Third World Quarterly, Vol 18, No 2, pp 249? 265, 1997
Syria: the politics of economic
liberalisation
RAYMOND A HINNEBUSCH
Economic liberalisation is on the agenda of every Middle Eastern state. However,
actual liberalisation typically lags behind global trends and nowhere more
so than in Syria. The dominant explanations of liberalisation or resistance to it
approach the issue from opposing sides. One sees economic crisis forcing
liberalisation on the state: although the exceptional availability of rent in the
Middle East may dilute the dictates of economic rationality they must, in the
long run, prevail. A rival political?cultural approach sees the Middle East' s
` neo-patrimonial' rentier states as intractable obstacles to liberalisation; they
sacri? ce economic rationality to the politics of patronage and foster dependent,
rent-seeking bourgeoisies unable to push liberalisation.1
Both approaches capture part of the picture but can, if exaggerated, fall into
economic or cultural determinism which either insists the Middle East must
inevitably join a uniformly liberalised global market or is disquali? ed, by reason
of culture, from membership in it. A combined approach which sees liberalisation
policy as an attempt to reconcile economic and political rationality has
greater explanatory power; thus, Steven Heydemann' s study of Syrian liberalisation
argues the compatibility of political rationality and limited economic
liberalisation.2
This paper will similarly argue that Syrian economic policy is determined by
the regime' s long-term need to balance political and economic rationality.
However, analysis of such ` systemic requisites' is only a starting point and the
particular balance arrived at by a regime can only be understood by an analysis
of two ` intervening variables' , class interests and the political process. To greatly
oversimplify, liberalisation policy is shaped by a con? ict of social forces? bourgeoisie,
bureaucracy? channelled through a political process in which a relatively
autonomous state elite has the last word. This paper provides an outline
of the con? icting social forces and a snapshot of the political process in the early
1990s.
Forces for and obstacles to economic liberalisation
State interests and autonomy: obstacles to liberalisation
Resistance to economic liberalisation seems naturally embedded in the logic of
Syria' s authoritarian?populist `minority' regime. The state' s emergence out of a
Raymond A Hinnebusch is at the Department of International Relations, University of St Andrews, St Andrews,
Fife KY16 9AL, UK.
0143-6597/97/020249-17 $7.00 ? 1997 Third World Quarterly 249
RAYMOND A HINNEBUSCH
revolution led by plebeian minorities, in which the formerly dominant classes
were levelled, new rising elements mobilised, and submissive elements of the
bourgeoisie later incorporated into the regime coalition, enabled the regime
to balance con? icting social forces in Bonapartist fashion, giving it relative
autonomy from society.
This Bonapartist state possesses a formidable machinery of power. Policymaking
power is concentrated in a presidential monarchy, resting on huge civil
and military bureaucracies, whose chains of command are reinforced by
patronage and kinship. A Leninist-like party incorporates a constituency, notably
in the village, while the regime' s control of a large public sector and its access
to rent (such as petroleum revenues and Arab aid) buttress its autonomy,
especially of the bourgeoisie. Rent has eased pressures on the regime to foster
private sector capital accumulation and gives it patronage resources to keep a
segment of the bourgeoisie state-dependent. The regime' s autonomy has enabled
it to shape its policies according to raison d' e?tat, putting its own interests over
those of a dominant class.
One of these interests is to defend its revenue base and the public sector
remains a crucial revenue source which cannot be replaced as long as the private
sector can evade taxes. The regime must also satisfy the interests of core
political elites. The fact that the elite is dominated by formerly propertyless
minorities, especially Alawites, who use the state as a ladder of advancement,
while the private economy is dominated by the majority Sunni community, gives
the regime an exceptional stake in a large state role in the economy. Elites who
have been enriched on smuggling or pay-offs from business to evade regulations
pro? t from state regulation of trade. Elite corruption, which fosters arbitrariness
and opportunities for riches from illicit activities, deters productive private
investment; but eradicating these parasitic activities would mean attacking the
regime' s own core. Finally, the regime cannot ignore its ` sub-elite' : the party
apparatchiki and bureaucrats who staff the very structures of the state have
ideological and material stakes in the state' s economic role.
The regime' s popular or mass base also constrains it. The product of a
populist movement against the bourgeoisie, it must protect its popular constituencies,
but these? unionised workers, public employees, and small peasants?
are the forces most likely to be threatened by economic liberalisation
while the regime' s historic rival, the bourgeoisie, is most likely to bene? t.
Thorough economic liberalisation, therefore, requires a new alliance between
state and bourgeoisie, an outcome delayed in Syria because of a certain mutual
reinforcement of state/private and Alawi/Sunni cleavages. Since coming to
power, Asad has used limited economic liberalisation to advance a modus
vivendi with the bourgeoisie. But this aimed to protect his autonomy by
balancing the bourgeoisie with his populist constituency rather than sharing
power with Syria' s business class.
Finally, the struggle with Israel funnels state revenues which might otherwise
stimulate development into the military, diverts private investment into shortterm
speculative ventures, and deters foreign private investment. Thus, the
potential ` triple alliance' of state, domestic and international capital, the engine
of capitalist development elsewhere, is stunted in Syria.3
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ECONOMIC LIBERALISATION IN SYRIA
Economic crisis and pressures for liberalisation
While Asad sponsored some limited liberalisation in the early 1970s, renewed
and stronger pressures for economic liberalisation grew out of the economic
crisis of the mid-1980s. This crisis was rooted in the very nature of the regime' s
statist?populist strategy of state formation. This strategy peripheralised the
private sector, (pushing it largely into tertiary activities or into capital export),
while failing to make the public sector a dynamic engine of capital accumulation.
Public sector failure stemmed from bureaucratisation (which produced
inef? ciencies in planning and management) and from politicisation (which
subordinated the logic of capital accumulation to political objectives such as
patronage, job maximisation, and production of low priced consumer commodities).
