. I know personally many bosses of the modern time and of the past decades. 99 percent of them are/were normal average mortals and their only abnormal feature is overdeveloped self-confidence and lack of healthy modesty and self-critics. In Finland the boss of a technological super genius like Edison would earn 100 times that genius’ salary even the boss’ skills are extremely medium and the genius is such a person a small country has one in hundred years. A funny detail of Nokia’s history. The bosses believed in telephone centres the future is in analog technology and denied the development of digital centres. The engineers continued the development of digital technology in secret. Quiz: Who did get the ten of times higher salary and “all decorations”?

As Eshani2 knows in the financial industry the high profits compared to others in the industry means simply taking extraordinary big risks. In basic banking, lending money, big profits means simply finding customers who are willing (= forced) to pay high interests. The customers are those who other banks consider as to risky. When the maturities of loans are long (often tens of years) it can take even decades before the deliberately provoked profit boost explodes in the eyes of the banks owners. Before that the bank managers have pocketed the bonuses and retired. And when a catastrophe, like in Island now or in Finland in the 90’s etc happens the bank managers blame everybody else besides themselves (= reckless lending) for the catastrophe. This tight link between high profit level and risk is reality in all fields of the financial industry.

In Finland where a private person basically can’t escape debts through personal bankruptcy the most profitable business besides selling drugs is giving “instant loans” via telephone in style loan 100 € and pay back 125 Euro after two weeks. The Effective Annual Interest Rate (EAR) of these payday loans climb up over to over thousands of percent. Many old financial criminals have found out that establishing such loans providing “minibanks” is easy and extremely profitable. Tens of thousands mainly young adults are now in debts up their ears and have lost their credit ratings. The “funny” thing is that the governmental system can do very little to stop this “healthy” form of free capitalism and entrepreneurship through new laws and regulations, because it would inevitably have consequences in the profit making capacity of the whole financial sector. And that is something the “circles” do not want to happen. Let us remember that the most profitable innovation in the financial sector has been selling loans to poor people and countries. They have mostly no other option than to pay what is demanded.

Well once again I must express my suspicion (as an former economist) of the benefits of the free rather uncontrolled market economy and low governmental contribution.

The Nordic countries like my home country Finland developed the most advanced and successful economies under rules which totally contradict the “free trade” school’s teachings. High progressive taxes, free education, massive social distribution of wealth, large public sector owned industrial sector etc. Actually everything that is now by these economists seen as hindering the growth. The result society was a relative equal society which lacked both the ultra rich and the poor. The Russian tycoons and upper class buy apartments and villas in Finland to get a safehaven in a “social democratic” country where you can still walk around without bodyguards and have not live in a fortified castle. Strange isn’t it, considering that Russia is basically the dream country of the free trade school. Low or no taxes and little governmental intrusion.

Surely a fast comparison between West European countries and Russia, Arab countries etc reveals that the receipt to growth, prosperity and a peaceful, equal society is more complex than low taxes, minimum laws, enormous salaries to bosses and a ultra greedy financial sector. The country needs good governance, planing, discipline and the general trust that growth will benefit all to develop. The problem isn’t to create a small ultrarich elite, the problem is to create a large buying power having public. And that is possible only to a reasonable distribution of wealth. USA and West European countries created their wealth behind closed borders, using numerous methods to regulate the markets and many of them also large industries owned by the public sector. The notion that free markets and low taxes have created the wealth of USA and Europe is complete fiction.

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October 22nd, 2010, 7:52 am

 

85. EHSANI2 said:

SimoHurtta,

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

The above quote is by Adam Smith of course.

Have you run a business? Have you had to hire employees, pay rent and generate a profit that allowed you to grow, invest and hire more people?

Building a business is not easy. Humans are not known to get into business as a form of charity. They do so “from regard to their own interest”. The number of utopian dreamers on this forum is striking.

When you tax a business 60%, where are the retained earnings that are needed to reinvest and hire going to come from? When you tax innovation, hard work or risk taking, why and how would the economy grow and prosper. Economic growth does not just happen. Investments do not grow when you target the very people who commit capital and take risk. Smart policy making is to offer the private sector every incentive to grow. Stop mixing humanity and altruism with business and economics.

http://en.wikipedia.org/wiki/Creative_destruction

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October 22nd, 2010, 10:38 am

 

86. Jad said:

SimoHurta,
Very smart comment, you summarized what every country, Syria first, needs to get a healthy future:
“Good governance,
Planing,
Discipline
The general trust.”
Thank you

