Failure of Economic Reform in Syria

After the 2005 Baath Party congress, Syria attempted a full transition to a market economy, but this economic reform failed in at least 10 ways, writes Lamia Assi.

al-monitor Plunging public revenues are a sign of the fiscal pressures Damascus is facing in the wake of the 20-month uprising. Nov. 2012.  Photo by REUTERS/Muzaffar Salman.

Topics covered

syrian, syria, socialism, market economy, economy, economic reform, economic, baath party, baath

Dec 28, 2012

The crisis that has been rocking Syria since March 2011 came six years after the 10th National Conference of the Arab Socialist Baath Party, held in Qatar. This conference agreed on a transition to a social market economy in a bid to achieve a level of development that could not be achieved during the five previous years. The step was seen by some as a coup staged by the ruling party against its slogans, and a green light for private investment in sectors — include banking, insurance and electricity — which had been limited to the government since 1963.

One of the most important aspects of a social market economy is confirming the role of the state as a regulator of the sectors, while reducing its custodial role, developing and encouraging private initiatives and raising productivity. What are the main reasons behind the failure of economic reform in Syria?

First, the lack of consensus. There has been no social consensus regarding reform. This debate excluded parties, social forces — such as the trade unions, NGOs and other civil society organizations, including chambers of commerce, industry and agriculture, the parliament, economists and others. In most states that have gone through similar transitions, a national council for reform was established. However, the Syrian government did not accept such a proposal and the government remained the sole decision-maker and executor.

Second, the absence of vision. There has been an absence of vision, of strategies identifying the most important competitive advantages for the economy, of ways to create added values, and to set priorities for the reform stages. All of this has come alongside a lack of timetables for development plans. There were no programs aimed at raising social and media awareness of the changing factors. Managers of public institutions were not trained to be able to work in this new environment.

Third, there is deep-rooted corruption. The alliances made between a few businessmen and state officials, along with the control of some influential figures over particular sectors, have led to the distortion of the new openness and liberalization. This affected income distribution and domestic demand. Moreover, unequal economic opportunities may have affected the investment climate to a great extent. Despite awareness of the existence of corruption, this phenomenon was not fought at the highest levels.

Fourth, there has been a lack of institutional structural development. No institutions with a different legal status or different strategies were formed to support or supervise the reform process with dynamism that would enable them to plan, oversee implementation, measure performance, monitor deviations, support the quality of governmental decisions, simplify procedures through institutional restructuring and adopt ICT systems to gather information and statistics.

Fifth, the weakness of human resources. One of the most important weaknesses faced during the Syrian reform process has been related to human resources in governmental institutions. In fact, these resources were not given the necessary importance and were not sufficiently funded. As a result, the only ones asked to take part in implementing the transition to a social market economy were those with socialist backgrounds.

Sixth, administrative reform. State institutions have been characterized by bureaucracy, a slow decision-making process and complex responsibilities in the absence of an efficient evaluation and follow-up system. Perhaps the most important thing that should have been done was restructuring the government through the development of new mechanisms that enhanced the delivery of public services, and government spending. Performance control mechanisms and institutions should also have been developed.

Seventh, the shadow economy. Institutions operating in the shadow economy are estimated to compose more than 40% of total economic activity. These work without permits and do not abide by the tax system or regulations for quality and price control. A lot of countries have adopted policies and procedures to incorporate them into the regular economy by hosting and rehabilitating them, while exempting them from financial burden in the first stages of this integration. In Syria, however, no integration policies were implemented. And as a result of trade liberalization, these institutions closed their doors, leaving scores of workers unemployed.

Eighth, support for small and medium enterprises (SMEs). No programs for the support and development of SMEs was developed, knowing that these account for more than 95% of Syrian enterprises. These SMEs face many problems, such as getting necessary licenses and funding. Add to this that there are no institutions to support creativity, innovation and marketing, although supporting such projects reduces unemployment and increases domestic demand, which in turn promotes growth.

Ninth, restructuring of the public sector. The main problem that has faced the public sector is that the government does not have sufficient resources to restructure public companies. Moreover, it cannot privatize them, much less dare to talk about privatization, as there is no clear consensus between the government, trade unions and the national leadership about this thorny issue. This has led to public companies incurring more losses, leading to further losses at the state level.

Tenth, the selective application of social market economy components. These components include a political dimension related to the respect of rights and liberties, the rule of law and popular participation, either through the decentralization of rule or the enhancement of the participation of civil society in development. However, the state clung to supreme councils, ministerial committees and centralization, and failed to empower local authorities and enable them to manage development in their regions and define their own budgets independently.

Eleventh, integration into the global economy. It took Syria too long to be integrated into the global economy, mainly due to a lack of competitiveness. This, in turn, is due to the low level of technological innovation and creativity, as well as to the lack of attention to quality standards. Syria failed to adopt international standards and maintained low productivity.

There are other important reasons for this economic failure. Chief among these is the absence of a strong and independent judiciary and the rule of law. Unemployment and inflation indices kept increasing, and since these two indices lead to misery, Syrians have lived in misery. The rest is history.

Continue reading this article by registering at no cost and get unlimited access to:
  • Al-Monitor Archives
  • The Week in Review
  • Exclusive Events
  • Invitation-only Briefings

More from   Lamia Assi