This re? ected the regime' s original inclusionary strategy of bringing the
lower strata into politics on its side, a strategy which tends to foster mass
consumption over capital accumulation. Building a national power-base also
dictated import substitution industrialisation which, in Syria as elsewhere,
produced dependency on imported parts, machinery and raw materials before
development of the export capacity needed to earn foreign exchange, thereby
precipitating balance of payments dif? culties. However, access to plentiful oil
rent fuelled an economic expansion which sustained the regime' s political
strategy in the 1970s.4
When rent declined along with the fall of global oil prices in the 1980s, the
weakness of this strategy was revealed. Thus Syria' s trade imbalance deteriorated
from 2 5.5 billion Syrian pounds (LS) in 1977 to LS 2 12.2 billion in
1987, while Arab transfers fell from $1.8 billion in 1981 to $500 million
between 1986 and 1988. The resulting ? scal and foreign exchange crises forced
austerity? cutbacks in public spending? and a consequent declining ability of
the state to ? nance investment, jobs and contracts. In 1986 foreign exchange
dried up, factories dependent on imports closed, and shortages fuelled 100%
in? ation. Debt mounted while per capita income fell 4.5% from 1980 to 1988.5
The state could no longer sustain its excessive size and economic functions and
began to turn to the private sector to reverse the economic decline. In return,
business had to be given concessions: thus the door of economic liberalisation
began to open.
Reconstruction of a bourgeoisie: requisite of liberalisation
Liberalisation cannot go far without the reconstruction of an entrepreneurial
bourgeoisie which, being willing to invest, can provide a viable alternative to the
public sector and acquire the power to push for liberalisation against statist
vested interests. In the Syrian case, a bourgeoisie appears to be in the process
of reconstruction but this is incomplete.
The state helped give birth to a new bourgeoisie. The power elite was, itself,
embourgeoised through corrupt activities or business on the side. The development
expenditures of the expansive 1970s also fostered a state-dependent private
bourgeoisie of agents, importers and contractors. The Damascene wing of the old
merchant class accommodated itself to the regime and took advantage of similar
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RAYMOND A HINNEBUSCH
opportunities, while the in? uence of the anti-Ba` th landed ` aristocracy' declined.
6
The emergence of a so-called `military?mercantile complex' of Alawi of? cers
and Damascene Sunni businessmen constituted the core of an alliance between
the ` new' state and ` old' private bourgeoisies. Seale suggests Asad deliberately
sought in this way to give his regime a class underpinning needed for stability,
but these groups have yet to amalgamate into a new dominant class.7 Certainly,
the former sharp antagonism between the state and the upper classes was bridged
as the political elite acquired a stake in new inequalities. There is a marriage of
convenience between the two. The Sunni bourgeoisie needs political connections
to evade regulations or get privileges and contracts. Alawis need the Sunnis for
their access to the Western market and Gulf investment money. The Alawis are
enriching themselves in business, not just politics, and they monopolise the oil
servicing sector and shipping. There are capital partnerships between Alawi
money and regime-allied Sunni tycoons. Sunni capitalists are con? dent that the
regime is inexorably committed to liberalisation and no longer fear nationalisations,
if only because so many sons of Alawi security barons have gone into
business. But there is also a perception that business success requires political
connections or pay-offs; the relation of less favoured and smaller business
elements to the Alawi barons still resembles the payment of ma? a-style protection
money. The cultural gap with the Sunnis is kept alive by continual migration
from the countryside of poor Alawis with harsh accents and rural ways who
attach themselves to Alawi patrons in power. The still limited incidence of
intermarriage between the Alawi political elite and the Sunni business elite
suggests a persistent lack of social trust. The regime is trying to legitimate itself
by co-opting members of old Sunni families into government but, while the
Alawis want to keep the upper hand, the Sunnis are looking for full partnership.
As such, it is better to speak of an uneasy alliance of rival bourgeois class
fragments than a new uni? ed bourgeoisie.
Moreover the private bourgeoisie is still politically weak and has by no means
` captured' the state. It is divided between the pro-regime new bourgeoisie and
elements of the older bourgeoisie still unreconciled with the regime. The private
bourgeoisie has not forged alliances with other classes beyond the urban petite
bourgeoisie, for much of the workers and peasants remain incorporated by the
regime and unavailable. Thus, the private bourgeoisie currently lacks the power
to push for more economic liberalisation than the regime wants.
Nor is the bourgeoisie necessarily united on economic policy or an unabashed
promoter of economic liberalisation. It largely accepts the regime' s strategy of
incremental liberalisation, being happy with the new opportunities to get rich and
with the current political and currency stability. Politically connected elements
want a continued role for the state as a source of contracts and monopolies.
While the Chamber of Commerce tends to favour free trade, the Chamber of
Industry values the opportunities for high pro? ts from local manufacture of the
large range of goods whose import is prohibited or which carry heavy tariffs.
Economic rationalisation is retarded by alliances between state and private sector
elements to exploit the public sector, such as by diverting publicly produced
yarn, hoarding it and selling it privately. The bourgeoisie is thus partly rent
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ECONOMIC LIBERALISATION IN SYRIA
seeking, although historically many bourgeoisies start this way and this does not
preclude a later participation in liberalised markets. The Syrian bourgeoisie does
welcome greater access to foreign partnerships and the opening of ? elds
formerly reserved for the state to private investment. More market-orientated
new industrialists from the ranks of the petite bourgeoisie have created medium
sized factories in ? elds such as clothing and plastics. Expatriate capital, accustomed
to operating on the market, is also showing serious interest in Syria.
Elites, the political process, and economic liberalisation
A relative stalemate in Syria between the social forces? bourgeoisie and
bureaucracy? which lean towards or against liberalisation (as well as their own
ambivalence), has allowed the political elite, balancing between them, the
autonomy to shape the extent of liberalisation according to its own ideology and
interests.
Elite strategies and selective economic liberalisation
Incremental liberalisation is designed to reduce the state' s economic burdens
without damaging its interests, but is, nevertheless, real. A contraction of state
intervention is widening room for the market: state monopolies in foreign trade
and production have been reduced in favour of the private sector, the exchange
rate liberalised and price controls relaxed. Austerity has cut state subsidies and
public investment while a major new investment law, No 10 of 1991, welcomes
private and foreign investment in industry, permits repatriation of pro? ts, waives
import duties and allows investors to import and bring in hard currency outside
state channels. New projects get tax holidays and income tax has been cut from
highly progressive rates to a range of 10%?45%.