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October 22nd, 2010, 10:51 am

 

87. EHSANI2 said:

Abu Fares,

You are asking the private sector to be socially responsible. What does this mean? I would love to hear concrete examples of such. Do you want them to make a profit but not too much of it? Are you asking that after reaching a certain threshold, they distribute the extra to charity? Please remember that government and public policy is the domain where taxation, fairness, incentives and growth is decided. Self-interest is how humans are programmed to operate. Socialism and communism have failed because they fought the principal quote of Adam Smith (Moral Philosopher and not an economist) above. Capitalism works because it is driven by one principal: profit. But profit must not come from breaking the law, obtaining a monopoly or teaming up with a government official. If such happens (perhaps the trigger of your frustration), it is not the fault of the private sector. It is the fault of regulators, public policy or a corrupt system. Profit should only be earned by taking risk, innovating, producing a good or service more efficiently, promoting it to a wider market, doing things better, faster and smarter than before. Microsoft has created thousands of millionaires out of individuals whose qualification is not inherited wealth or social connections, but only the ability to create and sell computer programs.

Crony capitalism is in fact a hallmark of state-run economies.

“When politicians and bureaucrats hold power over the economy, the only hope for success comes from currying their favor. Thus the competition for wealth becomes a competition, not over who can produce the most, but over who can make the most bribes or call in the most favors. It is under these systems that established wealth, family connections, and the “Old Boy’s Network” become the determinants of success, rather than individual ability. But that is a problem created and perpetuated by statism, not capitalism.”

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October 22nd, 2010, 11:10 am

 

88. Majhool said:

SimoHurta,

Totally agree with you. My neighbor is a CEO and a Co-founder of an engineering startup. He is Cornell graduates with an MBA. He is a top performer.

He makes close to 300K a year, which is no where near what a successful banker make. In contrast the bankers who have been obsessed with speculation, this entrepreneur employs 100 people build new products and help employ others at his suppliers.

Bankers high income has to do with risk (usually not to them selves but to others). Good government and sound planning suggest that policy should support entrepreneurs and discourage speculation in banking.

While effective taxing is important, i believe that government regulation and incentives should be directed to promote growth, cap risk, income equality, etc..

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October 22nd, 2010, 11:13 am

 

89. MONTAGNARD said:

To EIU and Elie:

Estimated total oil production in Syria for 2009 was 368,000 bbl/day.
Estimated total oil liquids production (includes oil and equivalent gas)for 2009 was 400,000 bbl/day.
Estimated total refining capacity (Homs and Banias refineries) for 2009 was 240,000 bbl/day.
Estimated net export for 2009 was 148,000 bbl/day (Marketed by Sytrol at $82.00/bbl average).
Assuming that all refined capacity was for local consumption, which is sold in Syria at strictly regulated prices, with costs borne by several public entities involved in the production, transport, refining and distribution of petroleum products with profits shared by them and entered as revenue in the general fund.
How would the above fit in your financial analysis?

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October 22nd, 2010, 11:20 am

 

90. qunfuz said:

having just read George Antonius’s excellent “The Arab Awakening” and Eugene Rogan’s pretty good “The Arabs” I would say that the key reason for revolutionary redistributionist policies in the sixties was popular disgust with the old business/ pasha class following the unexpected loss of Palestine and the disappointing solidification of Sykes-Picot boundaries in the forties and fifties. The discrediting of the old ruling class gave free rein to the new national armies to step in. The new national armies were disproportionately staffed by formerly downtrodden rural classes. Revolutions (or coups, really) in Arab countries were more nationalist than economic in motivation (although let us not forget the role of the CIA in the Arab world’s first military coup – that of Husni al-Za’im – and in several afterwards).

The strange thing in Syria (any explanations?) is that after decades of supposed class warfare, the country seems to have as fierce a class system (and a bourgeois sense of superiority) as any I know. (I’m excepting the Gulf, with its imported working class).

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October 22nd, 2010, 2:19 pm

 

91. SimoHurtta said:

Have you run a business? Have you had to hire employees, pay rent and generate a profit that allowed you to grow, invest and hire more people?

Yes to all of those questions. From a one man’s company up to 15 employees with any bank loans and outside investors. Before selling away the company I earned about 4 times the salary of the least educated persons salary. In my field I could describe my skills as rather rare and my working style as “productive”. Before that entrepreneur phase I worked in a specialized development bank.