An accumulation of incremental changes has produced this liberalisation of
economic strategy. Ideological obstructions to liberalisation, of no small importance
in a regime born of an ideological movement, have collapsed. As the
political elite went into business on the side in the 1970s, and embourgeoisement
altered its objective class situation, its commitments to socialism eroded. The
economic crisis of the 1980s demonstrated the limits of statism.8 As state
patronage dried up, regime constituents with capital had an interest in diversifying
their assets by going into private business. The collapse of communism in
the 1990s discredited remaining ideologically-rooted hostility to liberalisation.
Economic constraints forced certain liberalising initiatives. As long as the
state had abundant foreign exchange, it had little incentive to liberalise, but the
balance of payments crisis of the 1980s provided an opening wedge for the
private sector. For example, when the regime lost the foreign currency to pay for
certain public sector-imported commodities it had to allow the private sector to
import them. The inability of the state to import scrap metal to run the public
iron and aluminium factories forced it to allow private importers to do so, and
to process it for them, thus pressing state factories into the service of private
business. The foreign currency crisis also forced the regime to shift towards an
export-oriented strategy dependent on private sector participation. To ensure
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RAYMOND A HINNEBUSCH
repatriation of sorely needed remittances by Syrians working abroad, the regime
had to set the value of the Syrian pound at near-market rates. On the other hand
an incremental strategy of liberalisation has been facilitated by the greater
economic health of the early 1990s, resulting from a combination of previous
austerity measures and an increase in oil revenues, Arab aid and foreign
exchange.9 The possible end of high economic growth in the mid-1990s,
assuming these decline, will probably accelerate liberalisation measures. The
regime, in short, cannot avoid some response to economic pressures.
However, if liberalisation was motivated primarily by economics, measures to
increase capital accumulation, such as raising the interest rate and reforming the
banking system, as well as privatising the public sector, would arguably be
pursued more aggressively. Had liberalisation been merely a response to economic
crisis, it could have been reversed when the crisis passed after 1990, but
the most recent liberalisation initiatives, notably the private investment law,
post-date the crisis. It is true, of course, that the collapse of the Eastern bloc
showed Syria had to further integrate into the Western capitalist market; but
Syria has, nevertheless, resisted IMF attempts to impose the dominant neoliberal
version of economic rationality.
In fact, political motives? maximising regime autonomy and stability? have
dominated economic policy making. Speci? cally, Asad' s ? rst domestic priority
has been the internal stability needed to conduct a rational foreign policy, freely
adapting his strategy to external threats and opportunities in the struggle with
Israel. Asad' s ? rst (early 1970s) economic liberalisation measures were largely
designed to accommodate the bourgeoisie to his regime, thus broadening the
regime' s political and economic base for the struggle with Israel. This effort was
interrupted when the bourgeoisie' s association with the Islamic rebellion allowed
statists to argue that it was politically unreliable and it was resumed when the
Islamic threat passed. By the late 1980s economic stagnation, particularly the
inability to provide jobs for the growing educated middle class, had made it
more politically dangerous to maintain the status quo than to alter it.
Economic policy is also closely linked to strategic opportunities and needs:
statism was partly a function of bipolarity which facilitated the Soviet aid needed
to build the regime' s domestic base and buttress its autonomy of Western
economic constraints. Conversely, the disappearance of Soviet power radically
altered the conditions in which Syrian raison d` e?tat must operate; by the 1990s
Asad was convinced his foreign policy could no longer be pursued in opposition
to the USA, the only remaining superpower, and detente with the West required
some measure of internal liberalisation. Maintaining autonomy of domestic
opposition to this realignment required further broadening of his base beyond the
Ba' th party to the bourgeoisie; thus, the vulnerabilities of the statist economy
may have been seen by Asad, not just as a threat, but also as an opportunity to
diversify the regime' s political and economic bases.10
So far, political and economic rationality have been reconciled through a
strategy of selective economic liberalisation. Regime elites agree that long-term
stability requires liberalisation. But they also agree that a Soviet-type collapse of
the statist economy before a domestic market is fully in place must be avoided
by a gradual transition. Nor does the regime make full integration into and
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ECONOMIC LIBERALISATION IN SYRIA
competitiveness on the international market its ? rst priority; rather its strategy is
a division of labour in which the public sector continues to meet local needs and
serve the regime' s constituency while the private sector specialises in production
for export. This diversi? es the country' s economic bases as well as enhancing
the regime' s ability to balance between bureaucracy and bourgeoisie.
This is not to say that economic calculations are absent from Syrian decision
making. Nabil Sukkar, an independent Syrian economist who was enlisted in
designing the regime' s economic policy, argues that regime strategy is compatible
with economic rationality. A strong state is needed to manage liberalisation.
The proper sequencing of liberalisation is to expand the private sector before
tackling reform of the public sector so as to have a dynamic private economy
able to absorb the resultant unemployment. A second stage in encouraging the
private sector is needed before privatisation, namely tax reform, banking reform
and stabilising the balance of payments; the regime has only started on such
reforms.11
The regime' s cautious approach is partly shaped by its perception of the
economic consequences of other in? tah experiments, such as Egypt' s, which it
believes generated a worsening of trade and foreign exchange imbalances,
mounting debt and dependency, rather than local industrialists and signi? cant
foreign investment. The regime prefers to assess the results of its current
initiatives before moving to the next stage.
The policy process and economic liberalisation
President above the fray. President Asad ultimately approves policy and he has
made the strategic decision for economic liberalisation. Yet his cautious,
pragmatic nature, his disinclination to impose the speci? cs of economic policy
or to be too far in front of the elite consensus in economic (as opposed to
strategic) matters, has deterred a presidential intervention on behalf of a radical
lurch towards the market. Most elite opinion favours some liberalisation, but is
divided over its extent and pace and Asad is allowing this to be determined in
good part by bureaucratic politics: an intra-regime struggle between liberalising
` technos' and statist ` politicos' . Failures of the statist economy enhance the
political clout of the liberalisers, while better economic times increase the ability
of politicos to defend the statist status quo. Asad is most likely to intervene in
economic issues when the elite is stalemated or if an economic failure threatens
the regime' s political base? as in his recent dismissal of the electricity minister
for failing to alleviate the power interruptions which irritate a broad spectrum of
society.
Technocrats as liberalizers. Prime ministers and technocrat-ministers are most
directly responsible for framing economic policy. The replacement of the Rauf
al-Qasm government, which was committed to statist industrialisation, by that of
Mahmoud al-Zoubi in 1985 improved the climate for liberalisation in the
cabinet. But al-Zoubi is a conciliator, content to balance between factions. As
such, the main force for liberalisation has been the Minister of Economy and
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RAYMOND A HINNEBUSCH
Foreign Trade, Muhammed al-Imadi. Although not a Ba` thist and once viewed
in the party as a rightist, the support of the President has allowed Imadi to push
for reform against the resistance of statists. In fact, Imadi was lured by Asad to
return from his position with the Kuwait Gulf fund on the condition that he
would be given real power over economic policy. But he has not had a free hand
and has had to struggle for change. It is typical of such a personalised regime
that Imadi uses selections from the president' s speeches to justify innovations
and fend off leftist critics.
Imadi has worked patiently, in stages, to promote liberalisation. He ? rst
opened tourism and then agriculture to joint venture (private?state) enterprises in
the 1970s and 1980s. The foreign investment law is his latest initiative. Imadi' s
next project is a ? nancial market law which he has pushed against Marxist
parliamentary deputies who have attacked a stock market as little different from
a lottery. In alliance with the Ministry of Industry, he has also pushed to make
the public sector operate on the market for pro? t against the opposition of trade
unions fearful of bankruptcy.
Imadi has promoted the liberalisation of foreign trade on the assumption that
it can, as once before, be the engine of the economy.12 He has pushed for Syria' s
fuller integration into the world capitalist market by successfully getting debt
repayment exports to the former USSR suspended, steering exports westward
and by pushing for Syrian membership in GATT; the latter has been opposed by
the Central Bank, which fears the loss of tariff revenues, and by protectionist
interests.13
Imadi has also, however, tangled with private commercial interests over trade
and foreign exchange. Merchants and industrialists were content to export to the
USSR in the late 1980s, but he required them to export a portion to the West to
earn foreign currency. They wanted to ? nance imports through external credit
facilities or their holdings abroad (from capital ? ight which was detrimental to
the value of the Syrian pound), but he insisted they must pool foreign exchange
earned from exports to ? nance imports. He sponsored Decree 905 of 1990
which, in permitting free imports of industrial spare parts and raw materials,
abolished lucrative monopolies in this ? eld.14
Imadi is, however, no neoliberal ideologue. Third World countries, he argues,
need economic intervention by a strong state on behalf of more equal distribution
and to undertake investment in infrastructure and strategic industries.
Private economic interests should not be allowed to dominate economic policy.
But private property is a social good and the private sector should be given much
greater scope. His image of Syria' s future is a regulated market economy with
some state intervention and a slimmed down public sector run on the basis of
pro? t.15 Imadi' s middle position between vested interests suggests he can be seen
as an autonomous technocrat looking out for the state' s economically rational
best interest, rather than, as some suggest, a representative of the bourgeoisie,
who, in fact, do not see him as their man.
Statist interests: party and bureaucracy. Etatist policies are defended by
powerful interests such as party apparatchiki and trade unionists. This alliance is
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ECONOMIC LIBERALISATION IN SYRIA
incarnated in the person of Izz ed-Din Nasir, an Alawi member of the Ba` th
party Regional Command who heads the trade union confederation and is seen
as a major opponent by private business. As economic crisis gave liberals
ammunition to widen the scope for the private sector, he convened a 1989
conference of managers and labour leaders on reform of the public sector. The
private sector was no good alternative, he insisted, to developing the public
sector.16 Unreconstructed party ideologues, though subdued by the collapse of
communism, are still perceived by liberals as waiting to attack anyone associated
with reforms which inevitably have costs and are by no means guaranteed to
succeed.
But the Ba` th Party is not uniformly hostile to liberalisation. The party
apparatchik nominally responsible for supervising economic policy (rais almaktab-
al-iqtisad), Rashid al-Ikhterini, is viewed by liberalisers as pragmatic. A
senior party apparatchik with ties to the Damascene bourgeoisie, Ala ad-Din
Abdin, expresses the new party line. `We have to adapt to changes in the world' ,
he says, but Syria does not want a Gorbachev-type collapse; rather, beginning
with Asad' s 1970 ` corrective revolution' , the regime has been making incremental
changes. The party welcomes private sector growth to provide employment
since the state sector can no longer absorb job seekers. But because business,
driven by short-term pro? ts, neglects the public interest, the state must invest in
and control strategic sectors.17 The function of the public sector is as much
political as economic and pro? t is not the only criterion of performance: it must
provide cheap popular commodities and is a source of taxes which cannot be
expected from a private sector getting tax breaks to invest. This political
conception of the public sector constrains the possibility that public sector
managers will acquire the autonomy to run their ? rms on economically rational
grounds.
Resistance to liberalisation is strong in the bureaucracy, too, especially among
bureaucrats trained in Eastern Europe who are in charge of public agencies such
as Aftomachine, the state machinery import company, which under liberalisation
is threatened by private importers. That bureaucratic interests in protecting state
revenue are often allowed to jeopardise integration into the world market and
foreign investment is suggested by the tough stance of Syrian of? cials in recent
disputes with Western export insurance companies, and their requirement that
Western oil companies use the unrealistic of? cial exchange rate of LS11.2 to the
dollar. The State Planning Commission is a bastion of etatism. It has circulated
a memo denouncing the IMF and World Bank as instruments of foreign capitalism.