Sure I understand that taxes are a “nuisance” but I also understand they are a “blessing”. High taxes have provided me as an individual free education, relative good and affordable healthcare besides a good, safe neighbourhood and security. As an entrepreneur relative high taxes ensured that I could get well educated personnel, corruption free (almost) services from the society, low criminality, good infrastructure (airports, harbours,streets, electricity etc) ETC. I as most other Finns understand that the benefits our society offers have a price. The price in a democracy are taxes (a share of the tax “cost” could be saved in theory with totalitarian discipline).

I have never understood those right-wing economists who advocate extra low taxes and minimum level wages on the same time when they demand extra good services from the society and loyalty from the workers. That tax demand is basically as realistic as demanding to have the right to live in a five star hotel without paying. If the theories of low/no taxes and no governmental meddling would be a scientific fact and proven in history, then the world’s leading economies would be in Africa and central Eurasia. A scientific fact is obviously that already a highly developed industrial society can for some time boost its economical growth by lowering taxes and reducing bureaucracy. The Syrian and Middle Eastern problem is that they must achieve the development level before the “free-trade” medicines are a reality. Believing that the private sector will build to Syria a first class infrastructure, offer the public affordable education, healthcare and “create” a corruption free public sector is naive. Not a single underdeveloped country has ever made such development leap. A “sad” fact is that much tax money is needed to build the foundations of a developed country. When the “building” is ready they can for short periods “play” with tax levels and privatization.

Stop mixing humanity and altruism with business and economics.

Well very few companies are successful on a long term if they do not respect their (human) workers and customers. You seem to believe that only ultimate greediness, egoism and lack of general moral are the cornerstones of business and economics. Humans run the business and economics so you can’t separate humanity and altruism from the reality of business. You can do it in some fields of economics but the result is a theory without any analogy in the reality.

By the way Eshani2 do you know who was Anders Chydenius? He was a Finn and published 11 years before Adam Smith a pamphlet “The National Gain” where he suggested the same ideas Smith did. 🙂
http://en.wikipedia.org/wiki/Anders_Chydenius

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October 22nd, 2010, 2:56 pm

 

92. EHSANI2 said:

Simohutra,

You are twisting my words I believe. I was the one who called for taxing the wealthy. I was the one that asked for money to be spent on education. The money need not come from taking taxes to 60%. The money can and should come from cutting wasteful government projects.

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October 22nd, 2010, 4:37 pm

 

93. EHSANI2 said:

Abu Fares,

Many more agree with you

http://www.reuters.com/article/idUSTRE69L0KI20101022

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October 22nd, 2010, 6:44 pm

 

94. Norman said:

Qunfuz,

Nationalism was part of the revolution but equality was as important ,
You Said , (( The strange thing in Syria (any explanations?) is that after decades of supposed class warfare, the country seems to have as fierce a class system (and a bourgeois sense of superiority) as any I know. (I’m excepting the Gulf, with its imported working class).)),

The reason as i see is the tribal mentality that still present is Syria and the rest of the Arab world , where the family that one belongs to is more important than the achievements that he made ,

The lack of personal achievements makes people be proud of their families , that is the same reason that women are murdered to protect the family honor , they still think that what one member of the family does reflect on all others in the family , the lack of personal accountability in TV shows and the persistent referral to people as they are from good families or not instead of what they do or did ,makes the change to individualism hard to achieve ,

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October 22nd, 2010, 9:14 pm

 

95. Lily said:

Hello there, I think Syria is the best country in the world and we should be proud to be from Syria. ;] I am 1000000 years old.

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October 22nd, 2010, 9:17 pm

 

96. Lily said:

I think that Syria is the best country in the world. We should honor the fact that we are from there. I am Norman’s daughter and I am 100000 years old [;

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October 22nd, 2010, 9:20 pm

 

97. Norman said:

Alex , can you please release my daughter’s note , she is here and will not leave me alone until she gets a reply .

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October 22nd, 2010, 9:35 pm

 

98. Siria: cresce l’economia ma anche il divario nella ricchezza | Indipedia – Indipendenti nella rete said:

[…] sua risposta al post, Abu Fares fa riferimento a una storia vissuta personalmente che fa parte della sua esperienza di vita nel settore privato: […]

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October 23rd, 2010, 7:48 am

 

99. Ghat Al Bird said:

Cheers and “bravisimo” LILY.

Very refreshing to read such comment and puts to shame some of the negative and critical comments made by individuals who live in England, Europe and elsewhere.

Dad should be proud.

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October 23rd, 2010, 8:47 am

 

100. Norman said:

Ghat,

Thank you from me and her ,

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October 23rd, 2010, 9:44 pm

 

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