It rejects the IMF' s comprehensive shock reform and insists Syria' s own
austerity programme proved itself by stabilising the value of the pound. It
expects public investment will continue in the production of key popular
consumption commodities and in infrastructure, utilities and strategic industries
which either support the private sector or are too large for it to undertake. The
Minister of Planning sees no threat to the public sector from private competition,
believing that entrepreneurs will concentrate on light industries requiring little
capital. Indicative of the decline of socialism, however, is the minister' s view
that liberalisation will eventually produce a market economy in which the
planning commission may be dismantled.18
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The public sector and liberalisation. The Ba' th' s insistence that the public
sector be the ` leading sector' (qita' qa' id), with the private sector a mere
auxiliary, has been quietly dropped from regime discourse. There is, however, no
move to privatise the public sector. The regime will, at a minimum, keep control
over strategic sectors which dominate the heights of the economy and provide
a revenue base. While this is sure to include sectors such as oil, cotton and
perhaps banking, one party of? cial included industries such as spinning and
weaving. Nevertheless, reform of the public sector is on the agenda because
many state enterprises are losing money and the government lacks the foreign
currency to modernise them. As far back as 1974, Legislative decree 18 was
supposed to give managers autonomy, free them from political pressures, and
allow market forces to set production and prices. It was, however, obstructed by
the bureaucracy: for example, the Ministry of Supply insisted that prices be set
through negotiations with ? rms in which it defended consumer interests in
keeping them low.
Many public sector managers have supported reform, complaining that
bureaucratisation sti? ed all initiative and tied them up in red tape: for example,
to get spare parts they had to issue tenders. Fixed prices for their products made
it impossible to self-? nance their ? rms, forcing them to work under capacity
because of lack of spare parts or worn out and dated machinery. The General
Organization of Food Industries (GOFI) recently threatened to export its output
because local prices were set too low. Managers also want the right to hire and
? re, free of pressures to employ job-seekers, and to provide ? nancial incentives
to improve labour performance. GOFI' s general manager has recently welcomed
private sector competition to absorb job seekers he does not want, but fears he
will be stuck with the leavings of a private sector which can pay higher wages.19
Cautious but seemingly serious public sector reform has started. The central
pricing system has been abandoned except for crucial necessities and public
? rms can, within certain pro? t margins, now set their own prices based on
free-market exchange rates. They are expected to export to earn foreign exchange
for the import of production requisites and are reimbursed at the near free
market exchange rate (around LS42 5 $1), rather than the of? cial rate which
long discouraged exports. Managers who can export support this change, but the
head of a public road construction ? rm fears it will bankrupt him, since his wage
costs and obsolete equipment prevent him from competing for reconstruction
contracts in Lebanon and Kuwait. The down side for the public sector is that it
must now use the near market exchange rate for imports, too, thereby quadrupling
its costs. Though costs are partly being passed on in price rises, this has
also spurred a more serious search by managers for local alternatives.20 The
Ministry of Finance is reputedly requiring pro? tability to advance loans to public
? rms. Private investment competing with public sector ? rms has been approved
and a businessman with high political connections says the policy is to reduce
subsidies to public sector ? rms and force them to compete with private ? rms;
those that cannot will be allowed to go out of business.
The public sector continues, however, to lobby for state investment. It
stagnated in the 1980s when there was little ? nancing available from the Soviets
or Arabs and many projects were left un? nished from the expansionary Kasm
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era. Public sector bureaucrats, however, received a share of the Gulf war
windfall: the Deir ez-Zor paper plant is to be rehabilitated, steel plant investments
made at Hama, and new fertiliser plants are planned. Some state
companies are looking at joint ventures as the road to ? nancing; Kuwait is
funding new joint venture cement factories. Much new funding comes from
loans which will have to be repaid; unless the public sector' s reform makes it
pro? table, this expansion will, therefore, only increase Syria' s indebtedness.
Joint private?public ventures are a substitute for open privatisation. In these,
the state' s contribution is likely to be land or factories while the private sector
contributes capital and entreprenuership. The state retains some control and gets
a share of the economic rewards, but the ? rms are run by businessmen for pro? t.
According to a leading private businessman, this approach, avoiding the opposition
of the trade unions, is Syria' s special road to privatisation. Indeed, the
provision by the state of large tracts of state-owned land to agricultural
companies may amount to a de facto ` privatisation' of this land. Joint ventures
are an intermediary stage which encourages the alliances between state and
bourgeoisie on which further liberalisation depends. ` Privatisation by stealth' is
also proceeding in some sectors, notably transport, where private minibuses have
proliferated and the public bus network has been cut back and allowed to run
down.
Political opening to the bourgeoisie. The major change in the political process
since liberalisation is the bourgeoisie' s increasing access to decision makers and
hence in? uence in intra-bureaucratic politics. The Committee for the Guidance
of Imports, Exports and Consumption which meets regularly under Prime
Minister al-Zoubi, and on which the heads of the Chambers of Commerce and
of Industry are in? uential, gives business institutional access. The Chambers are
not mere government transmission belts but semi-of? cial NGOs: while committed
to the regime' s economic strategy, they are not only able to press for implementation
of liberalisation within that framework, but attempt to expand its parameters:
thus, the Chamber of Commerce lobbies for a mixed sector bank to
break the state monopoly and a legalised stock market, a symbolic blow at
socialism. On a day-to-day basis its role is to protect business from arbitrary
state interference.
Access to government is also personal: Badr ad-Din al-Shallah, head of the
Damascus Chamber of Commerce, who won Asad' s trust by keeping Damascus
quiet during the Islamic disturbances of the early 1980s, acquired personal
access to the president and his son, Ratib, has since taken over his role; as an
old merchant family, the Shallahs are, nevertheless, perceived by Sunni society
as ` clean' , allowing them to mediate between state and bourgeoisie. The
Shallahs' argue that, although state consultation with business is still irregular,
the Chamber of Commerce is promoting the legal institutionalisation of liberal
economic policy. They seek this through accommodation with statist interests;
for example, they view privatisation as unrealistic and seek, instead, widened
space for private business.
Greater bourgeois access does not confer real political power over the state;
259
RAYMOND A HINNEBUSCH
indeed, state autonomy may be enhanced since it can balance competing
` popular' and ` bourgeois' interests. However, the regime' s increasing dependence
on private investment for foreign exchange, exports and job creation
requires it to respond to investor demands. This, and better access, allows the
bourgeoisie to exploit intra-regime cleavages by allying with the more liberal
factions in the power elite or making their case directly to the president. A major
recent victory was the bourgeoisie' s ability to reverse the original of? cial
intention of limiting the privileges of investment Law No 10 to external
investors.21
Obstacles to liberalisation: the politics of exchange rate and prices. Statist
obstacles to liberalisation can be seen in policy making on foreign currency and
the exchange rate. As foreign currency became scarce in the 1980s, the
government reserved its own holdings for the public sector and sought to control
a share of that in private hands. Yet it also needed to encourage exporters to earn
foreign currency for serving private sector needs. At ? rst, the state insisted all
foreign currency be sold to state banks; but as it became ever scarcer, the private
sector lost access to it. This stimulated the foreign currency black market and in
the mid-1980s Law 24 criminalised private foreign exchange transactions,
chilling the business climate. As this proved counterproductive, the regime
stepped back and, in the late 1980s, allowed businessmen to keep 75% of the
foreign currency they earned, provided they sold the rest to the state at near
free-market rates. Thereafter, the value of the pound for most private sector
transactions was pegged at the ` neighbouring country' near free-market rate.
However, the only legal way for private business to get foreign exchange
remains exporting or tourism and, as such, many businesses can only get it on
the black market.
Despite the government' s encouragement of private business, Law 24 remains
on the books, although it is not enforced. It is widely seen as a major deterrent
to investment and businessmen want a total freeing of currency transactions. But
the government fears this could drive down the value of the pound, lead to big
price increases and a loss of control over the economy. Some believe the law is
an opportunity for security barons to extort pay-offs from business. The regime' s
desire to maintain control of foreign exchange has also deterred it from allowing
private or even joint venture banks from opening; but since state banks cannot
adequately service investors, the banking transactions of local businessmen may
be diverted to Lebanon.22
Another major constraint on liberalisation is the populist ` social contract' , by
which government legitimacy depends on providing a minimum level of welfare,
notably affordable food.23 In 1991, as part of currency liberalisation, the Ministry
of Economy required customs on imported goods to be levied at the new LS42
to the dollar rate rather than the old LS11.2 to the dollar of? cial rate. The
government supposedly needed the increased customs revenue in order to raise
salaries of public employees. Importers insisted custom duties had to be reduced
or the price of imports would soar and in fact they withheld goods or raised
prices, `wiping out' the effect of public employee pay increases. Discontent
swept the salaried classes, who viewed the regime and merchants in a cynical
260
ECONOMIC LIBERALISATION IN SYRIA
collaboration at their expense. Despite its effort to raise business con? dence, the
regime reverted to populist rhetoric, blaming ` exploiting merchants' and dispatching
Ministry of Supply price control squads against shops in poor income
neighbourhoods. Asad himself ordered the customs re-evaluation rescinded. The
Ministers of Economy, Finance and Supply held a press conference apologising
for their `mistake' and appealing to shopkeepers not to raise prices. The
ministers thought they were empowered to rationalise the economy but they
were made scapegoats for the political backlash of such policies. In 1993 the rate
of exchange for customs was increased to LS23 to the dollar, a compromise
which is a step back from a rational uni? cation of multiple exchange rates.
Despite this episode, the Ministry of Supply, which a few years ago strictly
enforced price controls, is being curbed. The Ministry used to put the fear of
social repercussions from price rises over economically rational decisions which
led to evasion by merchants, discouraged production, or, in the case of the public
sector, resulted in losses; it also continued to ? x prices for imported commodities
at the of? cial exchange rate long after it became unrealistically low. Now,
however, it must set prices according to the market rate. For example, prices of
medicines, which used to be ? xed on the basis of the of? cial exchange rate for
imported requisites, are now calculated on the basis of free-market rates, raising
them perhaps four-fold.
The populist policy of cheap bread for the urban poor and subsidised fertiliser
and support prices for the regime' s peasant constituency nevertheless remains
highly resistant to liberalisation. The state is committed to purchasing grain
at favourable support prices but to selling bread below these prices; to the
extent this has been ? nanced by domestic borrowing, it is in? ationary and
self-defeating as an income support measure. However, the head of the state
wheat trading and processing company, Huboob, rules out privatisation of the
grain trade or elimination of subsidies: ` control of grain procurement and the
production of cheap bread is the foundation of the state and no politician would
jettison this social responsibility' .24 Although bread prices have been raised,
subsidised bread is still widely available. Membership in GATT could, however,
require cutting farm support prices for the regime' s rural constituency. Political
populism and capitalist development are, in the long run, pulling policy in
opposite directions.
Outcome: revitalisation of a capitalist road to development?
Private investment has responded favourably to economic liberalisation, at least
as measured by the proliferation of private sector imports and exports, of new
small and medium businesses and of investment licences, and by the in? ow of
capital and increase in bank deposits. By 1994, $1.78 billion had been invested
in 474 ? rms under Investment Law No 10. For the ? rst time since the 1960s
nationalisations, private investment has exceeded the state investment budget.
The private sector, which had only accounted for about 35% of gross ? xed
capital formation from 1970?85, climbed to 52% of the total in 1989 and 66%
in 1992. In part because of this, the stagnation of the 1980s gave way to yearly
261
RAYMOND A HINNEBUSCH
GNP growth rates exceeding 8% from 1990?93 and continuing at a somewhat
lower rate into the mid-decade.25
There is, however, reason to be sceptical of the ability of private investment
to move much beyond tertiary or small consumer industrial enterprises. The
agricultural investment companies which were supposed to be the cutting edge
of a new state?business partnership have either failed to raise much capital or are
simply covers for speculative ventures. Similarly, Law No 10 gave birth to a
multitude of bogus car rental agencies as covers for importing private cars. Most
private sector industrial growth has taken the form of a proliferation of small
enterprises to avoid? among other things? unionisation under a labour law that
gives workers in bigger ? rms extensive rights. Money is still exported instead of
accumulated internally because interest rates are too low and a stock market
lacking. All this deters the natural expansion of small industries into larger scale
? rms and channels capital into commerce where risks are lower and pro? ts
quicker. Nor is it clear whether private industry is internationally competitive:
private manufacturing exports have plummeted since the 1992 suspension of
export agreements with the former Soviet Union. Austerity has given way to an
import boom which is again driving up the balance of payments de? cit.26
It may be economic as well as political wisdom for the regime to proceed
cautiously with liberalisation for it is questionable? given the greater opportunities
and lesser risks outside Syria? how far private capital is prepared to make
big investments in long-term productive commodity-producing sectors. Nevertheless,
as safety values such as external aid and oil revenues reach their limits,
economic health will require that private investment pick up the slack. Arguably,
the investor con? dence this requires will remain limited as long as the state is
seen as arbitrary and unprepared to foster internationally accepted conditions of
capital accumulation. As such, more political liberalisation, putting greater
power over policy in the hands of the bourgeoisie, may be essential to the
success of economic liberalisation.
Conclusions
Syria' s economic liberalisation is rooted in an economic crisis, speci? cally a
` crisis of accumulation' aggravated by the ` overdevelopment' of the state. State
autonomy of the dominant classes was purchased in part through legitimacy
deriving from redistributive and nationalist policies which diverted resources
into consumption and the military, while patrimonial strategies subverted public
sector accumulation. The economic logic of accumulation was subordinated to
the political logic of state formation. This strategy eventually exhausted itself
and forced the regime to tolerate reconstruction of a capitalist class to replace the
state as the main engine of accumulation and to initiate economic liberalisation.
The easing of economic pressures in periods when rent has been plentiful, such
as the early 1990s, has facilitated a strategy of selective liberalisation, but in the
long run the demands of economic rationality are likely to intensify.
Nevertheless neither economics nor class interests have dictated a mechanical
transformation of economic policy any more than patrimonialism has wholly
obstructed such change. In a relatively autonomous regime like Asad' s, elites
262
ECONOMIC LIBERALISATION IN SYRIA
have some scope to decide the balance of liberalisation and statism. They have
incrementally liberalised as they perceived economic opportunities (to mobilise
hidden local or expatriate capital) or as economic pressures (eg foreign exchange
crises) narrowed their choices. They have not, however, decided exclusively
according to an economic logic. Nor does class interest dictate thorough
economic rationalisation for, while the elites' embourgeoisement was paralleled
by increased receptivity to liberalisation, their ability to extract rent through state
controls dilutes their interest in it.
The dominant consideration, in fact, has been regime political interests. These
require a middle way: while long-term durability requires fuller integration into
the world market, short-term stability requires that this be carefully managed,
and defending regime autonomy means preventing any one social force? bourgeoisie
or bureaucracy? from achieving dominance. Behind this defense of
autonomy and reinforcing the incrementalism of liberalisation is, arguably, the
long time-period it takes to overcome communal barriers to the amalgamation of
the old and new bourgeoisies needed to give the regime a stable dominant-class
social base.
Where political/security needs and economic rationality con? ict, the former
are put ? rst, but when there is debate over their compatibility, the extent, pace
and design of liberalisation is shaped by ` bureaucratic politics' . Liberalising
` technos' such as Imadi have championed economic rationality against statist
` politicos' wishing to subordinate it to the patronage interests of regime constituencies
and to restrain inegalitarian consequences of the market likely to fuel
mass discontent. Liberalisers were strengthened in intra-elite politics by the
economic crisis, and by the partial reconstruction and political incorporation of
a bourgeoisie able to offer an alternative to statism; politicos are strengthened in
periods of economic growth and expanded state revenues.
In conclusion, the Syrian case suggests that the state retains more autonomy,
even in a situation of economic crisis, than economic analyses often suggest.
Moreover, there is greater compatibility between state autonomy and economic
rationality than the neo-patrimonial view admits. The assumption that either
capital accumulation or power maximisation must dominate policy is not borne
out, because social forces with an interest in each logic have political access,
while balancing these competing logics is, for the regime, a higher rationality
than the pursuit of one to the total neglect of the other. The balance of political
forces will shape each country' s speci? c? by no means wholly liberal? adaptation
to the global market.
Notes
1 A sophisticated analysis which links economic crisis and policy changes is Huda Hawwa, ` Linkages and
constraints of the Syrian economy' , in Youssef Choueiri, State and Society in Syria and Lebanon, Exeter:
University of Exeter Press, 1993, pp 84?102. An excellent variant of the political approach is Jean Leca,
`Social structure and political stability: comparative evidence from the Algerian, Syrian, and Iraqi cases' , in
Adeed Dawisha & I William Zartman, (eds), Beyond Coercion: The Durability of the Arab State. London:
Croom Helm, 1988, pp 164?202.
263
RAYMOND A HINNEBUSCH
2 See Stephen Heydemann, `The political logic of economic rationality: selective stabilization in Syria' , in
H J Barkey (ed), The Politics of Economic Reform in the Middle East, New York: St Martin' s Press, 1992,
pp 11?37.
3 See the analysis of the state in Raymond A Hinnebusch, Authoritarian Power and State Formation in
Ba` thist Syria: Army, Party and Peasant, Boulder CO: Westview Press, 1990, pp 120?155. For a
complementary analysis of the regime, see Yahya Sadowski, Cadres, Guns and Money: The Eighth Regional
Congress of the Syrian Ba' th, MERIP Reports 134, July?August 1995.
4 Thus, GDP grew at an annual rate of 8.2% in 1970?75 and 6.8% in 1977?80. However, savings covered only
about one half of the investment fuelling this growth; the balance was ? nanced by external aid or borrowing
or de? cit ? nancing. This imbalance was re? ected in public ? nance. For example, in 1976 domestic resources
? nanced only about 62% of public expenditures on government and development, while de? cit ? nancing
(22.5%), external borrowing (8.9%) and Arab transfers (6.6%) covered the balance. Clawson estimates Syria
received $20 billion in civilian aid between 1977 and 1988. These data have been collated from World Bank,
Syrian Arab Republic Development Prospects and Policies, Washington DC, 1980, Vol 2, p 18, Vol 4,
p 48; and Patrick Clawson, Unaffordable Ambitions: Syria' s Military Buildup and Economic Crisis,
Washington, DC: The Washington Institute for Near East Policy, 1989, pp, 14?17, appendixes 4 and 5.
5 At the end of 1986 the mere $144 million in the treasury was enough for only two weeks of imports. GDP
yearly growth dropped to 1.5% from 1980 to 1986 and from 1983 to 1987 was at a negative 2.9% yearly.
Debt as a percentage of GNP rose from 10.8% in 1980 to 25% in 1988. Data on the economic crisis were
compiled from the following sources: World Bank, Syrian Arab Republic, Vol 1; ix; World Bank, World
Development Report 1990, pp 224?25; Clawson, Unaffordable Ambitions, ch 7?8, Table l; Syrian Arab
Republic Central Bureau of Statistics, Statistical Abstract, 1989, pp 490?491, 1991, pp 424, 485; The Middle
East, December 1988, p 27, January 1990, p 24. For data on Syria' s austerity programme, see Heydemann,
`The political logic of economic rationality' , pp 17, 25?31. For a comprehensive analysis of the economic
crisis, see Volker Perthes, ` The Syrian economy in the 1980s' , Middle East Journal, Vol 46, No 1, 1992,
pp 37?58.
6 Volker Perthes, ` The Syrian private industrial and commercial sectors and the state' , International Journal
of Middle East Studies, Vol 24, No 2, 1992, pp 207?230.
7 Patrick Seale, Asad: The Struggle for the Middle East, Berkeley: University of California Press, 1988, p 457.
For other analyses of the relation between state and class see Eberhard Kienle, Entre jama' a et classe: Le
pouvoir politique en Syrie, Ethnizita? t und Gesellschaft, Occasional Papers, Nr 31, Berlin: Verlag Das
Arabische Buch, 1992, and Syed Aziz al-Ahsan, ` Economic policy and class structure in Syria, 1958?80' ,
International Journal of Middle East Studies, 16, 1984. For an interpretation of the class base of the regime
which emphasises the increasing weight of the bourgeoisie in the regime coalition in the 1980s, see Fred
Lawson, `From neo-Ba' th to Ba' th nouveau: Ha? z al-Asad' s second decade' , Journal of South Asian and
Middle East Studies, Vol xiv, No 2, 1990, pp 1?21.
8 Nabil Sukkar, `The crisis of 1986 and Syria' s plan for reform' , in Eberhard Kienle (ed), Contemporary
Syria: Liberalization Between Cold War and Cold Peace, London: Academic Press, 1994, pp 26?43.
9 Austerity measures in the late 1980s produced a current account surplus of $1.222 million in 1988. Growth
rates of 7?8% GNP per year in 1990?93 were fuelled in part by an increase in oil revenues from $500 million
in 1988 to $2.15 billion in 1992 and by a resumption of aid? some $2 billion was promised? by Saudi
Arabia and the Gulf states as a reward for joining the Gulf coalition against Iraq. Economic Intelligence
Unit, Syria: Country Report, 2nd quarter, 1994.
10 The use of economic liberalisation to serve political autonomy is emphasised in Neil Quilliam, ` Syria:
adjusting to the new world order' ,Working Paper, University of Durham Centre for Middle East and Islamic
Studies, 1994; and Isabelle Daneels, ` Syrian foreign policy: between rational actor and regime legitimacy' ,
MA dissertation, University of Durham Centre for Middle East and Islamic Studies, 1994.
11 Discussions, Nabil Sukkar, Damascus, 1994.
12 Dr Mohammed al-Imady, Syria' s Experience in Trade Liberalization and Policies of Economic Reform,
Damascus: The Ministry of Economy and Foreign Trade, 1994, p 3.
13 Economist Intelligence Unit, Syria: Country Report, 1st quarter, 1994, pp 27?28.
14 Imadi, Syria' s Experience in Trade Liberalization, p 14.
15 Interviews, Dr Imadi, Damascus, January 1992, July 1994; also, Dr Muhammed al-Imadi, dawr al-qita`
al-kass wa al-mushtarak ? amaliya al-tanmiya (The roles of the private and joint sectors in the process of
development), Damascus: Ministry of Economy and Foreign Trade, 1986.
16 Tishrin, 4?5 December, 1989.
17 Interview, Ala ad-Din Abdin, Damascus party secretary, January 1992.
18 Interview, Sabah Baqjahji, Minister of State for Planning, January 1992.
19 Unpublished con? dential interviews with public sector managers, 1990.
20. Imadi, Syria' s Experience in Trade Liberalization, p 18.
21 Sylvia Polling, ` Investment Law #10: which future for the private sector?' , in Kienle, Contemporary Syria,
p 20.
264
Contemporary South Asia
EDITORS
Gowher Rizvi, New York, USA
Robert Cassen, Queen Elizabeth House, Oxford, UK
There is a growing realizat ion that South Asia has to be both treated and studied as a
region. Contemporary South Asia does just that. The purpose of the journal is to
cultivat e an awareness that South Asia is more than a sum of its parts: a fact of great
importanc e not only to the states and peoples of the region, but to the world as a
whole. It also address es the major issues facing South Asia from a regiona l and
inte rdiscipl inary perspe ctive.
Contemporary South Asia focuse s on issues concerning the region that are not
circumscribed by the nationa l borders of the states. While nationa l perspe ctives are
not ignored , the journal' s overrid ing purpose is to encour age schola rs within South
Asia and in the global community to search for means (both theoretic al and practica l)
by which our unders tandin g of the presen t problems of cooper ation and
confro ntation in the region can be enhanc ed.
Volume 6, 1997, 3 issues . ISSN 095 8-493 5.
Carfax Publishing Company
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ECONOMIC LIBERALISATION IN SYRIA
22 Ibid., p 22.
23 The Middle East, September 1991, pp 20?22.
24 Unpublished con? dential interviews with public sector managers, 1990.
25 Economic Intelligence Unit, Syria: Country Report, 2nd quarter, 1994, p 3; Syrian Arab Republic Central
Bureau of Statistics, Statistical Abstract, 1993, p 503; Polling, ` Investment Law #10' , p 14; Eberhard Kienle,
`The return of politics? Scenarios for Syria' s second In? tah' , in Kienle, Contemporary Syria, pp 120?128;
unpublished economic analyses, US Embassy, Damascus, 1994; Belgian Embassy, Damascus, 1994; and
United Nations, World Economic and Social Survey 1996, New York, 1996.
26 The current account surplus of $1762 million in 1990 had become a de? cit of about $360 million in 1993
and was projected to double in 1994. Economic Intelligence Unit, Syria: Country Report, 2nd quarter, 1994,
pp 3, 6.
265
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